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to date , we have not been required to provide an allowance for any delinquent cw-bahamas accounts receivable as such amounts were eventually paid in full . based upon our experience , we believe that the present accounts receivable from the wsc are fully collectible and therefore have not provided any allowance for possible non-payment of these receivables . such accounts receivable balances due from the bahamas government amounted to $ 18.4 million as of december 31 , 2019 , as compared to $ 17.6 million as of december 31 , 2018. see further discussion of this matter at item 7. management 's discussion and analysis of financial condition and results of operations - liquidity and capital resources - cw bahamas liquidity . critical accounting estimates the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period . our actual results could differ significantly from such estimates and assumptions . certain of our accounting estimates or assumptions constitute โ critical accounting estimates โ for us because : ยท the nature of these estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change ; and ยท the impact of the estimates and assumptions on financial condition and results of operations is material . our critical accounting estimates relate to the valuations of our ( i ) goodwill and intangible assets ; and ( ii ) long-lived assets . goodwill and intangible assets goodwill represents the excess cost over the fair value of the assets of an acquired business . goodwill and intangible assets acquired in a business combination accounted for as a purchase and determined to have an indefinite useful life are not amortized but are tested for impairment at least annually . intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment . we evaluate the possible impairment of goodwill annually as part of our reporting process for the fourth quarter of each fiscal year . management identifies our reporting units , which consist of our retail , bulk , services and manufacturing operations , and determines the carrying value of each reporting unit by assigning the assets and liabilities , including the existing goodwill and intangible assets , to those reporting units . we determine the fair value of each reporting unit and compare these fair values to the carrying amounts of the reporting units . to the extent the carrying amount of the reporting unit exceeds the fair value of the reporting unit , an impairment loss is recorded . for the years ended december 31 , 2019 and 2018 , we estimated the fair value of our reporting units by applying the discounted cash flow method , the guideline public company method , and the mergers and acquisitions method . the discounted cash flow method relied upon seven-year discrete projections of operating results , working capital and capital expenditures , along with a terminal value subsequent to the discrete period . these seven-year projections were based upon historical and anticipated future results , general economic and market conditions , and considered the impact of planned business and operational strategies . the discount rates for the calculations represented the estimated cost of capital for market participants at the time of each analysis . we also estimated the fair value of each of our reporting units for the years ended december 31 , 2019 and 2018 through reference to the guideline companies and the market multiples implied by guideline merger and acquisition transactions . we weighted the fair values estimated for each of our reporting units under each method and summed such weighted fair values to estimate the overall fair value for each reporting unit . the respective weightings we applied to each method as of december 31 , 2019 were consistent with those used as of december 31 , 2018 and were as follows : 27 replace_table_token_4_th the fair values we estimated for our retail and bulk reporting units exceeded their carrying amounts by 74 % and 58 % , respectively , as of december 31 , 2019. the assets and liabilities for our services reporting unit ( with the exception of our investments in land and rights of way for our mexico project ) consist almost entirely of those for perc , which was acquired at fair value on october 24 , 2019 , and therefore we estimate the fair value of our services reporting unit closely approximates its carrying value at december 31 , 2019. our manufacturing reporting unit consists entirely of aerex and the remaining 49 % ownership interest of aerex was purchased on january 24 , 2020 for $ 8,500,000. we considered this purchase , the manufacturing reporting unit 's results of operations for the year ended december 31 , 2019 , the manufacturing reporting unit 's projected results of operations for the year ended december 31 , 2020 , and the amount by which the estimated fair value of the manufacturing reporting unit exceeded its carrying amount as of december 31 , 2018 to determine that it is more likely than not that the fair value of our manufacturing reporting unit exceeded its carrying amount at december 31 , 2019. the fair values we estimated for our retail , bulk and manufacturing units exceeded their carrying amounts by 79 % , 62 % and 53 % , respectively , as of december 31 , 2018. in february 2016 , we acquired a 51 % ownership interest in aerex . story_separator_special_tag in connection with this acquisition , we recorded goodwill of $ 8,035,211. aerex 's actual results of operations for the six months in 2016 following the acquisition fell significantly short of the projected results that were included in the cash flow projections we utilized to determine the purchase price for aerex and the fair values of its assets and liabilities . due to this shortfall in aerex 's results of operations , we tested aerex 's goodwill for possible impairment as of september 30 , 2016 by estimating its fair value using the discounted cash flow method . as a result of this impairment testing , we determined that the carrying value of our aerex goodwill exceeded its fair value and recorded an impairment loss of $ 1,750,000 for the three months ended september 30 , 2016 to reduce the carrying value of this goodwill to $ 6,285,211. as part of our annual impairment testing of goodwill performed during the fourth quarter , in 2017 we updated our projections for aerex 's future cash flows , determined that the carrying value of our aerex goodwill exceeded its fair value , and recorded an impairment loss of $ 1,400,000 for the three months ended december 31 , 2017 to further reduce the carrying value of this goodwill to $ 4,885,211. we may be required to record additional impairment losses to reduce the carrying value of our aerex goodwill in future periods if we determine it likely that aerex 's results of operations will fall short of our most recent projections of its future cash flows . in february 2019 , we sold cw-belize . as a result of this sale , cw-belize has been accounted for as discontinued operations in our consolidated financial statements , and bulk segment goodwill of approximately $ 380,000 as of december 31 , 2018 associated with cw-belize was reclassified to long-term assets of discontinued operations in our consolidated statements of financial condition . long-lived assets we review the carrying amounts of our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable . conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset , a significant change in the extent or manner in which an asset is used , or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable . for long-lived assets to be held and used , we recognize an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measure the impairment loss based on the difference between the carrying amount and fair value . through our former subsidiary , cw-bali , we built and operated a seawater reverse osmosis plant with a productive capacity of approximately 264,000 gallons per day located in nusa dua , one of the primary tourist areas of bali , indonesia . we recorded operating losses for cw-bali as the sales volumes for its plant were insufficient to cover its operating costs . in 2017 and 2016 we determined , based upon probability-weighted scenarios for cw-bali 's future undiscounted cash flows , that the carrying values of cw-bali 's long-lived assets and our investment in cw-bali were not recoverable . consequently , we recorded impairment losses of $ 1.6 million and $ 2.0 million , in 2017 and 2016 , respectively , to reduce the carrying values of these assets to their fair values . results of operations the following discussion and analysis of our results of operations should be read in conjunction with our audited consolidated financial statements and accompanying notes included under part ii , item 8. financial statements and supplementary data , of this annual report . 28 year ended december 31 , 2019 compared to year ended december 31 , 2018 story_separator_special_tag water works plant , which commenced in july 2019 and expires in 2026. gross profit for the bulk segment was $ 8,379,303 ( 31 % of bulk revenue ) and $ 9,479,904 ( 31 % of bulk revenue ) for 2019 and 2018 , respectively . gross profit in dollars decreased in 2019 as compared to 2018 due to ( i ) an increase in depreciation expense recorded by cw-bahamas for its windsor plant of approximately $ 566,000 that results from the refurbishment of this plant completed in late 2018 ; and ( ii ) lower margins earned by oc-cayman on its new contracts ( as compared to its previous contracts ) with the wac . bulk segment g & a expenses remained relatively consistent at $ 1,238,296 for 2019 as compared to $ 1,301,042 for 2018. services segment : the services segment incurred losses from operations of ( $ 2,195,966 ) and ( $ 2,622,545 ) for 2019 and 2018 , respectively . services segment revenue was $ 1,759,446 for 2019 and $ 1,811,372 for 2018. services revenue for 2019 included $ 1,376,793 in revenue from perc as a result of our acquisition of 51 % of this company in late october 2019. service revenue for 2018 included approximately $ 710,000 in revenue generated in under a refurbishment project for oc-bvi 's plant and approximately $ 518,000 , for pipeline installations made on grand cayman for a real estate developer . we also experienced a slight decline in 2019 in the fees we received under our management agreement with oc-bvi . the gross profit for the services segment was $ 544,253 and $ 308,338 , for 2019 and 2018 , respectively . the improvement in gross profit for 2019 reflects the addition of perc to our services segment .
| gross profit for 2019 was $ 28,274,348 ( 41 % of total revenue ) as compared to $ 26,742,287 ( 41 % of total revenue ) for 2018. for further discussion of revenue and gross profit see the โ results by segment โ discussion and analysis that follows . g & a expenses on a consolidated basis increased to $ 19,348,958 for 2019 as compared to $ 18,709,419 for 2018 as a result of incremental expenses of approximately ( i ) $ 935,000 for employee costs arising from pay increases , higher bonuses arising from increased profitability and new hires ; ( ii ) $ 123,000 for directors ' fees and expenses ; and ( iii ) $ 551,000 for business development . these expense increases were partially offset by a decrease of approximately $ 611,000 in amortization expenses for the intangible assets recorded in connection with our acquisition of aerex . in june 2019 , we completed the sales of our cw-bali assets and its stock for $ 365,000 and $ 25,000 , respectively . such sales constitute most of the $ 445,041 gain on asset dispositions for 2019. other income , net , decreased to $ 801,091 in 2019 , as compared to $ 2,740,064 in 2018. this decrease is primarily attributable to the income generated from our investment in the profit-sharing plan of oc-bvi and our equity in the earnings of oc-bvi , which in the aggregate was almost $ 2.4 million higher in 2018 than in 2019. the decline in 2019 in this component of our other income reflects a litigation settlement payment of almost $ 4.3 million received by oc-bvi from the bvi government in september 2018. results by segment retail segment : the retail segment contributed $ 1,820,077 to our income from operations for 2019 as compared to $ 2,567,683 for 2018. revenue generated by our retail water operations grew to $ 26,456,022 in 2019 from $ 25,621,048 in 2018. this growth in revenue reflects a 1 % increase in the volume of water sold
| 15,380 |
revenue in january 2010 , we received the $ 200.0 million upfront payment under our mdd agreement with astrazeneca , which we recorded as deferred revenue and began recognizing into revenue on a straight-line basis over the estimated period of our substantive performance obligations under the agreement . in the first quarter of 2012 , we and astrazeneca announced that , based on the totality of the results of the phase 3 program , a regulatory submission ` for tc-5214 as an adjunct therapy for mdd would not be pursued and the ยswitchย monotherapy trial was discontinued . these events resulted in a change in the estimated period of our substantive performance obligations under our mdd agreement with astrazeneca . accordingly , we revised the revenue recognition period for the upfront payment and began recognizing the portion of the upfront payment not yet recognized into revenue on a straight-line basis over the remainder of the revised period . we had recognized the full amount of the upfront payment into revenue as of june 30 , 2012. pursuant to a september 2010 amendment to our ongoing collaboration agreement with astrazeneca related to a clinical trial of tc-1734 in mild to moderate alzheimer 's disease , we received a $ 500,000 payment in the fourth quarter of 2010 and cumulative payments of $ 5.5 million in the second half of 2011. we recorded all of these payments as deferred revenue and began recognizing them into revenue on a straight-line basis over the estimated period of our obligations with respect to the study . as a result of astrazeneca 's exercise of its right to terminate tc-1734 from the collaboration in march 2013 , we recognized the remaining unrecognized deferred amount of $ 3.5 million into revenue during the first quarter of 2013. as of december 31 , 2013 , we had received $ 61.6 million in aggregate upfront fees and milestone payments under our ongoing collaboration agreement with astrazeneca and recognized an additional $ 26.5 million in collaboration research and development revenue for research services that we provided in the preclinical research collaboration conducted under that agreement . we immediately recognized an aggregate of $ 32.6 million of the amounts received under the agreement for achievement of milestone events , because each event met the conditions required for immediate recognition under our revenue recognition policy . we deferred recognition of an aggregate of $ 29.0 million received under the agreement and have fully recognized these deferred amounts into revenue over the respective periods discussed in note 12 to our audited financial statements included in this annual report . 57 we received $ 45.0 million in aggregate payments under our now terminated product development and commercialization agreement and a related stock purchase agreement with glaxosmithkline . we immediately recognized an aggregate of $ 4.0 million of the amounts received under the product development and commercialization agreement for achievement of milestone events , because each event met the conditions required for immediate recognition under our revenue recognition policy . we deferred recognition of $ 29.5 million received under the two agreements and were recognizing it into revenue over the period discussed in note 12 to our audited financial statements included in this annual report . as a result of our receipt in february 2011 of notice of termination of the agreement , we recognized the remaining unrecognized deferred amount , $ 18.4 million , into revenue for the first quarter of 2011. we recorded $ 11.5 million of the amounts received under the stock purchase agreement , which reflected the fair value of shares of our common stock sold to glaxosmithkline in 2007 , as capital in excess of par value . from time to time we seek and are awarded grants or perform work under grants awarded to third-party collaborators from which we derive revenue . during the third quarter of 2011 , we were awarded a third grant from the michael j. fox foundation for parkinson 's research , or mjff . based on the terms of the grant , we received $ 250,000 upon inception of the grant term and an additional $ 250,000 in march 2012. in addition , we are a subcontractor under a grant awarded to the california institute of technology by the national institute on drug abuse , or nida , part of the national institutes of health , to fund research on innovative nnr-based approaches to the development of therapies for smoking cessation . based on the terms of this arrangement , we received $ 191,000 in may 2012. funding for awards under federal grant programs is subject to the availability of funds as determined annually in the federal appropriations process . research and development expenses since our inception , we have focused our activities on drug discovery and development programs . we record research and development expenses as they are incurred . research and development expenses represented approximately 76 % , 74 % and 89 % of our total operating expenses for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . for 2012 , reduction in force charges of $ 3.7 million , which are not included in research and development expenses , represented 6 % of our total operating expenses . there were no reduction in force charges for 2013 or 2011. research and development expenses include costs associated with : clinical trials , including fees paid to contract research organizations to monitor and oversee some of our trials ; the employment of personnel involved in clinical development , drug discovery , and research activities ; research and development facilities , equipment and supplies ; the screening , identification and optimization of product candidates ; formulation and chemical development ; production of clinical trial materials , including fees paid to contract manufacturers ; nonclinical animal studies , including the costs to engage third-party research organizations ; quality assurance activities ; compliance with fda regulatory requirements ; consulting , license and sponsored research fees paid to third parties ; the development and enhancement of our drug story_separator_special_tag discovery technologies that we refer to as pentad ; depreciation of capital assets used to develop our products ; and stock options granted to personnel in research and development functions . 58 we utilize our research and development personnel and infrastructure resources across several programs , and many of our costs historically have not been specifically attributable to a single program . accordingly , we can not state precisely our total costs incurred on a program-by-program basis . we have not received fda or foreign regulatory marketing approval for any of our product candidates . our current and future expenditures on development programs are subject to numerous uncertainties in timing and cost to completion . our compounds are tested in numerous preclinical studies for safety , toxicology and efficacy . we then conduct clinical trials for those product candidates that are determined to be the most promising . if we do not establish an alliance or collaboration in which our collaborator assumes responsibility for funding the development of a particular product candidate , we fund these trials ourselves . as we obtain results from clinical trials , we or the collaborator may elect to discontinue or delay trials for some product candidates in order to focus resources on more promising product candidates . completion of clinical trials may take several years or more , and the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product candidate . the cost of clinical trials for a particular product candidate may vary significantly as a result of a variety of factors , including : the number of subjects who participate in the trials ; the number and locations of sites included in the trials ; the length of time required to enroll trial subjects ; the therapeutic areas being investigated ; the duration of the trials and subject follow-up ; the costs of producing supplies of the product candidate needed for trials and regulatory submissions ; the efficacy and safety profile of the product candidate ; and the costs and timing of , and the ability to secure , regulatory approvals . in addition , our strategy includes entering into alliances and collaborations with third parties to participate in the development and commercialization of some of our product candidates . where a third party has responsibility for or authority over any or all of the non-clinical or clinical development of a particular product candidate , the estimated completion date may be largely under control of that third party and not under our control . we can not forecast with any degree of certainty whether any of our product candidates will be subject to future alliances or collaborations or how any such arrangement would affect our development plans or capital requirements . because of this uncertainty , and because of the numerous uncertainties related to clinical trials and drug development generally , we are unable to determine the duration and completion costs of our development programs or whether or when we will generate revenue from the commercialization and sale of any of our product candidates . general and administrative expenses general and administrative expenses consist principally of salaries and other related costs for personnel in executive , finance , business development , legal , information technology and human resource functions . other general and administrative expenses include expenses associated with stock options granted to personnel in those functions , depreciation and other facility costs not otherwise included in research and development expenses , patent-related costs , insurance costs and professional fees for consulting , legal , accounting and public and investor relations services . income taxes we have incurred cumulative net operating losses through december 31 , 2013 and have not paid federal , state or foreign income taxes for any period since our inception . the application of u.s. generally accepted accounting principles , or gaap , may for some periods result in non-cash income tax expense or benefit being 59 reflected in our statement of comprehensive income ( loss ) . for the year ended december 31 , 2012 , we recognized $ 101,000 of income tax benefit as a result of the application of accounting guidance for intraperiod tax allocation , under which we are required to consider all items ( including items recorded in other comprehensive income ) in determining the amount of tax benefit that should be allocated to net loss . the non-cash income tax benefit for 2012 was offset in full by income tax expense recorded in other comprehensive income . for the tax year ended december 31 , 2011 , we did not recognize any income tax expense or benefit . as of december 31 , 2013 , we had net operating loss carryforwards of $ 233.2 million for federal income tax purposes and $ 219.8 million for state income tax purposes , and we had research and development income tax credit carryforwards of $ 12.8 million for federal income tax purposes and $ 587,000 for state income tax purposes as of december 31 , 2013. the federal net operating loss carryforwards begin to expire in 2024. the state net operating loss carryforwards begin to expire in 2019. the federal and state research and development tax credits begin to expire in 2021. as a result of various factors , including the subjectivity of measurements used in the calculation of particular tax positions taken or that may in the future be taken in our tax returns , it is uncertain whether or to what extent we will be eligible to use the tax credits . utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to ownership change limitations provided by section 382 of the internal revenue code of 1986 , as amended , and similar state provisions .
| research and development expenses year ended december 31 , 2013 2012 change ( in thousands ) research and development expenses $ 38,840 $ 49,087 $ ( 10,247 ) research and development expenses for the year ended december 31 , 2013 decreased by $ 10.2 million as compared to the year ended december 31 , 2012. the lower research and development expenses for 2013 were principally attributable to decreases of : $ 14.9 million in other research and development-related operating costs , including infrastructure costs and stock-based compensation and other compensation-related expenses for research and development personnel , to $ 10.7 million for 2013 , from $ 25.6 million for 2012 ; this decrease resulted primarily from the workforce reductions completed in the second and fourth quarters of 2012 discussed above ; 63 $ 2.2 million in costs incurred for the phase 3 development program for tc-5214 as a treatment for mdd which completed in 2012 ; and $ 1.7 million in costs incurred for third-party research and development services in connection with nonclinical programs . these decreases were partially offset by an increase of $ 8.6 million in costs incurred for third-party services associated with our clinical-stage product candidates ( excluding costs for the completed program in mdd discussed above ) to $ 28.1 million for 2013 , from $ 19.5 million for 2012. this increase was principally due to costs related to the initiation and conduct of our phase 2b study of tc-5214 in overactive bladder . the costs that we incurred for the years ended december 31 , 2013 and 2012 for third-party services in connection with research and development of clinical-stage product candidates are shown in the table below : replace_table_token_7_th based on our current clinical program related commitments , we expect our research and development expenses for the year ending december 31 , 2014 to decrease as compared to 2013 , principally as a result of our completion in december 2013 of a phase 2b clinical trial of tc-5619 as a treatment for schizophrenia . general and administrative expenses year ended december 31 , 2013 2012 change ( in thousands ) general and administrative expenses $ 12,005 $ 13,193 $ ( 1,188 ) general and administrative expenses
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on december 27 , 2017 , softbank group corp. ( โ softbank โ ) acquired fortress ( the โ softbank merger โ ) and fortress operates within softbank as an independent business headquartered in new york . capital activities in july 2018 , we entered into a distribution agreement to sell shares of our common stock , par value $ 0.01 per share ( the โ atm shares โ ) , having an aggregate offering price of up to $ 500.0 million , from time to time , through an โ at-the-market โ equity offering program ( the โ atm program โ ) . on august 1 , 2019 , the distribution agreement was amended to , among other things , ( i ) add additional sales agents under the atm program , and ( ii ) restore the aggregate offering price under the atm program to the original amount of $ 500.0 million . during the year ended december 31 , 2020 , we sold 77.6 thousand shares through our atm program at a weighted average price of $ 17.02. in august 2019 , we announced a share repurchase program authorizing the repurchase of up to $ 200.0 million of our common shares from time to time in the open market or in privately negotiated transactions through december 31 , 2020. repurchases may impact our financial results , including fees paid to our manager . for the year ended december 31 , 2020 , we repurchased 1.0 million shares at a weighted average price of $ 7.44. in february 2020 , we raised approximately $ 402.5 million of gross proceeds in an underwritten public offering of 6.375 % series c fixed-to-floating rate cumulative redeemable preferred stock ( โ preferred series c โ ) . the net proceeds were for investments and general corporate purposes . in may 2020 , we entered into a three-year senior secured term loan facility agreement in principal amount of $ 600.0 million with a fixed annual rate of 11.00 % . in september 2020 , we priced $ 550 million of 6.250 % senior unsecured notes due 2025. the net proceeds from the offering were used , together with cash on hand , to prepay and retire the existing three-year senior secured term loan facility and to pay related fees and expenses . in november 2020 , we announced a preferred share repurchase program authorizing the repurchase of up to $ 100.0 million of our preferred shares , which includes our 7.500 % series a fixed-to-floating rate cumulative redeemable preferred stock , 7.125 % series b fixed-to-floating rate cumulative redeemable preferred stock and 6.375 % series c fixed-to-floating rate cumulative redeemable preferred stock ( collectively โ preferred shares โ ) , from time to time in the open market or in privately negotiated transactions through december 31 , 2021. as of december 31 , 2020 , no preferred shares had been repurchased . on february 8 , 2021 , our board of directors authorized the repurchase of up to $ 200.0 million of its common stock through december 31 , 2021. repurchases may be made from time to time through open market purchases or privately negotiated transactions , pursuant to one or more plans established pursuant to rule 10b5-1 under the securities exchange act of 1934 or by means of one or more tender offers , in each case , as permitted by securities laws and other legal requirements . the share repurchase program may be suspended or discontinued at any time . as of december 31 , 2020 , no shares had been repurchased . 74 during the year ended december 31 , 2020 , we declared an aggregate common stock dividend of $ 0.50 per common share , and declared aggregate preferred dividends of $ 1.875 per share of preferred series a , $ 1.781 per share of preferred series b , and $ 1.598 per share of preferred series c , respectively . market considerations beginning in the first quarter of 2020 , the emergence of the outbreak of the covid-19 pandemic significantly impacted economies across the global . the world health organization subsequently designated covid-19 as a pandemic , and numerous countries , including the united states , declared national emergencies with respect to covid-19 . throughout 2020 , the global impact of covid-19 rapidly evolved , and many countries reacted by instituting quarantines and restrictions on travel , closing financial markets and or restricting trading and limiting operations of non-essential offices and retail centers . such actions created disruption in global supply chains , increasing rates of unemployment and adversely impacting many industries . as the covid-19 pandemic unfolded in the u.s. in mid-march 2020 , financial and mortgage-related asset markets experienced significant volatility . during march and april of 2020 , the significant dislocation in the financial markets caused , among other things , credit spread widening , a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and mortgage-backed securities markets . these conditions put significant pressure on the mortgage industry , including as related to financing operations , pricing mortgage assets and meeting liquidity needs . in response to the market conditions created by the covid-19 pandemic , the federal reserve took a number of proactive measures during 2020 , including cutting its target benchmark interest rate to 0 % -0.25 % , instituting a quantitative easing program , including the purchase of an unconstrained amount of agency rmbs , and establishing a commercial paper funding facility and term and overnight repurchase agreement financing facilities . these measures ultimately bolstered liquidity and promoted price stability and reduced volatility in the u.s. housing finance system . as of the end of 2020 , the fed had purchases of $ 1.5 trillion agency mbs during the year . as noted above , the federal reserve measures were intended to address the volatility in the agency rmbs market . story_separator_special_tag without similar support from the federal reserve , in comparison , the non-agency market continued to experience unprecedented volatility and liquidity issues particularly with respect to financing of these assets with repurchase agreement financing facilities . as non-agency assets were sold in rapid fashion , the value of these assets dropped precipitously , resulting in lenders initiating margin calls on companies that financed these assets with repurchase agreements . a margin call requires the borrower to transfer additional cash or securities to the lender to get back to the contractual ltv of the trade . during this period of volatility , new residential , like a number of others in the industry , experienced this phenomenon beginning in mid-march . we also during this period , observed a mark-down of a portion of our non-agency mortgage assets by the counterparties to our financing arrangements , resulting in our having to pay cash or securities to satisfy higher than historical levels of margin calls . in light of these events , we took a number of immediate and on-going actions to reduce our risk , increase our liquidity and stabilize financing sources , both as a means of strengthening our balance sheet and positioning our company to take advantage of opportunities when market conditions stabilize . this included the sale of approximately $ 6.1 billion face value of non-agency residential mortgage-backed securities in april 2020 , and raising $ 600.0 million through entry into a private senior secured loan agreement . as a result of the unprecedented illiquidity in repurchase agreement financing , we procured and continue to procure financing , such as securitizations and term financings , that provides less or no exposure to fluctuations in the daily collateral repricing determinations . we achieved this by securing longer-dated financing arrangements , moving more of our financing into the capital markets and negotiating margin holidays with regards to certain assets . while the cost of funds for such financings may be greater relative to repurchase agreement funding , we believe , given on-going market conditions , financing with more limited mark-to-market provisions allows us to better manage our liquidity risk and reduce exposures to events like those caused by the covid-19 pandemic . we will continue in the near term to explore additional financing arrangements to further strengthen our balance sheet and position ourselves for future investment opportunities , including , without limitation , additional issuances of our equity and debt securities and longer-termed financing arrangements ; however , there can be no assurance that we will be able to access any such financing or to successfully negotiate the size , timing or terms thereof . we continue to hold an increased amount of unrestricted cash due to the uncertainty surrounding the reopening of the economy and the continued spread of covid-19 . the events created by the covid-19 outbreak , such as elevated unemployment levels and changes in consumer behavior related to loans , as well as government policies and pronouncements , impacted borrowers ' ability to meet their obligations or seek to forbear payment on their mortgage loans . on march 27 , 2020 , the u.s. government enacted the cares act , an approximately $ 2 trillion emergency economic stimulus package in response to the covid-19 pandemic . the cares act , among other things , provided any homeowner with a federally-backed mortgage who is experiencing financial hardship the option of up to six months of forbearance on their mortgage payments , with a potential to extend that forbearance for another 75 six months . during the forbearance period , no additional fees , penalties or interest could accrue on the homeowner 's account . the cares act also established a 60-day moratorium on foreclosures . in the aftermath of the cares act , requests for forbearances increased across the industry , peaking in june 2020 and then generally declining across the remainder of the year as borrowers remained active in their payments , worked through modifications or had their forbearance and covid-19 related hardship end . our servicer worked diligently with our borrowers during this time to help them find solutions to their covid-19 related hardships . as hardships end , our servicing team members continue to work with borrowers and are focused on utilizing proprietary loss mitigation technology to help homeowners move into permanent solutions such as repayment plans , deferments , and loan modifications . as of december 31 , 2020 , 3.4 % of borrowers in our servicing portfolio and 5.5 % of our full msr portfolio are in active forbearance . the covid-19 pandemic also introduced unprecedented challenges for our operating investments , including the health and safety of our employees . to protect our employees , we took immediate action and enacted various precautions to mitigate the related health and safety risks , including moving a significant portion of our staff to work-from-home status , restricting non-essential travel and face-to-face meetings and enhancing sanitization of our facilities . beginning in may 2020 , volatility somewhat subsided and u.s. stocks rallied to a number of new highs across the remainder of the year . concerns around the length and scope of the covid-19 pandemic as well as speculation on the outcome of the u.s. presidential election added volatility into the end of the year . during that time , the federal reserve continued to use all available tools to support markets , assist economic recovery and provide additional accommodation as needed . ultimately the s & p 500 finished 2020 up 16 % year over year and up approximately 78 % from the lows of march . the rebound in stocks was largely driven by increased liquidity attributable to actions taken by the federal reserve to stabilize markets , hopeful sentiment about โ reopening โ of the economy and optimism around plans for a covid-19 vaccine . during the third and fourth quarters of 2020 , the financial markets continued their recovery largely due to continued support from the federal reserve and generally positive economic data .
| the remainder of the decrease was driven by ( i ) a $ 181.3 million decrease from msr related investments and servicing primarily due to msr financing receivables transferring to investments in msrs during the third quarter of 2020 ( the revenue associated with these transferred 101 msrs is reported as servicing revenue , net rather than interest income in our consolidated statements of income ) , portfolio runoff , less reo referral commission due to lower volume , and decrease in ancillary and other fees due to lower interest rates , as well as ( ii ) a $ 115.1 million decrease largely attributable $ 3.0 billion of residential mortgage loan sales in april 2020 in response to covid-19 . servicing revenue , net servicing revenue , net recognized by new residential related to its msrs comprises the following : replace_table_token_22_th ( a ) the following table summarizes the components of servicing revenue , net related to changes in valuation inputs and assumptions : replace_table_token_23_th servicing revenue , net decreased $ 940.2 million for the year ended december 31 , 2020 primarily driven by ( i ) a $ 830.9 million decline in fair value resulting from the realization of cash flows as a result of msr acquisitions subsequent to december 31 , 2019 and historically low mortgage rates which resulted in faster prepayments , ( ii ) a $ 345.0 million increase in negative mark-to-market adjustments , ( iii ) a $ 87.8 million decrease in ancillary and other fees due to lower interest rates , specifically lower interest earned on custodial accounts , partially offset by ( iv ) a $ 324.4 million increase in servicing collections as a result of msr acquisitions that closed subsequent to december 31 , 2019. the negative mark-to-market adjustments of $ 345.0 million for the year ended december 31 , 2020 were primarily driven by changes in interest rates resulting in lower custodial earnings , faster prepayment rates , and higher delinquency rates due to changes in estimates regarding the economic outlook caused by covid-19 . gain on originated mortgage loans , held-for-sale , net gain on originated mortgage loans , held-for-sale , net increased $ 939.0 million for the year ended december 31 , 2020 primarily driven by an increase in loan origination volume and higher gain on sales margins . as noted in the โ our portfolio โ section , during the year ended december 31 , 2020 , loan origination volume at newrez was $ 61.6 billion , up from $ 22.3 billion in the year prior . during the
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for closed pools , if the re-estimation of expected cash flows results in a higher effective yield , an increase in the pool yield is reflected prospectively . 31 allowance for credit losses drivetime maintains an allowance for credit losses on an aggregate basis at a level we consider sufficient to cover probable credit losses inherent in our portfolio of receivables as of each reporting date utilizing a loss emergence period to cover estimated losses . the allowance takes into account historical credit loss experience , including timing , frequency and severity of losses . this estimate of existing probable credit losses inherent in the portfolio is primarily based on static pool analyses by month of origination based on origination principal , credit grade mix and deal structure , including down payment and term . the evaluation of the adequacy of the allowance also considers factors and assumptions regarding the overall portfolio quality , delinquency status , the value of the underlying collateral , current economic conditions that may affect the borrowers ' ability to pay , and the overall effectiveness of collection efforts . the static pool loss curves by grade are adjusted for actual performance to date , and historical seasonality patterns . the forecasted periodic loss rates , which drive the forecast for estimated gross losses ( before recoveries ) are calculated by factoring amortization speed and origination terms . charge-offs have a natural seasonality pattern such that they are typically lower during the first and second quarters of each calendar year because customers tend to have additional money from tax refunds to apply to their loans , compared to the third and fourth quarters when charge-offs tend to increase . recoveries are estimated using historical unit and dollar static pool recovery activity to forecast recoveries for estimated charge-offs at the balance sheet date . the forecasted recovery rates ( on a per unit basis ) are based on the historical unit recovery trend by recovery type and adjusted for the estimated impact of economic and market conditions . the allowance model is sensitive to changes in assumptions such that an increase or decrease in our forecasted net charge-offs would increase or decrease the allowance as a percentage of principal outstanding required to be maintained . the amount of our allowance is sensitive to losses within credit grades , recovery values , deal structure , the loss emergence period and overall credit grade mix of the portfolio . in the event loss assumptions used in the calculation of the allowance for credit losses were to increase , there would be a corresponding increase in the amount of the allowance for credit losses , which would decrease the net carrying value of finance receivables and increase the amount of provision for credit losses , thereby decreasing net income . a 5 % increase in our frequency loss assumption would increase the allowance for credit losses and our provision for credit losses by $ 11.0 million and $ 10.4 million as of december 31 , 2012 and 2011 , respectively . also , a 5 % decrease in our assumed recoveries per loan charged-off , would result in an increase to the allowance for credit losses and provision for credit losses of $ 6.1 million and $ 6.0 million as of december 31 , 2012 and 2011 , respectively . our ability to forecast net charge-offs and track static pool net losses by month of origination are a critical aspect of this analysis . although it is reasonably possible that events or circumstances could occur in the future that are not presently foreseen , which could cause actual credit losses to be materially different from the recorded allowance for credit losses , we believe that we have given appropriate consideration to the relevant factors and have made reasonable assumptions in determining the level of the allowance . our credit and underwriting policies , adherence to such policies , and the execution of collections processes have a significant impact on collection results , as does the economy as a whole . changes to the economy , unemployment , auction prices for repossessed vehicles , and collections and recovery processes could materially affect our reported results . see โ revenue recognition - go financial โ for a description of allowance for credit losses on go finance receivables . recovery receivables recovery receivables consist of estimated recoveries to be received on charged-off receivables , including proceeds from selling repossessed vehicles at auction , along with insurance , bankruptcy and deficiency collections . the recovery amount from selling repossessed vehicles at auction is a forecast of vehicles to be recovered from loans previously charged-off and vehicles currently in our possession . based on our extensive experience and historical database of auction recoveries , we estimate the number of units we will recover and the value that we will receive for these vehicles at auction . our forecast utilizes historical data with respect to recovery rates , values , and time from charge-off to repossession . in order to estimate auction recoveries we utilize historical static pool unit recovery rates , as adjusted for recent market trends , to arrive at the forecasted recovery dollars by static pool month of charge-off . insurance , bankruptcy and deficiency collections are estimated using historical trends adjusted for changes to recovery practices . valuation of inventory inventory consists of used vehicles held-for-sale or currently undergoing reconditioning and is stated at the lower of cost or market value . vehicle inventory cost is determined by specific identification . direct and indirect vehicle reconditioning costs including parts and labor , costs to transport the vehicles to our dealership locations , buyer costs , and other incremental costs are capitalized as a component of inventory cost . determination of the market value of inventory involves assumptions regarding wholesale loss rates derived from historical trends and could be affected by changes in supply and demand at our retail locations and at the auctions . story_separator_special_tag a 1.0 % decrease in the valuation of our inventory at december 31 , 2012 would result in a decrease in net income of approximately $ 2.7 million . 32 secured financings we sell loans originated at our dealerships to our bankruptcy-remote securitization subsidiaries , which , in turn , transfer the loans to separate trusts that issue notes and certificates collateralized by these loans . the notes ( asset-backed securities ) are sold to investors , and we retain the certificates . we continue to service all securitized loans . we have determined that the trusts are variable interest entities and that dtac is the primary beneficiary of those trusts . therefore , loans included in the securitization transactions are recorded as finance receivables and the asset-backed securities that are issued by the trusts are recorded as a component of portfolio term financings in the accompanying consolidated balance sheets . limited warranty a liability for the estimated cost of vehicle repairs under our drivecare ยฎ limited warranty is established at the time a used vehicle is sold by charging costs of used vehicles sold . the liability is evaluated for adequacy through an analysis based on the program 's historical performance of cost incurred per unit sold , management 's estimate of frequency of vehicles to be repaired and severity of claims based on vehicles currently under warranty , the make , mileage , and age of vehicles under warranty , which are based on the program 's historical performance and our expectation of future usage . these assumptions are further affected by mix , mileage , and age of vehicles sold and our ability to recondition vehicles prior to sale . a 5.0 % increase in our warranty frequency assumptions related to warranty usage and a 5.0 % increase in our warranty severity assumptions would result in a $ 0.9 million increase in our warranty accrual at december 31 , 2012 , and a corresponding reduction in net income . factors affecting comparability we have set forth below selected factors that we believe have had , or can be expected to have , a significant effect on the comparability of recent or future results of operations : revenue recognition beginning in the fourth quarter of 2012 we began offering our drivecare ยฎ limited warranty as a separately priced service contract in our dealerships located in tennessee , virginia and ohio . as a result , the revenue and costs of the sale of these service contracts is deferred and recognized over the life of the warranty contract , in relation to the usage and expected duration of the contracts . at december 31 , 2012 , the amount of deferred revenue ( and revenue recognized ) on the consolidated balance sheet and consolidated statement of operations , was immaterial . an increase in the number of locations where we offer the warranty as a separately priced product will have a direct material impact on our gross revenue and gross margin of vehicle sales in future periods compared to historical results . go financial in december 2011 , we launched go financial . go provides indirect subprime auto financing to non-drivetime dealers . this business line was launched during our fourth quarter of 2011 and was not material to our financial results for the fiscal year ended december 31 , 2011. however , at december 31 , 2012 , go financial had $ 41.0 million in dealer finance receivables and $ 42.4 million in total assets , combined with $ 41.7 million of equity on a stand-alone basis . go has generated $ 3.0 million in total revenue during fiscal 2012 , with a pre-tax loss of $ 1.9 million for the year . we expect that go 's originations of dealer financings will continue to grow during 2013 , thereby increasing our total revenue , portfolio size , and operating expenses as go hires personnel , organizes and registers in various states with various regulatory authorities , and incurs other costs of doing business . new business line - carvana in january 2013 , we launched carvana . carvana , llc is a new sales channel that enables the customer to buy a car , from click to delivery , 100 % online over the internet . carvana 's target customer demographic is not specific to credit , and is geared to attract a broader credit spectrum and income classification than that of drivetime and go financial . carvana ( www.carvana.com ) is a 360-degree , integrated used car buying experience that enables consumers to purchase used vehicles online through a highly efficient and transparent process . initially launching in georgia , with plans to expand regionally , then nationally , carvana 's business and operations will fully integrate all steps of the vehicle sales process , including : ( a ) vehicle search , ( b ) vehicle tour and detail , ( c ) credit scoring , ( d ) customer financing , ( e ) econtracting ( f ) verification of customer data ( g ) electronic down payment , and ( h ) vehicle delivery . carvana is not expected to have a significant net impact to our consolidated results for 2013 , though it will incur operating expenses as it hires personnel , obtains state licensing and registers with regulatory agencies and incurs other costs of doing business , thereby increasing our general and administrative expenses . to a certain extent , carvana will utilize drivetime 's existing infrastructure , with customized aspects of each component of the drivetime business process . 33 transaction costs we incurred certain legal , accounting , tax consulting , and other professional service fees in connection with a planned sale of dtag and dtac in 2012 ( see item 7. management 's discussion and analysis of financial condition and results of operations - termination of material definitive agreement for more information ) .
| on november 14 , 2012 , we terminated the definitive agreements entered into on september 11 , 2012 to sell drivetime due to certain unsatisfied conditions to the closings of the transactions contemplated therein . we also terminated and withdrew the offer to purchase and consent solicitation commenced on september 24 , 2012. statement of operationsโline item descriptions revenue sales of used vehicles we derive a significant portion of our revenue from the sale of used vehicles . revenue from sales of used vehicles is derived by the number of vehicles sold multiplied by the sales price per vehicle . sales revenue is reported net of a reserve for 29 returns , and net of deferred service contract revenue , where applicable . factors affecting revenue from sales of used vehicles include the number of used vehicles we sell and the price at which we sell our vehicles . the number of used vehicles we sell depends on the volume of customer applications received and the conversion rate from customer application to sale . application volume is a function of the number of dealerships , advertising , customer referrals , repeat customer volume , other marketing efforts , competition from other used car dealerships , availability of credit from other subprime finance companies , and general economic conditions . the conversion rate from customer application to sale is a function of our underwriting standards , customer sales experience , customer affordability , vehicle inventory , and warranty provided . the price at which we sell our vehicles is dependent on base inventory cost , reconditioning costs , and our pricing strategy . interest income interest income consists of interest earned on finance receivables , net of amortization of loan origination costs , plus late payment fees and interest earned on investments held in trust . we write-off accrued interest on charged-off loans as a reduction to interest income . interest income is affected by ( i ) the principal balance of our loan portfolio , ( ii ) the average apr of our loan portfolio , and ( iii ) the
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consolidated results ( in thousands , except shares ) replace_table_token_3_th ( a ) amount for the year ended december 31 , 2014 includes a gain on change in control of interests of $ 105.9 million recognized in connection with the cpa ยฎ :16 merger ( note 3 ) . ( b ) we consider the performance metrics listed above , including affo , a supplemental measure that is not defined by gaap , referred to as a non-gaap measure , to be important measures in the evaluation of our operating performance . see supplemental financial measures below for our definition of this non-gaap measure and a reconciliation to its most directly comparable gaap measure . ( c ) amount for the year ended december 31 , 2014 includes the dilutive impact of the 4,600,000 shares issued in the equity offering on september 30 , 2014 and the 30,729,878 shares issued to stockholders of cpa ยฎ :16 โ global in connection with the cpa ยฎ :16 merger on january 31 , 2014. w. p. carey 2016 10-k โ 35 revenues and net income attributable to w. p. carey 2016 vs. 2015 โ total revenues increased in 2016 as compared to 2015 , primarily due to higher revenues within our owned real estate segment , partially offset by lower revenues within our investment management segment . the growth in revenues within our owned real estate segment was generated substantially from lease termination income related to a domestic property sold during 2016 ( note 17 ) , as well as from properties acquired in 2015 and 2016. investment management revenue declined primarily as a result of a decrease in structuring revenue due to lower investment volume for the managed programs during 2016 , partially offset by an increase in asset management revenue , primarily as a result of growth in assets under management for the managed programs . net income attributable to w. p. carey increased in 2016 as compared to 2015 , primarily driven by an increase in net income from our owned real estate segment , partially offset by a decrease in net income from our investment management segment . within our owned real estate segment , we had increases in lease revenues and in the distributions of available cash received from the managed reits ( note 4 ) , as well as a decline in interest expense . dispositions of properties from our owned real estate segment generated higher lease termination income and increased gains on sales in 2016 , which were partially offset by increased impairment charges . net income from our investment management segment decreased due to lower structuring revenue in 2016 , partially offset by higher asset management revenue and a lower provision for income taxes . within both segments , we reduced general and administrative expenses in 2016 , primarily as a result of implementing cost savings initiatives , including the rif , for which we recognized one-time restructuring and other compensation expense . 2015 vs. 2014 โ total revenues increased in 2015 as compared to 2014 , primarily due to higher revenues within our owned real estate segment . the growth in revenues within our owned real estate segment was generated substantially from the nine investments we acquired during 2015 ( note 5 ) and the properties we acquired in the cpa ยฎ :16 merger on january 31 , 2014 , which we owned for the full year ended december 31 , 2015 ( note 3 ) . additionally , total revenues within our investment management segment improved as a result of increases in structuring revenue and asset management revenue , due to higher investment volume on behalf of the managed reits in 2015 as compared to 2014 , which increased our assets under management . these increases were partially offset by the impact of a decrease in the average exchange rate of the u.s. dollar in relation to foreign currencies ( primarily the euro ) during 2015 as compared to 2014. net income attributable to w. p. carey decreased in 2015 as compared to 2014 , primarily due to a gain on change in control of interests of $ 105.9 million recognized in connection with the cpa ยฎ :16 merger during 2014 ( note 3 ) , income from properties in discontinued operations recognized during 2014 , and an increase in interest expense described below in results of operations , partially offset by the increase in total revenues during 2015 as compared to 2014 described above , the reversal of liabilities for german real estate transfer taxes recognized in 2015 ( note 7 ) , lease termination income related to a domestic property that was classified as held for sale as of december 31 , 2015 and sold during 2016 ( note 17 ) , and an increase in the distributions of available cash received from the managed reits , which was driven by growth in assets under management ( note 4 ) . net cash provided by operating activities 2016 vs. 2015 โ net cash provided by operating activities increased in 2016 as compared to 2015 , primarily due to the lease termination income received in connection with the sale of a property during 2016 , an increase in operating cash flow generated from properties we acquired during 2015 and 2016 , and higher distributions of available cash received from the managed reits , partially offset by a decrease in structuring revenue received in cash from the managed programs due to lower investment volume during 2016 . 2015 vs. 2014 โ net cash provided by operating activities increased in 2015 as compared to 2014 , primarily due to operating cash flow generated from properties we acquired during 2014 and 2015 and the properties we acquired in the cpa ยฎ :16 merger in january 2014 , as well as increases in structuring revenue and asset management revenue received in cash from the managed reits . story_separator_special_tag affo 2016 vs. 2015 โ affo increased in 2016 as compared to 2015 , primarily due to lower general and administrative expenses , higher asset management revenue , higher distributions of available cash received from the managed reits , and lower interest expense , partially offset by lower structuring revenue due to lower investment volume for the managed programs during 2016. w. p. carey 2016 10-k โ 36 2015 vs. 2014 โ affo increased in 2015 as compared to 2014 , primarily due to income generated from the nine investments that we acquired during 2015 , the full year effect of the cpa ยฎ :16 merger , the increases in structuring revenue and asset management revenue described above , and the increase in distributions of available cash received from the managed reits , partially offset by the impact of the decrease in the average exchange rate of the u.s. dollar in relation to foreign currencies ( primarily the euro ) during 2015 as compared to 2014. owned real estate acquisitions during 2016 , we acquired three sale-leaseback investments totaling $ 530.3 million , inclusive of acquisition-related costs , with an additional commitment of $ 128.1 million of build-to-suit financing ( note 5 ) , as follows : one investment of $ 167.7 million in three private school campuses in coconut creek and windermere , florida and houston , texas , with a commitment to fund $ 128.1 million of build-to-suit financing over the next four years in order to fund expansions of the existing facilities ; one investment of $ 218.2 million in 43 manufacturing facilities in various locations in the united states and six manufacturing facilities in various locations in canada ; in addition , we subsequently acquired a manufacturing facility in san antonio , texas from the tenant for $ 3.8 million ( which we consider to be part of the original investment ) and simultaneously disposed of a manufacturing facility in mascouche , canada , which was acquired as part of the original investment , for the same amount ( note 17 ) ; and one investment of $ 140.7 million for 13 manufacturing facilities and one office facility in various locations in canada , mexico , and the united states . in addition , during 2016 we placed into service a build-to-suit investment at a cost totaling $ 13.8 million . dispositions during 2016 , we sold 30 properties and a parcel of vacant land from our owned real estate portfolio for total proceeds of $ 542.4 million , net of selling costs , and recorded a net gain on sale of real estate of $ 42.6 million , inclusive of amounts attributable to noncontrolling interests of $ 0.9 million . in connection with the sale of one of these properties , we recognized $ 32.2 million of lease termination income during 2016 . we also disposed of three properties with an aggregate carrying value of $ 56.7 million , either through transferring ownership to the mortgage lender or foreclosure , in satisfaction of mortgage loans encumbering the properties totaling $ 89.7 million ( net of $ 2.6 million of cash held in escrow that was retained by the mortgage lender for one of these dispositions ) , resulting in an aggregate net gain of $ 28.6 million ( note 17 ) . financing transactions during 2016 , we entered into the following financing transactions ( note 11 ) : on september 12 , 2016 , we issued $ 350.0 million of 4.25 % senior notes , at a price of 99.682 % of par value , in a registered public offering . these 4.25 % senior notes have a ten-year term and are scheduled to mature on october 1 , 2026 . on july 29 , 2016 , a jointly owned investment with cpa ยฎ :17 โ global , which we consolidate , refinanced a non-recourse mortgage loan that had an outstanding balance of $ 33.8 million with new financing of $ 34.6 million , inclusive of the amount attributable to a noncontrolling interest of $ 17.0 million . the previous loan had an interest rate of 5.9 % and a maturity date of july 31 , 2016 . the new loan has a rate of the euro interbank offered rate , or euribor , plus a 3.3 % margin and a term of five years . during 2016 , we prepaid non-recourse mortgage loans totaling $ 321.7 million , including a mortgage loan of $ 50.8 million encumbering a property that was sold in august 2016 ( note 17 ) . in connection with these payments , we recognized a loss on extinguishment of debt of $ 4.1 million during 2016 , which was included in other income and ( expenses ) in the consolidated financial statements . in addition , we made balloon payments aggregating $ 84.2 million at maturity on non-recourse mortgage loans during 2016 , including a payment of $ 33.8 million in connection with the refinancing described above . w. p. carey 2016 10-k โ 37 composition as of december 31 , 2016 , our owned real estate portfolio consisted of 903 net-lease properties , comprising 87.9 million square feet leased to 217 tenants , and two hotels , which are classified as operating properties . as of that date , the weighted-average lease term of the net-lease portfolio was 9.7 years and the occupancy rate was 99.1 % . investment management during 2016 , we managed cpa ยฎ :17 โ global , cpa ยฎ :18 โ global , cwi 1 , cwi 2 , ccif , and cesh i. as of december 31 , 2016 , these managed programs had total assets under management of approximately $ 12.9 billion . investment transactions during 2016 , we structured new investments totaling $ 1.6 billion on behalf of the managed reits and cesh i , from which we earned $ 47.3 million in structuring revenue .
| during 2016 , we issued 1,249,836 shares of our common stock under the atm program at a weighted-average price of $ 68.52 per share , for net proceeds of $ 84.4 million ( note 14 ) . in addition , we paid $ 0.3 million of professional fees during 2016 related to the atm program . as of december 31 , 2016 , $ 314.4 million remained available for issuance under our atm offering program . w. p. carey 2016 10-k โ 65 senior unsecured credit facility our senior unsecured credit facility is more fully described in note 11 . a summary of our senior unsecured credit facility is provided below ( in thousands ) : replace_table_token_17_th ( a ) outstanding balance excludes unamortized deferred financing costs of less than $ 0.1 million and $ 0.3 million at december 31 , 2016 and 2015 , respectively . our cash resources can be used for working capital needs and other commitments and may be used for future investments . cash requirements during the next 12 months , we expect that our cash requirements will include payments to acquire new investments , funding capital commitments such as build-to-suit projects , paying distributions to our stockholders and to our affiliates that hold noncontrolling interests in entities we control , making scheduled interest payments on the senior unsecured notes , scheduled mortgage loan principal payments , including mortgage balloon payments on our consolidated mortgage loan obligations , and prepayments of our consolidated mortgage loan obligations , as well as other normal recurring operating expenses . in january 2017 , we repaid or extinguished six non-recourse mortgage loans with an aggregate principal balance of approximately $ 305.4 million , including mortgage loans totaling $ 243.8 million , inclusive of amounts attributable to a noncontrolling interest of $ 89.0 million , encumbering the hellweg 2 portfolio ( note 20 ) . we expect to fund future investments , build-to-suit commitments , any capital expenditures on existing properties , scheduled debt maturities on non-recourse mortgage loans , and any loans to certain of the managed programs ( note 4 ) through cash generated from
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at december 31 , 2010 , the allowance for credit losses was $ 196.9 million , representing 2.11 % 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 , the company performed a complete goodwill impairment analysis for all of its reporting segments during the third quarter of 2010. based on this analysis , 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 2010 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 . as 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 $ 270.1 million at december 31 , 2010. 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 ยother-than-temporaryย 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 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 . 25 mortgage servicing rights the company recognizes as assets the rights to service mortgage loans for others , known as mortgage servicing rights ( ยmsrsย ) . 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 ( ยfasbย ) accounting standards codification ( ยascย ) 860 , transfers and servicing ( ยfasb asc 860ย ) . 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 . 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 , 2010 , the company 's mortgage servicing asset was valued at $ 38.6 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 . story_separator_special_tag 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 ย retirement benefits ( ยfasb asc 715ย ) . 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 2010. 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 our actuary using the citigroup pension discount curve . the company developed a level equivalent yield using the expected cash flows from the bancorpsouth , inc. retirement plan ( the ยbasic planย ) , the bancorpsouth , inc. restoration plan ( the ยrestoration planย ) and the bancorpsouth , inc. supplemental executive retirement plan ( the ยsupplemental planย ) and the december 31 , 2010 citigroup pension discount curve . the citigroup pension discount curve is published on the society of actuaries website along with a background paper on the interest rate curve . based on this analysis , the company established its discount rate assumptions for determination of the projected benefit obligation at 5.50 % for the basic plan , 5.15 % for the restoration plan and 4.50 % for the supplemental plan based on a december 31 , 2010 measurement date . 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 26 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 ( ยfteย ) 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 , 2010 : 27 replace_table_token_3_th liabilities and shareholders ' equity deposits : replace_table_token_4_th ( 1 ) includes taxable equivalent adjustment to interest of approximately $ 3,326,000 , $ 3,302,000 and $ 3,293,000 in 2010 , 2009 and 2008 , respectively , using an effective tax rate of 35 % . ( 2 ) non-accrual loans are included in loans and leases ( net of unearned income ) . ( 3 ) includes taxable equivalent adjustments to interest of approximately $ 440,000 in 2010 , 2009 and 2008 using an effective tax rate of 35 % . ( 4 ) includes taxable equivalent adjustments to interest of approximately $ 5,605,000 , $ 4,767,000 and $ 4,368,000 in 2010 , 2009 and 2008 , respectively , using an effective tax rate of 35 % . ( 5 ) includes taxable equivalent adjustment to interest of approximately $ 1,764,000 , $ 1,827,000 and $ 2,265,000 in 2010 , 2009 and 2008 , respectively , using an effective tax rate of 35 % . 28 net interest revenue-fte decreased 0.7 % to $ 452.3 million in 2010 from $ 455.2 million in 2009 , which represented an increase of 0.9 % from $ 451.2 million in 2008. the slight decrease in net interest revenue-fte for 2010 compared to 2009 was a result of continued deposit growth , combined with a decrease in net loans and leases , resulting in an increase in short-term investments that had lower average rates earned than the average rates paid on the deposit growth . overall , the yield on interest earning assets declined 32 basis points to 4.86 % in 2010 from 5.18 % in 2009 , which exceeded the decline of 29 basis points in the average rate paid on interest bearing liabilities to 1.41 % in 2010 from 1.70 % in 2009. the slight increase in net interest revenue-fte for 2009 compared to 2008 was a result of rates paid on interest bearing liabilities declining at a faster rate than rates earned on interest earning assets . the decline in rates paid on interest bearing liabilities was a result of the increase in low cost demand deposits coupled with the decline in other time deposits and short-term borrowing rates .
| net interest revenue for 2010 was $ 441.1 million , compared to $ 444.9 million for 2009 and $ 440.8 million for 2008. 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 demand and time deposits and a decrease in higher rate long-term borrowing , which resulted in a decrease in interest expense of $ 28.9 million or 17.0 % in 2010 compared to 2009. however , the declining interest rate environment combined with the low loan demand resulted in a decrease in interest revenue of $ 32.7 million or 5.3 % , causing net interest revenue to remain stable in 2010 compared to 2009. while loan demand has been weak , the company has managed to replace some loan runoff with new loan production , primarily in its east 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 23 net interest revenue on the overall operating results of the company . noninterest revenue for 2010 was $ 264.1 million , compared to $ 275.3 million for 2009 and $ 245.6 million in 2008. one of the contributors to the decrease in noninterest revenue in 2010 was the decrease in mortgage lending revenue , which decreased to $ 29.7 million in 2010 compared to $ 32.2 million in 2009. the decrease in mortgage lending revenue was primarily a result of larger mortgage originations in 2009 , the majority of which were refinancings in the first half of 2009 resulting from historically low mortgage interest rates . also contributing to the decrease in mortgage lending revenue was the $ 4.0 million decline in the fair value of the bank 's mortgage
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edison international and sce are pursuing legislative , regulatory and legal solutions to the application of a strict liability standard to wildfire-related damages without the ability to recover resulting costs from customers . edison international and sce can not predict whether or when a solution mitigating the significant risk faced by a california investor-owned utility related to wildfires will be achieved . 5 montecito mudslides in january 2018 , torrential rains in santa barbara county produced mudslides and flooding in montecito and surrounding areas ( the `` montecito mudslides '' ) . according to santa barbara county , the montecito mudslides destroyed an estimated 135 structures , damaged an estimated 324 structures , and resulted in at least 21 fatalities , with two additional fatalities presumed . six of the lawsuits mentioned above allege that sce has responsibility for the thomas fire and that the thomas fire proximately caused the montecito mudslides , resulting in the plaintiffs ' claimed damages . sce expects that additional lawsuits related to the montecito mudslides will be filed . as noted above , the cause of the thomas fire has not been determined . in the event that sce is determined to have liability for damages caused by the thomas fire , sce can not predict whether the courts will conclude that the montecito mudslides were caused by the thomas fire or that sce is responsible or liable for damages caused by the montecito mudslides . as a result , edison international and sce are currently unable to reasonably estimate whether sce will incur material losses and , if so , the range of possible losses that could be incurred . if it is determined that the montecito mudslides were caused by the thomas fire and that sce is responsible or liable for damages caused by the montecito mudslides , then sce 's insurance coverage for such losses may be limited to its wildfire insurance . additionally , if sce is determined to be liable for a significant portion of costs associated with the montecito mudslides , sce 's insurance may not be sufficient to cover all such damages and sce may be unable to recover any uninsured losses . if it is ultimately determined that sce is legally responsible for losses caused by the montecito mudslides , sce could be held liable for resulting property losses if inverse condemnation is found applicable . if sce is determined to have been negligent , in addition to property losses , sce could be liable for business interruption losses , evacuation costs , clean-up costs , medical expenses and personal injury/wrongful death claims associated with the montecito mudslides . these liabilities , in the aggregate , could be substantial . sce can not predict whether it will be subjected to regulatory fines related to the montecito mudslides . permanent retirement of san onofre replacement steam generators were installed at san onofre in 2010 and 2011. on january 31 , 2012 , a leak suddenly occurred in one of the heat transfer tubes in san onofre 's unit 3 steam generators . the unit was safely taken off-line and subsequent inspections revealed excessive tube wear . unit 2 was off-line for a planned outage when areas of unexpected tube wear were also discovered . on june 6 , 2013 , sce decided to permanently retire units 2 and 3. san onofre cpuc proceedings in november 2014 , the cpuc approved the prior san onofre settlement agreement , which , at the time , resolved the cpuc 's investigation regarding the steam generator replacement project at san onofre and the related outages and subsequent shutdown of san onofre . subsequently , the san onofre oii proceeding record was reopened by a joint ruling of the assigned commissioner and the assigned alj to consider whether , in light of the company not reporting certain ex parte communications on a timely basis , the prior san onofre settlement agreement remained reasonable , consistent with the law and in the public interest , which is the standard the cpuc applies in reviewing settlements submitted for approval . entry into revised settlement and utility shareholder agreements on january 30 , 2018 , the oii parties entered into a revised san onofre settlement agreement in the san onofre oii proceeding . if approved by the cpuc , the revised san onofre settlement agreement will resolve all issues under consideration in the san onofre oii and will modify the prior san onofre settlement agreement . if approved by the cpuc , the revised san onofre settlement agreement will also result in the dismissal of a federal lawsuit currently pending in the 9th circuit court of appeals challenging the cpuc 's authority to permit rate recovery of san onofre costs . the revised san onofre settlement agreement was the result of multiple mediation sessions in 2017 and january 2018 and was signed on january 30 , 2018 following a settlement conference in the oii , as required under cpuc rules . implementation of the terms of the revised san onofre settlement agreement is subject to the approval of the cpuc , as to which there is no assurance . the oii parties have agreed to exercise their best efforts to obtain cpuc approval , but there can be no certainty of when or what the cpuc will actually decide . on february 6 , 2018 , the san onofre oii assigned commissioner and assigned alj issued a joint ruling advising the parties , among other things , that ( i ) the cpuc will need additional information and that the parties should be prepared to submit joint testimony in support of the revised san onofre settlement agreement on march 26 , 2018 ; ( ii ) there will be 6 public participation hearings and at least oneadditional status conference ; and ( iii ) another ruling will be issued with further direction . story_separator_special_tag disallowances , refunds and recoveries if the revised san onofre settlement agreement is approved by the cpuc , the utilities will cease rate recovery of san onofre costs as of the date their combined remaining san onofre regulatory assets equal $ 775 million ( the `` cessation date '' ) . sce has previously requested the cpuc to authorize sce to reduce the san onofre regulatory asset by applying $ 72 million of proceeds received from litigation with the doe related to doe 's failure to meet its obligation to begin accepting spent nuclear fuel from san onofre . if that request is approved by the cpuc , the cessation date is estimated to be december 19 , 2017. if that request is not approved by the cpuc , the cessation date is estimated to be april 21 , 2018. the utilities will refund to customers san onofre-related amounts recovered in rates after the cessation date . sce will retain amounts collected under the prior san onofre settlement agreement before the cessation date . sce also will retain $ 47 million of proceeds received in 2017 from arbitration with mhi over mhi 's delivery of faulty steam generators . in the revised san onofre settlement agreement , sce retains the right to sell its stock of nuclear fuel and not share such proceeds with customers , as was provided in the prior san onofre settlement agreement . sce intends to sell its nuclear fuel inventory as market conditions warrant . sales of nuclear fuel may be significant and will be accounted for as non-core gains when sales are executed . under the prior san onofre settlement agreement , the utilities agreed to fund $ 25 million for a research , development and demonstration program that is intended to develop technologies and methodologies to reduce greenhouse gas emissions ( `` ghg reduction program '' ) . the utilities ' funding obligation is reduced to $ 12.5 million under the revised san onofre settlement agreement . if approved by the cpuc , the revised san onofre settlement agreement will also provide certain exclusions from the determination of sce 's ratemaking capital structure . notwithstanding that sce will no longer recover its san onofre regulatory asset , the debt borrowed to finance the regulatory asset will continue to be excluded from sce 's ratemaking capital structure . additionally , sce may exclude the after-tax charge resulting from the implementation of the revised san onofre settlement agreement from its ratemaking capital structure . accounting and financial impacts under the prior san onofre settlement agreement , gaap required that previously incurred costs related to san onofre units 2 & 3 be reflected as a regulatory asset to the extent that management concluded the costs were probable of recovery through future rates . gaap also requires that amounts collected that are probable of refund to customers be recorded as regulatory liabilities . in the fourth quarter of 2017 , regulatory assets and liabilities were adjusted based on the probable approval of the revised san onofre settlement agreement . in connection with the revised san onofre settlement agreement , and in exchange for the release of certain san onofre-related claims , the utilities entered into an agreement ( `` utility shareholder agreement '' ) in which sce has agreed to pay sdg & e the amounts sdg & e would have received in rates under the prior san onofre settlement agreement but will not receive upon implementation of the revised san onofre settlement agreement . as of december 19 , 2017 , sdg & e 's regulatory asset was approximately $ 151 million . in the fourth quarter of 2017 , sce recorded an accrued liability of $ 143 million for the estimated present value of this obligation . the following table summarizes the financial impact of the revised san onofre settlement agreement and the utility shareholder agreement : replace_table_token_6_th 7 tax reform on december 22 , 2017 , tax reform was signed into law . this comprehensive reform of tax law reduces the federal corporate income tax rate from 35 % to 21 % and is generally effective beginning january 1 , 2018. certain provisions of tax reform , such as full expensing of certain capital expenditures ( `` bonus depreciation '' ) and limitations on the deductibility of interest expense are not applicable to regulated utilities , such as sce . it is expected that the new interest disallowance provisions applicable to the utility holding company would require allocations of interest expense to operating subsidiaries . as a result , edison international expects that limitations on the deductibility of interest expense will be minimal for edison international parent and other . us gaap requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled . thus , at december 31 , 2017 , the company 's deferred taxes were re-measured based upon the new tax rate . immediately prior to the enactment of tax reform , edison international parent and other had approximately $ 2.6 billion of federal net operating loss carryforwards ( `` nol '' ) ( excluding capistrano wind net operating loss carryforwards of approximately $ 400 million ) . the reduction in the federal corporate income tax rate does not change the gross dollar value of taxable income that may be offset by nols , however since future income will only be taxable at 21 % the value of nols utilized after 2017 is reduced . the re-measurement of these nols along with the other deferred taxes , resulted in a non-core charge of $ 433 million reflected in `` income tax expense '' for edison international parent and other at december 31 , 2017. edison international parent and other also has $ 347 million of tax credit carryforwards ( excluding capistrano wind tax credit carryforwards of approximately $ 112 million ) which directly offset taxes due
| these increases were partially offset by $ 33 million of lower revenue related to the extension of bonus depreciation and a $ 15 million revenue reduction for the expected refund to customers of prior overcollections identified in 2017. energy efficiency incentive awards recognized in 2017 were $ 17 million compared to $ 5 million in 2016. during 2016 , the cpuc approved a settlement agreement in which sce agreed to refund $ 13 million related to incentive awards sce received for savings achieved by its 2006 โ 2008 energy efficiency programs . a decrease in revenue of $ 118 million related to tax benefits refunded to customers ( offset in income taxes below ) . the decrease in revenue resulted from $ 116 million of higher year-over-year incremental tax repair benefits recognized and $ 135 million of benefits recognized for tax accounting method changes . these decreases were partially offset by a 2016 revenue refund to customers of $ 133 million related to 2012 โ 2014 incremental tax repair deductions . a decrease in ferc-related revenue of $ 39 million primarily related to higher operating costs in 2016 including amortization of the regulatory asset associated with the coolwater-lugo transmission project and a $ 8 million reduction to ferc revenue due to a change in estimate under the ferc formula rate mechanism . an increase of $ 20 million for other operating revenue resulting from refunds to customers recorded in 2016 due to the retroactive extension of bonus depreciation in the path act of 2015. lower operation and maintenance expense of $ 37 million primarily due to the impact of sce 's operational and service excellence initiatives and lower legal costs partially offset by higher transmission and distribution costs for line clearing and maintenance and information technology costs . higher depreciation and amortization expense of $ 34 million primarily related to depreciation and amortization on transmission and distribution investments partially offset by amortization of the regulatory asset related to coolwater-lugo plant recorded in 2016. higher property and other taxes of $ 21 million primarily
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there will be no impact on earnings unless and until such time that investment is withdrawn from the trust in accordance with state regulations at an amount that is less than its original basis . the additional related disclosures are provided in notes 5 and 9 to the consolidated financial statements . fair value measurements we define fair value as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date for items that are recognized or disclosed at fair value in the financial statements on a recurring basis ( at least annually ) . we disclose the extent to which fair value is used to measure financial assets and liabilities , the inputs utilized in calculating valuation measurements , and the effect of the measurement of significant unobservable inputs on earnings , or changes in net assets , as of the measurement date . the fair value disclosures to disclose transfers in and out of levels 1 and 2 and the gross presentation of purchases , sales , issuances and settlements in the level 3 reconciliation of the three-tier fair value hierarchy are also presented herein in note 10 to the consolidated financial statements . the company currently does not have any assets that have fair values determined by level 3 inputs and no liabilities measured at fair value . we have not elected to measure any additional financial instruments and certain other items at fair value that are not currently required to be measured at fair value . to determine the fair value of assets and liabilities in an environment where the volume and level of activity for the asset or liability have significantly decreased , the exit price is used as the fair value measurement . for the year ended december 31 , 2011 , we did not incur significant decreases in the volume or level of activity of any asset or liability . the company considers an impairment of debt and equity securities other-than-temporary unless ( a ) the investor has the ability and intent to hold an investment and ( b ) evidence indicating the cost of the investment is recoverable before the company is more likely than not required to sell the investment . if impairment is indicated , then an adjustment will be made to reduce the carrying amount to fair value . as of december 31 , 2011 , no impairment has been identified . in the ordinary course of business , we are typically exposed to a variety of market risks . currently , these are primarily related to changes in fair market values related to outstanding debts and changes in the values of securities associated with the preneed and perpetual care trusts . management is actively involved in monitoring exposure to market risk and developing and utilizing appropriate risk management techniques when appropriate and when available for a reasonable price . the senior notes were issued to the public at par and are carried at a cost of $ 130 million . at december 31 , 2011 , these securities were typically trading at a price of approximately $ 98 , indicating a fair market value of approximately $ 127.4 million . the convertible junior subordinated debentures , payable to carriage services capital trust , pay interest at the fixed rate of 7 % and are carried on our consolidated balance sheet at a cost of approximately $ 89.8 million . the fair value of these securities is estimated to be $ 78.7 million at december 31 , 2011 based on available broker quotes of the corresponding preferred securities issued by the trust . for more information regarding fair value measurements , see part ii , item 8 , financial statements and supplementary data , note 10. computation of earnings per common share basic earnings per share are computed using the weighted average number of common shares outstanding during the period . diluted earnings per share are computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period . dilutive common equivalent shares consist of stock options . share-based awards that contain non-forfeitable rights to dividends or dividend equivalents , whether paid or unpaid , are recognized as participating securities and included in the computation of both basic and diluted earnings per share . our grants of restricted stock awards to our employees and directors are considered participating securities and we have prepared our earnings per share calculations to include outstanding unvested restricted stock awards in both the basic and diluted weighted average shares outstanding calculation . for the three years ended december 31 , 2009 , 2010 and 2011 , the calculations for basic and diluted earnings per share are presented in part ii , item 8 , financial statements and supplementary data , note 20 . 24 subsequent events management of the company evaluated events and transactions during the period beginning subsequent to december 31 , 2011 through the date the financial statements were issued , for potential recognition or disclosure in the accompanying financial statements covered by this report . there were no subsequent events to disclose . for more information regarding subsequent events , see part ii , item 8 , financial statement and supplementary data , note 25. recent accounting pronouncments and accounting changes allowance for credit losses on financing receivables in july 2010 , new guidance was issued which increased the disclosure requirements about the credit quality of financing receivables and the allowance for credit losses . the intent of the disclosure is to provide additional information about the nature of credit risks inherent in our financing receivables , how credit risk is analyzed and assessed when determining the allowance for credit losses , and the reasons for the change in the allowance for credit losses . the disclosures related to period-end information are required for annual reporting periods ending story_separator_special_tag there will be no impact on earnings unless and until such time that investment is withdrawn from the trust in accordance with state regulations at an amount that is less than its original basis . the additional related disclosures are provided in notes 5 and 9 to the consolidated financial statements . fair value measurements we define fair value as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date for items that are recognized or disclosed at fair value in the financial statements on a recurring basis ( at least annually ) . we disclose the extent to which fair value is used to measure financial assets and liabilities , the inputs utilized in calculating valuation measurements , and the effect of the measurement of significant unobservable inputs on earnings , or changes in net assets , as of the measurement date . the fair value disclosures to disclose transfers in and out of levels 1 and 2 and the gross presentation of purchases , sales , issuances and settlements in the level 3 reconciliation of the three-tier fair value hierarchy are also presented herein in note 10 to the consolidated financial statements . the company currently does not have any assets that have fair values determined by level 3 inputs and no liabilities measured at fair value . we have not elected to measure any additional financial instruments and certain other items at fair value that are not currently required to be measured at fair value . to determine the fair value of assets and liabilities in an environment where the volume and level of activity for the asset or liability have significantly decreased , the exit price is used as the fair value measurement . for the year ended december 31 , 2011 , we did not incur significant decreases in the volume or level of activity of any asset or liability . the company considers an impairment of debt and equity securities other-than-temporary unless ( a ) the investor has the ability and intent to hold an investment and ( b ) evidence indicating the cost of the investment is recoverable before the company is more likely than not required to sell the investment . if impairment is indicated , then an adjustment will be made to reduce the carrying amount to fair value . as of december 31 , 2011 , no impairment has been identified . in the ordinary course of business , we are typically exposed to a variety of market risks . currently , these are primarily related to changes in fair market values related to outstanding debts and changes in the values of securities associated with the preneed and perpetual care trusts . management is actively involved in monitoring exposure to market risk and developing and utilizing appropriate risk management techniques when appropriate and when available for a reasonable price . the senior notes were issued to the public at par and are carried at a cost of $ 130 million . at december 31 , 2011 , these securities were typically trading at a price of approximately $ 98 , indicating a fair market value of approximately $ 127.4 million . the convertible junior subordinated debentures , payable to carriage services capital trust , pay interest at the fixed rate of 7 % and are carried on our consolidated balance sheet at a cost of approximately $ 89.8 million . the fair value of these securities is estimated to be $ 78.7 million at december 31 , 2011 based on available broker quotes of the corresponding preferred securities issued by the trust . for more information regarding fair value measurements , see part ii , item 8 , financial statements and supplementary data , note 10. computation of earnings per common share basic earnings per share are computed using the weighted average number of common shares outstanding during the period . diluted earnings per share are computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period . dilutive common equivalent shares consist of stock options . share-based awards that contain non-forfeitable rights to dividends or dividend equivalents , whether paid or unpaid , are recognized as participating securities and included in the computation of both basic and diluted earnings per share . our grants of restricted stock awards to our employees and directors are considered participating securities and we have prepared our earnings per share calculations to include outstanding unvested restricted stock awards in both the basic and diluted weighted average shares outstanding calculation . for the three years ended december 31 , 2009 , 2010 and 2011 , the calculations for basic and diluted earnings per share are presented in part ii , item 8 , financial statements and supplementary data , note 20 . 24 subsequent events management of the company evaluated events and transactions during the period beginning subsequent to december 31 , 2011 through the date the financial statements were issued , for potential recognition or disclosure in the accompanying financial statements covered by this report . there were no subsequent events to disclose . for more information regarding subsequent events , see part ii , item 8 , financial statement and supplementary data , note 25. recent accounting pronouncments and accounting changes allowance for credit losses on financing receivables in july 2010 , new guidance was issued which increased the disclosure requirements about the credit quality of financing receivables and the allowance for credit losses . the intent of the disclosure is to provide additional information about the nature of credit risks inherent in our financing receivables , how credit risk is analyzed and assessed when determining the allowance for credit losses , and the reasons for the change in the allowance for credit losses . the disclosures related to period-end information are required for annual reporting periods ending
| most importantly , the standards operating model allowed us to measure the sustainable revenue growth and earning power of our portfolio of death care businesses , which then led to the development of our strategic acquisition model , described below under ยacquisitions , ย during 2006 , which guides our acquisition and disposition strategy . we expect both models to drive longer term , sustainable increases in market share , revenue , earnings and cash flow . the standards are not designed to produce maximum short-term earnings because we do not believe such performance is sustainable without ultimately stressing the business , which often leads to declining market share , revenues and earnings . important elements of the standards operating model include : balanced operating model ย we believe a decentralized structure works best in the death care industry . successful execution of the standards operating model is highly dependent on strong local leadership , intelligent risk taking , entrepreneurial drive and corporate support aligned with the key drivers . incentives aligned with standards ย empowering managing partners to do the right things in their operations and local communities , and providing appropriate support with operating and financial practices , will enable long-term growth and sustainable profitability . each managing partner participates in a variable bonus plan whereby they earn a percentage of their business ' earnings based upon the actual standards achieved . each managing partner has the opportunity to share in the earnings of the business as long as the performance exceeds our minimum standards . the right local leadership ย successful execution of our operating model is highly dependent on strong local leadership as defined by our 4e leadership model , intelligent risk taking and entrepreneurial empowerment . over time , a managing partner 's performance is judged according to achievement of the standards for that business . funeral and cemetery operations factors affecting our funeral operating results include : demographic trends in terms of population growth and average age , which impact death rates and number of deaths ; establishing and maintaining leading market share positions supported by strong local heritage and relationships ; effectively responding to increasing cremation trends by
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customer activities directed towards natural gas drilling and production have been weak for several years , with the u.s. domestic natural gas rig count during the first quarter of 2016 falling to the lowest level ever recorded . we believe that customer activities directed towards drilling for natural gas have been weak because of the high production of shale-directed natural gas wells , the high amount of natural gas production associated with oil-directed shale wells in the u.s. domestic market , and relatively constant consumption of natural gas in the united states . while natural gas-directed drilling has increased through early in the first quarter of 2017 , we believe that these factors will continue to depress natural gas-directed drilling during the near term . from a low of $ 1.72 per mcf during the second quarter of 2016 , the price of natural gas had risen to $ 3.04 per mcf early in the first quarter of 2017. in spite of this increase , we believe that the price of natural gas remains too low to encourage our customers to conduct exploration and production activities directed exclusively towards natural gas . in 2016 , the company 's strategy of utilizing equipment in unconventional basins has continued . during 2016 , we made capital expenditures totaling $ 33.9 million primarily for the maintenance of our existing revenue-producing equipment . revenues during 2016 totaled $ 729.0 million , a decrease of 42.3 percent compared to 2015 primarily as a result of lower industry activity levels . cost of revenues decreased $ 378.3 million in 2016 compared to the prior year also due to lower activity levels . as a percentage of revenue , cost of revenues also increased due to inefficiencies resulting from lower activity levels coupled with continued low pricing for our services . selling , general and administrative expenses as a percentage of revenues increased to 20.7 percent of revenues in 2016 compared to 12.4 percent of revenues in 2015 due to increases in bad debt expense and professional fees as well as significantly lower revenues . losses before income taxes were $ 239.4 million for 2016 compared to $ 153.0 million in 2015. net loss for 2016 was $ 141.2 million , or $ 0.66 loss per share compared to net loss of $ 99.6 million , or $ 0.47 loss per share in 2015. cash flows from operating activities decreased to $ 101.7 million in 2016 compared to $ 473.8 million in 2015 primarily due to unfavorable changes in working capital coupled with lower earnings . as of december 31 , 2016 , there were no outstanding borrowings under our credit facility . outlook drilling activity in the u.s. domestic oilfields , as measured by the rotary drilling rig count , reached a recent cyclical peak of 1,931 during the third quarter of 2014. between the third quarter of 2014 and the second quarter of 2016 , the drilling rig count fell by approximately 79 percent . during the second quarter of 2016 , the u.s. domestic drilling rig count reached the lowest level ever recorded . the principal catalyst for this steep rig count decline is the decrease in the price of oil in the world markets , which began in the second quarter of 2014. the price of oil began to fall at that time due to the perceived oversupply of oil , weak global demand growth , and the strength of the u.s. dollar on world currency markets . during the second quarter of 2016 , the price of oil and the u.s. domestic rig count began to increase , and increased steadily throughout the remainder of 2016 and into the beginning of the first quarter of 2017. as of the beginning of the first quarter of 2017 , rpc believes that u.s. oilfield activity will continue to increase during the near term , although our long-term visibility remains limited . the current and projected prices of oil , natural gas and natural gas liquids are important catalysts for u.s. domestic drilling activity . during the first two quarters of 2016 , the prices of oil and natural gas remained at low levels that discouraged our customers from undertaking most of their potential exploration and production activities . the prices of oil and natural gas have increased during the third and fourth quarters of 2016 and into the first quarter of 2017 , and we believe that the price of oil has risen to a level that provides adequate financial returns to our customers and encourages increased drilling and production activities in many domestic oil-producing basins . however , the price of natural gas has not risen to a level that encourages our customers to increase their drilling and production activities , and we remain discouraged that u.s. production of natural gas remains high in spite of historically low drilling activities . the average price of natural gas liquids during 2016 increased by approximately six percent compared to 2015 , and early in the first quarter of 2017 the price of natural gas liquids rose to levels not recorded since the fourth quarter of 2014. these commodity price trends , if they continue , have moderately positive implications for our near-term activity levels . as evidence of the impact of recovering commodity prices on our customers ' activity levels , the oil-directed drilling rig count at the beginning of the first quarter of 2017 had increased by approximately 89 percent compared to the lowest oil-directed rig count recorded during the second quarter of 2016 , and the natural gas-directed rig count had increased by approximately 79 percent during the same period . 19 the majority of the u.s. domestic rig count remains directed towards oil . at the beginning of the first quarter of 2017 , approximately 80 percent of the u.s. domestic rig count was directed towards oil , consistent with the prior year . story_separator_special_tag we believe that oil-directed drilling will remain the majority of domestic drilling , and that natural gas-directed drilling will remain a low percentage of u.s. domestic drilling in the near term . we believe that this relationship will continue due to relatively low prices for natural gas , high production from existing natural gas wells , and industry projections of limited increases in domestic natural gas demand during the near term . we continue to monitor the market for our services and the competitive environment in 2017. we believe that the u.s. domestic rig count will continue to recover moderately during the near term . however , we believe that in spite of the large percentage increases in oilfield activity during the past several quarters , the pricing for our services has not yet reached a level that provides financial returns that will allow the industry to maintain its fleet of revenue-producing equipment or hire additional personnel to operate idle equipment . furthermore , our customers during the first quarter of 2017 have thus far been very reluctant to accept increases in pricing for their services in order to compensate us for our increased costs and to allow us to generate higher financial returns . for this reason , we believe that continued near-term expansion in u.s. domestic oilfield activities will be moderate until commodity prices increase significantly . over the long term , we believe that the steep decline in oil-directed drilling in the u.s. domestic market will reduce u.s. domestic oil production and serve as a catalyst for oil prices to increase . this belief is due to the fact that oil-directed wells drilled in shale resource plays typically exhibit high initial production soon after being completed followed by a decline in production in later years . we note that u.s. domestic oil production has declined by approximately 10 percent since its most recent peak in the third quarter of 2014. we are encouraged by the fact that drilling and completion activities continue to be highly service-intensive and require a large amount of equipment and raw materials . furthermore , we note that some wells in the u.s. domestic market have been drilled but not completed . we believe that many of our customers have started to complete these wells , and that they provide potential revenue for rpc 's completion-directed services during the near term . finally , we are encouraged by our belief that many of our competitors have not maintained their equipment to a level that allows them to provide reliable , consistent services to their customers . during 2015 and the first three quarters of 2016 , we responded to the significant declines in industry activity levels and pricing for our services by reducing costs and employee headcount and closed selected operational locations . during the fourth quarter of 2016 and the first quarter of 2017 , however , we have started recruiting and hiring operational personnel to respond to increased industry activity levels . we note in the current competitive environment that many of our smaller competitors have high levels of debt , higher cost structures , and less-developed logistical capabilities than rpc . during 2015 and through the first three quarters of 2016 , a number of smaller competitors ceased operations and sold their businesses or liquidated their assets . during 2016 , several of our peers filed for bankruptcy protection . while these developments place us in a more favorable competitive position , they are offset by the fact that the capital markets have recently provided capital to allow several of our competitors to emerge from bankruptcy and several other private equity-funded companies to complete initial public offerings of their common stock . in the fourth quarter of 2015 we initiated a process whereby we more closely scrutinize the maintenance status of our currently idled revenue-producing assets . through this process , we are attempting to ensure that our idle equipment is prepared to return to service as soon as market conditions encourage us to do so . we believe that this process will allow rpc to return our idle revenue-producing equipment to service quickly and at minimal cost as market conditions improve . in this environment rpc also monitors the financial stability of our customers , due to the fact that many of them have also financed their operations with a large amount of debt , and this type of financing is less available than in previous years , although we also note that many of our customers have recently raised equity to stabilize their capital structures and expand their operations . rpc plans minimal increases in our fleet of revenue-producing equipment during 2017. our consistent response to the industry 's potential uncertainty is to maintain sufficient liquidity and a conservative capital structure and monitor our discretionary spending . we intend to maintain a financial structure which includes little or no debt during the near term . 20 story_separator_special_tag of revenues in 2015 was $ 986.1 million compared to $ 1.5 billion in 2014 , a decrease of $ 506.9 million or 34.0 percent . the decrease in these costs was due to lower costs resulting from lower activity levels , reduced personnel headcount and incentive compensation , and price reductions from suppliers , partially offset by the impact of increasing service intensity . also during 2015 , replacement parts totaling approximately $ 41.9 million were charged to cost of revenues rather than capitalized as a result of a change in accounting estimate . as a percentage of revenues , cost of revenues increased in 2015 compared to 2014 due to competitive pricing for our services and inefficiencies resulting from lower activity levels . selling , general and administrative expenses . selling , general and administrative expenses decreased 20.6 percent to $ 156.6 million in 2015 compared to $ 197.1 million in 2014 . \this decrease was due to lower total employment costs and other cost reduction efforts as well as decreases in expenses which vary with activity and profitability .
| as a percentage of revenues , cost of revenues increased in 2016 compared to 2015 due to inefficiencies resulting from lower activity levels coupled with continued low pricing for our services . selling , general and administrative expenses . selling , general and administrative expenses decreased 3.8 percent to $ 150.7 million in 2016 compared to $ 156.6 million in 2015. these expenses decreased due to lower total employment costs due to headcount reductions , as well as other expense reduction efforts partially offset by an increase in bad debt expense and professional fees . the company recorded a contingent professional fee of $ 2.0 million during the first quarter of 2016 in connection with the resolution of an open income tax matter . as a percentage of revenues , these costs increased during 2016 compared to 2015 due to increases in bad debt expense and professional fees previously noted as well as significantly lower revenues . 21 depreciation and amortization . depreciation and amortization were $ 217.3 million in 2016 , a decrease of $ 53.7 million , compared to $ 271.0 million in 2015 due to lower capital expenditures during the last two years . as a percentage of revenues , depreciation and amortization increased in 2016 compared to 2015 due to significantly lower revenues . gain ( loss ) on disposition of assets , net . gain on disposition of assets , net was $ 7.9 million in 2016 compared to a loss on disposition of assets , net of $ 6.4 million in 2015. rpc recorded a gain on disposition of assets of $ 4.0 million during the fourth quarter of 2016 resulting from the sale of operating equipment related to its oilfield pipe inspection service . the remaining gain ( loss ) on disposition of assets , net is comprised of gains or losses related to various property and equipment dispositions or sales to customers of lost or damaged rental
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we intend for the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements , the changes in certain key items in those financial statements from period to period , and the primary factors that accounted for those changes , as well as how certain accounting principles , policies and estimates affect our consolidated financial statements . covid-19 pandemic impact the global spread of covid-19 has been and continues to be a complex and rapidly-evolving situation , with governments , public institutions and other organizations imposing or recommending , and businesses and individuals implementing , at various times and to varying degrees , restrictions on various activities or other actions to combat its spread , such as restrictions and bans on travel or transportation , limitations on the size of gatherings , closures of or occupancy or other operating limitations on work facilities , schools , public buildings and businesses , cancellation of events , including sporting events , conferences and meetings , and quarantines and lock-downs . the covid-19 pandemic and its consequences have and will continue to impact our business , operations , and financial results . the extent to which the covid-19 pandemic impacts our business , operations , and financial results , including the duration and magnitude of such effects , will depend on numerous evolving factors that we may not be able to accurately predict or assess , including the duration and scope of the covid-19 pandemic ( including the location and extent of resurgences of the virus and the availability of effective treatments or vaccines ) ; the negative impact the covid-19 pandemic has on global and regional economies and economic activity , including the duration and magnitude of its impact on unemployment rates and consumer discretionary spending . because the severity , magnitude and duration of the covid-19 pandemic are uncertain , rapidly changing , and difficult to predict , the pandemic 's impact on our operations and financial performance , as well as its impact on our ability to successfully execute our business strategy and initiatives , remains uncertain . as the covid-19 pandemic has spread to other jurisdictions and has been declared a global pandemic , the full extent of this outbreak and the related governmental , business and travel restrictions in order to contain the covid-19 pandemic are continuing to evolve globally . in response , we have created a covid-19 task force , which includes a cross-functional group of senior-level executives , to manage and respond to the ever changing health and safety requirements across the globe and communicate our response to the pandemic to our global factory and office leaders . local government mandates required us , in the first quarter of 2020 , to keep our china factories closed for a period of approximately two weeks beyond the end of the chinese lunar new year . our mexico factory was closed for more than one week due to local health ordinance requirements during the second quarter of 2020. as a part of our response to this pandemic , our covid-19 task force has developed and we have implemented additional safety measures for all factory employees across the globe , including temperature scans upon entry , hand sanitizer stations located throughout the facilities , mandatory mask wearing , social distancing measures in gathering places and restricting all visitor access . all factories are up to or near labor capacity as of the issuance of this report . 30 we have also taken measures to safeguard the health and well-being of our employees in our office locations throughout the world , including implementing work from home arrangements and a moratorium on all travel , except where essential and approved in advance . we have implemented enhanced safety measures upon the reopening of our office locations , including more frequent office sanitation , temperature scans upon arrival , mandatory mask wearing , additional hand sanitizer locations , social distancing measures throughout locations and restricted visitor access . the reopening of our offices continues to follow suggested guidelines by the centers for disease control and prevention , the world health organization , and local governmental orders and recommendations . the continued safety and welfare of our employees will remain at the forefront of all decision-making . we anticipate that these actions and the global health crisis caused by the covid-19 pandemic will continue to negatively impact business activity across the globe , including our business . we expect our sales demand to be negatively impacted into , at least , the first half of 2021 given the global reach and economic impact of the covid-19 pandemic and the various quarantine and social distancing measures put in place to contain the spread of the covid-19 pandemic . we have also seen some disruptions in our supply chain that , if continued , may cause us difficulty in fulfilling customer orders . a closure of one of our factories for a sustained period of time would , in the short run , impact our ability to meet customer demand and would negatively impact our results . we will continue to actively monitor the situation and may take further actions altering our business operations as necessary or as required by federal , state , or local authorities . the potential effects of any such alterations or modifications may have a material adverse impact on our business during 2021. even after the covid-19 pandemic subsides or effective treatments or vaccines become available , our business , markets , growth prospects and business model could be materially impacted or altered . critical accounting estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states ( `` u.s. gaap '' ) requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . story_separator_special_tag on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , inventory valuation , impairment of long-lived assets , intangible assets and goodwill and income taxes . actual results may differ from these judgments and estimates , and they may be adjusted as more information becomes available . any adjustment may be significant and may have a material impact on our consolidated financial statements . an accounting estimate is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , if different estimates reasonably may have been used , or if changes in the estimate that are reasonably likely to occur may materially impact the financial statements . management believes the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . in addition to the accounting policies mentioned below , see `` item 8. financial statements and supplementary data โ notes to consolidated financial statements โ note 2 '' for other significant accounting policies . revenue recognition revenue is recognized when control of a good or service is transferred to a customer . control is considered to be transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of that good or service . revenues are generated from manufacturing and delivering universal control , sensing and automation products and av accessories , which are sold through multiple channels , and licensing intellectual property that is embedded in these products or licensed to others for use in their products . timing of revenue recognition โ when determining the classification of over time verses point in time revenue recognition , there is significant judgment exercised by management in identifying and evaluating whether new contracts and or products meet the criteria for over time or point in time revenue recognition . significant judgments include the evaluation of legal terms and rights within each jurisdiction that we operate , specifically as it relates to our entitlement to gross margin at termination , and the evaluation of whether it is possible , contractually or economically , to repurpose or redirect products . 31 royalty revenue - we license our intellectual property including our patented technologies and database of control codes . we record license revenue for per-unit based licenses when our customers manufacture or ship a product incorporating our intellectual property and we have a present right to payment . the number of shipped units is estimated based on historical revenue royalty and other known factors . if actual shipped units differs from our estimates we will record a reduction or increase to net sales in the period the actuals are reported by the licensee , typically in the following quarter . sales returns and allowances - a provision is recorded for estimated sales returns and allowances and is deducted from gross sales to arrive at net sales in the period the related revenue is recorded . these estimates are based on historical sales returns and allowances , analysis of credit memo data and other known factors . actual returns and claims in any future period are inherently uncertain and thus may differ from our estimates . if actual or expected future returns and claims are significantly greater or lower than the reserves that we have established , we will record a reduction or increase to net sales in the period in which we make such a determination . sales discounts and rebates - a provision is recorded for estimated sales discounts and rebates and is deducted from gross sales to arrive at net sales in the period the related revenue is recorded . we accrue for discounts and rebates based on historical experience and our expectations regarding future sales to our customers . changes in such accruals may be required if actual discounts and rebates differ from our estimates . inventories our finished good , component part , and raw material inventories are valued at the lower of cost or net realizable value . cost is determined using the first-in , first-out method . we write down our inventory for the estimated difference between cost and estimated net realizable value based upon our best estimates of future demand and market conditions . we carry inventory in amounts necessary to satisfy our customers ' inventory requirements on a timely basis . we continually monitor our inventory status to control inventory levels and write down any excess or obsolete inventories on hand . if actual market conditions become less favorable than those projected by management , additional inventory write-downs may be required , which may have a material impact on our financial statements . such circumstances may include , but are not limited to , the development of new competing technology that impedes the marketability of our products or the occurrence of significant price decreases in our raw material or component parts , such as integrated circuits . each percentage point change in the ratio of excess and obsolete inventory reserve to inventory would impact cost of sales by approximately $ 1.4 million . valuation of long-lived assets and intangible assets we assess long-lived and intangible assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable . factors considered important which may trigger an impairment review , if significant , include the following : underperformance relative to historical or projected future operating results ; changes in the manner of use of the assets ; changes in the strategy of our overall business ; negative industry or economic trends ; a decline in our stock price for a sustained period ; and a variance between our market capitalization relative to net book value . if the carrying value of the asset is larger than its projected undiscounted future cash flows , the asset is impaired .
| sg & a expenses decreased 14.3 % to $ 107.5 million in 2020 from $ 125.5 million in 2019 , primarily due to a reduction in incentive compensation expense , a decrease in contingent consideration recorded in connection with our acquisition of the net assets of ecolink intelligent technology , inc. ( `` ecolink '' ) , a decrease in freight costs and a reduction in travel expenditures . we also reduced certain discretionary expenses as a result of the covid-19 pandemic . interest income ( expense ) , net . net interest expense was $ 1.4 million in 2020 compared to $ 3.9 million in 2019 as a result of a lower average loan balance and a lower interest rate . accrued social insurance adjustment . in 2020 , we reversed approximately $ 9.5 million of accrued social insurance . in june 2018 , we sold our guangzhou entity via a stock deal and the terms of the agreement included a two-year indemnification period . in june 2020 , the indemnification period expired and we determined we were no longer legally liable for any liabilities associated with our guangzhou entity . accordingly , we reversed the accrued social insurance amount associated with the guangzhou entity which was approximately $ 9.5 million other income ( expense ) , net . net other expense was $ 1.4 million in 2020 compared to $ 1.0 million in 2019 , as a result of net foreign currency losses . 34 income tax expense . income tax expense was $ 5.3 million in 2020 compared to $ 6.8 million in 2019. our effective tax rate was 12.1 % in 2020 compared to 65.1 % in 2019. our effective tax rate was lower than normal in 2020 as a result of the application of preferential foreign tax rates as well as foreign income not subject to tax in its respective local jurisdictions , partially offset by the u.s. tax loss not being benefited due to the valuation allowance . liquidity and capital resources sources and uses of cash
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we incurred debt extinguishment costs related to premiums and other transaction costs associated with the tender offer and subsequent redemption of the senior subordinated notes and wrote off deferred financing costs totaling $ 7.3 million and recorded a provision for foreign income taxes of $ 2.1 million resulting from the retirement of the senior subordinated notes that were held by an affiliate . during the third quarter of 2011 , we recorded an asset impairment charge of $ 5.4 million associated with the underperformance of the assets of its rubber products business unit within the assembly components business segment . on march 23 , 2012 , we completed the acquisition of frs , a leading manufacturer of automotive and industrial rubber and thermoplastic hose products and fuel filler and hydraulic fluid assemblies , in an all cash transaction valued at $ 96.0 million , net of cash acquired . frs products include fuel filler , hydraulic , and thermoplastic assemblies and several forms of manufactured hose including bulk and formed fuel , power steering , transmission oil cooling , hydraulic and thermoplastic hose . frs sells to automotive and industrial customers throughout north america , europe and asia . frs has five production facilities located in florida , michigan , ohio , tennessee and the czech republic . frs is included in our assembly components segment . in connection with the acquisition of frs , we amended and restated our existing credit and security agreement , dated november 5 , 2003 , as amended ( the ยcredit agreementย ) , to , among other things , increase the revolving loan commitment from $ 200.0 million to $ 220.0 million and provide a seven-year amortizing term loan for $ 25.0 million that is secured by certain accounts receivable , inventory , real estate and machinery and equipment . we funded the acquisition with cash of $ 40.0 million , the $ 25.0 million term loan provided by the credit agreement and $ 33.8 million of borrowings under the revolving credit facility provided by the credit agreement . during the second quarter of 2012 , we agreed to settle the evraz highveld steel and vanadium ( ยevrazย ) arbitration proceeding for the sum of $ 13.0 million in cash , which payment was made in june 2012. on november 30 , 2012 , we completed the acquisition of etm for $ 1.1 million in cash , promissory notes payable of $ 0.5 million and $ 0.1 million annually in each of the next four years , if etm achieves certain earnings levels . etm is a provider of molded rubber products and has been integrated into our assembly components segment . story_separator_special_tag segment was essentially unchanged from 2010 . 30 selling , general & administrative ( sg & a ) expenses : replace_table_token_14_th consolidated sg & a expenses increased 15 % in 2011 compared to the same period in 2010. sg & a expenses increased $ 13.8 million in 2011 compared to 2010 primarily due to increased sales volume and to increases in payroll and payroll related expenses of $ 8.2 million and to $ 3.4 million of incremental expenses resulting from the acquisitions of acs , rome and pillar . interest expense : replace_table_token_15_th interest expense increased $ 8.4 million in 2011 compared to 2010 , primarily due to debt extinguishment costs of $ 7.3 million related to premiums and other transaction costs associated with the tender and early redemption and write off of deferred financing costs associated with the senior subordinated notes . excluding these costs , interest increased primarily due to an increase in average outstanding borrowings . income tax : replace_table_token_16_th the provision for income taxes was $ ( 5.2 ) million in 2011 compared to $ 2.0 million in 2010. the effective income tax rate was ( 21.5 ) % in 2011 compared to 11.6 % in 2010. we released $ 16.8 million of the valuation allowance attributable to continuing operations in 2011 compared to $ 5.8 million in 2010. as of december 31 , 2011 , we were not in a cumulative three-year loss position and determined that it was more likely than not that our u.s. net deferred tax assets would be realized . as of december 31 , 2010 , we determined that it was not more likely than not that our net u.s. and certain foreign deferred tax assets would be realized . 31 our net operating loss carryforward precluded the payment of most u.s. federal income taxes in both 2011 and 2010. at december 31 , 2011 , we had net operating loss carryforwards for u.s. federal income tax purposes of approximately $ 10.4 million , which will expire between 2024 and 2031. liquidity and sources of capital as of december 31 , 2012 , we had $ 101.9 million outstanding under the revolving credit facility , approximately $ 60.4 million of unused borrowing availability under the revolving credit facility and cash and cash equivalents of $ 44.4 million . our liquidity needs are primarily for working capital and capital expenditures . our primary sources of liquidity have been funds provided by operations and funds available from existing bank credit arrangements and the sale of our long-term debt securities . on april 7 , 2011 , we completed the sale of $ 250.0 million aggregate principal amount of notes . the notes bear an interest rate of 8.125 % per annum and will be payable semi-annually in arrears on april 1 and october 1 of each year commencing october 1 , 2011. the notes mature on april 1 , 2021. in 2003 , we entered into the credit agreement with a group of banks which , as subsequently amended , matures at april 7 , 2016 and , as amended , currently provides for a revolving credit facility with availability of up to $ 220.0 million subject to an asset-based formula and a term loan for $ 25.0 million that is secured by certain accounts receivable , inventory , real estate and machinery and equipment . story_separator_special_tag we have the option to increase the availability under the revolving loan portion of the credit facility by $ 30.0 million . the revolving credit facility is secured by substantially all our accounts receivable and inventory in the united states and canada . borrowings from this revolving credit facility will be used for general corporate purposes . amounts borrowed under the revolving credit facility may be borrowed at either ( i ) libor plus 1.75 % to 2.75 % or ( ii ) the bank 's prime lending rate minus .25 % to 1.00 % , at our election . the libor-based interest rate is dependent on our debt service coverage ratio , as defined in the credit agreement . under the credit agreement , a detailed borrowing base formula provides borrowing availability to us based on percentages of eligible accounts receivable and inventory . interest on the term loan is at either ( i ) libor plus 2.75 % or ( ii ) the bank 's prime lending rate plus .25 % at our election . the term loan is amortized based on a seven-year schedule with the balance due at maturity ( april 7 , 2016 ) . current financial resources ( working capital and available bank borrowing arrangements ) and anticipated funds from operations are expected to be adequate to meet current cash requirements for at least the next twelve months . the future availability of bank borrowings under the revolving loan portion of the credit facility is based on our ability to meet a debt service ratio covenant , which could be materially impacted by negative economic trends . failure to meet the debt service ratio could materially impact the availability and interest rate of future borrowings . we may from time to time seek to refinance , retire or purchase our outstanding debt through cash purchases and or exchanges for equity securities , in open market purchases , privately negotiated transactions or otherwise . we may also repurchase shares of our outstanding common stock . any such actions will depend on prevailing market conditions , our liquidity requirements , contractual restrictions and other factors . the amounts involved may be material . disruptions , uncertainty or volatility in the credit markets may adversely impact the availability of credit already arranged and the availability and cost of credit in the future . these market conditions may limit our ability to replace , in a timely manner , maturing liabilities and access the capital necessary to grow and maintain its business . accordingly , we may be forced to delay raising capital or pay unattractive interest rates , which could increase our interest expense , decrease our profitability and significantly reduce its financial flexibility . 32 we had cash and cash equivalents held by foreign subsidiaries of $ 42.2 million and $ 61.2 million at december 31 , 2012 and 2011 , respectively . for each of our foreign subsidiaries , we make a determination regarding the amount of earnings intended for permanent reinvestment , with the balance , if any , available to be repatriated to the united states . the cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the foreign subsidiaries ' operational activities and or future foreign investments . at december 31 , 2012 , management believed that sufficient liquidity was available in the united states , and it is our current intention to permanently reinvest undistributed earnings of our foreign subsidiaries outside of the united states . we have no intention to repatriate the approximately $ 77.2 million of undistributed earnings of our foreign subsidiaries as of december 31 , 2012. if we were to repatriate these earnings , there would potentially be an adverse tax impact . at december 31 , 2012 , our debt service coverage ratio was 2.3 , and , therefore , we were in compliance with the debt service ratio covenant contained in the credit agreement . we were also in compliance with the other covenants contained in the credit agreement as of december 31 , 2012. the debt service coverage ratio is calculated at the end of each fiscal quarter and is based on the most recently ended four fiscal quarters of consolidated ebitda minus cash taxes paid , minus unfunded capital expenditures , plus cash tax refunds to consolidated debt charges that are consolidated cash interest expense plus scheduled principal payments on indebtedness plus scheduled reductions in our term debt as defined in the credit agreement . the debt service coverage ratio must be greater than 1.0 and not less than 1.1 for any two consecutive fiscal quarters . while we expect to remain in compliance throughout 2013 , declines in sales volumes in 2013 could adversely impact our ability to remain in compliance with certain of these financial covenants . additionally , to the extent our customers are adversely affected by declines in the economy in general , they may not be able to pay their accounts payable to us on a timely basis or at all , which would make the accounts receivable ineligible for purposes of the revolving credit facility and could reduce our borrowing base and our ability to borrow under such facility . we expect to remain in compliance throughout 2013. the ratio of current assets to current liabilities was 2.42 at december 31 , 2012 versus 2.64 at december 31 , 2011. working capital , which we define as current assets less current liabilities , decreased by $ 19.2 million to $ 272.3 million at december 31 , 2012 from $ 291.5 million at december 31 , 2011. accounts receivable increased $ 21.4 million to $ 161.3 million in 2012 from $ 139.9 million in 2011 primarily resulting from the acquisition of frs and its $ 19.8 million of accounts receivable at december 31 , 2012 and the increase in sales volume in 2012. inventory increased by $ 13.6 million in 2012 to $ 215.6 million from $ 202.0 million in 2011 primarily resulting from the acquisition of frs .
| selling , general & administrative ( sg & a ) expenses : replace_table_token_9_th consolidated sg & a expenses increased 11 % in 2012 compared to 2011. however , we generated a 60 basis point decrease in sg & a expenses as a percent of sales . sg & a expenses increased $ 11.6 million in 2012 compared to 2011 primarily due to $ 7.6 million of incremental expense associated with frs , increases in payroll and payroll related expenses of $ 1.9 million , frs acquisition expenses of $ 1.1 million and $ 1.0 million of legal expenses associated with the evraz litigation settlement . 28 interest expense : replace_table_token_10_th interest expense decreased $ 5.8 million in 2012 compared to 2011 , primarily due to higher debt extinguishment costs in 2011 as a result of the refinancing of our senior subordinated notes and the amendment of the credit agreement . average borrowings in 2012 were higher when compared to 2011 due to additional borrowings to fund the acquisition of frs and the evraz litigation settlement . the lower average borrowing rate in 2012 was due primarily to the interest rate mix of our credit facility and notes when compared to the interest rate mix in 2011. income tax : replace_table_token_11_th the provision for income taxes was $ 18.7 million in 2012 compared to a benefit of $ ( 5.2 ) million in 2011. the effective income tax rate was 37.0 % in 2012 compared to ( 21.5 ) % in 2011. as of december 31 , 2011 , we were not in a cumulative three-year loss position and determined that it was more likely than not that our u. s. net deferred tax assets would be realized . as of december 31 , 2011 , we released $ 16.8 million of the valuation allowance attributable to continuing operations in 2011. our net operating loss carryforward precluded the payment of most u.s. federal income taxes in both 2012 and 2011. at december 31 , 2012 , we had fully utilized the net operating loss carryforwards for u.s. federal income tax purposes . 29 2011 versus 2010 net sales by segment : replace_table_token_12_th net sales increased $ 153.1 million to $ 966.6 million in 2011 compared to $
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additionally , for large enterprise businesses around the world , customer service interactions are accelerating toward more pervasive digital engagement across web , mobile and social platforms . in order to acquire and retain customers , enterprises need to be able to provide a customer service experience when and how the customer desires . this is creating a growing market opportunity for our omni-channel enterprise solutions and , with the acquisition of touchcommerce , inc. in fiscal year 2016 , we are able to provide an end-to-end engagement platform that merges intelligent self-service with assisted service to increase customer satisfaction , strengthen customer loyalty , and improve business results . in fiscal year 2017 , revenues and bookings from on-demand solutions continued to increase , as a growing proportion of customers choose our cloud-based solutions for call center , web , and mobile customer care solutions . we are investing to extend our technology capabilities with intelligent self-service and artificial intelligence for customer service , extend the market for our on-demand omni-channel enterprise solutions into international markets , expand our sales and solutions for biometrics , and expand our on-premise product and services portfolio . imaging . the imaging market is evolving to include more networked solutions to multi-function printing ( `` mfp '' ) devices , as well as more mobile access to those networked solutions , and away from packaged software . we are investing to merge the scan and print technology platforms to improve mobile access to our solutions and technologies , expand our distribution channels and embedded relationships , and expand our language coverage for optical character recognition ( `` ocr '' ) in order to drive a more comprehensive and compelling offering to our partners . key metrics in evaluating the financial condition and operating performance of our business , management focuses on revenue , net income , gross margins , operating margins , cash flow from operations , and changes in deferred revenue . a summary of these key financial metrics is as follows : for the fiscal year ended september 30 , 2017 , as compared to the fiscal year ended september 30 , 2016 : total revenue decrease d by $ 9.5 million from $ 1,948.9 million to $ 1,939.4 million ; net loss increase d by $ 138.5 million to $ 151.0 million ; gross margins decrease d by 1.4 percentage points to 56.0 % ; operating margins decrease d by 4.4 percentage points to 2.7 % ; cash provided by operating activities for the fiscal year ended september 30 , 2017 was $ 378.9 million , a decrease of $ 186.9 million from the prior fiscal year . as of september 30 , 2017 , as compared to september 30 , 2016 : total deferred revenue increased by 7.3 % to $ 790.0 million , driven by our hosting solutions , most notably for our automotive connected services in our mobile segment . in addition to the above key financial metrics , we also focus on certain operating metrics . a summary of these key operating metrics as of and for the year ended september 30 , 2017 , as compared to the same period in 2016 , is as follows : net new bookings increased by 10.1 % from the prior fiscal year to $ 1.7 billion . the net new bookings growth benefited from strong bookings performance primarily in our healthcare and enterprise segments , offset by a negative impact of $ 10.2 million as a result of the malware incident . bookings represent the estimated gross revenue value of transactions at the time of contract execution , except for maintenance and support offerings . for fixed price contracts , the bookings value represents the gross total contract value . for contracts where revenue is based on transaction volume , the bookings value represents the contract price multiplied by the estimated future transaction volume during the contract term , whether or not such transaction volumes are guaranteed under a minimum commitment clause . actual results could be different than our initial estimate . the maintenance and support bookings value represents the amounts the customer is invoiced in the period . because of the inherent estimates required to determine bookings and the fact that the actual resultant revenue may differ from our initial bookings estimates , we consider bookings one indicator of potential future revenue and not as an arithmetic measure of backlog . 20 net new bookings represents the estimated revenue value at the time of contract execution from new contractual arrangements or the estimated revenue value incremental to the portion of value that will be renewed under pre-existing arrangements . recurring revenue represented 72.5 % and 69.6 % of total revenue in fiscal years 2017 and 2016 , respectively . recurring revenue represents the sum of recurring product and licensing , hosting , and maintenance and support revenues as well as the portion of professional services revenue delivered under ongoing contracts . recurring product and licensing revenue comprises term-based and ratable licenses as well as revenues from royalty arrangements . the fourth quarter annualized line run-rate in our healthcare on-demand solutions decreased by 39.0 % from the prior fiscal year to approximately 2.9 billion lines per year . the annualized him line run rate is calculated using the actual billed him line count in the current quarter multiplied by four . in fourth quarter of fiscal year 2017 , we had a non-recurring line count loss due to malware incident related service disruption . the non-recurring loss is annualized based on the calculation above , thereby creating an annualized line count that is artificially lower . we expect this metric to normalize in the first quarter of fiscal year 2018. estimated three-year value of total on-demand contracts decreased 5.0 % from the prior fiscal year to approximately $ 2.3 billion , primarily due to the impact of the malware incident , as well as erosion on our him business , offset primarily by growth in our dragon medical cloud and automotive connected car businesses . story_separator_special_tag we determine this value as of the end of the period reported , by using our estimate of three years of anticipated future revenue streams under signed on-demand contracts then in place , whether or not they are guaranteed through a minimum commitment clause . our estimate is based on assumptions used in evaluating the contracts and determining sales compensation , adjusted for changes in estimated launch dates , actual volumes achieved and other factors deemed relevant . for contracts with an expiration date beyond three years , we include only the value expected within three years . for other contracts , we assume renewal consistent with historic renewal rates unless there is a known cancellation . contracts are generally priced by volume of usage and typically have no or low minimum commitments . actual revenue could vary from our estimates due to factors such as cancellations , non-renewals or volume fluctuations . story_separator_special_tag fiscal year 2017 compared with fiscal year 2016 maintenance and support revenue increase d by $ 2.7 million , or 0.9 % , primarily due to an increase in our enterprise segment due to maintenance renewals , offset in part by a decrease in healthcare as a result of the continued transition from product licensing to cloud-based solutions . fiscal year 2016 compared with fiscal year 2015 the increase in maintenance and support revenue was driven primarily by maintenance renewals in our imaging segment and prior year license sales in our healthcare segment , partially offset by a decline in maintenance renewals in our mobile segment . costs and expenses cost of professional services and hosting revenue cost of professional services and hosting revenue primarily consists of compensation for services personnel , outside consultants and overhead , as well as the hardware , infrastructure and communications fees that support our hosting solutions . the following table shows the cost of professional services and hosting revenue , in dollars and as a percentage of professional services and hosting revenue ( dollars in millions ) : replace_table_token_7_th fiscal year 2017 compared with fiscal year 2016 the increase in cost of professional services and hosting revenue was primarily driven by higher employee-related and infrastructure costs due to higher revenues in our enterprise segment . gross margins decrease d by 2.1 percentage points primarily driven by the negative impact of the malware incident , and the continued erosion of our medical transcription services in our healthcare segment , 23 as well as the unfavorable impact of recent acquisitions in our enterprise segment . partially offsetting the margin declines above was the margin improvement in our imaging segment , primarily due to a favorable shift to higher margin professional service offerings . fiscal year 2016 compared with fiscal year 2015 the increase in cost of professional services and hosting revenue was primarily driven by higher professional services compensation expense in our healthcare segment and higher hosting services expenses in our enterprise segment driven by recent acquisitions . these increases were partially offset by a reduction in medical transcription expense and mobile cloud-based services expenses as a result of our cost-savings initiatives including our on-going efforts to move costs and activities to lower-cost countries . gross margins increased 1.7 percentage points primarily driven by margin expansion in our cloud-based services within our mobile segment , partially offset by higher professional services revenue in our healthcare segment which carries a lower gross margin . cost of product and licensing revenue cost of product and licensing revenue primarily consists of material and fulfillment costs , manufacturing and operations costs and third-party royalty expenses . the following table shows the cost of product and licensing revenue , in dollars and as a percentage of product and licensing revenue ( dollars in millions ) : replace_table_token_8_th fiscal year 2017 compared with fiscal year 2016 the decrease in cost of product and licensing revenue was driven by lower costs in our healthcare and imaging segments due to lower product and licensing revenues . gross margins increase d by 1.3 percentage points , due to the margin improvements in healthcare and imaging , as well as a favorable shift in revenue mix towards higher margin products in mobile and enterprise . fiscal year 2016 compared to fiscal year 2015 the decrease in cost of product and licensing revenue was primarily driven by lower costs in our mobile and healthcare segments . gross margins increased 0.3 percentage points , primarily driven by higher revenues from higher margin license products in our enterprise and imaging segments . cost of maintenance and support revenue cost of maintenance and support revenue primarily consists of compensation for product support personnel and overhead . the following table shows cost of maintenance and support revenue , in dollars and as a percentage of maintenance and support revenue ( dollars in millions ) : replace_table_token_9_th fiscal year 2017 compared with fiscal year 2016 cost and the gross margin of maintenance and support revenue remained essentially flat during fiscal year 2017. fiscal year 2016 compared with fiscal year 2015 the decrease in cost of maintenance and support revenue was primarily driven by lower compensation related expense . gross margins increased 0.6 percentage points primarily driven by higher maintenance and support revenue in our healthcare and imaging segments . 24 research and development expenses research and development ( `` r & d '' ) expenses primarily consist of salaries , benefits , and overhead relating to engineering staff as well as third party engineering costs . the following table shows research and development expense , in dollars and as a percentage of total revenues ( dollars in millions ) : replace_table_token_10_th fiscal year 2017 compared with fiscal year 2016 research and development expense decrease d by $ 5.0 million , primarily due to our continued cost-savings initiatives to reduce headcount and move r & d activities to lower-cost locations , offset in part by higher compensation expenses in our enterprise segment due to recent acquisitions .
| the $ 44.8 million increase in enterprise was driven by the incremental revenue from recent acquisitions , incr eases in our omni-channel cloud offerings , and the continued strength in our on-premise and service portfolios . the $ 16.4 million increase in mobile was primarily due to increases in our automotive cloud-based solutions . hosting revenue of our healthcare segment decrease d by $ 57.7 million as the segment was negatively impacted by the malware incident and the continued erosion of the transcription services , offset in part by the positive effect of customers ' transition to subscription and cloud-based offerings . as a percentage of total revenue , professional services and hosting revenue increased from 49.0 % for fiscal year 2016 to 50.4 % for fiscal year 2017. this increase reflected the continued shifts from product licenses towards cloud-based solutions in all our segments . fiscal year 2016 compared with fiscal year 2015 mobile hosting revenue increased by $ 21.9 million primarily driven by the continued trend toward cloud-based services in our automotive and devices solutions . enterprise hosting revenue increased $ 19.7 million . these increases were partially offset by a $ 20.8 million decrease in the healthcare hosting revenue as we continue to experience erosion in our transcription services owed in part to the growing penetration of our dragon medical cloud and subscription offerings . professional services revenue increased primarily as a result of a $ 13.6 million increase in our healthcare segment due to a recent acquisition . product and licensing revenue product and licensing revenue primarily consists of sales and licenses of our technology . the following table shows product and licensing revenue , in dollars and as a percentage of total revenues ( dollars in millions ) : replace_table_token_5_th fiscal year 2017 compared with fiscal year 2016 product and licensing revenue decrease d by $ 33.8 million , or 5.1 % , p rimarily due to decreases in our healthcare and imaging segments , offset in part by the increase in our mobile segment . the decrease of $ 16.7 million in healthcare reflected our
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our operations since that date have included organization and staffing , business planning , in-licensing technology , developing product candidates in clinical programs , evaluating potential future product candidates , as well as undertaking pre-clinical studies and clinical trials of our product candidates . in february 2014 and july 2015 , we entered into a transition services agreement and an amendment to the transition services agreement , respectively , with ikaria , which we refer to as the tsa . pursuant to the terms and conditions of the tsa , ikaria agreed to use commercially reasonable efforts to provide certain services to us until february 2016 , the termination of which was accelerated to september 30 , 2015 as part of the amendment , subject to the terms of the tsa . in exchange for the services provided by ikaria pursuant to the tsa , we paid to ikaria a service fee in the amount of $ 772,000 per month and reimbursed ikaria for any out of pocket expenses , any taxes imposed on ikaria in connection with the provision of services under the tsa . under our additional services agreement with ikaria , or the 2015 services agreement , which became effective on january 1 , 2015 , ikaria provided to us certain information technology and device maintenance services . in exchange for the services provided by ikaria pursuant to the 2015 services agreement , we paid to ikaria fees that totaled , in the aggregate , approximately $ 200,000. in july 2015 , we entered into an amendment to the 2015 services agreement advancing the termination date from february 8 , 2016 to september 30 , 2015. additionally , pursuant to the 2015 services agreement , we agreed to use commercially reasonable efforts to provide certain services to ikaria , including services related to regulatory matters , drug and device safety , clinical operations , biometrics and scientific affairs . we also received payments of $ 1.7 million from ikaria in connection with the 2015 services agreement . accounting for the separation and spin-out our historical financial statements for periods prior to february 12 , 2014 , the date of the spin-out , discussed in this management 's discussion and analysis of financial condition and results of operations were derived from the audited historical financial statements and accounting records of ikaria and include allocations for direct costs and indirect costs attributable to the research and development segment of ikaria . in particular , for the period january 1 , 2014 to february 11 , 2014 , our financial statements include expense allocations for ( 1 ) certain corporate functions historically provided by ikaria , including finance , audit , legal , information technology and human resources services , ( 2 ) research and development expenses and ( 3 ) stock-based compensation . these allocations are based on either specific identification or allocation methods such as time and wage studies , headcount or other measures determined by us . management believes that the statements of operations and comprehensive loss for the period of time prior to the spin-out includes a reasonable allocation of costs and expenses incurred by ikaria from which we benefited . see notes 1 and 2 to our consolidated financial statements appearing elsewhere in this annual report on form 10-k. 71 due to this presentation , the financial information for the years ended december 31 , 2014 and 2013 included in this annual report on form 10-k does not reflect what our financial position , results of operations and cash flows will be in the future or what our financial position , results of operations and cash flows would have been in the past had we been a public , stand-alone company throughout the periods presented . financial operations overview revenue to date , we have not generated any revenue from product sales and may not generate any revenue from product sales for the next several years , if ever . in the future , we may generate revenue from a combination of product sales , license fees and milestone payments in connection with strategic partnerships , and royalties from the sale of products developed under licenses of our intellectual property . our ability to generate revenue and become profitable depends primarily on our ability to successfully develop and commercialize or partner our product candidates as well as any product candidates we may advance in the future . we expect that any revenue we may generate will fluctuate from quarter to quarter as a result of the timing and amount of any payments we may receive under future partnerships , if any , and from sales of any products we successfully develop and commercialize , if any . if we fail to complete the development of any of our product candidates currently in clinical development or any future product candidates in a timely manner , or to obtain regulatory approval for such product candidates , our ability to generate future revenue , and our business , results of operations , financial condition and cash flows and future prospects would be materially adversely affected . research and development expenses research and development expenses consist of costs incurred in connection with the development of our product candidates , including upfront and development milestone payments , related to in-licensed product candidates and technologies . in order to fairly present our historical information for periods prior to the spin-out , certain departmental expenses from ikaria have been allocated to us . the allocations were applied to us for the purpose of presenting our company as a stand-alone entity . direct and indirect costs for periods prior to the spin-out related to the inopulse and bcm clinical programs have been allocated to us . all allocations were based on actual costs incurred . for purposes of allocating non-project specific expenses , each ikaria department head provided information as to the percentage of employee time incurred on our behalf . story_separator_special_tag research and development expenses primarily consist of : ยท employee-related expenses , including salary , benefits and stock-based compensation expense ; ยท expenses incurred under agreements with contract research organizations , investigative sites that conduct our clinical trials and consultants that conduct a portion of our pre-clinical studies ; ยท expenses relating to vendors in connection with research and development activities ; ยท the cost of acquiring and manufacturing clinical trial materials ; ยท facilities , depreciation of fixed assets and allocated expenses ; ยท lab supplies , reagents , active pharmaceutical ingredients and other direct and indirect costs in support of our pre-clinical and clinical activities ; ยท device development and drug manufacturing engineering ; ยท license fees related to in-licensed products and technology ; and ยท costs associated with non-clinical activities and regulatory approvals . we expense research and development costs as incurred . conducting a significant amount of research and development is central to our business model . product candidates in late stages of clinical development generally have higher development costs than those in earlier stages of clinical development primarily due to the increased size and duration of late-stage clinical trials . subject to the availability of requisite financing , we 72 plan to increase our research and development expenses for ongoing clinical programs for the foreseeable future as we seek to continue multiple clinical trials for our product candidates , including to potentially advance inopulse for ph-ipf , and seek to identify additional early-stage product candidates . we track external research and development expenses and personnel expenses on a program-by-program basis . we use our employee and infrastructure resources , including regulatory , quality , clinical development and clinical operations , across our clinical development programs and have included these expenses in research and development infrastructure . research and development laboratory expenses are also not allocated to a specific program and are included in research and development infrastructure . engineering activities related to inopulse and the manufacture of cylinders related to inopulse are included in inopulse engineering . inopulse for pah we completed a randomized , placebo-controlled , double-blind phase 2 clinical trial of inopulse for pah in october 2014. the goal of the trial was to determine the safety , tolerability and efficacy of two different doses of inopulse for pah . in february 2016 , we performed the final analysis of our phase 2 long-term extension clinical trial of inopulse for pah , which is part 2 of our phase 2 clinical trial of inopulse for pah , which reinforced the results from part 1 of our phase 2 clinical trial of inopulse for pah . after reaching agreement with the fda and the ema on our phase 3 protocol , we are moving forward with phase 3 development . inopulse for ph-copd we completed a randomized , placebo-controlled , double-blind , dose-confirmation phase 2 clinical trial of inopulse for ph-copd in july 2014. we have received results from this trial , and we are planning further phase 2 testing in 2016 to demonstrate the potential benefit of inopulse on exercise capacity . inopulse for ph-ipf we also plan to initiate our phase 2 studies in ph-ipf in 2016 consisting of an exploratory acute hemodynamic study followed by exercise capacity . bcm we initiated a clinical trial of bcm , which we refer to as our preservation i trial , in december 2011 , enrolled the first patient in april 2012 and completed enrollment in december 2014. top-line results from the randomized , double-blind , placebo-controlled clinical trial were announced in july 2015. from a safety perspective we observed no significant difference in adverse events rates between patients in the bcm and placebo treatment groups . however , the data showed no statistically significant treatment differences between patients treated with bcm and patients treated with placebo for both the primary and secondary endpoints in the trial . we presented detailed results from the preservation i trial for our bcm program at the european society of cardiology meeting in london on september 1 , 2015. following the results , we are considering further exploratory work but we do not intend to proceed with further clinical development of bcm at this point until and unless we can determine an alternative path forward . research and development infrastructure we invest in regulatory , quality , clinical development and clinical operations activities , which are expensed as incurred . these activities primarily support our clinical development programs . inopulse engineering we have invested a significant amount of funds in inopulse , which is configured to be highly portable and compatible with available modes of long-term oxygen therapy via nasal cannula delivery . our phase 2 clinical trials of inopulse for pah and inopulse for ph-copd utilized the first generation inopulse ds device . we believe our second generation inopulse device , as well as a custom triple-lumen cannula , will significantly improve several characteristics of our inopulse delivery system . we have also invested in design and engineering technology , through ikaria , for the manufacture of our drug cartridges . in february 2015 , we entered into an agreement with flextronics medical sales and marketing ltd. , a subsidiary of flextronics international ltd. , or flextronics , to manufacture and service the inopulse devices that we will use in future clinical trials of inopulse for pah and inopulse for ph-copd and ph-ipf . 73 it is difficult to determine with certainty the duration and completion costs of our current or any future pre-clinical programs and any of our current or future clinical trials and any future product candidates we may advance , 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 .
| ยท ph-copd research and development expenses for the year ended december 31 , 2015 were $ 0.0 million compared to $ 3.0 million for the year ended december 31 , 2014 , a decrease of $ 3.0 million , or 100 % . the decrease primarily resulted from the completion of the phase 2a clinical trial in mid-2014 . ยท research and development infrastructure expenses for the year ended december 31 , 2015 were $ 8.6 million compared to $ 11.7 million for the year ended december 31 , 2014 , a decrease of $ 3.1 million , or 27 % . the decrease was due to reductions in infrastructure spending to support our inopulse and bcm clinical programs and the discontinuance of cash bonuses . in september 2015 , we decided to pay 2015 bonuses by granting employees restricted stock awards which will vest over a one-year period from the date of grant . accordingly , the related cost will be recognized over such period . ยท inopulse engineering expenses for the year ended december 31 , 2015 were $ 6.0 million compared to $ 6.3 million for the year ended december 31 , 2014 , a decrease of $ 0.3 million , or 5 % . general and administrative expenses . general and administrative expenses for the year ended december 31 , 2015 were $ 14.9 million compared to $ 13.8 million for the year ended december 31 , 2014 , an increase of $ 1.1 million , or 8 % . the increase was primarily due to restructuring charges of $ 1.1 million and additional costs of operating as a public company , including expenses related to transition services from ikaria and other professional services offset , in part , by the discontinuance of cash bonuses . in september 2015 , we decided to pay 2015 bonuses by granting employees restricted stock awards which will vest over a one-year period from the date of grant . accordingly , the related cost will be recognized over such period .
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of class a common stock ( expense of $ 2,010 ) in settlement of appreciation rights issued in prior years ; $ 1,240 of professional fees expense associated with the one-time non-cash acceleration of unvested equity held by non-employee members of moelis & company 's former global advisory board ; and $ 4,916 of expenses associated with the one-time non-cash acceleration of unvested equity held by employees of the australian jv . half of the expenses associated with acceleration of equity held by employees of the australian jv is included in other expenses and the other half is included in income ( loss ) from equity method investments . secondary offering of class a common stock in november 2014 , the company completed a secondary offering of 6,325,000 shares of class a common stock in order to facilitate organized liquidity and increase the public float of its class a common stock . in connection with the offering , the shares of class a common stock outstanding of the company increased by 4,511,058 shares as a result of the company acquiring additional class a partnership units in group lp . the company did not retain any proceeds from the secondary offering . see note 4 in these consolidated and combined financial statements for further information . business environment and outlook economic and global financial conditions can materially affect our operational and financial performance . see `` risk factors '' elsewhere in this form 10-k for some of the factors that can affect our performance . revenues and net income in any period may not be indicative of full year results or the results of any other period and may vary significantly from year to year and quarter to quarter . 37 for the year ended december 31 , 2015 , we earned revenues of $ 551.9 million , or an increase of 6 % from the $ 518.8 million earned during the same period in 2014. this compares favorably with a 5 % decrease in the number of global completed m & a transactions greater than $ 100 million in the same period . in the current environment , we are witnessing many companies pursue m & a in order to grow revenues and or drive greater efficiencies by reducing costs . based on historical experience , we believe the current economic backdrop ( high corporate cash balances and relatively low interest rates ) , which remains unchanged from 2015 , provides a solid foundation for m & a . our conversations with clients remain robust and financing continues to be available , which may fuel continued growth in m & a . in addition , the dislocation in energy and other commodity-related sectors as well as in the emerging markets provides opportunity for restructuring and capital markets related activity in 2016. story_separator_special_tag style= '' font-family : times ; ; margin-left:10.0pt ; text-indent : -10.0pt ; '' > year ended december 31 , 2014 versus 2013 operating expenses were $ 471.0 million for the year ended december 31 , 2014 and represented 91 % of revenues , compared with $ 341.3 million for the same period in 2013 which represented 83 % of revenues . our income before income taxes decreased , declining from income of $ 73.0 million for the year ended december 31 , 2013 to income of $ 46.3 million for the same period in 2014. our income before income taxes in 2014 was significantly impacted by approximately $ 112.4 million of expense relating to the reorganization and ipo as described above in `` reorganization and initial public offering . '' 40 compensation and benefits expenses our compensation and benefits expenses are determined by management based on revenues earned , the competitiveness of the prevailing labor market and anticipated compensation requirements for our employees , the level of recruitment of new managing directors , the amount of compensation expenses amortized for equity awards and other relevant factors . our compensation expenses consist of base salary and benefits , annual incentive compensation payable as cash bonus awards , including certain amounts subject to clawback and contingent upon a required period of service ( `` contingent cash awards '' ) and amortization of equity-based compensation awards . base salary and benefits are paid ratably throughout the year . equity awards are amortized into compensation expenses on a graded basis ( based upon the fair value of the award at the time of grant ) during the service period over which the award vests , which is typically four to five years . the awards are recorded within equity as they are expensed . contingent cash awards are amortized into compensation expenses over the required service period , which is typically two to three years . cash bonuses , which are accrued each quarter , are discretionary and dependent upon a number of factors including the performance of the company and are generally paid during the first two months of each calendar year with respect to prior year performance . the equity component of the annual incentive award is determined with reference to the company 's estimate of grant date fair value , which in turn determines the number of equity awards granted subject to a vesting schedule . our compensation expenses are primarily based upon revenues , prevailing labor market conditions and other factors that can fluctuate , including headcount , and as a result , our compensation expenses may fluctuate materially in any particular period . accordingly , the amount of compensation expenses recognized in any particular period may not be consistent with prior periods or indicative of future periods . year ended december 31 , 2015 versus 2014 for the year ended december 31 , 2015 , compensation-related expenses of $ 311.2 million represented 56 % of revenues , compared with $ 377.2 million of compensation-related expenses which represented 73 % of revenues in the prior year . story_separator_special_tag the decrease in expenses primarily relates to $ 106.2 million of compensation expense associated with the reorganization and ipo that occurred during 2014 and a lower discretionary bonus accrual in 2015. our fixed compensation costs , which are primarily the sum of base salaries , payroll taxes and benefits and the amortization of previously issued equity and contingent cash awards , were $ 190.1 million and $ 245.2 million for the years ended december 31 , 2015 and 2014 , respectively . the decrease in fixed compensation costs relates to the acceleration of equity compensation expense associated with the ipo that occurred in april 2014. the aggregate amount of discretionary cash bonus expenses , which generally represents the excess amount of total compensation over base compensation and amortization of equity and contingent cash awards , was $ 121.1 million and $ 132.0 million for the years ended december 31 , 2015 and 2014 , respectively . the decrease in discretionary cash bonus expense is primarily related to increased fixed compensation costs ( excluding amounts associated with the ipo accelerated vesting ) due to higher headcount . year ended december 31 , 2014 versus 2013 for the year ended december 31 , 2014 , compensation-related expenses of $ 377.2 million represented 73 % of revenues , compared with $ 264.9 million of compensation-related expenses which represented 64 % of revenues in the prior year . the increase in compensation expenses primarily relates to the acceleration of equity compensation expense associated with the ipo that occurred during 2014 and a higher discretionary bonus accrual as compared with 2013. compensation expenses in 2014 were 41 significantly impacted by approximately $ 106.2 million of expense relating to the reorganization and ipo as described above in `` reorganization and initial public offering . '' our fixed compensation costs , which are primarily the sum of base salaries , payroll taxes and benefits and the amortization of previously issued equity and contingent cash awards , were $ 245.2 million and $ 163.3 million for the years ended december 31 , 2014 and 2013 , respectively . the increase in fixed compensation costs relates to the acceleration of equity compensation expense associated with the ipo that occurred in april 2014. the aggregate amount of discretionary cash bonus expenses , which generally represents the excess amount of total compensation over base compensation and amortization of equity and contingent cash awards , was $ 132.0 million and $ 101.6 million for the years ended december 31 , 2014 and 2013 , respectively . the increase in discretionary cash bonus expense is primarily related to our increase in revenues for the period . non-compensation expenses our non-compensation expenses include the costs of occupancy , professional fees , communication , technology and information services , travel and related expenses , depreciation and other expenses . reimbursed client expenses are netted against non-compensation expenses . historically , our non-compensation expenses , particularly occupancy , communication , technology and information services and travel costs associated with business development , have increased as we have increased headcount and the related non-compensation support costs which results from growing our business . this trend may continue as we expand into new sectors , geographies and products to serve our clients ' evolving needs . in addition , we will experience increased non-compensation expenses in connection with having become a public company . year ended december 31 , 2015 versus 2014 non-compensation expenses were $ 103.1 million in the year ended december 31 , 2015 , representing 19 % of revenues , up from $ 93.8 million , or 18 % in the prior year . the dollar increase in non-compensation expenses was primarily driven by increased occupancy , professional fees , communication , technology and information services expenses and other expenses , reflecting increased headcount and activity . non-compensation expenses in 2014 were also impacted by approximately $ 3.7 million of expense relating to the reorganization and ipo as described above in `` reorganization and initial public offering . '' year ended december 31 , 2014 versus 2013 non-compensation expenses were $ 93.8 million in the year ended december 31 , 2014 , representing 18 % of revenues , up from $ 76.3 million , or 19 % in the prior year . the increase in non-compensation expenses was primarily driven by increased travel expenses , professional fees and communication , technology and information services , reflecting a more active business and recruiting environment . non-compensation expenses in 2014 were also impacted by approximately $ 3.7 million of expense relating to the reorganization and ipo as described above in `` reorganization and initial public offering . '' income ( loss ) from equity method investments the company accounts for its equity method investments under the equity method of accounting as the company does not control these entities , but has the ability to exercise significant influence . the amounts recorded on the consolidated and combined financial statements of financial condition reflects the company 's share of contributions made to , distributions received from , and the equity earnings and losses of , the investments . the company reflects its share of gains and losses of the investment in 42 income ( loss ) from equity method investments in the consolidated and combined statements of operations . investment in joint venture on april 1 , 2010 , we entered into the australian jv in sydney , investing a combination of cash and certain net assets in exchange for a 50 % interest in the australian jv . the remaining 50 % of the australian jv is owned by an australian trust established by and for the benefit of australian executives . the australian jv 's primary business is offering advisory services , much like the company . the australian jv also has an equity capital markets and research , sales and trading business covering australian public equity securities .
| barriers to the completion of a restructuring transaction may include a lack of anticipated bidders for the assets of our client or the inability of our client to restructure its operations or indebtedness due to a failure to reach agreement with its creditors . in these circumstances , our fees are generally limited to monthly retainer fees and reimbursement of certain out-of-pocket expenses . we do not allocate our revenues by the type of advice we provide ( m & a , recapitalizations and restructurings or other corporate finance matters ) because of the complexity of the transactions on which we may earn revenues and our holistic approach to client service . for example , a restructuring engagement may evolve to require a sale of all or a portion of the client , m & a assignments can develop from relationships established on prior restructuring engagements and capital markets expertise can be instrumental on both m & a and restructuring assignments . year ended december 31 , 2015 versus 2014 revenues were $ 551.9 million for the year ended december 31 , 2015 compared with $ 518.8 million for the same period in 2014 , representing an increase of 6 % . this compares favorably with a 5 % decrease in the number of globally completed m & a transactions greater than $ 100 million in the same period . the number of clients we advised increased year-over-year from 256 clients in 2014 to 269 clients in 2015 , and the number of clients who paid fees equal to or greater than $ 1 million increased from 130 clients in 2014 to 139 clients in 2015. in addition , u.s. revenues increased by 8 % and non-u.s. revenues decreased by 1 % compared with the prior year . year ended december 31 , 2014 versus 2013 revenues were $ 518.8 million for the year ended december 31 , 2014 compared with $ 411.4 million for the same period in 2013 , representing an increase of 26 % . this compares favorably with
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on november 6 , 2014 , we entered into an agreement with the shareholders of masthercell s.a. to acquire masthercell s.a. on march 2 , 2015 , we closed on the acquisition of masthercell whereby it became an independent , and wholly-owned subsidiary of orgenesis inc. through masthercell , we became engaged in the cdmo business . on june 28 , 2018 , we , masthercell global , great point partners , llc , a manager of private equity funds focused on growing small to medium sized heath care companies ( โ great point โ ) , and certain of great point 's affiliates , entered into a series of definitive strategic agreements intended to finance , strengthen and expand our cdmo business . in connection therewith , we , masthercell global and gpp-ii masthercell , llc , a delaware limited liability company ( โ gpp-ii โ ) and an affiliate of great point , entered into a stock purchase agreement ( the โ spa โ ) pursuant to which gpp-ii purchased 378,000 shares of newly designated series a preferred stock of masthercell global ( the โ masthercell global preferred stock โ ) , representing 37.8 % of the issued and outstanding share capital of masthercell global , for cash consideration to be paid into masthercell global of up to $ 25 million , subject to certain adjustments ( the โ consideration โ ) . at such time , we held 622,000 shares of masthercell global 's common stock , representing 62.2 % of the issued and outstanding equity share capital of masthercell global . an initial cash payment of $ 11.8 million of the consideration was remitted at closing by gpp-ii , with a follow up payment of $ 6,600,000 made in each of years 2018 and 2019 , or an aggregate of $ 13.2 million ( the โ future payments โ ) , if ( a ) masthercell global achieved specified ebitda and revenues targets during each of these years , and ( b ) the orgenesis ' shareholders approved certain provisions of the stockholders ' agreement referred to below on or before december 31 , 2020. both of these conditions were met and we received both milestone payments . 46 contemporaneous with the execution of the spa , we and masthercell global entered into a contribution , assignment and assumption agreement pursuant to which we contributed to masthercell global our assets relating to the cdmo business ( as defined below ) , including the cdmo subsidiaries ( the โ corporate reorganization โ ) . in furtherance thereof , masthercell global , as our assignee , acquired all of the issued and outstanding share capital of obi , our israel based cdmo partner since may 2016 , and 94.12 % of the share capital of the korean subsidiary , our korea based cdmo partner since march 2016. on august 7 , 2019 , we , masthercell global and gpp ( the โ parties โ ) entered into a transfer agreement ( the โ transfer agreement โ ) . as a result of the transfer agreement , masthercell global transferred all of its equity interests of obi and the korean subsidiary to us in exchange for one dollar ( $ 1.00 ) . the transfer agreement also contains agreements made with respect to certain intercompany loans . we accounted for the transfer agreement as a transaction with non-controlling interest . discontinued operations until december 31 , 2019 , we operated the pocare platform as one of two business separate business segments . historically , the second separate business segment was operated as a contract development and manufacturing organization ( โ cdmo โ ) platform , providing third party contract manufacturing and development services for biopharmaceutical companies ( the โ cdmo business โ ) . the cdmo platform was historically operated mainly through majority owned masthercell global ( which consisted of the following two subsidiaries : masthercell s.a. in belgium ( โ masthercell โ ) , and masthercell u.s. , llc in the united states ( โ masthercell u.s. โ ) ( collectively , the โ masthercell global subsidiaries โ ) ) . in february 2020 , we and gpp-ii masthercell llc ( โ gpp โ ) sold 100 % of the outstanding equity interests of masthercell ( the โ masthercell business โ ) , which comprised the majority of our cdmo business , to catalent pharma solutions , inc. for an aggregate nominal purchase price of $ 315 million , subject to customary adjustments ( the โ masthercell sale โ ) . after accounting for gpp 's liquidation preference and equity stake in masthercell as well as other investor interests in our belgian subsidiary masthercell , distributions to masthercell option holders and transaction costs , we received approximately $ 126.7 million . we incurred an additional approximately $ 5.6 million in transaction costs . we determined that the masthercell business ( โ discontinued operation โ ) meets the criteria to be classified as a discontinued operation as of the first quarter of 2020. the discontinued operation includes the vast majority of the previous cdmo business , including majority-owned masthercell , including masthercell , masthercell u.s. and all of the masthercell global subsidiaries . since the masthercell sale , we entered into new joint venture agreements with new partners in various jurisdictions . this has allowed us to grow our infrastructure and expand our processing sites into new markets and jurisdictions . in addition , we have engaged some of these joint venture partners to perform research and development services to further develop and adapt our systems and devices for specific purposes . we have been investing manpower and financial resources to focus on developing , manufacturing and rolling out several types of ompuls to be used and or distributed through our pocare network of partners , collaborators , and joint ventures . the chief executive officer ( โ ceo โ ) is our chief operating decision-maker who reviews financial information prepared on a consolidated basis . effective from the first quarter of 2020 , all of our continuing operations are in the point-of-care business via our pocare platform . story_separator_special_tag therefore , no segment report has been presented . 47 orgenesis inc. , a nevada corporation , is a global biotech company working to unlock the potential of cell and gene therapies ( โ cgt โ s ) in an affordable and accessible format . cgts can be centered on autologous ( using the patient 's own cells ) or allogenic ( using master banked donor cells ) and are part of a class of medicines referred to as advanced therapy medicinal products ( atmp ) . we mostly focus on autologous therapies , with processes and systems that are developed for each therapy using a closed and automated processing system approach that is validated for compliant production near the patient at their point of care . this approach has the potential to overcome the limitations of traditional commercial manufacturing methods that do not translate well to commercial production of advanced therapies due to their cost prohibitive nature and complex logistics to deliver the treatments to patients ( ultimately limiting the number of patients that can have access to , or can afford , these therapies ) . to achieve these goals , we have developed a point of care platform comprised of three enabling components : a pipeline of licensed pocare therapies that are designed to be processed and produced in closed , automated pocare technology systems across a collaborative pocare network . via a combination of science , technology , engineering , and networking , we are working to provide a more efficient and scalable pathway for advanced therapies to reach patients more rapidly at lowered costs . we also draw on extensive medical expertise to identify promising new autologous therapies to leverage within the pocare platform either via ownership or licensing . the pocare network brings together patients , doctors , industry partners , research institutes and hospitals worldwide with a goal of achieving harmonized , regulated clinical development and production of the therapies . material developments during fiscal 2020 acquisitions and dispositions as mentioned above , on february 2 , 2020 , we entered into a purchase agreement with gpp , masthercell and catalent pharma solutions , inc. pursuant to which the sellers sold 100 % of the outstanding equity interests of our masthercell business for an aggregate nominal purchase price of $ 315 million , subject to customary adjustments . after accounting for gpp 's liquidation preference and equity stake in masthercell as well as other investor interests in its belgian subsidiary masthercell , s.a. ( โ masthercell โ ) , distributions to masthercell option holders and transaction costs , we received approximately $ 126.7 million . we incurred an additional approximately $ 5.6 million in transaction costs . on april 7 , 2020 , we entered into an asset purchase agreement ( the โ tamir purchase agreement โ ) with tamir biotechnology , inc. ( โ tamir โ or โ seller โ ) , pursuant to which we agreed to acquire certain assets and liabilities of tamir related to the discovery , development and testing of therapeutic products for the treatment of diseases and conditions in humans , including all rights to ranpirnase and use for antiviral therapy ( collectively , the โ purchased assets and assumed liabilities โ and such acquisition , the โ tamir transaction โ ) . the tamir transaction closed on april 23 , 2020. as aggregate consideration for the acquisition , we paid $ 2.5 million in cash and issued an aggregate of 3,400,000 shares ( the โ shares โ ) of common stock to tamir resulting in a total consideration of $ 20.2 million . on september 26 , 2020 , we entered into an agreement and plan of merger and reorganization ( the โ merger agreement โ ) by and among ourselves , orgenesis merger sub , inc. , a delaware corporation and a wholly-owned subsidiary of the company ( โ merger sub โ ) , koligo therapeutics inc. , a kentucky corporation ( โ koligo โ ) , the shareholders of koligo ( collectively , the โ shareholders โ ) , and long hill capital v , llc ( โ long hill โ ) , solely in its capacity as the representative , agent and attorney-in-fact of the shareholders . the merger agreement provides for the acquisition of koligo by us through the merger of merger sub with and into koligo , with koligo surviving as our wholly-owned subsidiary ( the โ merger โ ) . the merger was announced in a current report on form 8-k filed with the securities and exchange commission on october 1 , 2020 , to which a copy of the merger agreement , along with copies of certain other ancillary agreements , were annexed as exhibits . the merger closed on october 15 , 2020. koligo was a privately-held us regenerative medicine company . koligo 's first commercial product is kyslecelยฎ ( autologous pancreatic islets ) for chronic and acute recurrent pancreatitis . koligo 's 3d-v technology platform incorporates the use of advanced 3d bioprinting techniques and vascular endothelial cells to support development of transformational cell and tissue products for serious diseases . 48 in addition , according to the agreement between the parties , we also funded an additional cash consideration of $ 500 thousand ( with $ 100 thousand of such reducing the ultimate consideration payable to koligo ) for the acquisition of the assets of tissue genesis , llc ( โ tissue genesis โ ) by koligo that was consummated on october 14 , 2020. the tissue genesis assets include the entire inventory of tissue genesis icellatorยฎ devices , related kits and reagents , a broad patent portfolio to protect the technology , registered trademarks , clinical data , and existing business relationships for commercial and development stage use of the icellator technology .
| the increase is mainly attributable to the following : โ expansion of our pipeline of licensed cgts with a harmonized pathway for regulatory approval ; โ expansion of our poc capacity globally ; โ investment in automated processing units & processes ; โ developing owned and licensed advanced therapies to enable commercial production ; โ works with partners to enable efficient closed processing system technologies addressing pocare needs ; โ an increase in salaries and related expenses and other research and development expenses . additional r & d staff were hired as we expanded our research and development to the evaluation and development of new cell therapies and related technologies in the field of immune-oncology ( our novel cd19 car-t and cd19.22 car-t programs , cellular vaccination for solid cancers , advanced tumor infiltrating lymphocyte , nk-based therapies , etc . ) , liver pathologies , stem cell-based therapies and other cell-based technologies such as the novel delivery system , bioxomes . we invested in converting biological processes to gmp-compliant processes as these therapies progress to clinical stage ; โ in 2020 we made significant investments in the development of several types of orgenesis mobile processing units and labs ( ompuls ) with the expectation of use and or distribution through our pocare network of partners , collaborators , and joint ventures . ompuls are designed for the purpose of validation , development , performance of clinical trials , manufacturing and or processing of potential or approved cell and gene therapy products in a safe , reliable , and cost-effective manner at the point of care , as well as the manufacturing of such cgts in a consistent and standardized manner in all locations . the design delivers a potential industrial solution for us to deliver cgts to practically any clinical institution at the point of care ; and โ the tamir purchase agreement ( see note 4 ) . 52 selling , general and administrative expenses replace_table_token_6_th selling , general and administrative expenses for the year ended december 31 , 2020 were $ 18,973 thousand , as compared to $ 11,451 thousand for the year ended december 31 , 2019 , representing an increase of 66 % . the increase for the year ended december 31 , 2020 is primarily attributable to : ( i ) an increase in salaries and related expenses of $ 1,047 thousand , as a result of additional managerial appointments and increased salaries ; ( ii ) an increase in accounting and legal fees of $ 4,558
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state unemployment tax rates are subject to claim histories and vary from state to state . employee benefits costs are comprised primarily of health insurance premiums and claims costs ( including dental and pharmacy costs ) , but also include costs of other employee benefits such as life insurance , vision care , disability insurance , education assistance , adoption assistance , a flexible spending account program and a work-life program . workers ' compensation costs include administrative and risk charges paid to the insurance carrier , and claims costs , which are driven primarily by the frequency and severity of claims . gross profit our gross profit per worksite employee is primarily determined by our ability to accurately estimate and control direct costs and our ability to incorporate changes in these costs into the gross billings charged to peo hr outsourcing solutions clients , which are subject to pricing arrangements that are typically renewed annually . we use gross profit per worksite employee per month as our principal measurement of relative performance at the gross profit level . operating expenses salaries , wages and payroll taxes โ salaries , wages and payroll taxes are primarily a function of the number of corporate employees , their associated average pay and any additional incentive compensation . our corporate employees include client services , sales and marketing , benefits , legal , finance , information technology , administrative support personnel and those associated with our sbus . stock-based compensation โ our stock-based compensation relates to the recognition of non-cash compensation expense over the vesting period of restricted stock awards . commissions โ commissions expense consists primarily of amounts paid to sales managers and bpas . commissions are based on the number of new accounts sold and a percentage of revenue generated by such personnel . advertising โ advertising expense primarily consists of media advertising and other business promotions in our current and anticipated sales markets , including the insperity invitational presented by unitedhealthcare ยฎ sponsorship . general and administrative expenses โ our general and administrative expenses primarily include : rent expenses related to our service centers and sales offices outside professional service fees related to legal , consulting and accounting services administrative costs , such as postage , printing and supplies employee travel and training expenses - 32 - technology and facility repairs and maintenance costs depreciation and amortization โ depreciation and amortization expense is primarily a function of our capital investments in corporate facilities , service centers , sales offices , technology infrastructure and that associated with our acquisitions . impairment charges โ non-cash expense associated with the decline in fair value of long-lived and intangible assets , including goodwill . please read note 1 โ accounting policies โ and note 5 โ goodwill and other intangible assets โ to the consolidated financial statements for additional information . income taxes our provision for income taxes typically differs from the u.s. statutory rate of 35 % , due primarily to state income taxes , non-deductible expenses and various tax credits . deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes . significant items resulting in deferred income taxes include prepaid assets , accruals for workers ' compensation expenses , stock-based compensation and depreciation . changes in these items are reflected in our financial statements through a deferred income tax provision . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( โ gaap โ ) . the preparation of these financial statements requires our 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 , we evaluate these estimates , including those related to health and workers ' compensation insurance claims experience , client bad debts , income taxes , property and equipment , goodwill and other intangibles , and contingent liabilities . we base these estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . we believe the following accounting policies are critical and or require significant judgments and estimates used in the preparation of our consolidated financial statements : benefits costs โ we provide group health insurance coverage to our worksite employees through a national network of carriers including united , unitedhealthcare of california , kaiser permanente , blue shield of california , hmsa bluecross blueshield of hawaii , unity health plan and tufts , all of which provide fully insured policies or service contracts . the health insurance contract with united provides the majority of our health insurance coverage . as a result of certain contractual terms , we have accounted for this plan since its inception using a partially self-funded insurance accounting model . accordingly , we record the costs of the united plan , including an estimate of the incurred claims , taxes and administrative fees ( collectively the โ plan costs โ ) , as benefits expense in the consolidated statements of operations . the estimated incurred claims are based upon : ( i ) the level of claims processed during the quarter ; ( ii ) estimated completion rates based upon recent claim development patterns under the plan ; and ( iii ) the number of participants in the plan , including both active and cobra enrollees . each reporting period , changes in the estimated ultimate costs resulting from claim trends , plan design and migration , participant demographics and other factors are incorporated into the benefits costs . story_separator_special_tag additionally , since the plan 's inception , under the terms of the contract , united establishes cash funding rates 90 days in advance of the beginning of a reporting quarter . if the plan costs for a reporting quarter are greater than the premiums paid and owed to united , a deficit in the plan would be incurred and we would accrue a liability for the excess costs on our consolidated balance sheets . on the other hand , if the plan costs for the reporting quarter are less than the premiums paid and owed to united , a surplus in the plan would be incurred and we would record an asset for the excess premiums on our consolidated balance sheets . the terms of the arrangement with united require us to maintain an accumulated cash surplus in the plan of $ 9.0 million , which is reported as long-term prepaid insurance . as of december 31 , 2014 , plan costs were less than the premiums paid and owed to united by $ 23.5 million . as this amount is in excess of the agreed-upon $ 9.0 million surplus maintenance level , the $ 14.5 million balance is included in prepaid insurance , a current asset , on our consolidated balance sheets . the premiums owed to united at december 31 , 2014 , were $ 15.0 million , which is included in accrued health insurance costs , a current liability , on our consolidated balance sheets . - 33 - we believe that recent claims activity is representative of incurred and paid trends during the reporting period . the estimated completion rate and annual trend used to compute incurred but not reported claims involves a significant level of judgment . accordingly , an increase ( or decrease ) in the completion rate or annual trend used to estimate the incurred claims would result in an increase ( or decrease ) in benefits costs and net income would decrease ( or increase ) accordingly . the following table illustrates the sensitivity of changes in the completion rate and annual trend on our estimate of total benefit costs of $ 1.0 billion in 2014 : replace_table_token_8_th workers ' compensation costs โ since october 1 , 2007 , our workers ' compensation coverage has been provided through our arrangement with ace . under the ace program , we bear the economic burden for the first $ 1 million layer of claims per occurrence , and effective october 1 , 2010 , we also bear the economic burden for a maximum aggregate amount of $ 5 million per policy year for claim amounts that exceed the first $ 1 million . ace bears the economic burden for all claims in excess of these levels . the ace program is a fully insured policy whereby ace has the responsibility to pay all claims incurred under the policy regardless of whether we satisfy our responsibilities . our coverage from september 1 , 2003 through september 30 , 2007 was provided through selected member insurance companies of american international group , inc. because we bear the economic burden for claims up to the levels noted above , such claims , which are the primary component of our workers ' compensation costs , are recorded in the period incurred . workers ' compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury . accordingly , the accrual of related incurred costs in each reporting period includes estimates , which take into account the ongoing development of claims and therefore requires a significant level of judgment . we employ a third-party actuary to estimate our loss development rate , which is primarily based upon the nature of worksite employees ' job responsibilities , the location of worksite employees , the historical frequency and severity of workers ' compensation claims , and an estimate of future cost trends . each reporting period , changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers ' compensation claims cost estimates . during the years ended december 31 , 2014 and 2013 , insperity reduced accrued workers ' compensation costs by $ 2.9 million and $ 9.3 million , respectively , for changes in estimated losses related to prior reporting periods . workers ' compensation cost estimates are discounted to present value at a rate based upon the u.s. treasury rates that correspond with the weighted average estimated claim payout period ( the average discount rate utilized in 2014 and 2013 was 1.0 % and 0.8 % , respectively ) and are accreted over the estimated claim payment period and included as a component of direct costs in our consolidated statements of operations . our claim trends could be greater than or less than our prior estimates , in which case we would revise our claims estimates and record an adjustment to workers ' compensation costs in the period such determination is made . if we were to experience any significant changes in actuarial assumptions , our loss development rates could increase ( or decrease ) , which would result in an increase ( or decrease ) in workers ' compensation costs and a resulting decrease ( or increase ) in net income reported in our consolidated statements of operations . - 34 - the following table illustrates the sensitivity of changes in the loss development rate on our estimate of workers ' compensation costs totaling $ 68.7 million in 2014 : replace_table_token_9_th at the beginning of each policy period , the insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims ( โ claim funds โ ) . the level of claim funds is primarily based upon anticipated worksite employee payroll levels and expected workers ' compensation loss rates , as determined by the carrier .
| ( 7 ) gross billings of $ 9,044 and $ 8,797 per worksite employee per month , less payroll cost of $ 7,541 and $ 7,323 per worksite employee per month , respectively . revenues our revenues in 2014 , which represent gross billings net of worksite employee payroll cost , increased 4.5 % compared to 2013 , due to a 2.0 % , or $ 29 , increase in revenues per worksite employee per month and a 2.5 % increase in the average - 37 - number of worksite employees paid per month . the 2.0 % increase in revenues per worksite employee per month was primarily due to increases in the benefits and payroll tax pricing to offset increases in these direct costs . we provide our peo hr outsourcing solutions to small and medium-sized businesses in strategically selected markets throughout the united states . by region , our peo hr outsourcing solutions revenue change from 2013 and distribution for the years ended december 31 , 2014 and 2013 were as follows : replace_table_token_11_th ( 1 ) comprised primarily of revenues generated by our sbus the percentage of total peo hr outsourcing solutions revenues in our significant markets include the following : replace_table_token_12_th our growth in the number of worksite employees paid is affected by three primary sources : new client sales , client retention and the net change in existing clients through worksite employee new hires and layoffs . during 2014 , new client sales and the net change in existing clients improved , while client retention was consistent with 2013 . as a result , our year-over-year growth in average worksite employees paid per month during 2014 was 2.5 % compared to 1.5 % during 2013 . gross profit gross profit was $ 403.8 million in 2014 , a 2.7 % increase over 2013 . the average gross profit per worksite employee per month was $ 257 in both 2014 and 2013 . our pricing objectives attempt to maintain or improve the gross profit per worksite employee per month by increasing revenue
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our advertising analytics products include the adeffx suite media planner 2.0 and validated campaign essentials , which provide a solution for developing , executing and evaluating online advertising campaigns across multiple platforms , including tv , web ( display and video ) and mobile ( smartphones and tablets ) . in august 2011 , we acquired adxpose , which provides advertisers and publishers with greater transparency in the quality , safety , and performance of their digital advertising campaigns by allowing them to verify and optimize billions of campaign data points captured in real-time . the combination of adxpose with our campaign essentials product has enabled us to develop a new product we refer to as validated campaign essentials , or vce , which provides intelligence regarding validated impressions , ads that are actually seen , shown in safe content and delivered to the right target audience . our advertising analytics products are typically delivered on a monthly , quarterly or ad hoc basis . our digital business analytics products help organizations optimize the customer experience on their digital assets ( websites , apps , video , etc . ) and maximize return on digital media investments by allowing marketers to collect , view and distribute information tailored to their specific business requirements . our digital business analytics platform is designed to integrate data from multiple sources including web , mobile , video and social media interactions . our digital business analytics services are provided primarily through digital analytix , our saas based product that enables our customers to have access to all of their proprietary click stream data . our digital business analytics platform is further enhanced by data obtained as part of our audience measurement efforts , and viewable on a quick turnaround basis . customers can access our digital business analytics data sets and reports anytime online . our mobile operator analytics products suite connects mobile behavior , content merchandising , and device capabilities to provide comprehensive mobile market intelligence to mobile carriers worldwide . our core software product , subscriber analytix tm , powered by xplore , provides mobile carriers with information on network optimization and capacity planning , customer experience , and market intelligence . our mobile operator analytics platform is designed to integrate data from multiple sources including web and mobile interactions as well as customer relationship management , call center and back office systems . customers can access our mobile and network data sets and reports anytime online via our software-based delivery platform . 37 during the second quarter of 2012 , we noted a significant decline in revenues from arsgroup , or ars , which we acquired in february 2010. as a result , we performed an impairment test of the long-lived assets of ars and ultimately recorded an impairment charge of $ 3.3 million during the year ended december 31 , 2012. as a result of the significant decline in revenue from ars and the resulting impairment charge of $ 3.3 million , we began exploring all strategic options with respect to maximizing the value of ars , including a potential sale of some or all of ars . currently , we expect to dispose of the non-health portions of ars . we do not expect this transaction to have a material impact on our financial statements . our company was founded in august 1999. in 2007 , we completed our initial public offering . we have complemented our internal development initiatives with targeted acquisitions . in february 2010 , we acquired the outstanding stock of arsgroup , inc. to expand our ability to provide our customers with actionable information to improve their creative and strategic messaging targeted against specific audiences . in july 2010 , we acquired the outstanding stock of nexius , inc. , a provider of products to the large mobile networks that deliver network analysis focused on the experience of wireless subscribers , as well as network intelligence with respect to performance , capacity and configuration analytics . in august 2010 , we acquired the outstanding stock of nedstat b.v. , a provider of web analytics and innovative video measurement products based out of amsterdam , netherlands . in august 2011 , we acquired all of the outstanding equity of adxpose , inc. , a provider of digital advertising analytics products based out of seattle , washington . since our initial public offering in 2007 , our revenues and expenses have grown significantly . we attribute the growth in our revenue and expenses primarily to : increased sales to existing customers , as a result of our efforts to deepen our relationships with these customers by increasing their awareness of , and confidence in , the value of our digital marketing intelligence platform ; growth in our customer base through the addition of new customers and from acquired businesses ; the sales of new products to existing and new customers ; and growth in sales outside of the u.s. , as a result of entering into new international markets . as a result of economic events such as the global financial crisis in the credit markets , softness in the housing markets , difficulties in the financial services sector , political uncertainty in the middle east , and concerns regarding the eurozone , the direction and relative strength of the u.s. and global economies have become somewhat uncertain in recent periods . during 2011 and 2012 , we experienced a limited number of our current and potential customers ceasing , delaying or reducing renewals of existing subscriptions and purchases of new or additional services and products presumably due to the economic downturn . further , certain of our existing customers exited the market due to industry consolidation and bankruptcy in connection with these challenging economic conditions . since these negative economic events began in 2008 , we continued to annually add net new customers and our existing customers renewed their subscriptions at a rate of over 90 % based on dollars renewed each year . story_separator_special_tag notwithstanding our performance during these macroeconomic trends , if economic recovery slows or economic conditions deteriorate , our operating results could be adversely affected in coming periods . our revenues we derive our revenues primarily from the fees that we charge for subscription-based products , customized projects , and software licenses . we define subscription-based revenues as revenues that we generate from products that we deliver to a customer on a recurring basis , as well as arrangements where a customer is committing up-front to purchase a series of deliverables over time , which includes revenue from software licenses as further discussed below . we define project revenues as revenues that we generate from customized projects that are performed for a specific customer on a non-recurring basis . a significant characteristic of our saas-based business model is our large percentage of subscription-based contracts . subscription-based revenues accounted for 85 % of total revenues in each of the years ended december 31 , 2012 and 2011 . many of our customers who initially purchased a customized project have subsequently purchased one of our subscription-based products . similarly , many of our subscription-based customers have subsequently purchased additional customized projects . historically , we have generated most of our revenues from the sale and delivery of our products to companies and organizations located within the united states . we intend to expand our international revenues by selling our products and deploying our direct sales force model in additional international markets in the future . for the year ended december 31 , 2012 , our international revenues were $ 71.8 million , an increase of $ 11.8 million , or 20 % over international revenues of $ 60.0 million for the year ended december 31 , 2011 . international revenues comprised approximately 28 % , 26 % and 19 % of our total revenues for the fiscal years ended december 31 , 2012 , 2011 and 2010 , respectively . we anticipate that revenues from our u.s. customers will continue to constitute a substantial portion of our revenues in coming periods , but we expect that revenues from customers outside of the u.s. will increase as a percentage of total revenues as we build greater international recognition of our brand and expand our sales operations globally . 38 subscription revenues we generate a significant portion of our subscription-based revenues from our media metrix product suite . products within the media metrix suite include media metrix 360 , media metrix , plan metrix , world metrix , video metrix and ad metrix . these product offerings provide subscribers with intelligence on digital media usage , audience characteristics , audience demographics and online and offline purchasing behavior . customers who subscribe to our media metrix products are provided with login ids to our web site , have access to our database and can generate reports at anytime . we also generate subscription-based revenues from certain reports and analyses provided through our customer research product , if that work is procured by customers on a recurring basis . through our customer research products , we deliver digital marketing intelligence relating to specific industries , such as automotive , consumer packaged goods , entertainment , financial services , media , pharmaceutical , retail , technology , telecommunications and travel . this marketing intelligence leverages our global consumer panel and extensive database to deliver information unique to a particular customer 's needs on a recurring schedule , as well as on a continual-access basis . our marketing solutions customer agreements typically include a fixed fee with an initial term of at least one year . we also provide these products on a non-subscription basis as described under โ project revenues โ below . in addition , we generate subscription-based revenues from survey products that we sell to our customers . in conducting our surveys , we generally use our global internet user panel . after questionnaires are distributed to the panel members and completed , we compile their responses and then deliver our findings to the customer , who also has ongoing access to the survey response data as they are compiled and updated over time . these data include responses and information collected from the actual survey questionnaires and can also include behavioral information that we passively collect from our panelists . if a customer has a history of purchasing survey products in each of the last four quarters , then we believe this indicates the surveys are being conducted on a recurring basis , and we classify the revenues generated from such survey products as subscription-based revenues . our contracts for survey services typically include a fixed fee with terms that range from two months to one year . our acquisition of nedstat , resulted in additional revenue sources , including software subscriptions , server calls , and professional services ( including training and consulting ) . our arrangements generally contain multiple elements , consisting of the various service offerings . our acquisition of adxpose , resulted in additional revenue sources , including fees for the use of the adxpose platform . fees for the use of the adxpose platform are generally a fixed fee for each impression that is generated using the adxpose technology . revenue is recognized on a usage basis when the impression is delivered and reported via the adxpose service portal . project revenues we generate project revenues by providing customized information reports to our customers on a nonrecurring basis through comscore marketing solutions . for example , a customer in the media industry might request a custom report that profiles the behavior of the customer 's active online users and contrasts their market share and loyalty with similar metrics for a competitor 's online user base . if this customer continues to request the report beyond an initial project term of at least nine months and enters into an agreement to purchase the report on a recurring basis , we begin to classify these future revenues as subscription-based .
| revenues from u.s customers were $ 183.4 million for the year ended december 31 , 2012 , or approximately 72 % of total revenues , while revenues from customers outside of the u.s. were $ 71.8 million for the year ended december 31 , 2012 , or approximately 28 % of total revenues . our focus on organic growth efforts in international markets resulted in increased international revenues of $ 11.8 million , comprised of increases of $ 7.7 million in europe , $ 1.8 million in canada , $ 1.8 million in asia and $ 1.7 million in latin america , offset by a decrease of $ 1.2 million in the middle east and africa during the year ended december 31 , 2012 as compared to the prior year period . operating expenses the majority of our operating expenses consist of employee salaries and related benefits , stock compensation expense , professional fees , rent and other facility related costs , depreciation expense , and amortization and impairment of acquired intangible assets . our single largest operating expense relates to our people . in order to effectively motivate our employees and to provide them with proper long-term incentives , we pay the vast majority of our annual bonus arrangements using our common stock . in addition , three of our most senior executives , including our chief executive officer , have agreed to receive shares of our common stock instead of a cash salary . our total operating expenses increased by approximately $ 12.6 million , or approximately 5 % , during the year ended december 31 , 2012 as compared to the year ended december 31 , 2011 . this increase is primarily attributable to increased expenditures for employee salaries , benefits and related costs of $ 11.5 million associated with our increased headcount , increased use of stock based compensation of $ 3.6 million , an impairment charge of $ 3.3 million related to a decline in value of
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the company views the costs of vacating our ellesmere port site as contingent upon if and when it vacates the site because there is no present intention to do so . pensions the company maintains a defined benefit pension plan covering a number of its current and former employees in the united kingdom . the company also has other much smaller pension arrangements in the u.s. and overseas , but the obligations under those plans are not material . the united kingdom plan is closed to future service accrual , but has a large number of deferred and current pensioners . movements in the underlying plan asset value and projected benefit obligation ( ยpboย ) are dependent on actual return on investments as well as our assumptions in respect of the discount rate , annual member mortality rates , future return on assets and future inflation . a change in any one of these assumptions could impact the plan asset value , pbo and pension charge recognized in the income statement . such changes could adversely impact our results of operations and financial position . for example , a 0.25 % change in the discount rate assumption would change the pbo by approximately $ 24 million while the net pension credit for 2016 would be unchanged . a 0.25 % change in the level of price inflation assumption would change the pbo by approximately $ 17 million and the net pension credit for 2016 would change by approximately $ 0.1 million . further information is provided in note 9 of the notes to the consolidated financial statements . deferred tax and uncertain income tax positions as at december 31 , 2015 , no deferred taxes have been provided for on the unremitted earnings of our overseas subsidiaries as any tax basis differences relating to investments in these overseas subsidiaries are considered to be permanent in duration . we have no current intention to repatriate past or future earnings of our overseas subsidiaries and consider that these earnings have been reinvested overseas . if circumstances were to change that would cause these earnings to be repatriated an additional u.s. tax liability could be incurred , and we continue to monitor this position . the calculation of our tax liabilities involves evaluating uncertainties in the application of complex tax regulations . we recognize liabilities for anticipated tax audit issues based on our estimate of whether , and the extent to which , additional taxes will be required . if we ultimately determine that payment of these amounts is unnecessary , we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary . we also recognize tax benefits to the extent that it is more likely than not that our positions will be sustained , based on technical merits , when challenged by the taxing authorities . to the extent that we prevail in matters for which liabilities have been established , or are required to pay amounts in excess of our liabilities , our effective tax rate in a given period may be 28 materially affected . an unfavorable tax settlement may require cash payments and result in an increase in our effective tax rate in the year of resolution . a favorable tax settlement may be recognized as a reduction in our effective tax rate in the year of resolution . we report interest and penalties related to uncertain income tax positions as income taxes . for additional information regarding uncertain income tax positions see note 10 of the notes to the consolidated financial statements . goodwill the company 's reporting units , the level at which goodwill is assessed for potential impairment , are consistent with the reportable segments . the components in each segment ( including products , markets and competitors ) have similar economic characteristics and the segments , therefore , reflect the lowest level at which operations and cash flows can be sufficiently distinguished , operationally and for financial reporting purposes , from the rest of the company . initially the company performs a qualitative assessment to determine whether it is more likely than not that the fair value of a segment is less than the carrying amount prior to performing the two-step goodwill impairment test . if a two-step test is required we assess the fair value based on projected post-tax cash flows discounted at the company 's weighted average cost of capital . as at december 31 , 2015 we had $ 228.3 million and $ 39.1 million of goodwill relating to our fuel specialties and performance chemicals segments , respectively . our impairment assessment concluded that there had been no impairment of goodwill in respect of those reporting segments . while we believe our assumptions for impairment assessments are reasonable , they are subjective judgments , and it is possible that variations in any of the assumptions may result in materially different calculations of any potential impairment charges . property , plant and equipment and other intangible assets ( net of amortization ) as at december 31 , 2015 we had $ 76.0 million of property , plant and equipment and $ 168.7 million of other intangible assets ( net of amortization ) , that are discussed in notes 6 and 8 of the notes to the consolidated financial statements , respectively . these long-lived assets relate to all of our reporting segments and are being amortized or depreciated straight-line over periods of up to 17 years in respect of the other intangible assets and up to 25 years in respect of the property , plant and equipment . we continually assess the markets and products related to these long-lived assets , as well as their specific carrying values , and have concluded that these carrying values , and amortization and depreciation periods , remain appropriate . we also test these long-lived assets for any potential impairment when events occur or circumstances change which suggests that impairment may have occurred . story_separator_special_tag these types of events or changes in circumstances could include , but are not limited to : introduction of new products with enhanced features by our competitors ; 29 loss of , material reduction in purchases by , or non-renewal of a contract by , a significant customer ; prolonged decline in business or consumer spending ; sharp and unexpected rise in raw material , chemical or energy costs ; and new laws or regulations inhibiting the development , manufacture , distribution or sale of our products . in order to facilitate this testing the company groups together assets at the lowest possible level for which cash flow information is available . undiscounted future cash flows expected to result from the asset groups are compared with the carrying value of the assets and , if such cash flows are lower , an impairment loss may be recognized . the amount of the impairment loss is the difference between the fair value and the carrying value of the assets . fair values are determined using post-tax cash flows discounted at the company 's weighted average cost of capital . if events occur or circumstances change it may cause a reduction in periods over which these long-lived assets are amortized or depreciated , or result in a non-cash impairment of a portion of their carrying value . a reduction in amortization or depreciation periods would have no effect on cash flows . in 2015 we continued with the process of developing a new , company-wide , information system platform . the platform provider is well established in the market . the implementation is a phased , risk-managed , site deployment and follows a multistage user acceptance program with the existing platform providing a fallback position . in the fourth quarter of 2015 we have implemented the new platform at the majority of reporting units outside of the u.s. which combined with the initial deployment in 2013 means the majority of our businesses are now operating with the new platform . internally developed software and other costs capitalized at december 31 , 2015 were $ 36.4 million ( 2014 ย $ 27.8 million ) . an amortization expense of $ 4.0 million was recognized in 2015 ( 2014 ย $ 3.8 million ) in selling , general and administrative expenses . 30 story_separator_special_tag 2014. adjustment to fair value of contingent consideration : the credit of $ 40.7 million relates to an adjustment of the carrying value of our liability for contingent consideration related to our independence acquisition of $ 51.4 million , partly offset by the accretion charge of $ 10.7 million . the carrying value of the contingent consideration is based on the estimated ebitda and free cash flow generated by the independence business through the period to october 31 , 2016. the contingent consideration payable is based on management 's latest forecasts of the business and on the current trading performance . the results of the business are particularly sensitive to the level of exploration , development and production activity of our customers in the oil and gas sector , this is directly affected by trends in oil prices . profit on disposal of subsidiary : the disposal of our aroma chemicals business generated a profit on disposal of $ 1.6 million in the third quarter . 34 other net income/ ( expense ) : other net expense of $ 0.0 million primarily related to $ 1.4 million of losses on translation of net assets denominated in non-functional currencies in our european businesses , offset by gains of $ 1.4 million on foreign currency forward exchange contracts . in 2014 , other net income of $ 1.8 million primarily related to net gains of $ 3.4 million on foreign currency forward exchange contracts , partly offset by $ 1.6 million of losses on translation of net assets denominated in non-functional currencies in our european businesses . interest expense , net : was $ 4.0 million in 2015 and $ 3.4 million in 2014 , being primarily driven by higher borrowing in 2015 resulting from the funding required for the acquisition of our independence business in the fourth quarter of 2014. income taxes : the effective tax rate was 21.5 % and 24.2 % in 2015 and 2014 , respectively . the effective tax rate , once adjusted for changes to the fair value of contingent consideration , adjustments to income tax positions and the tax impact of other discrete items , was 20.1 % in 2015 compared with 24.9 % in 2014. the company believes that this adjusted effective tax rate , a non-gaap financial measure , provides useful information to investors and may assist them in evaluating the company 's underlying performance and identifying operating trends . in addition , management uses this non-gaap financial measure internally to evaluate the performance of the company 's operations and for planning and forecasting in subsequent periods . replace_table_token_13_th in addition to those mentioned above , the following factors had a significant impact on the company 's effective tax rate as compared to the u.s. federal income tax rate of 35 % : replace_table_token_14_th 35 the impact on the effective tax rate from profits earned in foreign jurisdictions with lower tax rates varies as the geographical mix of the company 's profits changes year on year . in 2015 , the company 's income tax expense benefited to a lesser degree from a proportion of its overall profits arising in switzerland than in 2014. this resulted in a $ 7.5 million benefit in switzerland ( 2014 ย $ 9.4 million ) . in addition , there was a $ 6.8 million benefit in relation to the united kingdom ( 2014 ย $ 7.9 million ) and a $ 0.3 million benefit in relation to germany ( 2014 ย $ 0.4 million ) , offset by a $ 0.1 million reduction in other jurisdictions . foreign income inclusions arise each year from certain types of income earned overseas being taxable under u.s. tax regulations .
| operating expenses : the year on year increase of 41 % , or $ 46.6 million , was due to $ 39.4 million of additional costs for the independence business ; partly offset by a $ 3.9 million decrease in expenses within our other oilfield businesses ; together with a $ 13.4 million increase in selling and technical support expenses primarily related to increased sales volumes in the americas , excluding oilfield services ; and a $ 2.3 million decrease in other expenses primarily due to favorable exchange rates in emea and aspac resulting from a weakening of the european union euro and the british pound sterling against the u.s. dollar . performance chemicals net sales : the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate : replace_table_token_12_th volumes were higher in the americas and emea , primarily due to increased personal care volumes , partly offset by adverse pricing pressures affecting the price and product mix . aspac saw lower volumes partly offset by a favorable price and product mix . a weakening of the european union euro and the british pound sterling against the u.s. dollar resulted in an adverse exchange variance for emea and aspac . the disposal of our aroma chemicals business has been excluded from the market analysis above and included as one variance for the segment total . 33 gross margin : the year on year increase of 2.6 percentage points was primarily driven by a greater proportion of sales from our higher margin personal care business , partly resulting from the disposal of our aroma chemicals business at the start of the third quarter . operating expenses : the year on year increase of $ 0.1 million was due to $ 0.8 million higher research and development costs and $ 0.4 million of additional headcount to support our personal care growth , partly offset by a $ 1.1 million reduction due to the disposal of our aroma chemicals business . octane additives net sales : the year on year increase of
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see the consolidated financial statements attached hereto . item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures . disclosure controls and procedures . disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) ) of the securities exchange act of 1934 , as amended ( the โ exchange act โ ) are designed to ensure that ( 1 ) information required to be disclosed in reports filed or submitted under the exchange act is recorded , processed , summarized and reported within the time periods specified in sec rules and forms ; and ( 2 ) that such information is accumulated and communicated to management , including the principal executive officer and principal financial officer , to allow timely decisions regarding required disclosures . there are inherent limitations to the effectiveness of any system of disclosure controls and procedures , including the possibility of human error and the circumvention or overriding of controls and procedures . accordingly , even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives . the company 's management , including the company 's chief executive officer and chief financial officer , evaluated the effectiveness of the design and operation of the company 's disclosure controls and procedures as of june 30 , 2014 . the company 's management has concluded that the company 's disclosure controls and procedures as of june 30 , 2014 were effective . management 's annual report on internal controls over financial reporting . the company 's management , including its chief executive officer and chief financial officer , is responsible for establishing and maintaining adequate internal control over financial reporting ( as defined in exchange act rules 13a-15 ( f ) and 15d-15 ( f ) ) and designing such internal controls to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states of america . there are inherent limitations to the effectiveness of any system of internal control over financial reporting , including the possibility of human error or the circumvention or overriding of controls and procedures . accordingly , even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives . management conducted its evaluation of the effectiveness of its internal control over financial reporting based on the framework in the โ 1992 internal control-integrated framework โ and the 2006 `` internal control over financial reporting - guidance for smaller public companies , '' both issued by the committee of sponsoring organizations of the treadway commission ( โ coso โ ) . in connection with this evaluation , there were no changes in the company 's internal control over financial reporting ( as such term is defined in rule 13a-15 ( e ) and 15d-15 ( e ) of the exchange act ) during the quarter ended june 30 , 2014 that have materially affected , or are reasonably likely to materially affect , the company 's internal control over financial reporting . based on this evaluation , management has concluded that the company 's internal control over financial reporting as of june 30 , 2014 was effective . the company plans to adopt `` the 2013 coso framework & sox compliance , '' also issued by coso , on or before the required conversion date in december 2014 . 16 part iii item 10. directors , executive officers and corporate governance . this information is incorporated by reference to the sections entitled `` information as to the nominees , '' `` executive officers , '' `` section 16 ( a ) beneficial reporting compliance , '' `` code of ethics '' and `` board committees - audit committee '' from koss corporation 's proxy statement for its 2014 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. the company adopted a code of ethics , which is a `` code of ethics '' as defined by applicable rules of the sec , which is applicable to its directors , officers and employees . the code of ethics is publicly available on the company 's website at www.koss.com/en/about/history . if the company makes any substantive amendments to the code of ethics or grants any waiver , including any implicit waiver , from a provision of the code to its principal executive officer , principal financial officer , principal accounting officer or controller or persons performing similar functions , the company will disclose the nature of the amendment or waiver on that website or in a report on form 8-k. item 11. executive compensation . this information is incorporated by reference to the sections entitled `` summary compensation table , '' `` outstanding equity awards at fiscal year end , '' `` director compensation , '' and `` board committees - compensation committee '' from koss corporation 's proxy statement for its 2014 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. item 12. security ownership of certain beneficial owners and management and related stockholder matters . this information is incorporated by reference to the sections entitled `` beneficial ownership of company securities '' and `` equity compensation plan information '' from koss corporation 's proxy statement for its 2014 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. item 13. certain relationships and related transactions , and director independence . this information is incorporated by reference to the sections entitled `` independence of the board , '' `` board committees '' and `` related party transactions story_separator_special_tag see the consolidated financial statements attached hereto . item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures . disclosure controls and procedures . disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) ) of the securities exchange act of 1934 , as amended ( the โ exchange act โ ) are designed to ensure that ( 1 ) information required to be disclosed in reports filed or submitted under the exchange act is recorded , processed , summarized and reported within the time periods specified in sec rules and forms ; and ( 2 ) that such information is accumulated and communicated to management , including the principal executive officer and principal financial officer , to allow timely decisions regarding required disclosures . there are inherent limitations to the effectiveness of any system of disclosure controls and procedures , including the possibility of human error and the circumvention or overriding of controls and procedures . accordingly , even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives . the company 's management , including the company 's chief executive officer and chief financial officer , evaluated the effectiveness of the design and operation of the company 's disclosure controls and procedures as of june 30 , 2014 . the company 's management has concluded that the company 's disclosure controls and procedures as of june 30 , 2014 were effective . management 's annual report on internal controls over financial reporting . the company 's management , including its chief executive officer and chief financial officer , is responsible for establishing and maintaining adequate internal control over financial reporting ( as defined in exchange act rules 13a-15 ( f ) and 15d-15 ( f ) ) and designing such internal controls to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states of america . there are inherent limitations to the effectiveness of any system of internal control over financial reporting , including the possibility of human error or the circumvention or overriding of controls and procedures . accordingly , even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives . management conducted its evaluation of the effectiveness of its internal control over financial reporting based on the framework in the โ 1992 internal control-integrated framework โ and the 2006 `` internal control over financial reporting - guidance for smaller public companies , '' both issued by the committee of sponsoring organizations of the treadway commission ( โ coso โ ) . in connection with this evaluation , there were no changes in the company 's internal control over financial reporting ( as such term is defined in rule 13a-15 ( e ) and 15d-15 ( e ) of the exchange act ) during the quarter ended june 30 , 2014 that have materially affected , or are reasonably likely to materially affect , the company 's internal control over financial reporting . based on this evaluation , management has concluded that the company 's internal control over financial reporting as of june 30 , 2014 was effective . the company plans to adopt `` the 2013 coso framework & sox compliance , '' also issued by coso , on or before the required conversion date in december 2014 . 16 part iii item 10. directors , executive officers and corporate governance . this information is incorporated by reference to the sections entitled `` information as to the nominees , '' `` executive officers , '' `` section 16 ( a ) beneficial reporting compliance , '' `` code of ethics '' and `` board committees - audit committee '' from koss corporation 's proxy statement for its 2014 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. the company adopted a code of ethics , which is a `` code of ethics '' as defined by applicable rules of the sec , which is applicable to its directors , officers and employees . the code of ethics is publicly available on the company 's website at www.koss.com/en/about/history . if the company makes any substantive amendments to the code of ethics or grants any waiver , including any implicit waiver , from a provision of the code to its principal executive officer , principal financial officer , principal accounting officer or controller or persons performing similar functions , the company will disclose the nature of the amendment or waiver on that website or in a report on form 8-k. item 11. executive compensation . this information is incorporated by reference to the sections entitled `` summary compensation table , '' `` outstanding equity awards at fiscal year end , '' `` director compensation , '' and `` board committees - compensation committee '' from koss corporation 's proxy statement for its 2014 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. item 12. security ownership of certain beneficial owners and management and related stockholder matters . this information is incorporated by reference to the sections entitled `` beneficial ownership of company securities '' and `` equity compensation plan information '' from koss corporation 's proxy statement for its 2014 annual meeting of stockholders filed with the commission under regulation 14a within 120 days of the end of the fiscal year covered by this form 10-k. item 13. certain relationships and related transactions , and director independence . this information is incorporated by reference to the sections entitled `` independence of the board , '' `` board committees '' and `` related party transactions
| gross profit as a percent of sales in 2014 was ( 1.2 ) % , which was 38.7 % lower than 2013 . the decline in gross profit percentage was primarily due to the impairment charge related to the wifi development and inventory . in 2014 , the company also incurred costs for the operations in mexico that were operating at less than optimal levels due to the lower sales levels , especially for products in export markets . in addition , fixed costs were a higher percentage of net sales . the company took impairment charges for capitalized software , inventory and related items during the fiscal year ended 2014. it was determined during the three months ended december 31 , 2013 , that the capitalized software needed to be replaced by a new architecture currently under development . further review later in the year determined that it was unlikely that products would be marketed and sold using the architecture as currently configured . the remaining inventory and tooling were charged to expense in the three months ended june 30 , 2014. the company still plans to develop the revised software platform and expects to launch new products using this technology , but has temporarily suspended this research and development effort until the base business is restored to more profitable levels . software development expenditures incurred since december 31 , 2013 were expensed as incurred and future software development expenditures will be expensed as incurred as well . gross profit prior to the impairment as a percent of sales was lower than last year . the lower gross profit margin was primarily the result of costs for manufacturing operations in mexico . during fiscal year 2014 , the company commenced manufacturing operations in juarez , mexico that focused on certain products aimed at our export markets . the large reduction in export sales did not allow the company to experience an adequate return on its investment in the mexican production facility . as a result , we have temporarily suspended production at the facility . the company incurred approximately
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we plan to leverage the synergy between the platforms to accelerate a synthetic immuno-oncology pipeline and programs for the development of allogeneic car-t and natural killer ( nk ) cells that can be used as off-the-shelf ( ots ) therapies . during 2015 , the company was in the clinic in collaboration with mdacc with three car-t therapies all targeting cd19 . one of these t cell trials , using second generation technology , will continue in 2016. the company expects to enter the clinic with an additional car-t therapy for myeloid malignancies in 2016. together with intrexon , we have research programs evaluating additional car targets and cars co-expressed with cytokines . in addition to developing t cells , the company expects to enter the clinic in 2016 infusing ots primary nk cells for investigational therapy of acute myelogenous leukemia ( aml ) . the company has additional interest in ots products and is conducting a research program for the development of an allogenic car-t therapy in 2016. t cell specificity can be redirected not only through cars , but also t cell receptors ( tcrs ) and the company plans to initiate programs investigating t cells genetically modified to express tcr with preclinical studies planned for 2016. we plan to continue to combine intrexon 's technology suite with our capabilities to translate science to the patient , and to identify and develop additional products to stimulate or inhibit key pathways , including those used by the body 's immune system , to treat cancer . on march 27 , 2015 , we entered into a global collaboration with intrexon focused exclusively on chimeric antigen receptor t cell , or car+ t , products with ares trading , or ares , a biopharmaceutical division of merck kgaa . intrexon will share the economic provisions of this collaboration equally with us , including an upfront payment of $ 115.0 million received in july 2015 , milestones and royalties . under the collaboration ares has selected two car+ t targets for which we will perform certain research activities that will , in part , be funded by ares . pursuant to the terms of the exclusive channel partner amendment , or ecp amendment , we will be responsible for any additional research and development expenditures . once these candidates reach investigational new drug stage , the programs will be transferred to ares for clinical development and commercialization . we , together with intrexon will also independently conduct research and development on other car-t candidates , with ares trading having the opportunity during clinical development to opt-in to these candidates for additional payments . 60 on september 28 , 2015 , the company entered into a new exclusive channel collaboration with intrexon to develop treatments for graft-versus-host disease ( gvhd ) , a major complication of allogeneic hematopoietic stem-cell transplantation ( hsct ) which significantly impairs the quality of life and survival of many recipients . the collaboration will focus on addressing the underlying pathologies of gvhd through engineered cell platforms to express and deliver interleukin-2 ( il-2 ) , a cytokine critical for modulation of the immune system . the company believes that the combined expertise and knowledge gained from our research programs with intrexon in adoptive t cell therapies and cytokine modulation for the treatment of cancer positions us well to develop and implement therapeutic approaches addressing an area of high unmet medical need for patients with gvhd . through the gvhd agreement , the companies plan to pursue engineered cell therapy strategies , used either separately or in combination , for targeted treatment of gvhd . the first approach is expected to utilize the infusion of regulatory t cells ( tregs ) conditionally expressing il-2 utilizing the rheoswitch platform . the second approach is expected to utilize the deployment of orally-delivered microbe-based actobiotics ยฎ therapeutics expressing il-2 to modulate immune function . allogeneic hsct is used for the treatment of various diseases including hematological malignancies , immunological deficiencies as well as non-malignant conditions . approximately 40 to 60 % of hsct recipients develop gvhd , either acute or chronic , when immune ( graft ) cells in a transplant patient recognize their engrafted host as foreign and attack the patient 's ( host ) cells . immunosuppressive agents and systemic steroids routinely used to treat gvhd have limited efficacy and toxicity , defining the need for safer , more effective therapies . human studies have shown that administration of low-dose subcutaneous il-2 in patients with steroid-refractory gvhd acts via tregs to ameliorate its manifestations . financial overview story_separator_special_tag valign= '' bottom '' width= '' 4 % '' > year ended december 31 , 2015 2014 change ( $ in thousands ) collaboration revenue $ 4,332 $ 1,373 $ 2,959 216 % revenue for the year ended december 31 , 2015 has increased in comparison to the year ended december 31 , 2014. the increase resulted from revenue recognized from the ares trading agreement in the amount of $ 3.2 million and from predictive therapeutics for $ 50 thousand for the twelve months ended december 31 , 2015. the increase in revenue was offset by a decrease in revenue recognized from solasia in the amount of $ 285 thousand for the twelve months ended december 31 , 2015. deferred revenue of $ 54.8 million is comprised of $ 54.3 million from the ares trading agreement which will be earned over the period of effort estimated to be 9 years , $ 272 thousand from the amended and restated solasia 62 license and collaboration agreement which will be earned over the period of effort estimated to be over three months , and $ 200 thousand from predictive therapeutics which will be earned over the period of effort estimated to be six months . story_separator_special_tag research and development expenses research and development expenses during the years ended december 31 , 2015 and 2014 were as follows : year ended december 31 , 2015 2014 change ( $ in thousands ) research and development $ 106,785 $ 32,706 $ 74,079 226 % research and development expenses for the year ended december 31 , 2015 increased by $ 74.1 million when compared to the year ended december 31 , 2014. the increase is due to the fair value of the common shares issued to md anderson in consideration for the md anderson license in the amount of $ 67.3 million and a $ 10.0 million charge for in process research and development with intrexon ( see note 8 to the accompanying financial statements ) , and an increase of $ 14.9 million in spending on car-t programs pursuant to the md anderson license . these increases were offset by decreases in discovery and nonclinical spending of $ 15.6 million , $ 1.9 million in payroll , bonus , and employee related expenses , and $ 600 thousand in other expenses . general and administrative expenses general and administrative expenses during the years ended december 31 , 2015 and 2014 were as follows : year ended december 31 , 2015 2014 change ( $ in thousands ) general and administrative $ 17,647 $ 12,166 $ 5,481 45 % general and administrative expenses for the year ended december 31 , 2015 increased by $ 5.5 million when compared to the year ended december 31 , 2014. the change was primarily due to increases in employee related and stock compensation expenses of $ 4.8 million and $ 840 thousand in costs associated with contracted outside services primarily related to the md anderson transaction , offset by decreased spending of approximately $ 160 thousand in travel and other expenses during the year ended december 31 , 2015. other income ( expense ) other income ( expense ) during the years ended december 31 , 2015 and 2014 were as follows : replace_table_token_4_th the decrease in other income ( expense ) from the year ended december 31 , 2015 compared to the year ended december 31 , 2014 was due primarily to the change in the fair value of liability-classified warrants , which yielded a gain of $ 11.7 million for the year ended december 31 , 2014. the warrants expired on december 9 , 2014 . 63 results of operations for the fiscal year ended december 31 , 2014 versus december 31 , 2013 collaboration revenues revenues for the years ended december 31 , 2014 and 2013 were as follows : replace_table_token_5_th revenue for the year ended december 31 , 2014 increased in comparison to the year ended december 31 , 2013. in connection with our march 7 , 2011 collaboration agreement with solasia pharma k.k. , we received $ 5.0 million in research and development funding which was being earned over the period of effort , originally estimated to be 75 months . in july 2014 , we entered into an amended and restated license and collaboration agreement with solasia ( see note 8 to the accompanying financial statements ) , resulting in the company no longer being obligated to continue their research and development efforts in connection with the upfront payment . however , there are certain deliverables , including the transition of clinical trial data , intellectual property , and completion of certain services that are included in the amended and restated license and collaboration agreement which are not separable from the agreement and have no stand-alone value . as a result , the company determined that the estimated period for amortizing the upfront payment now coincides with the completion of the aforementioned deliverables which has been estimated to be december 31 , 2015. accordingly , the company has recorded $ 1.4 million in revenue during the year ended december 31 , 2014 while the remaining deferred revenue balance of $ 1.4 million at december 31 , 2014 has been classified as current . research and development expenses research and development expenses during the years ended december 31 , 2014 and 2013 were as follows : year ended december 31 , 2014 2013 change ( $ in thousands ) research and development $ 32,706 $ 42,852 $ ( 10,146 ) -24 % research and development expenses for the year ended december 31 , 2014 decreased by $ 10.1 million when compared to the year ended december 31 , 2013. on march 26 , 2013 , we announced the decision to immediately terminate development of palifosfamide in first-line metastatic soft tissue sarcoma and during the quarter ended september 30 , 2013 , completed a workforce reduction plan to reduce costs ( see note 4 in the accompanying financial statements ) . this resulted in lower costs of $ 2.4 million related to the phase 3 palifosfamide study in sclc as the decision was made to suspend enrollment pending further data , lower costs related to the phase 3 palifosfamide study in soft tissue sarcoma of $ 11.2 million , lower other clinical costs of $ 0.9 million , lower employee-related costs of $ 2.0 million and lower manufacturing costs of $ 3.4 million . the decrease was offset by an increase of $ 5.6 million in discovery activities , $ 3.7 million in nonclinical activities , and $ 0.5 million of other costs all related to our synthetic biology program .
| completion of clinical trials may take several years or more , and the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product . it is not unusual for preclinical and clinical development of each of these types of products to require the expenditure of substantial resources . 61 we estimate that clinical trials of the type generally needed to secure new drug approval are typically completed over the following timelines : clinical phase estimated completion period phase 1 1 - 2 years phase 2 2 - 3 years phase 3 2 - 4 years the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development , including , among others , the following : the number of clinical sites included in the trials ; the length of time required to enroll suitable patents ; the number of patients that ultimately participate in the trials ; the duration of patient follow-up to ensure the absence of long-term product-related adverse events ; and the efficacy and safety profile of the product . as a result of the uncertainties discussed above , we are unable to determine the duration and completion costs of our programs or when and to what extent we will receive cash inflows from the commercialization and sale of a product . our inability to complete our programs in a timely manner or our failure to enter into appropriate collaborative agreements could significantly increase our capital requirements and could adversely impact our liquidity . these uncertainties could force us to seek additional , external sources of financing from time-to-time in order to continue with our product development strategy . our inability to raise additional capital , or to do so on terms reasonably acceptable to us , would jeopardize the future success of our business . general and administrative expenses general and administrative expenses consist primarily of salaries , benefits and stock-based compensation , consulting and professional fees , including patent related costs , general corporate costs and
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good times food and packaging costs were $ 9,346,000 ( 32.4 % of restaurant sales ) in fiscal 2016 , down from $ 9,734,000 ( 34.1 % of restaurant sales ) in fiscal 2015. we experienced moderation in commodity costs beginning in our third fiscal quarter of 2015 and continuing into fiscal 2016. bad daddy 's food and packaging costs were $ 10,890,000 ( 31.2 % of restaurant sales ) in fiscal 2016 , up from $ 4,833,000 ( 32.2 % of restaurant sales ) in fiscal 2015 . $ 3,388,000 of the $ 6,057,000 increase was attributable to the north carolina bdi restaurants acquired in may 2015. the remaining increase of $ 2,669,000 was attributable to the three bad daddy 's restaurants in colorado open the entire fiscal year and the six new bad daddy 's restaurants that opened in fiscal 2016. payroll and other employee benefit costs : for fiscal 2016 , payroll and other employee benefit costs increased $ 7,711,000 from $ 14,387,000 ( 33.1 % of restaurant sales ) in fiscal 2015 to $ 22,098,000 ( 34.7 % of restaurant sales ) . good times payroll and other employee benefit costs were $ 9,450,000 ( 32.7 % of restaurant sales ) in fiscal 2016 , up from $ 8,967,000 ( 31.4 % of restaurant sales ) in fiscal 2015. the $ 483,000 increase in payroll and other employee benefit expenses is primarily due to an increase in the average wage paid to our employees , which increased approximately 6 % in fiscal 2016 compared to fiscal 2015. the 6 % increase is attributable to a very competitive labor market in colorado . payroll and other employee benefits increased approximately $ 146,000 in fiscal 2016 due to one new restaurant opened in may 2015. bad daddy 's payroll and other employee benefit costs were $ 12,648,000 ( 36.3 % of restaurant sales ) for fiscal 2016 up from $ 5,420,000 ( 36.1 % of restaurant sales ) in fiscal 2015 . $ 3,732,000 of the $ 7,228,000 increase was attributable to the north carolina bdi restaurants acquired in may 2015. the remaining increase of $ 3,496,000 was attributable to the three bad daddy 's restaurants in colorado open the entire fiscal year and the six new bad daddy 's restaurants that opened in fiscal 2016. occupancy and other operating costs : for fiscal 2016 , occupancy and other operating costs increased $ 3,398,000 from $ 7,179,000 ( 16.6 % of restaurant sales ) in fiscal 2015 to $ 10,577,000 ( 16.5 % of restaurant sales ) . good times occupancy and other operating costs were $ 5,092,000 ( 17.6 % of restaurant sales ) in fiscal 2016 , up from $ 4,768,000 ( 16.7 % of restaurant sales ) in fiscal 2015. the $ 324,000 increase in occupancy and other costs is primarily attributable to : ยท increase of $ 108,000 in occupancy and other restaurant operating costs due to the one new restaurant opened in may 2015 . ยท increases in various other restaurant operating costs of $ 216,000 at existing restaurants comprised primarily of repairs and maintenance , rent , property taxes and bank fees . occupancy costs may increase as a percent of sales as new company-owned restaurants are developed due to higher rent associated with sale-leaseback operating leases , as well as increased property taxes on those locations . bad daddy 's occupancy and other operating costs were $ 5,485,000 ( 15.7 % of restaurant sales ) for fiscal 2015 up from $ 2,411,000 ( 16.1 % of restaurant sales ) in fiscal 2015 . $ 1,666,000 of the $ 3,074,000 increase was attributable to the north carolina bdi restaurants acquired in may 2015. the remaining increase of $ 1,408,000 was attributable to the three bad daddy 's restaurants in colorado open the entire fiscal year and the six new bad daddy 's restaurants that opened in fiscal 2016 . 29 new store preopening costs : in fiscal 2016 , we incurred $ 1,695,000 of preopening costs compared to $ 784,000 in fiscal 2015. good times preopening costs were $ 4,000 for fiscal 2016 compared to $ 172,000 in fiscal 2015. bad daddy 's preopening costs were $ 1,691,000 for fiscal 2016 compared to $ 612,000 in fiscal 2015. all of the preopening costs are related to the newly developed bad daddy 's restaurants . depreciation and amortization costs : for fiscal 2016 , depreciation and amortization costs increased $ 976,000 from $ 1,246,000 in fiscal 2015 to $ 2,222,000 in fiscal 2016. good times depreciation costs increased $ 68,000 from $ 678,000 in fiscal 2015 to $ 746,000 in fiscal 2016 , primarily due to the one new restaurant opened in fiscal 2015 and one major remodel completed in fiscal 2015. bad daddy 's depreciation costs increased $ 908,000 from $ 568,000 in fiscal 2015 to $ 1,476,000 in fiscal 2016 . $ 383,000 of the increase was attributable to the north carolina bdi restaurants acquired in may 2015. the remaining increase of $ 525,000 was attributable to the three bad daddy 's restaurants in colorado open the entire fiscal year and the six new bad daddy 's restaurants that opened in fiscal 2016. story_separator_special_tag and non-cash disposal of assets . adjusted ebitda is intended as a supplemental measure of our performance that is not required by , or presented in accordance with gaap . we believe that ebitda and adjusted ebitda provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results . our management uses ebitda and adjusted ebitda ( i ) as a factor in evaluating management 's performance when determining incentive compensation and ( ii ) to evaluate the effectiveness of our business strategies . we believe that the use of ebitda and adjusted ebitda provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the company 's financial measures with other fast casual restaurants , which may present similar non-gaap financial measures to investors . story_separator_special_tag in addition , you should be aware when evaluating ebitda and adjusted ebitda that in the future we may incur expenses similar to those excluded when calculating these measures . our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items . our computation of adjusted ebitda may not be comparable to other similarly titled measures computed by other companies , because all companies do not calculate adjusted ebitda in the same fashion . our management does not consider ebitda or adjusted ebitda in isolation or as an alternative to financial measures determined in accordance with gaap . the principal limitation of ebitda and adjusted ebitda is that they exclude significant expenses and income that are required by gaap to be recorded in the company 's financial statements . some of these limitations are : ยท adjusted ebitda does not reflect our cash expenditures , or future requirements , for capital expenditures or contractual commitments ; ยท adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; ยท adjusted ebitda does not reflect the interest expense , or the cash requirements necessary to service interest or principal payments , on our debts ; ยท although depreciation and amortization are non-cash charges , the assets being depreciated and amortized will often have to be replaced in the future , and adjusted ebitda does not reflect any cash requirements for such replacements ; ยท stock based compensation expense is and will remain a key element of our overall long-term incentive compensation package , although we exclude it as an expense when evaluating our ongoing performance for a particular period ; ยท adjusted ebitda does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations ; and ยท other companies in our industry may calculate adjusted ebitda differently than we do , limiting its usefulness as a comparative measure . 31 because of these limitations , adjusted ebitda should not be considered in isolation or as a substitute for performance measures calculated in accordance with gaap . we compensate for these limitations by relying primarily on our gaap results and using adjusted ebitda only supplementally . you should review the reconciliation of net loss to ebitda and adjusted ebitda below and not rely on any single financial measure to evaluate our business . the following table reconciles net loss to ebitda and adjusted ebitda ( in thousands ) : replace_table_token_7_th ( 1 ) represents expenses directly associated with the opening of new restaurants , including preopening rent . ( 2 ) represents non-cash stock based compensation as described in note 10 to the financial statements . ( 3 ) represents the costs related to the acquisition of bdi and includes legal , accounting and other non-recurring integration costs related to the transaction . ( 4 ) represents the prepayment penalty and write off of unamortized loan fees associated with the retirement of the bridge funding credit facility . ( 5 ) represents the excess of gaap rent recorded in the financial statements over the amount of cash rent incurred . ( 6 ) primarily related to a deferred gain on a previous sale leaseback transaction on a good times restaurant . liquidity and capital resources cash and working capital : as of september 27 , 2016 , we had a working capital excess of $ 2,671,000. our working capital position benefits from the fact that we generally collect cash from sales to customers the same day , or in the case of credit or debit card transactions , within several days of the related sale , and we typically have two to four weeks to pay our vendors . this benefit may increase when new bad daddy 's and good times restaurants are opened . we believe that we will have sufficient capital to meet our working capital , long term debt obligations and recurring capital expenditure needs in fiscal 2017 and beyond . as of september 27 , 2016 , we had total commitments outstanding of $ 1,621,000 related to construction contracts for good times and bad daddy 's restaurants currently under development . we anticipate these commitments will be funded out of existing cash or future borrowings against the cadence bank credit facility . financing : public offering : on may 4 , 2015 we completed a public offering of 2,783,810 shares of common stock , par value $ 0.001 per share . the price to the public was $ 8.15 per share with an underwriter 's agreement at a price of $ 7.58 per share . the public offering resulted in net proceeds of approximately $ 20.6 million that we primarily used for the acquisition of bad daddy 's international and development of additional bad daddy 's burger bar restaurants . bad daddy 's international note payable : in may 2015 , in connection with the bdi purchase , the company entered into a one-year secured promissory note bearing interest at 3.25 % in the amount of $ 2,414,000. the outstanding promissory note , along with all accrued interest , was paid in full on may 6 , 2016. bridge funding credit facility : on july 30 , 2014 drive thru entered into a development line loan and security agreement with united capital business lending , whose name was changed to bridge funding group in february 2016 ( โ lender โ ) , pursuant to which lender agreed to loan drive thru up to $ 2,100,000 ( the โ loan โ ) and entered into a collateral assignment of franchise agreements , management agreement and partnership interests with lender . in addition , on july 30 , 2014 , the company entered into a guaranty agreement ( the โ guaranty agreement โ ) with lender , pursuant to which the company guaranteed the repayment of the loan .
| beginning in fiscal 2016 all restaurants contributed to an advertising materials fund based on a percentage of restaurant sales . acquisition costs : for fiscal 2016 there were no acquisition costs compared to acquisition costs of $ 648,000 in fiscal 2015. all acquisition costs in the prior year were related to the acquisition of bdi , as discussed under โ acquisition of bad daddy 's international , llc , โ and included legal , accounting , other non-recurring integration costs and other professional services related to the transaction . franchise costs : for fiscal 2016 , franchise costs decreased $ 3,000 from $ 111,000 in fiscal 2015 to $ 108,000. the costs are primarily related to the good times franchised restaurants . gain or loss on restaurant asset disposals : for fiscal 2016 , the gain on restaurant asset disposals was $ 25,000 compared to a loss of $ 9,000 in fiscal 2015. the $ 25,000 gain in fiscal 2016 is comprised of a deferred gain on a previous sale lease-back transaction . loss from operations : the loss from operations was $ 300,000 in fiscal 2016 compared to a loss from operations of $ 239,000 in fiscal 2015 . 30 the increase in loss from operations for the fiscal year is due primarily to matters discussed in the `` restaurant operating costs '' , `` general and administrative costs '' , โ franchise costs โ and โ gain on restaurant asset sales โ sections above . net loss : the net loss was $ 465,000 for fiscal 2016 compared to a net loss of $ 300,000 in fiscal 2015. the change from fiscal 2015 to fiscal 2016 was primarily attributable to the matters discussed in the `` net revenues '' , `` restaurant operating costs '' , `` general and administrative costs '' and `` franchise costs '' sections above , as well as 1 ) an increase in net interest expense of $ 58,000 compared to the same prior year period ; and 2 ) debt extinguishment costs of $ 57,000 in fiscal 2016 compared to none in
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artesian development is a real estate holding company that owns properties , including land zoned for office buildings , a water treatment plant and wastewater facility , as well as property for current operations , including an office facility in sussex county , delaware . the facility consists of approximately 10,000 square feet of office space along with nearly 10,000 square feet of warehouse space . this facility allows all of our sussex county , delaware operations to be housed in one central location . artesian consulting engineers no longer offers development and architectural services to outside third parties . artesian will continue to provide design and engineering contract services through our artesian utility subsidiary . strategic direction our strategy is to significantly increase customer growth , revenues , earnings and dividends by expanding our water , wastewater and service line protection plan services across the delmarva peninsula . we remain focused on providing superior service to our customers and continuously seeking ways to improve our efficiency and performance . by providing water and wastewater services , we believe we are positioned as the primary resource for developers and communities throughout the delmarva peninsula seeking to fill both needs simultaneously . we have a proven ability to acquire and integrate high growth , reputable entities , through which we have captured additional service territories that will serve as a base for future revenue . we believe this experience presents a strong platform for further expansion and that our success to date also produces positive relationships and credibility with regulators , municipalities , developers and customers in both existing and prospective service areas . in our regulated water division , our strategy is to focus on a wide spectrum of activities , which include identifying new and dependable sources of supply , developing the wells , treatment plants and delivery systems to supply water to customers and educating customers on the wise use of water . our strategy includes focused efforts to expand in new regions added to our delaware service territory over the last 10 years . in addition , we believe growth will occur in the maryland counties on the delmarva peninsula . we plan to expand our regulated water service area in the cecil county designated growth corridor and to expand our business through the design , construction , operation , management and acquisition of additional water systems . the expansion of our exclusive franchise areas elsewhere in maryland and the award of contracts will similarly enhance our operations within the state . 14 we believe that delaware 's generally lower cost of living in the region , availability of development sites in relatively close proximity to the atlantic ocean in sussex county , and attractive financing rates for construction and mortgages have resulted , and will continue to result , in increases to our customer base . delaware 's lower property and income tax rate make it an attractive region for new home development and retirement communities . substantial portions of delaware are currently not served by a public water system , which could also assist in an increase to our customer base as systems are added . in our regulated wastewater division , we foresee significant growth opportunities and will continue to seek strategic partnerships and relationships with developers and municipalities to complement existing agreements for the provision of wastewater service on the delmarva peninsula . artesian wastewater plans to utilize our larger regional wastewater facilities to expand service areas to new customers while transitioning our smaller treatment facilities into regional pump stations in order to gain additional efficiencies in the treatment and disposal of wastewater . we feel this will reduce operational costs at the smaller treatment facilities in the future since they will be converted from treatment and disposal plants to pump stations to assist with transitioning the flow of wastewater from one regional facility to another . artesian wastewater completed an agreement with georgetown , delaware in july 2008 to provide wastewater treatment and disposal services for georgetown 's growth and annexation areas . artesian wastewater will provide up to 1 mgd of wastewater capacity for the town . the preliminary engineering and design work was completed on a regional wastewater treatment and disposal facility located in the northern sussex county area that has the potential to treat up to approximately 8 mgd . this facility is strategically situated on 75 acres to provide service to the growing population in the georgetown , ellendale and milton areas , as well as to neighboring municipal systems . this facility was granted conditional use approval by sussex county council to serve the elizabethtown subdivision of approximately 4,000 homes and 439,000 square feet of proposed commercial space , as well as seven additional projects comprising approximately 3,000 residential units . the facility will also be capable of offering wastewater services to local municipalities . artesian wastewater will manage the design and construction of the facility and , once constructed , the operation of the facility . the general need for increased capital investment in our water and wastewater systems is due to a combination of population growth , more protective water quality standards and aging infrastructure . our capital investment plan for the next five years includes projects for water treatment plant improvements and additions in both delaware and maryland and wastewater treatment plant improvements and additions in delaware . capital improvements are planned and budgeted to meet anticipated changes in regulations and needs for increased capacity related to projected growth . the delaware public service commission and maryland public service commission have generally recognized the operating and capital costs associated with these improvements in setting water and wastewater rates for current customers and capacity charges for new customers . in our non-regulated division , we continue pursuing opportunities to expand our contract operations . through artesian utility , we will seek to expand our contract design , engineering and construction services of water and wastewater facilities for developers , municipalities and other utilities . story_separator_special_tag artesian development owns two nine-acre parcels of land , located in sussex county , delaware , which will allow for construction of a water treatment facility and wastewater treatment facility . inflation we are affected by inflation , most notably by the continually increasing costs required to maintain , improve and expand our service capability . the cumulative effect of inflation results in significantly higher facility costs compared to investments made 20 to 40 years ago , which must be recovered from future cash flows . critical accounting policies and estimates critical accounting policies and estimates are those we believe are most important to portraying the financial condition and results of operations and also require significant estimates , assumptions or other judgments by management . the following provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of the company . changes in the estimates , assumptions or other judgments included within these accounting policies could result in a significant change to the financial statements in any quarterly or annual period . we consider the following policies to be the most critical in understanding the judgment that is involved in preparing our consolidated financial statements . senior management has discussed the selection and development of our critical accounting policies and estimates with the audit committee of the board of directors . all additions to plant are recorded at cost . cost includes direct labor , materials , and indirect charges for such items as transportation , supervision , pension , medical , and other fringe benefits related to employees engaged in construction activities . when depreciable units of utility plant are retired , any cost associated with retirement , less any salvage value or proceeds received , is charged to a regulated retirement liability . maintenance , repairs , and replacement of minor items of plant are charged to expense as incurred . we record water service revenue , including amounts billed to customers on a cycle basis and unbilled amounts , based upon estimated usage from the date of the last meter reading to the end of the accounting period . as actual usage amounts are received , adjustments are made to the unbilled estimates in the next billing cycle based on the actual results . estimates are made on an individual customer basis , based on one of three methods ( the previous year 's consumption in the same period , the previous billing period 's consumption , or averaging ) and are adjusted to reflect current changes in water demand on a system-wide basis . while actual usage for individual customers may differ materially from the estimate , we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption , as the overall estimate has been adjusted to reflect any change in overall demand on the system for the period . we record accounts receivable at the invoiced amounts . the reserve for bad debts is adjusted based on the bad debt , which is calculated as a percentage of total water sales . the company reviews the bad debt expense and the reserve for bad debts on a quarterly basis . account balances are written off against the reserve when it is probable the receivable will not be recovered . our regulated utilities record deferred regulatory assets under financial accounting standards board , or fasb , accounting standards codification , or asc , topic 980 , which are costs that may be recovered over various lengths of time as prescribed by the depsc , mdpsc and papuc . as the utility incurs certain costs , such as expenses related to rate case applications , a deferred regulatory asset is created . adjustments to these deferred regulatory assets are made when the depsc , mdpsc or papuc determines whether the expense is recoverable in rates , the length of time over which an expense is recoverable , or , because of changes in circumstances , whether a remaining balance of deferred expense is recoverable in rates charged to customers . adjustments to reflect changes in recoverability of certain deferred regulatory assets may have a significant effect on our financial results . our long-lived assets consist primarily of utility plant in service and regulatory assets . we review for impairment of our long-lived assets , including utility plant in service , in accordance with the requirements of fasb asc topic 360. we review regulatory assets for the continued application of fasb asc topic 980. our review determines whether there have been changes in circumstances or events that have occurred that require adjustments to the carrying value of these assets . adjustments to the carrying value of these assets would be made in instances where changes in circumstances or events indicate the carrying value of the asset may not be recoverable . the company believes there are no impairments in the carrying amounts of its long-lived assets or regulatory assets at december 31 , 2013 . 15 story_separator_special_tag border-left-width : 0px '' / > non-utility expenses increased approximately $ 21,000 , or 1.0 % , primarily the result of increased slp plan repair costs in artesian utility , as compared to the same period in 2012. the increased repair costs are a result of increased slp plan participation . replace_table_token_6_th property and other taxes increased by $ 0.2 million , or 4.4 % , compared to the same period in 2012 , reflecting increases in tax rates charged for public schools in various areas where artesian holds property and an increase in utility plant subject to taxation . property taxes are assessed on land , buildings and certain utility plant , which include the footage and size of pipe , hydrants and wells primarily owned by artesian water .
| the increase in non-utility operating revenue is partially offset by an approximately $ 92,000 decrease in artesian utility revenue , related to a decrease in contract services performed for municipalities in maryland and a decrease in design services . replace_table_token_5_th residential residential water service revenues in 2013 amounted to $ 37.5 million , a decrease of $ 1.6 million , or 4.0 % below the $ 39.1 million recorded in 2012 , primarily due to a decrease in overall water consumption . the decrease in 2013 follows an increase of $ 3.7 million , or 10.5 % , in 2012 , which was primarily due to an 11.13 % permanent increase in rates effective january 1 , 2012. the volume of water sold to residential customers decreased to 3,616 million gallons in 2013 compared to 3,959 million gallons in 2012 , an 8.7 % decrease , primarily the result of weather associated with the heavy precipitation experienced during 2013. the number of residential customers served increased by approximately 745 , or 1.0 % , in 2013. commercial water service revenues from commercial customers in 2013 decreased by 3.4 % , from $ 15.2 million in 2012 to $ 14.7 million in 2013 , primarily due to a decrease in water consumption . we sold 2,012 million gallons of water to commercial customers in 2013 , a slight decrease as compared to 2,118 million gallons sold in 2012. industrial water service revenues from industrial customers increased from $ 70,000 in 2012 to $ 82,000 in 2013. the volume of water sold to industrial customers increased from 8 million gallons in 2012 to 10 million gallons in 2013. government and other government and other water service revenues in 2013 increased by 3.1 % , from $ 9.2 million in 2012 to $ 9.5 million in 2013 , primarily due to an increase in consumption from re-sale customers . the volume of water sold to government and other customers increased from 645 million gallons in 2012 to 731 million gallons in 2013. other utility operating revenue other
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the loss of all or a substantial portion of mtn group 's business could adversely affect our results of operations , cash flows and financial position . gross margin replace_table_token_8_th gross margin for fiscal 2015 decreased $ 4.5 million , or 5.3 % , compared with fiscal 2014 , primarily due to decreased profitability in africa , middle east , europe and latin america and a $ 2.5 million increase in foreign exchange loss , partially offset by improved profitability in north america and asia along with reduced supply chain costs compared with fiscal 2014. gross margin as a percentage of revenue decreased in fiscal 2015 compared with fiscal 2014 primarily due to lower profitability in africa , middle east , europe and latin america and increased foreign exchange losses compared with fiscal 2014 , partially offset by higher gross margin rates in north america and asia . product margin as a percentage of product revenue increased over fiscal 2014 primarily to a greater portion of the overall business coming from north america along with improved pricing in that market , and better pricing on sales in asia . service margin as a percentage of service revenue declined primarily due to a less profitable service business in international markets . gross margin for fiscal 2014 decreased $ 53.2 million , or 38.4 % , compared with fiscal 2013 , primarily due to reduced sales volume . gross margin as a percentage of revenue decreased in fiscal 2014 compared with fiscal 2013 primarily due to competitive market pricing pressure for our products and services and spreading our fixed costs into lower product and services revenue volumes . product margin as a percentage of product revenue declined in fiscal 2014 primarily due to pricing pressures in international markets and the absorption of fixed costs over a lower revenue volume . service margin as a percentage of service revenue declined primarily due to a less profitable service business in north america . research and development expenses replace_table_token_9_th our r & d expenses decreased $ 10.1 million , or 28.5 % , in fiscal 2015 compared with fiscal 2014 . as a percentage of revenue , r & d expenses decreased to 7.6 % in fiscal 2015 from 10.3 % in fiscal 2014 . the decrease in r & d expenses was primarily due to a $ 7.2 million reduction in personnel and related expenses , a $ 1.2 million decrease in new product development costs , a $ 2.0 million decrease in facility expense , a $ 0.2 million decrease in travel expense and a $ 0.2 million decrease in share-based compensation expenses primarily due to restructuring of r & d in santa clara , california . 34 we continue to invest in new product features , new functionality and lower cost platforms that we believe will enable our product lines to retain their technology leads in a cost effective manner . our r & d expenses decreased $ 3.9 million , or 9.9 % , in fiscal 2014 compared with fiscal 2013 . as a percentage of revenue , r & d expenses also increased to 10.3 % in fiscal 2014 from 8.4 % in fiscal 2013 . the decrease in r & d expenses of $ 3.9 million consisted primarily of a $ 3.8 million decrease of personnel expenses as a result of the restructuring programs we implemented and a $ 0.7 million decrease in stock based compensation , partially offset by a $ 0.3 million increase in expenses related to our investment in new product development . selling and administrative expenses replace_table_token_10_th our selling and administrative expenses decreased $ 12.8 million , or 14.4 % , in fiscal 2015 compared with fiscal 2014 . the decrease was due primarily to a $ 7.1 million decrease in personnel and related expenses , a $ 1.8 million decrease in it consulting expenses as result of the completion of our erp system implementation , a $ 1.7 million reduction in travel expenses , a $ 3.6 million decrease in sales commission and incentive compensation , and a $ 1.1 million decrease in share-based compensation expenses resulting from employee terminations and full vesting of prior stock awards . the decreases were partially offset by a $ 3.4 million increase in professional fees primarily associated with the annual audit of our fiscal 2014 financial statements . we will continue to seek ways to improve our operating efficiency in fiscal 2016. our selling and administrative expenses decreased $ 6.7 million , or 7.0 % , in fiscal 2014 compared with fiscal 2013 . the decrease was due primarily to a $ 2.9 million reduction in personnel expenses as a result of the restructuring programs we implemented , a $ 1.5 million reduction in bad debt expenses , a $ 1.9 million decrease in share-based compensation expenses and a $ 1.8 million decrease in agent commissions . this was partially offset by a $ 2.0 million increase in expenses for information technology projects . restructuring charges during the third quarter of fiscal 2015 , with the intent to bring our operational cost structure in line with the changing dynamics of the microwave radio and telecommunications markets , we initiated the fiscal 2015-2016 plan to lower fixed overhead costs and operating expenses and to preserve cash flow . activities under the fiscal 2015-2016 plan primarily include reductions in force across the company , but primarily in operations outside the united states . during the third quarter of fiscal 2014 , in line with the decrease in revenue that we experienced and our reduced forecast for the immediate future , we initiated the fiscal 2014-2015 plan to reduce our operating costs , primarily in north america , europe and asia . activities under the fiscal 2014-2015 plan primarily include reductions in force and additional facility downsizing of our santa clara , california headquarters . story_separator_special_tag during the fourth quarter of fiscal 2013 , we initiated a restructuring plan ( the โ fiscal 2013-2014 plan โ ) that was intended to reduce our operating expenses primarily in north america , europe and asia . activities under the fiscal 2013-2014 plan included reductions in force and the downsizing of our santa clara , california headquarters and certain international field offices . during the first quarter of fiscal 2011 , we initiated a restructuring plan ( the โ fiscal 2011 plan โ ) to reduce our operational costs primarily in north america , europe and asia . activities under the fiscal 2011 plan included the reductions in force to reduce our operating expenses and downsizing or closures of our morrisville , north carolina , santa clara , california , montreal , canada offices and certain international field offices . the fiscal 2011 plan has been completed as of the end of fiscal 2013 . 35 our restructuring charges by plan for fiscal 2015 , 2014 and 2013 are summarized in the table below : replace_table_token_11_th our restructuring expenses consisted primarily of severance and related benefit charges and facilities costs related to obligations under non-cancelable leases for facilities that we ceased to use . restructuring charges for fiscal 2015 included a $ 2.8 million employee termination charge primarily related to the fiscal 2015-2016 plan , a $ 1.5 million facility charge related to ceasing to use portion of our santa clara headquarters building and a $ 0.6 million slovenia government fund penalty charge related to the workforce reduction . restructuring charges for fiscal 2014 included a $ 4.7 million facilities charge primarily related to ceasing to use a portion of our santa clara headquarters building and a $ 6.4 million employee termination charge primarily related to our fiscal 2014-2015 plan . restructuring charges for fiscal 2013 included a $ 3.0 million employee termination charge primarily related to our fiscal 2013-2014 plan and fiscal 2011 plan . we have substantially completed our activities under the fiscal 2014-2015 plan and the fiscal 2013-2014 plan and intend to substantially complete the remaining restructuring activities under the fiscal 2015-2016 plan by the end of the second quarter of fiscal 2016. other income , interest income and interest expense replace_table_token_12_th other income of $ 0.7 million for fiscal 2013 reflected a nonrecurring benefit related to a customer contract . interest income reflected interest earned on our cash equivalents which were comprised of money market funds and certificates of deposit . interest expense was primarily related to interest associated with borrowings and term loans under the svb credit facility and discounts on customer letters of credit . income taxes replace_table_token_13_th the income tax benefit from continuing operations for fiscal 2015 was $ 1.3 million . the difference between our income tax benefit from continuing operations and income tax expense at the statutory rate of 35 % on our pre-tax loss of $ 26.0 million was primarily attributable to losses in tax jurisdictions in which we can not recognize a tax benefit , an increase in foreign withholding taxes and the $ 4.4 million benefit from the release of valuation allowance . 36 the income tax expense from continuing operations for fiscal 2014 was $ 1.5 million . the difference between our income tax expense from continuing operations and income tax benefit at the statutory rate of 35 % on our pre-tax loss of $ 50.5 million was primarily attributable to losses in tax jurisdictions in which we can not recognize a tax benefit and increase in foreign withholding taxes . the income tax expense from continuing operations for fiscal 2013 was $ 13.3 million . the difference between our income tax expense from continuing operations and income tax benefit at the statutory rate of 35 % on our pre-tax loss of $ 0.7 million was primarily attributable to a $ 11.7 million increase in our reserves for uncertain tax positions , losses in tax jurisdictions in which we can not recognize a tax benefit and increase in foreign withholding taxes . the increase in our unrecognized tax benefits was the result of additional information obtained during the recent tax examinations in certain countries during fiscal 2013. we are subject to income taxes in the u.s. and numerous foreign jurisdictions . significant judgment is required in determining our worldwide provision for income taxes and recording the related assets and liabilities . in the ordinary course of our business , there are many transactions and calculations where the ultimate tax determination is uncertain . income ( loss ) from discontinued operations replace_table_token_14_th our discontinued operations consist of the wimax business , which was sold to eion networks , inc. ( โ eion โ ) on september 2 , 2011. we completed the business transition with eion in fiscal 2012. the income recognized in fiscal 2015 was primarily due to a $ 0.1 million write-off of accrued liabilities due to eion . the income incurred in fiscal 2014 was primarily due to recovery of certain wimax customer receivables that was previously written down . the loss incurred in fiscal 2013 was primarily due to $ 4.2 million write-downs of certain wimax deferred cost of sales that were not transferred to eion and certain expenses we incurred to support a remaining customer obligation . the loss was partially offset by a $ 0.3 million write down of our payable to eion related to customer receivables and $ 0.1 million contingent payments we received from eion . liquidity , capital resources and financial strategies sources of cash as of july 3 , 2015 , our total cash and cash equivalents were $ 34.7 million . approximately $ 11.7 million , or 33.7 % , was held by entities domiciled in the united states . the remaining balance of $ 23.0 million , or 66.3 % , was held by entities outside the united states .
| we intend to complete a majority of the remaining restructuring activities under the current plans by the first half of fiscal 2016. see โ restructuring charges โ below . revenue we manage our sales activities primarily on a geographic basis in north america and three international geographic regions : ( 1 ) africa and middle east , ( 2 ) europe and russia and ( 3 ) latin america and asia pacific . revenue by region for fiscal 2015 , 2014 and 2013 and the related changes were shown in the table below : replace_table_token_6_th our revenue in north america increased $ 11.2 million , or 7.9 % , in fiscal 2015 compared with fiscal 2014 . the increase in north america primarily resulted from increase of revenue from the government and utility markets , while revenue from network operator customers declined in fiscal 2015 compared with fiscal 2014. our revenue in north america decreased $ 38.5 million , or 21.3 % , in fiscal 2014 compared with fiscal 2013 . revenue from wireless operator customers declined as they reach completion of their lte network building period . we also saw lower revenue from private government and utility networks due to the timing of purchases and project deliveries to those customers . revenue in africa and middle east decreased $ 11.8 million , or 10.8 % , in fiscal 2015 compared with fiscal 2014 , reflecting network operator capital spending restraint in fiscal 2015 compared with fiscal 2014. revenue in europe and russia remained approximately the same for fiscal 2015 compared with fiscal 2014. revenue in latin america and asia pacific declined $ 9.5 million , or 16.1 % , in fiscal 2015 compared with fiscal 2014 , mostly due to lower product sales to our larger customers in latin america . revenue in africa and middle east decreased $ 73.3 million , or 40.2 % , in fiscal 2014 compared with fiscal 2013. the majority of the decrease came from reduced capital spending by our largest
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we expect patient enrollment to continue through mid-2018 and to have data from this phase iii program available by the first quarter of 2019. we expect to incur significant research and development expenses related to the continued development of each of our product candidates from 2017 through fda approval or until the program terminates . collaboration mydayis ( mixed salts of a single-entity amphetamine product ) was originally developed by shire laboratories , the former division of shire that subsequently became supernus pharmaceuticals . on june 20 , 2017 , shire announced that the fda approved mydayis for patients 13 years and older with adhd . based on the agreement between the company and shire , shire will pay to the company a single digit percentage royalty on net sales of the product . critical accounting policies and the use of estimates the significant accounting policies and bases of presentation for our consolidated financial statements are described in note 2 `` summary of significant accounting policies . '' the preparation of our consolidated financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) requires us to make estimates and assumptions that affect the reported amounts of assets , 63 liabilities , revenues , and expenses and to disclose contingent assets and liabilities . actual results could differ from those estimates . we believe the following accounting policies and estimates to be critical : revenue recognition revenue from product sales is recognized when : persuasive evidence of an arrangement exists ; delivery has occurred and title to the product and associated risk of loss has passed to the customer ; the price is fixed or determinable ; collection from the customer has been reasonably assured ; all performance obligations have been met ; and returns and allowances can be reasonably estimated . product sales are recorded net of estimated rebates , chargebacks , discounts , allowances , patient copay assistance payments and other deductions as well as estimated product returns ( collectively , `` sales deductions '' ) . we derive our estimated sales deductions from an analysis of historical levels of deductions specific to each product , as well as contractual terms with our customers . in addition , we also consider the impact of actual or anticipated changes in product price , sales trends and changes in managed care coverage and co-pay assistance programs . for a complete description of trokendi xr and oxtellar xr gross revenues and gross to net adjustments . ( see part ii , item 8 , financial statements and supplemental data , note 2 , revenue from product sales ) . intangible assets intangible assets consist of patent defense costs , which are deferred legal fees that have been incurred in connection with legal proceedings related to the defense of patents for oxtellar xr and trokendi xr ( see part i , item 3ยlegal proceedings ) . amortization of deferred legal fees commences in the quarter after the costs are incurred . this amortization period is based initially upon the remaining patent life and is adjusted , if necessary , for any settlements or other changes to the expected useful life of the patent . patent defense costs will be charged to expense in the event of an unsuccessful outcome of the on-going litigation . ( see part ii , item 8ยfinancial statements and supplementary data , note 6 ) . income taxes the provision for income tax is calculated based on our assumptions as to our entitlement to various benefits under the applicable tax laws in the jurisdictions in which we operate . the entitlement to such benefits depends upon our compliance with the terms and conditions set out in those laws . accounting for uncertainty in income taxes requires that tax benefits recognized in the financial statements must be at least more likely than not of being sustained based on technical merits . the amount of benefits recorded for these positions is measured as the largest benefit more likely than not to be sustained . significant judgment is required in making these determinations . deferred taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and tax bases of assets and liabilities under the applicable tax laws . valuation allowances are provided if , based upon the weight of available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . in the determination of the appropriate valuation allowances , we have considered the most recent projections of future business results and prudent tax planning strategies that may allow us to realize the deferred tax assets . on december 22 , 2017 , the u.s. enacted the tax cuts and jobs act ( tax act ) , which , among other provisions , reduced the u.s. corporate tax rate from 35 % to 21 % , effective january 1 , 2018. at december 31 , 2017 , we have substantially completed our accounting for the tax effects of the tax act 64 and have made reasonable estimates of the effects on the existing deferred tax balances in accordance with staff accounting bulletin no . 118 , which provides guidance for the application of asc topic 740 , income taxes , in the reporting period in which the tax act was signed into law . the company does not anticipate material adjustments to the provisional amounts , however , final amount could vary from these provisional amounts . the act requires significant judgments in interpreting the provisions , analysis of information not previously relevant , and estimates and calculations not previously required . the u.s. treasury department , the internal revenue service ( irs ) , and other standard-setting bodies could interpret or issue guidance on how provisions of the tax act will be applied or otherwise administered that may be different from our interpretation . story_separator_special_tag as we complete our analysis of the tax act , collect and prepare necessary data , and interpret any additional guidance , we may make adjustments to provisional amounts that we have recorded that may impact our provision for income taxes in the period in which the adjustments are made . research and development expenses and related accrued clinical expenses research and development expenditures are expensed as incurred . research and development costs primarily consist of employee-related expenses , including salaries and benefits ; share-based compensation expense ; expenses incurred under agreements with clinical research organizations ( cros ) , fees paid to investigators who are participating in our clinical trials , consultants and other vendors that conduct the company 's clinical trials ; the cost of acquiring and manufacturing clinical trial materials ; the cost of manufacturing materials used in process validation , to the extent that those materials are manufactured prior to receiving regulatory approval for those products and are not expected to be sold commercially ; facilities costs that do not have an alternative future use ; related depreciation and other allocated expenses ; license fees for and milestone payments related to in-licensed products and technologies ; and costs associated with animal testing activities and regulatory approvals . clinical trials are inherently complex and often involve multiple service providers . because billing for services often lags by a substantial amount of time , we often are required to estimate a significant portion of our accrued clinical expenses . this process involves reviewing open contracts and communicating with our subject matter expert personnel and the appropriate service provider personnel to identify services that have been performed on our behalf but for which no invoice has been received . we accrue for the estimated but unbilled services performed and the associated cost incurred . payments to service providers can either be based on hourly rates for service or based on performance driven milestones . when accruing clinical expenses , we estimate the time period over which services will be performed during the life of the entire clinical program , the total cost of the program , and the level of effort to be expended in each intervening period . to the maximum extent possible , we work with each service provider to obtain an estimate for incurred but unbilled services as of the end of the calendar quarter , including estimates for payments to site investigators . we work diligently to minimize , if not eliminate , estimates based solely on company generated calculations . if the service provider underestimates or overestimates the cost associated with a trial or service at any given point in time , adjustments to research and development expenses may be necessary in future periods . historically , our estimated accrued clinical expenses have closely approximated actual expense incurred . 65 story_separator_special_tag of $ 33.9 million . this decrease was primarily due to the increase in r & d and selling , general and administrative ( sg & a ) spending , the increase in income tax expense as a result of the elimination of valuation allowance against deferred tax assets in 2016 , and the impact of the tax act . 68 comparison of the year ended december 31 , 2016 and december 31 , 2015 replace_table_token_8_th net product sales . the increase in net product sales from 2015 to 2016 is primarily driven by increased prescription volume . price increases in 2016 and 2015 also contributed to the increase in net product sales . net product sales are based on gross revenue from shipments to distributors , less estimates for discounts , rebates , allowances , other sales deductions and returns . the table below lists our net product sales by product , in thousands : replace_table_token_9_th royalty revenue . non-cash royalty revenue of $ 4.7 million and $ 3.0 million was generated during the years ended december 31 , 2016 and 2015 , respectively , pursuant to the agreement with hc royalty . licensing revenue . total licensing revenue for the year ended december 31 , 2016 and 2015 was $ 0.2 million and $ 0.9 million , respectively . there was $ 0.8 million in revenue generated from achievement of milestones in the year ended december 31 , 2015 . 69 cost of product sales . cost of product sales during the year ended december 31 , 2016 was $ 12.0 million , an increase of $ 3.6 million , or 42.9 % , as compared to $ 8.4 million for the year ended december 31 , 2015. the year over year increase is attributable primarily to increased unit volume . research and development expense . r & d expenses during the year ended december 31 , 2016 were $ 42.8 million as compared to $ 29.1 million for the year ended december 31 , 2015 , an increase of $ 13.7 million or 47.1 % . during 2016 , we continued to recruit patients for our two phase iii trials for spn-810 as well as recruiting patients for our phase iib trial for spn-812 . the phase iib trial for spn-812 was completed in 2016. the table below shows the comparison of selling and marketing and general and administrative expenses for the years ended december 31 , 2016 and 2015 : replace_table_token_10_th selling and marketing . our selling and marketing expenses were $ 80.0 million for the year ended december 31 , 2016 as compared to $ 69.1 million for the year ended december 31 , 2015 , an increase of $ 10.9 million or 15.8 % . the increase in selling and marketing expenses is primarily due to support of our commercial products and development of promotional materials and programs in preparation for the launch of the migraine indication for trokendi xr in 2017. general and administrtive . g & a expenses were $ 26.0 million for the year ended december 31 , 2016 , as compared to $ 20.0 million for the year ended december 31 , 2015 , an increase of $ 6.0 million or 30.3 % .
| this increase is due to ongoing patient recruitment for phase iii trials for spn-810 and commencement of phase iii trials for spn-812 . the table below shows the comparison of selling and marketing and general and administrative expenses for the years ended december 31 , 2017 and 2016 : replace_table_token_7_th selling and marketing . the increase in selling and marketing expenses of approximately $ 24.1 million for the year ended december 31 , 2017 , as compared to 2016 , is primarily the result of an increase in workforce headcount and headcount related support for our commercial products , coupled with development , production , and execution of promotional and marketing programs to support the launch of the migraine indication for trokendi xr in april 2017. of this total , approximately $ 9.2 million is due to increased compensation , benefits and other employee-related expenses associated with increased headcount in our field sales force and approximately $ 13.2 million is due to increased expenses for marketing programs , speaker programs , and consulting services to support our commercial products , particularly the launch of the migraine indication for trokendi xr in 2017. general and administrative . general and administrative expenses ( g & a ) increased by $ 7.8 million for the year ended december 31 , 2017 as compared to 2016 , primarily due to approximately $ 5.6 million in increased patent amortization expense . interest income . for the years ended december 31 , 2017 and 2016 , we recognized $ 2.9 million and $ 1.5 million , respectively , of interest income earned on our cash , cash equivalents and marketable securities . the increase is primarily attributable to an increase in cash , cash equivalents and marketable securities holdings year over year . interest expense . interest expense was $ 0.1 million for the year ended december 31 , 2017 as compared to $ 0.5 million for the year ended december 31 , 2016. the decrease of $ 0.4 million was primarily due to a decrease in the principal amount
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pre-clinical studies have shown that activation of the keap1/nrf2 pathway in lung tumors makes them dependent on glutaminase activity for growth and survival , and treatment with teleglenastat selectively blocks their growth . in september 2020 , we treated the first patient in the keapsake study , which is a randomized phase 2 clinical trial of the glutaminase inhibitor telaglenastat in combination with standard-of-care therapy . the keapsake study will evaluate the safety and anti-tumor activity of telaglenastat plus standard-of-care 50 chemoimmunotherapy as front-line treatment for patients with stage iv non-squamous non-small cell lung cancer whose tumors have a keap1 or nrf2 mutation determined by next-generation sequencing . the double-blind telaglenastat trial will enroll approximately 120 patients with stage iv non-squamous nsclc with the keap1 or nrf2 mutation . patients will be randomized to receive telaglenastat or placebo , in combination with pembrolizumab , carboplatin and pemetrexed . the study will evaluate the safety and investigator assessed progression-free survival , or pfs , of telaglenastat plus this standard of care chemoimmunotherapy regimen . we anticipate sharing interim data from the keapsake trial in the second half of 2021. we were previously developing telaglenastat for the treatment of renal cell carcinoma , or rcc . in january 2021 , we announced the results of the cantata trial , a 444 patient global , randomized , double-blind trial designed to evaluate the safety and efficacy of telaglenastat in combination with cabozantinib versus placebo with cabozantinib in patients with advanced clear cell rcc who have been treated with one or two prior lines of systemic therapy . the trial did not meet the primary endpoint of progression-free survival , or pfs . based on this result , we evaluated our operational and workforce needs to extend our cash runway and ensure long-term sustainability . we reduced our workforce by approximately 35 % to preserve cash resources . we currently have no plans to further develop telaglenastat in rcc . as part of our pfizer clinical collaboration , we initiated a trial with the cdk 4/6 inhibitor ibranceยฎ , in combination with telaglenastat in july 2019. the phase 1/2 trial ( nct03965845 ) of the combination of telaglenastat plus ibrance is ongoing in patients with kras mutated colorectal cancer and kras mutated non-small cell lung cancer . encouraging efficacy and safety of the combination was observed in pdac patients treated in the dose escalation phase of the trial . in november 2020 , we announced the expansion of the study to include an additional cohort of patients with pancreatic ductal adenocarcinoma whose tumors harbor mutations in both kras and cdkn2a . approximately 50 percent of pdac patients harbor mutations in both kras and cdkn2a . our product candidate , cb-280 , is an oral inhibitor of arginase , an enzyme that depletes the amino acid arginine . it is being developed for the treatment of cystic fibrosis , or cf . arginase depletes arginine , which is critical for the generation of no , or nitric oxide . no has critical anti-microbial effects in lung and also mediates bronchodilation . cb-280 is a novel oral arginase inhibitor which is solely owned by calithera . we completed a phase 1 single ascending dose trial to evaluate the safety , tolerability and pharmacokinetic profile of oral cb-280 in healthy volunteers . in july 2020 , we initiated a phase 1b clinical trial in adult patients with cystic fibrosis and chronic airway infection . the randomized , double blind , placebo-controlled , dose escalation trial will evaluate multiple ascending doses of cb-280 , dosed orally twice daily for 14 days , compared to placebo in up to 32 adult cf patients to determine a safe dose range for cb-280 . enrollment in this study is ongoing and we expect to share interim data in the second half of 2021. an additional arginase inhibitor , incb001158 , was discovered by calithera and is being developed by incyte corporation , or incyte , for oncology and hematology indications , and is currently being evaluated in phase 1/2 trials as a monotherapy and in combination with other anti-cancer agents . we are a fully integrated biopharmaceutical company with expertise in biology and chemistry , and our ongoing research efforts are focused on discovering additional product candidates for the treatment of cancer and other life-threatening diseases . we have discovered the clinical candidate cb-708 , a potent , selective , orally administered small molecule that inhibits cd73 , an enzyme that converts adenosine monophosphate to generate the immunosuppressive agent adenosine . we have also identified cb-668 , an investigational first-in-class , potent , orally administered il4i1 inhibitor as a novel immuno-oncology approach to cancer . il4i1 is expressed by tumor cells and antigen presenting cells and metabolizes phenylalanine , tyrosine and tryptophan to produce hydrogen peroxide , an inhibitor of t-cell function , and kynurenic acid an immunosuppressive metabolite . in syngeneic mouse models cb-668 exhibited immune mediated , single agent activity and augmented activity in combination with checkpoint inhibitors . il4i1 expression has been correlated with poor clinical outcomes and expression is elevated in multiple tumor types including ovarian and b-cell tumors . critical accounting polices and estimates our management 's 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 united states generally accepted accounting principles , or u.s. gaap . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , as well as the reported 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 . story_separator_special_tag we believe that the accounting policies discussed below are critical to 51 understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . revenue recognition effective january 1 , 2018 , we adopted accounting standards codification , or asc , revenue from contracts with customers ( topic 606 ) , or asc 606 , using the modified retrospective approach . under this approach , we recorded a cumulative adjustment to decrease accumulated deficit and deferred revenue by $ 8.8 million on january 1 , 2018. under asc 606 , an entity recognizes revenue when its customer obtains control of promised goods or services , in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services . to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , the entity performs the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . we only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer . at contract inception , once the contract is determined to be within the scope of asc 606 , we assess the goods or services promised within each contract and determine those that are performance obligations , and assess whether each promised good or service is distinct . we then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) the performance obligation is satisfied . we have a collaboration and licensing agreement that is within the scope of asc 606 , under which we license certain rights to one of our product candidates to incyte corporation . the terms of this arrangement include payment to us of a non-refundable , upfront license fee , and potential development , regulatory and sales milestones , and sales royalties . each of these payments results in collaboration revenues , except for revenues from royalties on net sales of licensed products , which would be classified as royalty revenues . in determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our agreement , we perform the following steps : ( i ) identification of the promised goods or services in the contract ; ( ii ) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract ; ( iii ) measurement of the transaction price , including the constraint on variable consideration ; ( iv ) allocation of the transaction price to the performance obligations ; and ( v ) recognition of revenue when ( or as ) we satisfy each performance obligation . as part of the accounting for these arrangements , we must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract . licenses of intellectual property : if the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement , we recognize revenues from non-refundable , upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license . for licenses that are bundled with other promised goods or services , we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and , if over time , the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable , upfront fees . we evaluate the measure of progress each reporting period and , if necessary , adjust the measure of performance and related revenue recognition . milestone payments : at the inception of each arrangement that includes development , regulatory or commercial milestone payments , we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price . if it is probable that a significant reversal of cumulative revenue would not occur , the associated milestone value is included in the transaction price . milestone payments that are not within our control or the licensees ' control , such as regulatory approvals , are not considered probable of being achieved until those approvals are received or the underlying activity has been completed . the transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis , for which we recognize revenue as or when the performance obligations under the contract are satisfied . at the end of each subsequent reporting period , we re-evaluate the probability of achievement of such development milestones and any related constraint , and if necessary , adjust our estimate of the overall transaction price . any such adjustments are recorded on a cumulative catch-up basis , which would affect collaboration revenue in the period of adjustment . royalties : for arrangements that include sales-based royalties , including milestone payments based on the level of sales , and the license is deemed to be the predominant item to which the royalties relate , we recognize revenue at the later of ( i ) when the related sales occur , or ( ii ) when the performance obligation to which some or all of the royalty has been allocated has been satisfied ( or partially satisfied ) . to date , we have not recognized any royalty revenue resulting from any of our licensing arrangements .
| in august 2020 , we filed a shelf registration statement on form s-3 with the securities and exchange commission which permits the offering , issuance and sale by us of up to a maximum aggregate offering price of $ 250 million of our common stock . as of december 31 , 2020 , $ 250 million of our common stock remained available for sale , of which $ 75 million may be issued and sold pursuant to an at-the-market offering program for sales of our common stock under a sales agreement with jefferies llc , subject to certain conditions as specified in the sales agreement . in april 2020 , we sold 5,750,000 shares of our common stock pursuant to an underwriting agreement with citigroup global markets , inc. the public offering price was $ 6.25 per share for gross proceeds of $ 35.9 million , resulting in net proceeds of approximately $ 33.5 million after deducting underwriting fees and offering expenses . our primary uses of cash are to fund operating expenses , primarily research and development expenditures . cash used to fund operating expenses is impacted by the timing of when we pay these expenses , as reflected in the change in our outstanding accounts payable and accrued expenses . we believe that our existing cash , cash equivalents and investments as of december 31 , 2020 will be sufficient for us to meet our current operating plan for at least the twelve-month period following the filing of our december 31 , 2020 form 10-k. however , our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties , and actual results could vary materially based on a number of factors including the extent and magnitude of the impact from the covid-19 pandemic , in particular the challenges associated with opening new clinical studies . in order to complete the process of obtaining regulatory approval for
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allowance for doubtful accounts the company maintains an allowance for estimated losses resulting from the failure of its customers to make required payments . an estimate of uncollectible amounts is made by management based upon historical bad debts , current customer receivable balances , age of customer receivable balances , the customer 's financial condition and current economic trends , all of which are subject to change . if the actual uncollected amounts significantly exceed the estimated allowance , the company 's operating results would be significantly adversely affected . assuming there had been a 10 % increase in uncollectible accounts over the 2016 recorded estimated allowance for doubtful accounts , pre-tax income for the year ended december 31 , 2016 would have decreased by approximately $ 0.6 million . inventories inventories are valued at the lower of cost or fair market value . cost is determined using the first-in , first-out ( fifo ) method . the inventory balance , which includes material , labor and manufacturing overhead costs , is recorded net of an estimated allowance for obsolete or unmarketable inventory . the estimated allowance for obsolete or unmarketable inventory is based upon current inventory levels , sales trends and historical experience as well as management 's understanding of market conditions and forecasts of future product demand , all of which are subject to change . the calculation of the company 's allowance for obsolete or unmarketable inventory requires management to make assumptions and to apply judgment regarding inventory aging , forecasted consumer demand and pricing , regulatory ( usga and r & a ) rule changes , the promotional environment and technological obsolescence . the company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the allowance . however , if estimates regarding consumer demand are inaccurate or changes in technology affect demand for certain products in an unforeseen manner , the company may need to increase its inventory allowance , which could significantly adversely affect the company 's operating results . assuming there had been a 10 % increase in obsolete or unmarketable inventory over the 2016 recorded estimated allowance for obsolete or unmarketable inventory , pre-tax income for the year ended december 31 , 2016 would have decreased by approximately $ 1.7 million . long-lived assets , goodwill and non-amortizing intangible assets in the normal course of business , the company acquires tangible and intangible assets . the company periodically evaluates the recoverability of the carrying amount of its long-lived assets , including property , plant and equipment and amortizing intangible assets , and investments whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable or exceeds its fair value . the company evaluates the recoverability of its goodwill and non-amortizing intangible assets at least annually or more frequently whenever indicators are present that the carrying amounts of these assets may not be fully recoverable . determining whether an impairment has occurred typically requires various estimates and assumptions , including determining the amount of undiscounted cash flows directly related to the potentially impaired asset , the useful life over which cash flows will occur , the timing of the impairment test , and the asset 's residual value , if any . to determine fair value , the company uses its internal cash flow estimates discounted at an appropriate rate , quoted market prices , royalty rates when available and independent appraisals as appropriate . any required impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value and is recorded as a reduction in the carrying value of the asset and a charge to earnings . the company uses its best judgment based on current facts and circumstances related to its business when making these estimates . however , if actual results are not consistent with the company 's estimates and assumptions used in calculating future cash flows and asset fair values , the company may be exposed to losses that could be material . the company completed its annual impairment test and fair value analysis of goodwill and other indefinite-lived intangible assets as of december 31 , 2016 , and the estimated fair values of the company 's reporting units in the united states , united kingdom , canada and korea , as well as the estimated fair values of certain trade names and trademarks , significantly exceeded their carrying values . as a result , no impairment was recorded as of december 31 , 2016 . 25 warranty policy the company has a stated two-year warranty policy for its golf clubs . the company 's policy is to accrue the estimated cost of satisfying future warranty claims at the time the sale is recorded . in estimating its future warranty obligations , the company considers various relevant factors , including the company 's stated warranty policies and practices , the historical frequency of claims , and the cost to replace or repair its products under warranty . the company 's estimates for calculating the warranty reserve are principally based on assumptions regarding the warranty costs of each club product line over the expected warranty period . where little or no claims experience may exist , the company 's warranty obligation calculation is based upon long-term historical warranty rates of similar products until sufficient data is available . as actual model-specific rates become available , the company 's estimates are modified to ensure that the forecast is within the range of likely outcomes . historically , the company 's actual warranty claims have not been materially different from management 's original estimated warranty obligation . the company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the warranty obligation . story_separator_special_tag however , if the number of actual warranty claims or the cost of satisfying warranty claims were to significantly exceed the estimated warranty reserve , the company may be exposed to losses that could be material . assuming there had been a 10 % increase in warranty claims over the 2016 recorded estimated allowance for warranty obligations , pre-tax income for the year ended december 31 , 2016 would have decreased by approximately $ 0.5 million . income taxes current income tax expense or benefit is the amount of income taxes expected to be payable or receivable for the current year . a deferred income tax asset or liability is established for the difference between the tax basis of an asset or liability computed pursuant to asc topic 740 , `` income taxes , '' and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled , respectively . the company maintains a valuation allowance for a deferred tax asset when it is deemed to be more likely than not that some or all of the deferred tax asset will not be realized . in evaluating whether a valuation allowance is required under such rules , the company considers all available positive and negative evidence , including prior operating results , the nature and reason for any losses , its forecast of future taxable income , and the dates on which any deferred tax assets are expected to expire . these assumptions require a significant amount of judgment . these estimates are based on the company 's best judgment at the time made based on current and projected circumstances and conditions . in 2011 , as a result of this evaluation , the company recorded a valuation allowance against its u.s. deferred tax assets . during the fourth quarter of 2016 , the company reversed a significant portion of the valuation allowance on those deferred tax assets . for further discussion see note 9 โ income taxes โ in the notes to consolidated financial statements in this form 10-k. pursuant to asc topic 740-25-6 , the company is required to accrue for the estimated additional amount of taxes for uncertain tax positions if it is deemed to be more likely than not that the company would be required to pay such additional taxes . the company is required to file federal and state income tax returns in the united states and various other income tax returns in foreign jurisdictions . the preparation of these income tax returns requires the company to interpret the applicable tax laws and regulations in effect in such jurisdictions , which could affect the amount of tax paid by the company . the company accrues an amount for its estimate of additional tax liability , including interest and penalties in income tax expense , for any uncertain tax positions taken or expected to be taken in an income tax return . the company reviews and updates the accrual for uncertain tax positions as more definitive information becomes available . historically , additional taxes paid as a result of the resolution of the company 's uncertain tax positions have not been materially different from the company 's expectations . the company recognizes interest and or penalties related to income tax matters in income tax expense . share-based compensation the company grants stock options , stock appreciation rights , restricted stock awards , restricted stock units , performance share units and other equity-based awards to the company 's officers , employees , consultants and certain other non-employees who provide services to the company . the company accounts for share-based compensation arrangements in accordance with asc topic 718 , โ stock compensation , โ which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and non-employees based on estimated fair values . asc topic 718 further requires a reduction in share-based compensation expense by an estimated forfeiture rate . the forfeiture rate used by the company is based on historical 26 forfeiture trends . if actual forfeitures are not consistent with the company 's estimates , the company may be required to increase or decrease compensation expenses in future periods . performance share units are stock-based awards in which the number of shares ultimately received depends on the company 's performance against specified goals that are measured over a designated performance period from the date of grant . these performance goals are established by the company at the beginning of the performance period . at the end of the performance period , the number of shares of stock that could be issued is fixed based upon the degree of achievement of the performance goals . the number of shares that could be issued can range from 0 % to 200 % of the participant 's target award . performance share units are initially valued at the company 's closing stock price on the date of grant . compensation expense , net of estimated forfeitures , is recognized over the vesting period and will vary based on the anticipated performance level during the performance period . if the performance goals are not probable of achievement during the performance period , compensation expense would be reversed . the awards are canceled if the performance goals are not achieved as of the end of the performance period . the performance units vest in full at the end of a three-year period . the company uses the black-scholes option valuation model to estimate the fair value of its stock options and stock appreciation rights ( โ sars โ ) at the date of grant . the black-scholes option valuation model requires the input of highly subjective assumptions including the company 's expected stock price volatility , the expected dividend yield , the expected term of an option or sar and the risk-free interest rate , which is based on the u.s. treasury yield curve in effect at the time of grant .
| this reversal resulted in a one-time , non-cash income tax benefit of $ 156.6 million partially offset by the recognition of $ 16.0 million in income taxes that were retroactive for all of 2016 on the company 's u.s. business earnings for a net benefit of $ 140.6 million . for further discussion , see note 9 `` income taxes '' to the notes to consolidated financial statements in this form 10-k. in 2016 , the company 's net sales increased $ 27.4 million ( 3.2 % ) to $ 871.2 million compared to $ 843.8 million in 2015. this increase was led by an increase in golf apparel sales due to the formation and consolidation of the company 's new apparel joint venture in japan beginning in the third quarter of 2016 , combined with an increase in sales in the golf balls and irons categories . in addition , net sales in 2016 were favorably impacted by changes in foreign currency exchange rates . on a constant currency basis , net sales in 2016 would have increased 2.3 % compared to 2015. the company 's gross margin for 2016 improved by 180 basis points to 44.2 % compared to 2015. this increase was primarily due to operational efficiencies resulting from the many initiatives implemented over the last few years related to its manufacturing and supply chain functions , combined with higher average selling prices in all major hard goods categories . this increase was partially offset by an increase in promotional activity compared to the same period in 2015. operating expenses increased $ 10.2 million or 3.1 % and were flat as a percentage of net sales in 2016 compared to 2015. the increase in 2016 was primarily related to incremental expenses related to the japan joint venture combined with increases in legal expenses related to corporate development activities , partially offset by a decrease in stock compensation expense . interest expense decreased $ 6.3 million to $ 2.4 million in 2016 compared to 2015 due to the retirement of the company 's convertible senior notes during the second half of 2015 . 29 in 2016 , the company completed the sale of a small
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in october 2014 , we initiated the phase 1/2 clinical trial , and , in november 2014 we began patient enrollment in the phase 1/2 clinical trial to evaluate the safety , tolerability , and potential efficacy of our lead drug candidate , rut58-60 , for use as an adjunct to systemic antibiotics in abdominal surgery and patient screening began at four clinical trial sites in the united states . we are in the process of enrolling the first 20 patients in the phase 1 part of our exploratory phase 1/2 clinical trial to evaluate the safety of rut58-60 within the abdominal cavity . to date , the company has not received any reports of any serious adverse events . the study is being conducted at seven clinical sites in the u.s. the company has identified a number of additional clinical sites for the potential phase 2 part of our phase 1/2 clinical trial for rut58-60 . following a review of the safety run-in data , we plan to pursue our phase 2 and phase 3 clinical trial strategy . we believe that our drug candidates have the potential to significantly reduce the rate of post-surgical infections , reduce the use of systemic antibiotics that have proven to be ineffective against certain common resistant strains of bacteria , including methicillin-resistant staphylococcus aureus , or mrsa , and vancomycin-resistant enterococcus , or vre , reduce the negative side effects associated with the increasingly widespread use of antibiotics , accelerate post-surgical healing which should lead to quicker patient discharge from the hospital , and ultimately reduce hospital readmission rates . we believe that our drug candidates will complement the paid for performance paradigm and they are designed to reduce the overall healthcare costs associated with post-surgical infections and improve hospital economics . we believe the benefits of its drug candidates will be significant as they : mimic the human body 's own infection-fighting mechanism , have not shown toxicity or serious side effects in its animal and other preclinical studies , do not produce resistant bacteria in vitro , and demonstrate broad spectrum anti-microbial effectiveness in vitro . we believe that our drug candidates have the potential to be used as a prophylactic therapy to prevent and treat infections , and may accelerate patient discharge from the hospital and ultimately lead to an overall reduction in hospital readmission rates . the benefits of hocl in preventing infection have been well-demonstrated in products with lower concentrations of hocl than rut58-60 . to date , hocl based products have only been cleared for use as medical devices for topical applications in the united states , europe and certain other countries . earlier formulations have not been able to achieve therapeutic indication status , primarily due to their lack of stability and therefore have been limited for use as topical applications . historically , the lack of stability has posed a vexing problem to companies hoping to pursue hocl products for therapeutic indications in invasive applications and has prevented these companies from being able to conduct the clinical trials necessary to prove whether hocl is safe and effective for use as a therapeutic . 53 hocl based products have been used successfully to prevent infection in topical applications and have been sold commercially since at least 2005 by other companies , generally as medical devices or for the disinfection of medical devices . several of these hocl based products have been commercialized as medical devices by oculus , our former parent company and the licensor of our technology . through our license and supply agreement with oculus , we have obtained exclusive rights to the rut58-60 technology , as well as a proprietary method of manufacturing and producing hocl with pharmaceutical potential by incorporating additional small molecules without sodium hypochlorite , the result of which increases the compound 's stability and biocompatibility , or the compound 's ability to remain in direct contact with internal tissues and organs . we believe our recent enhancements to the stability and biocompatibility of the compound will allow us to expand the use of hocl so that it may be used in direct contact with internal organs and thus , for invasive applications , including surgical and trauma procedures , as well as additional clinical indications . with these enhancements , we believe our lead product candidate will be able to meet the safety and efficacy standards that the fda requires for the approval of a new drug . obtaining approval of new drug by the fda is a lengthy , expensive and uncertain process , and we may not be successful in obtaining approval . the fda review processes can take years to complete and approval is never guaranteed . there are approximately 30 million surgical and trauma procedures in the united states per year , approximately 7 million of which are abdominal surgeries , based upon its market research . if we are successful in receiving fda approval for our drug candidates for the prevention of infection in abdominal surgery , we plan to pursue other types of surgeries , including cardiac , pulmonary and spinal , among others . based upon data from preclinical studies conducted by us and data reported in third party publications , we believe that the safety and tolerability profile of our drug candidates , combined with its broad-range antimicrobial potency without specificity , offer a practical and unique approach to stem the high rate of hospital acquired infections and infections resulting from complications in surgeries and the increasing emergence of new antibiotic resistant bacteria that pose a significant risk to public health . story_separator_special_tag we believe that our technology represents a significant innovation over existing uses of hocl in topical applications and over systemic antibiotics for the prevention and treatment of infection in surgical and other invasive applications , and has the potential to raise the clinical bar for anti-infective products generally in the face of increasing headwinds . we have focused much of our research and development efforts for rut58-60 and other formulations on pre-clinical development and optimization . our research and development team is working to further optimize the performance of our drug candidates by testing variations in the formulation and chemical components of rut58-60 . we also seek to further optimize the proprietary chemical formulation and manufacturing process that gives us reason to believe that rut58-60 and other formulations may be able to be used in surgical applications . under our license and supply agreement with oculus , we have exclusively licensed the hocl technology relating to rut58-60 and other formulations for commercialization in the united states , europe , japan and canada . according to ims health , an information technology firm , these markets represented approximately 71 % of the global medicines market in 2011. in parallel with our clinical development activities , we have conducted discussions with various pharmaceutical companies for potential partnership and collaboration activities for rut58-60 in the united states , canada , europe and japan . to date , we have not entered into any partnerships or collaborations for rut58-60 and we can not guarantee that we will be successful entering into any such arrangements on favorable terms , or at all . merger on march 13 , 2015 , we entered into the merger agreement with merger sub and pulmatrix which provides for the merger of merger sub with and into pulmatrix , with pulmatrix surviving as our wholly owned subsidiary , and merger sub will cease to exist . see our current report on form 8-k dated march 13 , 2015 for additional details related to the merger . if the merger is consummated , we will issue shares of our common stock to the pulmatrix equity holders in connection with the merger as merger consideration and shares of common stock to certain lenders of pulmatrix upon the conversion of bridge loans , such that the former pulmatrix security holders will hold approximately 83 % of ruthigen 's post-merger shares . although we are the legal acquirer and will issue shares of its common stock to effect the merger with pulmatrix , the business combination will be accounted for as a reverse acquisition of ruthigen by pulmatrix under gaap . in addition , at the effective time of the merger , warrants to purchase shares of pulmatrix common stock will be converted into and exchangeable for warrants to purchase shares of our common stock pursuant to an exchange ratio described in the merger agreement . if the merger is completed , hojabr alimi , our chief executive officer and sameer harish , our chief financial officer will step down in their current roles and continue to be employed by the combined company and have agreed to terminate equity grants previously made to them and will receive cash and restricted stock units pursuant to the new employment agreements pulmatrix and ruthigen entered into with each of messrs. alimi and harish . 54 pending the consummation of the merger , the merger agreement permits us to scale down our operations as we deem necessary and requires us to scale back patient enrollment in our clinical trial of rut58-60 , our primary drug candidate , and it is currently anticipated that the combined company would focus its resources on the development of products within the scope of pulmatrix 's current business plan . as a result , following the merger , the combined company may seek to sell or assign its rights related to our current drug candidates , including rut58-60 . story_separator_special_tag during the years ended march 31 , 2015 and 2014 during the years ended march 31 , 2015 and 2014 , our sources and uses of cash were as follows : net cash used in operating activities net cash used in operating activities was $ 5,386,000 and $ 2,969,000 for the years ended march 31 , 2015 and 2014 , respectively . the net cash used in operating activities for the year ended march 31 , 2015 was primarily due to cash used to fund a net loss of $ 6,691,000 , adjusted for non-cash expenses of $ 1,080,000 , partially offset by $ 225,000 of cash provided by changes in the levels of operating assets and liabilities , primarily as a result of increases in accounts payable and accrued expenses , due to an expansion of operating activities . the net cash used in operating activities for the year ended march 31 , 2014 was primarily due to cash used to fund a net loss of $ 3,118,000 , adjusted for non-cash expenses of $ 2,000 , partially offset by $ 147,000 of cash provided by changes in the levels of operating assets and liabilities , primarily as a result of increases in accounts payable and accrued expenses , due to an expansion of operating activities . net cash used in investing activities net cash used in investing activities was $ 156,000 and $ 0 for the years ended march 31 , 2015 and 2014 , respectively . the net cash used during the year ended march 31 , 2015 was related to purchases of property and equipment . net cash provided by financing activities net cash provided by financing activities for the years ended march 31 , 2015 and 2014 was $ 328,000 and $ 18,444,000 , respectively .
| 55 we expect that research and development expense will continue to increase substantially in future years as we pursue regulatory approvals for rut58-60 based on the anticipated timelines and the resources we have allocated , we expect the total operating expense to bring rut58-60 through our goal of fda approval will be approximately $ 50 million . in addition , we expect to expand the scope of our new product development , which may also result in substantial increases in research and development expense . if the merger is consummated , it is currently anticipated that the combined company would focus its resources on the development of products within the scope of pulmatrix 's current business plan . as a result , following the merger , the combined company may seek to sell or assign its rights related to our current drug candidates , including rut58-60 selling , general and administrative expense selling , general and administrative expense was $ 4,530,000 and $ 1,736,000 for the years ended march 31 , 2015 and 2014 , respectively , representing an increase of $ 2,794,000 , or 161 % . the increase in selling , general and administrative expense is primarily a result of higher legal , accounting , and insurance expenses associated with being a public company of $ 1,154,000 , the company 's preparations for its initiation of clinical trials and the inclusion of non-cash stock compensation expenses of $ 1,079,000 , which were not incurred for the fiscal year ended march 31 , 2014. liquidity and capital resources we measure our liquidity in a number of ways , including the following : march 31 , 2015 2014 cash $ 10,357,000 $ 15,571,000 working capital $ 9,888,000 $ 14,627,000 we reported net losses of $ 6,691,000 and $ 3,118,000 for the years ended march 31 , 2015 and 2014 , respectively . at march 31 , 2015 and 2014 , our accumulated deficit was $ 10,360,000 and $ 3,669,000 , respectively . we have not yet achieved profitability . we expect that our research and development and general and administrative expenses will continue to increase and , as a result , we will eventually need to generate significant product revenues
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specialty titles describe our jumbo games , such as colossal diamonds , and games 38 made specifically for high-limit winnings . in total , our development teams have the capabilities to produce approximately 50 games per year . we believe this strategy of producing diversified content will allow us to maintain and grow our market leadership within our current class ii base , as well as expand into class iii casinos in other key jurisdictions . table products in addition to our existing portfolio of egms , we also offer our customers approximately 30 unique table product offerings , including live felt table games , side bet offerings , progressives , signage and other ancillary table game equipment . our table products are designed with the goal of enhancing the table games section of the casino floor ( commonly known as โ the pit โ ) . over the past 10 years , there has been a trend of introducing sidebets on blackjack tables to increase the game 's overall hold . our table products segments offers a full suite of side-bets and specialty table games that capitalize on this trend , and we believe that this segment will serve as an important growth engine for our company , including by generating further cross-selling opportunities with our egm offerings . as of december 31 , 2017 , we had placed 2,400 table products domestically and internationally and we believe we are presently a leading supplier of table products to the gaming industry based on number of products placed . our table products segment focuses on high margin recurring revenue generated by leases . nearly all of the revenue we generate in this segment is recurring . we have acquired several proprietary table games and side-bets and developed others in-house . as one of the newer areas of our table products business , our equipment offerings are ancillary to table games , such as card shufflers and table signage , and provide casino operators a greater variety of choice in the marketplace . this product segment includes our highly-anticipated single-card shuffler , dex s , as well as our baccarat signage solution and roulette readerboard . we believe this area of the business holds many opportunities for growth , as the technology currently installed in the signage and readerboard areas are in a replacement cycle . after acquiring intellectual property around progressive bonusing systems , our table products segment has taken the base systems and heavily expanded on it to now offer customers a bonusing solution for casino operators . we believe progressive bonusing on table products is a growing trend with substantial growth opportunities . we continue to develop and expand our core system to offer new and exciting bonusing and progressive products for the marketplace . interactive social casino products our b2c social casino games include online versions of our popular egm titles and are accessible to players worldwide on multiple mobile platforms , which we believe establishes brand recognition and cross selling opportunities . our b2c social games operate on a free to play model , whereby game players may collect virtual currency or other virtual consumable goods ( collectively referred to as โ virtual goods โ or โ virtual currency โ ) free of charge , through the passage of time or through targeted marketing promotions . additionally , players have the ability to send free โ gifts โ of virtual goods to their friends through interactions with certain social platforms . if a game player wishes to obtain virtual goods above and beyond the level of free virtual goods available to that player , the player may purchase additional virtual goods . once obtained , virtual currency ( either free or purchased ) can not be redeemed for cash nor exchanged for anything other than game play . we design our portfolio of b2c games to appeal to the interests of the broad group of people who like to play casino-themed social and mobile games . we have recently expanded into the b2b space through our core app , lucky play casino , whereby we white label our social game product and enable our land-based casino customers to brand the social gaming product with their own casino name . currently , our b2c social games consist of our mobile apps , lucky play casino , wild vegas casino , buffalo jackpot casino , and vegas fever . the apps contain numerous playags game titles available for consumers to play for fun or with chips they purchase in the app . some of our most popular social games include content that is also popular in land-based settings such as fire wolf , gold dragon red dragon , legend of the white buffalo , royal reels , colossal diamonds , so hot , monkey in the bank , and many more . our b2c games leverage the global connectivity and distribution of facebook , as well as mobile platforms such as the apple app store and google play store . other segment information customers and marketing . we market our products to casinos and other legal gaming establishments around the world with our domestic and international sales force and several domestic and international distributors and or representatives . we believe the quality and breadth of our customer base is a strong testament to the effectiveness and quality of our product offerings , technological innovation and customer service . our customer base includes leading casino operators in leading 39 established gaming markets such as the united states , canada and latin america . our customers include , among others , caesar 's entertainment corp. , mgm resorts international , poarch creek band of indians , and the chickasaw nation . our products and the locations in which we may sell them are subject to the licensing and product approval requirements of various national , state , provincial and tribal jurisdictional agencies that regulate gaming around the world . see โ regulation and licensing โ section below . story_separator_special_tag we lease and sell our products , with an emphasis on leasing versus selling , primarily in the united states . we service the products we lease and offer service packages to customers who purchase products from us . product supply . we obtain most of the parts for our products from outside suppliers , including both off-the-shelf items as well as components manufactured to our specifications . we also manufacture parts in-house that are used for product assembly and for servicing existing products . we generally perform warehousing , quality control , final assembly and shipping from our facilities in las vegas , atlanta , mexico city and oklahoma city , although small inventories are maintained and repairs are performed by our field service employees . we believe that our sources of supply for components and raw materials are adequate and that alternative sources of materials are available . key drivers of our business our revenues are impacted by the following key factors : the amount of money spent by consumers on our domestic revenue share installed base ; the amount of the daily fee and selling price of our participation electronic gaming machines ; our revenue share percentage with customers ; the capital budgets of our customers ; the level of replacement of existing electronic gaming machines in existing casinos ; expansion of existing casinos ; development of new casinos ; opening of new gaming jurisdictions both in the united states and internationally ; our ability to obtain and maintain gaming licenses in various jurisdictions ; the relative competitiveness and popularity of our electronic gaming machines compared to competitive products offered in the same facilities ; and general macro-economic factors , including levels of and changes to consumer disposable income and personal consumption spending . our expenses are impacted by the following key factors : fluctuations in the cost of labor relating to productivity ; overtime and training ; fluctuations in the price of components for gaming equipment ; fluctuations in energy prices ; changes in the cost of obtaining and maintaining gaming licenses ; and fluctuations in the level of maintenance expense required on gaming equipment . variations in our selling , general and administrative expenses , or sg & a , and research and development , or r & d are primarily due to changes in employment and salaries and related fringe benefits . acquisitions and divestitures we have made several strategic acquisitions over the past three years . rocket gaming systems 40 on december 6 , 2017 , we acquired an installed base of approximately 1,500 networked class ii slot machines , together with related intellectual property , which were operated by rocket gaming systems ( โ rocket โ ) for $ 56.9 million . the acquired class ii slot machines are located across the united states , with significant presence in key markets such as california , oklahoma , montana , washington and texas . the class ii portfolio from rocket includes wide-area progressive and standalone video and spinning-reel games and platforms , including galaxy , northstar and the player-favorite gold series , a suite of games that feature a $ 1 million-plus progressive prize and is the longest-standing million dollar wide-area progressive on tribal casino floors . in bet gaming in august 2017 , we acquired five dynamic , new games from new jersey-based in bet gaming ( โ in bet โ ) , including super 4 , blackjack match progressive , jackpot blackjack , royal 9 , and jackpot baccarat . these games have approximately 500 installs worldwide and the acquisition represents our largest table game investment to date . each of these games features a simple , rewarding side bet that extends the winning experience in interactive ways and further engages players . the acquisition of in bet strategically combined in bet 's innovative table game side bet technology with our expertise in table game progressive technology to deliver players and operators unmatched gaming play . the acquisition was accounted for as an acquisition of a business and the assets acquired and liabilities assumed were measured based on our preliminary estimates of their fair values at the acquisition date . the estimated fair values of assets acquired and liabilities assumed and resulting goodwill are subject to adjustment as we finalize our fair value analysis . we attribute the goodwill acquired to our ability to commercialize the products over our distribution and sales network , opportunities for synergies , and other strategic benefits . total consideration of $ 9.6 million included an estimated $ 2.6 million of contingent consideration that is payable upon the achievement of certain targets and periodically based on a percentage of product revenue earned on the purchased table games . the consideration was allocated primarily to tax deductible goodwill for $ 3.2 million and intangible assets of $ 5.5 million , which will be amortized over a weighted average period of approximately 9 years . intellectual property acquisitions - 2015 during the quarter ended september 30 , 2015 , the company acquired certain intangible assets related to the purchase of table products and table product related intellectual property . some of the acquisitions were accounted for as an acquisition of a business and the assets acquired and liabilities assumed were measured based on our estimates of their fair values at the acquisition dates . the total consideration of $ 10.0 million includes an estimated $ 1.5 million of contingent consideration that is payable periodically based on a percentage of product revenue earned on the related table products . the amount of the contingent consideration recorded was estimated at the purchase date and is subject to change based on changes in the estimated product revenue and has been recorded in other long-term liabilities in the consolidated balance sheet . gamingo limited on june 15 , 2015 , we purchased 100 % of the equity of gamingo limited ( formerly known as โ rocketplay โ , currently known as โ agsi โ ) , a leading gaming company developing social casino titles for mobile devices .
| additionally , we had a $ 1.4 million increase in table products gaming operations revenue which is attributable to the increase in the table products installed base to 2,400 units compared to 1,500 units in the prior year period most notably due to the purchase of in bet assets with an installed base of 493 table games . 43 equipment sales . the increase in equipment sales is due to the sale of 2,565 units in the year ended december 31 , 2017 , compared to 465 units in the prior year period . the increase in the number of units sold is primarily attributable to the success of our new icon and orion cabinets and our growth in the class iii market in which many customers prefer to buy rather than lease egms . the increase was also attributable to a $ 1,432 , or 9.6 % , increase the average sales price compared to the prior year period . the increase in equipment sales was offset by a decrease in revenues from the sale of nontransferable and nonexclusive licenses of certain licensed game content to a third party for $ 4.3 million in the prior year period that was not present in the current year period . operating expenses cost of gaming operations . the increase in costs of gaming operations was due to increased service and indirect production costs driven by our increased installed base of 23,805 egm units compared to 20,851 units in the prior year period , as well as increased table games installed base that increased 60.0 % compared to the prior year period . as a percentage of gaming operations revenue , costs of gaming operations was 18.6 % for the year ended december 31 , 2017 compared to 17.3 % for the prior year period . cost of equipment sales . the increase in cost of equipment sales is attributable to the increase of 2,565 egm units sold for the year ended december 31 , 2017 compared to 465 in prior year period . as a percentage of equipment sales revenue , costs of equipment sales was 47.6 % for the
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this increase was mainly due to an increase in sales volumes and the higher unit cost of middle-level eps this year compared with low-level eps in last year . an increase in sales volumes resulted in a cost of sales increase of $ 20.7 million , an increase in unit material and subcomponents costs led to a cost of sales increase of $ 6.9 million and the effect of foreign currency translation of the rmb against the u.s. dollar led to a cost of sales increase of $ 0.9 million . โ cost of sales for jiulong was $ 68.1 million for the year ended december 31 , 2014 , compared with $ 68.0 million for the year ended december 31 , 2013 , representing an increase of $ 0.1 million , or 0.2 % . the increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $ 7.0 million , a decrease in unit cost resulting in a cost of sales decrease of $ 7.2 million and the effect of foreign currency translation of the rmb against the u.s. dollar resulting in a cost of sales increase of $ 0.3 million . โ cost of sales for shenyang was $ 36.0 million for the year ended december 31 , 2014 , compared with $ 36.8 million for the year ended december 31 , 2013 , representing a decrease of $ 0.8 million , or 2.1 % . the increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $ 2.6 million , a decrease in unit cost resulting in a cost of sales decrease of $ 3.5 million and the effect of foreign currency translation of the rmb against the u.s. dollar resulting in a cost of sales increase of $ 0.1 million . 21 โ cost of sales for wuhu was $ 23.1 million for the year ended december 31 , 2014 , compared with $ 24.5 million for the year ended december 31 , 2013 , representing a decrease of $ 1.4 million , or 5.8 % . the decrease in cost of sales was mainly due to a decrease in sales volumes resulting in a cost of sales decrease of $ 0.2 million and a decrease in unit cost resulting in a cost of sales decrease of $ 1.3 million , which were offset by the effect of foreign currency translation of the rmb against the u.s. dollar resulting in a cost of sales increase of $ 0.1 million . โ cost of sales for hubei henglong was $ 45.6 million for the year ended december 31 , 2014 , compared with $ 39.2 million for the year ended december 31 , 2013 , representing an increase of $ 6.4 million , or 16.2 % . the net increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $ 5.4 million , an increase in unit cost resulting in a cost of sales increase of $ 0.8 million and the appreciation of the rmb against u.s. dollar resulting in a cost of sales increase of $ 0.2 million . โ cost of sales for other sectors was $ 35.6 million for the year ended december 31 , 2014 , compared with $ 30.6 million for the year ended december 31 , 2013 , representing an increase of $ 5.0 million , or 16.1 % . the increase in cost of sales for other sectors was mainly due to the company 's improved quality of manual columns , an increase in sales volume and cost of production , which led to a cost of products sold for other sectors increase of $ 0.9 million , and the sales of fujian qiaolong ( acquired in the second quarter of 2014 ) having been consolidated in other sectors , which led to a cost of products sold for other sectors increase of $ 4.1 million . gross margin was 18.7 % for the year ended december 31 , 2014 , representing a 0.2 % increase from 18.5 % for the year ended december 31 , 2013 , which was primarily due to an increase in sales volume of high gross margin products . gain on other sales gain on other sales mainly consisted of net amount retained from sales of materials , property , plant and equipment , land use rights and scraps . for the year ended december 31 , 2014 , gain on other sales amounted to $ 11.8 million , while it amounted to $ 7.6 million for the year ended december 31 , 2013 , representing an increase of $ 4.2 million , or 55.3 % , which was mainly due to the company 's sale of the remaining land use rights in 2014 ( see note 7 ) , which resulted in a recognition of a gain of $ 7.5 million , while the company 's sale of land use rights in 2013 resulted in a recognition of a gain of $ 4.1 million for 2013. selling expenses for the years ended december 31 , 2014 and 2013 , selling expenses are summarized as follows ( figures are in thousands of usd ) : replace_table_token_8_th selling expenses were $ 15.7 million for the year ended december 31 , 2014. as compared to $ 13.3 million for the year ended december 31 , 2013 , there was an increase of $ 2.4 million , or 18.0 % , which was mainly due to : ยท a decrease in salaries and wages for the company 's salesmen , as a result of the sales department have optimized the management process in 2014 and salaries and wages of management decreased accordingly ; ยท an increase in office expenses , including office supplies , travel expenses and meeting expenses , as a result of an increase in marketing activities ; ยท an increase in transportation expenses due to an increase in sales activities and expansion of the company 's story_separator_special_tag domestic and international markets , which are located farther away from the company 's production bases ; and ยท an increase in rent expense due to the increase of product warehouse rental space for the expansion of sales and commercial networks . general and administrative expenses for the years ended december 31 , 2014 and 2013 , general and administrative expenses are summarized as follows ( figures are in thousands of usd ) : 22 replace_table_token_9_th ( 1 ) listing expenses consisted of the costs associated with legal , accounting and auditing fees for operating a public company . the expenses also included share-based compensation expense for options granted to independent directors . general and administrative expenses were $ 16.2 million for the year ended december 31 , 2014 , compared with $ 13.3 million for the year ended december 31 , 2013 , representing an increase of $ 2.9 million , or 21.9 % . the analysis of expense items with significant fluctuation is as follows : ยท for the year ended december 31 , 2014 , an increase in salaries and wages mainly due to the increase in management 's salary and performance bonus as the company achieved the performance targets as pre-determined by the board of directors and an increase in the number of subsidiaries . ยท an increase in labor insurance expenses mainly because of the company 's improvement in welfare benefits for the management , improvement of certain labor protection facilities and an increase in the number of subsidiaries . ยท there was an increase in maintenance and repair expenses in 2014 , which was mainly due to the scale up of repair and maintenance projects on the company 's office facilities in 2014 and an increase in the number of subsidiaries . ยท there was an increase in property tax and other taxes in 2014 , which was mainly due to the company 's housing property increase in 2014 . ยท there was an increase in office expense which was mainly due to the company 's replacement of office appliances and an increase in the number of subsidiaries . ยท there was an increase in depreciation and amortization expense , which was mainly due to an increase of office equipment and an increase in the number of subsidiaries . research and development expenses research and development expenses , โ r & d โ expenses , were $ 23.0 million for the year ended december 31 , 2014 as compared to $ 20.9 million for the year ended december 31 , 2013 , an increase of $ 2.1 million , or 10.0 % , which was mainly due to the development and trial production of eps . expenses for mold improvement increased by $ 1.5 million , external technical support fees decreased by $ 0.1 million and the salaries and wages expenses of research and development related staff increased by $ 0.7 million . the global automotive parts industry is highly competitive ; winning and maintaining new business requires suppliers to rapidly produce new and innovative products on a cost-competitive basis . in 2014 , foreign oems significantly increased their demand for eps , but the related technology in china was still in the research , development and testing stage . in order to expand into the market for eps , the company increased its investment in the research and development of eps in 2014 , including assigning the company 's senior technicians and advanced manufacturing equipment to eps , establishing the eps trail-production department , hiring technologists and purchasing advanced technology and testing equipment . at present , the company has developed several types of eps suitable for small-engine cars , and has sold certain quantities of eps . income from operations income from operations was $ 44.4 million for the year ended december 31 , 2014 as compared to $ 36.7 million for the year ended december 31 , 2013 , an increase of $ 7.7 million , or 21.0 % , which mainly consisted of an increase of $ 10.8 million , or 14.1 % , in gross profit and an increase of $ 4.2 million , or 55.3 % , in gain on other sales , such as raw materials and property , plant and equipment sales , offset by an increase in operating expenses of $ 7.4 million , or 15.6 % . 23 other income , net other income , net was $ 1.0 million for the year ended december 31 , 2014 as compared to $ 1.1 million for the year ended december 31 , 2013 , a decrease of $ 0.1 million , or 9.1 % , primarily as a result of a decrease in the unspecific purpose subsidies being recognized in 2014. the company 's government subsidies consisted of specific subsidies and other subsidies . specific subsidies are the subsidies that the chinese government has specified its purpose for , such as product development and renewal of production facilities . other subsidies are the subsidies that the chinese government has not specified its purpose for and are not tied to future trends or performance of the company ; receipt of such subsidy income is not contingent upon any further actions or performance of the company and the amounts do not have to be refunded under any circumstances . the company recorded specific purpose subsidies as advances payable when received . for specific purpose subsidies , upon government acceptance of the related project development or asset acquisition , the specific purpose subsidies will be recognized to reduce related r & d expenses or cost of asset acquisition . the unspecific purpose subsidies are recognized as other income upon receipt as future performance by the company is not required .
| in summary , the company had an increase in sales volume leading to a sales increase of $ 49.4 million , an increase in average selling price of steering gears leading to a sales increase of $ 0.1 million , and the effect of foreign currency translation of the rmb against the u.s. dollar , which led to a sales increase of $ 2.1 million . 20 further analysis is as follows : โ net sales for henglong were $ 293.9 million for the year ended december 31 , 2014 , compared with $ 260.6 million for the year ended december 31 , 2013 , representing an increase of $ 33.3 million , or 12.7 % , which was mainly due to an increase in sales volume for passenger vehicles in the china market and the higher selling price of middle-level electric power steering compared with low-level electric power steering . an increase in sales volume led to a sales increase of $ 25.2 million , an increase in selling price led to a sales increase of $ 6.9 million , and the effect of foreign currency translation of the rmb against the u.s. dollar led to a sales increase of $ 1.1 million . โ net sales for jiulong were $ 77.3 million for the year ended december 31 , 2014 , compared with $ 77.7 million for the year ended december 31 , 2013 , representing a decrease of $ 0.4 million , or 0.5 % , which was mainly due to the company achieving higher sales volume in the commercial vehicles steering gears market , offset by a decrease in average selling price . an increase in sales volume led to a sales increase of $ 7.7 million , the effect of foreign currency translation of the rmb against the u.s. dollar led to a sales increase of $ 0.4 million , and a decrease in selling price led to a sales decrease of $ 8.5 million . โ net sales for shenyang were $ 41.9 million for the year ended december 31 , 2014 , compared with $ 41.5 million for the year ended december 31 , 2013 , representing an increase of $ 0.4 million , or 0.8 % . the
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actual results could differ from those estimates and assumptions . we have identified the following as critical accounting estimates , which are defined as those that are reflective of significant judgments and uncertainties , are the most pervasive and important to the presentation of our financial condition and results of operations and , if subject to different assumptions and conditions , could lead to materially different results . collectability of trade accounts receivable in the ordinary course of business , we grant non-interest-bearing trade credit to our unaffiliated customers on terms that range from 30 to 180 days . in an effort to reduce our credit risk , we perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and aging of receivables , as well as our assessment of our customers ' creditworthiness , as determined by our review of credit information relating to the customers . we generally do not require collateral on trade accounts receivable . we maintain an allowance for doubtful accounts based on expected collectability of the trade accounts receivable , after considering our historical collection experience , the length of time an account is outstanding , the financial position of the customer if known and information provided by credit rating services . the adequacy of this allowance is reviewed each reporting period and adjusted as necessary . our allowance for doubtful accounts was approximately $ 162,000 and $ 171,000 at december 31 , 2019 and 2018 , respectively , which was approximately 2.2 % and 2.9 % of gross accounts receivable at december 31 , 2019 and 2018 , respectively . if the financial condition of our customers were to deteriorate , resulting in increased uncertainty as to their ability to make payments , or if unexpected events or significant future changes in trends were to occur , we may be required to increase the allowance or incur a bad debt expense . in this regard , we incurred bad debt expense of approximately $ 6,000 and $ 35,000 in 2019 and 2018 , respectively . inventories our inventories primarily are composed of raw materials and finished goods and are stated at the lower of cost or net realizable value , using the first-in , first-out method . net realizable value is the estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal and transportation . we maintain a reserve for slow moving and obsolete inventory to reflect the diminution in value resulting from product obsolescence , damage or other issues affecting marketability in an amount equal to the difference between the cost of the inventory and its estimated net realizable value . the adequacy of this reserve is reviewed each reporting period and adjusted as necessary . we regularly compare inventory quantities on hand against historical usage or forecasts related to specific items in order to evaluate obsolescence and excessive quantities . in assessing historical usage , we also qualitatively assess business trends to evaluate the reasonableness of using historical information as an estimate of future usage . our slow moving and obsolete inventory reserve was $ 244,206 and $ 284,109 at december 31 , 2019 and 2018 , respectively . income taxes we account for income taxes under the asset and liability method . under this method , deferred tax assets and liabilities are recognized to reflect the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured and recorded using currently enacted tax rates , which we expect will apply to taxable income in the years in which the differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases are recovered or settled . the differences are attributable to differing methods of financial statement and income tax treatment with respect to depreciation and reserves for trade accounts receivable and inventories . the likelihood of a material change in our expected realization of deferred tax assets is dependent on , among other factors , changes in tax law , future taxable income and settlements with tax authorities . in assessing the realizability of our deferred tax assets , we evaluate positive and negative evidence and use judgments regarding past and future events , including operating results and available tax planning strategies that could be implemented to realize the deferred tax assets . we record a valuation allowance when necessary to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized . we consider available evidence , both positive and negative , and use judgments regarding past and future events , including operating results and available tax planning strategies , in assessing the need for a valuation allowance . significant judgment is required in determining income tax provisions and in evaluating tax positions . we establish additional provisions for income taxes when , despite the belief that tax positions are fully supportable , there remain certain positions that do not meet the minimum probability threshold , which is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority . in the normal course of business , we and our subsidiaries are examined by various federal and state tax authorities . we regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes . we adjust the income tax provision , the current tax liability and deferred taxes in any period in which we become aware of facts that necessitate such an adjustment . story_separator_special_tag the ultimate outcomes of the examinations of our income tax returns could result in increases or decreases to our recorded tax liabilities , which would affect our financial results . 7 intangible assets intangible assets are acquired assets that lack physical substance and that meet specified criteria for recognition apart from goodwill . we own several trademarks and trade names , including star brite ยฎ and performacide ยฎ . we have determined that these intangible assets have indefinite lives and , therefore , are not amortized . in addition , we own other intangible assets including patents , royalty rights , other trademarks and trade names , customer lists , and product formulas that have finite lives . as these intangible assets have finite lives , their carrying value is amortized over their remaining useful lives . see note 5 to the consolidated financial statements included in this report for additional information regarding our intangible assets . we evaluate our indefinite-lived intangible assets for impairment annually and at other times if events or changes in circumstances indicate that an impairment may have occurred . in evaluating our indefinite-lived intangible assets for impairment , we assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value . if , after completing the qualitative assessment , we determine it is more likely than not that the fair value of the indefinite-lived intangible asset is greater than its carrying amount , the asset is not impaired . if we conclude it is more likely than not that the fair value of the indefinite-lived intangible assets is less than the carrying value , we would then proceed to a quantitative impairment test , which consists of a comparison of the fair value of the intangible assets to their carrying amounts . in 2019 , we performed a qualitative assessment on all of our indefinite lived assets and determined , based on the assessment , that their fair values were more likely than not higher than their carrying values . we assess the remaining useful life and recoverability of intangible assets having finite lives whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable . such events or circumstances may include , for example , the occurrence of an adverse change with respect to a product line that utilizes the intangible assets . significant judgments in this area involve determining whether such an event or circumstance has occurred . any impairment loss , if indicated , equals the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset . story_separator_special_tag december 31 , 2018. the increase principally was due to an increase in net sales during the month ended december 31 , 2019 , as compared to the month ended december 31 , 2018. receivables due from affiliated companies aggregated approximately $ 962,000 at december 31 , 2019 , a decrease of approximately $ 84,000 , or 8.0 % , from receivables due from affiliated companies of approximately $ 1,046,000 at december 31 , 2018. net cash used in investing activities during 2019 decreased by approximately $ 942,000 , or 54.3 % , as compared to 2018. the decrease was a result of the company decreasing its cash used for purchases of property , plant and equipment and intangible assets . cash used for purchases of plant , property and equipment decreased by approximately $ 640,000 , primarily because the expansion project is mostly completed . see โ overview โ above for additional information . cash used for purchases of intangible assets decreased by approximately $ 302,000. in 2019 , the company used $ 75,000 to acquire intangible assets from check corporation , and in 2018 , the company used $ 376,722 to acquire intangible assets from snappy marine . see note 5 to the consolidated financial statements included in this report for additional information . net cash used in financing activities during 2019 increased by approximately $ 11,000 or 1.2 % , as compared to 2018. in both years , the company 's primary use of cash in financing activities was to pay dividends to common shareholders and to make payments on long-term debt . see notes 6 and 8 to the consolidated financial statements included in this report for information concerning our principal credit facilities , consisting of kinpak 's obligations relating to an industrial development bond financing with respect to the expansion project , the payment of which we have guaranteed and a revolving line of credit . at december 31 , 2019 and 2018 , we had outstanding balances of approximately $ 3,974,000 and $ 4,222,000 , under kinpak 's obligations relating to the industrial development bond financing respectively , and no borrowings under our revolving credit facility . the loan agreement pertaining to our revolving credit facility , as amended , has a stated term that expires on august 31 , 2021 , although as was the case with earlier revolving lines of credit provided to us in recent years , amounts outstanding are payable on demand . nevertheless , the loan agreement pertaining to our revolving line of credit , as amended , contains various covenants , including financial covenants that are described in note 6 to the consolidated financial statements included in this report . at december 31 , 2019 , we were in compliance with these financial covenants . the revolving credit facility is subject to several events of default , including a decline of the majority shareholder 's ownership below 50 % of our outstanding shares . 9 our guarantee of kinpak 's obligations related to the industrial development bond financing are subject to various covenants , including financial covenants that are described in note 8 to the consolidated financial statements included in this report . as of december 31 , 2019 , we were in
| selling and administrative expenses increased by approximately $ 201,000 , or 2.6 % , during 2019 as compared to 2018. the increase in selling and administrative expenses was principally a result of higher employee payroll and benefits , an increase in amortization expense related to intangible assets we acquired from snappy marine in july 2018 , and administrative expenses at our manufacturing plant , partially offset by a decrease in our provision for bad debts , and depreciation . as a percentage of net sales , selling and administrative expenses increased to 18.6 % in 2019 from 18.3 % in 2018 . 8 interest expense , net during 2019 decreased by approximately $ 3,000 , or 2.7 % , as compared to 2018. provision for income taxes increased by approximately $ 205,000 or 25.9 % in 2019 , as compared to 2018. the increase was principally a result of higher net income . as a percentage of income before taxes our provision for income taxes increased to 22.2 % in 2019 from 22.1 % in 2018. liquidity and capital resources : our cash balance was approximately $ 6,125,000 at december 31 , 2019 compared to approximately $ 1,401,000 at december 31 , 2018. in addition , we had restricted cash of approximately $ 1,885,000 and $ 2,333,000 at december 31 , 2019 and 2018 , respectively . the restricted cash constitutes amounts held in a custodial account that are to be used from time to time to fund additional capital expenditures in connection with the expansion project . see note 8 to the consolidated financial statements included in this report for additional information . the following table summarizes our cash flows for the years ended december 31 , 2019 and 2018 : replace_table_token_1_th net cash provided by operating activities during 2019 increased by approximately $ 4,774,000 or 391.9 % , as compared to 2018. the increase was principally a result of the company decreasing its gross inventories during 2019 by approximately $ 2,571,000 as compared to the company increasing its gross inventories by approximately $ 3,021,000 in 2018. other changes in working capital used approximately $ 1,412,000 more in cash during 2019 than 2018. net income combined with noncash expenses increased by approximately $ 594,000 during 2019 as compared to 2018. inventories , net were approximately $ 9,555,000 and $ 12,085,000 at december 31 , 2019 and 2018 , respectively , representing
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customers include energy marketers , electric and gas utilities , power plants and natural gas producers . sjrg 's marketing activities occur mainly in the mid-atlantic , appalachian and southern regions of the country . sjrg also conducts price risk management activities by entering into a variety of physical and financial transactions including forward contracts , swap agreements , option contracts and futures contracts . in 2016 , sjrg contributed approximately 21.9 % of sji 's net income on a consolidated basis . south jersey exploration , llc ( sjex ) sjex owns oil , gas and mineral rights in the marcellus shale region of pennsylvania . sjex is a wholly-owned subsidiary of sjes and is also considered part of sji 's wholesale energy operations . in 2016 , sjex contributed less than 1.0 % of sji 's net income on a consolidated basis . marina energy llc ( marina ) marina develops and operates on-site energy-related projects . marina 's largest wholly-owned operating project provides cooling , heating and emergency power to the borgata hotel casino & spa in atlantic city , nj . marina also owns numerous solar generation projects . marina 's other projects include a 50 % equity interest in energenic-us , llc ( energenic ) . energenic developed and operated on-site energy projects such as thermal facilities , combined heat and power facilities , landfill gas-fired electric production facilities and solar projects . on december 31 , 2015 , energenic , marina and its joint venture partner entered into two equity distribution and purchase agreements , pursuant to which marina became the sole owner of eight of the energenic projects and its joint venture partner became the sole owner of seven other energenic projects . the project entities that are now wholly owned by marina are acb energy partners , llc ( acb ) , ac landfill energy , llc ( acle ) , bc landfill energy , llc ( bcle ) , sc landfill energy , llc ( scle ) , sx landfill energy , llc ( sxle ) , mcs energy partners , llc ( mcs ) , nbs energy partners , llc ( nbs ) & sbs energy partners , llc ( sbs ) . acb owns and operates a natural gas fueled combined heating , cooling and power facility located in atlantic city , new jersey . acle , bcle , scle and sxle own and operate landfill gas-fired electric production facilities in atlantic , burlington , salem and sussex counties in new jersey . mcs , nbs and sbs own and operate solar-generation sites located in new jersey . in 2016 , marina contributed approximately 13.5 % of sji 's net income on a consolidated basis . 21 south jersey industries , inc. part ii south jersey energy service plus , llc ( sjesp ) sjesp services residential and small commercial hvac systems , installs small commercial hvac systems , provides plumbing services and services appliances under warranty via a subcontractor arrangement as well as on a time and materials basis . sjesp serves southern new jersey where it is one of the largest local hvac service company 's with nearly 25 experienced technicians . sjesp receives a commission on all new and renewed service contracts and is paid a fee to service those warranty contracts . in 2016 , sjesp contributed less than 1.0 % of sji 's net income on a consolidated basis . other sji midstream , llc owns a 20 % equity investment in penneast pipeline company , llc , through which sji , along with other investors , expect to construct an approximately 100-mile natural gas pipeline that will extend from northeastern pennsylvania into new jersey , estimated to be completed in the second half of 2018. energy & minerals , inc. ( emi ) principally manages liabilities associated with its discontinued operations of nonutility subsidiaries . primary factors affecting sji 's business sji 's stated long-term goals are to : 1 ) grow economic earnings to at least $ 150 million by 2020 ; 2 ) improve the quality of earnings ; 3 ) strengthen the balance sheet ; and 4 ) maintain a low-to-moderate risk profile . management established those goals in conjunction with sji 's board of directors based upon a number of different internal and external factors that characterize and influence sji 's current and expected future activities . the following is a summary of the primary factors we expect to have the greatest impact on sji 's performance and ability to achieve the long-term goals going forward : business model - in developing sji 's current business model , our focus has been on our core utility and natural extensions of that business . that focus enables us to concentrate on business activities that match our core competencies . going forward we expect to pursue business opportunities that fit this model . customer growth - southern new jersey , our primary area of operations , has not been immune to the issues impacting the new housing market nationally . residential new construction activity remains steady , supported by growth in higher density and multi-family units . net customers for sjg grew 1.2 % for 2016 as sjg continues its focus on customer conversions . in 2016 , the 4,631 consumers converting their homes and businesses from other heating fuels , such as electric , propane or oil , represented approximately 65 % of the total new customer acquisitions for the year . in comparison , conversions over the past five years averaged 5,317 annually . customers in sjg 's service territory typically base their decisions to convert on comparisons of fuel costs , environmental considerations and efficiencies . while oil and propane prices have become more competitive with natural gas in the past two years , affecting the number of conversions , sjg began a comprehensive partnership with the state 's office of clean energy to educate consumers on energy efficiency and to promote the rebates and incentives available to natural gas users . story_separator_special_tag regulatory environment - sjg is primarily regulated by the new jersey board of public utilities ( bpu ) . the bpu sets the rates that sjg charges its rate-regulated customers for services provided and establishes the terms of service under which sjg operates . sjg expects the bpu to continue to set rates and establish terms of service that will enable sjg to obtain a fair and reasonable return on capital invested . the bpu approved a conservation incentive program ( cip ) effective october 1 , 2006 , discussed in greater detail under `` results of operations '' , that protects sjg 's net income from severe fluctuations in gas used by residential , commercial and small industrial customers . in addition , in february 2013 , the bpu issued an order approving the accelerated infrastructure replacement program ( airp ) , a $ 141.2 million program to replace cast iron and unprotected bare steel mains and services over a four -year period , with annual investments of approximately $ 35.3 million . as of december 1 , 2016 all airp investments are reflected in base rates . additionally , the bpu issued an order approving an extension of the airp for a 5 -year period ( โ airp ii โ ) , commencing october 1 , 2016 , with authorized investments of up to $ 302.5 million to continue replacing cast iron and unprotected bare steel mains and associated services . sjg earns a return on airp ii investments until they are included in rate base through annual rate adjustments . the bpu also issued an order in august 2014 approving the storm hardening and reliability program ( sharp ) , a $ 103.5 million program to replace low-pressure distribution mains and services with high-pressure mains and services on the barrier islands over a three-year period , with annual investments of approximately $ 34.5 million . the bpu approved an increase in annual revenues from base rates of $ 3.9 million to reflect the roll-in of $ 33.7 million of sharp investments made from july 2015 through june 2016 , effective october 1 , 2016. sjg earns a return on sharp investments until they are included in rate base through annual rate adjustments . 22 south jersey industries , inc. part ii weather conditions and customer usage patterns - usage patterns can be affected by a number of factors , such as wind , precipitation , temperature extremes and customer conservation . sjg 's earnings are largely protected from fluctuations in temperatures by the cip . the cip has a stabilizing effect on utility earnings as sjg adjusts revenues when actual usage per customer experienced during an annual period varies from an established baseline usage per customer . our nonutility retail marketing business is directly affected by weather conditions , as it does not have regulatory mechanisms that address weather volatility . the impact of different weather conditions on the earnings of our nonutility businesses is dependent on a range of different factors . consequently , weather may impact the earnings of sji 's various subsidiaries in different , or even opposite , ways . further , the profitability of individual subsidiaries may vary from year-to-year despite experiencing substantially similar weather conditions . changes in natural gas , electricity and solar renewable energy credit ( srec ) prices - the utility 's gas costs are passed on directly to customers without any profit margin added by sjg . the price the utility charges its periodic customers is set annually , with a regulatory mechanism in place to make limited adjustments to that price during the course of a year . in the event that gas cost increases would justify customer price increases greater than those permitted under the regulatory mechanism , sjg can petition the bpu for an incremental rate increase . high prices can make it more difficult for sjg 's customers to pay their bills and may result in elevated levels of bad-debt expense . among our nonutility activities , the business most likely to be impacted by changes in natural gas prices is our wholesale gas marketing business . wholesale gas marketing typically benefits from volatility in gas prices during different points in time . the actual price of the commodity does not typically have an impact on the performance of this business line . our ability to add and retain customers at our retail marketing business is affected by the relationship between the price that the utility charges customers for gas or electric and the cost available in the market at specific points in time . however , retail marketing accounts for a very small portion of sji 's overall activities . marina energy 's srec portfolio typically benefits from increases in individual srec spot markets for any current or future energy year . positive spot market movement affords marina a potential opportunity to sell open production and improve upon or solidify future srec revenue streams for particular srec products . fuel supply management - sjrg has acquired pipeline transportation capacity that allows sjrg to match end users , many of which are merchant generators , with producers looking to find a long-term solution for their supply . we currently have ten fuel supply management transactions under contract and expect to continue expanding this business . midstream investments - design , engineering and environmental assessments continue moving forward on a natural gas pipeline in pennsylvania and new jersey . in september 2015 , midstream , along with other partners in the project , submitted an application to ferc for a permit to proceed with construction . the requested certificate of public convenience and necessity would authorize penneast , of which midstream has a 20 % equity interest , to construct , install , own , operate and maintain this pipeline . we expect to make additional investments in similar midstream projects . changes in interest rates - sji has operated in a relatively low interest rate environment over the past several years .
| sji 's net income for 2016 increased $ 13.7 million , or 13.0 % , to $ 118.8 million compared to 2015 primarily as a result of the following : the net income contribution from retail gas and electric operations at sje increased $ 8.2 million to $ 7.5 million , primarily due to the change in unrealized gains and losses on forward financial contracts used to mitigate price risk on retail gas and electric as discussed under `` operating revenues โ nonutility '' below . the net income contribution from the wholesale energy operations at sjrg increased $ 4.8 million to $ 26.0 million , primarily due to an approximately $ 2.7 million increase related to additional capacity along with margins earned on gas supply contracts with two electric generation facilities compared to the prior year as described in `` gross margin - energy group '' below , along with an approximately $ 2.1 million increase resulting from the change in unrealized gains and losses on derivatives used by the wholesale energy operations to mitigate natural gas commodity price risk as discussed under `` operating revenues - energy group '' below . the net income contribution from gas utility operations at sjg increased $ 2.5 million to $ 69.1 million , primarily due to the rolling into base rates of sharp and airp investments , along with customer growth , as described under `` margin - gas utility operations '' below . the net income contribution from on-site energy production at marina increased $ 0.5 million to $ 16.0 million , primarily due to the following : โฆ $ 15.2 million increase due to the impact of a reduction in the carrying amount of an investment at one of energenic 's operating subsidiaries , which occurred in 2015 ( see note 7 to the consolidated financial statements ) , along with other losses incurred at the energenic operating subsidiaries in 2015 . โฆ $ 9.3 million increase due to several new renewable energy projects that commenced operations over the past twelve months , along with higher prices on srecs compared to the previous year as discussed in `` gross margin - energy services '' below . โฆ $ 4.5 million increase due to a settlement at marina in 2016
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as a result of the completion of the merger described above , the company is no longer a โ shell company โ as that term is defined in rule 405 under the securities act , and rule 12b-2 under the exchange act . as more fully described below , substantially all of the company 's business operations are carried out through winthrop and its subsidiaries , the wright companies . our board of directors is considering strategic uses for the five star sale proceeds including , without limitation , using such funds , together with other funds of the company , to develop or acquire interests in one or more operating businesses . prior to the acquisition of winthrop the five star sale proceeds have been , and we anticipate will continue to be , invested in high-grade , short-term investments ( such as cash and cash equivalents ) consistent with the preservation of principal , maintenance of liquidity and avoidance of speculation , until such time as we need to utilize such funds , or any portion thereof , for the purposes described above . we have not distributed , and do not anticipate distributing , the proceeds of the five star sale to our stockholders . prior to consummation of the five star sale , the company 's board of directors believed that , although the company was not engaged primarily in the business of investing , reinvesting or trading in securities , and did not hold itself out as being primarily engaged in those activities , the company could , upon consummation of the five star sale , fall within the technical definition of โ investment company โ under section 3 ( a ) ( 1 ) of the investment company act of 1940 , as amended ( the โ investment company act โ ) . after the five star sale , the company 's board of directors has re-evaluated the characterization and valuation of its assets for purposes of the applicable definitions of the investment company act and has concluded that the company does not fall within the technical definition of โ investment company โ because the โ investment securities โ it holds constitute less than 40 % of its total assets ( exclusive of government securities and cash and certain cash equivalents ) . accordingly , the company was not required to take any affirmative steps , including developing or acquiring interests in one or more operating businesses prior to january 15 , 2011 , in order to avoid becoming an โ investment company โ for purposes of the investment company act . significant developments โ acquisition on the closing date , 881,206 shares of company common stock were issued by the company as merger consideration to those holders of winthrop common stock who elected to receive company common stock as merger consideration and the company paid cash totaling $ 4,852,000 to those holders of winthrop common stock who elected to receive cash as merger consideration . pursuant to the merger agreement and an investors ' rights agreement , holders of winthrop common stock who elected to receive company common stock as merger consideration are subject to a three-year transfer restriction on such company common stock . further , the company has agreed to pay contingent consideration in cash to a holder of winthrop common stock who received 852,228 shares of company common stock to the extent that such shares have a value of less than $ 1,900,000 on the expiration of the three year period based on the average closing price of the company 's common stock for the ten trading days prior to such date . the total purchase price for winthrop was $ 7,069,000 ( see note 2 to the consolidated financial statements ) . pursuant to the merger agreement , the company has entered into employment agreements with four key winthrop employees having initial terms of five years for one employee and three years for three employees which provide for compensation in the form of base salary , various bonuses and restricted stock units , representing company common stock ( โ rsus โ ) . the employment agreements provide for automatic annual renewals unless notice of non-renewal is given at least six months prior to the applicable employment period . see notes 12 and 14 ( c ) to the consolidated financial statements . 20 the company 's results of operations for the year ended december 31 , 2012 include the operating results of winthrop for the 12 days ended december 31 , 2012. five star leases the company had guaranteed the lease for five star 's new jersey warehouse . on january 15 , 2010 , the company completed the sale to merit of all the issued and outstanding stock of five star . merit extended the new jersey warehouse lease , which originally expired in september 2010 through march 2011 at which time the lease expired . under the terms of the five star stock purchase agreement , merit is responsible for the first $ 25,000 of repairs and end of lease costs , and the company is responsible for 75 % of the remaining costs . the company had been in negotiations with merit regarding an allocation of financial responsibility for repairs to the new jersey warehouse and end of lease costs . however , on may 17 , 2011 , merit and its affiliates filed voluntary chapter 11 petitions in the united states bankruptcy court for the district of south carolina . as a result of the chapter 11 filing , and the inability of the parties to come to an agreement on financial responsibility , the landlord drew down on a $ 128,000 letter of credit previously provided by gp strategies corporation ( gp strategies ) . story_separator_special_tag gp strategies had issued the letter of credit to the landlord in exchange for the landlord removing the gp strategies guarantee for the new jersey warehouse lease . as a result of the spin off of the company from gp strategies in november 2004 , the company had indemnified gp strategies for any costs related to their guarantee of the five star lease , and therefore the company reimbursed gp strategies $ 128,000. the company filed a claim with the bankruptcy court , but based on its initial analysis of the chapter 11 filings believes it is unlikely that it will recover its claim . for the year ended december 31 , 2011 , company has recorded approximately $ 135,000 for its estimated share of the costs , which is included in loss from discontinued operations . in connection with the sale of five star , the company is responsible for all activities necessary to achieve compliance with the connecticut transfer act , including receipt of approval from the connecticut department of environmental protection ( โ ctdep ' ) and implementation of a remediation plan , if required , with respect to environmental obligations related to five star 's connecticut warehouse . in may 2012 , the company satisfied its remediation and environmental obligations with the ctdep . for the year ended december 31 , 2012 the company expensed an additional $ 28,000 to complete the connecticut transfer act process with the ctdep . for the year ended december 31 , 2011 , the company has accrued an additional $ 40,000 for estimated costs associated with completing the connecticut transfer act process with the ctdep . such amount is included in loss from discontinued operations . during 2011the company satisfied its remediation and environmental obligations with the new jersey department of environmental protection . investment in undeveloped land s the company owns certain non-strategic assets , including an investment and interests in land and flowage rights in undeveloped property in killingly , connecticut . investments the company holds 19.9 % equity investments in mxl operations inc. ( mxl ) , which acquired the assets of its former subsidiary , which was engaged in the plastic molding and precision coating businesses . the investment is included in other assets and accounted for at cost of $ 275,000 under asc 325 , investments- other . the company monitors these investments for impairment by considering current factors , including the economic environment , market conditions , operational performance and other specific factors relating to the business underlying the investment , and records impairments in carrying values when necessary . management discussion of critical accounting policies the following discussion and analysis of the financial condition and results of operations are based on the consolidated financial statements and notes to consolidated financial statements contained in this report that have been prepared in accordance with the rules and regulations of the sec and include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates that affect the reported amounts of assets , liabilities , sales and expenses , and related disclosures of contingent assets and liabilities . we base these estimates on historical results and various other assumptions believed to be reasonable , all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources . actual results may differ from these estimates . certain of our accounting policies require higher degrees of judgment than others in their application . these include stock based compensation and accounting for income taxes which are summarized below . 21 cash and cash equivalents the consolidated financial statements include the accounts of the company and its subsidiaries all of which are wholly-owned . all significant intercompany accounts and transactions have been eliminated in consolidation . fair value of financial instruments . the carrying value of cash and cash equivalents and accounts payable approximate estimated fair values because of short maturities . cash equivalents are classified within level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets . at december 31 , 2012 , the company 's winthrop subsidiary has certain tradable marketable securities . short-term investments , principally in company managed mutual funds and separate securities accounts , are stated at the net asset value of the funds or the year-end closing price of the underlying security . all investments are classified as level 1 investments . see note 5 to the consolidated financial statements . employees ' stock based compensation . stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period , which is generally the vesting period . the valuation provisions of asc 718 apply to new grants and to grants that were outstanding as of the effective date of asc 718 and are subsequently modified . see note 12 to the consolidated financial statements for further information regarding our stock-based compensation assumptions and expense . income taxes income taxes are provided for based on the asset and liability method of accounting . deferred tax assets and liabilities are recognized for the estimated future tax consequences 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 in effect for the year in which those temporary differences are expected to be recovered or settled .
| 22 wpam offers programs to support high net worth investors and other individual investors . wpam manages a variety of accounts including : discretionary investment accounts , individual retirement accounts ( iras ) , 401k plans and accounts for non-corporate fiduciaries , such as trustees , executors , guardians , personal representatives , attorneys and other professionals who are responsible for the assets of others and must manage those assets in accordance with the prudent investor act . this investment process , developed and monitored by the wright investment committee , and related investment strategies , are utilized to address the objectives of wpam clients . winthrop , through its wisdi affiliate , offers a diversified family of mutual funds . wright mutual funds are utilized by the wright companies and others to build or supplement managed investment portfolios designed to address clients ' financial objectives . following is a brief description of the five wright-managed mutual funds revenue from investment management services was $ 89,000 for the 12 days ended december 31 , 2012. within this category , winthrop primarily bills clients based on aum values as of calendar quarters . revenues are primarily from fees from ; ( i ) taft-hartley clients , ( ii ) personal investment managed accounts , ( iii ) and other client serviced accounts . revenue from other investment advisory services was $ 85,000 for the 12 days ended december 31 , 2012. other investment advisory service revenue includes : ( i ) revenue from mutual funds ; ( ii ) fees from services provided to bank trust departments ; and ( iii ) investment income . revenue from mutual funds includes distribution fees for both winthrop-sponsored mutual funds as well as other mutual funds and investment management fees from winthrop-sponsored mutual funds . revenue from the sale of financial research information and related data was $ 15,000 for the 12 days ended december 31 , 2012. revenues are also derived from the distribution of investment research directly and through several third parties who act as distributors of such research content . the
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physical trading also has price risk on any net open positions at the end of each trading day , as well as volatility resulting from ( i ) intra-day fluctuations of natural gas and or propane prices , and ( ii ) daily price movements between the time natural gas and or propane is purchased or sold for future delivery and the time the related purchase or sale is economically hedged . the determination of our net open position at the end of any trading day requires us to make assumptions as to future circumstances , including the use of natural gas and or propane by our customers in relation to anticipated market positions . because the price risk associated with any net open position at the end of such day may increase if the assumptions are not realized , we review these assumptions daily . net open positions may increase volatility in our financial condition or results of operations if market prices move in a significantly favorable or unfavorable manner , because the changes in fair value of trading contracts are immediately recognized as profits or losses for financial accounting purposes . this volatility may occur , with a resulting increase or decrease in earnings or losses , even though the expected profit margin is essentially unchanged from the date the transactions were consummated . chesapeake utilities corporation 2016 form 10-k page 12 our energy marketing subsidiaries are exposed to credit risk of their counterparties . our energy marketing subsidiaries extend credit to counterparties and continually monitor and manage collections aggressively . each of these subsidiaries is exposed to the risk that it may not be able to collect amounts owed to it . if the counterparty to such a transaction fails to perform , and any underlying collateral is inadequate , we could experience financial losses , which would negatively impact our results of operations . our energy marketing subsidiaries are dependent upon the availability of credit to successfully operate their businesses . our energy marketing subsidiaries are dependent upon the availability of credit to buy propane and natural gas for resale or to trade . if financial market conditions decline generally , or the financial condition of these subsidiaries or of our company declines , then the cost of credit available to these subsidiaries could increase . if credit is not available , or if credit is more costly , our results of operations , cash flows and financial condition may be adversely affected . story_separator_special_tag base . failure to retain and grow our customer base in our propane distribution operations would have an adverse effect on our results of operations , cash flows and financial condition . our propane and crude oil wholesale marketing operation competes with various marketers , many of which have significantly greater resources and are able to obtain price or volumetric advantages . failure to effectively compete with these marketers would have an adverse effect on our results of operations , cash flows and financial condition . fluctuations in weather may cause a significant variance in our earnings . our natural gas distribution , propane distribution and natural gas supply , gathering and processing operations , are sensitive to fluctuations in weather conditions , which directly influence the volume of natural gas and propane we sell and deliver to our customers . a significant portion of our natural gas and propane distribution revenue is derived from the sales and deliveries to residential and commercial heating customers during the five-month peak heating season ( november through march ) . if the weather is warmer than normal , we sell and deliver less natural gas and propane to customers , and earn less revenue , which could adversely affect our results of operations , cash flows and financial condition . a significant portion of our ohio natural gas supply , gathering and processing services revenue is also generated during the five-month peak heating season ( november through march ) as a result of the natural gas requirements of its key customers , including columbia gas of ohio , various regional marketers , and the cgc . our electric distribution operation is also affected by variations in weather conditions generally and unusually severe weather conditions . however , electricity consumption is generally less seasonal than natural gas and propane because it is used for both heating and cooling in our service areas . accidents , natural disasters , severe weather ( such as a major hurricane ) and acts of terrorism could adversely impact earnings . inherent in energy transmission and distribution activities are a variety of hazards and operational risks , such as leaks , ruptures , fires , explosions , sabotage and mechanical problems . natural disasters and severe weather may damage our assets , cause operational interruptions and result in the loss of human life , all of which could negatively affect our earnings , financial condition and results of operations . acts of terrorism and the impact of retaliatory military and other action by the united states and its allies may lead to increased political , economic and financial market instability and volatility in the price of natural gas , electricity and propane that could negatively affect our operations . companies in the energy industry may face a heightened risk of exposure to acts of terrorism , which could affect our earnings , financial condition and results of operations . the insurance industry may also be affected by natural disasters , severe weather and acts of terrorism ; as a result , the availability of insurance covering risks against which we and our competitors typically insure may be limited . story_separator_special_tag in addition , the insurance we are able to obtain may have higher deductibles , higher premiums and more restrictive policy terms , which could adversely affect our results of operations , financial condition and cash flows . chesapeake utilities corporation 2016 form 10-k page 14 operating events affecting public safety and the reliability of our natural gas and electric distribution and transmission systems could adversely affect our operations and increase our costs . our natural gas and electric operations are exposed to operational events and risks , such as major leaks , outages , mechanical failures and breakdown , operations below the expected level of performance or efficiency , and accidents that could affect public safety and the reliability of our distribution and transmission systems , significantly increase costs and cause loss of customer confidence . if we are unable to recover all or some of these costs from customers through the regulatory process , our authorized rate of return , our results of operations , financial condition and cash flows could be adversely affected . a security breach disrupting our operating systems and facilities or exposing confidential information may adversely affect our reputation , disrupt our operations and increase our costs . security breaches of our information technology infrastructure , including cyber-attacks and cyber-terrorism , could lead to system disruptions or cause facility shutdowns . if such an attack or security breach were to occur , our business , results of operations and financial condition could be adversely affected . in addition , the protection of customer , employee and company data is crucial to our operational security . a breach or breakdown of our systems that results in the unauthorized release of individually identifiable customer or other sensitive data could have an adverse effect on our reputation , results of operations and financial condition and could also materially increase our costs of maintaining our system and protecting it against future breakdowns or breaches . we take reasonable precautions to safeguard our information systems from cyber-attacks and security breaches ; however , there is no guarantee that the procedures implemented to protect against unauthorized access to our information systems are adequate to safeguard against all attacks and breaches . failure to attract and retain an appropriately qualified employee workforce could adversely affect operations . our ability to implement our business strategy and serve our customers is dependent upon our continuing ability to attract and retain talented professionals and technically skilled workforce , and being able to transfer the knowledge and expertise of our workforce to new employees as our aging employees retire . failure to hire and adequately train replacement employees , including the transfer of significant internal historical knowledge and expertise to the new employees , or the future availability and cost of contract labor could adversely affect our ability to manage and operate our business . if we were unable to hire , train and retain appropriately qualified personnel , our results of operations could be adversely affected . a strike , work stoppage or a labor dispute could adversely affect our operations . we are party to collective bargaining agreements with labor unions at some of our florida operations . a strike , work stoppage or a labor dispute with a union or employees represented by a union could cause interruption to our operations . if a strike , work stoppage or other labor dispute were to occur , our results could be adversely affected . our businesses are capital intensive , and the increased costs and or delays of capital projects may adversely affect our future earnings . our businesses are capital intensive and require significant investments in ongoing infrastructure projects . our ability to complete our infrastructure projects on a timely basis and manage the overall cost of those projects may be affected by the limited availability of the necessary materials and qualified vendors . our future earnings could be adversely affected if we are unable to manage such capital projects effectively , or if full recovery of such capital costs is not permitted in future regulatory proceedings . our regulated energy business may be at risk if franchise agreements are not renewed , or new franchise agreements are not obtained , which could adversely affect our future results or operating cash flows and financial condition . our regulated natural gas and electric distribution operations hold franchises in each of the incorporated municipalities that require franchise agreements in order to provide natural gas and electricity . our natural gas and electric distribution operations are currently in negotiations for franchises with certain municipalities for new service areas and renewal of some existing franchises . ongoing financial results would be adversely impacted from the loss of service to certain operating areas within our electric or natural gas territories in the event that franchise agreements were not renewed . if we are unable to obtain franchise agreements for new service areas , growth in our future earnings could be negatively impacted . slowdowns in customer growth may adversely affect earnings and cash flows . our ability to increase gross margins in our regulated energy , unregulated propane distribution and our other unregulated natural gas services businesses is dependent upon growth in the residential construction market , adding new commercial and industrial customers and conversion of customers to natural gas , electricity or propane from other energy sources . slowdowns in growth may adversely affect our gross margin , earnings and cash flows . chesapeake utilities corporation 2016 form 10-k page 15 energy conservation could lower energy consumption , which would adversely affect our earnings . we have seen various legislative and regulatory initiatives to promote energy efficiency and conservation at both the federal and state levels . in response to the initiatives in the states in which we operate , we have implemented programs to promote energy efficiency by our current and potential customers . to the extent a psc allows us to recover the cost
| current market conditions could adversely impact the return on plan assets for our pension plans , which may require significant additional funding . our pension plans are closed to new employees , and the future benefits are frozen . the costs of providing benefits and related funding requirements of these plans are subject to changes in the market value of the assets that fund the plans and the discount rates used to estimate the pension benefit obligations . the funded status of the plans and the related costs reflected in our financial statements are affected by various factors that are subject to an inherent degree of uncertainty , particularly in the current economic environment . future losses of asset values and further declines in discount rates may necessitate accelerated funding of the plans in the future to meet minimum federal government requirements as well as higher pension expense to be recorded in future years . adverse changes in the asset values and benefit obligations of our pension plans may require us to record higher pension expense and fund obligations earlier than originally planned , which would have an adverse impact on our cash flows from operations , decrease borrowing capacity and increase interest expense . o perational r isks we are dependent upon construction of new facilities to support future growth in earnings in our natural gas and electric distribution and natural gas transmission operations . construction of new facilities required to support future growth is subject to various regulatory and developmental risks , including but not limited to : ( i ) our ability to obtain timely certificate authorizations , necessary approvals and permits from regulatory agencies and on terms that are acceptable to us ; ( ii ) potential changes in federal , state and local statutes and regulations , including environmental requirements , that prevent a project from proceeding or increase the anticipated cost of the project ; ( iii ) inability to acquire rights-of-way or
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total operation and maintenance expense increased from $ 16.6 million for the year ended december 31 , 2016 to $ 27.4 million for the combined year ended december 31 , 2017 , an increase of $ 10.8 million , or 65 % . the increase was primarily due to an increase in variable water costs associated with the need for supplemental systems to support eqt 's hydraulic fracturing operations . depreciation expense . depreciation expense increased from $ 14.3 million for the year ended december 31 , 2016 to $ 18.6 million for the combined year ended december 31 , 2017 , an increase of $ 4.3 million , or 30 % . the increase year-over-year was primarily due to additional water handling and treatment assets placed into service in 2017. for the combined year ended december 31 , 2017 , our water pipeline miles increased 6 % . 48 year ended december 31 , 2016 compared to the year ended december 31 , 2015 operating revenues . operating revenues increased from $ 37.2 million for the year ended december 31 , 2015 to $ 69.5 million for the year ended december 31 , 2016. the $ 32.3 million increase in operating revenues year-over-year primarily relates a 61 % increase in water service volumes associated with our water service agreements with rice energy and third parties . replace_table_token_10_th operation and maintenance expense . total operation and maintenance expense increased from $ 8.9 million for the year ended december 31 , 2015 to $ 16.6 million for the year ended december 31 , 2016 , an increase of $ 7.7 million . the increase was primarily due to on and off pad water transfer costs and water procurement , in addition to increased expenses following the vantage midstream asset acquisition primarily associated with water transfer costs and pipeline maintenance costs . incentive unit expense . incentive unit expense for the year ended december 31 , 2015 was $ 1.0 million . these costs were allocated to the water services segment by rice energy prior to the acquisition of the water assets . no incentive unit expense was incurred for the year ended december 31 , 2016. depreciation expense . depreciation expense increased from $ 10.1 million for the year ended december 31 , 2015 to $ 14.3 million for the year ended december 31 , 2016 , an increase of $ 4.2 million , or 42 % . the increase year-over-year was primarily due to additional water handling and treatment assets placed into service in 2016. for the year ended december 31 , 2016 , our water pipeline miles increased 15 % . non-gaap financial measures adjusted ebitda we define our adjusted ebitda ( adjusted ebitda ) as net income before interest expense , income tax expense , depreciation expense , acquisition costs , amortization of intangible assets , non-cash equity compensation expense , incentive unit expense , amortization of deferred financing costs and certain other items management believes affect the comparability of our operating results . adjusted ebitda is a non-gaap supplemental financial measure . distributable cash flow we define distributable cash flow as adjusted ebitda less cash interest expense , and estimated maintenance capital expenditures . distributable cash flow does not reflect changes in working capital balances . distributable cash flow is a non-gaap supplemental financial measure that does not reflect changes in our working capital . adjusted ebitda and distributable cash flow are non-gaap supplemental financial measures that management and external users of our consolidated financial statements , such as industry analysts , investors , lenders and rating agencies , may use to assess : the financial performance of our assets , without regard to financing methods , capital structure or historical cost basis ; our operating performance and return on capital as compared to other companies in the midstream energy sector , without regard to historical cost basis or , in the case of adjusted ebitda , financing or capital structure ; our ability to incur and service debt and fund capital expenditures ; the ability of our assets to generate sufficient cash flow to make distributions to our unitholders ; and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities . we believe that adjusted ebitda and distributable cash flow provide useful information to investors in assessing our financial condition and results of operations . adjusted ebitda and distributable cash flow should not be considered as alternatives to net income , operating income , net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with gaap . adjusted ebitda and distributable cash flow have important limitations as analytical tools because they exclude some , but not all , items that affect net income and net cash provided by operating activities . additionally , because adjusted ebitda and distributable cash flow may be defined differently by other companies in our industry , our adjusted ebitda and distributable cash flow may not be comparable to similarly titled 49 measures of other companies , thereby diminishing the utility of the measures . distributable cash flow should not be viewed as indicative of the actual amount of cash that we have available for distributions from operating surplus or that we plan to distribute . the following table presents a reconciliation of the non-gaap financial measures of adjusted ebitda and distributable cash flow to the most directly comparable gaap financial measures of net income and net cash provided by operating activities . replace_table_token_11_th ( 1 ) adjusted ebitda attributable to the water assets prior to their acquisition is excluded from our adjusted ebitda calculation as these amounts were generated by rice energy prior to the acquisition and are not attributable to our limited partners . story_separator_special_tag adjusted ebitda attributable to the water assets prior to the acquisition for the year ended december 31 , 2015 was calculated as net income of $ 7.3 million plus depreciation expense of $ 7 million , income tax expense of $ 5.8 million , incentive unit expense of $ 1.1 million and other charges of $ 1.2 million . ( 2 ) includes post-acquisition results of the vantage midstream entities . please see note 2 to the consolidated financial statements included in this annual report for further detail regarding the vantage midstream asset acquisition . outlook our principal business objective is to increase the quarterly cash distributions that we pay to our unitholders over time while ensuring the ongoing growth of our business . we believe that we are positioned to achieve growth based on the low 50 development cost , consistently high production volumes and access to multiple takeaway pipelines of the marcellus shale . our assets are sized to accommodate projected future production growth of eqt and third parties in our areas of operation . however , our ability to grow depends , in part , on our ability to make acquisitions or attract additional volumes that increase our cash generated from operations on a per unit basis . prior to the mergers , the acquisition component of our strategy was based , in large part , on our ability to acquire midstream energy assets from industry participants , including rice energy . in that regard , eqt has publicly announced its intention to sell rice energy 's retained midstream assets acquired by eqt in connection with the mergers to eqm . furthermore , eqt 's relationship with eqm and eqgp or a transfer of the incentive distribution rights in us held by eqt could otherwise impair our access to future midstream assets and or organic growth projects and the willingness of eqt to offer us acquisition opportunities in the future . our 2018 capital expenditure forecast is $ 260 million , including $ 215 million for gathering and compression and $ 45 million for water infrastructure . see further discussion of capital expenditures in the โ capital resources and liquidity โ section below . committee to address sum-of-the-parts discount . eqt has announced that its board of directors has formed a committee to evaluate options for addressing eqt 's sum-of-the-parts discount . eqt 's board will announce a decision by the end of march 2018 , after considering the committee 's recommendation . capital resources and liquidity sources and uses of cash our principal liquidity requirements are to finance our operations , fund capital expenditures , make cash distributions and satisfy any indebtedness obligations . our ability to meet these liquidity requirements will depend on our ability to generate cash in the future as well as our ability to raise capital in banking , capital and or other markets . our available sources of liquidity include cash generated from operations , borrowing under our revolving credit facility , cash on hand , debt offerings and issuances of additional rmp partnership units . we expect the combination of these resources will be adequate to fund our short-term working capital requirements , long-term capital expenditures program and expected quarterly distributions , including idrs . cash flow provided by operating activities net cash provided by operating activities was $ 173.2 million for the combined year ended december 31 , 2017 and $ 154.1 million and $ 70.0 million for the years ended december 31 , 2016 and 2015 , respectively . the increase in operating cash flow for all periods was driven by higher operating income for which contributing factors are discussed in the โ results of operations โ section herein and the timing of payments between periods . cash flow used in investing activities during the combined year ended december 31 , 2017 , we used cash flows in investing activities totaling $ 166.0 million primarily to fund the continued build-out of our gathering and water systems . during the year ended december 31 , 2016 , we used cash flows in investing activities totaling $ 721.1 million primarily to fund the vantage midstream asset acquisition and capital expenditures for the development of our gathering and compression and water systems . during the year ended december 31 , 2015 , we used cash flows in investing activities totaling $ 380.0 million primarily to fund capital expenditures for the development of our gathering systems and the acquisition of the water assets . capital expenditures for the gathering and compression segment were $ 141.7 million , $ 113.0 million and $ 149.7 million for the combined year ended december 31 , 2017 and for the years ended december 31 , 2016 and 2015 , respectively . the increase year-over-year from 2016 to the combined year 2017 was attributable to the continued build-out of our gathering system . the decrease year-over-year from 2015 to 2016 was attributable to a greater focus on capital expenditures for compression stations and well pad connects rather than the build out of our gathering system . capital expenditures for the water services segment were $ 16.6 million , $ 8.1 million and $ 98.8 million for the combined year ended december 31 , 2017 and for the years ended december 31 , 2016 and 2015 , respectively . the increase year-over-year from 2016 to the combined year 2017 was primarily due to the continued build-out of our water services business . the decrease year-over-year from 2015 to 2016 was primarily the result of the substantial majority of our water service assets being built in the prior year . cash flow ( used in ) provided by financing activities net cash used in financing activities for the combined year ended december 31 , 2017 of $ 18.6 million was primarily associated with quarterly distributions to our public unitholders and gp holdings , partially offset by borrowings under our 51 revolving credit facility .
| replace_table_token_5_th replace_table_token_6_th operation and maintenance expense . total operation and maintenance expense increased from $ 8.0 million for the year ended december 31 , 2016 to $ 13.5 million for the combined year ended december 31 , 2017 , an increase of $ 5.5 million , or 69 % . the increase year-over-year was primarily due to increases in line maintenance expenses and compressor rental charges associated with compressor stations acquired in connection with the vantage midstream asset acquisition . general and administrative expense . general and administrative expense increased from $ 17.3 million for the year ended december 31 , 2016 to $ 22.2 million for the combined year ended december 31 , 2017 , an increase of $ 4.9 million , or 28 % . the increase year-over-year was primarily due to an increase in allocated costs associated with personnel and administrative expenses consistent with the growth of the business . depreciation expense . depreciation expense increased from $ 10.8 million for the year ended december 31 , 2016 to $ 15.3 million for the combined year ended december 31 , 2017 , an increase of $ 4.4 million , or 41 % . the increase year-over-year was primarily due to additional gathering and compression assets placed into service in 2017. for the combined year ended december 31 , 2017 , our gathering pipeline miles increased 12 % . amortization of intangible assets . in the predecessor period , the partnership 's intangible assets were primarily comprised of customer contracts with eqt that were acquired as part of an april 2014 acquisition of certain gas gathering assets in washington and greene counties , pennsylvania . the customer contracts were assigned a useful life of 30 years and amortized on a straight-line basis . at the merger date , the predecessor 's intangible assets related to customer contracts with eqt were eliminated through the application of pushdown accounting . year ended december 31 , 2016 compared to the year
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cash flows from operating activities net cash used in operating activities was $ 1,694,592 , $ 2,441,247 , and $ 303,621 for the years ended december 31 , 2013 , 2012 and 2011 , respectively . generally , the differences 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 , offset by government grant revenues . during 2011 , net cash used in operating activities was lower due mostly to higher than usual offsets for net changes in assets and liabilities from the prior year ( primarily a $ 430,402 change in deferred offering costs and a $ 419,927 change in accounts payable and accrued expenses ) . the nih has funded the costs of conducting all of our human clinical trials ( phase 1 and phase 2a ) to date for our preventive vaccines , with geovax incurring costs associated with manufacturing the clinical vaccine supplies and other study support . we are currently in planning discussions with the hvtn for the next stage of our preventive clinical trials , and several scenarios are being considered . while we expect the next clinical trial to begin during 2015 and to be fully funded by the nih , with specific details of the study determined after further data analysis and input from the hvtn and nih in mid-2014 . until the next trial begins , however , we can not be fully assured of the level of support , if any , we will receive from the hvtn or the nih for this clinical trial . we recently completed a phase 1 clinical trial ( gv-th-01 ) investigating the therapeutic use of our govx-b11 vaccine in hiv-infected patients . gv-th-01 is an open label phase 1 treatment interruption trial investigating the safety and immunogenicity of govx-b11 in 9 hiv-infected patients who initiated drug treatment within 18 months of seroconversion and had stably controlled virus for at least 6 months . an exploratory objective of the study is to evaluate the ability of the vaccinated patient to control re-emergent virus during the drug treatment interruption period . we received no federal assistance in conducting this study . in a follow-on study , we are formulating plans for a phase 1 clinical trial investigating the treatment of hiv-positive individuals with govx-b21 in combination with standard-of-care antiretroviral drug therapy . the primary and secondary objectives of the study will be to evaluate the safety and immunogenicity of our vaccine . an exploratory objective will be to investigate the vaccine 's effect on reducing viral reservoirs . we plan to seek funding from the nih to conduct this trial which , if we are successful , would allow us to begin in mid-2015 . if we are able to secure sufficient capital from issuance of our equity securities or other sources , we may initiate this trial sooner . 25 in addition to clinical trial support from the nih , our operations are partially funded by nih research grants . we record the funding we receive pursuant to these grants as revenue at the time the related expenditures are incurred . in september 2007 , the nih awarded us an integrated preclinical/clinical aids vaccine development ( ipcavd ) grant to support our hiv/aids vaccine program . we are utilizing this funding to further our hiv/aids vaccine development , optimization and production . the aggregate award ( including subsequent amendments ) totaled $ 20.4 million , and there is $ 700,153 remaining and available for use as of december 31 , 2013. in september 2012 , the nih awarded us an additional grant of $ 1.9 million to support development of versions of our hiv/aids vaccines to address the clade c subtype of the hiv virus prevalent in the developing world . all funding pursuant to this grant has been utilized as of december 31 , 2013. in july 2013 , the nih awarded us a small business innovative research ( sbir ) grant for approximately $ 277,000 to support preclinical studies evaluating the ability of protein boosts to augment antibody responses . the grant award of approximately $ 277,000 is for the first year of a two year project period beginning august 1 , 2013 , and there is $ 122,127 remaining and available for use as of december 31 , 2013. we intend to pursue additional grants from the federal government but can not be assured of success . as we progress to the later stages of our vaccine development activities , government financial support may be more difficult to obtain , or may not be available at all . therefore , it will be necessary for us to look to other sources of funding in order to finance our clinical trials and other vaccine development activities . cash flows from investing activities our investing activities have consisted predominantly of capital expenditures . capital expenditures for the years ended december 31 , 2013 , 2012 and 2011 , were $ 86,603 , $ -0- , and $ 11,896 , respectively . cash flows from financing activities net cash provided by financing activities was $ 3,259,131 , $ 2,309,192 , and $ 404,410 for the years ended december 31 , 2013 , 2012 and 2011 , respectively . the cash generated by our financing activities during 2011 relates to the sale of our common stock to individual accredited investors in a private placement offering initiated during december 2011. during january 2012 , we received an additional $ 310,160 from stock sales pursuant to this offering ( including $ 36,800 received in payment of a stock subscription receivable from december 2011 ) . story_separator_special_tag in march 2012 , we sold an aggregate of 2,200 series a convertible preferred stock ( โ series a preferred shares โ ) , as well as accompanying warrants to purchase 8,799,999 shares of common stock , to a group of institutional investors for an aggregate purchase price of $ 2.2 million . net proceeds to the company , after deduction of placement agent fees and other expenses , were approximately $ 2.0 million . the series a preferred shares were convertible at any time at the option of the holders into shares of our common stock . the initial conversion price was $ 0.75 and during 2012 , 1,412 of the series a preferred shares were converted at this price into an aggregate of 1,882,667 shares of our common stock . effective december 11 , 2013 , the designation of the series a preferred shares was amended in connection with the issuance of our series b convertible preferred stock ( see discussion below ) . the amendment had the effect of reducing the conversion price of the then-outstanding series a preferred shares to $ 0.35 and during the remainder of 2013 , 717 shares of the series a preferred shares were converted at this price into an aggregate of 2,048,570 shares of our common stock . as of december 31 , 2013 , there were 71 shares of series a preferred shares outstanding , convertible into 202,859 shares of our common stock . all of the remaining series a preferred shares were converted into shares of our common stock during january 2014. in january 2013 , we reduced the exercise price of 2,933,333 of certain stock purchase warrants from $ 0.75 to $ 0.60 per share . in consideration for the reduction of the exercise price , the holders of the warrants immediately exercised 1,766,667 of the warrants for cash , resulting in total proceeds to the company of $ 1,060,000. we also extended the expiration date of the 1,166,666 unexercised warrants from march 21 , 2013 to may 21 , 2013. in may 2013 , we reduced the exercise price of the 1,166,666 remaining warrants from $ 0.60 to $ 0.50 per share . in consideration for the reduction of the exercise price , the holders of the warrants immediately exercised all of the remaining warrants for cash , resulting in total proceeds to the company of $ 583,333 . 26 in december 2013 , we sold an aggregate of 1,650 series b convertible preferred stock ( โ series b preferred shares โ ) for an aggregate purchase price of $ 1.65 million . net proceeds to the company , after deduction of transaction expenses , were approximately $ 1.6 million . no warrants were issued in connection with the transaction . the series b preferred shares may be converted at any time at the option of the holders into shares of our common stock at a conversion price of $ 0.35. in conjunction with the sale of the series b preferred shares , we entered into an agreement with the holders of the series a preferred shares to amend the designation of the series a preferred shares . the amendment had the effect of reducing the conversion price of the then-outstanding 788 series a preferred shares from $ 0.75 to $ 0.35. upon the consummation of the sale of the series b preferred shares in december 2013 , the exercise price of warrants to purchase 5,866,666 shares of our common stock issued in connection with the series a preferred shares was reduced from $ 1.00 to $ 0.35 pursuant to the anti-dilution provisions contained in the warrant agreements . as of december 31 , 2013 , there were 1,650 shares of series b preferred shares outstanding , convertible into 4,714,286 shares of our common stock . in january 2014 , 350 series b preferred shares were converted into 1,000,000 shares of our common stock . our capital requirements , particularly as they relate to our research and development activities , have been and will continue to be significant . we anticipate incurring additional losses for several years as we expand our clinical programs and proceed into higher cost human clinical trials . conducting clinical trials for our vaccine candidates in development is a lengthy , time-consuming and expensive process . we will not generate revenues from the sale of our technology or products for at least several years , if at all . for the foreseeable future , we will be dependent on obtaining financing from third parties in order to maintain our operations , including our clinical program . such capital may not be available on terms acceptable to the company or at all . if we fail to obtain additional funding when needed , we would be forced to scale back or terminate our operations , or to seek to merge with or to be acquired by another company . we expect that our current working capital combined with the remaining available funds from the nih grants will be sufficient to support our planned level of operations into the first quarter of 2015. we anticipate raising additional capital during 2014 , although there can be no assurance that we will be able to do so . while we believe that we will be successful in obtaining the necessary financing to fund our operations through government grants and clinical trial support , exercise of stock purchase warrants , and or other sources , there can be no assurances that such additional funding will be available to us on reasonable terms or at all . should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it , the consequences could have a material adverse effect on our business , operating results , financial condition and prospects . we have no off-balance sheet arrangements that are likely or reasonably likely to have a material effect on our financial condition or results of operations .
| 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 , and the timing of costs associated with clinical trials being funding directly by us . our ongoing phase 1 clinical trial of our second generation preventive vaccine is being conducted by the hvtn with funding from the nih , but we are responsible for the manufacture of vaccine product to be used in the trials . we are not currently receiving any government support for the ongoing phase 1 clinical trial of our therapeutic vaccine ( treatment interruption protocol ) . we can not predict the level of support we may receive from hvtn or other federal agencies ( or divisions thereof ) for our future clinical trials . we expect that our research and development costs will increase in the future as we progress into the later stage human clinical trials . 28 since our inception , all of our research and development efforts have been focused on development of our hiv/aids vaccines , which we have managed and evaluated to date as a single project . upon receipt of the ipcavd grant from the nih in late 2007 , we began incurring additional costs associated with the grant , and reallocated personnel and other internal resources toward activities supported by the grant . the table below summarizes our research and development expenses for each of the years in the three year period ended december 31 , 2013. the amounts shown related to nih grants represent all direct costs associated with grant activities , including salaries and personnel-related expenses , supplies , consulting , contract services and travel . the remainder of our research and development expense is allocated to our general hiv/aids vaccine program . replace_table_token_4_th our vaccine candidates still require significant , time-consuming and costly research and development , testing and regulatory clearances . completion of clinical development will take several years or more , but the length of time generally varies substantially according to
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for a drug to qualify for orphan drug designation by the fda , both the drug and the disease or condition must meet certain criteria specified in the orphan drug act , or oda , and fda 's implementing regulations . orphan drug designation is granted by the fda 's office of orphan drug products in order to support development of medicines for underserved or rare diseases and patient populations that affect fewer than 200,000 people in the united states or , if the disease or condition affects more than 200,000 individuals annually in the united states , if there is no reasonable expectation that the cost of developing and making the drug would be recovered from sales in the united states . orphan drug designation qualifies the sponsor of the drug for various development incentives of the oda , including , if regulatory approval is received , the potential for seven years of market exclusivity with certain limited exceptions and certain tax credits for qualified clinical testing . a marketing application for a prescription drug product that has received orphan drug designation is not subject to a prescription drug user fee unless the application includes an indication for a disease or condition other than the rare disease or condition for which the drug was granted orphan drug designation . the granting of orphan drug designation does not alter the standard regulatory requirements and process for obtaining marketing approval . the safety and effectiveness of a drug must be established through adequate and well-controlled studies . orphan drug exclusivity does not prevent the fda from approving a different drug for the same disease or condition , or the same drug for a different disease or condition . on november 15 , 2015 , the european medicine agency , or ema , granted orphan drug designation to imetelstat for the treatment of mf . orphan drug designation by the european commission provides regulatory and financial incentives for companies to develop and market therapies that treat a life-threatening or chronically debilitating condition affecting no more than five in 10,000 persons in the european union , or eu , and where no satisfactory treatment is available . in the eu , orphan drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers , as well as protocol assistance from the ema during the product development phase , and direct access to the centralized authorization procedure . in addition , ten years of market exclusivity is granted following drug product approval , meaning that another application for marketing authorization of a later similar medicinal product for the same therapeutic indication will generally not be approved in the eu . this period may be reduced to six years if the orphan drug designation criteria are no longer met , including where it is shown that the product is sufficiently profitable to not justify maintenance of market exclusivity . with projected reduced operational demands as a result of the collaboration agreement with janssen , on march 3 , 2015 , we announced an organizational resizing to reduce our workforce from 39 to 21 positions , representing a reduction of approximately 46 % of our workforce at that time . this restructuring was complete as of december 31 , 2015. for a further discussion regarding the organizational resizing , see note 6 on restructurings in notes to financial statements of this form 10-k. as of december 31 , 2015 , we had cash , restricted cash , cash equivalents and marketable securities of $ 146.7 million compared to $ 170.6 million at december 31 , 2014 and $ 66.0 million at december 31 , 2013. we estimate that our existing capital resources and future interest income will be sufficient to fund our current level of operations through at least the next 12 months . however , we may use our 73 available capital resources sooner than we anticipate . in addition , to grow and diversify our business , we plan to continue our business development efforts to identify and seek to acquire and or in-license other oncology products , product candidates , programs or companies . acquisition or in-licensing opportunities that we may pursue could materially affect our liquidity and capital resources and may require us to incur indebtedness , seek equity capital or both . in addition , there can be no assurance that sufficient additional capital would be available to us in order to pursue any of these opportunities . for the year ended december 31 , 2015 , we had net income of $ 46,000 , or $ 0.00 per share . for the years ended december 31 , 2014 and 2013 , we incurred net losses of $ 35.7 million , or $ 0.23 per share , and $ 38.4 million , or $ 0.30 per share , respectively . until 2015 we had never been profitable , and we have incurred significant net losses since our inception in 1990 , resulting principally from costs incurred in connection with our research and development activities and from general and administrative costs associated with our operations . as of december 31 , 2015 , we had an accumulated deficit of $ 928.4 million . the significance of future losses will depend on whether janssen continues to develop and advance imetelstat and the clinical and commercial success of imetelstat , which would result in potential future revenues to us in the form of milestone payments and royalties under the collaboration agreement as described above , and whether we in-license or acquire other oncology products , product candidates , programs or companies to diversify our business . we expect to experience negative cash flow and to incur significant and increasing operating expenses for the foreseeable future as the development of imetelstat progresses in collaboration with janssen . there can be no assurance that we will receive any milestone payments or royalties from janssen in the future , or at all . story_separator_special_tag imetelstat will require significant additional clinical testing prior to possible regulatory approval in the united states and other countries , and we do not expect imetelstat to be commercially available for many years , if at all . substantially all of our revenues to date have been research support payments under collaborative agreements , and milestones , royalties and other revenues from our licensing arrangements . we currently have no source of product revenue . our revenues for 2015 primarily consisted of collaboration revenue from janssen , and future revenues are substantially dependent on janssen 's ability to successfully develop and commercialize imetelstat in accordance with the collaboration agreement . since our inception , we have primarily financed our operations through the sale of equity securities , interest income on our marketable securities and payments we received under our collaborative and licensing arrangements . critical accounting policies and estimates our financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses . note 1 of notes to financial statements describes the significant accounting policies used in the preparation of the financial statements . certain of these significant accounting policies are considered to be critical accounting policies , as defined below . a critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult , subjective or complex judgments that could have a material effect on our financial condition and results of operations . specifically , critical accounting estimates have the following attributes : ( i ) we are required to make assumptions about matters that are highly uncertain at the time of the estimate ; and ( ii ) different estimates we could reasonably have used , or changes in the estimate that are reasonably likely to occur , would have a material effect on our financial condition or results of operations . estimates and assumptions about future events and their effects can not be determined with certainty . we base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances . these estimates may change as new events 74 occur , as additional information is obtained and as our operating environment changes . these changes historically have been minor and have been included in the financial statements as soon as they became known . based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies , management believes that our financial statements are stated fairly in accordance with accounting principles generally accepted in the united states , and meaningfully present our financial condition and results of operations . we believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements : fair value of financial instruments we categorize financial instruments recorded at fair value on our balance sheets based upon the level of judgment associated with inputs used to measure their fair value . the categories are as follows : level 1ยinputs are unadjusted , quoted prices in active markets for identical assets or liabilities at the measurement date . an active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis . level 2ยinputs ( other than quoted market prices included in level 1 ) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument 's anticipated life . level 3ยinputs reflect management 's best estimate of what market participants would use in pricing the asset or liability at the measurement date . consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model . a financial instrument 's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement . following is a description of the valuation methodologies used for instruments measured at fair value on our balance sheets , including the category for such instruments . instruments classified as level 1 include money market funds , representing 3 % of our total financial instruments classified as assets measured at fair value as of december 31 , 2015. instruments classified as level 2 include u.s. government-sponsored enterprise securities , commercial paper and corporate notes , representing 97 % of our total financial instruments classified as assets measured at fair value as of december 31 , 2015. the price for each security at the measurement date is derived from various sources . periodically , we assess the reasonableness of these sourced prices by comparing them to the prices provided by our portfolio managers from broker quotes as well as reviewing the pricing methodologies used by our portfolio managers . historically , we have not experienced significant deviation between the sourced prices and our portfolio manager 's prices . non-employee options are normally traded less actively , have trade activity that is one way , and or are traded in less-developed markets and are therefore valued based upon models with significant unobservable market parameters , resulting in level 3 categorization . the fair value for these instruments is calculated using the black scholes option-pricing model . the model 's inputs reflect assumptions that market participants would use in pricing the instrument in a current period transaction . use of this model requires us to make assumptions regarding stock volatility , dividend yields , expected term of the non-employee options and risk-free interest rates . changes to the model 's inputs are not changes to valuation methodologies , but instead reflect direct or indirect impacts from changes in market conditions .
| in order for imetelstat to be commercialized , we are wholly dependent on janssen to conduct preclinical tests and clinical trials to demonstrate the safety and efficacy of imetelstat , obtain regulatory approvals or clearances and enter into manufacturing , distribution and marketing arrangements , as well as obtain market acceptance . we do not expect to receive royalties based on sales of imetelstat for many years , if at all . revenues collaboration revenue upon the effectiveness of the collaboration agreement with janssen , we received $ 35 million as an upfront payment , which we classified as deferred revenue on our balance sheet as of december 31 , 2014. we determined delivery of the imetelstat license rights granted by us to janssen , together with our performance of the technology transfer-related activities outlined in the collaboration agreement , represented the sole non-contingent deliverable associated with the upfront payment . therefore , we accounted for our delivery of the imetelstat license rights and our performance of the technology transfer-related activities as a single unit of accounting . during the third quarter of 2015 , we completed performance of the technology transfer-related activities to janssen as outlined under the collaboration agreement . combining this performance with the delivery of the imetelstat license rights , we fully recognized the $ 35 million upfront payment from janssen as collaboration revenue on our statements of operations in the third quarter of 2015. any future collaboration revenue is substantially dependent on janssen 's ability to successfully develop and commercialize imetelstat in accordance with the collaboration agreement . see further discussion of the terms for potential milestones and royalties under the collaboration agreement in note 4 on collaboration and license agreement in notes to financial statements of this annual report on form 10-k. 79 license fees and royalties in addition to the collaboration agreement with janssen , we have entered into several license or collaboration agreements with companies involved with oncology , diagnostics , research tools and biologics production . in each of these agreements , we have granted certain rights to our technologies . in connection with the agreements , we are eligible to receive license fees , option fees , milestone payments and royalties on future sales of
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during 2013 , we sold 19 properties for net proceeds of $ 565.9 million and used such proceeds , along with cash on hand , to redeem $ 349.8 million of common stock under our former share redemption program and the tender offer , to make net debt repayments of approximately $ 160.9 million , and to fund capital expenditures of $ 44.9 million . we believe that we have adequate liquidity and capital resources over the next 12 months to meet our current obligations as they come due . as of february 15 , 2014 , we had access to the full borrowing capacity under the jpmorgan chase credit facility of $ 500.0 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 secured or unsecured borrowings from third-party lenders , proceeds from strategic property sales , and , if and when deemed appropriate , proceeds from future equity offerings . we expect that our primary uses of capital will continue to include stockholder distributions ; capitalizable 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 . consistent with our financing objectives and operational strategy , we continue to maintain low debt levels , historically less than 40 % of the cost of our assets . 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 , 2013 , our debt-to-real-estate-asset ratio ( calculated on a cost basis ) was approximately 29.3 % . contractual commitments and contingencies as of december 31 , 2013 , our contractual obligations will become payable in the following periods ( in thousands ) : replace_table_token_10_th ( 1 ) interest obligations on variable-rate debt are measured at the rate at which they are effectively fixed with interest rate swap agreements ( where applicable ) , a portion of which is reflected as loss on interest rate swaps in our consolidated statements of operations of the accompanying consolidated financial statements . interest obligations on all other debt instruments are measured at the contractual rate . see item 7a , quantitative and qualitative disclosure about market risk , for more information regarding our interest rate swaps . ( 2 ) amounts include principal obligations only . we made interest payments on these obligations of $ 34.0 million during 2013 , all of which was funded with interest income earned on the corresponding investments in development authority bonds . 2018 bonds payable in 2011 , we issued $ 250.0 million of seven -year , unsecured 5.875 % senior notes at 99.295 % of their face value . we received proceeds from the 2018 bonds payable , net of fees , of $ 246.7 million . the 2018 bonds payable require semiannual interest payments in april and october based on a contractual annual interest rate of 5.875 % , which is subject to adjustment in certain circumstances . the principal amount of the 2018 bonds payable is due and payable on the maturity date , april 1 , 2018. interest payments of $ 14.7 million were made on the 2018 bonds payable during 2013 and 2012 . the restrictive covenants on the 2018 bonds payable as defined pursuant to an indenture ( the `` indenture '' ) include : limits to our ability to merge or consolidate with another entity or transfer all or substantially all of our property and assets , subject to important exceptions and qualifications ; page 23 index to financial statements a limitation on the ratio of debt to total assets , as defined , to 60 % ; limits to our ability to incur debt if the consolidated income available for debt service to annual debt service charge , as defined , for four previous consecutive fiscal quarters is less than 1.5:1 on a pro forma basis ; limits to our ability to incur liens if , on an aggregate basis for us , the secured debt amount would exceed 40 % of the value of the total assets ; and a requirement that the ratio of unencumbered asset value , as defined , to total unsecured debt be at least 150 % at all times . as of december 31 , 2013 , we believe we were in compliance with the restrictive covenants on the 2018 bonds payable . $ 450 million term loan on august 21 , 2013 , we entered into an amendment to the $ 450 million term loan ( the `` $ 450 million term loan '' ) with a syndicate of banks with jp morgan securities , llc , and pnc capital markets , llc , serving as joint lead arrangers and joint book runners , to , among other things : ( i ) change the margins on the interest rate under the term loan , as described below ; ( ii ) provide for an additional one-year extension option ( for a maximum total extension of two years to february 3 , 2018 ) ; ( iii ) provide for four additional accordion options for an aggregate amount of $ 250.0 million , in minimum amounts of $ 25.0 million each ; and ( iv ) revise certain restrictive covenants under the term loan , and thereby create additional flexibility . story_separator_special_tag the $ 450 million term loan , as amended , reduced the applicable margin on the interest rate to a range from 1.15 % to 1.95 % for the london interbank offering rate ( the `` libor '' ) or a range from 0.15 % to 0.95 % for the margin for the alternate base rate , based on our applicable credit rating . prior to amending the $ 450 million term loan , the applicable margin on the interest rate was a range from 1.30 % to 2.30 % for libor or a range from 0.30 % to 1.30 % for the margin for the alternate base rate . the interest rate on the $ 450 million term loan continues to be effectively fixed with an interest rate swap agreement . based on the terms of the interest rate swap and our current credit rating , the interest rate on the $ 450 million term loan is effectively fixed at 2.28 % . jpmorgan chase credit facility on august 21 , 2013 , we also amended the jpmorgan chase credit facility with jp morgan securities , llc , and pnc capital markets , llc , serving as joint lead arrangers and joint book runners , to , among other things : ( i ) change the margins on the interest rate under the facility , as described below ; ( ii ) extend the maturity date from may 2015 to august 2017 , with a one-year extension option ; ( iii ) enable us to increase the facility amount on up to four occasions by an aggregate of up to $ 300.0 million , not to exceed a total facility of $ 800.0 million on four occasions ; and ( iv ) revise certain restrictive covenants under the facility , thereby creating additional flexibility . the jpmorgan chase credit facility , as amended , reduced the applicable margin on the interest rate to a range from 1.00 % to 1.70 % for libor or a range from 0.00 % to 0.70 % for the margin for the alternate base rate , based on our applicable credit rating . prior to the amendment , the applicable margin on the interest rate was a range from 1.25 % to 2.05 % for libor or a range from 0.25 % to 1.05 % for the margin for the alternate base rate . additionally , the per annum facility fee on the aggregate revolving commitment ( used or unused ) now ranges from 0.15 % to 0.35 % , also based on our applicable credit rating . prior to the amendment , the per annum facility fee ranged from 0.25 % to 0.45 % . we are subject to a $ 25.0 million limitation on letters of credit that may be issued under the jpmorgan chase credit facility . the jpmorgan chase credit facility contains the following restrictive covenants : limits the ratio of debt to total asset value , as defined , to 50 % or less during the term of the facility ; limits the ratio of secured debt to total asset value , as defined , to 40 % or less during the term of the facility ; requires the ratio of unencumbered asset value , as defined , to total unsecured debt to be at least 2:1 at all times ; requires maintenance of certain interest and fixed-charge coverage ratios ; limits the ratio of secured recourse debt to total asset value , as defined , to 10 % or less at all times ; requires maintenance of certain minimum tangible net worth balances ; and limits investments that fall outside our core investments of improved office properties located in the united states . as of december 31 , 2013 , we believe we were in compliance with the restrictive covenants on its outstanding debt obligations . page 24 index to financial statements debt repayments , maturities , and interest payments on november 5 , 2013 , we repaid the wildwood buildings mortgage note of $ 90.0 million , plus a pre-payment fee of $ 4.7 million , with cash on hand and proceeds from the jpmorgan chase credit facility . the wildwood buildings were sold on november 5 , 2013 , as part of the 18 property sale . on july 31 , 2013 , we repaid the three glenlake building mortgage note of $ 26.4 million at maturity with cash on hand and proceeds from the jpmorgan chase credit facility , and the related interest rate swap matured . during 2013 and 2012 , we made interest payments of approximately $ 59.6 million and $ 50.1 million , respectively , related to our line of credit and notes payable . in addition , we made interest payments of approximately $ 14.7 million in both 2013 and 2012 , related to our 2018 bonds payable ( see note 5 , bonds payable ) . story_separator_special_tag november 5 , 2013 , for $ 521.5 million and resulted in a net gain of $ 1.2 million after recognizing aggregate impairment losses of $ 29.7 million related to the properties sold ; dvintsev business center โ tower b , which sold on march 21 , 2013 , for $ 67.5 million and resulted in a gain of $ 10.0 million ; the properties included in a nine property sale , which closed in december 2012 for $ 260.5 million and resulted in a net gain of $ 3.2 million after recognizing an $ 18.5 million impairment loss on the 180 e 100 south building ( the `` nine property sale '' ) ; and 5995 opus parkway and emerald point , which closed in january 2012 for $ 60.1 million and resulted in total gains of $ 16.9 million . net income net income attributable to columbia property trust was $ 15.7 million , or $ 0.12 per share , for 2013 , which represents a decrease from $ 48.0 million , or $ 0.35 per share , for 2012 .
| over the near term , tenant reimbursements and property operating costs are expected to fluctuate with changes in our portfolio . other property income was $ 5.0 million for 2013 , which represents an increase from $ 1.0 million for 2012 , primarily due to fees earned in connection with lease restructurings and terminations during the fourth quarter of 2013. future other property income fluctuations are expected to relate primarily to future lease restructuring and termination activities . asset and property management fees were $ 6.4 million for 2013 , which represents a decrease from $ 31.8 million for 2012 , due to terminating the advisory agreement effective february 28 , 2013 , as further discussed in note 10 , related-party transactions and agreements . thus , going forward , no related-party asset management or property management fees will be incurred , as such services are performed by employees of columbia property trust . depreciation was $ 108.1 million for 2013 , which represents an increase from $ 98.7 million for 2012 , primarily due to the acquisition of the 333 market street building in december 2012 and capital improvements at existing properties . excluding the impact of acquisitions , dispositions , and changes to the leases currently in place at our properties , depreciation is expected to continue to increase in future periods , as compared to historical periods , due to ongoing capital improvements to our properties . amortization was $ 78.7 million for 2013 , which represents a decrease from $ 86.5 million for 2012 , primarily due to the expiration of in-place leases at our properties in 2012 and 2013 and lease terminations . future amortization is expected to fluctuate , primarily based on the expiration of additional in-place leases , offset by amortization of deferred lease costs incurred in connection with recent leasing activity and in-place leases at acquired properties . general and administrative expenses and listing costs were $ 65.9 million
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substantially all our associates are continuing to work remotely , however , our executive team has been working at our corporate headquarters , and certain field operations associates are working at our project sites . our executive team analyzed the impact of projected land sale revenues being delayed and then assessed which variable expenditures should be deferred , accordingly . as a result , we immediately limited development activities at our communities to only those activities essential to supporting active homebuilding by builders and to meet our contractual obligations . despite continued economic volatility , homebuilding ended up being a bright spot in 2020 due to consumer demand for more space and a historically favorable mortgage environment . at the great park neighborhoods , after a significant but brief decline in home sales in march and april of 2020 , our guest builders returned to consistent rates of home sales in the second half of 2020. we are optimistic that favorable market conditions will continue for our guest builders and have therefore resumed regular development activities . as we monitor trends in covid-19 cases in california , we will manage our development activities and expenditures to coincide with projected demand for homesites by our guest builders . factors that may influence our results of operations fluctuations in the economy and market conditions our results of operations are subject to various risks and fluctuations in value and demand , many of which are beyond our control . our business could be impacted by , among other things , downturns in economic conditions at the national , regional or local levels , particularly where our communities are located , inflation and increases in interest rates , significant job losses and unemployment levels , and declines in consumer confidence and spending . supply and demand for residential and commercial properties we generate most of our revenue from land sales , which are dependent on demand from homebuilders , commercial developers and commercial buyers , which is in turn dependent on the prices that homebuyers , commercial buyers and renters are expected to pay . in addition , sales of homesites typically include participation provisions that allow us to share in the profits realized by the homebuilders if the overall profitability of a block of homes exceeds an agreed-upon margin . because our revenue is influenced by the prices that homebuyers and commercial buyers are willing to pay for homes or commercial buildings in our region , our results of operations may be influenced by , among other things , the overall supply and demand for housing and commercial properties , the prevailing interest rates for mortgages , and the availability of mortgage financing for residential and commercial developers and residential and commercial buyers . 32 timing of obtaining the necessary approvals for development activities as a developer of real property in california , we are subject to numerous land use and environmental laws and regulations . before we can begin developing our communities or development areas within them , we must obtain entitlements , permits and approvals . depending upon the type of the approval being sought , we may also need to complete an environmental impact report , remediate environmental impacts or agree to finance or develop public infrastructure within the community or applicable development area , each of which would impose additional costs on us . in the event that we materially modify any of our existing entitlements , approvals or permits , we may also need to go through a discretionary approval process before the relevant governmental authority or go through an additional or supplemental environmental review and certification process . in addition , laws and regulations governing the approval processes provide third parties with the opportunity to challenge our entitlements , permits and approvals . the prospect of these third-party challenges creates additional uncertainty . third-party challenges in the form of litigation can adversely affect the length of time or the cost required to obtain the necessary governmental approvals to develop , or result in the denial of our right to develop the particular community or development area in accordance with our current development plans . furthermore , adverse decisions arising from any litigation can increase the cost or length of time to obtain ultimate approval of a project , if such approval is obtained at all , and can adversely affect the design , scope , plans and profitability of a project , which can negatively affect our financial condition and results of operations . see part i , item 3 , of this report for a discussion of legal proceedings . as a result of many of the factors described above , we have historically experienced , and expect to continue to experience , variability in results of operations between comparable periods . segments our four reportable segments are valencia , san francisco , great park and commercial : our valencia segment ( formerly newhall ) includes operating results related to the valencia community and agricultural operations in los angeles and ventura counties , california . our san francisco segment includes operating results for the candlestick and the san francisco shipyard communities , as well as results attributable to the development management services that we previously provided to affiliates of lennar corporation ( โ lennar โ ) in the san francisco bay area . our management agreement with lennar with respect to the concord community was terminated in early 2020. our great park segment includes operating results for the great park neighborhoods community and development management services provided by the management company for the great park venture . our commercial segment includes the operating results of the gateway commercial venture 's ownership in the five point gateway campus and property management services provided by the management company for the gateway commercial venture . story_separator_special_tag results of operations the following tables and related discussions on the results of operations are for the fiscal years ended december 31 , 2020 and 2019. refer to item 7 , โ management 's discussion and analysis of financial condition and results of operations โ under part ii of our annual report on form 10-k for the fiscal year ended december 31 , 2019 for financial data and related comparative discussions on results of operations for the fiscal years ended december 31 , 2019 and 2018 . 33 the company the following table summarizes our consolidated historical results of operations for the years ended december 31 , 2020 and 2019. replace_table_token_0_th revenues . revenues decreased by $ 30.8 million , to $ 153.6 million for the year ended december 31 , 2020 , from $ 184.4 million for the year ended december 31 , 2019. the decrease in revenues was primarily due to fewer land sales at our valencia segment in 2020 compared to 2019. cost of land sales . the cost of land sales decreased by $ 11.4 million , to $ 85.8 million for the year ended december 31 , 2020 , from $ 97.1 million for the year ended december 31 , 2019. the decrease in cost of land sales was attributable to fewer land sales at our valencia segment in 2020 compared to 2019. cost of management services . cost of management services decreased by $ 8.0 million , or 28.1 % , to $ 20.5 million for the year ended december 31 , 2020 , from $ 28.5 million for the year ended december 31 , 2019. the decrease was primarily due to less intangible asset amortization expense at our great park segment . selling , general , and administrative . selling , general , and administrative expenses decreased by $ 20.1 million , or 19.4 % , to $ 83.5 million for the year ended december 31 , 2020 , from $ 103.6 million for the year ended december 31 , 2019. the decrease was primarily attributable to a decrease in employee related expenses . 34 other income . other income for the year ended december 31 , 2019 consisted primarily of a $ 64.9 million gain recognized by our san francisco segment pertaining to the settlement of a contingent consideration liability . equity in earnings from unconsolidated entities . our consolidated results reflect our share in the earnings or losses of our interests in our unconsolidated entities , including the great park venture and the gateway commercial venture , within equity in earnings from unconsolidated entities on our consolidated statement of operations . our segment results for the great park segment and the commercial segment present the results of the great park venture and the gateway commercial venture at the book basis of the ventures within the respective segments . equity in earnings from unconsolidated entities increased by $ 40.0 million , to $ 42.4 million for the year ended december 31 , 2020 , from $ 2.3 million for the year ended december 31 , 2019. the increase was primarily due to an increase in earnings from the gateway commercial venture due to gains from the sale of land and three buildings during the year ended december 31 , 2020. the increase was offset by fewer land sales at the great park venture during year ended december 31 , 2020 compared to the same period in 2019. at the end of the first quarter of 2020 , we recognized an other-than-temporary impairment of $ 26.9 million attributed to our investment in the great park venture that is included in equity in earnings from unconsolidated entities in our consolidated statement of operations . the impairment was primarily a result of expected delays in both the timing of land sales to builders and distributions to us causing a decline in the fair value of our investment in the great park venture . in determining that the impairment was other-than-temporary , we concluded that it was uncertain if a near term recovery of value that was lost as a result of delays to expected land sales from the impacts of the covid-19 pandemic would occur . see note 4 to our consolidated financial statements included under part ii , item 8 of this report . additionally , included in the results of operations of our valencia segment is our 10 % interest in the valencia landbank venture that was formed in 2020 to take assignment of land purchase and sale agreements for residential lots within the valencia community and enter into option and development agreements with homebuilders who intend to purchase the lots from the valencia landbank venture to ultimately construct and sell homes . income tax provision . all operations are carried on through our subsidiaries , the majority of which are pass-through entities that are generally not subject to federal or state income taxation , as all of the taxable income , gains , losses , deductions , and credits are passed through to the partners , including the partners of the operating company and the san francisco venture . we are responsible for income taxes on our allocable share of the operating company 's income or gain . pre-tax income of $ 2.8 million for the year ended december 31 , 2020 resulted in a tax provision of $ 1.7 million . the tax provision was primarily the result of a $ 2.9 million decrease to our net deferred tax asset offset by a $ 1.9 million decrease to our deferred tax asset valuation allowance . additionally , we recognized approximately $ 0.8 million of current state tax provision as a result of california assembly bill 85 , which suspends the use of net operating losses in tax years 2020 through 2022. we assessed the realization of the net deferred tax asset and the need for a valuation allowance , based on positive and negative evidence , and determined that at december 31 , 2020 it is more likely than not that such net deferred tax assets will not be realized .
| net cash provided by investing activities was $ 52.9 million for the year ended december 31 , 2020 , compared to the net cash provided by investing activities of $ 0.3 million for the year ended december 31 , 2019. for the year ended december 31 , 2020 , we received total distributions of $ 136.5 million from the gateway commercial venture , of which $ 57.5 million is reflected as a return of our investment ( investing activity ) . we made a capital contribution of $ 4.2 million and received a 10 % interest in the valencia landbank venture in 2020 , and we also received a distribution of $ 1.7 million from our indirect legacy interest in the great park venture . cash flows from financing activities . net cash used in financing activities was $ 23.5 million for the year ended december 31 , 2020 , compared to net cash provided by financing activities of $ 83.2 million for the year ended december 31 , 2019. for the year ended december 31 , 2020 , we made a tax distribution of $ 4.6 million to a noncontrolling interest in accordance with the operating company 's limited partnership agreement ( โ lpa โ ) . the tax distribution is treated as an advance distribution under the lpa . we also made payments of $ 13.5 million to reduce our related party reimbursement obligation during the year ended december 31 , 2020. for the year ended december 31 , 2019 , we issued an aggregate of $ 125.0 million principal amount of 7.875 % senior notes due 2025. we used $ 5.5 million and $ 4.1 million during the years ended december 31 , 2020 and 2019 , respectively , to net settle certain share-based compensation awards with employees for tax withholding purposes . additionally , during the year ended december 31 , 2019 , we received cash proceeds of $ 25.0 million related to the issuance of san francisco venture class c units to an affiliate of lennar ( see note 5 to our consolidated financial statements included under part ii , item 8 of this report ) and repaid a promissory note of $ 65.1 million in connection with the termination of the retail project at candlestick . changes in capital structure during the year ended december 31 ,
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however , we expect to face challenges in entering some markets , such as china , where access to twitter is blocked , as well as certain other countries that have intermittently restricted access to twitter . restrictions or limitations on access to twitter may adversely impact our ability to increase the size of our user base and generate additional revenue in certain markets . we do not separately track whether an mau has only used twitter on a desktop or on a mobile device . however , in the three months ended december 31 , 2015 , approximately 80 % of our average maus accessed twitter from a mobile device , roughly stable from the three months ended december 31 , 2014 . 44 we may face challenges in increasing the size of our user base , including , among others , competition from alternative products and services , a decline in the number of influential users on twitter or a perceived decline in the quality of content or user experience available on twitter . we intend to drive growth in our user base by continuing to demonstrate the value and usefulness of our products and ser vices to potential new users , by introducing new products , services and features and refining our core service . our user growth rate has slowed over time , and we anticipate that it may continue to slow or decline . to the extent our logged-in user growth or user growth rate continues to slow or the absolute number of logged in users declines , our revenue growth will become increasingly dependent on our ability to increase levels of user engagement on twitter and monetizing our total audience on logged-out us age and syndicated properties as well as increasing revenue growth from third party publishers ' websites , applications and other offerings . monetization . there are many variables that impact the monetization of our platform , such as the number of maus , our users ' level of engagement with our platform , ad load ( which is a function of the amount of advertising we choose to display ) , our users ' engagement with our promoted products , advertiser demand and cost per ad engagement . generally , we design our algorithms for our pay-for-performance promoted products on twitter to optimize the overall user experience and the value we deliver to advertisers . we have , and may in the future , increase ad load to the extent that we are able to continue to reach the right balance of advertiser value and the overall user experience . in order to improve monetization , we plan to increase the value of our advertising services by continuing to increase the size and engagement of our user base as well as improve our ability to target advertising to our users ' interests and the ability of our advertisers to optimize their campaigns and measure the results of their campaigns . although the majority of the promoted products we sell to our advertisers are placed on twitter , we have been growing our advertising revenue by selling to advertisers our advertising products that we place on third-party publishers ' websites , applications or other offerings . for the latter category of advertising placements , we incur additional costs , particularly traffic acquisition costs , to fulfill our services to advertisers . this mix shift of additional advertising revenue being generated from such third-party placements may continue in the future . in the three months ended december 31 , 2015 , over 85 % of our advertising revenue was generated from mobile devices . we have experienced strong growth in advertising revenue from mobile devices because user engagement is significantly higher on mobile applications than on our desktop applications , and we expect this trend to continue . however , promoted accounts and promoted trends receive less prominence on our mobile applications than they do on our desktop applications , which means that fewer users see them displayed on our mobile applications , resulting in fewer ad engagements with promoted accounts and fewer impressions of promoted trends on mobile applications . primarily as a result of promoted accounts and promoted trends receiving less prominence on mobile applications , we have generated higher monetization of our ad engagements on our desktop applications than on our mobile applications . although our cost per ad engagement on our desktop applications is higher than our cost per ad engagement on our mobile applications , the substantial majority of our ad engagements and advertising revenue is generated from mobile applications . we intend to continue to increase the monetization of our platform by improving the targeting capabilities of our advertising services to enhance the value of our promoted products for advertisers , expanding our sales efforts to reach advertisers in additional international markets , opening our platform to additional advertisers through our self-serve advertising platform and developing new ad formats for advertisers . effectiveness of our advertising services . advertisers can use twitter to communicate directly with their followers for free , but many choose to purchase our advertising services to reach a broader audience and further promote their brands , products and services . we believe that increasing the effectiveness of our promoted products for advertisers will increase the amount that advertisers spend with us . we aim to increase the value of our promoted products by increasing the size and engagement of our user base , improving our ability to target advertising to our users ' interests and improving the ability of our advertisers to optimize their campaigns and measure the results of their campaigns . we may also develop new advertising products and services . international expansion . we intend to invest in our international operations in order to expand our user base and advertiser base and increase user engagement and monetization internationally . in the three months ended december 31 , 2015 , we had 254 million average maus internationally compared to 65 million average maus in the united states . story_separator_special_tag in addition , our number of users is growing at a faster rate in many international markets , such as argentina , brazil , france , india , japan and the philippines . however , we derive the majority of our advertising revenue from advertisers in the united states . in order to increase our international advertising revenue , we plan to invest in our international operations . in the near term , we plan to increase the size of our sales and marketing support teams in international markets such as brazil , ireland , japan , middle east and uk . 45 we face challenges in increasing our advertising revenue internationally , including local competition , differences in advertiser demand , differences in the digital adve rtising market and conventions , and differences in the manner in which twitter is accessed and used internationally . we face competition from well-established competitors in certain international markets . in addition , certain international markets are not as familiar with digital advertising in general , or with new forms of digital advertising , such as our promoted products . in these jurisdictions we are investing to educate advertisers about the benefits of our advertising services . however , we expect that it may require a significant investment of time and resources to educate advertisers in many international markets . we also face challenges in providing certain advertising products , features or analytics in certain international markets , such as the euro pean union , due to government regulation . in addition , in certain emerging markets , many users access twitter through feature phones with limited functionality , rather than through smartphones , our website or desktop applications . this limits our ability t o deliver certain features to these users and may limit the ability of advertisers to deliver compelling ads to users in these markets . we are investing to improve our applications for feature phones in order to improve our ability to monetize our products and services in international markets . competition . we face significant competition for users and advertisers . we compete against many companies to attract and engage users and for advertiser spend , including companies with greater financial resources and substantially larger user bases which offer a variety of internet and mobile device-based products , services and content . in recent years there has been a significant number of acquisitions and consolidation activity by and among our actual and potential competitors . we must compete effectively for users and advertisers in order to grow our business and increase our revenue . we believe that our ability to compete effectively for users depends upon a number of factors , including the quality of our products and services ; and our ability to compete effectively for advertisers depends upon a number of factors , including our ability to offer attractive advertising products with unique targeting capabilities and the size of our active user base . we intend to continue to invest in research and development to improve our products and services for users and advertisers and to grow our active user base in order to address the competitive challenges in our industry . as part of our strategy to improve our products and services , we may acquire other companies to add engineering talent or complementary products and technologies . investment in infrastructure . we intend to increase the capacity and enhance the capability and reliability of our infrastructure . our infrastructure is critical to providing users , platform partners , advertisers and data partners access to our platform , particularly during major planned and unplanned events , such as elections , sporting events or natural disasters , when activity on our platform increases dramatically . as our user base and the activity on our platform grow , we expect that investments and expenses associated with our infrastructure will continue to grow . these investments and expenses include the expansion of our data center operations and related operating costs , additional servers and networking equipment to increase the capacity of our infrastructure and increased bandwidth costs . products and services innovation . our ability to increase the size and engagement of our user base , attract advertisers and increase our revenue will depend , in part , on our ability to improve existing products and services and to successfully develop or acquire new products and services . we plan to continue to make significant investments in research and development and , from time to time , we may acquire companies to enhance our products , services and technical capabilities . investment in talent . we intend to invest in hiring and retaining talented employees to grow our business and increase our revenue . as of december 31 , 2015 , we had 3,898 full-time employees , an increase of over 260 full-time employees , or approximately 7 % , from december 31 , 2014. we expect to increase headcount for the foreseeable future as we continue to invest in our business . we have also made , and intend to continue to make , acquisitions that add engineers , designers , product managers and other personnel with specific technology expertise . in addition , we must retain our high-performing personnel in order to continue to develop , sell and market our products and services and manage our business . seasonality . advertising spending is traditionally strongest in the fourth quarter of each year . historically , this seasonality in advertising spending has affected our quarterly results , with higher sequential advertising revenue growth from the third quarter to the fourth quarter compared to sequential advertising revenue growth from the fourth quarter to the subsequent first quarter . for example , our advertising revenue increased 43 % , 35 % and 25 % between the third and fourth quarters of 2013 , 2014 and 2015 , respectively , while advertising revenue for the first quarter of 2014 and 2015 increased 3 % and decreased 10 % compared to the fourth quarter of 2013 and 2014 , respectively .
| 55 total costs and expenses total costs and expenses , which include significant amounts of stock-based compensation expense , increased in every quarter presented primarily due to the continued expansion of our facilities and an increase in average employee headcount . the increase in total costs and expenses in the fourth quarter of 2015 was the result of an increase in advertising costs as well as an increase in traffic acquisition costs as a result of the growth of sale to advertisers of our advertising products which we place on third-party publishers ' websites , applications or other offerings . credit facility in october 2013 , we entered into a revolving credit agreement with certain lenders which provides for a $ 1.0 billion revolving unsecured credit facility maturing on october 22 , 2018. loans under the credit facility bear interest , at our option , at ( i ) a base rate based on the highest of the prime rate , the federal funds rate plus 0.50 % and an adjusted libor rate for a one-month interest period plus 1.00 % , in each case plus a margin ranging from 0.00 % to 0.75 % or ( ii ) an adjusted libor rate plus a margin ranging from 1.00 % to 1.75 % . this margin is determined based on our total leverage ratio for the preceding four fiscal quarter period . we are also obligated to pay other customary fees for a credit facility of this size and type , including an upfront fee and an unused commitment fee . our obligations under the credit facility are guaranteed by one of our wholly-owned subsidiaries . in addition , the credit facility contains restrictions on payments including cash payment of dividends . the revolving credit agreement was amended in september 2014 to increase the amount of indebtedness that we may incur and increase the amount of restricted payments that we may make . this amendment to the revolving credit agreement also provides that if our total leverage ratio exceeds 2.5:1.0 and if the amount outstanding
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loans not individually reviewed are evaluated as a group using reserve factor percentages based on historical loss experience and the qualitative factors described above . in determining the appropriate level of the general pooled allowance , management makes estimates based on internal risk ratings , which take into account such factors as debt service coverage , loan-to-value ratios and external factors . 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 , 2015 or 2014 . 58 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 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 . story_separator_special_tag significant judgment may be involved in the assessment of the tax position . 59 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 . 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 , 2015. replace_table_token_27_th ( 1 ) the majority of available lines of credit consist of home equity lines of credit . 60 contractual cash obligations the following table summarizes our contractual cash obligations at september 30 , 2015. replace_table_token_28_th 61 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_29_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 . 62 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_30_th comparison of financial condition at september 30 , 2015 and september 30 , 2014 at september 30 , 2015 , the company had total assets of $ 487.2 million , as compared to $ 525.5 million at september 30 , 2014 , a decrease of 7.3 % . the primary reason for the $ 38.3 million decrease in total assets was a $ 34.1 million reduction in cash and cash equivalents . the decrease in such assets reflected both the need to fund the $ 26.0 million reduction in deposits combined with the $ 14.7 million cost to repurchase shares of common stock pursuant to the company 's previously announced stock repurchase programs . as of september 30 , 2015 , the company had repurchased 1,095,184 shares of common stock at weighted average cost of $ 13.41. the decline in deposits reflected management 's continued strategy of allowing higher costing liabilities to run-off in order to reduce the cost of funds until such time as loan volume returns to a level that warrants the need for additional deposits or borrowings . during fiscal 2015 , mortgaged-backed securities classified available-for-sale ( โ afs โ ) increased $ 19.7 million , primarily due to the company purchasing mortgage-backed securities guaranteed by the u.s. government with short effective lives in order to improve earnings . with respect to investment securities classified held-to-maturity ( โ htm โ ) , the outstanding balance declined $ 14.5 million as a result of $ 12.0 million of agency securities being called with the remaining $ 2.5 million decline the result of principal payments . changes in the relative composition of both afs and htm investment securities were undertaken to reduce the company 's exposure to interest rate risk while also enhancing its earnings . 63 total liabilities decreased to $ 370.2 million at september 30 , 2015 from $ 396.1 million at september 30 , 2014. the $ 25.9 million decrease in total liabilities was due to the $ 26.0 million decrease in deposits of which $ 16.6 million were higher costing certificates of deposit allowed to run-off as part of our asset/liability management strategy .
| the increase in interest income resulted from a 10 basis point increase to 3.38 % in the weighted average yield earned on interest-earning assets partially offset by an $ 8.1 million or 1.6 % decrease to $ 493.3 million in the average balance of interest-earning assets for the year ended september 30 , 2015 as compared to fiscal 2014. the increase in the weighted average yield earned reflected in part the reduction of cash and cash equivalents resulting from use of such funds for the purchase of treasury stock and to fund the outflow of higher costing deposits as well as and the redeployment of principal repayments received on loans and investment securities into mortgage-backed securities . 64 2014 vs. 2013 . for the year ended september 30 , 2014 , net interest income increased $ 635,000 or 5.1 % to $ 13.1 million as compared to $ 12.4 million for the same period in fiscal 2013. the increase was due to a $ 943,000 or 21.7 % decrease in interest expense partially offset by a $ 308,000 or 1.8 % decrease in interest income . the increase in net interest income resulted from an increase of $ 35.5 million in the average balance of interest-earning assets combined with a decrease of $ 35.0 million in the average balance of interest-bearing liabilities between fiscal year 2013 and fiscal year 2014. the weighted average yield earned on interest-earning assets decreased to 3.28 % for fiscal year 2014 as compared to 3.60 % for fiscal year 2013. the decrease in the weighted average yield earned was primarily due to the reinvestment at lower current market rates of the proceeds from called or sold investment and mortgage-backed securities and the origination of new loans . the decrease in interest expense resulted primarily from a 15 basis point decrease to 0.89 % in the weighted average rate paid on interest-bearing liabilities , reflecting the continued repricing downward of interest-bearing liabilities during fiscal year 2014 combined with a $ 35.0 million or 8.4 % decrease in the average balance of interest-bearing liabilities , primarily certificates of deposit , during the year ended september 30 , 2014 ,
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โช a provision for loan losses of $ 44.3 million , compared to $ 6.1 million . the provision of $ 44.3 million in 2012 was primarily due to net charge-offs of $ 23.6 million and period-end loan growth of $ 2.0 billion . net charge-offs in 2012 were 0.31 percent of average total gross loans , reflecting the strong overall credit quality of our portfolio . โช core fee income ( deposit service charges , letters of credit fees , credit card fees , client investment fees , and foreign exchange fees ) of $ 136.9 million , an increase of $ 18.4 million , or 15.6 percent . this increase reflects increased client activity and continued growth in our business , primarily from credit card fees , foreign exchange fees and client 29 investments fees . see โ results of operationsโnoninterest income โ for a description and reconciliation of core fee income . โช gains on investment securities , net of noncontrolling interests and excluding gains on sales of certain-available-for-sale securities , remained at strong levels of $ 31.5 million , compared to $ 32.7 million . see โ results of operationsโnoninterest incomeโgains on investment securities , net โ for further details and a reconciliation of gains on investment securities , net of noncontrolling interests . โช gains of $ 5.0 million from the sale of $ 316 million u.s. agency securities that were held in our available-for-sale portfolio . โช net gains of $ 4.2 million from the sale of certain assets related to our equity management services business . โช noninterest expense of $ 546.0 million , an increase of $ 45.4 million , or 9.1 percent . the increase was primarily due to higher salaries and wages expense related to an increase in average full-time equivalent employees ( โ ftes โ ) , which increased by 9.0 percent to 1,581 average ftes , compared to 1,451 average ftes . in addition , we saw an increase in premises and equipment and professional services expenses to support continued growth in our business and it infrastructure initiatives . โช overall , our liquidity remained strong based on the attributes of our period end available-for-sale securities portfolio , which totaled $ 11.3 billion at december 31 , 2012 , compared to $ 10.5 billion at december 31 , 2011. our available-for-sale securities portfolio continued to be a good source of liquidity as it was invested in high quality investments and generated steady monthly cash flows . additionally , our available-for-sale securities portfolio continued to provide us with the ability to secure wholesale borrowings , as needed . โช overall , svb financial and the bank continued to maintain strong capital positions . the bank 's tier 1 leverage ratio increased by 19 basis points to 7.06 percent at december 31 , 2012 , compared to 6.87 percent at december 31 , 2011. the increase in the bank 's tier 1 leverage capital ratio was primarily the result of strong earnings , partially offset by growth of average deposits . 30 a summary of our performance in 2012 compared to 2011 is as follows : replace_table_token_3_th nmโnot meaningful ( 1 ) see `` non-gaap net income and non-gaap diluted earnings per common share โ below for a description and reconciliation of non-gaap net income available to common stockholders and non-gaap diluted earnings per share . ( 2 ) see โ results of operationsโnoninterest income โ below for a description and reconciliation of non-gaap noninterest income . ( 3 ) see โ results of operationsโnoninterest expense โ below for a description and reconciliation of non-gaap noninterest expense and non-gaap operating efficiency ratio . ( 4 ) ratio represents consolidated net income available to common stockholders divided by average assets . 31 ( 5 ) ratio represents consolidated net income available to common stockholders divided by average svbfg stockholders ' equity . ( 6 ) our risk-weighted assets at december 31 , 2012 reflect a refinement in our determination of certain unfunded credit commitments related to the contractual borrowing base made in 2012 . ( 7 ) see โ capital resourcesโcapital ratios โ for a reconciliation of non-gaap tangible common equity to tangible assets and tangible common equity to risk-weighted assets . ( 8 ) the operating efficiency ratio is calculated by dividing total noninterest expense by total taxable-equivalent net interest income plus noninterest income . ( 9 ) book value per common share is calculated by dividing total svbfg stockholders ' equity by total outstanding common shares at period-end . non-gaap net income and non-gaap diluted earnings per common share we use and report non-gaap net income and non-gaap diluted earnings per common share , which excludes , in the year applicable , gains from sales of certain available-for-sale securities and net gains from note repurchases and termination of corresponding interest rate swaps , as well as gains from the sale of certain assets related to our equity management services business . we believe these non-gaap financial measures , when taken together with the corresponding gaap financial measures , provide meaningful supplemental information regarding our performance by excluding certain items that do not occur every reporting period . our management uses , and believes that investors benefit from referring to , these non-gaap financial measures in assessing our operating results and related trends , and when planning , forecasting and analyzing future periods . however , these non-gaap financial measures should be considered in addition to , not as a substitute for or preferable to , financial measures prepared in accordance with gaap . a reconciliation of gaap to non-gaap net income available to common stockholders and non-gaap diluted earnings per common share for 2012 and 2011 is as follows : replace_table_token_4_th ( 1 ) gains on the sales of $ 316 million and $ 1.4 billion in certain available-for-sale securities in the second quarters of 2012 and 2011 , respectively . ( 2 ) net gains of $ 4.2 million from the sale of certain assets related to our equity management services business in the second quarter of 2012 . story_separator_special_tag ( 3 ) net gains of $ 3.1 million from the repurchase of $ 109 million of our 5.70 % senior notes and $ 204 million of our 6.05 % subordinated notes and the termination of the corresponding portions of interest rate swaps in the second quarter of 2011 . 32 critical accounting policies and estimates our accounting policies are fundamental to understanding our financial condition and results of operations . we have identified four policies as being critical because they require us to make particularly difficult , subjective and or complex judgments about matters that are inherently uncertain , and because it is likely that materially different amounts would be reported under different conditions or using different assumptions . we evaluate our estimates and assumptions on an ongoing basis and we base these estimates on historical experiences and various other factors and assumptions that are believed to be reasonable under the circumstances . actual results may differ materially from these estimates under different assumptions or conditions . our critical accounting policies include those that address the adequacy of the allowance for loan losses and reserve for unfunded credit commitments , measurements of fair value , the valuation of equity warrant assets and the recognition and measurement of income tax assets and liabilities . our senior management has discussed and reviewed the development , selection , application and disclosure of these critical accounting policies with the audit committee of our board of directors . allowance for loan losses and reserve for unfunded credit commitments allowance for loan losses the allowance for loan losses is management 's estimate of credit losses inherent in the loan portfolio at the balance sheet date . we consider our accounting policy for the allowance for loan losses to be critical as estimation of the allowance involves material estimates by us and is particularly susceptible to significant changes in the near term . determining the allowance for loan losses requires us to make forecasts that are highly uncertain and require a high degree of judgment . our loan loss reserve methodology is applied to our loan portfolio and we maintain the allowance for loan losses at levels that we believe are appropriate to absorb estimated probable losses inherent in our loan portfolio . our allowance for loan losses is established for loan losses that are probable but not yet realized . the process of anticipating loan losses is imprecise . we apply a systematic process for the evaluation of individual loans and pools of loans for inherent risk of loan losses . on a quarterly basis , each loan in our portfolio is assigned a credit risk rating through an evaluation process , which includes consideration of such factors as payment status , the financial condition of the borrower , borrower compliance with loan covenants , underlying collateral values , potential loan concentrations , and general economic conditions . the allowance for loan losses is based on a formula allocation for similarly risk-rated loans by client industry sector and individually for impaired loans . our formula allocation is determined on a quarterly basis by utilizing a historical loan loss migration model , which is a statistical model used to estimate an appropriate allowance for outstanding loan balances by calculating the likelihood of a loan being charged-off based on its credit risk rating using historical loan performance data from our portfolio . the historical loan loss migration statistical model considers : ( i ) our quarterly historical loss experience since the year 2000 , both by risk-rating category and client industry sector , and ( ii ) our quarterly loss experience for the one- , three- , and five-year periods preceding the applicable reporting period . the resulting loan loss factors for each risk-rating category and client industry sector are ultimately applied to the respective period-end client loan balances for each corresponding risk-rating category by client industry sector to provide an estimation of the allowance for loan losses . we apply qualitative allocations to the results we obtained through our historical loan loss migration model to ascertain the total allowance for loan losses . these qualitative allocations are based upon management 's assessment of the risks that may lead to a loan loss experience different from our historical loan loss experience . these risks are aggregated to become our qualitative allocation . based on management 's prediction or estimate of changing risks in the lending environment , the qualitative allocation may vary significantly from period to period and includes , but is not limited to , consideration of the following factors : changes in lending policies and procedures , including underwriting standards and collections , and charge-off and recovery practices ; changes in national and local economic business conditions , including the market and economic condition of our clients ' industry sectors ; changes in the nature of our loan portfolio ; changes in experience , ability , and depth of lending management and staff ; changes in the trend of the volume and severity of past due and classified loans ; changes in the trend of the volume of nonaccrual loans , troubled debt restructurings , and other loan modifications ; reserve floor for portfolio segments that would not draw a minimum reserve based on the lack of historical loan loss experience ; reserve for large funded loan exposure ; and other factors as determined by management from time to time . 33 a committee comprised of senior management evaluates the adequacy of the allowance for loan losses . reserve for unfunded credit commitments the level of the reserve for unfunded credit commitments is determined following a methodology that parallels that used for the allowance for loan losses . we consider our accounting policy for the reserve for unfunded credit commitments to be critical as estimation of the reserve involves material estimates by our management and is particularly susceptible to significant changes in the near term . we record a liability for probable and estimable losses associated with our unfunded credit commitments .
| we do not allocate income taxes to our segments . additionally , our management reporting model is predicated on average asset balances ; therefore , period-end asset balances are not presented for segment reporting purposes . changes in an individual client 's primary relationship designation have resulted , and in the future may result , in the inclusion of certain clients in different segments in different periods . the following is our reportable segment information for 2012 , 2011 and 2010 : 52 global commercial bank replace_table_token_22_th nmโnot meaningful income before income tax expense from our global commercial bank ( โ gcb โ ) increased to $ 340.9 million in 2012 , compared to $ 300.1 million in 2011 and $ 213.0 million in 2010 , which reflects the strength and continued growth of our core commercial business and clients . the key components of gcb 's performance are discussed below : 2012 compared to 2011 net interest income from our gcb increased by $ 76.0 million in 2012 , primarily due to a $ 80.8 million increase in loan interest income resulting mainly from an increase in average loan balances and a $ 24.1 million increase in the ftp earned for deposits due to deposit growth . these increases were partially offset by a $ 25.9 million decrease in the ftp earned for deposits from decreases in market interest rates . we had a provision for loan losses for gcb of $ 45.4 million in 2012 , compared to a provision of $ 13.5 million in 2011 . the provision of $ 45.4 million in 2012 was primarily due to net charge-offs and period-end loan growth . the provision of $ 13.5 million in 2011 was primarily due to period-end loan growth , partially offset by a decrease in the allowance for our performing loans due to the strong overall credit quality of our clients . noninterest income increased by $ 38.7 million in 2012 , primarily due to an increase in gains from debt fund investments , foreign exchange
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in december 2015 we submitted briefing material to the fda on the development plans for the ropinirole implant in support of the pre-ind meeting request , and we have recently received feedback from the fda on our product development plans . we have commenced the required non-clinical studies with the ropinirole implant , and following the potential approval of probuphine , our goal is to complete the non-clinical development plan required in support of an ind application during this year , submit the ind in the fourth quarter of 2016 and enable commencement of a โ proof of concept ' clinical study shortly thereafter . early stage development of the t3 implant continues and we are currently conducting non-clinical studies to help optimize the formulation . we expect to finalize the initial development plans for the t3 implant and request a pre-ind meeting with the fda by the fourth quarter of 2016 and hope to commence a proof of concept clinical study in the second half of 2017. our goal is to further expand the product pipeline and we are also currently evaluating other drugs and disease settings for opportunities to use the proneura platform in other potential treatment applications , especially in situations where conventional treatment is limited by variability in blood drug levels and poor patient compliance . we operate in only one business segment , the development of pharmaceutical products . 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 financial statements and accompanying notes . actual results could differ materially from those estimates . we believe the following accounting policies for the years ended december 31 , 2015 and 2014 to be applicable : revenue recognition we generate revenue principally from collaborative research and development arrangements , technology licenses , and government grants . consideration received for revenue arrangements with multiple components is allocated among the separate units of accounting based on their respective selling prices . the selling price for each unit is based on vendor-specific objective evidence , or vsoe , if available , third party evidence if vsoe is not available , or estimated selling price if neither vsoe nor third party evidence is available . the applicable revenue recognition criteria are then applied to each of the units . 22 revenue is recognized when the four basic criteria of revenue recognition are met : ( 1 ) a contractual agreement exists ; ( 2 ) transfer of technology has been completed or services have been rendered ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . for each source of revenue , we comply with the above revenue recognition criteria in the following manner : technology license agreements typically consist of non-refundable upfront license fees , annual minimum access fees or royalty payments . non-refundable upfront license fees and annual minimum payments received with separable stand-alone values are recognized when the technology is transferred or accessed , provided that the technology transferred or accessed is not dependent on the outcome of our continuing research and development efforts . royalties earned are based on third-party sales of licensed products and are recorded in accordance with contract terms when third-party results are reliably measurable and collectability is reasonably assured . we no longer recognize royalty income related to the fanapt royalty payments received from novartis unless fanapt sales exceed certain thresholds ( see note 8 , โ royalty liability โ for further discussion ) . government grants , which support our research efforts in specific projects , generally provide for reimbursement of approved costs as defined in the notices of grants . grant revenue is recognized when associated project costs are incurred . collaborative arrangements typically consist of non-refundable and or exclusive technology access fees , cost reimbursements for specific research and development spending , and various milestone and future product royalty payments . if the delivered technology does not have stand-alone value , the amount of revenue allocable to the delivered technology is deferred . non-refundable upfront fees with stand-alone value that are not dependent on future performance under these agreements are recognized as revenue when received , and are deferred if we have continuing performance obligations and have no evidence of fair value of those obligations . cost reimbursements for research and development spending are recognized when the related costs are incurred and when collections are reasonably expected . payments received related to substantive , performance-based โ at-risk โ milestones are recognized as revenue upon achievement of the clinical success or regulatory event specified in the underlying contracts , which represent the culmination of the earnings process . amounts received in advance are recorded as deferred revenue until the technology is transferred , costs are incurred , or a milestone is reached . share-based payments we recognize compensation expense for all share-based awards made to employees and directors . the fair value of share-based awards is estimated at the grant date based on the fair value of the award and is recognized as expense , net of estimated pre-vesting forfeitures , ratably over the vesting period of the award . we use the black-scholes option pricing model to estimate the fair value method of our awards . calculating stock-based compensation expense requires the input of highly subjective assumptions , including the expected term of the share-based awards , stock price volatility , and pre-vesting forfeitures . we estimate the expected term of stock options granted for the years ended december 31 , 2015 and 2014 based on the historical experience of similar awards , giving consideration to the contractual terms of the share-based awards , vesting schedules and the expectations of future employee behavior . story_separator_special_tag we estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock . the assumptions used in calculating the fair value of stock-based awards represent our best estimates , but these estimates involve inherent uncertainties and the application of management judgment . as a result , if factors change and we use different assumptions , our stock-based compensation expense could be materially different in the future . in addition , we are required to estimate the expected pre-vesting forfeiture rate and only recognize expense for those shares expected to vest . we estimate the pre-vesting forfeiture rate based on historical experience . if our actual forfeiture rate is materially different from our estimate , our stock-based compensation expense could be significantly different from what we have recorded in the current period . income taxes we make certain estimates and judgments in determining income tax expense for financial statement purposes . these estimates and judgments occur in the calculation of certain tax assets and liabilities , which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes . as part of the process of preparing our financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves us estimating our current tax exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes . we assess the likelihood that we will be able to recover our deferred tax assets . we consider all available evidence , both positive and negative , expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance . if it is not more likely than not that we will recover our deferred tax assets , we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable . 23 clinical trial accruals we also record accruals for estimated ongoing clinical trial costs . clinical trial costs represent costs incurred by cros and clinical sites . these costs are recorded as a component of research and development expenses . under our agreements , progress payments are typically made to investigators , clinical sites and cros . we analyze the progress of the clinical trials , including levels of patient enrollment , invoices received and contracted costs when evaluating the adequacy of accrued liabilities . significant judgments and estimates must be made and used in determining the accrued balance in any accounting period . actual results could differ from those estimates under different assumptions . revisions are charged to expense in the period in which the facts that give rise to the revision become known . the actual clinical trial costs for the probuphine studies conducted in the past three years have not differed materially from the estimated projection of expenses . warrants issued in connection with equity financing we generally account for warrants issued in connection with equity financings as a component of equity , unless there is a deemed possibility that we may have to settle warrants in cash . for warrants issued with deemed possibility of cash settlement , we record the fair value of the issued warrants as a liability at each reporting period and record changes in the estimated fair value as a non-cash gain or loss in the statements of operations and comprehensive income ( loss ) . liquidity and capital resources replace_table_token_3_th liquidity and capital resources we have funded our operations since inception primarily through the sale of our securities and the issuance of debt , as well as with proceeds from warrant and option exercises , corporate licensing and collaborative agreements , the sale of royalty rights and government-sponsored research grants . at december 31 , 2015 , we had working capital of approximately $ 7.4 million compared to working capital of approximately $ 12.9 million at december 31 , 2014. our operating activities used approximately $ 7.5 million of cash during the year ended december 31 , 2015. this consisted primarily of the net loss for the period of approximately $ 11.3 million , and $ 2.1 million related to net changes in other operating assets and liabilities . this was offset in part by non-cash charges of approximately $ 1.0 million related to share-based compensation expenses , approximately $ 4.5 million related to non-cash losses resulting from changes in the fair value of warrants and approximately $ 0.4 million related to depreciation and amortization . uses of cash in operating activities were primarily to fund product development programs and administrative expenses . net cash used in investing activities of approximately $ 133,000 during the year ended december 31 , 2015 was primarily related to purchases of equipment . our financing activities used approximately $ 14,000 during the year ended december 31 , 2015 which was primarily related to taxes on the vesting of restricted shares . in february 2013 , we amended the terms of the warrants that had been issued in 2011 in connection with a loan facility to permit payment of the exercise price through the reduction of the outstanding loan . in february and march 2013 , all of the warrants were exercised resulting in a $ 7.5 million reduction in the then outstanding $ 10.0 million of indebtedness , the balance of which was paid in full in april 2013 in march 2013 , we recognized a gain on the extinguishment of a royalty liability of $ 9.0 million , which was recorded in other income , as a result of our termination of a royalty repurchase right . additionally , we ceased recognizing royalty income related to the fanapt sales because we had transferred substantially all of our rights to such payments .
| general and administrative expenses for 2015 were approximately $ 3.8 million compared to approximately $ 3.0 million in 2014 , an increase of approximately $ 0.8 million , or 27 % . the increase in general and administrative expenses was primarily related to increases in non-cash stock compensation and employee-related costs of approximately $ 0.4 million , legal and professional fees of approximately $ 0.2 million , board fees of approximately $ 0.1 million and travel related expenses of approximately $ 0.1 million . net other expense for the year ended december 31 , 2015 was approximately $ 4.5 million , compared to net other income of approximately $ 1.1 million in 2014. net other expense in 2015 consisted primarily of $ 4.5 million related to non-cash losses on changes in the fair value of warrant liabilities . net other income in 2014 consisted primarily of $ 1.1 million related to non-cash gains on changes in the fair value of warrant liabilities . our net loss applicable to common stockholders for the year ended december 31 , 2015 was approximately $ 11.3 million , or approximately $ 0.56 per share , compared to our net loss applicable to common stockholders of approximately $ 2.4 million , or approximately $ 0.14 per share , for the comparable period in 2014. year ended december 31 , 2014 compared to year ended december 31 , 2013 license revenues of approximately $ 3.6 million and $ 9.1 million for the years ended december 31 , 2014 and 2013 reflect the amortization of the upfront license fee received from braeburn in december 2012. royalty revenues for the year ended december 31 , 2013 reflects royalties on sales of fanapt , all of which were paid to deerfield in accordance with our royalty sales agreement . we no longer recognize fanapt royalty revenues since all of such royalties are paid to third parties . 25 research and development expenses for 2014 were approximately $ 4.1 million compared to approximately $ 8.3 million in 2013 , a decrease of approximately $
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based on past experiences , demand for seafood products is the highest from december to january during chinese new year . we believe that our profitability and growth are dependent on our ability to expand the customer base . with the expansions of operating capacity and expected increases in harvest volume in the coming years , we will continue to develop new customers from existing and new territories in china . revenue by territory our customers are from the following prc territories : replace_table_token_4_th discontinued operations in december 2013 , we have completed the sale of the china dredging group ( โ cdgc โ ) business , which has been reported as discontinued operations for 2013 and 2012 , to hong long , a related party majority owned by the wife of our chairman and ceo , mr. xinrong zhuo . in exchange for ( i ) offset of our current $ 155.2 million 4 % promissory note due to hong long ; ( ii ) the assignment of the 25-year exclusive operating license rights for 20 new fishing vessels to us , with a fair market value of $ 216.1 million ( iii ) offset of pme 's current accounts payable due to cdgc with amount $ 172.5 million . in connection with these 20 fishing vessels , hong long received subsidies from china 's central government budget in 2012 , and a recent notification from the government prohibits the sale or transfer of ownership for a period of 10 years for fishing vessels that have received such subsidies . 35 the board , excluding mr. zhuo and our senior officer , mr. bin lin , retained our independent financial advisor to provide a fairness opinion on the transaction proposed by mr. zhuo . subsequent to the receipt of the fairness opinion from our independent financial advisor on october 28 , 2013 , the board would evaluate potential alternative proposals received during a 30 day period . after receiving no alternative proposals , on december 3 , 2013 , the board , excluding mr. zhuo and mr. lin approved moving forward with the transaction and executed and closed the share purchase agreement . the total consideration of the transaction is approximately $ 543.8 million with a gain on sale of $ 117.5 million which was recorded as an adjustment to our equity as it was sold to a related party under common control . significant factors affecting our results of operations โ governmental policies : fishing is a highly regulated industry and our operations require licenses and permits . our ability to obtain , sustain or renew such licenses and permits on acceptable terms is subject to changes in regulations and policies and is at the discretion of the applicable governments . our inability to obtain , or loss or denial of extensions to , any of our applicable licenses or permits could hamper our ability to generate revenues from our operations . โ resource & environmental factors : our fishing expeditions are based in india and indonesia . any earthquake , tsunami , adverse weather or oceanic conditions or other calamities in such areas may result in disruption to our operations and could adversely affect our sales . adverse weather conditions such as storms , cyclones and typhoons or cataclysmic events may also decrease the volume of fish catches or may even hamper our operations . our fishing volumes may also be adversely affected by major climatic disruptions such as el nino , which in the past has caused significant decreases in seafood catch worldwide . besides weather patterns , other unpredictable factors , such as fish migration , may also have impact our harvest volume . โ fluctuation on fuel prices : our operations may be adversely affected by fluctuations in fuel prices . changes in fuel prices may ultimately result in increases in the selling prices of our products , and may , in turn , adversely affect our sales volume , revenue and operating profit . โ competition : we engage in fishing business in the arafura sea in indonesia and the bay of bengal in india . competition within our dedicated fishing areas is not significant as the region is not overfished and regulated by the government , which limits the number of vessels that are allowed to fish in the territories . competition in the market in china is high . we compete with other fishing companies which offer similar and varied products . there is significant demand for fish in the chinese market . our catch appeals to a wide segment of consumers because of the low price points of our products . we have been able to sell our catch at market prices and such market prices have been increasing significantly since 2012 . โ fishing licenses : each of our fishing vessels requires an approval from the ministry of agriculture of the people 's republic of china to carry out ocean fishing projects in foreign territories . these approvals are valid for a period of three to twelve months , and are awarded to us at no cost . we apply for the renewal of the approval prior to expiration to avoid interruptions of our fishing vessels ' operations . each of our fishing vessels operating in indonesian waters requires a fishing license granted by the authority in indonesia . indonesian fishing licenses remain effective for a period of twelve months and we apply for renewal upon expiration . we record cost of indonesian fishing licenses in deferred expenses on the accompanying consolidated balance sheets and amortize the cost over the effective periods of the licenses . story_separator_special_tag story_separator_special_tag style= '' font : 10pt times new roman , times , serif '' > 39 โ compensation and related benefits for the year ended december 31 , 2014 increased by approximately $ 357,000 , or 56.0 % , as compared to the year ended december 31 , 2013. the increase was primarily attributable to an increase in salaries and bonus incurred and paid to our chief financial officer of approximately $ 110.000 since we hired our chief financial officer in may 2013 , and an increase of approximately $ 247,000 in salaries and related benefits incurred and paid to our management and other administrative staff resulting from the expansion of our business . โ professional fees , which consist of legal fees , accounting fees , internal control consulting services charge and other fees associated with being a public company , for the year ended december 31 , 2014 decreased by approximately $ 711,000 , or 46.2 % , as compared to the year ended december 31 , 2013. the decrease for the year ended december 31 , 2014 was primarily attributable to a decrease in legal service fees of approximately $ 507,000 , a decrease in one-time evaluation service fees for our fishing vessels of approximately $ 155,000 and a decrease in other miscellaneous items of approximately $ 49,000. during the year ended december 31 , 2013 , we incurred and paid legal fee for our merger transaction , while , we did not incur comparable expenses in the year ended december 31 , 2014 . โ travel and entertainment expense for the year ended december 31 , 2014 increased by approximately $ 131,000 , or 69.6 % as compared to the year ended december 31 , 2013. the increase was mainly attributable to the increase in travel for investor road shows and conferences . โ rent and related administrative service charge for the year ended december 31 , 2014 increased by approximately $ 245,000 , or 106.0 % , as compared to the year ended december 31 , 2013. we rent an office in hong kong beginning july 2013 and we pay monthly rental and related administrative service fee of approximately $ 38,000 ( hk $ 298,500 ) . therefore , our rental and related administrative service charge for the year ended december 31 , 2014 increased as compared to the year ended december 31 , 2013 . โ liability insurance , which primarily consist of director and officer liability insurance , for the year ended december 31 , 2014 decreased by approximately $ 55,000 , or 16.0 % , as compared to the year ended december 31 , 2013. the decrease was mainly attributable to a decrease in director and officer liability insurance of approximately $ 34,000 and a decrease in other miscellaneous insurance of approximately $ 21,000 due to the stricter control on corporation spending . โ for the year ended december 31 , 2014 , we recorded bad debt allowance of approximately $ 1,173,000. we did not record any bad debt expense for the year ended december 31 , 2013. based on our periodic review of accounts receivable balances , we adjusted the allowance for doubtful accounts after considering management 's evaluation of the collectability of individual receivable balances , including the analysis of subsequent collections , the customers ' collection history , and recent economic events . โ other general and administrative expense , which primarily consist of vehicle expense , communication fee , office supply , depreciation , miscellaneous taxes and bank service charge , for the year ended december 31 , 2014 increased by approximately $ 205,000 , or 81.1 % , as compared to the year ended december 31 , 2013 which was primarily attributable to an increase in bank service charge of approximately $ 164,000 and an increase in other miscellaneous items of approximately $ 41,000. operating income for the year ended december 31 , 2014 , operating income was approximately $ 70,376,000 , as compared to approximately $ 42,875,000 for the year ended december 31 , 2013 , an increase of $ 27,501,000 or 64.1 % . other income ( expense ) other income / expense mainly include interest income from bank deposits , interest expenses of short-term and long-term borrowings , foreign currency transaction gain/loss , grant income and investment income . 40 for the year ended december 31 , 2014 , other income amounted to approximately $ 15,385,000 as compared to other income of approximately $ 4,261,000 for the year ended december 31 , 2013 , an increase of $ 11,124,000 or 261.1 % , which was mainly attributable to an increase in government grant income of approximately $ 12,756,000 and an increase in investment income of approximately $ 279,000 due to the receipt of one-time investment income from cost-method investment in a local rural and commercial bank in 2014 , offset by an increase in interest expense of approximately $ 1,514,000 due to the increase in our interest bearing bank loans and an increase in foreign currency transaction loss of approximately $ 403,000. the grant income represents an incentive granted by the chinese government to encourage the development of ocean fishing industry in order to satisfy the increased demand of natural seafood in china . the grant income , which was recognized in the years ended december 31 , 2014 and 2013 , is mainly related to our fuel expenditures . income tax we are exempted from income tax for income generated from our ocean fishing operations in china for the years ended december 31 , 2014 and 2013. net income from continuing operations as a result of the factors described above , our net income from continuing operations was approximately $ 85,761,000 , or $ 1.08 per ordinary share ( basic and diluted ) for the year ended december 31 , 2014 , as compared with approximately $ 47,136,000 , or $ 0.60 per ordinary share ( basic and diluted ) for the year ended december 31 , 2013 , an increase of approximately $ 38,625,000 or 81.9 % .
| the increase was mainly due to increase in sales volume as a result of the addition of 66 fishing vessels into our operation in june and september 2013 , most of which were operating at full capacity in the year ended december 31 , 2014 ; and the addition of 20 new fishing vessels acquired from hong long in december 2013 , which were put in our operation in the year ended december 31 , 2014. sales volumes in the year ended december 31 , 2014 increased 77.0 % to 76,402,423 kg from 43,171,311 kg in the year ended december 31 , 2013. average unit sales prices increased 7.7 % in the year ended december 31 , 2014 compared to the year ended december 31 , 2013 , which was driven by the higher demand of natural seafood in china . 37 cost of revenue our cost of revenue primarily consists of fuel costs , freight , direct labor costs , depreciation , fishing vessels maintenance fees and other overhead costs . fuel costs generally accounted for the majority of our cost of revenue . the following table sets forth our cost of revenue information , both in amounts and as a percentage of revenue for the years ended december 31 , 2014 and 2013 ( dollars in thousands ) : replace_table_token_7_th cost of revenue for the year ended december 31 , 2014 was approximately $ 155,841,000 , representing an increase of approximately $ 80,858,000 or approximately 107.8 % as compared to $ 74,983,000 for the year ended december 31 , 2013. the increase was primarily attributable to the increase in our revenue . gross profit our gross profit is affected primarily by changes in production cost . fuel cost , freight and labor costs together account for about 84.0 % and 83.1 % of cost of revenue for the years ended december 31 , 2014 and 2013 , respectively . the fluctuation of fuel price , freight price and exchange rates may significantly affect our cost level and gross profit . the following table sets forth information as to our revenue , cost of revenue , gross profit and gross margin for the years ended december 31 , 2014 and 2013 ( dollars in thousands ) . replace_table_token_8_th gross profit for the year ended december 31 , 2014 was approximately $ 77,586,000 , representing an increase of approximately $ 29,901,000 or approximately 62.7 % as compared to $ 47,685,000 for the year ended december 31 , 2013 as a result of business expansion . gross margin decreased to 33.2 % for the year ended december 31 , 2014
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sales and marketing expenses consist primarily of compensation and related benefits and reimbursable travel and entertainment expenses related to our sales and marketing staff , as well as advertising and marketing expenses , including expenses related to trade shows . the decrease in sales and marketing expense for fiscal 2018 compared with 2017 was primarily due to a reduction in personnel cost , trade shows expense , and sales , marketing , and investor relations consultant fees . research and development replace_table_token_5_th research and development expenses consist primarily of compensation and related benefits , the use of independent contractors for specific near-term development projects and an allocated portion of general overhead costs , including occupancy costs . the company invested in its technology consistently between fiscal 2018 and 2017. however , more of the cost in fiscal 2018 was apportioned to enhancements . this is primarily related to the company 's investment in its new evaluator product . in each of fiscal 2018 and 2017 , the company was awarded $ 108,000 and $ 366,000 , respectively , in research and development tax credits by the state of georgia . in fiscal 2017 , the company was awarded tax credits for prior years . the fiscal 2019 and future research and development tax credits are expected to be approximately $ 100,000 per year . impairment of long-lived assets fiscal year 2018 to 2017 change ( in thousands ) : 2018 2017 $ % impairment of long-lived assets $ 3,681 $ โ $ 3,681 100 % the company acquired a product known as clinical analytics in its portfolio in october 2013. as a result of its focused attention in the marketplace on the middle of the revenue cycle , the company moved away from selling the product . the company follows asc 360 in identifying triggering events that might cause an impairment to its existing long-lived assets . as such , in the fourth quarter of fiscal 2018 , the company had its only existing customer on clinical analytics terminate its contract . upon review , the company has determined that the markets for clinical analytics and for the middle of the revenue cycle are very different , and accordingly , the company does not anticipate or forecast future sales for this product . the company has determined that intangible assets and remaining software development associated with clinical analytics were fully impaired and should be removed from its balance sheet . in the fourth quarter of fiscal 2018 , we took a charge to income of $ 3,681,000 for impairment of the long-lived intangible assets ( $ 3,226,000 ) and the remaining software development costs ( $ 455,000 ) associated with this product . the company has 25 no other intangible assets or software development that is not associated with its core solutions in the middle of the revenue cycle . loss on exit of operating lease fiscal year 2018 to 2017 change ( in thousands ) : 2018 2017 $ % loss on exit of operating lease $ 1,034 $ โ $ 1,034 100 % in an effort to reduce our ongoing operating expenses , we closed our new york office in the second quarter of fiscal 2018 and subleased the office space for the remaining period of the original lease term , which ends on november 2019. as a result of vacating and subleasing the office , we recorded a $ 472,000 loss on exit of the operating lease in the second quarter of fiscal 2018 , which captures the net cash flows associated with the vacated premises , including receipts of rent from our sublessee totaling $ 384,000 , and the $ 48,000 loss incurred on the disposal of fixed assets . in addition , in the third quarter of fiscal 2018 , we assigned our then current atlanta office lease that would have expired in november 2022 and entered into a membership agreement to occupy shared office space in atlanta . as a result of assigning the office lease , we recorded a $ 562,000 loss on exit of the operating lease in fiscal 2018 , which is mainly comprised of broker commissions of $ 275,000 and a $ 499,000 loss on the disposal of leasehold improvements , furniture and equipment , net of $ 239,000 in gain from the extinguishment of associated lease incentive liability . see note 12 โ commitments and contingencies in our notes to our consolidated financial statements included in part ii , item 8 for further details on our shared office arrangement . other expense replace_table_token_6_th interest expense consists of interest and commitment fees on the line of credit and interest on the term loans , and is inclusive of deferred financing cost amortization . amortization of deferred financing cost was $ 69,000 and $ 71,000 in fiscal 2018 and 2017 , respectively . interest expense was lower in fiscal 2018 as compared with 2017 primarily due to lower debt balances of the company . the increase in miscellaneous expense in fiscal 2018 as compared to fiscal 2017 was primarily a result of losses from ( i ) foreign currency transactions , ( ii ) loss on fixed assets and ( iii ) the lease liability from our new york office in fiscal 2018 being higher than fiscal 2017. i n fiscal 2017 , the company also recorded income f rom valuation adjustments to our warrant liability . this had the effect of reducing the expense recognized for fiscal 2017. our warrants expired in february 2018 and had no further financial impact . there was an impact in each of fiscal 2018 and 2017 to miscellaneous expense related to the valuation of the recorded liability on montefiore . the valuation impact was higher in fiscal 2017 than 2018. the company amended the montefiore liability in the second quarter of fiscal 2018. s ee accompanying footnotes to the consolidated financial statements for further information concerning the montefiore liability , note 12 โ commitment and contingencies . story_separator_special_tag provision for income taxes we recorded tax benefit of zero and $ 84,000 in fiscal 2018 and 2017 , respectively . please refer to note 7 - income taxes to our consolidated financial statements included in part ii , item 8 herein for details on current and deferred tax ( expense ) benefit for federal and state income taxes . 26 backlog replace_table_token_7_th at january 31 , 2019 , the company had contracts and purchase orders from clients and remarketing partners for systems and related services that have not been delivered or installed , which if fully performed , would generate future revenues of $ 27,970,000 compared with $ 32,793,000 at january 31 , 2018. the decrease in backlog from fiscal 2017 to fiscal 2018 is primarily due to the termination of a large , multi-facility customer on streamline healthยฎ clinical analytics solution . see discussion above , impairment of long-lived assets , where the company has taken an impairment on the remaining assets for clinical analytics in the fourth quarter of fiscal 2018. the company 's proprietary software backlog consists of signed agreements to purchase either perpetual software licenses or term licenses . typically , perpetual licenses included in backlog are either not yet generally available or the software is generally available and the client has not taken possession . term licenses included in backlog consist of signed agreements where the client has already taken possession , but the payment for the software is bundled with maintenance and support fees over the life of the contract . the company 's proprietary software backlog and recognized revenue can vary depending on the size and timing of customer activity . the reduction at january 31 , 2019 as compared with october 31 , 2018 is substantially all related to the timing of orders for the company 's proprietary software . any increase or decrease in the backlog for proprietary software is a moment in time and does not provide an indication of the expected revenue for the next fiscal quarter or next fiscal year . the company has historically been able to forecast the revenue from proprietary software over a reasonable period ( one year ) , however , there can be fluctuations in months and quarters within the year . professional services backlog consists of signed contracts for services that have yet to be performed and these are recognized into revenue within twelve months of the contract signing . the increase in professional services backlog is a result of improved customer demand late in fiscal 2018. this increased customer demand is believed to be related to our competitors moving many of these services off-shore . we believe our customers are receiving a higher-quality of service with us-based staff . this increase in professional services demand is overcoming lower implementation revenue from our software business . our new evaluator solution requires less effort in terms of implementation as compared with the company 's other solutions . an implementation for evaluator takes between 30 and 60 days and can be done remotely . accordingly , the company is realizing less revenue in professional fees for implementation work as compared with prior years . audit services backlog consists of signed contracts for audit services that have yet to be performed . typically , backlog is recognized within twelve months of the contract signing . the company began offering audit services in september 2016 , following the acquisition of opportune it . as we became more familiar with the changing nature of some audit services engagements , we adjusted the backlog calculation to only include agreements that have clearly definable service periods . the increase in audit services backlog is primarily due to higher demand of the company 's on-shore , quality , staffing , as well as , our expertise that we have developed with the evaluator solution . the company believes , as is the case with professional services , that our competitors that are moving much of this work to lower cost , off-shore personnel , are missing customer demand for quality and expertise . maintenance and support backlog consists of maintenance agreements for perpetual licenses and or third party software or hardware , in each case consisting of signed agreements to purchase such services but that represent future performance for the contracted maintenance and support term . clients typically prepay maintenance and support fees on 27 an annual basis with some monthly pre-payment arrangements existing . maintenance and support fees are generally billed 30โ60 days prior to the beginning of the maintenance period . the substantial increase in maintenance and support backlog is due to the company 's efforts over the last 12 months to secure content management and cdi software customers with longer-term contracts . we pushed all our customers to multi-year contracts so that we could better manage our revenue for fiscal 2019 and fiscal 2020. that resulted in our maintenance and support backlog increasing as we had customers coming off auto-renewing ( one year ) agreements and moving to 2 and 3 year agreements . this was a successful initiative by the company as it resulted in us securing our revenue on some of the company 's legacy products . software-as-a-service ( โ saas โ ) backlog includes three of our products , ( i ) evaluator , ( ii ) cdi and coding , and ( iii ) financial management agreements . the commencement of revenue recognition for saas varies depending on the size and complexity of the system , the implementation schedule requested by the client and ultimately the official go-live on the system . evaluator saas backlog is growing considerably , while there is some decline , particularly in financial management . the company met or exceeded its goals for evaluator saas backlog through the fourth quarter of fiscal 2018 , however , the impact was not fully realized due to the lower saas backlog associated with financial management .
| term license revenue for fiscal 2018 decreased $ 99,000 from fiscal 2017 , to $ 899,000. this decrease is primarily due to the adoption of the new revenue recognition standards effective february 1 , 2018 and a portion is related to the lower revenues from certain clinical analytics contracts that terminated in fiscal 2018. hardware and third-party software โ revenues from hardware and third-party software sales in fiscal 2018 were $ 175,000 , as compared to $ 68,000 in fiscal 2017. fluctuations from year to year are a function of client demand and the customers ' timing of replacing or enhancing their scanning capabilities through our vendors . professional services โ revenues from professional services in fiscal 2018 were $ 1,336,000 , as compared to $ 2,744,000 in fiscal 2017. these decreases in professional services revenue are primarily due to the completion of large implementation projects in fiscal 2017. in addition , professional services revenue is adversely impacted by the company 's saas offering that has less implementation services than its legacy on-premise products . the company has utilized its professional staff to ensure the success of its evaluator product . as the company assigns its professional services staff to evaluator clients in an effort to improve the customer experience and ensure the initial success of the product , fewer resources are available for time and materials engagements . this shifting of resources is , however , intended to improve the long-term prospects of the company 's new evaluator product . audit services โ audit services revenue for fiscal 2018 decreased , slightly , to $ 1,118,000 from $ 1,216,000 in fiscal 2017. audit services revenue was adversely impacted by the company 's focus on utilizing its audit services personnel to assist in the success of evaluator solution customers . as the company assigns its audit services staff to evaluator solution clients , fewer resources are available for time and materials engagements . the assignment of audit services personnel to evaluator clients is temporary in
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with 541,000 short tons ( 491,000 metric tons ) of capacity , we are north america 's third largest producer of coated mechanical papers , grades used for magazines , catalogs and advertising inserts . of our total specialty paper production , approximately one third is white paper , including high-bright and super high-bright papers , for general commercial printing , educational textbooks , digital printing and tradebooks . high-gloss uncoated mechanical ( or supercalender ) papers , mainly used for magazines , coupons , retail inserts and newspaper supplements , represent approximately one quarter , as do coated mechanical papers , grades used for magazines , catalogs and advertising inserts . uncoated freesheet papers , bag grades , papers for directories , paperback books and other commercial applications represent less than 15 % of our shipments . we sell our specialty papers almost exclusively in north america , where demand is largely tied to consumer spending and advertising . replace_table_token_7_th strategy & recent highlights our corporate strategy includes , on the one hand , a gradual retreat from certain paper grades , and on the other , using our strong financial position to act on opportunities to diversify and grow . that strategy is based on three core themes : operational excellence , disciplined use of capital and strategic initiatives . operational excellence we aim to improve our performance and margins by : leveraging our lower-cost position ; maintaining a stringent focus on reducing costs and optimizing our diversified asset base ; maximizing the benefits of our access to virgin fiber and managing our exposure to volatile recycled fiber ; and pursuing our strategy of managing production and inventory levels and focusing production at our most profitable and lower-cost facilities and machines . we compete today as a leading , lower-cost north american producer , thanks to aggressive cost reductions and mill optimization . 26 we believe we have one of the lowest selling , general and administrative expenses ( or โ sg & a โ ) to sales ratio in the forest product industry . we have reduced a number of positions at mill sites since 2012 , without affecting operating capacity , which has significantly lowered our labor costs . maintaining our lower-cost position is a core focus of our daily environment : we challenge ourselves to optimize assets , to lower our costs and to improve our efficiency . today we operate only our best facilities and most competitive machines . disciplined use of capital we make capital management a priority . building on our focus to reduce manufacturing costs , we will continue our efforts to decrease overhead and spend our capital in a disciplined , strategic and focused manner , concentrated on our most successful sites . maintaining our strong financial position and financial flexibility is one of our primary financial goals . in 2013 , we refinanced the remaining balance of our senior secured notes with 5.875 % senior unsecured notes due 2023 ( or the โ 2023 notes โ ) . in addition to adding five years to maturity , the refinancing reduced our annual cash interest burden by $ 16 million and improves our financial flexibility . also , in 2015 , we refinanced our senior secured asset-based revolving credit facility ( or โ abl credit facility โ ) . the new five-year credit agreement provides more flexible terms and conditions , improves pricing and immediately lowers our cost of capital , to better support the execution of our growth and diversification initiatives . in 2014 , we modified our u.s. other postretirement benefit ( or โ opeb โ ) plans to encourage greater participation in a medicare exchange program . in addition to securing high-quality healthcare for participants , this modification , along with similar initiatives undertaken since mid-2013 , helped to reduce our u.s. opeb liability on the balance sheet from $ 250 million to $ 77 million as of december 31 , 2014. since 2012 , we repurchased 11.1 million shares of our own stock , representing about 12 % of the outstanding amount . strategic initiatives we believe in taking an opportunistic approach to strategic initiatives , pursuing only those that reduce our cost position , improve our product diversification , provide synergies or allow us to expand into future growth markets . we anticipate continued consolidation in the paper and forest products industry , as we and our competitors continue to explore ways to increase efficiencies and grow into more favorable markets . by acquiring fibrek inc. in 2012 , we grew our market pulp capacity by over 70 % , increasing our presence in a market that we believe will continue to grow over the long term . including our new ignace and atikokan sawmills , both in northern ontario , we added 300 million board feet of annualized wood products capacity in 2015. we completed a $ 100 million project to build a continuous pulp digester at the calhoun pulp and paper mill . when the digester reaches capacity , we expect to have an additional 100,000 metric tons of market pulp available on an annualized basis . we believe this world-class equipment will help to significantly lower the mill 's overall costs and improve the quality of its products . we announced and began construction toward a $ 270 million project to build a tissue manufacturing and converting facility in calhoun . with the acquisition of atlas paper in 2015 , we gained an immediate position in the north american consumer tissue market and tissue industry experience for the execution of the calhoun tissue expansion . sustainable performance and development our sustainability strategy is based on a balanced approach to environmental , social and economic performance , designed to enhance our competitive position . story_separator_special_tag it is supported by public commitments in a number of key performance areas , focusing primarily on : improving resource efficiency , which helps control fiber and power costs , two significant input costs in our industry ; 27 moving beyond regulatory compliance and environmental incident management to differentiate ourselves as an environmental supplier of choice ; positioning ourselves as a competitive employer in order to attract , engage and retain the best and brightest minds , promoting employee engagement , innovation and longevity ; and building solid community relations to support long-term regional prosperity and our own financial and operational success . our key sustainability commitments include : we are proud that in 2015 we beat our ambitious safety target , achieving an occupational safety and health administration incident rate of 0.66 , improving upon the world class rate of 0.83 we achieved in 2014. safety is our first priority , and we strive for zero injuries . in 2013 , we surpassed , two years ahead of schedule , the goal we set as a member of the world wildlife fund climate savers program to reduce our absolute scope 1 ( on-site emissions ) and 2 ( emissions associated with steam and electricity purchased ) greenhouse gas emissions by 65 % by 2015 , compared to 2000 levels . at the end of 2015 , we had reduced our emissions by 70 % . this improvement goes beyond capacity reductions : over 50 % of the improvement came from reductions in energy consumption , fuel switching and fuel mix improvements . 2015 also marked the company 's first full year of 100 % scope 1 coal-free operation . maintaining 100 % certification of resolute-owned or managed woodlands to internationally recognized forest management standards . 100 % of our managed forests have been certified to one or more of two standards ( sustainable forestry initiative ยฎ and or forest stewardship council ยฎ ) . accordingly , our commitments extend well beyond strict compliance with applicable forestry regulations , which in quebec and ontario are already among the most , if not the most , rigorous in the world . we reduced our mill environmental incidents by 55 % in 2015 compared to 2014. through 2016 , continuing to implement new human resource practices to support workforce renewal and retention , and engaging employees in the company 's sustainability-focused vision and values . in addition to developing information resources such as borealforestfacts.com and the resolute blog , we continued engagement on the forum borรฉal and boreal forum social media platforms . these french and english sites provide a forum for fact-based discussion concerning sustainable forestry practices and they help to ensure that individual and community voices are heard , particularly when it comes to the importance of forestry to northern economies . other sustainability performance indicators and disclosures prepared in accordance with the global reporting initiative ( or โ gri โ ) g4 guidelines are available on our website ( www.resolutefp.com ) . the gri framework is considered the gold standard of balanced , transparent sustainability reporting , and the company is proud to be among the first in the forest products industry globally to meet the gri g4 reporting standards . in our view , sustainability rests on three pillars : economic , social and environmental . we 're very pleased that our sustainability leadership and our accomplishments have been recognized by independent organizations . in 2015 , we received extensive north american and global recognition for our sustainability achievements , including 18 awards . some of the more noteworthy included : the international business award ( known as the โ stevies ยฎ โ ) , the world 's premier business awards program , in the health , safety and environment program of the year category for establishing a โ total safety organization โ ; canada 's clean50 award , which recognized a team of four resolute employees for their roles in greatly reducing the company 's environmental incidents and greenhouse gas emissions , as well as completing environmental due diligence training , reporting on scope 3 emissions ( from the supply chain ) , and achieving maximum achievable control technology boiler compliance ; the american forest & paper association leadership in sustainability award for safety for โ working towards zero incidents โ and for developing better-performing and more efficient safety gear ; and the best in biz silver award for being north america 's most socially or environmentally responsible company of the year in recognition of our work to minimize our resource consumption ; our efforts to reduce our generation of waste , air emissions and water discharge ; our proactive approach to reducing environmental incidents ; our commitment to 100 % woodland certification ; our transparent sustainability reporting ; and our innovative partnerships with first nations . 28 power generation we produce electricity at seven cogeneration facilities and seven hydroelectric dams . the output is consumed internally , sold at contracted fixed prices and or sold on the spot market . this allows us to reduce our costs by generating energy internally at a lower cost compared to open market purchases , and by producing revenue from external sales of some of the power . this table provides a breakdown of the output capacity ( based on installed capacity and operating expectations in 2016 ) available for internal consumption at our existing production facilities : replace_table_token_8_th the table below shows the facilities where we currently produce electricity to sell externally as green power produced from renewable sources at favorable rates , almost all of which we buy back at lower rates for use in our operations : replace_table_token_9_th 2015 overview in 2015 , we changed our presentation of segment operating income to reallocate the net financing and remeasurement components of pension and opeb costs from the reportable segments to โ corporate and other โ in the segment presentation of operating income .
| capacity closures are part of our efforts to optimize the asset base , maximizing the utilization of our most cost-effective mills and streamlining production to adapt to changing market dynamics . compared to 2014 , our international shipments are down by 12 % , and domestic shipments are down by 8 % . accordingly , our domestic shipments represented 61 % of total newsprint shipments in the year . we recorded 78,000 metric tons of downtime in 2015 , compared to 196,000 metric tons in the prior year , which included 24,000 metric tons of downtime associated with our mill in iroquois falls , which has since been permanently closed , and downtime associated with the fiber availability limitations at certain mills in quebec . cost of sales , excluding depreciation , amortization and distribution costs cos were $ 207 million lower in the year , reflecting the effect of lower volume ( $ 86 million ) , the weaker canadian dollar ( $ 66 million ) and a $ 55 million improvement in manufacturing costs , due to : the abnormally cold winter of 2014 ( $ 21 million ) , particularly the cost of electricity at the ontario mills ; the effect of asset optimization initiatives ( $ 21 million ) , including the sale of most of our recycling assets in 2014 ; lower maintenance costs and fewer operational disruptions ( $ 5 million ) ; lower fiber costs ( $ 5 million ) , mainly due to lower recycled fiber prices ; lower steam costs ( $ 4 million ) , mainly due to lower natural gas prices ; favorable property tax adjustments ( $ 4 million ) ; and lower wood chip prices ( $ 3 million ) ; offset in part by : higher power costs ( $ 7 million ) , mostly due to higher power prices in ontario ; and the recognition of an energy saving incentive in the u.s. southeast in 2014 ( $ 6 million ) . distribution costs after removing the effects of lower volume and the weaker canadian dollar , distribution costs were $ 9 million lower in 2015 , mainly due to lower fuel surcharges and the weather-related increases in freight and warehousing costs
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new product development is focused on the commercialization of products with applications that span government and civilian requirements to maximize demand or that open up new lines of business entirely . the atg and cpg continue to respond to u.s. government procurement requests for quotes . new product development activities are ongoing along with the acquisition and development of new product lines . see also note 11 , business segments , of the accompanying consolidated financial statements for information concerning business segment operating results . - 10 - story_separator_special_tag text-align : justify ; text-indent : 27pt '' > components of other income include interest income on cash and cash equivalents and other amounts not directly related to the sale of the company 's products . other income is immaterial in relationship to the consolidated financial statements . income taxes the company 's effective tax rate for operations was 29.0 % in 2016 and 31.7 % in 2015. the effective tax rate in both years reflects federal and state income taxes , permanent non-deductible expenditures , the deduction for domestic production activities and the federal tax credit for research and development expenditures . the effective tax rate was lower in 2016 due to increased impact of certain tax deductions and research tax credits in relation to the decrease in income from operations . see also note 6 , income taxes , of the accompanying consolidated financial statements for information concerning income taxes . the company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities , as well as net operating loss and tax credit carryforwards . net income income from operations decreased approximately $ 2,844,000 or 61.9 % when comparing the twelve month period ended december 31 , 2016 to the same period in 2015. this decrease is the result of a pretax $ 4,500,000 insurance settlement received on february 20 , 2015 as discussed in note 8 , commitments and contingencies , of the accompanying consolidated financial statements , offset by increases in revenues and operating profits . liquidity and capital resources the company 's primary liquidity and capital expenditure requirements relate to working capital needs ; primarily inventory , accounts receivable , accounts payable , capital expenditures for property , plant and equipment and principal payments on debt . at december 31 , 2016 , the company had working capital of approximately $ 20,969,000 ( $ 19,959,000 โ 2015 ) of which approximately $ 3,515,000 ( $ 3,268,000 โ 2015 ) was comprised of cash and cash equivalents . the company generated approximately $ 2,441,000 in cash from operations during the twelve months ended december 31 , 2016 as compared to $ 1,231,000 during the twelve months ended december 31 , 2015. cash was generated primarily through net income of approximately $ 1,753,000 as well as timing differences in payments to vendors . the primary use of cash for the company 's operating activities for the twelve months ended december 31 , 2016 include working capital requirements , mainly an increase in inventory of approximately $ 890,000 and timing differences on collections of accounts receivable of approximately $ 590,000. cash generated and used in operations is consistent with sales volume , customer expectations and competitive pressures . the company 's primary use of cash in its financing and investing activities in the twelve months ended december 31 , 2016 included approximately $ 548,000 of current principal payments on long-term debt , approximately $ 380,000 for cash dividends paid on may 16 , 2016 as well as approximately $ 275,000 for the purchase of treasury shares . the company also expended approximately $ 991,000 for capital expenditures . - 13 - on december 1 , 2014 , the company , entered into a loan agreement that provides for a $ 2,620,000 seven-year term loan ( the โ term loan โ ) and $ 2,000,000 line of credit ( the โ line of credit โ ) . the line of credit , which replaced the company 's previous $ 2,000,000 line of credit , was renewed on may 23 , 2016 and is available until june 21 , 2017 unless subsequently renewed . as of december 31 , 2016 , there were no draws on the line . the proceeds from the term loan were used to pay off the industrial development revenue bonds that were issued by a government agency in 1994 to finance the construction of the company 's headquarters/advanced technology facility and which matured on december 1 , 2014. in addition , the company 's wholly-owned subsidiary , the ontario knife company ( okc ) entered into a separate loan agreement with the bank on december 1 , 2014. the okc loan agreement provides for a $ 2,000,000 seven-year term loan ( the โ okc term loan โ ) . the proceeds from the okc term loan were used to purchase equipment and expand/renovate the okc facility in franklinville , new york . borrowings under these credit facilities bear interest , at the company 's option , at the bank 's prime rate or libor plus 1.4 % . principal installments are payable on the term loan and the okc term loan through december 1 , 2021 with a balloon payment of $ 786,000 at maturity of the term loan . the term loan and line of credit are secured by all of the company 's equipment , receivables and inventory . the okc term loan is secured by substantially all of okc 's equipment and is fully and unconditionally guaranteed by the company . the company believes its cash generating capability and financial condition , together with available credit facilities will be adequate to meet our future operating , investing and financing needs . off balance sheet arrangements not applicable . critical accounting policies the company prepares its consolidated financial statements in accordance with u.s. generally accepted accounting principles story_separator_special_tag new product development is focused on the commercialization of products with applications that span government and civilian requirements to maximize demand or that open up new lines of business entirely . the atg and cpg continue to respond to u.s. government procurement requests for quotes . new product development activities are ongoing along with the acquisition and development of new product lines . see also note 11 , business segments , of the accompanying consolidated financial statements for information concerning business segment operating results . - 10 - story_separator_special_tag text-align : justify ; text-indent : 27pt '' > components of other income include interest income on cash and cash equivalents and other amounts not directly related to the sale of the company 's products . other income is immaterial in relationship to the consolidated financial statements . income taxes the company 's effective tax rate for operations was 29.0 % in 2016 and 31.7 % in 2015. the effective tax rate in both years reflects federal and state income taxes , permanent non-deductible expenditures , the deduction for domestic production activities and the federal tax credit for research and development expenditures . the effective tax rate was lower in 2016 due to increased impact of certain tax deductions and research tax credits in relation to the decrease in income from operations . see also note 6 , income taxes , of the accompanying consolidated financial statements for information concerning income taxes . the company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities , as well as net operating loss and tax credit carryforwards . net income income from operations decreased approximately $ 2,844,000 or 61.9 % when comparing the twelve month period ended december 31 , 2016 to the same period in 2015. this decrease is the result of a pretax $ 4,500,000 insurance settlement received on february 20 , 2015 as discussed in note 8 , commitments and contingencies , of the accompanying consolidated financial statements , offset by increases in revenues and operating profits . liquidity and capital resources the company 's primary liquidity and capital expenditure requirements relate to working capital needs ; primarily inventory , accounts receivable , accounts payable , capital expenditures for property , plant and equipment and principal payments on debt . at december 31 , 2016 , the company had working capital of approximately $ 20,969,000 ( $ 19,959,000 โ 2015 ) of which approximately $ 3,515,000 ( $ 3,268,000 โ 2015 ) was comprised of cash and cash equivalents . the company generated approximately $ 2,441,000 in cash from operations during the twelve months ended december 31 , 2016 as compared to $ 1,231,000 during the twelve months ended december 31 , 2015. cash was generated primarily through net income of approximately $ 1,753,000 as well as timing differences in payments to vendors . the primary use of cash for the company 's operating activities for the twelve months ended december 31 , 2016 include working capital requirements , mainly an increase in inventory of approximately $ 890,000 and timing differences on collections of accounts receivable of approximately $ 590,000. cash generated and used in operations is consistent with sales volume , customer expectations and competitive pressures . the company 's primary use of cash in its financing and investing activities in the twelve months ended december 31 , 2016 included approximately $ 548,000 of current principal payments on long-term debt , approximately $ 380,000 for cash dividends paid on may 16 , 2016 as well as approximately $ 275,000 for the purchase of treasury shares . the company also expended approximately $ 991,000 for capital expenditures . - 13 - on december 1 , 2014 , the company , entered into a loan agreement that provides for a $ 2,620,000 seven-year term loan ( the โ term loan โ ) and $ 2,000,000 line of credit ( the โ line of credit โ ) . the line of credit , which replaced the company 's previous $ 2,000,000 line of credit , was renewed on may 23 , 2016 and is available until june 21 , 2017 unless subsequently renewed . as of december 31 , 2016 , there were no draws on the line . the proceeds from the term loan were used to pay off the industrial development revenue bonds that were issued by a government agency in 1994 to finance the construction of the company 's headquarters/advanced technology facility and which matured on december 1 , 2014. in addition , the company 's wholly-owned subsidiary , the ontario knife company ( okc ) entered into a separate loan agreement with the bank on december 1 , 2014. the okc loan agreement provides for a $ 2,000,000 seven-year term loan ( the โ okc term loan โ ) . the proceeds from the okc term loan were used to purchase equipment and expand/renovate the okc facility in franklinville , new york . borrowings under these credit facilities bear interest , at the company 's option , at the bank 's prime rate or libor plus 1.4 % . principal installments are payable on the term loan and the okc term loan through december 1 , 2021 with a balloon payment of $ 786,000 at maturity of the term loan . the term loan and line of credit are secured by all of the company 's equipment , receivables and inventory . the okc term loan is secured by substantially all of okc 's equipment and is fully and unconditionally guaranteed by the company . the company believes its cash generating capability and financial condition , together with available credit facilities will be adequate to meet our future operating , investing and financing needs . off balance sheet arrangements not applicable . critical accounting policies the company prepares its consolidated financial statements in accordance with u.s. generally accepted accounting principles
| total employment levels grew from 304 employees at december 31 , 2015 to 320 employees at december 31 , 2016. the increase in employees is in response to an increase in production capacity requirements at the atg as evidenced by an increase of 17.8 % in the value of purchase orders placed when comparing 2016 to 2015. the company continues to pursue cost saving opportunities in material procurements and other operating efficiencies including capital investments and technical developments in updated and new equipment/machinery as well as investing in the development and training of its labor force . - 11 - selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses increased approximately $ 506,000 or 8.2 % for the twelve month period ended december 31 , 2016 compared to the same period in 2015. approximately 64 % of sg & a expense relates to labor and labor related costs to support sg & a functions . such expenses increased approximately $ 221,000 primarily due to an increase in salaries , wages and employee benefit costs for new and existing employees . approximately 13 % of sg & a expense is attributable to the sales and marketing of products including commissions and royalty expenses . these expenses increased approximately $ 179,000 as a result of media and catalog advertising and travel opportunities to promote new product development primarily at the cpg . approximately 10 % of sg & a expense is attributable to professional and legal services . these expenses increased approximately $ 96,000 due to ongoing legal proceedings . depreciation and amortization expense depreciation and amortization expense increased approximately $ 105,000 or 14.6 % for the twelve month period ended december 31 , 2016 compared to the same period in 2015 primarily due to the assets related to the cpg expansion and renovation being placed in service in late 2015. depreciation expense fluctuates due to variable estimated useful lives of depreciable property ( as identified in note 1 , business description and summary of significant accounting policies , of the accompanying consolidated financial statements ) as well as the amount and nature of capital expenditures in current and previous periods . it is anticipated that the company 's future capital expenditures and related depreciation and amortization expense will , at a minimum , follow the company 's requirements to support its manufacturing delivery commitments and to meet certain information technology related capital expenditure requirements .
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the fund management company is the general partner of beijing hongyuan recycling energy investment center , llp ( the โ hyref fund โ ) , a limited liability partnership established july 18 , 2013 in beijing . the fund management company made an initial capital contribution of rmb 5 million ( $ 830,000 ) to the hyref fund . rmb 460 million ( $ 77 million ) was fully subscribed by all partners for the hyref fund . the hyref fund has three limited partners : ( 1 ) china orient asset management co. , ltd. , which made an initial capital contribution of rmb 280 million ( $ 46.67 million ) to the hyref fund and is a preferred limited partner ; ( 2 ) hongyuan huifu , which made an initial capital contribution of rmb 100 million ( $ 16.67 million ) to the hyref fund and is an ordinary limited partner ; and ( 3 ) the company 's wholly-owned subsidiary , xi'an tch , which made an initial capital contribution of rmb 75 million ( $ 12.5 million ) to the hyref fund and is a secondary limited partner . in addition , xi'an tch and hongyuanhuifu formed beijing hongyuan recycling energy investment management company ltd. to manage this fund and also subscribed in the amount of rmb 5 million ( $ 830,000 ) from the fund . the term of the hyref fund 's partnership is six years from the date of its establishment , expiring on july 18 , 2019. the term is four years from the date of contribution for the preferred limited partner , and four years from the date of contribution for the ordinary limited partner . the size of the hyref fund is rmb 460 million ( $ 77 million ) . the hyref fund was formed for the purpose of investing in xi'an zhonghong new energy technology co. , ltd. , a then 90 % owned subsidiary of xi'an tch , for the construction of two coke dry quenching ( โ cdq โ ) waste heat power generation ( โ whpg โ ) stations with jiangsu tianyu energy and chemical group co. , ltd. ( โ tianyu โ ) and one cdq whpg station with boxing county chengli gas supply co. , ltd. ( โ chengli โ ) . on december 29 , 2018 , xi'an tch entered into a share transfer agreement with hongyuan huifu , pursuant to which xi'an tch agreed to transfer its 40 % ownership in the fund management company to hongyuan huifu for consideration of rmb 3,453,867.31 ( $ 0.53 million ) . the transfer was completed on january 22 , 2019. erdos tch โ joint venture on april 14 , 2009 , the company formed erdos tch as a joint venture ( the โ jv โ or โ erdos tch โ ) with erdos metallurgy co. , ltd. ( โ erdos โ ) to recycle waste heat from erdos ' metal refining plants to generate power and steam to be sold back to erdos . the jv has a term of 20 years with a total investment for the project estimated at $ 79 million ( rmb 500 million ) and an initial investment of $ 17.55 million ( rmb 120 million ) . erdos contributed 7 % of the total investment for the project , and xi'an tch contributed 93 % . according to xi'an tch and erdos ' agreement on profit distribution , xi'an tch and erdos will receive 80 % and 20 % , respectively , of the profit from the jv until xi'an tch receives the complete return of its investment . xi'an tch and erdos will then receive 60 % and 40 % , respectively , of the profit from the jv . on june 15 , 2013 , xi'an tch and erdos entered into a share transfer agreement , pursuant to which erdos transferred and sold its 7 % ownership interest in the jv to xi'an tch for $ 1.29 million ( rmb 8 million ) , plus certain accumulated profits as described below . xi'an tch paid the $ 1.29 million in july 2013 and , as a result , became the sole stockholder of erdos tch . in addition , xi'an tch is required to pay erdos accumulated profits from inception up to june 30 , 2013 in accordance with the supplementary agreement entered on august 6 , 2013. in august 2013 , xi'an tch paid 20 % of the accumulated profit ( calculated under prc gaap ) of $ 226,000 to erdos . erdos tch currently has two power generation systems in phase i with a total of 18 mw power capacity , and three power generation systems in phase ii with a total of 27 mw power capacity . 38 with the current economic conditions in china , the government has limited and reduced over-capacity and production in the iron and steel industry , which has resulted in a sharp decrease of erdos metallurgy co. , ltd 's production of ferrosilicon , its revenue and cash flows , and has made it difficult for erdos to make the monthly minimum lease payment . after considering the challenging economic conditions facing erdos , and to maintain the long-term cooperative relationship between the parties , which we believe will continue to produce long-term benefits , on april 28 , 2016 , erdos tch and erdos entered into a supplemental agreement , effective may 1 , 2016. under the supplemental agreement , erdos tch cancelled monthly minimum lease payments from erdos , and agreed to charge erdos based on actual electricity sold at rmb 0.30 / kwh , which such price will be adjusted annually based on prevailing market conditions . the company evaluated the modified terms for payments based on actual electricity sold as minimum lease payments as defined in asc 840-10-25-4 , since lease payments that depend on a factor directly related to the future use of the leased property are contingent rentals and , accordingly , are excluded from minimum lease payments in their entirety . the company wrote off the net investment receivables of these leases at the lease modification date . story_separator_special_tag shenqiu yuneng biomass power generation projects on may 25 , 2011 , xi'an tch entered into a letter of intent with shenqiu yuneng thermal power co. , ltd. ( โ shenqiu โ ) to reconstruct and transform a thermal power generation system owned by shenqiu into a 75t/h bmpg system for $ 3.57 million ( rmb 22.5 million ) . the project commenced in june 2011 and was completed in the third quarter of 2011. on september 28 , 2011 , xi'an tch entered into a biomass power generation asset transfer agreement with shenqiu ( the โ shenqiu transfer agreement โ ) . pursuant to the shenqiu transfer agreement , shenqiu sold xi'an tch a set of 12 mw bmpg systems ( after xi'an tch converted the system for bmpg purposes ) . as consideration for the bmpg systems , xi'an tch paid shenqiu $ 10.94 million ( rmb 70 million ) in cash in three installments within six months upon the transfer of ownership of the systems . by the end of 2012 , all of the consideration was paid . on september 28 , 2011 , xi'an tch and shenqiu also entered into a biomass power generation project lease agreement ( the โ 2011 shenqiu lease โ ) . under the 2011 shenqiu lease , xi'an tch agreed to lease a set of 12 mw bmpg systems to shenqiu at a monthly rental rate of $ 286,000 ( rmb 1.8 million ) for 11 years . upon expiration of the 2011 shenqiu lease , ownership of this system will transfer from xi'an tch to shenqiu at no additional cost . in connection with the 2011 shenqiu lease , shenqiu paid one month 's rent as a security deposit to xi'an tch , in addition to providing personal guarantees . on october 8 , 2012 , xi'an tch entered into a letter of intent for technical reformation of shenqiu project phase ii with shenqiu for technical reformation to enlarge the capacity of the shenqiu project phase i ( the โ shenqiu phase ii project โ ) . the technical reformation involved the construction of another 12 mw bmpg system . after the reformation , the generation capacity of the power plant increased to 24 mw . the project commenced on october 25 , 2012 and was completed during the first quarter of 2013. the total cost of the project was $ 11.1 million ( rmb 68 million ) . on march 30 , 2013 , xi'an tch and shenqiu entered into a bmpg project lease agreement ( the โ 2013 shenqiu lease โ ) . under the 2013 shenqiu lease , xi'an tch agreed to lease the second set of 12 mw bmpg systems to shenqiu for $ 239,000 ( rmb 1.5 million ) per month for 9.5 years . when the 2013 shenqiu lease expires , ownership of this system will transfer from xi'an tch to shenqiu at no additional cost . on january 4 , 2019 , xi'an zhonghong , xi'an tch , and mr. chonggong bai , a resident of china , entered into a projects transfer agreement ( the โ agreement โ ) , pursuant to which xi'an tch will transfer two biomass power generation projects in shenqiu ( โ shenqiu phase i and ii projects โ ) to mr. bai for rmb 127,066,000 ( $ 18.55 million ) . mr. bai agreed to transfer all the equity shares of his wholly owned company , xi'an hanneng enterprises management consulting co. ltd. ( โ xi'an hanneng โ ) to beijing hongyuan recycling energy investment center , llp ( the โ hyref โ ) as repayment for the loan made by xi'an zhonghong to hyree as consideration for the transfer of the shenqiu phase i and ii projects ( see note 12 ) . the transfer was completed on february 15 , 2019 . 39 pucheng biomass power generation projects on june 29 , 2010 , xi'an tch entered into a biomass power generation ( โ bmpg โ ) project lease agreement with pucheng xinhengyuan biomass power generation co. , ltd. ( โ pucheng โ ) , a limited liability company incorporated in china . under this lease agreement , xi'an tch leased a set of 12mw bmpg systems to pucheng at a minimum of $ 279,400 ( rmb 1,900,000 ) per month for a term of 15 years ( โ pucheng phase i โ ) . on september 11 , 2013 , xi'an tch entered into a bmpg asset transfer agreement ( the โ pucheng transfer agreement โ ) with pucheng xin heng yuan biomass power generation corporation ( โ pucheng โ ) , a limited liability company incorporated in china . the pucheng transfer agreement provided for the sale by pucheng to xi'an tch of a set of 12 mw bmpg systems with the completion of system transformation for a purchase price of rmb 100 million ( $ 16.48 million ) in the form of 8,766,547 shares of common stock of the company at $ 1.87 per share . also on september 11 , 2013 , xi'an tch also entered into a bmpg project lease agreement with pucheng ( the โ pucheng lease โ ) . under the pucheng lease , xi'an tch leases this same set of 12 mw bmpg system to pucheng , and combines this lease with the lease for the 12 mw bmpg station of pucheng phase i project , under a single lease to pucheng for rmb 3.8 million ( $ 0.63 million ) per month ( the โ pucheng phase ii project โ ) . the term for the consolidated lease is from september 2013 to june 2025. the lease agreement for the 12 mw station from pucheng phase i project terminated upon the effective date of the pucheng lease . the ownership of two 12 mw bmpg systems will transfer to pucheng at no additional charge when the pucheng lease expires . chengli waste heat power generation projects on july 19 , 2013 , xi'an tch formed a new company , โ xi'an zhonghong new energy technology co. , ltd. โ ( โ zhonghong โ ) , with registered capital of rmb 30 million ( $ 4.85
| operating expenses consisted of general and administrative expenses , bad debt expense and asset impairment loss totaling $ 66,188,920 for the year ended december 31 , 2018 , compared to $ 7,293,226 for the year ended december 31 , 2017 , an increase of $ 58,895,694 or 808 % . the increase was mainly due to increased bad debt expense of $ 32.21 million and increased asset impairment loss of $ 28.43 million . we had bad debt expense of $ 3.62 million for the zhongtai system , $ 6.59 million for the shenqiu systems and $ 22.00 million for the pucheng systems . in addition , we recorded asset impairment loss of $ 6.53 million for xuzhou huayu , $ 13.78 million for xuzhou tian'an , and $ 8.12 million for chengli . net non-operating expenses . net non-operating expenses consisted of non-sales-type lease interest income , interest expenses and miscellaneous expenses . for the year ended december 31 , 2018 , net non-operating expense was $ 8.58 million compared to net non-operating expense of $ 5.44 million for the year ended december 31 , 2017. for the year ended december 31 , 2018 , we had $ 153,532 interest income but the amount was offset by $ 8.74 million interest expense . for the year ended december 31 , 2017 , we had $ 143,606 interest income but the amounts were offset by a $ 5.56 million interest expense on loans . the increase in interest expense in 2018 was due to $ 2.43 million penalty interest on past due entrusted loan amount . income tax expense . income tax expense was $ 2.63 million for the year ended december 31 , 2018 , compared with $ 8.04 million for the year ended december 31 , 2017. the consolidated effective income tax rate for the years ended december 31 , 2018 and 2017 were ( 4.0 ) % and 2,174 % , respectively . the decrease in income tax expense for the years ended december 31 , 2018 was due to increased taxable loss , while in 2017 , we had $ 7.61 million tax expense from recording the estimated one-time transition tax on post-1986 foreign unremitted earnings under the tax cut and
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we believe systemwide revenue data is useful in assessing consumer demand for our services and products , the overall success of the liberty tax brand and , ultimately , the performance of the company . our royalty revenue is computed as a percentage of sales made by our franchised offices , less certain deductions . accordingly , sales by our franchisees have a direct effect on the company 's royalty revenue and profitability . in addition , our systemwide revenue reflects the size of the liberty tax system , and because the size of our franchise system drives our management and infrastructure needs , systemwide revenue data helps us assess those needs in comparison to other companies in our industry and other franchise operators . our systemwide revenue in the u.s. decreased by 7.6 % from fiscal 2016 to 2017 and grew 1.1 % from fiscal 2015 to fiscal 2016 . we experienced a 2.2 % increase in average net fee per return filed in the u.s. from $ 228 in fiscal 2016 to $ 233 in fiscal 2017 and a decrease of 9.6 % in number of tax returns filed in the u.s. processed from 1,832,000 in fiscal 2016 to 1,657,000 in fiscal 2017 . 36 tax settlement products obtained by u.s. customers . the total percentage of our u.s. customers obtaining a refund transfer product decreased to 47.6 % during fiscal 2017 compared to 49.2 % during fiscal 2016 . as we have demonstrated our ability to offer products through jth financial , we have been successful in obtaining more favorable terms from outside vendors . each year we analyze available tax settlement product solutions to balance risk and maximize profit per product . story_separator_special_tag offset by a $ 1.2 million decrease in franchise fees primarily attributable to receiving lower cash down payments and lower cash payments on notes from our franchisees in fiscal 2016. franchise fee revenue is recognized when our obligations to prepare the franchisee for operations are substantially complete and as cash is received . operating expenses . the following table details the amounts and changes in our operating expenses in and from fiscal 2016 and fiscal 2015 . replace_table_token_11_th our total operating expenses decreased by $ 5.8 million , or 4 % , in fiscal 2016 compared to fiscal 2015 . the decrease was attributable to : a decrease of $ 8.4 million due to the impairment of our online software and acquired customer lists related to our online business recorded in fiscal 2015 that did not recur in fiscal 2016. a $ 1.9 million decrease in advertising expense related to a $ 0.8 million decrease in on-line advertising and a $ 1.1 million decrease in new franchise advertising . 39 the decreases were partially offset by at $ 3.3 million increase in other costs and expenses during fiscal 2016 over fiscal 2015 , caused primarily by : an increase of $ 4.1 million in bank fees due to costs associated with our new refund-based advance product . an increase of $ 2.9 million in occupancy costs related to an increase in the number of company-owned offices operating in fiscal 2016 including rent related to future rent payments on closed offices . an increase of $ 1.6 million in bad debt expense due to an increase in receivables . a decrease related to the settlement expenses of our class action litigation cases of $ 7.6 million , net of estimated recoveries , in fiscal 2015 that did not recur in fiscal 2016. income taxes . the following table sets forth certain information regarding our income taxes for the fiscal years ended april 30 , 2016 and 2015 . replace_table_token_12_th the increase in our income tax expense from fiscal 2015 to fiscal 2016 relates primarily to the increase in our income before income taxes . net income . our net income increased by 123 % in fiscal 2016 over fiscal 2015 , primarily as a result of lower operating expenses caused by an $ 8.4 million impairment charge related to our online software and acquired customer lists in fiscal 2015 , and $ 7.6 million in tentative settlements of our class action litigation cases , net of estimated recoveries , both which occurred in fiscal 2015 that did not recur in fiscal 2016 , along with an increase in financial product margin . liquidity and capital resources overview of factors affecting our liquidity seasonality of cash flow . our tax return preparation business is seasonal , and most of our revenues and cash flow are generated during the period from late january through april 30. following each tax season , from may 1 through late january of the following year , we rely significantly on excess operating cash flow from the previous season , from cash payments made by franchisees and ads who purchase new territories and areas prior to the next tax season , and on the use of our credit facility to fund our operating expenses and invest in the future growth of our business . our business has historically generated a strong cash flow from operations on an annual basis . we devote a significant portion of our cash resources during the off season to finance the working capital needs of our franchisees , and expenditures for property , equipment and software . credit facility . our amended credit facility consists of a $ 21.2 million term loan and a revolving credit facility that currently allows borrowing of up to $ 203.8 million with an accordion feature that permits the company to request an increase in availability of up to an additional $ 50.0 million . outstanding borrowings accrue interest , which is paid monthly , at a rate of the one-month london interbank offered rate ( `` libor '' ) plus a margin ranging from 1.50 % to 2.25 % depending on the company 's leverage ratio . story_separator_special_tag at april 30 , 2017 and 2016 , the interest rate was 2.73 % and 2.06 % , respectively , and the average interest rate paid during the fiscal year ended april 30 , 2017 was 2.31 % . a commitment fee that varies from 0.25 % to 0.50 % depending on the company 's leverage ratio on the unused portion of the credit facility is paid monthly . the indebtedness is collateralized by substantially all the assets of the company and both loans mature on april 30 , 2019 ( except as to the commitments of one lender under the revolving credit facility , which mature on september 30 , 2017 ) . under our credit facility , we are subject to a number of covenants that could potentially restrict how we carry out our business , or that require us to meet certain periodic tests in the form of financial covenants . the restrictions we consider to be material to our ongoing business include the following : 40 we must satisfy a `` leverage ratio '' test that is based on our outstanding indebtedness at the end of each fiscal quarter . we must satisfy a `` fixed charge coverage ratio '' test at the end of each fiscal quarter . we must reduce the outstanding balance under our revolving loan to zero for a period of at least 45 consecutive days each fiscal year . we must also maintain a minimum net worth requirement , measured at april 30 of each year . in addition , were we to experience certain types of changes in control affecting mr. hewitt 's continuing control of us , or certain changes to the composition of our board of directors , we might become subject to an event of default under our credit facility , which could result in the acceleration of our obligations under that facility . our credit facility also contains customary affirmative and negative covenants , including limitations on indebtedness , limitations on liens and negative pledges , limitations on investments , loans and acquisitions , limitations on mergers , consolidations , liquidations and dissolutions , limitations on sales of assets , limitations on certain restricted payments and limitations on transactions with affiliates , among others . franchisee lending and potential exposure to credit loss . a substantial portion of our cash flow during the year is utilized to provide funding to our franchisees . at april 30 , 2017 , our total balance of loans to franchisees for working capital and equipment loans , representing cash we had advanced to the franchisees , was $ 14.6 million . in addition , at that date , our franchisees and ads together owed us an additional $ 88.1 million , net of unrecognized revenue of $ 29.4 million , representing unpaid royalties , the unpaid purchase price for franchise territories and other amounts . our actual exposure to potential credit loss associated with franchisee loans is less than the aggregate amount of those loans because a significant portion of those loans are to franchisees located within ad areas , where our ad is ultimately entitled to a substantial portion of the franchise fee and royalty revenues represented by some of these loans . for this reason , the amount of indebtedness of franchisees to us is effectively offset in part by our related payable obligation to ads in respect of franchise fees and royalties . as of april 30 , 2017 , the total indebtedness of franchisees to us where the franchisee is located in an ad area was $ 45.8 million but $ 23.1 million of that total indebtedness represents amounts ultimately payable to ads as their share of franchise fees and royalties . our franchisees make electronic return filings for their customers utilizing our facilities . our franchise agreements allow us to obtain repayment of amounts due to us from our franchisees through an electronic fee intercept program before our franchisees receive the net proceeds from tax preparation and other fees they have charged to their customers on tax returns associated with tax settlement products . therefore , we are able to minimize the nonpayment risk associated with amounts outstanding from franchisees by obtaining direct electronic payment in the ordinary course throughout the tax season . our credit risk associated with amounts outstanding to ads is also mitigated by our electronic fee intercept program , which enables us to obtain repayments of amounts that would otherwise flow through to ads as their share of franchise fee and royalty payments , to the extent of an ad 's indebtedness to us . the unpaid amounts owed to us from our franchisees and ads are collateralized by the underlying franchise or area and , when the franchise or area owner is an entity , are generally guaranteed by the owners of the respective entity . accordingly , to the extent a franchisee or ad does not satisfy its payment obligations to us , we may repossess the underlying franchise or area in order to resell it in the future . at april 30 , 2017 , we had an investment in impaired accounts and notes receivable and related interest receivable of approximately $ 26.0 million . we consider accounts and notes receivable to be impaired if the amounts due exceed the fair value of the underlying franchise and estimate an allowance for doubtful accounts based on that excess . amounts due include the recorded value of the accounts and notes receivable reduced by the allowance for uncollected interest , amounts due to ads for their portion of franchisee receivables , any related unrecognized revenue and amounts owed to the franchisee or ad by us . in establishing the fair value of the underlying franchise , we consider net fees of open territories and the number of unopened territories . at april 30 , 2017 , our allowance for doubtful accounts for impaired accounts and notes receivable was $ 9.5 million .
| 37 operating expenses . the following table details the amounts and changes in our operating expenses in and from fiscal 2017 and fiscal 2016 . replace_table_token_8_th total operating expenses increased $ 9.7 million , or 7 % , in fiscal 2017 compared to fiscal 2016. the increase was attributable to : a $ 14.2 million increase in other costs and expenses in fiscal 2017 compared to fiscal 2016 , primarily due to : a $ 5.3 million increase in the costs associated with our refund advance product ; a $ 3.1 million increase in costs related to an increase in the number of u.s. company-owned offices operated in fiscal 2017 ; an increase of $ 2.9 million in bad debt expense and ; a $ 2.7 million charge , in fiscal 2017 , recorded which relates to an accrued judgment where the company intends to vigorously defend our position and pursue an appeal . an increase in depreciation , amortization , and impairment charges of $ 4.3 million primarily due to an impairment charge driven by a decrease in the performance of our company-owned stores . an increase in employee compensation and benefits of $ 1.7 million resulting from an increase in executive severance of $ 0.5 million as well as an increase in the compensation related to operating a greater number of company-owned stores . these increases were partially offset by : a $ 5.3 million decrease in advertising expense related to a reduction in the number of tax returns filed by our franchisees as well as better expense management and ; a decrease of $ 5.2 million in ad expense resulting from a decrease in the number of tax returns filed and the associated decline in royalty fees along with the company 's acquisition of several area developer rights during fiscal 2017 , which lowered the number of offices located within an area developer 's territory . income taxes .
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following the preferred method identified in the revenue recognition topic of the financial accounting standards board accounting standards codification ( โ fasb asc โ ) , income from performance fees is recorded at the conclusion of the contractual performance period , when all contingencies are resolved . our advisory fees are primarily driven by the level of our aum . our aum increases or decreases with the net inflows or outflows of funds into our various investment strategies and with the investment performance thereof . in order to increase our aum and expand our business , we must develop and market investment strategies that suit the investment needs of our target clients , and provide attractive returns over the long-term . the value and composition of our aum , and our ability to continue to attract clients will depend on a variety of factors as described in โ item 1 โ risk factors โ risks related to our business โ our primary source of revenue is derived from management fees , which are directly tied to our assets under management . fluctuations in aum therefore will directly impact our revenue . '' for our institutional accounts , we are paid management fees according to a schedule , which varies by investment strategy . the substantial majority of these accounts pay us management fees pursuant to a schedule in which the rate we earn on the aum declines as the amount of aum increases . pursuant to our sub-investment advisory agreements with our retail clients and advisory agreements with pzena-branded funds , we are generally paid a management fee according to a schedule in which the rate we earn on the aum declines as the amount of aum increases . certain of these funds pay us fixed-rate management fees . due to the substantially larger account size of certain of these accounts , the average advisory fees we earn on them , as a percentage of aum , are lower than the advisory fees we earn on our institutional accounts . 28 advisory fees we earn on institutional accounts are generally based on the value of aum at a specific date on a quarterly basis . certain of our institutional accounts , and all of our retail accounts , are calculated based on the average of the monthly or daily market value . advisory fees are also generally adjusted for any cash flows into or out of a portfolio , where the cash flow represents greater than 10 % of the value of the portfolio . while a specific group of accounts may use the same fee rate , the calculation methodology may differ as described above . certain of our clients pay us performance fees according to the performance of their accounts relative to certain agreed-upon benchmarks , which results in a lower base fee , but allows for us to earn higher fees if the relevant investment strategy outperforms the agreed-upon benchmark . some performance-based fee arrangements include high-water mark provisions , which generally provide that if a client account underperforms relative to its performance target , it must gain back such underperformance before we can collect future performance-based fees . fulcrum fee arrangements related to one client relationship require a reduction in the base fee , or allow for a performance fee if the relevant investment strategy underperforms or outperforms , respectively , the agreed-upon benchmark . our advisory fees may fluctuate based on a number of factors , including the following : changes in aum due to appreciation or depreciation of our investment portfolios , and the levels of the contribution and withdrawal of assets by new and existing clients ; distribution of aum among our investment strategies , which have differing fee schedules ; distribution of aum between institutional accounts and retail accounts , for which we generally earn lower overall advisory fees ; and the level of our performance with respect to accounts on which we are paid performance fees or have fulcrum fee arrangements . expenses our expenses consist primarily of compensation and benefits expense , as well as general and administrative expense . our largest expense is compensation and benefits , which includes the salaries , bonuses , equity-based compensation , and related benefits and payroll costs attributable to our employee members and employees . compensation and benefits packages are benchmarked against relevant industry and geographic peer groups in order to attract and retain qualified personnel . general and administrative expense includes lease expenses , professional and outside services fees , depreciation , costs associated with operating and maintaining our research , trading and portfolio accounting systems , and other expenses . our occupancy-related costs and professional services expenses , in particular , generally increase or decrease in relative proportion to the overall size and scale of our business operations . we incur additional expenses associated with being a public company for , among other things , director and officer insurance , director fees , sec reporting and compliance ( including sarbanes-oxley and dodd-frank compliance ) , professional fees , transfer agent fees , and other similar expenses . our expenses may fluctuate due to a number of factors , including the following : variations in the level of total compensation expense due to , among other things , bonuses , awards of equity to our employees and employee members of our operating company , changes in our employee count and mix , and competitive factors ; and general and administrative expenses , such as rent , professional service fees and data-related costs , incurred , as necessary , to run our business . other income/ ( expense ) other income/ ( expense ) is derived primarily from investment income or loss arising from our consolidated subsidiaries and interest income generated on our cash balances . story_separator_special_tag other income/ ( expense ) is also affected by changes in our estimates of the liability due to our selling and converting shareholders associated with payments owed to them under the tax receivable agreement which was executed in connection with our reorganization and initial public offering on october 30 , 2007. as discussed further below under โ tax receivable agreement , โ this liability represents 85 % of the amount of cash savings , if any , in u.s. federal , state , and local income tax that we realize as a result of the amortization of the increases in tax basis generated 29 from our acquisitions of our operating company 's units from our selling and converting shareholders . we expect the interest and investment components of other income/ ( expense ) , in the aggregate , to fluctuate based on market conditions and the performance of our consolidated subsidiaries and other investments . non-controlling interests we are the sole managing member of our operating company and control its business and affairs and , therefore , consolidate its financial results with ours . in light of our employees ' and outside investors ' direct and indirect interests in our operating company ( as noted in `` item 1 โ business โ overview '' ) , we have reflected their membership interests as a non-controlling interest in our consolidated financial statements . as of december 31 , 2016 , the holders of our class a common stock and the holders of class b units of our operating company held approximately 25.6 % and 74.4 % , respectively , of the economic interests in the operations of our business . in addition , our operating company consolidates the results of operations of the private investment partnerships and pzena-branded mutual funds over which we exercise a controlling influence . non-controlling interests recorded in our consolidated financial statements include the non-controlling interests of the outside investors in these consolidated subsidiaries . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > small cap focused value . this strategy reflects a portfolio composed of approximately 40 to 50 stocks drawn generally from a universe of u.s. listed companies ranked from the 1,001 st to 3,000 th largest , based on market capitalization . this strategy was launched in january 1996. at december 31 , 2016 , the small cap focused value strategy generated a one-year annualized gross return of 31.7 % , in-line with its benchmark . although no individual factors had a significant influence on our performance , the largest positive contributor was our underexposure to consumer discretionary stocks which had a relatively weak year , offset by our 2 % position in cash in a year when the benchmark was up over 30 % . international ( ex-u.s. ) focused value . this strategy reflects a portfolio composed of approximately 30 to 50 stocks drawn generally from a universe of 1,500 of the largest companies across the world excluding the united states , based on market capitalization . this strategy was launched in january 2004. at december 31 , 2016 , the international ( ex-u.s. ) focused value strategy generated a one-year annualized gross return of 8.5 % , outperforming its benchmark . this outperformance was driven by our stock selection in the information technology and consumer staples sectors , overweight position in the energy sector , and underweight position health care sector , partially offset by certain stocks in the financial services sector . mid cap focused value . this strategy reflects a portfolio composed of approximately 30 to 40 stocks drawn generally from a universe of u.s. listed companies ranked from the 201 st to 1,200 th largest , based on market capitalization . this strategy was launched in september 1998. at december 31 , 2016 , the mid cap focused value strategy generated a one-year annualized gross return of 27.7 % , outperforming its benchmark . our stock selection , particularly in the financial services sector , was the largest contributor to this outperformance . our earnings and cash flows are heavily dependent upon prevailing financial market conditions . significant increases or decreases in the various securities markets , particularly the equities markets , can have a material impact on our results of operations , financial condition , and cash flows . 33 the change in aum in our institutional accounts and our retail accounts for the years ended december 31 , 2016 , 2015 , and 2014 is described below . inflows are composed of the investment of new or additional assets by new or existing clients . outflows consist of redemptions of assets by existing clients . replace_table_token_12_th during the year ended december 31 , 2016 , our aum increased $ 4.0 billion , or 15.4 % , from $ 26.0 billion at december 31 , 2015 . this increase is primarily due to market appreciation during the year ended december 31 , 2016 . at december 31 , 2016 , we managed $ 16.9 billion in institutional accounts and $ 13.1 billion in retail accounts , for a total of $ 30.0 billion in assets . for the year ended december 31 , 2016 , we experienced total gross inflows of $ 4.6 billion and $ 4.5 billion in market appreciation , which were partially offset by total gross outflows of $ 5.1 billion . assets in institutional accounts increased by $ 2.0 billion , or 13.4 % , from $ 14.9 billion at december 31 , 2015 , due to $ 2.5 billion in gross inflows and $ 2.2 billion in market appreciation , partially offset by $ 2.7 billion in gross outflows . assets in retail accounts increased by $ 2.0 billion , or 18.0 % , from $ 11.1 billion at december 31 , 2015 as a result of $ 2.3 billion in market appreciation and $ 2.1 billion in gross inflows , partially offset by $ 2.4 billion in gross outflows .
| replace_table_token_10_th 31 replace_table_token_11_th 1 the historical returns of these investment strategies are not necessarily indicative of their future performance , or the future performance of any of our other current or future investment strategies . 2 net of applicable withholding taxes and presented in u.s. $ . large cap expanded value . this strategy reflects a portfolio composed of approximately 50 to 80 stocks drawn generally from a universe of 500 of the largest u.s. listed companies , based on market capitalization . this strategy was launched in july 2012. at december 31 , 2016 , the large cap expanded value strategy generated a one-year annualized gross return of 20.8 % , outperforming its benchmark . the outperformance was broad based and primarily driven by our stock selection and underexposure in the healthcare sector and our stock selection and overexposure in the technology and energy sectors . international ( ex-u.s. ) expanded value . this strategy reflects a portfolio composed of approximately 60 to 80 stocks drawn generally from a universe of 1,500 of the largest companies across the world excluding the united states , based on market capitalization . this strategy was launched in november 2008. at december 31 , 2016 , the international ( ex-u.s. ) expanded value strategy generated a one-year annualized gross return of 6.0 % , outperforming its benchmark . this outperformance was driven by our overweight position in the energy sector , underweight position in the health care sector , stock selection in the information technology sector , and certain korean stocks . large cap focused value . this strategy reflects a portfolio composed of approximately 30 to 40 stocks drawn generally from a universe of 500 of the largest u.s. listed companies , based on market capitalization . this strategy was launched in october 2000. at december 31 , 2016 , the large cap focused value strategy generated a one-year annualized gross return of 23.3 % , outperforming its benchmark . the outperformance was primarily driven by our stock selection and overexposure in the
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we believe we can do this by further developing our products and services , using custom pricing to attract larger sellers , and enhancing relationships with larger sellers through our direct sales and account management teams . we seek to continue to drive adoption of our payments and pos services , as they represent one important way sellers can gain familiarity with our full range of products , features , and services . the insights generated by our payments services enable many new products and services , such as analytics that show our sellers how their businesses are performing , helping them increase sales and thereby generating incremental revenue for us . as a result , the level of ongoing seller adoption of our payments and pos services will affect our growth . ongoing evolution in payment technologies . we are committed to ensuring that no seller misses a sale because he or she can not accept a certain form of payment . in the near term , this means enabling our sellers to accept nfc and emv chip card payments in addition to magnetic stripe card payments . we are also committed to encouraging the shift to authenticated technologies for a stronger and more secure seller and buyer experience . historically , card-issuing banks were generally responsible for fraudulent card-present transactions . since october 2015 , sellers in the united states who accept card-present payments with emv chip cards and who are not using emv-compliant hardware have been subject to liability for fraud associated with those transactions . we believe this is leading to a significant upgrade cycle for pos terminals among our current seller base and that it presents an opportunity for us to reach an even broader group of sellers seeking cost-effective solutions to comply with emv requirements , in particular the new standards in the united states and japan . in conjunction with the shift toward emv , we believe that sellers will increasingly want to enable nfc payments , as nfc technology can offer fast emv-compliant transactions . in the second quarter of 2015 , we began shipping our first square reader for emv chip cards , and in the fourth quarter of 2015 , we began shipping our square reader for both emv chip cards and nfc . unlike our square reader for magnetic stripe cards , which we distribute for free and the costs of which are reflected in our sales and marketing expenses , our square reader for emv chip cards and nfc is available for sale and is reflected in hardware revenue and hardware costs . we currently offer our square reader for emv chip cards and nfc at a price modestly below our manufacturing costs . as a result , the timing of the transition of new and existing sellers from our square reader for magnetic stripe cards to our square reader for emv chip cards and nfc has affected , and will continue to affect , our results of operations . relative to our free square reader for magnetic stripe cards , we may encounter changes in demand from new sellers for our square reader for emv chip cards and nfc given the cost associated with purchasing more advanced hardware . additionally , from time to time we may engage in promotional efforts to encourage the adoption of square readers for emv chip cards and nfc . while we believe these efforts are strategically important , they may have short-term negative effects on our operating results . up-selling and cross-selling additional products and services . our existing sellers represent a sizable opportunity to up-sell and cross-sell products and services with little incremental sales and marketing expense . we believe that pos services such as square appointments , financial services such as square capital , and marketing services such as square customer engagement represent opportunities to further increase engagement with our sellers . we plan to continually invest in product development , and in sales and marketing , to increase the usage and awareness of these services . as a result , to the extent we are able to up-sell and cross-sell these financial services and marketing services and develop and introduce new products and services to our existing sellers , we expect our growth and margins will be positively affected . sales and marketing investment . we plan to continue to invest in sales and marketing channels that we believe drive further growth and adoption of our services . given the nature of our revenue streams , which are distributed over time as sellers process transactions , our investments in sales and marketing do not realize returns in the same period in which they are made but over subsequent periods , which could adversely affect our near-term results . we measure the effectiveness of sales and marketing spending in a quarter relative to the performance of the seller cohort acquired in that quarter . the payback period for our seller cohorts has remained consistent over time . continued investment in product development . we will continue to invest in product development to build new products and services and to bring them to market . we expect to continue to increase headcount to promote and support our anticipated growth . although we expect these investments to benefit our business over the long term , we expect our total operating expenses will increase in dollar amount over time , and in the short term they may have negative effects on our operating results . 43 seller size . as our existing sellers grow and as we serve increasingly larger sellers , we have an opportunity to significantly grow our gpv . serving an increasing number of larger sellers also presents an opportunity to cross-sell software and data products and services that generate incremental revenue and gross profit with limited or zero incremental customer acquisition costs . over time , we expect an increasing portion of our growth to come from increased revenue per seller . story_separator_special_tag however , we experience an inherent trade-off between the size of our sellers and our transaction revenue as a percentage of gpv because we selectively offer custom pricing to larger sellers . global adoption . we believe we are well positioned to enter additional markets globally , including through our ability to provide modern , cost-effective hardware to markets that have embraced nfc or emv technologies . we plan to continue expanding into new countries to broaden our base of sellers and to increase our market opportunity . in doing so , we may need to invest significantly , which could have negative effects on our operating results . buyer adoption of our services . we offer services that directly reach buyers . today , our digital receipts provide a unique link between sellers and buyersโany time a buyer completes a sale with a square seller , he or she can choose to receive a digital receipt via email or text message , building a direct communication channel . we also offer caviar , square cash , and other services to make commerce easy for buyers . we have made significant investments in the development of these buyer-facing products and services , and our ability to grow our buyer network will be important for strengthening our ecosystem and driving our growth . amendment and expiration of starbucks payment processing agreement . in the third quarter of 2012 , we signed an agreement to process credit and debit card payment transactions for all starbucks-owned stores in the united states . we believe this agreement was a valuable catalyst for building best-in-class enterprise infrastructure . for the years ended december 31 , 2015 and 2014 , the gross loss related to our payment processing agreement with starbucks was $ 23.2 million and $ 27.9 million , respectively . in august 2015 , we amended our payment processing agreement with starbucks to eliminate the exclusivity provision in order to permit starbucks to begin transitioning to another payment processor starting october 1 , 2015 . under the amendment , starbucks also agreed to pay increased processing rates to us for as long as it continues to process transactions with us . starbucks has announced that it will transition to another payment processor and will cease using our payment processing services altogether prior to the scheduled expiration of the agreement in the third quarter of 2016 . as a result , starbucks payment processing volumes will decrease meaningfully in the future . this transition will result in decreased starbucks transaction revenue and starbucks transaction costs , positively affecting our overall gross profit relative to historical periods . effect of pricing initiatives for our payment processing services . since february 2011 , our standard model for payments services has remained stable at 2.75 % of the total transaction amount for processing card-present transactions , and 3.5 % of the total transaction amount plus $ 0.15 per transaction for card-not-present transactions . notwithstanding our history of stable pricing for our payments services , we face competition across our payments services . we have introduced pricing programs to attract newer larger customers , such as our current custom pricing program ( introduced in november 2013 ) . our custom pricing initiative affects a small but fast growing portion of our sellers and represents an opportunity for incremental growth . to the extent competition for sellers increases , particularly for those that are offered custom pricing , our rate of growth and margins may be adversely affected . macroeconomic environment . our sellers ' underlying business activity from buyers is linked to the macroeconomic environment , affecting our transaction revenue as well as the adoption of additional services by our sellers . changes in macroeconomic conditions may also affect our transaction loss rates from chargebacks issued to sellers that go out of business before the issuance of those chargebacks , as well as advance loss rates for square capital merchant cash advances ( mcas ) that are not sold to third parties . 44 components of results of operations revenue transaction revenue . we charge our sellers a transaction fee for payment processing services equal to 2.75 % of the total transaction amount for processing card-present transactions and for processing payments with square invoices and square online store , and 3.5 % of the total transaction amount plus $ 0.15 per transaction for processing manually entered ( card-not-present ) transactions . we also selectively offer custom pricing for larger sellers . starbucks transaction revenue . under our payment processing agreement with starbucks , we charge a percentage of the total transaction amount for processing credit and debit card payment transactions for all starbucks-owned stores in the united states . software and data product revenue . in addition to payments and pos services , we offer our sellers a range of paid services , with square capital and caviar currently comprising the majority of our software and data product revenue . our other software and data products include : gift cards , square appointments , instant deposits , customer engagement , employee management , payroll , and other software and data services offered through our square marketplace . square capital primarily provides mcas to pre-qualified sellers . in return for these advances , the merchant agrees to repay a fixed future receivable amount . a fixed percentage of the merchant 's daily processing volume is withheld as repayment for their advance . of that repayment , the agreed upon fixed percentage is recognized as revenue , resulting in revenue being recognized ratably as cash is collected . we currently fund a majority of the mcas from arrangements with third parties that commit to purchase the future receivables related to the mcas . this funding significantly increases the speed with which we can scale square capital and allows us to mitigate our balance sheet risk .
| starbucks transaction revenue contributed 11 % of total net revenue in the year ended december 31 , 2015 , down from 14 % in the year ended december 31 , 2014 . under our amended payment processing agreement effective october 1 , 2015 , starbucks agreed to pay increased processing rates to us for as long as it continues to process transactions with us . while starbucks announced that it would transition to another payment processor prior to the expiration of the payment processing agreement in the third quarter of 2016 , we continued to process a portion of starbucks payments , generating transaction revenue at these newly increased rates . 50 software and data product revenue for the year ended december 31 , 2015 increased by $ 46.0 million , or 382 % , compared to the year ended december 31 , 2014 . the increase was driven by the launch and expansion of several new products and services in 2014 and 2015 , in particular square capital , which remained the largest contributor to software and data product revenue . the year ended december 31 , 2015 also included a full twelve months of revenue contributions from caviar , which we acquired in august 2014. software and data product revenue grew to 5 % of total net revenue in the year ended december 31 , 2015 , up from 1 % in the year ended december 31 , 2014 . hardware revenue for the year ended december 31 , 2015 , increased by $ 9.1 million , or 124 % , compared to the year ended december 31 , 2014 . the increase reflects growth in sales of square stand and third-party peripherals , as well as the launch of our square reader for emv chip cards in the second quarter of 2015 , and the launch of our square reader for emv chip cards and nfc in the fourth quarter of 2015. hardware revenue represented 1 % of total net revenue in both the years ended december
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fragrances achieved reported sales growth of 3 % and currency neutral growth of 4 % in 2016 , with the effect of acquisitions contributing approximately 2 % to both reported and currency neutral growth rates . sales growth excluding acquisitions was driven by new win performance ( net of losses ) in both flavors and fragrance compounds . additionally , fragrance ingredients sales were up 9 % on a reported basis and 10 % on a currency neutral basis , which were driven entirely by the inclusion of acquisitions . overall , our 2016 results continued to be driven by our strong emerging market presence that represented 51 % of total sales and experienced 4 % currency neutral growth in 2016 . from a geographic perspective , north america ( noam ) , europe , africa and middle east ( eame ) and greater asia ( ga ) all delivered sales growth on a consolidated basis in 2016 ; led by noam . latin america ( la ) sales declined in 2016. during the fourth quarter of 2016 , we completed the acquisition of 100 % of the outstanding shares of david michael & company , inc. ( `` david michael '' ) for approximately $ 242.0 million . the acquisition did not have a material impact on our consolidated statement of income and comprehensive income for 2016. the acquisition strengthened our flavors market position in the targeted north american market . the year 2014 included an extra week of activity , due to the timing of our fiscal year-end ( as discussed in note 1 of the consolidated financial statements ) . the impact of this week was not material to our results of operations for the year ended december 31 , 2014 . 31 2016 sales by business unit replace_table_token_8_th replace_table_token_9_th financial performance overview reported sales for 2016 increased 3 % year-over-year ( including approximately 2 % growth from acquisitions ) . we continue to benefit from our diverse portfolio of end-use product categories and geographies and had sales growth in three of our four regions and in consumer fragrances , fragrance ingredients and flavor compounds . both flavors and fragrances benefited from new win performance ( net of losses ) and the effect of acquisitions . exchange rate variations represented a 2 % decrease in year-over-year sales . the effect of exchange rates can vary by business and region depending upon the mix of sales by country as well as the relative percentage of local sales priced in u.s. dollars versus local currencies . currency neutral sales growth , including acquisitions , was 5 % in 2016 . we saw currency neutral sales growth during each quarter of 2016 . we believe that market conditions and the macro-economic environment will continue to be challenging in many markets in 2017 . this lower growth environment combined with a stronger u.s. dollar and the reset of the incentive compensation program is expected to pressure our currency neutral operating profit growth in 2017 . on a long-term basis , we expect that sales growth for the industry will generally be in line with the underlying assumptions that support our long-term strategic goals , albeit with some risk in the near term given the continuing global economic uncertainty . we believe changing social habits resulting from increased disposable income , improved focus on personal health and wellness awareness should help drive growth of our consumer product customers ' businesses . 32 gross margin increased 20 basis points ( bps ) year-over-year . included in 2016 was $ 7.6 million of acquisition-related inventory `` step-up '' costs , $ 2.4 million of costs associated with operational improvement initiatives and $ 0.7 million of costs related to accelerated depreciation included in cost of goods sold , compared to $ 6.8 million of acquisition-related inventory `` step-up '' costs and $ 1.1 million of costs related to operational improvement initiatives included in 2015 . excluding these items , adjusted gross margin increased 20 bps compared to the prior year period . the increase was principally driven by productivity initiatives . we ended 2016 in a relatively stable , but upward trending raw material cost environment . we believe that we will continue to see higher prices on certain categories ( such as vanilla and citrus ) and to a lesser extent oil-based derivatives that are expected to continue in 2017 . we continue to seek improvements in our margins through operational performance , cost reduction efforts and mix enhancement . operating profit decreased $ 21.0 million to $ 567.4 million ( 18.2 % of sales ) in 2016 compared to $ 588.3 million ( 19.5 % of sales ) in 2015 . included in 2016 were net legal charges/credits of $ 48.5 million , acquisition-related costs of $ 12.2 million , gain on sale of fixed assets of $ 7.8 million , operational improvement initiative costs of $ 2.4 million and restructuring and other charges , net of $ 0.3 million . included in 2015 were acquisition-related costs of $ 18.3 million , the reversal of the previously recorded provision for the spanish capital tax case of $ 10.5 million , restructuring and other charges , net of $ 7.6 million , accelerated contingent consideration payments of $ 7.2 million and operational improvement initiative costs of $ 1.1 million in 2015 . excluding these charges , adjusted operating profit was $ 623.0 million ( 20.0 % of sales ) for 2016 versus $ 612.1 million ( 20.2 % of sales ) for 2015 . foreign currency changes had an unfavorable impact on operating profit of approximately 2 % and 6 % in 2016 and 2015 , respectively . cash flows from operations were $ 535.4 million or 17.2 % of sales in 2016 as compared to cash flows from operations of $ 433.6 million , or 14.3 % of sales , during 2015 . story_separator_special_tag the increase in operating cash flows in 2016 as compared to 2015 is principally related to the impact of decreased core working capital requirements ( trade receivables , inventories and accounts payable ) and lower pension contributions . our capital spend was $ 126.4 million ( 4.1 % of sales , excluding david michael ) during 2016 . given our intent to construct a new flavors facility in china , the continuation of our indonesia project , spending associated with the integrations of david michael and fragrance resources , infrastructure needs in india , upgrades to creative center and application laboratory facilities and carryover payments from 2016 , we expect that capital spending in 2017 will be about 5 % of sales ( net of potential grants and other reimbursements from government authorities ) . 33 story_separator_special_tag `` > 2015 . the slight increase in 2016 was principally driven by slightly higher salary costs and , to a lesser extent , the effect of recent acquisitions . selling and administrative ( s & a ) s & a , as a percentage of sales , increased 180 bps to 18.2 % versus 16.4 % ( or 16.4 % and 16.1 % on an adjusted basis in 2016 and 2015 , respectively ) . included in 2016 were net legal charges/credits , principally related to litigation accrual , of $ 48.5 million , acquisition-related costs of $ 4.5 million and severance costs related to the termination of a former executive officer of $ 1.4 million , compared to acquisition related costs of $ 11.5 million , accelerated contingency payments of $ 7.2 million and the reversal of the previously recorded provision related to the spanish capital tax case of $ 10.5 million included in 2015. additionally , during 2016 , costs were higher as a result of legal and professional fees associated with various finance initiatives and the effect of recently acquired companies , offset by slightly lower salary costs and the effect of foreign currency . restructuring and other charges restructuring and other charges primarily consist of separation costs for employees , including severance , outplacement and other benefit costs . replace_table_token_12_th 2015 severance and contingent consideration charges during the fourth quarter of 2015 , the company established a series of initiatives intended to streamline its management structure , simplify decision-making and accountability , better leverage and align its capabilities across the organization and improve efficiency of its global manufacturing and operations network . as a result , in 2015 , the company recorded a pre-tax charge of $ 7.6 million , included in restructuring and other charges , net , related to severance and related costs pertaining to approximately 150 positions that will be affected . during 2016 , the company made payments of $ 2.9 million and recorded accelerated depreciation expense of $ 0.7 million . in addition , during 2016 , the company recorded a credit of $ 1.7 million related to the reversal of severance accruals that were determined to be no longer required . the total cost of the plan is now expected to be approximately $ 8.8 million with the remaining charges related principally to accelerated depreciation . the company expects the plan to be fully completed in the second half of 2017. separately , in 2015 , the company recorded a charge of $ 7.2 million , included in selling and administrative expenses , associated with the acceleration from 2016 to 2015 of contingent consideration payments from the aromor acquisition that were triggered by certain of the management structure changes noted above . 2017 productivity program on february 15 , 2017 , the company announced that it was adopting a multi-year productivity program designed to improve overall financial performance , provide flexibility to invest in growth opportunities and drive long-term value creation . in connection 36 with this program , the company expects to optimize its global footprint and simplify its organizational structures globally . in connection with this initiative , the company expects to incur cumulative , pre-tax cash charges of between $ 30 - $ 35 million , consisting primarily of $ 21 - $ 22 million in personnel-related costs and an estimated $ 9 - $ 13 million in facility-related costs , such as lease termination , and integration-related costs . in addition , the company may incur up to $ 5 million of accelerated depreciation . approximately $ 10 million of these charges are expected to be recorded in the first quarter of 2017 , with the remainder of the personnel-related costs expected to be recognized by the end of 2017 and the other costs expected to be recognized over the following seven quarters . the overall charges are split approximately evenly between flavors and fragrances . this initiative is expected to result in the reduction of approximately 370 members of the company 's global workforce in various parts of the organization . once fully implemented , the company expects to realize annual run-rate savings of between $ 40 million and $ 45 million from this program by 2019. amortization of acquisition-related intangibles amortization expenses increased to $ 23.8 million in 2016 compared to $ 15.0 million in 2015 . the increase of $ 8.7 million is principally due a full year of amortization in 2016 related to the acquisitions of ottens flavors and lucas meyer as compared to 2015 as well as the acquisition of david michael in 2016. operating results by business unit we evaluate the performance of business units based on segment profit which is defined as operating profit before restructuring and certain non-recurring items , interest expense , other expense , net and taxes on income . see note 13 to our consolidated financial statements for the reconciliation to income before taxes . replace_table_token_13_th flavors business unit flavors segment profit increased $ 18.8 million to $ 337.2 million in 2016 ( 22.5 % of sales ) from $ 318.5 million ( 22.1 % of sales ) in the comparable 2015 period . the increase in segment profit and profit margin principally reflects productivity initiatives and solid top-line growth .
| on both a reported and currency neutral basis , the effect of acquisitions was approximately 2 % to net sales amounts . in addition , fragrance 34 ingredients sales were up 9 % on a reported basis and 10 % on a currency neutral basis , driven entirely by the impact of acquisitions . overall organic sales growth includes 1 % growth from both developed and emerging markets and on a currency neutral basis , 4 % growth from emerging markets and 1 % growth from developed markets , respectively . flavors business unit flavors sales in 2016 increased 4 % on a reported basis and 6 % on a currency neutral basis versus the prior year period . acquisitions accounted for approximately 3 % of the net sales growth on both a reported and currency neutral basis . overall growth was primarily driven by to mid single-digit growth in savory , sweet and dairy combined with low single-digit growth in beverage . regionally , the flavors business delivered reported and currency neutral growth across all regions . sales growth was led by noam , driven by high single-digit gains in sweet and low single-digit gains in beverage and dairy . sales growth in ga was driven by mid single-digit gains in savory , beverage and sweet and high single-digit gains in dairy . sales growth in eame was driven by mid single-digit gains in savory and sweet and high single-digit gains in dairy . la sales growth was primarily driven by double-digit growth in savory and dairy and high single-digit growth in sweet . eame performance continues to be led by our performance in the emerging market countries within the region . globally , flavors growth included mid single-digit growth in emerging markets . overall , emerging markets represented approximately 52 % of total flavors sales . fragrances business unit fragrances sales in 2016 increased 3 % on a reported basis and 4 % on a currency neutral basis . acquisitions accounted for approximately 2 % of both reported and currency neutral sales growth . year-over-year , 2016 sales
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as a result of these efforts the bank 's core deposit ratio has grown to 88.0 % at december 31 , 2014 as compared to 77.1 % at december 31 , 2009 and only 33.0 % at december 31 , 1997. deposits added in 2014 from commercial loan borrowers totaled $ 35.7 million , demonstrating the value of relationship based lending . within the core deposit category , $ 72.3 million of deposits formerly in interest bearing checking migrated to non-interest-bearing checking when the bank streamlined its deposit product structure in the second quarter of 2014. core deposits are generally considered a less expensive and more stable funding source than certificates of deposit . capital management in addition to the objectives described above , the company determined to more actively manage its capital position to improve return on equity . the company has , over the past few years , implemented or announced , three stock repurchase programs . the most recent plan to repurchase up to 5 % of outstanding common stock was announced on july 24 , 2014. for the year ended december 31 , 2014 , the company repurchased 551,291 shares of common stock for $ 9.2 million . at december 31 , 2014 , there were 618,398 shares remaining to be repurchased under the existing stock repurchase plan . story_separator_special_tag evaluation of the company 's past loan loss experience , known and inherent risks in the portfolio , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral and current economic conditions . additions to the allowance arise from charges to operations through the provision for loan losses or from the recovery of amounts previously charged-off . the allowance is reduced by loan charge-offs . the allowance for loan losses is maintained at an amount management considers sufficient to provide for probable losses . the analysis considers known and inherent risks in the loan portfolio resulting from management 's continuing review of the factors underlying the quality of the loan portfolio . the bank 's allowance for loan losses includes specific allowances and a general allowance , each updated on a quarterly basis . a specific allowance is determined for all non-accrual loans where the value of the underlying collateral can reasonably be evaluated . for these loans , the specific allowance represents the difference between the bank 's recorded investment in the loan , net of any interim charge-offs , and the estimated fair value of the collateral , less estimated selling costs . if a loan becomes 90 days delinquent , the bank obtains an updated collateral appraisal . for residential real estate loans , the appraisal is updated annually if the loan remains delinquent for an extended period . for non-accrual commercial real estate loans , the bank assesses whether there has likely been an adverse change in the collateral value supporting the loan . the bank utilizes information based on its knowledge of changes in real estate conditions in its lending area to identify whether a possible deterioration of collateral value has occurred . based on the severity of the changes in market conditions , management determines if an updated commercial real estate appraisal is warranted or if downward adjustments to the previous appraisal are warranted . if it is determined that the deterioration of the collateral value is significant enough to warrant ordering a new appraisal , an estimate of the downward adjustments to the existing appraised value is used in assessing if additional specific reserves are necessary until the updated appraisal is received . 41 a general allowance is determined for all loans that are not individually evaluated for a specific allowance . in determining the level of the general allowance , the bank segments the loan portfolio into various loan segments and classes as follows : loan portfolio segment loan class residential real estate : ย residential ย residential construction commercial real estate : ย commercial ย construction and land consumer : ย consumer commercial and industrial : ย commercial and industrial the loan portfolio is further segmented by delinquency status and risk rating ( pass , special mention , substandard and doubtful ) . an estimated loss factor is then applied to each risk tranche . to determine the loss factor , the bank utilizes historical loss experience as a percent of loan principal adjusted for certain qualitative factors and the loss emergence period . the bank 's historical loss experience is based on a rolling 24-month look-back period for all loan segments . this was selected based on ( 1 ) management 's judgment that this period captures sufficient loss events ( in both dollar terms and number of individual events ) to be relevant ; and ( 2 ) that the bank 's underwriting criteria and risk characteristics have remained relatively stable throughout this period . the historical loss experience is adjusted for certain qualitative factors including , but not limited to , ( 1 ) delinquency trends , ( 2 ) net charge-off trends , ( 3 ) nature and volume of the loan portfolio , ( 4 ) loan policies and underwriting standards , ( 5 ) experience and ability of lending personnel , ( 6 ) changes in current economic conditions , ( 7 ) concentrations of credit , ( 8 ) loan review system , and external factors such as ( 9 ) local competition and ( 10 ) regulation . the bank considers the applicability of each of these qualitative factors in estimating the general allowance for each loan portfolio segment . each quarter , the conditions that existed in the 24-month look-back period are compared to current conditions to support a conclusion as to which qualitative adjustments are ( or are not ) deemed necessary for a particular portfolio segment . the bank calculates and analyzes the loss emergence period on an annual basis or more frequently if conditions warrant . the bank 's methodology is to use loss events in the past 8 quarters to determine the loss emergence period for each loan segment . story_separator_special_tag the loss emergence period is specific to each loan segment and determined based on ( 1 ) the occurrence of a loss event which resulted in a potential loss and ( 2 ) confirmation of the potential loss is deemed to occur when the bank records an initial charge-off on the loan or downgrades the risk-rating to substandard or doubtful . the adjusted loss factors are then applied to each risk tranche . existing economic conditions which the bank considered to estimate the allowance for loan losses include local and regional trends in economic growth , unemployment and real estate values . in evaluating the qualitative factors as of december 31 , 2014 , the company considered the potential adverse impact of actual and proposed increases to flood insurance premiums which may stress borrowers ' ability to repay their loans or lower real estate values in certain flood prone areas ; the recent recruitment of commercial lenders and the related accelerated growth in commercial real estate loans ; and the company 's recent emphasis on construction-to-permanent residential construction loans attributable to local rebuilding after the damage caused by superstorm sandy . the bank also maintains an unallocated portion of the allowance for loan losses . the primary purpose of the unallocated component is to account for the inherent imprecision of the overall loss estimation process including the periodic updating of appraisals , commercial loan risk ratings , and continued economic uncertainty that may not be fully captured in the company 's loss history or the qualitative factors . 42 upon completion of the aforementioned procedures , an overall management review is performed including ratio analyses to identify divergent trends compared with the bank 's own historical loss experience , the historical loss experience of the bank 's peer group , and management 's understanding of general regulatory expectations . based on that review , management may identify issues or factors that previously had not been considered in the estimation process , which may warrant further analysis or adjustments to estimated loss factors or the allowance for loan losses . of the bank 's loan portfolio , 95.1 % , is secured by real estate , whether one-to-four family , consumer or commercial . additionally , most of the bank 's borrowers are located in ocean and monmouth counties , new jersey and the surrounding area . these concentrations may adversely affect the bank 's loan loss experience should local real estate values decline further or should the markets served continue to experience difficult economic conditions including increased unemployment or should the area be affected by a natural disaster such as a hurricane or flooding . management believes the primary risk characteristics for each portfolio segment are a decline in the economy generally , including elevated levels of unemployment , a decline in real estate market values and possible increases in interest rates . additionally , actual and proposed increases to flood insurance premiums may adversely affect real estate market values . any one or a combination of these events may adversely affect the borrowers ' ability to repay the loans , resulting in increased delinquencies , loan charge-offs and future levels of provisions . accordingly , the bank has provided for loan losses at the current level to address the current risk in the loan portfolio . although management believes that the bank has established and maintained the allowance for loan losses at adequate levels , additions may be necessary if future economic and other conditions differ substantially from the current operating environment . in addition , various regulatory agencies , as part of their examination process , periodically review the bank 's allowance for loan losses . such agencies may require the bank to make additional provisions for loan losses based upon information available to them at the time of their examination . although management uses what it believes to be the best information available , future adjustments to the allowance may be necessary due to economic , operating , regulatory and other conditions beyond the bank 's control . reserve for repurchased loans and loss sharing obligations the reserve for repurchased loans and loss sharing obligations relates to potential losses on loans sold which may have to be repurchased due to an early payment default , or a violation of representations and warranties . the reserve also includes an estimate of the bank 's obligation under a loss sharing arrangement with the fhlb relating to loans sold into their mortgage partnership finance ( ยmpfย ) program . provisions for losses are charged to gain on sale of loans and credited to the reserve , which is part of other liabilities , while actual losses are charged to the reserve . in order to estimate an appropriate reserve for repurchased loans and loss sharing obligations , the bank considers recent and historical experience , product type and volume of recent whole loan sales and the general economic environment . management believes that the bank has established and maintained the reserve for repurchased loans and loss sharing obligations at adequate levels , however , future adjustments to the reserve may be necessary due to economic , operating or other conditions beyond the bank 's control . valuation of mortgage servicing rights the estimated origination and servicing costs of mortgage loans sold in which servicing rights are retained is allocated between the loans and the servicing rights based on their estimated fair values at the time of the loan sale . servicing assets are carried at the lower of cost or estimated fair value and are amortized in proportion to , and over the period of , net servicing income . the estimated fair value of msr is determined through a discounted analysis of future cash flows , incorporating numerous assumptions including servicing income , servicing costs , market discount rates , prepayment speeds and default rates , as well as the information obtained from the company 's recent sale of msr .
| highlights of the company 's financial results for the year ended december 31 , 2014 were as follows : on october 23 , 2014 , the company announced a $ 0.01 increase in the quarterly cash dividend , to $ 0.13 per share . total assets increased to $ 2.357 billion at december 31 , 2014 , from $ 2.250 billion at december 31 , 2013. loans receivable , net increased $ 147.4 million at december 31 , 2014 , as compared to december 31 , 2013 primarily due to growth in commercial loans of $ 144.4 million . on september 30 , 2014 , the company completed the bulk sale of certain non-performing residential mortgage loans with an aggregate carrying value of $ 23.1 million , for net cash consideration of $ 18.7 million . the sale represented 55.7 % of the company 's reported non-performing loans at that time and resulted in a total loan charge-off of $ 5.0 million through the allowance for loan losses . the non-performing loan sale improved the credit risk profile of the loan portfolio and is expected to increase net interest income and reduce foreclosure-related expenses , lower overhead costs and reduce the fdic insurance assessment in future periods . on october 31 , 2014 , the company sold the servicing rights on residential mortgage loans serviced for the federal agencies , recognizing a net gain of $ 408,000. the company anticipates a modest benefit to 2015 earnings as associated expense reductions are expected to exceed foregone servicing revenues . net income for the year ended december 31 , 2014 was $ 19.9 million , or $ 1.19 per diluted share , as compared to net income of $ 16.3 million , or $ 0.95 per diluted share for the prior year . net income for the year ended december 31 , 2013 was adversely impacted by non-recurring expenses related to the prepayment of fhlb advances and the consolidation of two branches . net income in 2014 benefited from improved net interest income
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as a percentage of net sales , operating income decreased by 1 % in 2012 compared to 2011 and was primarily impacted by the factors impacting cost of goods sold , gross margin and operating costs discussed above . as a percentage of net sales , operating income was comparable in 2011 and 2010. general our profitability primarily depends on our ability to utilize our production capacity effectively , which is affected by , among other things , the demand for our products and our ability to control our manufacturing costs , primarily comprised of labor costs and materials . the materials used in our products consist of purchased components and raw materials some of which are subject to fluctuations in the commodity markets such as zinc , brass and stainless steel . total material costs represented approximately 44 % of our cost of sales in 2012 , with commodity related raw materials accounting for approximately 10 % of our cost of sales . worldwide commodity raw material costs began increasing in the second half of 2010 and continued increasing throughout 2011 , although during 2012 they were mostly stable . we occasionally enter into short-term commodity related raw material supply arrangements to mitigate the impact of future increases in commodity related raw material costs . these arrangements generally provide for stated unit prices based upon specified purchase volumes , which helps us to stabilize commodity related raw material purchase prices to a certain extent . we enter into such arrangements for zinc and brass . we expect commodity related raw material prices to increase in 2013 in conjunction with higher demand as a result of the expected growth in the world wide economy . these raw materials purchased on the spot market are sometimes subject to unanticipated and sudden price increases . we generally seek to mitigate the impact of fluctuations in commodity raw material costs on our margins through improvements in production efficiencies or other operating cost reductions . in the event we are unable to offset cost increases for these raw materials with other cost reductions , it may be difficult to recover those cost increases through increased product selling prices or raw material surcharges due to the competitive nature of the markets served by our products . consequently , overall operating margins may be affected by raw material cost pressures . interest income interest income decreased in 2012 compared 2011 primarily due to the maturity of our $ 15 million promissory note receivable in october 2011 and lower cash balances available for investment . interest income was comparable at $ 358,000 in 2011 and $ 336,000 in 2010 which includes interest on our $ 15 million note receivable discussed above . see note 12 to the consolidated financial statements . we expect our interest income to increase in 2013 as a result of higher cash balances available for investment . interest expense interest expense decreased in 2012 compared to 2011 as a result of the significant reduction to the note payable of $ 15.0 million in october of 2011. interest expense was comparable from 2010 to 2011. the average interest rate on the note payable at december 31 , 2010 , 2011 , and 2012 was 1.34 % , 1.33 % , and 1.46 % . our outstanding balance on the credit facility through october of 2012 was $ 2.0 million which was repaid in full in november of 2012. in addition , we averaged $ 3.1 million - 15 - and $ 2.4 million outstanding on our revolving credit facility ( interest rates of 3.5 % at december 31 , 2010 and 4.4 % at december 31 , 2011 ) during 2010 and 2011 , respectively . see note 8 to the consolidated financial statements . we expect our interest expense to decrease in 2012 as a result of lower debt balances outstanding . provision for income taxes a tabular reconciliation between our effective income tax rate and the u.s. federal statutory income tax rate of 35 % is included in note 9 to the consolidated financial statements . as a member of the group of companies consolidated for u.s. federal income tax purposes with contran , the parent of our consolidated u.s. federal income tax group , we compute our provision for income taxes on a separate company basis , using the tax elections made by contran . our effective income tax rate attributable to continuing operations decreased from 42 % in 2011 to 29 % in 2012. our effective income tax rate attributable to continuing operations increased from 35 % in 2010 to 42 % in 2011. the changes in our provision for income taxes is primarily related to changes in our deferred income tax asset valuation allowance , an expense of $ 341,000 in 2011 and a benefit of $ 317,000 in 2012. see notes 9 and 12 to the consolidated financial statements . we currently expect our effective income tax rate for 2013 to be higher than our effective rate for 2012. discontinued operations on december 28 , 2012 , we completed the sale of our furniture components segment to a competitor of that segment for proceeds ( net of expenses ) of approximately $ 58.0 million in cash . we recognized a pre-tax gain of approximately $ 29.6 million on the disposal of these operations ( $ 27.6 million , net of income taxes of approximately $ 1.9 million ) . see note 2 to the consolidated financial statements . - 16 - segment results the key performance indicator for our segments is the level of their operating income ( see discussion below ) . for additional information regarding our segments refer to note 3 to the consolidated financial statements . replace_table_token_4_th security products . security products net sales increased 3 % to $ 73.7 million in 2012 compared to $ 71.4 million in 2011. the increase in sales is primarily due to somewhat improved economic conditions in north america resulting in higher order rates across most markets . story_separator_special_tag gross margin and operating income percentages decreased in 2012 compared to 2011 by one percentage point primarily due to higher self-insured medical costs of $ 925,000 in 2012 , $ 815,000 of which impacted cost of goods sold and $ 110,000 of which impacted selling and administration expenses . the impact of the higher medical costs on cost of goods sold was partially offset by a $ 300,000 decrease in depreciation expense relating to the timing of historical capital expenditures and retirements . the 2012 medical costs were more in line with the historical average annual medical costs as compared to an unusually favorable 2011. security products net sales increased 5 % to $ 71.4 million in 2011 compared to $ 68.0 million in 2010. the increase in sales is primarily due to improved customer order rates across most markets with a greater increase among leisure transportation market customers resulting from some improvement in the economic conditions in north america and specific customer projects . gross margin and operating income percentages increased in 2011 compared to 2010 by one percentage point due to greater leverage of fixed manufacturing costs on the higher level of sales in 2011 and lower self-insured medical costs of $ 768,000 , $ 664,000 of which impacted cost of goods sold and $ 104,000 of which impacted selling and administration expenses . although sales increased by $ 3.4 million from 2010 to 2011 , fixed manufacturing expenses were comparable between years as a $ 350,000 decrease in depreciation expense relating to the timing of historical capital expenditures and retirements and $ 220,000 of the above noted decrease in medical costs offset an increase in other fixed manufacturing expenses associated with the increase in sales . - 17 - marine components . marine components net sales increased 13 % in 2012 as compared to 2011. the increase was primarily the result of a $ 900,000 increase in sales to the ski/wakeboard boat market in connection with new products developed for that market . as a percentage of net sales , gross margin and the operating loss percentage improved in 2012 compared to 2011 primarily due to increased leverage of fixed costs as a result of the higher sales and lower intangible amortization expense due to intangibles that became fully amortized in the first six months of 2011. marine components net sales increased 4 % in 2011 as compared to 2010. as a percentage of net sales , gross margin was flat over the comparative period . operating loss percentage improved in 2011 compared to 2010 primarily due to increased leverage of fixed costs as a result of the higher sales and lower intangible amortization expense due to intangibles that became fully amortized in 2010 and the first six months of 2011. outlook consistent with the current state of the north american economy , overall demand from our customers continues to be subject to instability . while we experienced some increase in customer demand across most markets in 2012 , it is uncertain the extent that sales will continue to grow during 2013. while changes in market demand are not within our control , we are focused on the areas we can impact . staffing levels are continuously evaluated in relation to sales order rates which may result in headcount adjustments , to the extent possible , to match staffing levels with demand . we expect our continuous lean manufacturing and cost improvement initiatives to positively impact our productivity and result in a more efficient infrastructure . additionally , we continue to seek opportunities to gain market share in markets we currently serve , to expand into new markets and to develop new product features in order to mitigate the impact of changes in demand as well as broaden our sales base . volatility in the costs of commodity raw materials is ongoing . our primary commodity raw materials are zinc , brass and stainless steel , which together represent approximately 10 % of our total cost of goods sold . we generally seek to mitigate the impact of fluctuations in commodity raw material costs on our margins through improvements in production efficiencies or other operating cost reductions . in the event we are unable to offset commodity raw material cost increases with other cost reductions , it may be difficult to recover those cost increases through increased product selling prices or surcharges due to the competitive nature of the markets served by our products . additionally , significant surcharges may negatively affect our margins as they typically only recover the increased cost of the raw material without adding margin dollars resulting in a lower margin percentage . consequently , overall operating margins may be negatively affected by commodity raw material cost pressures . liquidity and capital resources story_separator_special_tag style= '' color : # 999999 '' width= '' 100 % '' / > relative changes in working capital can have a significant effect on cash flows from operating activities . as shown below , our total average days sales outstanding was comparable from december 31 , 2011 to december 31 , 2012. marine components experienced greater variability in their average days sales outstanding , however their receivable balances are not significant . for comparative purposes , we have provided 2010 numbers below . replace_table_token_5_th * * denotes disposed operations . see note 2 to the consolidated financial statements . as shown below , our average number of days in inventory did not change from december 31 , 2011 to december 31 , 2012. the decrease for security products and marine components was the result of inventory reduction efforts across those segments . the increase for furniture components was due to changes in shipping terms of a north america customer serviced by the taiwanese location . the terms changed from point-of-shipment to point-of-receipt resulting in an increase in in-transit inventory . the variability in days in inventory among our segments primarily relates to the complexity of the production processes and therefore the length of time it takes to produce end products .
| cash provided by operating activities was $ 13.8 million in 2012 compared to $ 16.0 million in 2011. the $ 2.1 million decrease in cash provided by both continuing and discontinued operating activities is primarily the net result of : lower operating income in 2012 attributable to continuing operations of approximately $ 1.0 million , and lower operating income attributable to discontinued operations of $ 1.7 million ; higher net cash provided by relative changes in our inventories , receivables , payables and non-tax related accruals of $ 2.2 million in 2012 ; lower cash paid for income taxes in 2012 of approximately $ 1.9 million ; and lower cash paid for interest in 2012 of $ 1.2 due to the timing of interest payments discussed in note 8 to the consolidated financial statements . we expect cash flows from operating activities to result in a net use of cash in 2013 due primarily to a cash payment for taxes of approximately $ 12.2 million related to the sale of our disposed operations , which will be paid in the first quarter of the year . under gaap , cash paid for income taxes on the disposal of a business unit is reported as a reduction of cash flows from operating activities , while the pre-tax proceeds from disposal are reported as a component of cash flows from investing activities . in addition , operating cash flow comparisons in 2013 will be negatively impacted by such sale , since the operating cash flows of the disposed operations are included in our total cash flows from operating activities in 2012 , through the december 2012 date of sale . see note 2 to the consolidated financial statements . cash provided by operating activities was $ 16.0 million in 2011 compared to $ 13.0 million in 2010. the $ 3.0 million increase in cash provided by both continuing and discontinued operating activities is primarily the net result of : higher operating income in 2011 attributable to continuing operations of $ 500,000 , and higher
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as described elsewhere in these consolidated financial statements , the results of operations of the prothena business for the time period prior to the separation include transactions with elan . all of the revenue recognized by the company for each of the three years ended december 31 , 2012 , 2011 and 2010 consist of fees arising from r & d services provided story_separator_special_tag the following discussion and analysis is intended to provide you with an understanding of our historical performance and financial condition during the years ended december 31 , 2012 , 2011 and 2010. you should read this discussion in conjunction with consolidated financial statements and the notes to those statements . overview we are a biotechnology company focused on the discovery and development of novel antibodies for the potential treatment of a broad range of diseases that involve protein misfolding or cell adhesion . we focus on the discovery and development of potential therapeutic monoclonal antibodies directed specifically to disease causing proteins . these potential therapies have a broad range of indications including al and aa forms of amyloidosis , parkinson 's disease and related synucleinopathies , and novel cell adhesion targets involved in autoimmune disease and metastatic cancers . we plan to initiate phase 1 clinical trials in these indications during the first half of 2013 , 2014 , and 2015 , respectively . our strategy is to apply our extensive expertise in generating novel therapeutic antibodies and work with collaborators having expertise in specific animal models of disease , to identify antibody candidates for clinical development . we are a newly formed , public limited company incorporated in ireland . prothena 's business consists of a substantial portion of elan 's former drug discovery business platform , including neotope biosciences limited ( and its wholly-owned subsidiary prothena biosciences , inc. ) and onclave therapeutics limited , each former wholly-owned subsidiaries of elan ( which for the period prior to separation and distribution we refer to herein as the ยprothena businessย ) . effective december 21 , 2012 , the prothena business separated from elan . our financial statements for these periods prior to december 21 , 2012 have been derived from elan 's historical accounting records and reflect significant allocations of direct costs and expenses . all of the allocations and estimates in these financial statements are based on assumptions that we believe are reasonable . however , the financial statements do not necessarily represent our financial position or results of operations had we been operating as a separate independent entity . see ยcritical accounting policies and estimatesย below as well as note 2 of ยnotes to the consolidated financial statementsย included in item 8 of this report . the separation and distribution elan 's board of directors and its management team from time to time assess the optimal alignment of elan 's assets , and in particular the benefits and risks of maintaining both a late-stage products development business and an early-stage discovery business and the income statement dynamics such businesses present to the marketplace and elan shareholders . on august 13 , 2012 , elan announced that its board of directors had approved the separation of elan and its drug discovery business into two independent , publicly traded companies : elan and prothena . on december 7 , 2012 , the elan board of directors approved a deemed in specie distribution by prothena issuing directly to the holders of elan ordinary shares and elan adss , on a pro rata basis , prothena ordinary shares representing 99.99 % of prothena 's outstanding shares ( with the remaining 0.01 % of prothena 's outstanding shares , which were previously issued to the original incorporators of prothena and which we refer to as the ยincorporator shares , ย being mandatorily redeemed by prothena after the related demerger ) . on december 12 , 2012 , shareholders of elan voted to approve the ย in specie distributionย as required by elan 's articles of association . on december 20 , 2012 , each holder of elan ordinary shares or adss received 1 prothena ordinary share for every 41 elan ordinary shares or elan adss held at the close of business on the record date for the distribution , subject to certain conditions . 41 immediately after the separation and distribution , a wholly-owned subsidiary of elan acquired newly-issued ordinary shares of prothena , representing 18 % of the outstanding ordinary shares of prothena ( as calculated immediately following the acquisition ) , for a cash payment to prothena of $ 26.0 million . immediately after the consummation of this purchase , the incorporator shares were mandatorily redeemed by prothena pursuant to their terms for their initial subscription price , and cancelled . immediately following the separation and distribution and elan 's purchase of prothena ordinary shares , elan shareholders owned directly 82 % of the outstanding ordinary shares of prothena , and elan owned the remaining 18 % . basis of presentation and preparation of the financial statements our business consists of a substantial portion of elan 's former drug discovery business platform , including neotope biosciences limited ( and its wholly-owned subsidiary prothena biosciences , inc. ) and onclave therapeutics limited , each former wholly-owned subsidiaries of elan , and related tangible assets and liabilities ( which for the period prior to separation and distribution we refer to herein as the ยprothena businessย ) . prior to december 21 , 2012 , the prothena business has historically operated as part of elan and not as a separate stand-alone entity . story_separator_special_tag our consolidated financial statements have been prepared on a ยcarve-outย basis from the consolidated financial statements of elan to represent our financial position and performance as if we had existed on a stand-alone basis during each of the fiscal years presented in the consolidated financial statements . central support costs have been allocated to us for the purposes of preparing the consolidated financial statements based on estimated usage of the resources by us . the estimated usage of the central support resources allocated to us has been determined by estimating our portion of the most appropriate driver of each category of central support costs such as headcount or labor hours , depending on the nature of the costs . we believe that such allocations have been made on a reasonable basis , but may not necessarily be indicative of the costs that would have been incurred if we had operated on a standalone basis . for additional information regarding the basis of preparation , refer to note 2 of ยnotes to the consolidated financial statementsย included in item 8 of this report . critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and assumptions the reported amounts of assets , liabilities , revenues , expenses and related disclosures . actual results could differ from these estimates . we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements . carve-out of the results of operations , financial condition and cash flows of the prothena business prior to december 21 , 2012 , the prothena business has historically operated as part of elan and not as a separate stand-alone entity . our consolidated financial statements have been prepared on a ยcarve-outย basis from the consolidated financial statements of elan to represent the financial position and performance of prothena as if we had existed on a stand-alone basis during each of the fiscal years presented in the consolidated financial statements ; and as if financial accounting standards board , or fasb , accounting standard codification , or asc , topic 810 , ยconsolidation , ย had been applied throughout . the consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the united states of america ( ยus gaapย ) , by aggregating financial information from the components of prothena described in note 1 of the ยnotes to consolidated financial statementsย , included in item 8 of this report . the accompanying consolidated financial statements include only those assets and liabilities that management has determined are specifically identifiable to prothena and allocations of direct costs and indirect costs attributable to our operations . indirect costs relate to certain support functions that were provided on a 42 centralized basis within elan . the support functions provided to us by elan included , but were not limited to : accounting , information technology , taxation , legal , corporate strategy , investor relations , corporate governance and other professional services , employee benefit administration , including equity award and pension services , and cash and treasury management . central support costs of our business for the years ended december 31 , 2012 , 2011 and 2010 were $ 7.7 million , $ 4.0 million and $ 2.8 million , respectively . these costs have been allocated to us for the purposes of preparing the consolidated financial statements based on estimated usage of the resources by us . the estimated usage of the central support resources allocated to us has been determined by estimating our portion of the most appropriate driver of each category of central support costs such as headcount or labor hours , depending on the nature of the costs . we believe that such allocations have been made on a reasonable basis , but may not necessarily be indicative of the costs that would have been incurred if we had operated on a standalone basis . share-based compensation we account for our share-based compensation in accordance with the fair value recognition provisions of current authoritative guidance . share-based awards , including stock options , are measured at fair value as of the grant date and recognized to expense over the requisite service period ( generally the vesting period ) , which we have elected to amortize on a straight-line basis . since share-based compensation expense is based on awards ultimately expected to vest , it has been reduced by an estimate for future forfeitures . we estimate forfeitures at the time of grant and revise our estimate , if necessary , in subsequent periods . we estimate the fair value of options granted using a binomial option-pricing model and eepp using the black-scholes option valuation model . significant judgment is required in determining the proper assumptions used in these models . the assumptions used include the risk free interest rate , expected term , expected volatility and expected dividend yield . we base our assumptions on historical data when available or when not available , on a peer group of companies . however , these assumptions consist of estimates of future market conditions , which are inherently uncertain , and therefore subject to our judgment . share-based compensation expense for rsus is measured based on the closing fair market value of elan 's ordinary shares on the date of grant .
| research and development expenses r & d expenses increased by $ 10.0 million , or 41 % , in 2012 compared to 2011 and by $ 14.4 million , or 147 % , in 2011 compared to 2010. the increases were primarily due to increases in share-based compensation expense , headcount attributable to prothena programs and external expenses related to prx002 ( formerly neod002 ) and mcam , offset by decreases in neod001 related costs . our research activities are aimed at developing new drug products . our development activities involve the translation of our research into potential new drugs . r & d expenses include personnel , materials , equipment and facilities costs that are allocated to clearly related r & d activities . the successful development of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete development of our product candidates . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : the scope , rate of progress and expense of our drug discovery efforts and other research and development activities ; the potential benefits of our product candidates over other therapies ; clinical trial results ; and the terms and timing of regulatory approvals . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or other regulatory authority were to require us to conduct clinical trials 44 beyond those which we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in enrollment in any clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . the following table sets forth the r & d expenses for our major program ( specifically , any program where an investigational new drug application has been filed with the fda ) , neod001 , and other r & d expenses for the years ended december 31 , 2012 , 2011 and 2010 ,
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in order to generate returns , the segment evaluates opportunities across the value chain and uses its assets to provide services to other occidental segments as well as third parties . the segment invests in and operates pipeline systems , gas plants , co-generation facilities , and storage facilities . the segment also seeks to minimize the costs of gas , power and other commodities used in occidental 's businesses , while limiting credit risk exposure . capital is employed to sustain or , where appropriate , increase operational and transportation capacity and to improve the competitiveness of occidental 's assets . in 2016 , capital expenditures totaled $ 358 million related to permian basin gas processing and gathering infrastructure , al hosn gas and the ingleside crude terminal . key performance indicators occidental seeks to meet its strategic goals by continually measuring its success in its key performance metrics that drive total stockholder return . in addition to production growth and capital allocation and deployment discussed above , occidental believes the following are its most significant metrics : รธ health , environmental , safety and process metrics ; รธ total shareholder return , including funding the dividend ; รธ return on equity ( roe ) and return on capital employed ( roce ) ; and รธ specific measures such as total spend per barrel , per-unit profit , production cost , cash flow , finding and development costs and reserves replacement percentages . oil and gas segment business environment oil and gas prices are the major variables that drive the industry 's financial performance . the following table presents the average daily west texas intermediate ( wti ) , brent and new york mercantile exchange ( nymex ) prices for 2016 and 2015 : replace_table_token_5_th the following table presents occidental 's average realized prices as a percentage of wti , brent and nymex for 2016 and 2015 : replace_table_token_6_th average wti and brent oil price indexes declined 11 percent and 16 percent , from $ 48.80 and $ 53.64 in 2015 to $ 43.32 and $ 45.04 in 2016 , respectively . average worldwide realized oil prices fell $ 8.37 , or 18 percent , in 2016 compared to 2015. however , the wti and brent oil price indexes increased significantly in the fourth quarter of 2016 , closing at $ 53.72 per barrel and $ 56.82 per barrel , respectively , as of december 31 , 2016 , well above the 2016 average prices . the average realized domestic natural gas price in 2016 decreased 12 percent from 2015 . average nymex natural gas prices declined 12 percent , from $ 2.75 in 2015 to $ 2.42 in 2016 . prices and differentials can vary significantly , even on a short-term basis , making it impossible to predict realized prices with a reliable degree of certainty . the decline in oil and gas prices during 2016 and 2015 , as well as the decision to sell or exit non-core assets , caused occidental to assess the carrying value of all of its oil and gas producing assets and assess development plans for its non-producing assets . in 2016 , impairment and related charges were immaterial . in 2015 , occidental recorded total pre-tax impairment and related charges of $ 3.5 billion for its domestic assets and $ 5.0 billion for its international assets . to assess carrying value of its oil and gas assets , occidental uses oil and gas price curves settled on the last trading day of each quarter . while oil and gas future prices were increasing at the end of 2016 any future sustained declines in commodity prices may result in additional impairments in the future . operations 2016 developments in march 2016 , occidental completed the sale of its piceance basin operations in colorado for approximately $ 153 million resulting in a pre-tax gain of $ 121 million . in september 2016 , occidental completed the sale of its south texas eagle ford non-operated properties for $ 63 million resulting in a pre-tax gain of $ 59 million . in october 2016 , occidental acquired producing and non-producing leasehold acreage in the permian basin . this acquisition includes 35,000 net acres in reeves and pecos counties , texas , in the southern delaware basin , in areas where occidental currently operates or has working interests . separately , occidental also acquired working interests in several producing oil and gas properties with co 2 floods and related eor infrastructure , increasing occidental 's ownership in several properties where it is currently the operator or an existing working interest partner . the total purchase price for these 14 transactions was approximately $ 2.0 billion . in 2016 , occidental completed its exit of non-core operations in bahrain , iraq , libya and yemen . story_separator_special_tag operations sold or exited include bahrain , iraq , libya and yemen . middle east assets middle east 1. qatar 2. united arab emirates 3. oman oman in oman , occidental is the operator of block 9 with a 50-percent working interest , block 27 with a 65-percent working interest , block 53 with a 45-percent working interest ; and block 62 , with an 80-percent working interest . in december 2015 , the existing production sharing contract for block 9 expired and occidental agreed to operate block 9 under modified operating terms until a new contract is approved . the block 9 exploration and production sharing agreement 15-year extension was signed in january 2017 and will be effective upon ratification through royal decree . in 2016 , the average gross production from block 9 was 94,000 boe per day . the term for block 27 expires in 2035. a 30-year psc for the mukhaizna field ( block 53 ) was signed with the government of oman in 2005 , pursuant to 16 which occidental assumed operation of the field . by the end of 2016 , occidental had drilled more than 2,900 new wells and continued implementation of a major steamflood project . story_separator_special_tag in 2016 , the average gross daily production was 127,000 boe per day , including a record fourth quarter production of 133,000 boe per day , which was approximately 16 times higher than the production rate in september 2005 when occidental assumed operations . in 2008 , occidental was awarded a 20-year contract for block 62 , subject to declaration of commerciality , where it is pursuing development and exploration opportunities targeting natural gas and condensate resources . in 2014 , occidental signed a five-year extension for the initial phase for the discovered non associated gas area ( natural gas not in contact with crude oil in a reservoir ) for block 62. production commenced in january 2016. in 2016 , occidental achieved record production in oman , and occidental 's share of production averaged 96,000 boe per day in 2016. qatar in qatar , occidental is the operator of the offshore fields idd el shargi north dome ( isnd ) and idd el shargi south dome ( issd ) , with a 100-percent working interest in each , and al rayyan ( block 12 ) , with a 92.5-percent working interest . the terms for isnd and issd expire in 2019 and 2022 , respectively . the term for block 12 expires on may 31 , 2017 and this contract will not be extended . production from block 12 was not significant . occidental has continued to successfully implement large scale water flooding projects combined with state of the art horizontal drilling , advanced completion techniques as well as utilizing extensive automated artificial lift systems that are significantly extending the life of the field . since the commencement of its operations in 1994 , occidental has boosted the production from the idd el shargi fields by over 400 percent with current gross oil rates of around 95,000 boe per day . the issd field recently demonstrated encouraging results and is achieving record levels of production . despite complex marine operations , occidental is recognized as the lowest cost in country oil operator . occidental also holds the dolphin investment that is comprised of two separate economic interests through which occidental owns : ( i ) a 24.5-percent undivided interest in the upstream operations under a development and production sharing agreement with the government of qatar to develop and produce natural gas , ngls and condensate in qatar 's north field through mid-2032 , with a provision to request a five-year extension ; and ( ii ) a 24.5-percent interest in the stock of dolphin energy limited ( dolphin energy ) , which operates a pipeline and is discussed further in `` midstream and marketing segment - pipeline transportation . '' occidental 's share of production from qatar was approximately 108,000 boe per day in 2016 . united arab emirates in 2011 , occidental acquired a 40-percent participating interest in al hosn gas , joining with the abu dhabi national oil company ( adnoc ) in a 30-year joint venture agreement . in 2016 , al hosn gas gross production exceeded expectations , producing over 570 mmcf per day of natural gas and 95,000 barrels per day of ngls and condensate in its highest month of production . occidental 's share of production from al hosn gas was 190 mmcf per day of natural gas and 32,000 barrels per day of ngls and condensate in 2016. additionally , al hosn gas includes gas processing facilities which are discussed further in `` midstream and marketing segment - gas processing plants and co 2 fields and facilities '' . occidental conducts a majority of its middle east business development activities through its office in abu dhabi , which also provides various support functions for occidental 's middle east oil and gas operations . latin america assets latin america 1. colombia colombia occidental has working interests in the la cira-infantas and teca areas and has operations within the llanos norte basin . occidental 's interests range from 39 to 61 percent and certain interests expire between 2023 and 2038 , while others extend through the economic limit of the areas . in 2016 , occidental started a thermal recovery pilot at the teca heavy oil field and the initial results are better than anticipated . production began from these pilots in 2016. occidental 's share of production from colombia was approximately 33,000 boe per day in 2016 . occidental also holds working interests in the tarija , chuquisaca and santa cruz regions of bolivia , which produce gas . occidental 's share of production from bolivia was 1,000 boe per day in 2016 . proved reserves proved oil , ngls and gas reserves were estimated using the unweighted arithmetic average of the first-day-of-the-month price for each month within the year , unless prices were defined by contractual arrangements . oil , ngls and natural gas prices used for this purpose were based on posted benchmark prices and adjusted for price differentials including gravity , quality and transportation costs . for the 2016 , 2015 and 2014 disclosures , the calculated average west texas intermediate oil prices 17 were $ 42.75 , $ 50.28 and $ 94.99 per barrel , respectively . the calculated average brent oil prices for 2016 , 2015 and 2014 disclosures were $ 44.49 , $ 55.57 and $ 99.51 , per barrel , respectively . the calculated average henry hub gas prices for 2016 , 2015 and 2014 were $ 2.55 , $ 2.66 and $ 4.42 per mmbtu , respectively . occidental had proved reserves at year-end 2016 of 2,406 million boe , compared to the year-end 2015 amount of 2,200 million boe . proved reserves at year-end 2016 and 2015 consisted of , respectively , 56 percent and 59 percent oil , 17 percent and 15 percent ngls and 27 percent and 26 percent natural gas . proved developed reserves represented approximately 77 percent and 79 percent , respectively , of occidental 's total proved reserves at year-end 2016 and 2015 . occidental does not have any reserves from non-traditional sources .
| during 2016 , the permian operations focused on full cycle value through capital efficiency , reduced operating expense , improved base production and new well productivity . in the permian basin , occidental spent over $ 1.2 billion of capital in 2016 , with 60 percent spent on permian resources assets . in 2017 , occidental expects to allocate approximately one third of the 2017 capital budget to permian resources for focused development areas in the midland and delaware basins and approximately 10 to 15 percent to permian eor in order to add to existing facilities to increase co 2 production and injection capacity for future projects . occidental 's permian resources operations are among its fastest growing assets with over 11,650 drilling locations in its horizontal inventory located in the midland and delaware sub-basins . this inventory was developed using data gathered from appraisal efforts , and development drilling , along with offset operators drilling activities . as of year end , approximately 650 of these drilling locations represented proved reserves . continued wellbore placement and completion optimization through advanced subsurface characterization and the application of enhanced manufacturing principles , combined with projected commercial savings , are expected to increase the well inventory even further . the development program , which largely began in 2010 , continued in 2016 . in 2016 , permian resources drilled 63 horizontal wells . production from permian resources comes from approximately 5,550 net wells , of which 23 percent are operated by other operators . these investments in permian wells operated by others allows occidental to access and leverage additional data in the same areas where it is operating . by analyzing the operated by others data with the significant amount of data occidental has gathered , its permian operations are able to use the information to aid in reducing operating expenses , gain drilling and completions efficiencies , increase the productivity of its wells and improve the base production . in 2016 , permian resources added 92 million
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shares of our common stock began trading on the nasdaq global market on march 23 , 2016. the ipo closed on march 29 , 2016 , pursuant to which we sold 4,700,000 shares of our common stock at a public offering price of $ 15.00 per share . in april 2016 , we sold an additional 502,618 shares of our common stock to the underwriters upon partial exercise of their overโallotment option , at the initial offering price of $ 15.00 per share . we received aggregate net proceeds of approximately $ 70.6 million , after underwriting discounts , commissions and offering expenses . immediately prior to the consummation of the ipo , all of our outstanding shares of convertible preferred stock were converted into 14.3 million shares of our common stock . in march 2018 , in a follow-on offering , we sold 8,117,647 shares of our common stock at a price of $ 8.50 per share , which included 1,058,823 shares issued pursuant to the underwriters ' exercise of their option to purchase additional shares of common stock . we received aggregate net proceeds of approximately $ 64.9 million , after underwriting discounts , commissions and offering expenses in september 2017 , we entered into a sales agreement ( the โ sales agreement โ ) with cowen and company , llc ( โ cowen โ ) to sell shares of the company 's common stock , from time to time , with aggregate gross sales proceeds of up to $ 125,000,000 , through an atโtheโmarket equity offering program under which cowen will act as our sales agent . the issuance and sale of shares of common stock by us pursuant to the sales agreement are deemed an โ atโtheโmarket โ offering under the securities act of 1933 , as amended . cowen is entitled to compensation for its services equal to up to 3.0 % of the gross proceeds of any shares of common stock sold through cowen under the sales agreement . as of december 31 , 2018 , we had capital resources consisting of cash , cash equivalents and marketable securities of approximately $ 114.6 million . we do not expect our existing capital resources to be sufficient to enable us to fund the completion of our clinical trials and remaining development program of any of cpi-444 , cpi-006 or cpi-818 through commercialization . in addition , our operating plan may change as a result of many factors , including those described in the section of this report entitled โ risk factors โ and others currently unknown to us , and we may need to seek additional funds sooner than planned , through public or private equity , debt financings or other sources , such as strategic collaborations . such financing would result in dilution to stockholders , imposition of debt covenants and repayment obligations or other restrictions that may affect our business . if we raise additional capital through strategic collaboration agreements , we may have to relinquish valuable rights to our product candidates , including possible future revenue streams . in addition , additional funding may not be available to us on acceptable terms or at all and any additional fundraising efforts may divert our management from its day-to-day activities , which may adversely affect our ability to develop and commercialize our product candidates . furthermore , even if we believe we have sufficient funds for our current or future operating plans , we may seek additional capital due to favorable market conditions or strategic considerations . we currently have no manufacturing capabilities and do not intend to establish any such capabilities . we have no commercial manufacturing facilities for our product candidates . as such , we are dependent on third parties to supply our product candidates according to our specifications , in sufficient quantities , on time , in compliance with appropriate regulatory standards and at competitive prices . components of results of operations revenue to date , we have not generated any revenues . we do not expect to receive any revenues from any product candidates that we develop unless and until we obtain regulatory approval and commercialize our products or enter into revenueโgenerating collaboration agreements with third parties . 77 research and development expenses our research and development expenses consist primarily of costs incurred to conduct research and development of our product candidates . we record research and development expenses as incurred . research and development expenses include : ยท employee-related expenses , including salaries , benefits , travel and non-cash stock-based compensation expense ; ยท external research and development expenses incurred under arrangements with third parties , such as contract research organizations , preclinical testing organizations , contract manufacturing organizations , academic and non-profit institutions and consultants ; ยท costs to acquire technologies to be used in research and development that have not reached technological feasibility and have no alternative future use ; ยท license fees ; and ยท other expenses , which include direct and allocated expenses for laboratory , facilities and other costs . we plan to increase our research and development expenses substantially as we continue the development of our product candidates . our current planned research and development activities include the following : ยท enrollment and completion of our phase 1/1b and amended phase 1b/2 clinical trials of cpi-444 ; ยท enrollment of our ongoing phase 1/1b clinical trial of cpi-006 ; ยท we plan to advance cpi-818 into a multi-center phase 1/1b clinical trial in patients with various malignant t-cell lymphomas in march 2019 ; ยท process development and manufacturing of drug supply of cpi-444 , cpi-006 and cpi-818 ; and ยท preclinical studies under our other programs in order to select development product candidates . in addition to our product candidates that are in clinical development , we believe it is important to continue substantial investment in potential new product candidates to build the value of our product candidate pipeline and our business . story_separator_special_tag our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties related to timing and cost to completion . the duration , costs and timing of clinical trials and development of product candidates will depend on a variety of factors , including many of which are beyond our control . the process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming , and the successful development of our product candidates is uncertain . the risks and uncertainties associated with our research and development projects are discussed more fully in โ part 1 , item 1aโrisk factors. โ as a result of these risks and uncertainties , we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects or if , when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval . we may never succeed in achieving regulatory approval for any of our product candidates . 78 general and administrative expenses general and administrative expenses include personnel costs , expenses for outside professional services and allocated expenses . personnel costs consist of salaries , benefits and stockโbased compensation . outside professional services consist of legal , accounting and audit services and other consulting fees . allocated expenses consist of rent expense related to our office and research and development facility . we expect that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of one or more of our product candidates . story_separator_special_tag style= '' display : inline ; '' > 80 liquidity and capital resources sources of liquidity as of december 31 , 2018 , we had cash , cash equivalents and marketable securities of $ 114.6 million and an accumulated deficit of $ 170.5 million , compared to cash , cash equivalents and marketable securities of $ 90.1 million and an accumulated deficit of $ 123.5 million as of december 31 , 2017. we have financed our operations primarily through sales of our common stock and convertible preferred stock . in march 2016 , we consummated our ipo and sold 4,700,000 shares of our common stock at a price of $ 15.00 per share , and in april 2016 , sold 502,618 shares at a price of $ 15.00 per share pursuant to the partial exercise of the underwriters ' option to purchase additional shares of common stock . we received net proceeds of approximately $ 70.6 million , after deducting underwriting discounts , commissions and estimated offering expenses . immediately prior to the consummation of our ipo , all outstanding shares of the convertible preferred stock were converted into common stock on a oneโforโone basis . in march 2018 , in a follow-on offering , we sold 8,117,647 shares of our common stock at a price of $ 8.50 per share , which included 1,058,823 shares issued pursuant to the underwriters ' exercise of their option to purchase additional shares of common stock . we received aggregate net proceeds of approximately $ 64.9 million , after underwriting discounts , commissions and offering expenses in september 2017 , we entered into the sales agreement pursuant to which we may sell shares of our common stock from time to time with aggregate gross proceeds of up to $ 125,000,000 , through an at-the-market equity offering program under the sales agreement . during the year ended december 31 , 2018 , the company received no proceeds from the sale of shares of common stock pursuant to the sales agreement . we believe our current cash , cash equivalents and marketable securities will be sufficient to fund our planned expenditures and meet our obligations through at least the next twelve months from the issuance of our consolidated financial statements as of and for the year ended december 31 , 2018. the amounts and timing of our actual expenditures depend on numerous factors , including : ยท the initiation , progress , timing , costs and results of clinical trials for cpiโ444 , cpi-006 and cpi-818 ; ยท the timing , progress , costs and results of preclinical and clinical development activities for our other product candidates ; ยท the number and scope of preclinical and clinical programs we decide to pursue ; ยท the costs involved in prosecuting , maintaining and enforcing patent and other intellectual property rights ; ยท the cost and timing of regulatory approvals ; ยท our efforts to enhance operational systems and hire additional personnel , including personnel to support development of our product candidates and satisfy our obligations as a public company ; and ยท other factors described in the section of this report entitled โ risk factors. โ we expect to increase our spending in connection with the development and commercialization of our product candidates . until such time , if ever , as we can generate substantial revenue from product sales , we expect to fund our operations and capital funding needs through equity and or debt financings . we may also enter into additional collaboration arrangements or selectively partner for clinical development and commercialization . the sale of additional equity would result in dilution to our stockholders . the incurrence of debt financing would result in debt service obligations and the governing documents would likely include operating and financing covenants that would restrict our 81 operations . in addition , sufficient additional funding may not be available on acceptable terms , or at all . if we are not able to secure adequate additional funding , we may be forced to make reductions in spending , extend payment terms with suppliers , liquidate assets where possible and or suspend or curtail planned programs . any of these actions could have a material effect on our business , financial condition and results of operations .
| for the year ended december 31 , 2018 , the increase in unallocated costs of $ 1.7 million as compared to the year ended december 31 , 2018 , primarily consisted of an increase of $ 1.2 million in personnel and related costs ( including an increase in stock compensation expense of $ 0.2 million ) and an increase of $ 0.5 million in contracted research costs . for the year ended december 31 , 2017 , the increase in cpiโ444 costs of $ 11.0 million as compared to the year ended december 31 , 2016 , primarily consisted of an increase of $ 4.2 million in clinical trial costs related to our phase 1/1b clinical trial , an increase of $ 1.6 million in drug manufacturing costs to support our clinical trial , an increase of $ 2.2 million in contracted research costs , and a $ 3.0 million license payment to vernalis in 2017. for the year ended december 31 , 2017 , the increase in cpiโ006 costs of $ 3.2 million as compared to the year ended december 31 , 2016 , primarily consisted of an increase of $ 2.3 million in drug manufacturing costs and increase of $ 0.8 million in indโenabling study costs . for the year ended december 31 , 2017 , the increase in cpi-818 costs of $ 0.1 million as compared to the year ended december 31 , 2016 , primarily consisted of preโclinical costs . for the year ended december 31 , 2017 , costs related to other programs of $ 0.6 million were comparable to the year ended december 31 , 2016 , and primarily consisted of outside chemical synthesis and testing of research compounds . for the year ended december 31 , 2017 , the increase in unallocated costs of $ 2.6 million as compared to the year ended december 31 , 2016 , primarily consisted of a $ 2.1 million increase in personnel and related costs due to an increase in headcount ( including an increase in stock compensation expense of $ 1.0 million ) . general and administrative expenses for the year ended december 31 , 2018 , the increase
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changes in prior year reserve estimates ( reserve re-estimates ) , which may be material , are determined by comparing updated 26 estimates of ultimate losses to prior estimates , and the differences are recorded as losses and lae in the consolidated statements of income in the period such changes are determined . estimating the ultimate cost of losses and lae is an inherently uncertain and complex process involving a high degree of judgment and is subject to the evaluation of numerous variables . the actuarial methods used to develop reserve estimates . reserves for losses and lae are determined in three separate steps . these steps are the estimation of reserves for non-catastrophe loss and defense and cost containment ( ยdccย ) expenses ( hereafter referred to simply as losses ) , estimation of reserves for hurricane experience , and estimation of reserves for adjusting and other ( ยaoย ) expenses . these three steps are further separated into the analysis of data groupings of like exposure . these groups are property damage on homeowner policy forms ho-3 and ho-8 combined , property damage on homeowner policy forms ho-4 and ho-6 combined , dwelling fire property damage , all homeowner liability exposure , other liability ( the optional liability coverage offered to dwelling fire policyholders ) , and all hurricane experience combined . reserve estimates for non-catastrophe losses are derived using several different actuarial estimation methods that are variations on one primary actuarial technique . that actuarial technique is known as a ยchain ladderย estimation process in which historical loss patterns are applied to actual paid losses and reported losses ( paid losses plus individual case reserves established by claim adjusters ) for an accident year to create an estimate of how losses are likely to develop over time . this technique forms the basis of the six actuarial methods described below . an accident year refers to classifying claims based on the year in which the claims occurred , regardless of the date it was reported to upcic . this analysis is used to prepare estimates of required reserves for payments to be made in the future . the key data elements used to determine our reserve estimates include claim counts , paid losses , paid dcc , case reserves , and the related development factors applicable to this data . the first method for estimating unpaid amounts for non-hurricane losses is the reported development method . this method is based upon the assumption that the relative change in a given year 's reported loss estimates from one evaluation point to the next is similar to the relative change in prior years ' reported loss estimates at similar evaluation points . in utilizing this method , actual annual historical reported loss data is evaluated . successive years can be arranged to form a triangle of data . report-to-report ( ยrtrย ) development factors are calculated to measure the change in cumulative reported losses from one evaluation point to the next . these historical rtr factors form the basis for selecting the rtr factors used in projecting the current valuation of losses to an ultimate basis . in addition , a tail factor is selected to account for loss development beyond the observed experience . the tail factor is based on trends shown in the data and consideration of industry loss development benchmarks . this method 's implicit assumption is that the relative adequacy of case reserves has been consistent over time , and that there have been no material changes in the rate at which claims have been reported . the second method is the paid development method . this method is similar to the reported development method ; however , case reserves are excluded from the analysis . while this method has the disadvantage of not recognizing the information provided by current case reserves , it has the advantage of avoiding potential distortions in the data due to changes in case reserving methodology . this method 's implicit assumption is that the rate of payment of claims has been relatively consistent over time . the third method is the reported bornhuetter-ferguson ( ยb-fย ) method . this method is essentially a blend of two other methods . the first method is the loss development method ( described above ) , whereby actual reported losses are multiplied by an expected loss development factor . for slow reporting coverages , the loss development method can lead to erratic and unreliable projections , because a relatively small swing in early reporting periods can result in a large swing in ultimate projections . the second method is the expected loss method ( a description of the expected loss method follows the description of the reported b-f method ) , whereby the ibnr estimate equals the difference between a predetermined estimate of expected losses and actual reported losses . this has the advantage of stability , but it does not respond to actual results as they emerge . the reported b-f method combines these two methods by setting ultimate losses equal to actual reported losses plus expected unreported losses . as an experience year matures and expected unreported losses become smaller , the initial expected loss assumption becomes gradually less important . two parameters are needed to apply the b-f method : the initial expected loss ratio and the expected reporting pattern . the initial expected loss ratio for each accident year other than the current year is set equal to the estimated ultimate loss ratio from the prior analysis . the initial expected loss ratio for the current year is determined based on trends in historical ratios , rate changes , and underlying loss trends . the expected reporting pattern is based on the reported loss development method described above . this method is often used for long-tail lines and in situations where the reported loss experience is relatively immature or lacks sufficient credibility for the application of other methods . as mentioned above , one component of the b-f method is the expected loss method . story_separator_special_tag in this method , ultimate loss projections are based upon some prior measure of the anticipated losses , usually relative to some measure of 27 exposure , such as premiums , revenues , or payroll . an expected loss ratio ( or loss cost/pure premium ) is applied to the measure of exposure to determine estimated ultimate losses for each year . actual losses are not considered in this calculation . this method has the advantage of stability over time because the ultimate loss estimates do not change unless the exposures or pure premiums change . however , this advantage of stability is offset by a lack of responsiveness , since this method does not consider actual loss experience as it emerges . this method is based on the assumption that the pure premium per unit of exposure is a good indication of ultimate losses . it is entirely dependent on pricing assumptions . the fourth method is the paid b-f method . this method is analogous to the reported b-f method using paid losses and development patterns in place of reported losses and patterns . the fifth method is the reported counts and averages method . in this method , an estimate of unpaid losses is determined by separately projecting ultimate reported claim counts and ultimate reported claim severities ( cost per reported claim ) for each accident period . typically , loss development methods are used to project ultimate claim counts and claim severities based on historical data using the same methodology described in the reported development method above . estimated ultimate losses are then calculated as the product of the two items . this method is intended to avoid data distortions that may exist with the other methods for the most recent years as a result of changes in case reserve levels , settlement rates , etc . in addition , it may provide insight into the drivers of loss experience . the sixth method is the paid counts and averages method . this method is analogous to the reported counts and averages method using paid claims counts and paid claim severities and their related development patterns in place of reported data . in selecting the rtr development factors described above , due consideration is given to how the rtr development factors change from one year to the next over the course of several consecutive years of recent history . in addition to the loss development triangles cited above , various diagnostic triangles , such as triangles showing historical patterns in the ratio of paid to reported losses and paid to reported claim counts are typically prepared as a means of determining the stability of various determinants of loss development , such as consistency in claims settlement and case reserving . the implicit assumption of these techniques is that the selected rtr factors combine to form loss development patterns that are predictive of future loss development . the effects of inflation are implicitly considered in the reserving process , the implicit assumption being that the selected development factors includes an adequate provision . occasionally , unusual aberrations in loss patterns are caused by external and internal factors such as changes in claim reporting , settlement patterns , unusually large losses , an unusually large amount of catastrophe losses , process changes , legal or regulatory changes , and other influences . in these instances , analyses of alternate development factor selections are performed to evaluate the effect of these factors , and actuarial judgment is applied to make appropriate development factor assumptions needed to develop a best estimate of ultimate losses . the six methods described above all produce an estimate of ultimate losses . based on the results of these six methods , a single estimate ( commonly referred to as a actuarial point/central estimate ) of the ultimate loss is selected . estimated ibnr reserves are determined by subtracting the reported loss from the selected ultimate loss . the estimated ibnr reserves are added to case reserves to determine the total estimated unpaid losses . estimates of unpaid losses for hurricane experience are not developed using company specific development patterns , due to the relatively infrequent nature of storms and the high severity typically associated with them . both the reported development method and the paid development method were used to estimate ultimate losses . however , the development patterns were based on industry data determined by our consulting actuary . there is an inherent assumption that relying on industry development patterns as opposed to company specific patterns produces more credible results for projecting hurricane losses . estimated unpaid amounts for non-catastrophe ao expenses are determined as the product of the estimated number of outstanding claims ( whether open or unreported ) times an estimate of average ao per claim . universal 's claims are handled by universal adjusting corporation ( ยuacย ) , a wholly owned subsidiary . uac is compensated based on a fee schedule as follows : 28 replace_table_token_11_th in cases where a claim exceeds $ 10,000 , uac is compensated on a time and expense basis based on the following fee schedule : category fee non-clerical $ 70/hour clerical $ 45/hour mileage $ 0.45/mile photographs $ 2.25/each uac is compensated at the time a claim is closed ( whether with or without payment ) . the procedure we followed was to begin by developing a history of average ao expenses per closed claim ( whether with or without payment ) for each line of business . since average fees have increased dramatically in the last two years , we placed reliance primarily on the indications from those two years in making our selections . the selected average ao expense was then multiplied by the estimated number of claims to be closed in the future ( whether with or without payment ) to determine an estimated liability .
| however , the rate of decrease in premiums due to the wind mitigation discounts was less in 2010 than 2009. net premiums earned increased 20.3 % to $ 170,442,897 for the year ended december 31 , 2010 , from $ 141,653,725 for the year ended december 31 , 2009. the increase is due to an increase in direct premiums earned and a proportionally lower increase in ceded premiums earned related to changes in the reinsurance program as described in ยnote 3 ย reinsuranceย in the accompanying notes to the company 's consolidated financial statements in part ii , item 8 below . insurers like upcic experience the impact of rate or discount changes up to 12 months after they are implemented because the changes are effective as policies renew throughout the year . although insurers may seek to rectify any rate discrepancies through subsequent rate increase filings with the oir , there is no assurance that the oir and the insurers will agree on the amount of rate change that is needed . in addition , any adjustments to the insurers ' rates similarly take up to 12 months to be fully integrated into the insurers ' business . net investment income decreased 31.7 % to $ 992,235 for the year ended december 31 , 2010 from $ 1,453,599 for the year ended december 31 , 2009. net investment income is comprised primarily of interest and dividends . the decrease is primarily due to a change in the composition of the company 's investment portfolio during 2010. realized gains on investments increased to $ 27,691,623 for the year ended december 31 , 2010 from $ 24,175,045 for the year ended december 31 , 2009 due to sales of securities . unrealized gains on investments of $ 1,753,919 include a transfer of $ 656,307 of unrealized losses upon the reclassification of the available-for-sale investment portfolio as a trading portfolio effective july 1 , 2010 , unrealized 34 gains of $ 2,669,321 from trading securities during the six-month period ended december 31 , 2010 , and unrealized losses of $ 259,095 on exchange traded derivatives . prior to july 1 , 2010 , the changes in unrealized gains and losses on the company 's available-for-sale portfolio were appropriately included in other comprehensive income rather than current period income . foreign currency gains on investments decreased to $ 1,122,603 for the year ended december 31 , 2010 from $ 6,808,419 for the year ended december 31 , 2009. the decrease is due
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the allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date . the allowance is established through the provision for loan losses , which is charged to income . determining the amount of the allowance for loan losses necessarily involves a high degree of judgment . among the material estimates required to establish the allowance are : loss exposure at default ; the amount and timing of future cash flows on impacted loans ; value of collateral ; and determination of loss factors to be applied to the various elements of the portfolio . all of these estimates are susceptible to significant change . management reviews the level of the allowance at least quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio , past loss experience , current economic conditions and other factors related to the collectability of the loan portfolio . although we believe that we use the best information available to establish the allowance for loan losses , future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation . in addition , the office of the comptroller of the currency , as an integral part of its examination process , periodically reviews our allowance for loan losses and may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination . a large loss could deplete the allowance and require increased provisions to replenish the allowance , which would adversely affect earnings . note 1 of the notes to consolidated financial statements beginning on page f-1 of this annual report describes the methodology used to determine the allowance for loan losses . the company has not made any substantive changes to its methodology for determining the allowance for loan losses during the fiscal year ended september 30 , 2012 , and there have been no material changes in the assumptions or estimation techniques compared to prior years . other-than-temporary impairment of securities . the company reviews all investment securities with significant declines in fair value for potential other-than-temporary impairment ( โ otti โ ) on a periodic basis . in evaluating the investment portfolio for otti , management considers the issuer 's credit rating , credit outlook , payment status and financial condition , the length of time the investment has been in a loss position , the size of the loss position and other meaningful information . generally changes in market interest rates that result in a decline in value of an investment security are considered to be temporary , since the value of such investment can recover in the foreseeable future as market interest rates return to their original levels . however , such declines in value that are due to the underlying credit quality of the issuer or other adverse conditions that can not be expected to improve in the foreseeable future , may be considered to be other-than-temporary . the company recognizes credit-related otti on debt securities in earnings , while noncredit-related otti on debt securities not expected to be sold is recognized in accumulated other comprehensive income . management believes this is a critical accounting policy because this evaluation of the underlying credit or analysis of other conditions contributing to the decline in value involves a high degree of complexity and requires us to make subjective judgments that often require assumptions or estimates about various matters . no other-than-temporary write-down charges to earnings were recognized during 2012 or 2011. see note 4 of the notes to consolidated financial statements beginning on page f-1 of this annual report for additional information regarding otti . 30 valuation methodologies . in the ordinary course of business , management applies various valuation methodologies to assets and liabilities that often involve a significant degree of judgment , particularly when active markets do not exist for the items being valued . generally , in evaluating various assets for potential impairment , management compares the fair value to the carrying value . quoted market prices are referred to when estimating fair values for certain assets , such as investment securities . however , for those items for which market-based prices do not exist , management utilizes significant estimates and assumptions to value such items . examples of these items include goodwill and other intangible assets , foreclosed and other repossessed assets , estimated present value of impaired loans , value ascribed to stock-based compensation and certain other financial investments . the use of different assumptions could produce significantly different results , which could have material positive or negative effects on the company 's results of operations . operating strategy our mission is to operate and grow a profitable community-oriented financial institution . we plan to achieve this by executing our strategy of : ยท continuing our historical focus on residential mortgage lending but de-emphasizing residential mortgage lending secured by non-owner occupied properties ; ยท pursuing opportunities to increase commercial real estate lending and commercial business lending ; ยท improving customer service and product offerings by leveraging the bank 's investment in new technology including the core operating system ; ยท providing exceptional customer service to attract and retain customers ; ยท promoting our presence , brand image and product offerings in our primarily market area using our newly designed logo and marketing promotions that were launched in september 2011 ; ยท continuing to monitor asset quality and credit risk in the loan and investment portfolios ; ยท recognizing improvements in noninterest income with respect to service charges on deposits as a result of restructuring deposit account types and fees , commission income related to non-deposit investment products and gains on sales of mortgage loans sold in the secondary market ; ยท expanding our market share and market area by opening new branch offices and pursuing opportunities to acquire other financial institutions or branches ; and ยท increasing shareholder value through stock repurchase programs and potential story_separator_special_tag future dividend plans . 31 continuing our historical focus on residential mortgage lending but de-emphasizing residential mortgage lending secured by non-owner occupied properties . our predominant lending activity has been residential mortgage lending in our primary market area . a significant portion of the residential mortgage loans that we had originated before 2005 are secured by non-owner occupied properties . loans secured by non-owner occupied properties generally carry a greater risk of loss than loans secured by owner-occupied properties , and our non-performing loan balances have increased in recent periods primarily because of delinquencies in our non-owner occupied residential loan portfolio . since 2005 , when we hired a new president and chief executive officer , we have de-emphasized non-owner occupied residential mortgage lending and have focused , and intend to continue to focus , our residential mortgage lending primarily on originating residential mortgage loans secured by owner-occupied properties . at september 30 , 2012 , 47.7 % of our total loans were residential mortgage loans and 20.4 % of our residential mortgage loans were secured by non-owner occupied properties . we intend to expand our emphasis on residential mortgage lending because this type of lending generally carries lower credit risk and has contributed to our historically favorable asset quality . pursuing opportunities to increase commercial real estate lending and commercial business lending . in recent periods , we have begun to focus on commercial real estate and commercial business lending and intend to continue this focus . commercial real estate loans and commercial business loans give us the opportunity to earn more income because these loans have higher interest rates than residential mortgage loans in order to compensate for the increased credit risk . at september 30 , 2012 , commercial real estate loans and commercial business loans represented 22.6 % and 9.0 % , respectively , of our total loans . we intend to continue to pursue these lending opportunities in our primary market area . in addition , the company 's participation in the united states department of the treasury 's small business lending fund program , as discussed further in note 25 of the notes to consolidated financial statements beginning on page f-1 of this annual report , also provides an incentive and capital to increase commercial lending . continuing to integrate the community first and first federal offices , customers and product lines . during 2010 , we began to integrate the community first offices and customers by integrating the core operating systems of the bank and community first onto a single core operating system , which was successfully completed in august 2010. this single system permits bank customers to utilize all office locations , permits bank officers and staff to extract and monitor a standard set of information available from all office locations and allows the bank to offer a uniform set of product offerings focus . in addition , during 2011 and 2012 we successfully rebranded all office locations , including those operating under the community first name , with a new โ look ' and logo for first savings bank in order to provide uniformity to our existing and prospective customer base . in 2012 we began to integrate the first federal offices and customers into the existing first savings franchise . providing exceptional customer service to attract and retain customers . as a community-oriented financial institution , we emphasize providing exceptional customer service as a means to attract and retain customers . we deliver personalized service and respond with flexibility to customer needs . we believe that our community orientation is attractive to our customers and distinguishes us from the larger banks that operate in our primary market area . expanding our market share and market area . the 2009 acquisition of community first expanded our market area into harrison , crawford and washington counties , indiana , while the 2012 acquisition of the first federal branches enhanced our presence in harrison and floyd counties , indiana . as previously discussed , we successfully rebranded the twelve office locations during 2011 and 2012 with a new look and logo for first savings bank and have also expanded our marketing efforts as a result of such . in addition , we intend to continue to pursue opportunities to expand our market share and market area by seeking to open additional branch offices and pursuing opportunities to acquire other financial institutions or branches of other financial institutions in our primary market area and surrounding areas . 32 issuance of preferred stock under the u.s. department of the treasury 's small business lending fund on august 11 , 2011 , first savings financial group entered into and consummated a securities purchase agreement ( the โ purchase agreement โ ) with the secretary of the treasury , pursuant to which first savings financial group issued 17,120 shares of senior non-cumulative perpetual preferred stock , series a ( the โ series a preferred stock โ ) , having a liquidation amount per share equal to $ 1,000 , for a total purchase price of $ 17.1 million . the purchase agreement was entered into , and the series a preferred stock was issued , pursuant to the small business lending fund program , a $ 30 billion fund established under the small business jobs act of 2010 , that encourages lending to small businesses by providing capital to qualified community banks with assets of less than $ 10 billion . see note 25 of the notes to consolidated financial statements beginning of page f-1 of this annual report for additional information regarding the terms of the series a preferred stock . balance sheet analysis cash and cash equivalents . at september 30 , 2012 and 2011 , cash and cash equivalents totaled $ 38.8 million and $ 27.2 million , respectively . the bank is required to maintain reserve balances on hand and with the federal reserve bank which are unavailable for investment but interest-bearing and the average amount of those reserve balances for the year ended september 30 , 2012 was approximately $ 2.8 million .
| , which more than offset a decrease in the average cost of interest-bearing liabilities from 1.27 % for 2011 to 1.04 % for 2012. total interest income increased $ 11,000 , and remained consistent at $ 26.0 million for both years 2011 and 2012. the slight increase in total interest income is due primarily to an increase in the average balance of interest earning assets of $ 47.2 million from $ 475.5 million for 2011 to $ 522.7 million for 2012 , which more than offset the change in total interest income due to a decrease in the average tax-equivalent yield on interest-earning assets from 5.57 % for 2011 to 5.11 % for 2012. the increase in the average balance of interest-earning assets primarily relates to increases in the average balance of loans of $ 22.6 million , investment securities of $ 19.3 million and interest-bearing deposits with banks of $ 4.7 million . the increase in the average balance of loans is due primarily to the acquisition of the first federal branches . interest income on loans decreased $ 76,000 , or 0.4 % , from $ 20.7 million for 2011 to $ 20.6 million for 2012 due primarily to a decrease in the average tax-equivalent yield on loans from 5.96 % for 2011 to 5.58 % for 2012 , which more than offset the change in interest income on loans due to an increase in the average balance of loans outstanding of $ 22.6 million from $ 348.5 million for 2011 to $ 371.1 million for 2012. the increase in the average balance of loans outstanding is due primarily to the acquisition of the first federal branches , which primarily increased residential mortgage and consumer loans , and an increase in commercial real estate loans . in an effort to increase the size and diversity of the loan portfolio , the bank offered competitive rates on short-term commercial real estate mortgage loans and was successful in
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we believe this supplier is capable of producing api to support the initial commercial launch of amr101 . however , based on the positive results of our marine and anchor clinical trials and the potential for greater than originally expected product demand , we determined in 2011 to add additional suppliers . our goals in expanding our supply chain were to provide greater capacity to meet anticipated demand , enable supply diversification and flexibility and introduce cost competition . after conducting an extensive global search for manufactures capable of producing amr101 api to our technical specifications , we entered into limited exclusivity , long-term agreements with two additional api suppliers in 2011. we are currently working to finalize terms and conditions with a fourth supplier . certain of our api supply agreements contain provisions under which the cost of supply to us decreases as we purchase increased product volume . the agreements with each of our api suppliers contemplate phased capacity expansion aimed at creating sufficient capacity to meet anticipated demand for api material for amr101 following fda approval . accordingly , nisshin and our other potential suppliers are currently working to expand and qualify their production capabilities to meet regulatory requirements to manufacture the api for amr101 . these api suppliers are self-funding these expansion and qualification plans with contributions from amarin . there can be no assurance that additional suppliers will fully-fund the capital costs of our engagement or that they will successfully qualify with the fda . our nda for amr101 references supply from nisshin with which we have had the longest relationship and is best qualified to support our launch of amr101 . we have defined with the fda our plan and specifications for qualifying the additional api suppliers . we intend to submit sndas for the use of these additional api suppliers after the suppliers successfully complete the qualification process and the nda is approved . for api encapsulation , we submitted two commercial encapsulators as part of our nda . we believe that both of these companies have the capacity to support our product launch requirements . during 2012 , we intend to increase our purchases of api and finished capsules of amr101 in preparation of commercial launch . we plan to make certain of these purchases prior to nda approval with the aim to further expand purchase levels of supply after nda approval . we may elect to make api purchases from certain of our suppliers after we are satisfied that the material they produce and their facilities are qualified . however , in the event that we make such purchases , we will not be able to use such material for commercial sale until the snda for the applicable supplier is approved by the fda . similarly , if we are not compliant with other regulations with regard to this intended purchase of supply , our launch may be delayed . 51 commercialization strategy we are currently considering three potential paths for the marketing and sale of amr101 : strategic collaboration , acquisition and self-commercialization , that latter of which could include a third-party collaboration . from time to time we have held discussions with larger pharmaceutical companies on potential collaborations and other strategic opportunities with larger pharmaceutical companies and we may have discussions regarding such opportunities in the future . these strategic opportunities may include licensing or similar transactions , joint ventures , partnerships , strategic alliances , business associations , or a sale of the company . however , we can not estimate the timing of such potential collaborations . no assurance can be given that we will enter into any such strategic transaction . until such time when we enter into such a strategic transaction , if ever , we plan to continue to execute on our plans to launch , market and sell amr101 on our own . the u.s. market is currently our primary focus for the initial commercial launch of amr101 . opportunities to market and sell amr101 outside of the united states are also under evaluation . january 2012 financing and financial position on january 9 , 2012 , amarin , through its wholly-owned subsidiary corsicanto limited , a private limited company incorporated under the laws of ireland , completed a private placement of $ 150.0 million in aggregate principal amount of its 3.50 % exchangeable senior notes due 2032. the notes are the senior unsecured obligations of corsicanto and are guaranteed by amarin corporation plc . the notes bear interest at a rate of 3.50 % per annum , payable semi-annually in arrears on january 15 and july 15 of each year , beginning on july 15 , 2012. the notes mature on january 15 , 2032 , unless earlier repurchased , redeemed or exchanged . on or after january 19 , 2017 , we may elect to redeem for cash all or a portion of the notes for the principal amount of the notes plus accrued and unpaid interest . on each of january 19 , 2017 , january 19 , 2022 and january 19 , 2027 , the holders of the notes may require that we repurchase in cash the principal amount of the notes plus accrued and unpaid interest . at any time prior to january 15 , 2032 , upon certain circumstances , which circumstances include our issuing a notice of redemption to the note holders , the price of amarin shares trading above 130 % of the exchange price , or certain other events defined in the note agreement , the holders of the notes may elect to convert the notes . the exchange rate for conversion is 113.4752 adss per $ 1,000 principal amount of the notes ( equivalent to an initial exchange price of approximately $ 8.8125 per ads ) , subject to adjustment in certain circumstances , including adjustment if we pay cash dividends . upon exchange , the notes may be settled , at amarin 's election , subject to certain conditions , in cash , adss or a combination of cash and adss . story_separator_special_tag the proceeds received by amarin from the january 2012 debt offering were approximately $ 144.3 million , net of estimated fees and transaction costs . together with our cash balance of $ 116.6 million at december 31 , 2011 , we believe that we have sufficient financial resources to fund our projected operations at least for the next twelve months , including advancement of the reduce-it cardiovascular outcomes study and preparations for and commercial launch of amr101 on each of the three potential paths we are considering for commercialization , subject to regulatory approval . unless we enter into a strategic collaboration in support of a commercial launch , we may need to raise additional capital to support these efforts on our own . critical accounting policies and significant judgments and estimates our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements and notes , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses . on an ongoing basis , we evaluate our estimates and judgments , including those related to derivative financial liabilities . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and 52 liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . a summary of our significant accounting policies is contained in note 2 to our consolidated financial statements included elsewhere in this annual report on form 10-k. we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . derivative financial liabilities ยderivative financial liabilities on initial recognition are recorded at fair value . they are subsequently held at fair value , with gains and losses arising for changes in fair value recognized in the statement of operations . the fair value of derivative financial liabilities is determined using valuation techniques , typically we use the black-scholes option pricing model , or a monte carlo simulation depending on the nature of the instrument . we use our judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date . fluctuations in the assumptions used in the valuation model would result in adjustments to the fair value of the warrants reflected on our balance sheet and , therefore , our statement of operations . if we issue shares to discharge the liability , the derivative financial liability is derecognized and common stock and additional paid-in capital are recognized on the issuance of those shares . for options and warrants treated as derivative financial liabilities , at settlement date the carrying value of the options and warrants are transferred to equity . the cash proceeds received from shareholders for additional shares are recorded in common stock and additional paid-in capital . inventory capitalization ยuntil amr101 is approved for commercial marketing and sale , it is considered a product candidate under development . as such , until an nda for amr101 is approved , all supply of amr101 purchased will not be capitalized and will be included as a component of research and development expense . upon nda approval , we plan to capitalize subsequent amr101 purchases as inventory . purchases of amr101 received and expensed before nda approval will not be subsequently capitalized . recent accounting pronouncements from time to time , new accounting pronouncements are issued by fasb and are adopted by us as of the specified effective date . unless otherwise discussed , we believe that the impact of recently issued accounting pronouncements will not have a material impact on consolidated financial position , results of operations , and cash flows , or do not apply to our operations . effects of inflation we believe the impact of inflation on operations has been minimal during the past three years . story_separator_special_tag each reporting period , with changes in fair value recognized in the statement of operations . the fair value of the warrant derivative liability at december 31 , 2010 was $ 230.1 million and we recognized a $ 205.2 million loss on change in fair value of derivative liability for the period ended december 31 , 2010 for these warrants . the fair value of the warrant derivative liability at december 31 , 2011 was $ 123.1 million and we recognized a $ 22.7 million loss on change in fair value of derivative liability for the period ended december 31 , 2011. the decrease in the warrant derivative liability value was due primarily to the decrease in the price of our common shares . see further discussion of the warrant derivative liability in note 2 and note 7 of the notes to the consolidated financial statements . interest income ( expense ) , net . interest income includes interest earned on cash balances . interest expense for the year ended december 31 , 2011 was $ 1,000 versus $ 19,000 in the prior year . other ( expense ) income , net . other ( expense ) income primarily includes gains and losses on foreign exchange transactions . other ( expense ) income for the year ended december 31 , 2011 was a net expense of $ 10,000 versus income of $ 130,000 in the prior year . ( provision for ) benefit from income taxes . provision for the year ending december 31 , 2011 was a $ 2.5 million provision versus a $ 0.5 million benefit in the prior year . the increase in the 2011 provision for income taxes primarily relates to the exercise of stock options of which the excess benefits related to the option exercises are recorded to additional-paid-in capital .
| although clinical costs for the marine and anchor trials have decreased as a result of their completion in 2011 , we expect these cost reductions to be offset in 2012 by costs for the reduce-it cardiovascular outcomes study as part of which dosing of initial patients commenced in december 2011. we currently estimate that cumulative costs incurred through a cro for reduce-it will approximate $ 25 million in 2012 and $ 125 million through the estimated six year term of the study . we also anticipate increases in research and development costs during 2012 related to the purchase of supply of amr101 , which supply we intend to include as a component of research and development expense for accounting purposes prior to nda approval . the amount of expense we incur for amr101 supply during 2012 depends upon the timing of receipt of api from our suppliers and the timing of an nda approval . general and administrative expense . general and administrative expense for the year ended december 31 , 2011 was $ 22.6 million , versus $ 17.1 million in the prior year , an increase of $ 5.5 million , or 32.2 % . general and administrative expenses for the years ended december 31 , 2011 and 2010 are summarized in the table below : replace_table_token_7_th ( 1 ) general and administrative expense , excluding restructuring , severance and non-cash compensation charges for stock compensation and warrants , for the year ended december 31 , 2011 was $ 14.8 million , versus $ 7.2 million in the prior year , an increase of $ 7.6 million , or 105.6 % . the increase was primarily due to higher staffing levels in 2011 , increased overhead costs for increased office space and higher costs in 2011 for marketing studies and other pre-commercial activities . ( 2 ) warrant related compensation ( income ) expense for the year ended december 31 , 2011 was $ 0.1 million of income , versus $ 5.7 million of expense in the prior year , a change of $ 5.8 million . warrant related compensation income for the period ended december 31 , 2011 reflects non-cash income for the change in fair value of the warrant derivative liability associated with warrants issued in october 2009 to three former officers of amarin , net of warrants exercised . the income in 2011 was due primarily to
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a relief from royalty method is generally used to determine the fair value of trade names . key inputs and assumptions to the valuation model are a reasonable approximation of the license rate for the trade name , forecasted revenues and the discount rate applied to present value the after-tax stream of estimated royalties avoided by acquiring the trade name . tangible asset valuation : trucks , containers and equipment are some of the major asset classes subject to revaluation as a result of our acquisitions . the indirect and direct methods of the cost approach and the market approach are used by the company to value tangible personal property assets . following is a description of the methodologies for estimating the fair value of the major tangible fixed asset classes : the market approach is used for the valuation of trucks . the market approach is based on market conditions and transactions . in the market approach , the assets being valued are compared to recent sales and or asking prices of comparable properties or assets . in using similar units of comparison , adjustments are made to the comparable assets to account for factors such as condition , capacity , and age . the direct method of the cost approach is used in the valuation of containers . in the direct method of the cost approach , replacement cost new ( โ rcn โ ) is determined through current cost information obtained from original equipment manufacturers , equipment dealers and vendors , and independent research . the cost of reproduction new ( โ crn โ ) of equipment is calculated using the indirect method of the cost approach . historical equipment costs and dates are used to calculate the current crn . in the indirect method of the cost approach , trend factors are applied to the historical costs to estimate the crn of the assets . time-adjusted trend factors are applied to historical costs using asset category specific cost indices published by industry sources . the crn is then adjusted for physical deterioration and functional and economic obsolescence . goodwill and other identifiable intangible assets : we have historically evaluated goodwill for impairment annually as of june 30 , or when an indicator of impairment exists . during 2016 , we changed the date of our annual goodwill impairment assessment for our reporting units to october 1st . in addition , we changed our annual impairment test date for other indefinite-lived intangibles from december 31 to october 1. this voluntary change in the annual indefinite-lived intangible testing dates is a change in accounting principle , which we believe is preferable as it better aligns the timing of the annual goodwill impairment test with the timing of the company 's annual strategic planning and forecasting process which occurs in q3 . the change in the other indefinite-lived intangible testing date aligns the testing of all indefinite-lived impairment testing to be as of a consistent date . the voluntary change in accounting principle related to the annual testing dates did not delay , accelerate or avoid an 2016 10-k annual report stericycle , inc. 29 part ii impairment charge . this change is not applied retrospectively as it is impracticable to do so because retrospective application would require application of significant estimates and assumptions with the use of hindsight . accordingly , the change will be applied prospectively . as discussed above , we changed the composition of our operating segments in 2016. due to these changes , part of our domestic rcs operating segment was combined with the legacy domestic regulated recall and returns management services operating segment to form a new operating segment , domestic crs in q2 2016 and the domestic rcs is now domestic and canada rcs . the operations in canada had previously been reported as part of the international rcs operating segment . during q4 , we determined that our former international rcs reporting unit should be disaggregated into three new reporting units for goodwill impairment testing purposes which is one level below the operating segment ( referred to as a โ component โ ) . in addition , the four components of the domestic and canada rcs operating segment will now be the reporting units . this was primarily a result of some of the business and economic challenges we have recently faced in m & i and internationally . as a result of the changes , g oodwill from the former international rcs reporting unit was reallocated to the four new reporting units including canada based on their relative fair values . we completed a similar reallocation of goodwill for the new domestic and canada rcs reporting units . due to the establishment of the new reporting units during q4 2016 and the change in our annual goodwill impairment testing date discussed above , we performed a goodwill impairment evaluation for all reporting units as of october 1 , 2016. there was no impairment of goodwill because the fair value of those reporting units exceeded their carrying values . we also tested the former reporting units for goodwill impairment immediately prior to the establishment of the new reporting units and there was no impairment of goodwill . we calculate the fair value of each of our reporting units using the income approach ( including discounted cash flows ) and validate those results using a market approach . the income approach uses expected future cash flows of each reporting unit and discounts those cash flows to present value . expected future cash flows are calculated using management assumptions of growth rates , including long-term growth rates , capital expenditures , and cost efficiencies . future acquisitions are not included in the expected future cash flows . we use a discount rate based on a calculated weighted average cost of capital which is adjusted for each of our reporting units based on size , country and company specific risk premiums . the market approach compares the valuation multiples of similar companies to that of the associated reporting unit . story_separator_special_tag we then reconciled the calculated fair values to our market capitalization . the results of our 2016 goodwill impairment test using the market approach corroborated the results of the impairment test under the income approach and indicated the fair value of our reporting units exceeded their respective book values . we have determined that our permits and certain tradenames have indefinite lives due to our ability to renew them with minimal additional cost , and therefore they are not amortized . the calculated fair value of our indefinite-lived intangibles is based upon , among other things , certain assumptions about expected future operating performance , internal and external processing costs , and an appropriate discount rate determined by management . based on our impairment test as of october 1 , 2016 , we recognized an impairment charge of $ 1.4 million within selling , general and administrative expenses on our consolidated statements of income . future changes in our assumptions or the interrelationship of the assumptions described above may negatively impact future valuations . in future measurements of fair value , adverse changes in assumptions could result in impairments of goodwill or other intangible assets that would require non-cash charges and may have a material effect on our financial condition and operating results . 2016 10-k annual report stericycle , inc. 30 part ii our finite-lived intangible assets are amortized over their useful lives using the straight-line method . we have determined that our customer relationships have useful lives fro m 5 to 40 years based upon the type of customer . we have covenants not-to-compete intangibles with useful lives from 5 to 14 years . we have tradename intangibles with useful lives from 10 to 40 years . these assets are reviewed for impairment whenever event s or changes in circumstances indicate that the carrying amount of an asset may be less than its undiscounted estimated future cash flows . environmental remediation liabilities : our environmental remediation liabilities primarily include costs associated with remediating air , groundwater , surface water , soil contamination , and applicable legal costs . to estimate our ultimate liability at these sites , we evaluate several factors , including the nature and extent of contamination at each identified site , the required remediation methods , timing of expenditures , and the apportionment of responsibility among the potentially responsible parties ( โ prps โ ) and the financial viability of those parties . we routinely review and evaluate sites that require remediation , considering whether we were an owner , operator , transporter , or generator at the site , that amount and type of waste hauled to the site and the number of years we were connected with the site . next , we review the same information with respect to other named and unnamed prps . estimates of the cost for the likely remedy are then either developed using our internal resources or by third party environmental engineers or other service providers . income taxes : we are subject to income taxes in both the u.s. and numerous foreign jurisdictions . we compute our provision for income taxes using the asset and liability method , under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities and for operating loss and tax credit carry-forwards . deferred tax assets and liabilities are measured using the currently enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled . significant judgments are required in order to determine the realizability of these deferred tax assets . in assessing the need for a valuation allowance , we evaluate all significant available positive and negative evidence , including historical operating results , estimates of future taxable income and the existence of prudent and feasible tax planning strategies . changes in the expectations regarding the realization of deferred tax assets could materially impact income tax expense in future periods . undistributed earnings of foreign subsidiaries are considered to be permanently reinvested , and therefore no deferred taxes are recorded on our outside basis differences . tax liabilities are recorded when , in management 's judgment , a tax position does not meet the more likely than not threshold for recognition . for tax positions that meet the more likely than not threshold , a tax liability may still be recorded depending on management 's assessment of how the tax position will ultimately be settled . the company records interest and penalties on unrecognized tax benefits in the provision for income taxes . year ended december 31 , 2016 compared to year ended december 31 , 2015 highlights for the year ended december 31 , 2016 included the following : revenues grew to $ 3.56 billion , a 19.3 % increase over $ 2.99 billion in 2015 ; gross profit as a percentage of revenue decreased to 42.2 % in 2016 from 42.4 % in 2015 ; operating income decreased 11.0 % to $ 433.8 million from $ 487.6 million in 2015 ; we incurred $ 164.5 million in pre-tax expenses related to acquisitions and integration expenses , litigation and professional services expenses , plant conversion expenses , contract exit costs , asset impairment charges , and a favorable change in the fair value of contingent consideration ; amortization expense increased to $ 129.3 million from $ 45.5 million in 2015 , primarily due to the completion of intangible valuations for our shred-it acquisition resulting in a true-up of amortization expense ; cash flows from operations were $ 547.2 million ; and 2016 10-k annual report stericycle , inc. 31 part ii dividends of $ 39.4 million were paid during 2016 to holders of our series a preferred stock .
| income tax expense : income tax expense decreased to $ 142.9 million during 2015 from $ 159.4 million during 2014. the reported tax rates for the years 2015 and 2014 were 34.8 % and 32.7 % , respectively . the increase in the current year tax rate when compared to the prior year , is primarily related to an increase in the state tax rate , partially offset by a benefit from the recognition of tax deductible goodwill associated with entity mergers in spain , brazil , and chile in the prior year . liquidity and capital resources : the following senior credit facility , term loan , and the private placement notes require us to comply with various financial , reporting and other covenants and restrictions , including a restriction on dividend payments : $ 1.2 billion senior credit facility weighted average rate 2.14 % , due in 2019 $ 1.0 billion term loan weighted average rate 2.07 % , due in 2020 $ 175 million private placement notes 3.89 % , due in 2017 $ 125 million private placement notes 2.68 % , due in 2019 $ 225 million private placement notes 4.47 % , due in 2020 $ 150 million private placement notes 2.89 % , due in 2021 $ 125 million private placement notes 3.26 % , due in 2022 $ 200 million private placement notes 2.72 % , due in 2022 $ 100 million private placement notes 2.79 % , due in 2023 $ 150 million private placement notes 3.18 % , due in 2023 the financial debt covenants are the same for the senior credit facility , term loan , and the private placement notes . at december 31 , 2016 , we were in compliance with all of our financial debt covenants . our senior credit 2016 10-k annual report stericycle , inc. 39 part ii facility , term loan , and the priva te placement notes rank pari passu to each other and all other unsecured debt obligations . at december 31 , 2016 , we had $ 407.1
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product portfolio our approved and marketed products were acquired through the ctrm transaction and include three approved autologous cell therapy products , each of which are further described below : carticel ( autologous cultured chondrocytes ) , a first-generation product for autologous chondrocyte implantation ( aci ) currently marketed in the u.s. , maci ( matrix-applied characterized autologous cultured chondrocytes ) , a third-generation aci product , and epicel ( cultured epidermal autografts ) , a permanent skin replacement for full thickness burns greater than or equal to 30 % of total body surface area . our product candidate portfolio also includes ixmyelocel-t , a patient-specific multicellular therapy currently in development for the treatment of advanced heart failure due to ischemic dilated cardiomyopathy ( dcm ) . carticel carticel , a first-generation aci product for the treatment and repair of cartilage defects in the knee , is the first and only fda-approved autologous cartilage repair product . carticel is indicated for the repair of symptomatic cartilage defects of the femoral condyle ( medial , lateral or trochlea ) caused by acute or repetitive trauma , in patients who have had an inadequate response to a prior arthroscopic or other surgical repair procedure such as debridement , microfracture , drilling/abrasion arthroplasty , or osteochondral allograft/autograft . carticel received a biologics license application ( bla ) approval in 1997 and is currently marketed in the u.s. it is generally used on patients with larger lesions ( greater than 3 cm 2 ) . in the u.s. , we focus net sales of carticel on the sports-injury-targeted orthopedic physician target audience , which is very concentrated , with 60 % of the current carticel business originating from 25 % of this audience , or approximately 110 physicians . we currently have a 21-person field force calling on this sports-injury targeted orthopedic physician audience . epicel epicel is a permanent skin replacement for full thickness burns greater than or equal to 30 % of total body surface area ( tbsa ) . epicel is regulated by the cber under medical device authorities , and is the only fda-approved autologous epidermal product available for large total surface area burns . epicel was designed as a hud in 1998 and a hde application for the product was submitted in 1999. huds are devices that are intended for diseases or conditions that affect or are manifested in fewer than 4,000 individuals annually in the united states . currently , approximately less than 100 patients are treated with epicel in the u.s. each year . in the year ended december 31 , 2014 , net revenues were $ 9.5 million for epicel which represents the entire year net sales pre and post the transaction . under the hde approval of 2007 , epicel can not not be sold for an amount that exceeds the cost of research and development , fabrication and distribution . however , pursuant to the pediatric medical device safety and improvement act of 2007 and the fda safety and innovation act of 2012 ( fdasia ) , a hud can be sold for profit if certain conditions are met . under current law as amended by fdasia , an hde holder can make a profit on its hud after receiving hde approval if the device is intended for the treatment or diagnosis of a disease or condition that occurs in pediatric patients or in a pediatric subpopulation , and such device is labeled for use in pediatric patients or in a pediatric subpopulation in which the disease or condition occurs ; or is intended for the treatment or diagnosis of a disease or condition that does not occur in pediatric patients or that occurs in pediatric patients in such numbers that the development of the device for such patients is impossible , highly impracticable , or unsafe . if the fda makes a determination that a hud meets the eligibility criteria , the hud is permitted to be sold for profit after receiving hde approval as long as the number of devices distributed in any calendar year does not exceed the annual distribution number ( adn ) for the device . the adn is determined by fda when it approves the original hde application , or when the agency approves an hde supplement for an hde approved before the enactment of fdasia , if the hde holder seeks a determination for the hud in an hde supplement based upon the profit-making eligibility criteria , and fda determines that the hud meets the eligibility criteria . we are currently investigating epicel 's eligibility for an exemption from the profit prohibition and have requested a pre-submission meeting with the fda to discuss the process and required data for submitting an hde supplement to obtain an exemption from the profit prohibition . epicel is currently being sold at a price that reflects the cost of research and development , fabrication and distribution . also , up until july , 2014 , we had one sales representative selling epicel and two partially dedicated medical scientific liaisons supporting epicel inquiries . 47 maci maci is a third-generation aci product for the treatment of focal chondral cartilage defects in the knee . maci received marketing authorization in europe in july 2013 by meeting the requirements of the advanced therapy and medicinal product ( atmp ) guidelines . maci has been commercially available in the eu since 1998. as part of the june 2014 restructuring we temporarily suspended sales of maci in august 2014 , primarily due to low utilization and an unfavorable pricing environment . we believe that maci has significant revenue potential in the u.s. , and we are planning to discuss approval requirements with the fda . the timing and process to gain approval in the u.s. is the subject of a type b meeting with the fda which is scheduled for the middle of the second quarter . the timing and strategy for and a possible reintroduction in select eu countries have not yet been determined . story_separator_special_tag maci was obtained by sanofi by acquiring verigen ag ( verigen ) in 2005 . as part of sanofi 's acquisition of verigen , sanofi agreed to make cash payments to verigen upon the achievement of developmental milestones relating to regulatory and commercialization of maci in the united states . in connection with our acquisition of the ctrm business from sanofi , we agreed that if we further developed maci in the u.s. , we would be obligated to pay these milestone payments . during the third quarter of 2014 , at the request of the company , sanofi entered into a settlement agreement with the former shareholders of verigen whereby these shareholders agreed to discharge all obligations related to these maci milestone payments in exchange for a one-time cash payment of ย2.5 million ( approximately $ 3.2 million ) due within two months from the date of the settlement agreement . we paid this amount in full on october 17 , 2014 . ixmyelocel-t our preapproval stage portfolio also includes ixmyelocel-t , a unique patient-specific multicellular therapy derived from an adult patient 's own bone marrow which utilizes our proprietary , highly automated and scalable manufacturing system . our proprietary cell manufacturing process significantly expands the mesenchymal stromal cells ( mscs ) and m2-like anti-inflammatory macrophages in the patient 's bone marrow mononuclear cells while retaining many of the hematopoietic cells . these cell types are known to regulate the immune response and play a key role in tissue repair and regeneration by resolving pathologic inflammation , promoting angiogenesis , and remodeling ischemic tissue . the novelty and advantage of using ixmyelocel-t is the expansion of a unique combination of cell populations , including mscs and m2-like macrophages , which secrete a distinct combination of angiogenic and regenerative factors , and possess the ability to remain anti-inflammatory in the face of inflammatory challenge . our lead clinical development program for ixmyelocel-t is focused on severe , chronic ischemic cardiovascular diseases . we are currently conducting the phase 2b ixcell-dcm study , which is a randomized , double-blind , placebo-controlled clinical trial for patients with advanced heart failure due to ischemic dcm . ixmyelocel-t has been granted a u.s. orphan drug designation by the fda for the treatment of dcm . we also have an ongoing ixmyelocel-t clinical program for the treatment of craniofacial reconstruction and have conducted clinical studies for the treatment of critical limb ischemia . the ongoing phase 2b ixcell-dcm clinical study has treated 114 patients at 28 sites in the u.s. and canada . patients will be followed for 12 months for the primary efficacy endpoint of mace events , defined as all-cause deaths , all-cause hospitalizations , and unplanned outpatient or emergency department visits for iv treatment of acute worsening heart failure . secondary endpoints include clinical , functional , structural , symptomatic , quality of life , and biomarker measures at 3 , 6 and 9 months . patients will be followed for an additional 12 months for safety . we completed enrollment of the ixcell-dcm study in january 2015 , and expect to have top-line efficacy results around the end of the first quarter of 2016. story_separator_special_tag style= '' border : none ; border-bottom : solid windowtext 1.0pt ; padding:0in 0in 0in 0in ; width:36.12 % ; '' valign= '' bottom '' width= '' 36 % '' > year ended december 31 , ( in thousands ) 2014 2013 selling , general and administrative costs $ 13,774 $ 5,875 selling , general and administrative expenses for the years ended december 31 , 2014 and 2013 were $ 13.8 million and $ 5.9 million , respectively . the increase in expenses is primarily due to approximately $ 5.4 million in sales and marketing expenses from the ctrm business , approximately $ 1.6 million in increased information technology , legal , consulting and personnel costs related to integrating and managing the ctrm business in the u.s. , an increase of approximately $ 0.5 million in restructuring charges , and $ 1.4 million in general administrative costs from the danish subsidiary , which has ceased manufacturing operations net of a reduction of $ 1.1 million in the acquired leased facility restoration obligation in denmark . neither the ctrm business nor the danish operations were part of our business in 2013. other income ( expense ) replace_table_token_5_th the increase in warrant value for the year ended december 31 , 2014 compared to 2013 was primarily due to the reduction of warrants outstanding due to the exercise of warrants in july 2014 partially offset by the reduction in the time to maturity and change in our stock price in the period . fluctuations in the fair value of the warrants due to the reduction in the time to maturity and change in our stock price in the future periods could result in significant non-cash adjustments to the condensed combined consolidated financial statements , however , any income or expense recorded will not impact our cash , operating expenses , or cash flow . the bargain purchase gain of $ 3.5 million for the year ended december 31 , 2014 is associated with the acquisition of the ctrm business on may 30 , 2014. the foreign currency translation gain was the result of the strengthening u.s. dollar and its impact on intercompany balances with the danish subsidiary . 50 stock compensation non-cash stock-based compensation expense included in research and development expenses and general , selling and administrative expenses is summarized in the following table : replace_table_token_6_th non-cash stock-based compensation expense for the years ended december 31 , 2014 and 2013 were consistent . liquidity and capital resources we are currently focused on utilizing our technology to identify , develop and commercialize innovative therapies that enable the body to repair and regenerate damaged tissues and organs to restore normal structure and function . until such time as we satisfy , if at all , applicable regulatory approval requirements for ixmyelocel-t and maci , we expect the sales of carticel and epicel therapies to constitute nearly all of our product sales revenues .
| epicel revenue is also subject to seasonal fluctuations mostly associated with the use of heating elements during the colder months , with stronger sales occurring in the winter months of the first and fourth quarters , and weaker sales occurring in the hot summer months of the third quarter . however , in any single year , this trend can be absent due to the extreme variability inherent with epicel 's low patient volume of fewer than 100 patients per year . over the last four years , the percentage of annual sales by quarter has ranged as follows : first quarter , 28 % ; second quarter , 24 % ; third quarter , 20 % ; and fourth quarter , 28 % . the variability between the same quarters in consecutive years has been as high as 10 % of the annual volume . while the number of patients treated per year remains low , we expect these large swings in revenue in some quarters to continue . these seasonal trends have caused and will likely continue to cause , fluctuations in our quarterly results , including fluctuations in sequential revenue growth rates . gross profit and gross profit ratio ( in thousands ) year ended december 31 , 2014 gross profit $ 11,503 gross profit % 40 % period comparisons for gross profit are not yet meaningful due to the acquisition of the ctrm business . gross profit for the year ended december 31 , 2014 included $ 2.5 million of restructuring expenses which reduced the gross profit margin by 10 percentage points for the year ended december 31 , 2014 . 49 research and development costs year ended december 31 , ( in thousands ) 2014 2013 research and development costs $ 21,263 $ 15,104 research and development expenses for the year ended december 31 , 2014 were $ 21.3 million versus $ 15.1 million for the same period a year ago . the increase in research and development expenses resulted from $ 7.2 million in increased expenses for the ixcell-dcm clinical trial , $ 4.3 million
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if we fail to raise capital or enter into such agreements as and when needed , we may have to significantly delay , scale back or discontinue the development or commercialization of sgt-001 or our other product candidates . 74 because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or determine when or if we will be able to achieve or maintain profitability . even if we are able to generate revenue from product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . on january 30 , 2018 , we completed our initial public offering in which we sold 8,984,375 shares of our common stock , including shares of our common stock issued upon the exercise in full of the underwriters ' over-allotment option , at a public offering price of $ 16.00 per share , resulting in net proceeds of $ 129.1 million , after deducting underwriting discounts and commissions and offering expenses . as of december 31 , 2018 , we had cash , cash equivalents and available-for-sale securities of $ 122.5 million . we believe that our cash , cash equivalents and available-for-sale securities as of december 31 , 2018 will enable us to fund our operating expenses and capital expenditure requirements through the first quarter of 2020. we have based this estimate on assumptions that may prove to be wrong , and we could use our available capital resources sooner than we currently anticipate . corporate conversion we operated as a delaware limited liability company under the name solid biosciences , llc until immediately prior to the effectiveness of our registration statement on form s-1 on january 25 , 2018 , at which time we converted into a delaware corporation pursuant to a statutory conversion and changed our name to solid biosciences inc. in addition , immediately following the statutory conversion , entities formed solely for the purpose of holding membership interests in our limited liability company were merged with and into us . we refer to the corporate conversion and the mergers , collectively as the corporate conversion . as a result of the corporate conversion , the holders of the series 1 and 2 senior preferred and junior preferred units and series a , b , c and d common units of solid biosciences , llc became holders of common stock of solid biosciences inc. the consolidated financial statements included elsewhere in this annual report on form 10-k are those of solid biosciences inc. and its subsidiaries . merger and recapitalization we historically owned 100 % of the voting units of our wholly owned subsidiary , solid gt , llc , or solid gt , and the results of solid gt are included in our consolidated financial statements . solid gt was organized in delaware in august 2014 and was engaged in the business of developing disease-modifying interventions for dmd through gene therapy . in november 2015 , solid gt issued voting units to new investors , which decreased our voting ownership in solid gt to 77 % . we consolidated the results of solid gt as we owned a majority voting interest in solid gt and we directed the activities of solid gt . net loss attributable to non-controlling interests in our consolidated statement of operations and comprehensive loss consists of the portion of the net income or loss of solid gt that is not allocated to us . changes in the amount of net loss attributable to non-controlling interests are directly impacted by changes in the net income or loss of solid gt . on march 29 , 2017 , we merged the operations of solid gt into the company and solid gt ceased to exist as a separate legal entity . as a result , for periods subsequent to march 29 , 2017 , we no longer report any non-controlling interests related to solid gt . financial operations overview revenue we have not generated any revenue to date and do not expect to generate any revenue from the sale of our products for the next few years , if ever . if our development efforts for sgt-001 or our other product candidates are successful and result in marketing approval or if we enter into collaboration or license agreements with third parties , we may generate revenue in the future from a combination of product sales or payments from those collaboration or license agreements . 75 operating expenses we classify our operating expenses into two categories : research and development , and general and administrative expenses . personnel costs , including salaries , benefits , bonuses and equity-based compensation expense , comprise a significant component of each of these expense categories . we allocate expenses associated with personnel costs based on the nature of work associated with these resources . research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts , and the development of sgt-001 and our other product candidates and include : expenses incurred under agreements with third parties , including cros , that conduct research and preclinical activities on our behalf , as well as cmos , that manufacture sgt-001 and our other product candidates for use in our preclinical studies and clinical trials ; salaries , benefits and other related costs , including equity-based compensation expense , for personnel engaged in research and development functions ; costs of outside consultants , engaged to assist in our research and development activities , including their fees , equity-based compensation and related travel expenses ; costs of laboratory supplies and acquiring , developing and manufacturing preclinical study and clinical trial materials ; costs incurred in seeking regulatory approval of sgt-001 and our other product candidates ; expenses incurred under our intellectual property licenses ; story_separator_special_tag and facility-related research and development expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we expense research and development expenses as incurred . we recognize costs for certain development activities , such as preclinical research and development and clinical trial costs , based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors , collaborators and third-party service providers . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our consolidated financial statements as prepaid or accrued research and development expenses . we typically use our employee and infrastructure resources across our product candidates . we track outsourced development costs and milestone payments made under our licensing arrangements by product candidates , but we do not allocate personnel costs , license payments made under our licensing arrangements or other internal costs to product candidates on a program-specific basis . these costs are included in unallocated research and development expenses in the table below . the following table summarizes our research and development expenses by product candidates for the respective periods : replace_table_token_2_th 76 we can not determine with certainty the duration , costs and timing of clinical trials of sgt-001 and our other product candidates or if , when or to what extent we will generate revenue from the commercialization and sale of any our product candidates for which we obtain marketing approval or our other research and development expenses . we may never succeed in obtaining marketing approval for any of our product candidates . the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the scope , rate of progress , expense and results of any clinical trials of sgt-001 or other product candidates and other research and development activities that we may conduct ; the imposition of regulatory restrictions on clinical trials , including full and partial clinical holds and the time and activities required to lift any such holds ; uncertainties in clinical trial design and patient enrollment or drop out or discontinuation rates ; significant and changing government regulation and regulatory guidance ; potential additional studies or clinical trials requested by regulatory agencies ; the timing and receipt of any marketing approvals ; and the expense of filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will continue to increase for the foreseeable future as we proceed with clinical trials for sgt-001 , initiate clinical trials for product candidates other than sgt-001 and continue to identify and develop additional product candidates . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including equity-based compensation , for personnel in our executive , finance , business development and administrative functions . general and administrative expenses also include legal fees relating to patent and corporate matters , professional fees for accounting , auditing , tax and consulting services , insurance costs , travel expenses , and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of office facilities and other operating costs . we expect that our general and administrative expenses will increase in the future as we increase our general and administrative personnel headcount to support our research and development activities and activities related to the potential commercialization of sgt-001 and our other product candidate . we also expect to continue to incur increased expenses associated with being a public company , including costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance costs and investor and public relations costs . other income ( expense ) revaluation of preferred unit tranche rights included in the terms of the redeemable preferred unit purchase agreement was a right , which we refer to as the redeemable preferred tranche right , granted to the holders of the redeemable preferred units issued in december 2013. the redeemable preferred tranche right obligated the holders to purchase , and provided the holders with the right to purchase , additional redeemable preferred units under certain circumstances . the redeemable preferred tranche right was transferrable by the investors . the terms of the series 1 senior preferred unit purchase agreement , as amended on september 1 , 2017 , also contained a right , which we refer to as the series 1 tranche right . the series 1 tranche right obligated the holders of the series 1 senior preferred units to purchase 1,973,430 series 2 senior preferred units at a purchase price of $ 12.67 per unit in the event we achieved certain preclinical milestones . in addition , the holders of a majority of the series 1 senior preferred units had the right to require the holders of the series 1 senior preferred units to purchase the series 2 senior preferred units at any time prior to december 1 , 2017. the series 1 tranche right was subject to certain transfer rights . 77 we concluded that the redeemable preferred tranche right and the series 1 tranche right , together the tranche rights , met the definition of a freestanding financial instrument as the tranche rights were legally detachable and separately exercisable from the redeemable preferred units and the series 1 senior preferred units . therefore , we allocated the net proceeds between the tranche rights and the redeemable preferred units or the series 1 senior preferred units .
| the reduction in equity-based compensation of $ 2.3 million was primarily due to a charge associated with the exchange of certain of our vested common units in connection with the recapitalization of solid biosciences , llc and our merger with solid gt on march 29 , 2017. revaluation of preferred unit tranche rights we issued the series 1 tranche right on march 29 , 2017 and it was settled in october 2017 in connection with the series 2 senior preferred unit financing . the revaluation of the series 1 tranche right resulted in a gain of $ 0.5 million in the year ended december 31 , 2017 due to the settlement of the tranche right . 80 interest income interest income was $ 0.6 million and $ 0.2 million for the years ended december 31 , 2018 and 2017 respectively . the increase in interest income was due to an increase in available-for-sale securities in our portfolio . other income other income for the year ended december 31 , 2018 was $ 0.3 million compared to $ 1.0 million for the year ended december 31 , 2017. the decrease of $ 0.7 million was due a reduction of income from charitable organizations . we do not expect these contributions to significantly increase in future periods . comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 : replace_table_token_5_th research and development expenses replace_table_token_6_th research and development expenses for the year ended december 31 , 2017 were $ 39.9 million , compared to $ 20.1 million for the year ended december 31 , 2016. the increase of $ 19.8 million in research and development costs was due to a $ 10.8 million increase in clinical and preclinical research and manufacturing costs related to our lead product candidate sgt-001 , $ 0.6 million increase in costs related to our other product candidates and $ 8.4 million increase in unallocated research and development costs due primarily to increased compensation and headcount . general and administrative expenses general and administrative expenses were $ 15.0 million for the year ended december 31 , 2017 , compared to $ 5.5 million for the year ended december 31 , 2016. the increase of $ 9.5 million was
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the allowance is determined based on management 's knowledge of the business , specific customers , review of receivable aging and a specific identification of accounts where collection is at risk . at december 31 , 2010 , the allowance for doubtful accounts for accounts receivable was $ 0.3 million , or 0.9 % of gross accounts receivable . at december 31 , 2009 , the allowance for doubtful accounts for accounts receivable was $ 0.4 million , or 1.2 % of gross accounts receivable . in the fourth quarter of 2008 , we wrote off all receivables totaling approximately $ 1.0 million from eclipse aviation corporation , a customer that declared bankruptcy during the fourth quarter of 2008. the impact amounted to approximately a $ 0.6 million reduction in net income or $ .06 per diluted share in 2008 . 18 inventory valuation we record valuation reserves to provide for excess , slow moving or obsolete inventory or to reduce inventory to the lower of cost or market value . in determining the appropriate reserve , management considers the age of inventory on hand , the overall inventory levels in relation to forecasted demands as well as reserving for specifically identified inventory that we believe is no longer salable . at december 31 , 2010 , our reserve for inventory valuation was $ 11.2 million , or 22.4 % of gross inventory . at december 31 , 2009 , our reserve for inventory valuation was $ 11.6 million , or 26.7 % of gross inventory . in the fourth quarter of 2008 , we recorded a reserve for inventory on hand used exclusively for the eclipse 500 aircraft . eclipse aviation corporation , the manufacturer of the aircraft filed for bankruptcy protection , ceased production , terminated its workforce and petitioned the bankruptcy court to liquidate its assets . the pre-tax charge relating to the eclipse inventory amounted to approximately $ 7.4 million , reducing net income by approximately $ 4.8 million or $ 0.45 per diluted share in 2008. deferred tax asset valuation allowances deferred income taxes 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 . we record a valuation allowance to reduce deferred tax assets to the amount of future tax benefit that we believe is more likely than not to be realized . we consider recent earnings projections , allowable tax carryforward periods , tax planning strategies and historical earnings performance to determine the amount of the valuation allowance . changes in these factors could cause us to adjust our valuation allowance , which would impact our income tax expense when we determine that these factors have changed . as of december 31 , 2010 we had net deferred tax assets of $ 10.4 million , net of a $ 0.9 million valuation allowance . as of december 31 , 2009 , we had net deferred tax assets of $ 11.8 million , net of a $ 0.7 million valuation allowance . these assets principally relate to goodwill and intangible assets , employee benefit liabilities , asset reserves , depreciation and state and foreign general business tax credit carry-forwards . impairment of long-lived assets goodwill impairment testing our goodwill is the result of the excess of purchase price over net assets acquired from acquisitions . as of december 31 , 2010 , we had approximately $ 7.6 million of goodwill . as of december 31 , 2009 , we had approximately $ 7.5 million of goodwill . the change in goodwill is due to the impact of changes in foreign currency . we test goodwill for impairment at least annually as of november 1 , and more frequently whenever events occur or circumstances change that indicates there may be impairment . these events or circumstances could include a significant long-tem adverse change in the business climate , poor indicators of operating performance or a sale or disposition of a significant portion of a reporting unit . the process of evaluating our goodwill for impairment is subjective and requires significant estimates . these estimates include judgments about future cash flows that are dependent on internal forecasts , long-term growth rates and estimates of the weighted average cost of capital used to discount projected cash flows . we test goodwill at the reporting unit level , which is one level below our operating segments . we identify our reporting units by assessing whether the components of our operating segment constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components . we also aggregate components that have similar economic characteristics into single reporting units ( for example , similar products and / or services , similar long-term financial results , product processes , classes of customers , etc. ) . we currently have four reporting units ; three within the aerospace segment and the fourth being in the test systems segment . three of the four reporting units carry goodwill . 19 the goodwill impairment test consists of comparing the fair value of a reporting unit , determined using discounted cash flows , with its carrying amount including goodwill . if the carrying amount of the reporting unit exceeds the reporting unit 's fair value , the implied fair value of goodwill is compared to the carrying amount of goodwill . an impairment loss would be recognized for the amount by which the carrying amount of goodwill exceeds the implied fair value of goodwill . testing goodwill for impairment requires us to estimate fair values of reporting units using significant estimates and judgmental factors . the key estimates and factors used in our discounted cash flow valuation include revenue growth rates and profit margins based on internal forecasts , terminal value , and the weighted-average cost of capital used to discount future cash flows . story_separator_special_tag we also consider any additional risk of each individual reporting unit achieving its forecasts , and adjust the weighted-average cost of capital applied when determining each reporting unit 's estimated fair value for these risks . we also compare the computed fair value to our market capitalization . future changes in these estimates and assumptions could materially affect the results of our goodwill impairment tests . all other reporting units noted fair values well in excess of the carrying value . if the projected long-term revenue growth rates , profit margins , or terminal rates are considerably lower , and or the estimated weighted-average cost of capital is considerably higher , future testing may indicate further impairment of one or more of the company 's reporting units and , as a result , the related goodwill would likely be impaired . during fiscal 2010 , based on the evaluation , we determined that none of the reporting units ' fair value was less than its carrying value . for the year ended december 31 , 2010 , the company did not record an impairment charge related to goodwill . the compound annual growth rate for revenue during the first six years of our projections ranged between 4.7 % and 13.4 % for the reporting units . the terminal value was calculated assuming projected growth rates of 3.0 % after six years . the estimated weighted-average cost of capital for the reporting units ranged from 11.0 % to 14.2 % based upon an analysis of companies considered to be market participants and their debt to equity mix , their related volatility and the size of their market capitalization . a decline in the terminal growth rate greater than 200 basis points or an increase in the weighted-average cost of capital greater than 150 basis points would have indicated impairment in 2010 for one reporting unit as of the impairment test date whose goodwill was $ 2.4 million . in 2009 , the test systems unit had a carrying amount exceeding the reporting unit 's fair value due to an unexpected decrease in projected future revenues and cash flows , combined with a higher weighted average cost of capital due to market conditions . therefore , we initiated step two of the goodwill impairment test which involves calculating the implied fair value of goodwill by allocating the fair value of the reporting unit to its assets and liabilities other than goodwill and comparing it to the carrying amount of goodwill . we estimated that the implied fair value of goodwill for this reporting unit was less than its carrying value by approximately $ 14.2 million which was recorded as an impairment charge during the fourth quarter of 2009. prior to the impairment charge , this reporting unit had goodwill of $ 16.6 million . the compound annual growth rate for revenue during the first five years of our projections ranged between 1.0 % and 9.0 % . the terminal value was calculated assuming projected growth rates of 3.0 % after five years . the estimated weighted-average cost of capital for the reporting units ranged from 14.0 % to 20.4 % based upon an analysis of companies considered to be market participants and their debt to equity mix , their related volatility and the size of their market capitalization . a decline in the terminal growth rate greater than 290 basis points or an increase in the weighted-average cost of capital greater than 180 basis points would have indicated impairment in 2009 for one reporting unit as of the impairment test date whose goodwill was $ 2.9 million . indefinite-lived intangible asset impairment testing we test our indefinite-lived intangible assets , which totaled $ 1.1 million as of december 31 , 2010 and 2009 for impairment , on an annual basis as of november 1 or more frequently , if an event occurs or circumstances change that indicate that the fair value of an indefinite-lived intangible asset could be below its carrying amount . the impairment test consists of comparing the fair value determined using an in-lieu of royalty valuation approach , with its carrying amount . an impairment loss would be recognized for the carrying amount in excess of its fair value . 20 for the year ended december 31 , 2010 , the company did not record an impairment charge on its indefinite-lived intangible assets . for the year ended december 31 , 2009 , the company recorded an impairment charge on its indefinite-lived intangible assets amounting to approximately $ 0.7 million . the impairment loss was incurred in the test systems segment and is included in the impairment loss on the consolidated statement of operations . there was no impairment loss for indefinite-lived intangible assets recognized in 2008. amortized and depreciable asset impairment testing property , plant and equipment and amortizable intangible assets are depreciated or amortized over their assigned useful lives . we test these long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable . the recoverability test consists of comparing the projected undiscounted cash flows , with its carrying amount . an impairment loss would then be recognized for the carrying amount in excess of its fair value . for the year ended december 31 , 2010 , the company did not record an impairment charge on its amortized intangible assets . for the year ended december 31 , 2009 , the company recorded an impairment charge on its amortized intangible assets amounting to approximately $ 4.5 million . the impairment loss was incurred in the test systems segment and is included in the impairment loss on the consolidated statement of operations . there was no impairment charge taken in 2008. supplemental retirement plan we maintain a supplemental retirement plan for certain executives .
| our strategy is to develop and maintain positions of technical leadership in chosen aerospace and test system markets , to leverage those positions to grow the amount of content and volume of product it sells to the markets in those segments and to selectively acquire businesses with similar technical capabilities that could benefit from our leadership position and strategic direction . key factors affecting our growth and profitability are the rate at which new aircraft are produced , government funding of military programs , our ability to have our products designed into the plans for new aircraft and the rates at which aircraft owners , including commercial airlines , refurbish or install upgrades to their aircraft . once designed into a new aircraft , the spare parts business is frequently retained by the company . sales to the commercial transport market totaled approximately 56.2 % of our total revenue in 2010. our cabin electronics products which provide in-seat power for passengers and power to in-flight entertainment systems ( ife ) found on commercial airlines around the world accounted for the majority of our sales to this market . since 2005 we have seen our sales to the commercial transport markets increase from approximately $ 31 million to approximately $ 110 million in 2010. most of this growth has been driven by increased installations of our cabin electronics products used to power in-flight entertainment systems and in-seat power systems by airlines around the world . maintaining and growing our sales to the commercial transport market will depend on airlines capital spending budgets for cabin up-grades as well as the purchase of new aircraft such as the boeing 787 and airbus a380 . this investment by the airlines is impacted by their profits , cash flow and available financing as well as competitive pressures between the airlines to improve the travel experience for their passengers . we expect the new aircraft , once in production will be equipped with more ife and in-seat power than previous generation aircraft . additionally , our ability to maintain and grow sales to this market depends on
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in the event that the u.s. or international economic conditions deteriorate , our revenue , profit and cash-flow levels could be materially adversely affected in future periods . in the event of such deterioration , many of our current or potential future customers may experience serious cash flow problems and as a result may , modify , delay or cancel purchases of our products . additionally , customers may not be able to pay , or may delay payment of , accounts receivable that are owed to us . if such events do occur , they may result in our fixed and semi-variable expenses becoming too high in relation to our revenues and cash flows . seasonality the company 's fiscal year begins on july 1 and ends on june 30. historically , the end users of the company 's products want to install its products prior to the summer ; therefore sales of its products historically peak in the period april 1 through june 30 , the company 's fiscal fourth quarter , and are reduced in the period july 1 through september 30 , the company 's fiscal first quarter . in addition , demand for our products is affected by the housing and construction markets . deterioration of the current economic conditions may also affect this trend . our fourth quarter of fiscal 2020 reflects the challenging business environment resulting from the covid-19 pandemic . the covid-19 pandemic has caused difficulties for security equipment professionals getting access to both commercial and residential installation sites . the company believes this access issue is an industry-wide issue related to covid-19 and not reflective of the loss of any market share unique to the company or any long-term negative reflection of the post-pandemic vibrancy of the security industry as a whole . critical accounting policies and estimates the company 's significant accounting policies are fully described in note 1 to the company 's consolidated financial statements included in its 2020 annual report on form 10-k. management believes the following critical accounting policies , among others , affect its more significant judgments and estimates used in the preparation of its consolidated financial statements . net sales the company is engaged in one major line of business : the development , manufacture , and distribution of security products , encompassing access control systems , door security products , intrusion and fire alarm systems , alarm communication services , and video surveillance products for commercial and residential use . the company also provides wireless communication service for intrusion and fire alarm systems on a monthly basis . these products are used for commercial , residential , institutional , industrial and governmental applications , and are sold worldwide principally to independent distributors , dealers and installers of security equipment . sales to unaffiliated customers are primarily shipped from the united states . the company has customers worldwide with major concentrations in north america . revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those products or services . for product sales the company typically transfers control at a point in time upon shipment or delivery of the product . for monthly communication services the company satisfies its performance obligation as the services are rendered and therefore recognizes revenue over the monthly period . typically timing of revenue recognition coincides with the timing of invoicing to the customers , at which time the company has an unconditional right to consideration . as such , the company typically records a receivable when revenue is recognized . the contract with the customer states the final terms of the sale , including the description , quantity , and price of each product purchased . payment for product sales is typically due within 30 and 180 days of the delivery date . payment for monthly communication services is billed on a monthly basis and is typically due at the beginning of the month of service . the company provides limited standard warranty for defective products , usually for a period of 24 to 36 months . the company accepts returns for such defective products as well as for other limited circumstances . the company also provides rebates to customers for meeting specified purchasing targets and other coupons or credits in limited circumstances . the company establishes reserves for the estimated returns , rebates and credits and measures such variable consideration based on the expected value method using an analysis of historical data . changes to the estimated variable consideration in subsequent periods are not material . the company analyzes sales returns and is able to make reasonable and reliable estimates of product returns based on the company 's past history . estimates for sales returns are based on several factors including actual returns and based on expected return data communicated to it by its customers . accordingly , the company believes that its historical returns analysis is an accurate basis for its allowance for sales returns . actual results could differ from those estimates . as a percentage of gross sales , sales returns , rebates and allowances were 9 % and 8 % for the fiscal years ended june 30 , 2020 and 2019 , respectively . concentration of credit risk an entity is more vulnerable to concentrations of credit risk if it is exposed to risk of loss greater than it would have had if it mitigated its risk through diversification of customers . such risks of loss manifest themselves differently , depending on the nature of the concentration , and vary in significance . the company had one customer with an accounts receivable balance that comprised 24 % and 19 % of the company 's accounts receivable at june 30 , 2020 and 2019 , respectively . story_separator_special_tag sales to this customer did not exceed 10 % of net sales during fiscal year ended june 30 , 2020. sales to this customer comprised 10 % of net sales during fiscal year ended june 30 , 2019. the company had another customer with an accounts receivable balance that comprised 10 % of the company 's accounts receivable at june 30 , 2020. sales to this customer did not exceed 10 % of net sales in either of the fiscal years ended june 30 , 2020 and 2019. the company had another customer with an accounts receivable balance that comprised 10 % of the company 's accounts receivable at june 30 , 2019. sales to this customer did not exceed 10 % of net sales in either of the fiscal years ended june 30 , 2020 and 2019. in the ordinary course of business , we have established a reserve for doubtful accounts and customer deductions in the amount of $ 326,000 and $ 88,000 as of june 30 , 2020 and 2019 , respectively . our reserve for doubtful accounts is a subjective critical estimate that has a direct impact on reported net earnings . this reserve is based upon the evaluation of accounts receivable agings , specific exposures and historical or anticipated events . inventories inventories are valued at the lower of cost or net realizable value , with cost being determined on the first-in , first-out ( fifo ) method . the reported net value of inventory includes finished saleable products , work-in-process and raw materials that will be sold or used in future periods . inventory costs include raw materials , direct labor and overhead . the company 's overhead expenses are applied based , in part , upon estimates of the proportion of those expenses that are related to procuring and storing raw materials as compared to the manufacture and assembly of finished products . these proportions , the method of their application , and the resulting overhead included in ending inventory , are based in part on subjective estimates and actual results could differ from those estimates . in addition , the company records an inventory obsolescence reserve , which represents the difference between the cost of the inventory and its estimated realizable value , based on various product sales projections . this reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age , historical trends , requirements to support forecasted sales , and the ability to find alternate applications of its raw materials and to convert finished product into alternate versions of the same product to better match customer demand . there is inherent professional judgment and subjectivity made by both production and engineering members of management in determining the estimated obsolescence percentage . in addition , and as necessary , the company may establish specific reserves for future known or anticipated events . the company also regularly reviews the period over which its inventories will be converted to sales . any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current . intangible assets impairment of long-lived assets โ the company reviews its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future net undiscounted cash flows expected to be generated by the asset group . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . as of june 30 , 2020 and 2019 , the company has determined that no impairment of long-lived assets exists . the company evaluates its indefinite-lived intangible assets for impairment at least on an annual basis and will evaluate them earlier if there are indicators of a potential impairment . those intangible assets that are classified as other intangibles with indefinite lives are not amortized . impairment testing is performed in two steps : ( i ) the company determines if there is impairment by comparing the fair value of a reporting unit with its carrying value , and ( ii ) if there is impairment , the company measures the amount of impairment loss by comparing the implied fair value of intangible assets with the carrying amount of the intangible assets . the company has concluded that no impairment of intangible assets occurred during the year ended june 30 , 2019. during the 4 th quarter of fiscal 2020 , the company determined that its indefinite-lived intangible asset relating to its marks usa i subsidiary trade-name was impaired . accordingly , the company recorded an impairment charge of $ 1,852,000 and as a result concluded that the asset no longer was considered to have an indefinite-life and reclassified the remaining balance of the underlying asset from indefinite-lived to a long-lived asset with a remaining useful life of 20 years as of june 30 , 2020. income taxes the company has identified the united states and new york state as its major tax jurisdictions . fiscal year 2017 is currently under audit by the internal revenue service ( โ irs โ ) . fiscal year 2018 and forward years are still open for examination . in addition , the company has a wholly-owned subsidiary which operates in a free zone in the dominican republic ( โ dr โ ) and is exempt from dr income tax .
| research and development expenses remained relatively constant at $ 7,257,000 in fiscal 2020 as compared to $ 7,212,000 in fiscal 2019. selling , general and administrative expenses for fiscal 2020 increased by $ 458,000 to $ 23,670,000 as compared to $ 23,212,000 in fiscal 2019. selling , general and administrative expenses as a percentage of net sales increased to 23.4 % in fiscal 2020 from 22.6 % in fiscal 2019. the increase in dollars resulted primarily from increases in employee compensation . the increase as a percentage of sales was primarily the result of the decrease in net sales as described above and the increased employee compensation expenses . at the conclusion of fiscal 2020 , the company determined that its indefinite-lived intangible asset relating to its marks usa i subsidiary trade-name was impaired . accordingly , the company recorded an impairment charge of $ 1,852,000 and reclassified the remaining balance of the underlying asset from indefinite-lived to a long-lived asset with a remaining useful life of 20 years as of june 30 , 2020. there was no impairment charge for the year ended june 30 , 2019. interest expense for fiscal 2020 remained relatively constant at $ 9,000 as compared to $ 21,000 for the same period a year ago . the company 's provision for income taxes for fiscal 2020 increased by $ 1,062,000 to $ 2,284,000 as compared to $ 1,222,000 for the same period a year ago . the company 's effective tax rate increased to 21 % for fiscal 2020 as compared to 9 % for fiscal 2019. the increase in the company 's effective tax rate resulted from the resolution of an irs audit of the company 's 2016 fiscal year , resulting in an additional provision of $ 1,555,000. net income for fiscal 2020 decreased by $ 3,703,000 to $ 8,520,000 as compared to $ 12,223,000 in fiscal 2019. this resulted primarily from the items discussed above . special note regarding forward-looking statements this annual report on form 10-k and the documents we incorporate by reference contain forward-looking statements within the meaning of section 27a
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revenue recognition licensing in connection with our licensing model , we follow financial accounting standards board ( โ fasb โ ) accounting standards codification ( โ asc โ ) 606-10-55-65 , by which we recognize revenue at the later of when ( 1 ) the subsequent sale or usage occurs or ( 2 ) the performance obligation to which some or all of the sales- or usage-based royalty has been allocated is satisfied ( in whole or in part ) . more specifically , we separately identify : ( i ) contracts for which , based on experience , royalties are expected to exceed any applicable minimum guaranteed payments , and to which an output-based measure of progress based on the โ right to invoice โ practical expedient is applied because the royalties due for each period correlate directly with the value to the customer of our performance in each period ( this approach is identified as โ view a โ by the fasb revenue recognition transition resource group , โ trg โ ) ; and ( ii ) contracts for which revenue is recognized based on minimum guaranteed payments using an appropriate measure of progress , in which minimum guaranteed payments are straight-lined over the term of the contract and recognized ratably based on the passage of time , and to which the royalty recognition constraint to the sales-based 35 royalties in excess of minimum guaranteed is applied and such sales-based royalties are recognized to distinct period only when the minimum guaranteed is exceeded on a cumulative basis ( this approach is identified as โ view c โ by the trg ) . wholesale sales we generate revenue through sale of branded jewelry and apparel to both domestic and international customers who , in turn , sell the products to their consumers . we recognize revenue when performance obligations identified under the terms of contracts with our customers are satisfied , which occurs upon the transfer of control of the merchandise in accordance with the contractual terms and conditions of the sale . direct to consumer sales our revenue associated with our e-commerce jewelry operations and the longaberger brand is recognized at a point in time when product is shipped to the customer . trademarks and other intangible assets we follow asc topic 350 , โ intangibles - goodwill and other. โ under this standard , goodwill and indefinite-lived intangible assets are not amortized , but are required to be assessed for impairment at least annually . our finite-lived intangible assets are amortized over their estimated useful lives . we perform our annual quantitative analysis of indefinite-lived intangible assets as of december 31 each year . as a result of performing our annual impairment testing of indefinite-lived intangible assets for the year ended december 31 , 2019 , we recorded a $ 6.2 million impairment charge related to the ripka brand trademarks , driven by the timing of the continued transition from a licensing model to a wholesale and direct-to-consumer model . effective january 1 , 2020 , we determined that the ripka brand , inclusive of all its trademarks , has a finite life of 15 years , and began to amortize these trademarks on a straight-line basis accordingly . during the year ended december 31 , 2020 , delays and uncertainty in implementing the brick-and-mortar retail store strategy for a portion of the ripka brand , primarily as a result of the novel coronavirus disease pandemic , indicated that the carrying value of the ripka brand trademarks may not be recoverable . therefore , we performed an impairment test of finite-lived intangible assets , and as a result , recorded a $ 13.0 million impairment charge related to the ripka brand trademarks . no other impairment charges were recorded for intangible assets for the years ended december 31 , 2020 and 2019. indefinite-lived intangibles the company tests its indefinite-lived intangible assets for recovery in accordance with asc 820-10-55-3f , which states that the income approach ( โ income approach โ ) converts future amounts ( for example , cash flows ) into a single current ( that is , discounted ) amount . when the income approach is used , fair value measurement reflects current market expectations about those future amounts . the income approach is based on the present value of future earnings expected to be generated by a business or asset . income projections for a future period are discounted at a rate commensurate with the degree of risk associated with future proceeds . a residual or terminal value is also added to the present value of the income to quantify the value of the business beyond the projection period . as such , recoverability of such assets is measured by a comparison of the carrying amount of the asset to its expected future discounted net cash flows . if the carrying amount of such assets is considered to be impaired , the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the recoverability of the assets . finite-lived intangibles the company 's finite-lived intangible assets , including trademarks , are reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable . an impairment loss is recognized if the carrying amount of a finite-lived intangible asset is not recoverable and its carrying amount exceeds its fair value . 36 with reference to our finite-lived intangible assets ' impairment process , the company groups assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of undiscounted future cash flows . if the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable , an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flows analysis or appraisals . leases we determine if an arrangement is a lease at inception . story_separator_special_tag at commencement of a lease , we recognize an operating lease right-of-use ( โ rou โ ) asset , representing our right to use the underlying leased asset for the lease term , and a lease liability , representing our obligation to make future lease payments , based on the present value of the remaining 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 . we may use the implicit rate when readily determinable . operating lease rou assets also include scheduled lease payments made and initial direct costs , and exclude lease incentives and accrued rent . lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option . lease expense for operating lease payments related to office leases is generally recognized on a straight-line basis over the lease term . lease expense for operating lease payments related to retail leases is generally recognized on a straight-line basis over the period of operation , as this is representative of the pattern in which benefit is derived from the lease . for real estate leases , we account for the lease and non-lease components as a single lease component . variable lease payments that do not depend on an index or rate ( such as real estate taxes and building insurance and lessee 's shares thereof ) , if any , are excluded from lease payments at lease commencement date for initial measurement . subsequent to initial measurement , these variable payments are recognized when the event determining the amount of variable consideration to be paid occurs . for leases with a term of 12 months or less , we do not recognize lease liabilities and rou assets , but recognize the lease payments in net income on a straight-line basis over the respective lease terms . we recognize income from subleases ( in which we are the sublessor ) on a straight-line basis over the term of the sublease , as a reduction to lease expense . income taxes income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities . deferred income taxes are determined based on the temporary difference between the financial reporting and tax bases of assets and liabilities using enacted rates in effect during the year in which the differences are expected to reverse . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . asc topic 740 , โ accounting for income taxes โ clarifies the accounting for uncertainty in income taxes recognized in an enterprise 's financial statements . tax positions shall initially be recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities . such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that has a probability of fifty percent or greater of being realized upon ultimate settlement with the tax authority , assuming full knowledge of the position and all relevant facts . tax years that remain open for assessment for federal and state tax purposes include the years ended december 31 , 2017 through december 31 , 2020. recently issued accounting pronouncements in december 2019 , the fasb issued accounting standards update ( โ asu โ ) no . 2019-12 , โ income taxes ( topic 740 ) : simplifying the accounting for income taxes. โ this asu removes certain exceptions to the general principles in topic 740 , including , but not limited to , intraperiod tax allocations and interim period tax calculations . the asu also provides additional clarification and guidance related to recognition of franchise taxes and changes in tax laws . this guidance is effective for public companies for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 37 2020 , with early adoption permitted . the adoption of this new guidance in 2021 will not have any significant impact on our results of operations , cash flows , and financial condition . in june 2016 , the fasb issued asu no . 2016-13 , `` financial instruments โ credit losses ( topic 326 ) : measurement of credit losses on financial instruments , '' which was subsequently amended in november 2018 through asu no . 2018-19. this asu will require entities to estimate lifetime expected credit losses for financial instruments , including trade and other receivables , which will result in earlier recognition of credit losses . in november 2019 , the fasb issued asu no . 2019-10 , which , among other things , deferred the application of the new guidance on credit losses for smaller reporting companies to fiscal years beginning after december 15 , 2022 , including interim periods within those fiscal years . we are currently evaluating the new guidance to determine the impact the adoption of this guidance will have on our results of operations , cash flows , and financial condition . recently adopted accounting pronouncements we adopted asu no . 2018โ13 , โ fair value measurement ( topic 820 ) : disclosure framework โ changes to the disclosure requirements for fair value measurement , โ effective january 1 , 2020. this asu adds , modifies , and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with topic 820 , โ fair value measurement. โ the adoption of this new guidance did not have any impact on our results of operations , cash flows , and financial condition . we adopted asu no . 2016-02 , โ leases , โ effective january 1 , 2019 , by applying the new guidance under the additional and alternative transition method allowed by asu no . 2018-11 , โ leases ( topic 842 ) : targeted improvements.
| this decrease was due to lower overall volume of wholesale and e-commerce sales in the current year . gross profit ( net revenue less cost of goods sold ) decreased approximately $ 7.4 million to $ 24.1 million from $ 31.5 million in the prior year , primarily driven by the aforementioned decline in net licensing revenue . gross profit margin from product sales increased from 33 % in the prior year to 41 % in the current year as a result of achieving greater efficiencies in our wholesale business operations . total gross profit margin was 75 % in the prior year and 81 % in the current year ; this increase was the result of the aforementioned increase in gross profit margins for product sales as well as the proportional shift of revenue mix towards licensing revenues in the current year . operating costs and expenses operating costs and expenses increased approximately $ 3.5 million from $ 36.9 million in the prior year to $ 40.4 million in the current year . this increase was primarily due to a $ 13.0 million non-cash impairment charge recorded in the current year related to the ripka brand trademarks , driven by delays and uncertainty in implementing the brick-and-mortar retail store strategy for a portion of the brand , primarily as a result of the covid-19 pandemic , compared with a similar $ 6.2 million non-cash impairment charge recorded in the prior year related to the ripka brand trademarks , which was driven by the timing of the transition from a licensing model to a wholesale and direct-to-consumer model . also contributing to the increase was a $ 1.6 million increase in depreciation and amortization expense , primarily due to the change in estimated life for the judith ripka trademarks as of january 1 , 2020 , and $ 1.0 million of bad debt expense recognized in the current year related to the bankruptcy of several retail customers due to the covid-19 pandemic . these increases in
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the relative selling price method allocates the consideration based on our specific assumptions rather than assumptions of a marketplace participant , and any discount in the arrangement proportionally to each deliverable on the basis of each deliverable 's selling price . applicable revenue recognition criteria are considered separately for each separate unit of accounting as follows : revenue from professional service arrangements is generally determined based on time and materials . revenue for professional services is recognized as the services are performed . billing for services rendered generally occurs within one month after the services are provided . license revenue is recognized when amounts owed to digimarc have been earned , are fixed or determinable ( within our normal 30 to 60 day payment terms ) , and collection is probable . if the payment terms extend beyond our normal 30 to 60 days , the fee may not be considered to be fixed or determinable , and the revenue would then be recognized when installments are due . we record revenue from certain license agreements upon cash receipt as a result of collectability not being reasonably assured . 25 our standard payment terms for license arrangements are 30 to 60 days . extended payment terms increase the likelihood we will grant a customer a concession , such as reduced license payments or additional rights , rather than hold firm on minimum commitments in an agreement to the point of losing a potential advocate and licensee of patented technology in the marketplace . extended payment terms on patent license arrangements are not considered to be fixed or determinable if payments are due beyond our standard payment terms , primarily because of the risk of substantial modification present in our patent licensing business . as such , revenue on license arrangements with extended payment terms are recognized as fees become fixed and determinable . subscription revenue is accounted for under asc 985. subscription revenue is generally paid in advance and recognized over the term of the license , which is generally twelve months , or upon delivery and acceptance if we grant a perpetual license with no further obligations . deferred revenue consists of billings in advance for professional services , licenses and subscriptions for which revenue has not been earned . impairments and estimation of useful lives of long-lived assets : we periodically assess long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable , in accordance with the provisions of asc 360 ย property , plant and equipment .ย this statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset . if the 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 . fair value is determined based on discounted cash flows or appraised values , depending on the nature of the asset . also , we periodically review the useful lives of long-lived assets whenever events or changes in circumstances indicate that the useful life may have changed . if the estimated useful lives of the assets do change , we adjust the depreciation or amortization period to a shorter or longer period , based on the circumstances identified . contingencies and litigation : we periodically evaluate all pending or threatened contingencies or commitments , if any , that are reasonably likely to have a material adverse effect on our operations or financial position . we assess the probability of an adverse outcome and determine if it is remote , reasonably possible or probable as defined in accordance with the provisions of asc 450 ย contingencies .ย if information available prior to the issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of our financial statements , and the amount of the loss , or the range of probable loss can be reasonably estimated , then the loss is accrued and charged to operations . if no accrual is made for a loss contingency because one or both of the conditions pursuant to asc 450 are not met , but the probability of an adverse outcome is at least reasonably possible , we will disclose the nature of the contingency and provide an estimate of the possible loss or range of loss , or state that such an estimate can not be made . patent costs : costs associated with the application and award of patents in the u.s. and various other countries are capitalized and amortized on a straight-line basis over the term of the patents as determined at award date , which varies depending on the pendency period of the application , generally approximating seventeen years . capitalized patent costs include internal legal labor , professional legal fees , government filing fees and translation fees related to obtaining the company 's patent portfolio . costs associated with the maintenance and annuity fees of patents are accounted for as prepaid assets at the time of payment and amortized over the respective periods , generally from one to four years . these patent costs are capitalized based on our determination that the related patents provide value through the life of the patent . however , we may subsequently determine a patent should be abandoned or has been impaired , in which case the accumulated cost , including maintenance fees , would be written off . through december 31 , 2011 , abandonment or write-offs have not been material either individually or in the aggregate . story_separator_special_tag 26 stock-based compensation : we account for stock-based compensation in accordance with asc 718 ย compensationยstock compensation , ย which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options and employee stock purchases under a stock purchase plan based on estimated fair values . we use the black-scholes option pricing model as our method of valuation for stock- based awards . our determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables . these variables include , but are not limited , to the expected life of the award , our expected stock price , volatility over the term of the award and actual and projected exercise behaviors . although the fair value of stock-based awards is determined in accordance with asc 718 , the black-scholes option pricing model requires the input of highly subjective assumptions , and other reasonable assumptions could provide differing results . for example , if we have low volatility , we would have a corresponding lower fair value of the stock-based award than if we had a higher volatility . the fair value of restricted stock awards granted is based on the fair market value of our common stock on the date of the grant ( measurement date ) , and is recognized over the vesting period of the related restricted stock using the straight-line method . income taxes , valuation allowance : we account for income taxes in accordance with asc 740 ย income taxes .ย deferred income taxes 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 . a valuation allowance is required for deferred tax assets if , based on available evidence , it is more likely than not that all or some portion of the asset will not be realized due to the inability to generate sufficient taxable income in the period and or of the character necessary to utilize the benefit of the deferred tax asset . the more-likely-than-not criterion means the likelihood of realization is greater than 50 percent . when evaluating whether it is more likely than not that all or some portion of the deferred tax asset will not be realized , we evaluate all available evidence , both positive and negative , that may affect the realizability of deferred tax assets and that should be identified and considered in determining the appropriate amount of the valuation allowance . results of operationsยthe years ended december 31 , 2011 and december 31 , 2010 the following tables present our statements of operations data for the periods indicated . replace_table_token_6_th 27 replace_table_token_7_th summary our revenue increased in 2011 from 2010 primarily as a result of revenue derived from our relationships with iv and verance , a long-term licensee . our revenue for 2010 included a one-time payment of license fees of $ 4.5 million from arbitron in the first quarter of 2010. the improved mix of high margin license revenue to total revenue also contributed favorably to our higher gross profit . throughout 2011 , we continued to invest in the development and marketing of digimarc discover , an application designed for digital devices to hear , see and react to their surroundings , in developing additional intellectual property and in our strategic initiatives . we also continued to incur legal expenses in connection with our litigation matter with verance . finally , our deferred tax asset valuation reserve was reversed in the second quarter of 2011 reflecting our determination that it was more likely than not that our deferred tax assets will be realized in current and future periods . revenue replace_table_token_8_th 28 we derive our revenue primarily from : 1 ) development services provided to government and commercial customers and 2 ) licensing our patents . service . service revenue consists primarily of software development and consulting services . the majority of service revenue arrangements are structured as time and materials consulting agreements , or fixed price consulting agreements . the majority of our service revenue is derived from contracts with the central banks , nielsen , including the joint venture tvaura llc , government agencies and iv . the agreements range from several months to several years in length , and our longer term contracts are subject to work plans that are reviewed and agreed upon at least annually . these contracts generally provide for billing hours worked at predetermined rates and , to a lesser extent , for cost reimbursement for third party costs and services . increases or decreases in the services provided under these contracts are generally subject to both volume and price changes . the volume of work is generally negotiated at least annually and can be modified as the customer 's needs change . we also have provisions in our longer term contracts that allow for specific hourly rate price increases on an annual basis to account for cost of living variables . contracts with other government agencies are generally shorter term in nature , less linear in billings and less predictable than our longer terms contracts because the contracts with other government agencies are subject to government budgets and funding . the increases in service revenue were primarily due to increased program work related to the central banks and increased revenue from our relationship with iv , offset by decreased revenue from other government customers . license and subscription . license revenue originates primarily from licensing our technology and patents where we receive royalties as our income stream . subscription revenue consists primarily of royalty revenue from the sale of our web-based subscriptions related to various software products , which are more recurring in nature . revenues from our licensed products have minimal associated direct costs , and thus are highly profitable .
| the increases in gross profit as a percentage of revenue was due primarily to favorable margins from our government ( including the central banks ) and nielsen joint venture service contracts primarily as a result of improved labor utilization in the variable component of our costs of services , and increased revenues attributed to the licensing arrangements with iv , arbitron and civolution . 37 operating expenses sales and marketing replace_table_token_22_th the increases in sales and marketing expense resulted primarily from : increased professional fees of $ 0.4 million related to developing marketing materials for our patent monetization and mobile device market initiatives , and increased contract labor and professional fees of $ 0.2 million related to the mobile device market , in particular visual search . research , development and engineering replace_table_token_23_th the increases in research , development and engineering expense resulted primarily from increased headcount and employee compensation-related expenses from hiring additional engineers and scientists to facilitate expected growth in service revenue , and to increase our investment in research and development primarily related to the mobile device market , in particular visual search . general and administrative replace_table_token_24_th the increases in general and administrative expenses resulted primarily from : increased professional fees of $ 0.6 million related to the iv arrangement and investor relations , increased legal and accounting fees of $ 0.5 million related to the iv arrangement and litigation matters , and increased stock-based compensation of $ 0.3 million related to an additional layer of stock-based award grants . intellectual property replace_table_token_25_th 38 the increases in intellectual property expenses reflect variable spending levels based on : the level of capitalized patent activity , and prosecution costs and direct labor hours ( salaries , payroll taxes and benefits factor and incentive compensation related to our stock compensation plans ) related to the patents that were exclusively licensed to iv that are allocated to cost of revenue . stock-based compensation replace_table_token_26_th the increases in stock-based compensation expense were primarily due to an additional layer of stock-based awards . net loss from joint ventures year ended december 31 , 2010 year ended december 31 , 2009 dollar decrease percent decrease net loss from
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while our modules and pv solar power systems are currently competitive in cost , reliability and performance attributes , there can be no guarantee such competitiveness will continue to exist in the future to the same extent or at all . any declines in the competitiveness of our products could result in additional margin compression , further declines in the average selling prices of our solar modules , erosion in our market share for modules and pv solar power systems , decreases in the rate of net sales growth , and or declines in overall net sales . we have taken , and continue to take , various actions to mitigate the potential impact resulting from competitive pressures , including adjusting our pricing policies as necessary , accelerating progress along our module efficiency improvement and bos cost reduction roadmaps , and further focusing our research and development on increasing the conversion efficiency of our solar modules . as we continue to expand our systems business into sustainable markets , we can offer value beyond the solar module , reduce our exposure to module-only competition , provide differentiated product offerings to minimize the impact of solar module commoditization , and provide comprehensive utility-scale pv solar power system solutions that significantly reduce solar electricity costs . thus , our systems business allows us to play a more active role than many of our competitors in managing the demand for our solar modules . finally , we continue to form and develop strong relationships with our customers and strategic partners around the world and continue to develop our range of product offerings , including epc capabilities and o & m services , in order to enhance the competitiveness of systems using our solar modules . for example , we have and expect in the future to form joint ventures or other business arrangements with project developers in certain strategic markets in order to provide our modules and potential systems business pv generation solutions to the projects developed by such ventures . certain trends and uncertainties we believe that our continuing operations may be favorably or unfavorably impacted by the following trends and uncertainties that may affect our financial condition and results of operations . see item 1a : โ risk factors โ and elsewhere in this annual report on form 10-k for a discussion of other risks that may affect our financial condition and results of operations . long term strategic plan in executing our long term strategic plan ( โ ltsp โ ) we are focusing on providing solar pv generation solutions using our modules to sustainable geographic markets that we believe have a compelling need for mass-scale pv electricity , including markets throughout the americas , asia , australia , the middle east , and africa . as part of our ltsp , we are focusing on opportunities in which our solar pv generation solutions will compete directly with fossil fuel offerings on an lcoe basis . execution of the ltsp entails a reallocation of resources around the globe , in particular dedicating resources to regions such as latin america , asia , the middle east , and africa where we have not traditionally conducted significant business to date . we are evaluating and managing closely the appropriate level of resources required as we transition into and penetrate these specific markets . we have and intend to continue to dedicate significant capital and human resources to reduce the total installed cost of solar pv generation , to optimize the design and logistics around our solar pv generation solutions , and to ensure that our solutions integrate well into the overall electricity ecosystem of each specific market . we expect that , over time , an increasing portion of our consolidated net sales , operating income and cash flows will come from solar offerings in the sustainable markets described above as we execute on our ltsp . the timing , execution and financial impacts of our ltsp are subject to risks and uncertainties , as described in the risk factors . we are focusing our resources in those markets and energy applications in which solar power can be a least-cost , best-fit energy solution , particularly in regions with high solar resources , significant current or projected electricity demand and or relatively high existing electricity prices . as part of these efforts , we continue to expand resources globally , including by appointing country heads and supporting professional , sales and other staff in target sustainable markets . accordingly we are shifting current costs and expect to incur additional costs over time as we establish a localized business presence in these regions . joint ventures or other business arrangements with strategic partners are a key part of our ltsp , and we have begun initiatives in several markets using such arrangements to expedite our penetration of those markets and establish relationships with potential customers and policymakers . some of these business arrangements have and are expected in the future to involve significant investments or other allocations of capital on our part . we are in the process of developing relationships with policymakers , regulators , and end customers in each of these markets with a view to creating markets for utility scale pv solar power systems . we sell solar power solutions directly to end customers , including independent power producers , utilities , retail electricity providers and commercial and industrial customers . depending on the market opportunity , our sales offerings range from module only sales , to module sales with a range of development , engineering , procurement and construction services and solutions , to full turn-key pv solar power system sales . we expect these sales offerings to continue to evolve over time as we work with our customers to 49 optimize how our pv solar generation solutions can best meet our customers ' energy and economic needs . story_separator_special_tag as described above under โ item 1 : business - offerings and capabilities , โ in addition to our utility-scale power plant offering , we have an ac power block offering as well as fuel displacement , commercial and industrial and off-grid and energy access offerings . in order to create or maintain a market position in certain strategically targeted markets our offerings from time to time may need to be competitively priced at levels associated with minimal gross profit margins , which may adversely affect our results of operations . we expect the profitability associated with our various sales offerings to vary from one another over time , and possibly vary from our internal long-range profitability expectations and targets , depending on the market opportunity and the relative competitiveness of our offering compared with other energy solutions , fossil fuel based or otherwise , that are available to potential customers . we expect to use our working capital , the availability under our revolving credit facility , or non-recourse project financing to finance the construction of certain of our pv solar power systems , if the sale of such systems prior to construction beginning does not meet our economic return expectations or we can not sell under terms and conditions that are favorable to us . from time to time we may temporarily own and operate certain pv solar systems with the intention to sell at a later date . the ability to do so allows us to gain control of the sales process , provide a lower risk profile to a future buyer of a pv solar system and improve our ability to drive higher eventual sale values . as of february 2014 , we own and operate one completed solar power plant . we also currently own two additional solar power plants under construction that are delivering power to the grid . we may also elect to construct and or retain ownership interests in a merchant power plant , as we are doing with our barilla solar project currently under construction in west texas . we continue to pursue strategic partnerships that open up new geographic markets and those that provide access to a lower cost of capital and optimize the value of our projects . additionally , our joint ventures and other business arrangements with strategic partners have and may in the future result in us temporarily retaining a minority or non-controlling ownership interest in the underlying systems projects we develop , supply modules to , or construct potentially for a period of up to several years . in each of the above mentioned examples , we may retain such ownership interests in a consolidated and or unconsolidated separate entity . construction of some of the world 's largest solar pv power systems we expect a substantial portion of our consolidated net sales , operating income and cash flows through the end of 2014 to be derived from several large projects in north america , including the following projects which are currently or will be among the world 's largest pv solar power systems : the 550 mw topaz solar farm , located in san luis obispo county , california ; the 550 mw desert sunlight solar farm , located west of blythe , california ; the 230 mw avsr project , located north of los angeles , california ; the 139 mw campo verde project , located in imperial county , california ; the 250 mw moapa solar project , located on the moapa river indian reservation in clark county , northeast of las vegas , nevada ; the 250 mw silver state south project , located near primm in clark county , nevada ; the 150 mw solar gen 2 project , located in california 's imperial valley ; and the 58 mw copper mountain solar 2 project , part of the 150 mw copper mountain solar complex in boulder city , nevada . please see the tables under โ management 's discussion and analysis of financial condition and results of operations-systems project pipeline โ for additional information about these and other projects within our systems business advanced-stage project pipeline . construction progress of these projects is subject to risks and delays as described in โ item 1a : risk factors โ and elsewhere in this report . revenue recognition for these and other systems projects is in many cases not linear in nature due to the timing of when all revenue recognition criteria have been or are expected to be met , and consequently period over period comparisons of results of operations may not be meaningful . as we progress construction towards substantial completion of these pv power systems , we may have a larger portion of our net sales , operating income and cash flows come from future sales of solar offerings outside of north america , pursuant to our ltsp described above . north america however , will continue to represent a meaningful portion of our net sales , operating income and cash flows as a significant portion of our advance-stage project pipeline , excluding the projects above , is also comprised of projects in north america . systems project pipeline the following tables summarize , as of february 25 , 2014 , our approximately 3.8 gw systems business advanced-stage project pipeline . as of december 31 , 2013 , for the projects sold/ under contract in our advanced-stage project pipeline of approximately 2.7 gw , we have recognized revenue with respect to the equivalent of approximately 1.4 gw . such mw equivalent amount refers to the ratio of revenue recognized for the projects sold/ under contract in our advanced-stage project pipeline compared to total contracted revenue for such projects , multiplied by the total mw for such projects . the remaining revenue to be recognized subsequent to december 31 , 2013 for the projects sold/ under contract in our advanced-stage project pipeline is expected to be approximately $ 4.1 billion
| in the gross profit of our operating segment disclosures , we include the corresponding cost of sales value for the solar modules installed in projects sold or built by our systems segment in the components segment . the cost of solar modules is comprised of the manufactured cost incurred by our components segment . see note 23 โ segment and geographical information , โ to our consolidated financial statements for the year ended december 31 , 2013 included in this annual report on form 10-k. see also item 7 : โ management 's discussion and analysis of financial condition and results of operations - systems project pipeline โ for a description of the projects in our advanced-stage project pipeline . due to the distinct size , profitability and terms of the underlying sales arrangements for each project under construction , timing of meeting all revenue recognition criteria may create uneven net sales and gross profit patterns , making year over year comparisons less meaningful . product revenue the following table sets forth the total amounts of solar modules and solar power systems net sales for the years ended december 31 , 2013 , 2012 , and 2011 . for the purpose of the following table , ( a ) solar module revenue is composed of total net sales from the sale of solar modules to third parties , and ( b ) solar power system revenue is composed of total net sales from the 57 sale of pv solar power systems and related services and solutions including the solar modules installed in the pv solar power systems we develop and construct . replace_table_token_8_th solar module revenue sales to third parties increased $ 55.4 million during 2013 compared to 2012 primarily due to an increase in volume of watts sold of 39 % , partially offset by a 15 % decrease in average selling prices per watt . solar power system revenue decreased by $ 115.0 million for the year ended 2013 compared to 2012 primarily due to the number and size of projects under construction between these periods as well as the timing of when all revenue recognition criteria have been met . solar power system revenue included
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38 fertilizer products as of june 30 , 2018 , we had developed , produced , and sold a total of 726 different fertilizer products in use , of which 142 were developed and produced by jinong , 333 by gufeng , and 251 by the vie companies . below is a table that shows the metric tons of fertilizer sold by jinong and gufeng and the revenue per ton for the periods indicated : replace_table_token_7_th for the fiscal year ended june 30 , 2018 , we sold approximately 355,584 metric tons of fertilizer products , as compared to 361,388 metric tons for the fiscal year ended june 30 , 2017. for the fiscal year ended june 30 , 2018 , jinong sold approximately 47,487 metric tons of fertilizer products , as compared to 51,506 metric tons for the fiscal year ended june 30 , 2017. for the fiscal year ended june 30 , 2018 , gufeng sold approximately 308,098 metric tons of fertilizer products , as compared to 309,882 metric tons for the fiscal year ended june 30 , 2017. our sales of fertilizer products to five provinces accounted for approximately 61.9 % of our manufactured fertilizer revenue for year ended june 30 , 2018. specifically , the provinces and their respective percentage contributed to our fertilizer revenues were : hebei ( 26.2 % ) , heilongjiang ( 10.6 % ) , liaoning ( 9.2 % ) , inner mongolia ( 8.3 % ) and shaanxi ( 7.7 % ) , as of june 30 , 2018 , we had a total of 1,959 distributors covering 22 provinces , 4 autonomous regions and 4 central government-controlled municipalities in china . jinong had 1,145 distributors in china . jinong 's sales are not dependent on any single distributor or any group of distributors . jinong 's top five distributors accounted for 2.6 % of its fertilizer revenues for the fiscal year ended june 30 , 2018. gufeng had 316 distributors , including some large state-owned enterprises . gufeng 's top five distributors accounted for 74.5 % of its revenues for the fiscal year ended june 30 , 2018. agricultural products through yuxing , we develop , produce and sell high-quality flowers , green vegetables and fruits to local marketplaces and various horticulture and planting companies . we also use certain of yuxing 's greenhouse facilities to conduct research and development activities for our fertilizer products . the three prc provinces that accounted for 78.4 % of our agricultural products revenue for the fiscal year ended june 30 , 2018 were shaanxi ( 60.4 % ) , tianjin ( 11.2 % ) and sichuan ( 6.8 % ) . recent developments new products and distributors during the three months ended june 30 , 2018 , jinong launched 2 new fertilizer products . jinong also added 6 new distributors for the three months ended june 30 , 2018. during the three months ended june 30 , 2018 , gufeng did not launch any new fertilizer but added 1 new distributor . 39 strategic acquisitions on june 30 , 2016 and january 1 , 2017 , through jinong , we entered into ( i ) strategic acquisition agreements ( the โ saa โ ) , and ( ii ) agreements for convertible notes ( the โ acn โ ) , with the shareholders of the companies as identified below ( the โ targets โ ) . june 30 , 2016 : cash principal of payment for notes for acquisition acquisition company name business scope ( rmb [ 1 ] ) ( rmb ) shaanxi lishijie agrochemical co. , ltd. sales of pesticides , agricultural chemicals , chemical fertilizers , agricultural materials ; manufacture and sales of mulches . 10,000,000 3,000,000 songyuan jinyangguang sannong service co. , ltd. promotion and consulting services regarding agricultural technologies ; retail sales of chemical fertilizers ( including compound fertilizers and organic fertilizers ) ; wholesale and retail sales of pesticides , agricultural machinery and accessories ; collection of agricultural information ; development of saline-alkali soil ; promotion and development of high-efficiency agriculture and related information technology solutions for agriculture , agricultural and biological engineering high technologies ; e-commerce ; cultivation of freshwater fish , poultry , fruits , flowers , vegetables , and seeds ; recycling and complex utilization of straw and stalk ; technology transfer and training ; recycling of agricultural materials ; ecological industry planning . 8,000,000 12,000,000 shenqiu county zhenbai agriculture co. , ltd. cultivation of crops ; storage , sales , preliminary processing and logistics distribution of agricultural by-products ; promotion and application of agricultural technologies ; purchase and sales of agricultural materials ; electronic commerce . 3,000,000 12,000,000 weinan city linwei district wangtian agricultural materials co. , ltd. promotion and application of new agricultural technologies ; professional prevention of plant diseases and insect pests ; sales of plant protection products , plastic mulches , material , chemical fertilizers , pesticides , agricultural medicines , micronutrient fertilizers , hormones , agricultural machinery and medicines , and gardening tools . 6,000,000 12,000,000 aksu xindeguo agricultural materials co. , ltd. wholesale and retail sales of pesticides ; sales of chemical fertilizers , packaged seeds , agricultural mulches , micronutrient fertilizers , compound fertilizers , plant growth regulators , agricultural machineries , and water economizers ; consulting services for agricultural technologies ; purchase and sales of agricultural by- products . 10,000,000 12,000,000 xinjiang xinyulei eco-agriculture science and technology co. , ltd sales of chemical fertilizers , packaged seeds , agricultural mulches , micronutrient fertilizers , organic fertilizers , plant growth regulators , agricultural machineries , and water economizers ; purchase and sales of agricultural by-products ; cultivation of fruits and vegetables ; consulting services and training for agricultural technologies ; storage services ; sales of articles of daily use , food and oil ; on-line sales of the above-mentioned products . total 37,000,000 51,000,000 ( 1 ) the exchange rate between rmb and u.s. dollars on june 30 , 2016 is rmb1=us $ 0.1508 , according to the exchange rate published by bank of china . story_separator_special_tag ( 2 ) on november 30 , 2017 , the company , through its wholly-owned subsidiary jinong , discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of zhenbai . in return , the shareholders of zhenbai agreed to tender the whole payment consideration in the saa back to the company with early termination penalties . the convertible notes paid to zhenbai 's shareholders and the accrued interest has been forfeited . 40 january 1 , 2017 : cash principal of payment for notes for acquisition acquisition company name business scope ( rmb [ 1 ] ) ( rmb ) sunwu county xiangrong agricultural materials co. , ltd. sales of pesticides , agricultural chemicals , chemical fertilizers , agricultural materials ; manufacture and sales of mulches . 4,000,000 6,000,000 anhui fengnong seed co. , ltd. wholesale and retail sales of pesticides ; sales of chemical fertilizers , packaged seeds , agricultural mulches , micronutrient fertilizers , compound fertilizers and plant growth regulators 4,000,000 6,000,000 total 8,000,000 12,000,000 ( 1 ) the exchange rate between rmb and u.s. dollars on january 1 , 2017 is rmb1=us $ 0.144 , according to the exchange rate published by bank of china . pursuant to the saa and the acn , the shareholders of the targets , while retaining possession of the equity interests and continuing to be the legal owners of such interests , agreed to pledge and entrust all of their equity interests , including the proceeds thereof but excluding any claims or encumbrances , and the operations and management of its business to jinong , in exchange of an aggregate amount of rmb45,000,000 ( approximately $ 6,731,600 ) to be paid by jinong within three days following the execution of the saa , acn and the vie agreements , and convertible notes with an aggregate face value of rmb 63,000,000 ( approximately $ 9,418,800 ) with an annual fixed compound interest rate of 3 % and term of three years . jinong acquired the targets using the vie arrangement based on our need to further develop our business and comply with the regulatory requirements under the prc laws . as our business focuses on the production of fertilizer , all our business activities intertwine with those in the agriculture industry in china . specifically , we deal with compliance , regulation , safety , inspection , and licenses in fertilizer production , farm land use and transfer , growing and distribution of agriculture goods , agriculture basic supplies , seeds , pesticides , and trades of grains . it is an industry in which heavy regulations get implemented and strictly enforced . in addition , e-commerce , which is also under strict government regulation in the prc , has lately become a sales and distribution channel for agricultural products . currently , we are developing an online platform to connect the physical distribution network we either own or lease . compared with the regulatory environment in other jurisdictions , the regulatory environment in the prc is unique . for example , the โ m & a rules โ purports to require that an offshore special purpose vehicle controlled directly or indirectly by prc companies or individuals and formed for purposes of overseas listing through acquisition of prc domestic interests held by such prc companies or individuals obtain the approval of the china securities regulatory commission ( the โ csrc โ ) prior to the listing and trading of such special purpose vehicle 's securities on an overseas stock exchange . on september 21 , 2006 , the csrc published procedures regarding its approval of overseas listings by special purpose vehicles . for both e-commerce and agriculture industries , prc regulators limit the investment from foreign entities and set particularly rules for foreign-owned entities to conduct business . we expect these limitations on foreign-owned entities will continue to exist in e-commerce and agriculture industries . the vie arrangement , however , provides feasibility for obtaining administrative approval process and avoiding industry restrictions that can be imposed on an entity that is a wholly-owned subsidiary of a foreign entity . the vie agreements reduce uncertainty and the current limitation risk . it is our understanding that the vie agreements , as well as the control we obtained through vie arrangement , are valid and enforceable . such legal structure does not violate the known , published , and current prc laws . while there are substantial uncertainties regarding the interpretation and application of prc laws and future prc laws and regulations , and there can be no assurance that the prc authorities will take a view that is not contrary to or otherwise different from our belief and understanding stated above , we believe the substantial difficulty that we experienced previously to conduct business in agriculture as a foreign ownership can be greatly reduced by the vie arrangement . further , as an integral part of the vie arrangement , the underlying equity pledge agreements provide legal protection for the control we obtained . pursuant to the equity pledge agreements , we have completed the equity pledge processes with the targets to ensure the complete control of the interests in the targets . the shareholders of the targets are not entitled to transfer any shares to a third party under the exclusive option agreements . if necessary , they may transfer shares to our company without consideration .
| cost of goods sold total cost of goods sold for the fiscal year ended june 30 , 2018 was $ 212,944,597 an increase of $ 17,811,291 , or 9.1 % , from $ 195,133,306 for the fiscal year ended june 30 , 2017. this increase was mainly due to increase in cost of goods sold in for yuxing and gufeng . cost of goods sold by jinong for the fiscal year ended june 30 , 2018 was $ 48,209,038 , a decrease of $ 152,659 , or 0.3 % , from $ 48,056,379 , for the fiscal year ended june 30 , 2017. the decrease in cost of goods was mainly due to the decrease in jinong 's sales volume during the last fiscal year . cost of goods sold by gufeng for the fiscal year ended june 30 , 2018 was $ 98,485,737 , an increase of $ 8,572,291 , or 9.5 % , from $ 89,913,446 , for the fiscal year ended june 30 , 2017. this increase was primarily attributable to an increase in its sales volume during the last fiscal year . for year ended june 30 , 2018 , cost of goods sold by yuxing was $ 8,752,977 , an increase of $ 1,880,099 , or 27.4 % , from $ 6,872,878 for the fiscal year ended june 30 , 2017. this increase was mainly due to the increase in yuxing 's net sales during the last fiscal year . cost of goods sold by the sales vies for the fiscal year ended june 30 , 2018 was $ 57,496,845 , an increase of $ 7,206,242 , or 14.3 % , from $ 50,290,603 for the three months ended june 30 , 2018. this increase was primarily attributable to the more products sold during the last fiscal year . gross profit total gross profit for the fiscal year ended june 30 , 2018 decreased by $ 8,606,247 to $ 74,108,933 , as compared to $ 82,715,180 for the fiscal year ended june 30 , 2017. gross profit margin was 25.8 % and 29.8 % for the fiscal years ended june 30 , 2018 and 2017 , respectively . gross profit generated by jinong decreased by $ 9,071,849 , or 15.5 % , to $ 49,513,804 for the fiscal year ended
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as a result of the enterprise improvement plan , we incurred restructuring charges related to workforce reductions as well as real estate and fixed asset impairments . the majority of restructuring charges associated with the enterprise improvement plan were recorded in the fourth quarter of 2010. see note 11 of โ notes to the consolidated financial statements โ and โ restructuring charges โ below for further information . our market sector information reflects four groups defined as follows : 1 ) california ; 2 ) northwest , which primarily includes our offices in alaska , nevada , utah and washington ; 3 ) east , which primarily includes our offices in arizona , florida , new york and texas ; and 4 ) kenny , which primarily includes our offices in colorado , illinois and pennsylvania . each of these groups includes operations from our construction and large project construction lines of business . our california , northwest and east groups include operations from our construction materials line of business . a project 's results are reported in the group that is responsible for the project , not necessarily the geographic area where the work is located . in some cases , the operations of a group include the results of work performed outside of that region . critical accounting policies and estimates the financial statements included in โ item 8. financial statements and supplementary data โ have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . our estimates , judgments and assumptions are continually evaluated based on available information and experiences ; however , actual amounts could differ from those estimates . certain of our accounting policies and estimates require higher degrees of judgment in their application . these include revenue and earnings recognition for construction contracts , the valuation of real estate held for development and sale and insurance estimates . the audit/compliance committee of our board of directors has reviewed our disclosure of critical accounting estimates . 24 revenue and earnings recognition for construction contracts revenue and earnings on construction contracts , including construction joint ventures , are recognized under the percentage of completion method using the ratio of costs incurred to estimated total costs . revenue in an amount equal to cost incurred is recognized prior to contracts reaching at least 25 % completion , thus deferring the related profit . it is our judgment that until a project reaches at least 25 % completion , there is insufficient information to determine the estimated profit on the project with a reasonable level of certainty . in the case of large , complex design/build projects we may defer profit recognition beyond the point of 25 % completion based on an evaluation of specific project risks . the factors considered in this evaluation include the stage of design completion , the stage of construction completion , status of outstanding purchase orders and subcontracts , certainty of quantities of labor and materials , certainty of schedule and the relationship with the owner . revenue from contract claims is recognized when we have a signed agreement and payment is assured . revenue from contract change orders , which occur in most large projects , is recognized when the owner has agreed to the change order in writing . provisions are recognized in the consolidated statements of operations for the full amount of estimated losses on uncompleted contracts whenever evidence indicates that the estimated total cost of a contract exceeds its estimated total revenue . all contract costs , including those associated with claims and change orders , are recorded as incurred and revisions to estimated total costs are reflected as soon as the obligation to perform is determined . contract costs consist of direct costs on contracts , including labor and materials , amounts payable to subcontractors , direct overhead costs and equipment expense ( primarily depreciation , fuel , maintenance and repairs ) . all state and federal government contracts and many of our other contracts provide for termination of the contract at the convenience of the party contracting with us , with provisions to pay us for work performed through the date of termination . the accuracy of our revenue and profit recognition in a given period is dependent on the accuracy of our estimates of the cost to complete each project . cost estimates for all of our significant projects use a detailed โ bottom up โ approach and we believe our experience allows us to provide materially reliable estimates . there are a number of factors that can contribute to changes in estimates of contract cost and profitability . the most significant of these include : the completeness and accuracy of the original bid ; costs associated with scope changes where final price negotiations are not complete ; costs of labor and or materials ; extended overhead due to owner , weather and other delays ; subcontractor performance issues ; changes in productivity expectations ; site conditions that differ from those assumed in the original bid ( to the extent contract remedies are unavailable ) ; continuing changes from original design on design/build projects ; the availability and skill level of workers in the geographic location of the project ; and a change in the availability and proximity of equipment and materials . the foregoing factors as well as the stage of completion of contracts in process and the mix of contracts at different margins may cause fluctuations in gross profit between periods . substantial changes in cost estimates , particularly in our larger , more complex projects have had , and can in future periods have , a significant effect on our profitability . our contracts with our customers are primarily either โ fixed unit price โ or โ fixed price. story_separator_special_tag โ under fixed unit price contracts , we are committed to provide materials or services required by a project at fixed unit prices ( for example , dollars per cubic yard of concrete placed or cubic yards of earth excavated ) . while the fixed unit price contract shifts the risk of estimating the quantity of units required for a particular project to the customer , any increase in our unit cost over the expected unit cost in the bid , whether due to inflation , inefficiency , faulty estimates or other factors , is borne by us unless otherwise provided in the contract . fixed price contracts are priced on a lump-sum basis under which we bear the risk that we may not be able to perform all the work profitably for the specified contract amount . the percentage of fixed price contracts in our contract backlog decreased from approximately 69.5 % at december 31 , 2011 to approximately 56.8 % at december 31 , 2012 . 25 valuation of real estate held for development and sale the carrying amount of each consolidated real estate development project is reviewed on a quarterly basis in accordance with accounting standards codification ( โ asc โ ) topic 360 , property , plant , and equipment , and each real estate development project accounted for under the equity method of accounting is reviewed in accordance with asc topic 323 , investments - equity method and joint ventures , to determine if impairment charges should be recognized . the review of each consolidated project includes an evaluation to determine if events or changes in circumstances indicate that a consolidated project 's carrying amount may not be recoverable . if events or changes in circumstances indicate that a consolidated project 's carrying amount may not be recoverable , the future undiscounted cash flows are estimated and compared to the project 's carrying amount . in the event that the project 's estimated future undiscounted cash flows or investment 's fair value are not sufficient to recover the carrying amounts , it is written down to its estimated fair value . the projects accounted for under the equity method are evaluated for impairment using the other-than-temporary impairment model , which requires an impairment charge to be recognized if our investment 's carrying amount exceeds its fair value , and the decline in fair value is deemed to be other than temporary . events or changes in circumstances , which would cause us to review for impairment include , but are not limited to : significant decreases in the market price of the asset ; significant adverse changes in legal factors or the business climate ; significant changes to the development or business plans of a project ; accumulation of costs significantly in excess of the amount originally expected for the acquisition , development or construction of the asset ; and current period cash flow or operating losses combined with a history of losses , or a forecast of continuing losses associated with the use of the asset . future undiscounted cash flows and fair value assessments are estimated based on entitlement status , market conditions , cost of construction , debt load , development schedules , status of joint venture partners and other factors applicable to the specific project . fair value is estimated based on the expected future cash flows attributable to the asset or group of assets and on other assumptions that market participants would use in determining fair value , such as market discount rates , transaction prices for other comparable assets , and other market data . our estimates of cash flows may differ from actual cash flows due to , among other things , fluctuations in interest rates , decisions made by jurisdictional agencies , economic conditions , or changes to our business operations . during the year ended december 31 , 2010 , the enterprise improvement plan required changes in the business plans of certain real estate projects to reduce capital expenditures , shorten development timelines , and revise marketing plans for the projects , thus reducing their estimated future cash flows . consequently , during the year ended december 31 , 2010 , we recorded impairment charges of $ 86.3 million , of which approximately $ 20.0 million was attributable to noncontrolling interests , on approximately one-third of our real estate investments related to the enterprise improvement plan . see note 11 of โ notes to the consolidated financial statements โ and โ restructuring charges โ below for further information . additionally , an evaluation of entitlement status , market conditions , existing offers to purchase , cost of construction , debt load , development schedule , status of joint venture partners and other factors specific to the remainder of our real estate projects , resulted in no significant impairment charges during the year ended december 31 , 2010. during the years ended december 31 , 2012 and 2011 , we recorded no significant impairment charges related to our real estate development projects or investments . given the current economic environment surrounding real estate , we regularly evaluate the recoverability of our real estate held for development and sale and have determined that no further impairment charges were required at december 31 , 2012 . a continued decline in the residential and or commercial real estate markets may decrease the expected cash flow for certain development activities to the point we would be required to recognize additional impairments in the future . insurance estimates we carry insurance policies to cover various risks , primarily general liability , automobile liability and workers compensation , under which we are liable to reimburse the insurance company for a portion of each claim paid . payment for general liability and workers compensation claim amounts generally range from the first $ 0.5 million to $ 1.0 million per occurrence . we accrue for probable losses , both reported and unreported , that are reasonably estimable using actuarial methods based on historic trends , modified , if necessary , by recent events .
| additionally , as we execute on our enterprise improvement plan , we have less real estate for sale . contract backlog our contract backlog consists of the remaining unearned revenue on awarded contracts , including 100 % of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts . we generally include a project in our contract backlog at the time it is awarded and funding is in place . certain federal government contracts where funding is appropriated on a periodic basis are included in contract backlog at the time of the award . substantially all of the contracts in our contract backlog may be canceled or modified at the election of the customer ; however , we have not been materially adversely affected by contract cancellations or modifications in the past . the following tables illustrate our contract backlog as of the respective dates : replace_table_token_11_th 29 replace_table_token_12_th construction contract backlog of $ 629.9 million at december 31 , 2012 was $ 116.3 million , or 22.6 % , higher than at december 31 , 2011 . the increase was primarily due to the acquisition of kenny contract backlog , as well as an increase in california private sector backlog due to improved success rate on private sector bidding activity and diversification into the power market . the increases were offset by decreases in the california public sector due to progress on existing projects and lower success rate with continued intense competition . replace_table_token_13_th 1 california , northwest and east large project construction contract backlog is from contracts with public agencies . large project construction contract backlog of $ 1.1 billion at december 31 , 2012 was $ 431.4 million , or 28.6 % , lower than at december 31 , 2011 . the decrease primarily reflects work completed during the period , partially offset by new awards and the acquisition of kenny contract backlog . noncontrolling interests included in large project construction contract backlog as of
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if we fail to complete the development of our product candidates in a timely manner , or fail to obtain their regulatory approval , our ability to generate future revenue will be materially compromised . license revenue the terms of our license agreements require delivery of a license for use of our intellectual property in either research only , or in research and commercial development of drug therapies for various diseases . license agreements generally have a term equal to the life of the intellectual property , but are terminable at the option of the licensee . non-refundable payments to us under these arrangements may include : ( i ) up-front license fees , ( ii ) option fees to exercise options to obtain commercial licenses , ( iii ) annual maintenance fees , ( iv ) sublicense fees , ( v ) payments based on the achievement of certain milestones by the licensee and ( vi ) royalties on product sales . future license revenue is highly dependent on the successful development and commercialization of products by our licensees , which is uncertain , and revenue may fluctuate significantly from period to period . additionally , we may never receive revenue under a license agreement that contemplates option fees , sublicense fees , milestone payments or future royalties on product sales , given the contingent nature of these payments . grant revenue grant revenue is generated through research and development grant programs offered by the u.s. federal government and the european union . we expect grant revenue to be minimal in future periods , as we do not currently expect to receive any new grant awards . reagent sales reagent sales consist of the sales of licensed reagents to third-parties for use in research and development . we do not dedicate resources to sales efforts for reagents . accordingly , future revenue from sales of reagents is uncertain and may fluctuate significantly from period to period . operating expenses we classify our expenses into three categories : costs of revenue , research and development and general and administrative expenses . personnel costs including salaries , benefits , bonuses and stock-based compensation expense , comprise a significant component of research and development and general and administrative expenses . we allocate indirect expenses associated with our facilities , information technology costs , depreciation and other overhead costs between research and development and general and administrative categories based on employee headcount and the nature of work performed by each employee . costs of revenue costs of revenue primarily consist of our expenses related to the generation of revenue from our intellectual property licensing arrangements and sales of reagents . these expenses fall into the following categories : sublicense fees that are included in licensing costs , and royalties and production costs that are included in costs of reagent sales . future costs of revenue are uncertain due to the nature of our license agreements and reagent sales , and significant fluctuations in costs of revenue may occur from period to period . research and development expense our research and development expense primarily consists of : salaries and personnel-related costs , including benefits , travel and any stock-based compensation , for our scientific personnel performing research and development activities ; costs related to executing preclinical studies and clinical trials ; costs related to acquiring , developing and manufacturing materials for preclinical studies and clinical trials ; 90 fees paid to consultants and other third-parties who support our product candidate development ; other costs in seeking regulatory approval of our product candidates ; and allocated facility-related costs , depreciation expense and other overhead . up-front fees incurred in obtaining technology licenses for research and development activities are expensed as incurred if the technology licensed has no alternative future use . we plan to increase our research and development expenses for the foreseeable future as we continue development of our product candidates . our current and planned research and development activities include the following : a phase i clinical trial to evaluate the safety and efficacy of our rgx-314 program for the treatment of wet amd ; a phase i/ii clinical trial to evaluate the safety and efficacy of our rgx-501 program for the treatment of hofh ; a phase i clinical trial to evaluate the safety and efficacy of our rgx-111 program for the treatment of mps i ; a phase i/ii clinical trial to evaluate the safety and efficacy of our rgx-121 program for the treatment of mps ii ; preclinical research and development for additional product candidates addressing other diseases in the retinal , metabolic and neurodegenerative therapeutic areas ; continued investment in advanced manufacturing analytics and process development activities ; and continued acquisition and manufacture of clinical trial materials in support of our anticipated clinical trials . the following table summarizes our research and development expenses incurred during the years ended december 31 , 2017 , 2016 and 2015 ( in thousands ) : replace_table_token_5_th we typically utilize our employee and infrastructure resources across our development programs . we do not allocate personnel and other internal costs , such as facilities and other overhead costs , to specific product candidates or development programs . general and administrative expense general and administrative expense consists primarily of salaries and personnel-related costs , including employee travel , benefits and any stock-based compensation , for employees performing functions other than research and development . this includes personnel in executive , commercial , finance , legal and administrative support functions . other general and administrative expenses include facility-related costs not otherwise allocated to research and development expense , professional fees for accounting and legal services , expenses associated with obtaining and maintaining patents , insurance costs , costs of our information systems and other commercial and general corporate activities . we expect that our general and administrative expense will continue to increase as we continue to develop , and potentially commercialize , our product candidates . 91 other income ( expense ) other income primarily includes investment income . story_separator_special_tag investment income consists of interest income earned on cash equivalents and marketable securities . cash equivalents are comprised of money market mutual funds and marketable securities primarily are comprised of corporate debt securities . critical accounting policies and significant judgments and estimates this management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which we have prepared in accordance with accounting principles generally accepted in the u.s. the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements , as well as the reported revenues and expenses during the reported periods . we evaluate these estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . our significant accounting policies and recently announced accounting pronouncements , including the expected impact of such announcements , are fully described in note 2 to our audited consolidated financial statements appearing elsewhere in this annual report on form 10-k. we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements and understanding and evaluating our reported financial results . revenue recognition we recognize revenue when all of the following criteria are met : persuasive evidence of an arrangement exists ; delivery has occurred or services have been rendered ; our price to the buyer is fixed or determinable ; and collectability is reasonably assured . we defer amounts we receive prior to satisfying the revenue recognition criteria until such time as the revenue recognition criteria are met . license revenue the terms of our license agreements require delivery of an intellectual property license for use in either research only , or in research and commercial development of product candidates for various diseases . we have determined that none of our license agreements contain multiple deliverables . we recognize nonrefundable up-front license fees as revenue when we deliver the license provided there are no undelivered elements in the arrangement and we have met all of the necessary criteria for revenue recognition . when we determine an option to exercise a commercial license is substantive , we recognize the option fee as revenue upon exercise and delivery of the underlying commercial license , provided there are no undelivered elements in the arrangement and we have met all of the necessary criteria for revenue recognition . annual maintenance fees do not represent a separate deliverable aside from the delivery of the license . we recognize annual maintenance fees as revenue under our license agreements when the price is fixed or determinable and collectability is reasonably assured , provided that we have satisfied all other revenue recognition criteria , which is typically upon each anniversary date of the underlying license agreement . sublicense fees are payable to us upon the receipt of certain fees by the licensee from any sublicensees . we recognize sublicense fees as revenue when the price is fixed and determinable and collectability is reasonably assured , provided that we have satisfied all other revenue recognition criteria . 92 we recognize milestone payments as revenue upon achievement of the milestone by the licensee , provided that we have satisfied all other revenue recognition criteria . at the inception of an arrangement that includes milestone payments , we evaluate whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone . we evaluate factors such as the scientific , clinical , regulatory , commercial and other risks that must be overcome to achieve the respective milestone and the level of effort and investment required to achieve the respective milestone in making this assessment . there is considerable judgment involved in determining whether a milestone satisfies all of the criteria required to conclude that a milestone is substantive . we have evaluated each , and concluded that all of the clinical , regulatory and commercial milestones pursuant to our license agreements are substantive . we will recognize royalty revenue in the period of sale of the related product ( s ) based on the underlying contract terms , provided that we can reliably measure the reported sales , we have no remaining performance obligations and we have satisfied all other revenue recognition criteria . license revenue from a related party consists of license fees from licenses granted to dimension therapeutics , inc. ( dimension ) , which was subsequently acquired by ultragenyx pharmaceutical inc. , that were recognized as revenue prior to september 30 , 2015. we granted various commercial licenses , and options to obtain future commercial licenses , to dimension prior to september 30 , 2015. as of september 30 , 2015 , we no longer consider dimension to be a related party . accordingly , revenue earned and recognized from dimension subsequent to september 30 , 2015 is no longer included in revenue from related party in the consolidated statements of operations and comprehensive loss . please refer to note 2 to our audited consolidated financial statements appearing elsewhere in this annual report on form 10-k for a discussion of new revenue standards which we will adopt on january 1 , 2018 and which could materially affect our current revenue recognition policies for license revenue . reagent sales our reagent sales consist of the sales of licensed reagents to third-parties for use in research and development . we recognize revenue from reagent sales upon delivery to customers , provided that we have satisfied all other revenue recognition criteria .
| million for externally sourced preclinical research and development services related to our lead product candidates and the advancement of our technology and other potential product candidates . 96 general and administrative expense . general and administrative expenses increased by $ 3.6 million , from $ 23.6 million for the year ended december 31 , 2016 to $ 27.2 million for the year ended december 31 , 2017. this increase is primarily attributable to the following : an increase of $ 2.3 million for personnel costs as a result of increased employee headcount of general and administrative personnel , including a $ 1.2 million increase in stock-based compensation expense ; and an increase of $ 0.6 million for professional services , including legal , accounting and other advisory services , primarily attributable to commercial consulting services . comparison of the years ended december 31 , 2016 and 2015 replace_table_token_7_th license revenue . license revenue , including license revenue from related party , decreased by $ 2.7 million , from $ 7.0 million for the year ended december 31 , 2015 to $ 4.3 million for the year ended december 31 , 2016. this decrease is primarily attributable to fewer commercial licenses granted by us in 2016 than in 2015. research and development expense . research and development expenses increased by $ 28.2 million , from $ 17.3 million for the year ended december 31 , 2015 to $ 45.5 million for the year ended december 31 , 2016. this increase is primarily attributable to the following : an increase of $ 8.0 million for personnel costs as a result of increased employee headcount , including a $ 1.0 million increase in stock-based compensation expense , as well as recruiting costs associated with the hiring of key research and development personnel ; an increase of $ 6.6 million for externally sourced manufacturing process development and manufacturing of material to be used in clinical trials for our lead product
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our pos program will not be the focus of our growth moving forward . on june 15 , 2016 , the company closed a public offering of 2,000,000 registered shares of its common stock at an offering price of $ 2.25 per share . in addition , the underwriter exercised a partial exercise of the over-allotment option granted to the underwriter to purchase an additional 258,749 shares at the public offering price . the net proceeds from the offering , including the partial exercise of the over-allotment option , were approximately $ 4.3 million , after deducting the underwriting discount and offering-related expenses of $ 742,000 . the company is using the net proceeds of this offering for research and development to grow our tumorgraft platform , and the balance of the net proceeds for working capital and general corporate purposes . story_separator_special_tag performance revenue recognition model for its tos business , under which it recognizes revenue as performance occurs , based on the relative outputs of the performance that have occurred up to that point in time under the respective agreement , typically the delivery of reports to its customers documenting the results of testing protocols . when a pos or tos arrangement involves multiple elements , the items included in the arrangement ( deliverables ) are evaluated to determine whether they represent separate units of accounting . we perform this evaluation at the inception of an arrangement and as each item in the arrangement is delivered . generally , we account for a deliverable ( or a group of deliverables ) separately if : ( i ) the delivered item ( s ) has standalone value to the customer , and ( ii ) we have given the customer a general right of return relative to the delivered item ( s ) and the delivery or performance of the undelivered item ( s ) or service ( s ) is probable and substantially in our control . revenue on multiple element arrangements is recognized using a proportional method for each separately identified element . all revenue from contracts determined not to have separate units of accounting is recognized based on consideration of 17 the most substantive delivery factor of all the elements in the contract or if there is no predominant deliverable upon delivery of the final element of the arrangement . stock-based payments we typically recognize expense for stock-based payments based on the fair value of awards on the date of grant . we use the black-scholes option pricing model to estimate fair value . the option pricing model requires us to estimate certain key assumptions such as expected life , volatility , risk free interest rates , and dividend yield to determine the fair value of stock-based awards . these assumptions are based on historical information and management judgment . we expense stock-based payments over the period that the awards are expected to vest , net of estimated forfeitures . if actual forfeitures differ from management 's estimates , compensation expense is adjusted . we report cash flows resulting from tax deductions in excess of the compensation cost recognized from those options ( excess tax benefits ) as financing cash flows when the cash tax benefit is received . goodwill goodwill represents the excess of the cost over the fair market value of the net assets acquired including identifiable assets . goodwill is tested annually , or more frequently , if circumstances indicate potential impairment , by comparing its fair value to its carrying amount . the determination of whether or not goodwill is impaired involves significant judgment . although we believe our goodwill is not impaired , changes in strategy or market conditions could significantly impact the judgments and may require future adjustments to the carrying value of goodwill . we use a two-step process to test for goodwill impairment . the first step is to screen for potential impairment , while the second step measures the amount of the impairment , if any . the first step of the goodwill impairment test compares the fair value of each reporting unit with its carrying amount , including goodwill . if the fair value of the reporting unit exceeds its carrying value , goodwill is not impaired . if the carrying value of the reporting unit 's net assets , including goodwill , exceeds the fair value of the reporting unit , then we determine the implied fair value of goodwill . if the carrying value of goodwill exceeds its implied fair value , then an impairment of goodwill has occurred and an impairment loss would be recognized for the difference between the carrying amount and the implied fair value of goodwill as a component of operating income . the implied fair value of goodwill is calculated by subtracting the fair value of tangible and intangible assets associated with the reporting unit from the fair value of the unit . in addition , we evaluate impairment if events or circumstances change between the annual assessments , indicating a possible impairment . examples of such events or circumstances include : ( i ) a significant adverse change in legal factors or in the business climate ; ( ii ) an adverse action or assessment by a regulator ; or ( iii ) a significant decline in market capitalization as compared to book value . we have two reportable segments and two reporting units . the estimated fair value of each reporting unit , as calculated for the april 30 , 2017 impairment test , exceeded the carrying value of the reporting unit . judgments regarding the existence of impairment indicators are based on legal factors , market conditions and operational performance of the acquired businesses . story_separator_special_tag future events , including but not limited to continued declines in economic activity , loss of contracts or a significant number of customers or a rapid increase in costs or capital expenditures , could cause us to conclude that impairment indicators exist and that goodwill is impaired . any resulting goodwill impairment could have a material adverse impact on our financial condition and results of operations . accounting for income taxes we use the asset and liability method to account for income taxes . significant management judgment is required in determining the provision for income taxes , deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets . in preparing the consolidated financial statements , we are required to estimate income taxes in each of the jurisdictions in which we operate . this process involves estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items , such as deferred revenue , depreciation on property , plant and equipment , goodwill and losses for tax and accounting purposes . these differences result in deferred tax assets , which include tax loss carry-forwards , and liabilities , which are included within the consolidated balance sheet . we then assess the likelihood that deferred tax assets will be recovered from future taxable income , and to the extent that recovery is not likely or there is insufficient operating history , a valuation allowance is established . to the extent a valuation allowance is established or increased in a period , we include an expense within the tax provision of the consolidated statements of operations . as of april 30 , 2017 and 2016 , we have established a full valuation allowance for all deferred tax assets . as of april 30 , 2017 and 2016 , we recognized a liability for uncertain tax positions on the balance sheet relative to foreign operations in the amount of $ 121,000 and $ 165,000 , respectively . we do not anticipate any significant unrecognized tax benefits 18 will be recorded during the next 12 months . any interest or penalties related to unrecognized tax benefits is recognized in income tax expense . the company has not accrued for any penalties and interest . recent accounting pronouncements in may 2014 , the financial accounting standards board ( โ fasb โ ) issued asu no . 2014-09 , โ revenue from contracts with customers โ , on revenue recognition . the new standard provides for a single five-step model to be applied to all revenue contracts with customers as well as requires additional financial statement disclosures that will enable users to understand the nature , amount , timing and uncertainty of revenue and cash flows relating to customer contracts . companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard . as amended by asu no . 2015-14 issued in august 2015 , this asu is effective for fiscal years and interim periods within those years beginning after december 15 , 2017 , with early adoption permitted . we do not intend to early adopt and are currently assessing the impact of this update , but preliminarily believe that its adoption will not have a material impact on our consolidated financial statements . in august 2014 , the fasb issued asu no . 2014-15 , โ disclosure of uncertainties about an entity 's ability to continue as a going concern โ . the amendments in this update state that in connection with preparing financial statements for each annual and interim reporting period , an entity 's management should evaluate whether there are conditions or events that raise substantial doubt about the entity 's ability to continue as a going concern within one year after the date that the financial statements are issued ( or within one year after the date that the financial statements are available to be issued , when applicable ) . the amendments in this update are effective for the annual reporting period beginning after december 15 , 2016 and for annual periods and interim periods thereafter . early application is permitted . the adoption of this update is not expected to have a material impact on our consolidated financial statements . in february 2016 , the fasb asu no . 2016-02 , leases . the new standard will require most leases to be recognized on the balance sheet which will increase reported assets and liabilities . lessor accounting remains substantially similar to current guidance . the new standard is effective for annual and interim periods in fiscal years beginning after december 15 , 2018 , which for us is the first quarter of fiscal 2019 and mandates a modified retrospective transition method . we are currently assessing the impact of this update on our consolidated financial statements . in april 2016 , the fasb issued asu no . 2016-09 , โ improvements to employee share-based payment accounting โ . the new standard simplifies several aspects of the accounting for employee share-based payment transactions , including the accounting for income taxes , forfeitures , and statutory tax withholding requirements , as well as classification in the statement of cash flows . asu no . 2016-09 is effective for fiscal years beginning after december 15 , 2016 , including interim periods within those fiscal years . early adoption is permitted for financial statements that have not already been issued . we do not intend to early adopt but preliminarily believe the adoption of this update is not expected to have a material impact on our consolidated financial statements . in august 2016 , the fasb issued asu no . 2016-15 , โ statement of cash flows : classification of certain cash receipts and cash payments โ . the new standard attempts to reduce diversity in practice in how cash receipts and cash payments are presented and classified in the statement of cash flows . asu
| for the years ended april 30 , 2017 and 2016 , gross margins for tos were 39.6 % and 28.5 % , respectively . the increase in tos cost of sales was due to an increase in tos studies . gross margin varies based on timing differences between expense and revenue recognition ; however , the improvement can be attributed to aggressively managing our costs and leveraging cost of sales against a growing revenue base . research and development research and development expense was $ 4.3 million and $ 4.2 million for the years ended april 30 , 2017 and 2016 , respectively , an increase of $ 100,000 or 2.4 % . sales and marketing sales and marketing expense was $ 3.3 million and $ 3.4 million for the years ended april 30 , 2017 and 2016 , respectively , a decrease of $ 100,000 , or 5.3 % . the decrease is due to the consolidation of sales and marketing personnel resources of the pos and tos division . general and administrative general and administrative expense was $ 5.0 million and $ 5.2 million for the years ended april 30 , 2017 and 2016 , respectively , a decrease of $ 200,000 , or 4.1 % . the decrease is primarily due to aggressive cost management . other income/ ( expense ) other expense was ( $ 56,000 ) and ( $ 38,000 ) for the years ended april 30 , 2017 and 2016 , respectively . the current year expense is mainly due to foreign currency transaction losses . inflation inflation does not have a meaningful impact on the results of our operations . liquidity and capital resources our liquidity needs have typically arisen from the funding of our research and development programs and the launch of new products , working capital requirements , and other strategic initiatives . in the past , we have met these cash requirements through our cash and cash equivalents , working capital management , proceeds from certain private placements and public offerings of our securities and sales of products and
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we have two primary industrial battery product lines : reserve power products and motive power products . net sales classifications by product line are as follows : reserve power products are used for backup power for the continuous operation of critical applications in telecommunications systems , ups , applications for computer and computer-controlled systems , and other specialty power applications , including security systems , for premium starting , lighting and ignition applications , in switchgear , electrical control systems used in electric utilities and energy pipelines , in commercial aircraft , satellites , military aircraft , submarines , ships , tactical vehicles and portable energy packs . motive power products are used to provide power for manufacturing , warehousing and other material handling equipment , primarily electric industrial forklift trucks , mining equipment , and for diesel locomotive starting and other rail equipment . 23 current market conditions economic climate the global economic recovery has been in place since the first quarter of fiscal 2010 and the positive trends in our revenue and increasing order rate indicate the recovery is continuing . we are encouraged by recent consensus economic forecasts and believe we are well positioned to take advantage of future growth in our markets . we have taken numerous steps to restructure our manufacturing base and administrative operations to reduce our costs . we expect the economic climate and our strong capital structure will be conducive to a continuation of acquisitions which will help grow our business beyond the overall market growth . volatility of commodities our most significant commodity and foreign currency exposures are related to lead and the euro . volatility of commodity costs and foreign currency exchange rates have caused large swings in our production costs . as the global economic climate changes , we anticipate that our commodity costs may continue to fluctuate significantly as they have in the past several years . the increase in our cost of lead due to increases in average lead prices was approximately $ 112 million in fiscal 2011 compared to fiscal 2010. customer pricing our selling prices fluctuated during the last several years to offset the volatile cost of commodities . beginning in the third quarter of fiscal 2009 , as a result of reductions in the cost of lead , our average selling prices began to decline on a sequential quarterly basis . as the cycle of lead costs turned upward in the early part of fiscal 2010 , we began to increase average selling prices to help offset the higher costs . during fiscal 2011 , our selling prices increased to reflect the rising commodity prices . selling price increases offset approximately $ 66 million of the increased lead cost of $ 112 million in fiscal 2011. approximately 35 % to 40 % of our revenue is currently subject to agreements that adjust pricing to a market-based index for lead . cost savings initiatives-restructuring to minimize the impacts discussed above , we took actions to further rationalize our production facilities and move capacity to lower cost facilities , as more fully explained below . we anticipate different demand volatility in each of the business segments for our products and services , influenced by the geographical economic conditions in each segment , and have taken numerous steps to address this volatility . cost savings programs remain a continuous element of our business strategy and are directed primarily at further reductions in plant manufacturing , raw materials costs and our operating expenses . examples of such cost savings initiatives include our fiscal 2009 and 2010 restructuring programs , primarily related to closing our italian manufacturing operation . in fiscal 2009 , we initiated restructuring programs in the americas and europe , and , in fiscal 2010 , we began the restructuring programs primarily related to the oerlikon acquisition in europe . in addition , during fiscal 2011 , we began further restructuring programs related to our european operations , including distribution . our operating results reflect most of the benefits of those actions with the remainder to be experienced in future periods . we believe that these restructuring actions will have a favorable annualized pre-tax earnings impact of approximately $ 29 million when fully implemented by the end of fiscal 2012. liquidity and capital resources current market conditions related to our liquidity and capital resources are favorable . in march 2011 , we refinanced our 2008 senior secured credit facility , comprising a $ 225 million term a loan and a $ 125 million revolving credit line ( collectively the ย2008 credit facilityย ) , gaining additional flexibility in terms and an extended maturity to march 2016. we believe current conditions remain favorable for the company to have 24 continued positive cash flow from operations that , along with available cash and cash equivalents and our undrawn lines of credit , will be sufficient to fund our capital expenditures , acquisitions and other investments for growth . our cash flows from operating activities were $ 76 million and $ 137 million during fiscal 2011 and 2010 , respectively . we invested $ 60 million and $ 45 million in capital expenditures , and $ 32 million and $ 33 million in new business opportunities in fiscal 2011 and 2010 , respectively . as a result of the above actions , at march 31 , 2011 , our financial position is strong and we have substantial liquidity with $ 109 million of available cash and cash equivalents , $ 261 million of undrawn , committed credit lines , and over $ 95 million of uncommitted credit lines . we believe we have the financial resources and the capital available to remain active in pursuing further investment and acquisition opportunities . our corporate history there have been several key stages in the development of our business , which explain to a significant degree our results of operations over the past several years . story_separator_special_tag we were formed in late 2000 by morgan stanley capital partners ( currently metalmark capital ) and the management of yuasa , inc. to acquire the reserve power and motive power battery business of yuasa corporation in the americas . our results of operations for the past nine fiscal years have been significantly affected by our acquisition of the reserve power and motive power business of esg in march 2002 and numerous other acquisitions , including three in fiscal 2011. our successful integration of esg provided global scale in both the reserve and motive power markets . the esg acquisition also provided us with a further opportunity to reduce costs and improve operating efficiency that , among other initiatives , led to closing underutilized manufacturing plants , distribution facilities , sales offices and eliminating other redundant costs , including staff . in 2004 , enersys completed an ipo , and our common stock commenced trading on the new york stock exchange under the trading symbol ยens.ย critical accounting policies and estimates our significant accounting policies are described in notes to consolidated financial statements in item 8. in preparing our financial statements , management is required to make estimates and assumptions that , among other things , affect the reported amounts of assets , liabilities , sales and expense . these estimates and assumptions are most significant where they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change , and where they can have a material impact on our financial condition and operating performance . we discuss below the more significant estimates and related assumptions used in the preparation of our consolidated financial statements . if actual results were to differ materially from the estimates made , the reported results could be materially affected . revenue recognition we recognize revenue when the earnings process is complete . this occurs when we ship in accordance with terms of the underlying agreement , title transfers , collectability is reasonably assured and pricing is fixed and determinable . shipment terms to our battery product customers are primarily shipping point or destination and do not differ significantly between our business segments of the world . accordingly revenue is recognized when title is transferred to the customer . amounts invoiced to customers for shipping and handling are classified as revenue . taxes on revenue producing transactions are not included in net sales . we recognize revenue from the service of reserve power and motive power products when the respective services are performed . 25 management believes that the accounting estimates related to revenue recognition are critical accounting estimates because they require reasonable assurance of collection of revenue proceeds and completion of all performance obligations . also , revenues are recorded net of provisions for sales discounts and returns , which are established at the time of sale . these estimates are based on our past experience . asset impairment determinations we test for the impairment of our goodwill and indefinite lived trade names at least annually and whenever events or circumstances occur indicating that a possible impairment has been incurred . we utilize financial projections of our business segments , certain cash flow measures , as well as our market capitalization in the determination of the fair value of these assets . with respect to our other long-lived assets other than goodwill and indefinite lived trade names , we test for impairment when indicators of impairment are present . an asset is considered impaired when the undiscounted estimated net cash flows expected to be generated by the asset are less than its carrying amount . the impairment recognized is the amount by which the carrying amount exceeds the fair value of the impaired asset . in making future cash flow analyses of goodwill and other long-lived assets , we make assumptions relating to the following : the intended use of assets and the expected future cash flows resulting directly from such use ; industry specific economic conditions ; competitor activities and regulatory initiatives ; and client and customer preferences and patterns . we believe that an accounting estimate relating to asset impairment is a critical accounting estimate because the assumptions underlying future cash flow estimates are subject to change from time to time and the recognition of an impairment could have a significant impact on our financial statements . litigation and claims from time to time the company has been or may be a party to various legal actions and investigations including , among others , employment matters , compliance with government regulations , federal and state employment laws , including wage and hour laws , contractual disputes and other matters , including matters arising in the ordinary course of business . these claims may be brought by , among others , the governments , customers , suppliers and employees . management considers the measurement of litigation reserves as a critical accounting estimate because of the significant uncertainty in some cases relating to the outcome of potential claims or litigation and the difficulty of predicting the likelihood and range of potential liability involved , coupled with the material impact on our results of operations that could result from litigation or other claims . in determining legal reserves , management considers , among other issues : interpretation of contractual rights and obligations ; the status of government regulatory initiatives , interpretations and investigations ; the status of settlement negotiations ; prior experience with similar types of claims ; whether there is available insurance coverage ; and advice of outside counsel . 26 environmental loss contingencies accruals for environmental loss contingencies ( i.e. , environmental reserves ) are recorded when it is probable that a liability has been incurred and the amount can reasonably be estimated . management views the measurement of environmental reserves as a critical accounting estimate because of the considerable uncertainty surrounding estimation , including the need to forecast well into the future .
| during fiscal 2010 , cash from operating activities was provided primarily from net earnings of $ 62.3 million , depreciation and amortization of $ 44.9 million , a $ 28.4 million decrease in primary working capital and $ 23.8 million from non-cash interest expense , provision for doubtful accounts , deferred taxes and stock compensation . this cash flow was partially offset by a $ 16.6 million decrease in accrued expenses and other liabilities , $ 2.9 million non-cash bargain purchase gain on the acquisition of oerlikon , and a $ 0.9 million gain on disposal of assets . during fiscal 2009 , cash from operating activities was provided primarily from net earnings of $ 81.9 million , a $ 67.1 million decrease in primary working capital , depreciation and amortization of $ 47.2 million and $ 34.9 million for other non-cash charges for non-cash interest , write-off of deferred finance fees , losses on the disposal and impairment of fixed assets , provision for doubtful accounts , deferred taxes and stock compensation . this cash flow was partially offset by an $ 11.3 million non-cash gain on sale of manufacturing facilities , primarily in manchester , england . as explained above in the discussion of our use of ยnon-gaap financial measures , ย we monitor the level and percentage of sales of primary working capital . primary working capital for this purpose is trade accounts receivable , plus inventories , minus trade accounts payable and the resulting net amount is divided by the trailing three month net sales ( annualized ) to derive a primary working capital percentage . primary working capital was $ 547.3 million ( yielding a primary working capital percentage of 25.0 % ) at march 31 , 2011 and $ 439.7 million ( yielding a primary working capital percentage of 24.4 % ) at march 31 , 2010. the 60 basis point increase during fiscal 2011 was mainly a result of maintaining higher levels of inventory to service higher sales levels . increases in receivables and inventory were partially offset by an increase in accounts payable ,
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our business model after the business combination billtrust 's business model focuses on maximizing the lifetime value of a customer relationship by providing measurable efficiencies along the entire order to cash process , and billtrust continues to make significant investments in order to grow its customer base . billtrust generates revenue from a hybrid subscription and transaction model . this model includes subscription , transaction and services from : subscription fees that are recognized ratably as billtrust 's obligations are delivered over the subscription term ; transaction fees that are recognized when transactions are processed , and in some cases ratably as billtrust 's obligations are delivered , at contracted rates , for : โฆ processing of electronic invoices delivered , stored , or printed through its software platform and print operations ; and โฆ payments based on a percentage of payment volume processed or per item processing fees ; and services revenue from contracted fees associated with implementation of new customers or products on its platform , generally recognized over five years , as well as consulting services provided to customers on a time and materials basis recognized as services are provided . the profitability of any customer in a particular period depends upon the mix of revenue between the software and payments and print segments , as well as , in part , upon the length of time they have been a customer . billtrust believes that , over time , as its customer base grows and a relatively higher percentage of subscription , transaction and services revenue are attributable to a mature customer base versus new customers or upsells to existing customers , associated sales and marketing expenses and other allocated upfront costs as a percentage of revenues will decrease , subject to investments billtrust plans to make in its business . over the lifetime of the customer relationship , billtrust also incurs sales and marketing costs to manage the account or upsell the customer to more products on its platform . these costs , however , are significantly less than the costs initially incurred to acquire the customer . billtrust calculates the lifetime value of its customers and associated customer acquisition costs for a particular fiscal year by comparing ( 1 ) estimated gross profit from contracted revenues in the period , multiplied by one divided by the estimated customer cancellation rate to ( 2 ) total sales and marketing expense for the same period . on this basis , billtrust estimates that for the years ended december 31 , 2020 , 2019 , and 2018 , the calculated lifetime value of its customers exceeded six times the associated cost of acquiring them . 52 impact of covid-19 on billtrust 's business on january 30 , 2020 , the world health organization declared the covid-19 outbreak a โ public health emergency of international concern โ and on march 11 , 2020 , declared it to be a pandemic . actions taken around the world to help mitigate the spread of covid-19 include restrictions on travel , quarantines in certain areas and forced closures for certain types of public places and businesses . covid-19 and actions taken to mitigate its spread have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries . in march 2020 , the united states declared a state of national emergency due to the covid-19 outbreak . in addition , many jurisdictions in the united states have limited , and are considering to further limit , social mobility and gathering . many business establishments have closed due to restrictions imposed by the government and many governmental authorities have closed most public establishments . billtrust 's business continues to operate despite the disruption of many business operations in the united states and its decision to require employees to work from remote locations . the pandemic has served to increase the awareness and urgency around accelerating the digital transformation of ar through billtrust 's products and platform . although billtrust has not experienced significant business disruptions thus far from the covid-19 pandemic , billtrust saw its transaction fees , including those in the print segment , decrease year over year for certain customers . this decrease was seen most acutely in the three months ended june 30 , 2020. billtrust is unable to predict the full impact that the covid-19 pandemic will have on its future results of operations , liquidity and financial condition due to numerous uncertainties , including the duration of the pandemic , the actions that may be taken by government authorities across the united states , the impact to its customers , employees and suppliers , and other factors described in the section titled โ risk factors โ in the original report . these factors are beyond billtrust 's knowledge and control and , as a result , at this time , billtrust is unable to predict the ultimate impact , both in terms of severity and duration , that the covid-19 pandemic will have on billtrust 's business , operating results , cash flows and financial condition . some of billtrust 's customers have been , and may continue to be , negatively impacted by the shelter-in-place and other similar state and local orders , the closure of manufacturing sites and country borders , and the increase in unemployment . the covid-19 pandemic has caused billtrust to modify its business practices ( including employee travel and cancellation of physical participation in meetings , events and conferences ) , all of its employees are currently working remotely , and it may take further actions as may be required by government authorities or that billtrust determines are in the best interests of its employees and customers . these modified business practices have led to expense reductions in personnel and marketing related costs . the extent of this business disruption on billtrust 's operational and financial performance will depend on these developments and the duration and spread of the outbreak , all of which are uncertain and can not be predicted . story_separator_special_tag recent developments on january 12 , 2021 , we consummated the previously announced business combination pursuant to the bca dated october 18 , 2020 , amended on december 13 , 2020 , between smmc , first merger sub , second merger sub and legacy billtrust , under the terms of which : ( i ) first merger sub merged with and into legacy billtrust , with legacy billtrust being the surviving company of the first merger and ( ii ) immediately following the first merger , legacy billtrust merged with and into second merger sub , with second merger sub being the surviving entity of the second merger . in connection with the closing , we changed our name from south mountain merger corp. to btrs holdings inc. key factors affecting our performance billtrust believes that its performance and future growth depends on a number of factors that present significant opportunities but also pose risks and challenges , including those discussed below and in the section titled โ risk factors โ in the original report . billtrust believes that the most significant factors affecting its results of operations include : 53 investment in technology billtrust 's goal is to transform the way businesses send and capture payments in order to be the leader in the order-to-cash process . billtrust continues to invest in technology and the digitizing of its platform . billtrust 's investment in technology is aimed at upgrading the conventional ( largely paper based ) ar and order-to-cash processes . billtrust 's model is digitizing the order-to-cash process in areas such as credit , ordering , invoicing , payments , cash application and collections . billtrust continues to invest in improving each product and offering more digital capability to its customers . further , billtrust is continuing to invest in certain initiatives targeted to improve internal processes and enhance the efficiency , security and scalability of its platform . billtrust 's investment in technology is expected to have a positive impact on its long-term profitability and operations . billtrust also intends to continue to evaluate strategic acquisitions and investments in businesses and technologies to drive product and market expansion . billtrust 's future success is dependent on its ability to successfully develop , market and sell existing and new products to both new and existing customers . acquisition of new customers billtrust efficiently reaches b2b customers through its proven go-to-market strategies . billtrust acquires customers directly through digital marketing campaigns , its direct sales force and indirectly by partnering with financial institutions and other complementary companies . billtrust 's growth largely depends on its ability to acquire new customers . as of december 31 , 2020 , billtrust had over 1,800 customers across a wide variety of industries and geographies , including distributors of building materials , electrical , plumbing and technology equipment , healthcare , construction and consumer products among others , primarily domiciled in north america . billtrust continues to invest in its sales , marketing and go-to market strategy in order to acquire customers in its target market . billtrust 's marketing efforts are campaign and content driven and targeted depending on the size and industry of the customer . marketing initiatives are focused on demand generation and include promotional activity and emphasis on online digital marketing programs ( e.g . webinars , virtual events ) . there is a long-term opportunity to expand into large , new markets with compatible trends . billtrust 's customers require professional implementation services to configure its products , which may take several months , or longer , for some products . as a result of the upfront investment , billtrust believes its customer retention is strong , as evidenced by the 104 % net dollar retention rate for the year ended december 31 , 2020. please see the section entitled โ -- key performance metrics โ for more information on this metric . billtrust intends to continue to invest in its efficient go-to market strategy as it further penetrates its addressable markets . billtrust 's ability to attract new customers will depend on a number of factors , including the effectiveness and pricing of its products , offerings of billtrust 's competitors , and the effectiveness of its marketing efforts . billtrust 's financial performance will depend in large part on the overall demand for its platform , and acquisition of new customers is expected to have a positive impact on billtrust 's long-term profitability and operations . expansion of relationships with existing customers billtrust 's revenue growth depends on its customers ' usage of its range of products . billtrust 's ability to monetize transactions and payments is an important part of its business model . as billtrust solves customers ' problems and becomes more integrated into their daily businesses , it sees an increased opportunity to cross-sell to these existing customers . this strategy is achieved by driving adoption of an existing billtrust solution across different divisions and / or subsidiaries of an existing customer and expanding the scope of service with additional solutions . billtrust 's ability to influence customers to process more transactions and payments on its platform will have a direct impact on billtrust 's revenue . billtrust 's revenue from existing customers is generally reliable due to both the pricing structure and the business-critical nature of functions billtrust products support for customers . for the years ended december 31 , 2020 , 2019 , and 2018 , 95 % or more of billtrust 's subscription and transaction fees came from customers who had entered into contracts prior to the start of the calendar year . billtrust expands within its existing customer base by selling additional products on its platform , adding divisions , increasing transactions per customer through proven e-solutions , as well as through pricing and packaging its services . billtrust 's ability to increase sales to existing customers will depend on a number of factors , including its customers ' satisfaction with its solution , competition , pricing and overall changes in billtrust 's customers ' spending levels with billtrust .
| for software and payments net dollar retention rates , the primary drivers are customer transaction volumes , and customer cancellations , particularly from legacy agreements . number of electronic invoices presented electronic invoices presented tracks the number of invoices sent via email , fax , or loaded to a presentment or ap portal and includes volumes from acquired platforms , where volumes are normalized to best match equivalents on the billtrust platform . it includes invoices that are charged on a per transaction basis for certain legacy customer agreements , as well as for the current pricing model which includes subscriptions with defined tiers of electronic transactions for a fixed price . electronic invoices presented is a key indicator as it contributes to the growth of billtrust 's software and payments segment revenues , and is a helpful indicator of the future opportunity for an electronic payment on those invoices . replace_table_token_3_th billtrust 's number of electronic invoices presented for 2020 was 273 million compared to 243 million in 2019 , an increase of 13 % year over year , while the comparison of 2019 and 2018 represents a growth of 13 % year over year . these growth rates are primarily driven by increased adoption for existing customers as well as the addition of new customers , and are moderated by flat or declining business to consumer customers on legacy platforms as they attrite off of those platforms . 56 results of operations our only activities from inception to december 31 , 2020 were organizational activities , those necessary to prepare for the ipo , described below , identifying a target company for a business combination and consummating the acquisition of legacy billtrust . we generated non-operating income in the form of interest income on marketable securities held in a trust account ( the โ trust account โ ) . we incurred expenses as a result of being a public company ( for legal , financial reporting , accounting and auditing compliance ) , as well as for due diligence and
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for further information on the regulatory , business and product pipeline , please see the โ business โ section of this annual report on form 10-k. for further information on the risk factors , please see the โ risk factors โ section of this annual report on form 10-k. revenue we do not have any products approved for sale , have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future . if our development efforts result in clinical success and regulatory approval or collaboration agreements with third parties for any of our product candidates , we may generate revenue from those product candidates . operating expenses the majority of our operating expenses to date have been for the general and administrative activities related to general business activities , capital market activities and stock-based compensation , and research and development activities related to our lead product candidates . research and development expense all costs of research and development are expensed in the period in which they are incurred . research and development costs primarily consist of salaries and related expenses for personnel , stock-based compensation expense , fees paid to consultants , outside service providers , professional services , travel costs and materials used in clinical trials and research and development . general and administrative expense general and administrative expense consists primarily of personnel costs , including salaries , related benefits and stock-based compensation for employees , consultants and directors . general and administrative expenses also include rent and other facilities costs and professional and consulting fees for legal , accounting , tax services and other general business services . professional fees professional fees include attorney 's fees , accounting fees and consulting fees incurred in connection with product investigation and analysis , regulatory analysis , government relations , audit , securities offerings , investor relations , and general corporate and intellectual property advice . income taxes as of december 31 , 2019 , we had net operating loss carryforwards for federal and state income tax purposes of $ 16,140,344 and non-capital loss carryforwards for canada of approximately $ 20,366,610 , which will begin to expire in fiscal year 2035. we have evaluated the factors bearing upon the realizability of our deferred tax assets , which are comprised principally of net operating loss carryforwards and non-capital loss carryforwards . we concluded that , due to the uncertainty of realizing any tax benefits as of december 31 , 2019 , a valuation allowance was necessary to fully offset our deferred tax assets . 40 critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or u.s. gaap . the preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , and revenue , costs and expenses and related disclosures during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments , including those described below . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 3 of the notes to our consolidated financial statements appearing elsewhere in this document , we believe that the estimates and assumptions involved in the following accounting policies may have the greatest potential impact on our financial statements . jobs act the jumpstart our business startups act , or the jobs act , contains provisions that , among other things , reduce certain reporting requirements for an โ emerging growth company. โ we have irrevocably elected not to avail ourselves of the jobs act provision that an emerging growth company may delay adopting new or revised accounting standards until such times as those standards apply to private companies . in addition , we are in the process of evaluating the benefits of relying on the other exemptions and reduced reporting requirements provided by the jobs act . subject to certain conditions set forth in the jobs act , if as an โ emerging growth company โ we choose to rely on such exemptions , we may not be required to , among other things , ( i ) provide an auditor 's attestation report on our system of internal controls over financial reporting pursuant to section 404 , and ( ii ) comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( auditor discussion and analysis ) . these exemptions will apply until december 31 , 2022 or until we no longer meet the requirements of being an โ emerging growth company , โ whichever is earlier . use of estimates the preparation of consolidated financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the year . actual results could differ from those estimates . areas where significant judgment is involved in making estimates are the determination of fair value of stock-based compensation ; the useful lives and recoverability of property and equipment and intangible assets ; deferred income taxes and forecasting future cash flows for assessing the going concern assumption . story_separator_special_tag research and development costs research and development expenses comprise costs incurred in performing research and development activities , including salaries and benefits , safety and efficacy studies and contract manufacturing costs , contract research costs , patent procurement costs , materials and supplies and occupancy costs . research and development activities include internal and external activities associated with research and development studies of current product candidates and advancing product candidates towards a goal of obtaining regulatory approval to manufacture and market the product candidate . research and development costs related to continued research and development programs are expensed as incurred in accordance with asc topic 730 . 41 translation of foreign currencies the functional currency , as determined by management , is u.s. dollars , which is also our reporting currency . transactions denominated in currencies other than u.s. dollars and the monetary value of assets and liabilities are translated at the period end exchange rates . revenue and expenses are translated at rates of exchange prevailing on the transaction dates . all of the exchange gains or losses resulting from these other transactions are recognized in the consolidated statements of operations and comprehensive loss . stock-based compensation we measure the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted if the fair value of the goods or services received by us can not be reliably estimated . we calculate stock-based compensation using the fair value method , under which the fair value of the options at the grant date is calculated using the black-scholes option pricing model , and subsequently expensed over the vesting period of the option using the graded vesting method . the provisions of our stock-based compensation plans do not require us to settle any options by transferring cash or other assets , and therefore we classify the awards as equity . stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that are ultimately expected to vest . we estimate forfeitures at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . volatility is determined based on volatilities of comparable companies when the company does not have its own trading history . the expected term , which represents the period of time that options granted are expected to be outstanding , is estimated based on an average of the term of the options . the risk-free rate assumed in valuing the options is based on the canadian treasury yield curve in effect at the time of grant for the expected term of the option . the expected dividend yield percentage at the date of grant is nil as we are not expected to pay dividends in the foreseeable future . loss per share basic loss per share , or eps , is computed by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding . diluted eps reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options , restricted stock awards , warrants and convertible securities . in certain circumstances , the conversion of options , warrants and convertible securities are excluded from diluted eps if the effect of such inclusion would be anti-dilutive . the dilutive effect of stock options is determined using the treasury stock method . stock options and warrants to purchase our common shares issued during the period were not included in the computation of diluted eps , as the effect would be anti-dilutive . comprehensive loss we follow asc topic 220. this statement establishes standards for reporting and display of comprehensive ( loss ) income and its components . comprehensive loss is net loss plus certain items that are recorded directly to shareholders ' equity . we currently have no other comprehensive loss items . 42 story_separator_special_tag 45 % . the increase in cash from financing activities resulted from $ 12,000,000 in proceeds from the private sale of preferred shares , $ 3,000,000 in proceeds from our underwritten public offering of common stock , net of financing costs , and $ 600,000 in proceeds from the exercise of stock options , partially offset by $ 4,002,496 from the private sale of our common shares , proceeds of $ 2,034,307 from the exercise of stock options and common stock subscriptions of $ 4,280,000 , partially offset by stock issuance costs of $ 58 in 2018. investing activities net cash used in investing activities for the year ended december 31 , 2019 was $ 686,932 , compared to $ 618,997 for the year ended december 31 , 2018 , an increase of $ 67,935 or 11 % . the increase in net cash used in investing activities resulted primarily from costs associated with the digital data platform , the construction of marketing assets , and the capitalization of integration costs associated with the implementation of an erp system , partially offset by investments in additional leasehold improvements , equipment and furniture for additional office and lab space in ann arbor during 2018 . 44 liquidity and capital resources we have incurred losses and negative cash flows from operations and have not generated any revenue since our inception in may 2015. as of december 31 , 2019 , we had an accumulated deficit of $ 52,057,841. we have funded our working capital requirements primarily through the sale of our capital shares and the exercise of stock options .
| marketing and investor relations expense increased by $ 245,997 , and travel and accommodation expense increased by $ 169,383 , which were partially offset by a reduction in regulatory costs of $ 329,666 and a decrease in rent of $ 263,279 which was reclassified to amortization of right-of-use asset . professional fees professional fees for the year ended december 31 , 2019 were $ 1,536,646 compared to $ 1,534,977 for the year ended december 31 , 2018 , an increase of $ 1,669 or less than 1 % . the increase was primarily due to increased expenses resulting from an increase in our sec reporting and registration activities . 43 net loss our net loss for the year ended december 31 , 2019 was $ 19,784,054 , or $ 0.19 per share , compared with a net loss of $ 16,647,687 , or $ 0.18 per share , for the year ended december 31 , 2018 , an increase of $ 3,135,167 or 19 % . the net loss in each period was attributed to the matters described above . we expect to continue to record net losses in future periods until such time as we have sufficient revenue from our product candidates to offset our operating expenses . cash flows year ended december 31 , 2019 compared to year ended december 31 , 2018 the following table shows a summary of our cash flows for the periods set forth below : replace_table_token_3_th operating activities net cash used in operating activities for the year ended december 31 , 2019 was $ 15,634,064 , compared to $ 11,147,528 for the year ended december 31 , 2018 , an increase of $ 4,486,536 or 40 % . the increase in net cash used in operating activities resulted primarily from the increase in our net loss , as well as a decrease in accounts payable and accrued liabilities of $ 288,994 , partially offset by an increase in non-cash expenses including stock-based compensation of $
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we also began providing expanded coverage in september 2014 under our star+plus contracts to provide acute care services for intellectually and developmentally disabled members . u.s. medical management . in january 2014 , we acquired a majority interest in u.s. medical management , llc , a management services organization and provider of in-home health services for high acuity populations . washington . in january 2014 , our subsidiary , coordinated care , began serving additional medicaid members under the state 's medicaid expansion program . in addition , in july 2014 , we completed an investment accounted for under the equity method for the purchase of a noncontrolling interest in ribera salud s.a. ( ribera salud ) , a spanish health management group . centene is a joint shareholder with ribera salud 's remaining investor , banco sabadell s.a. we expect the following items to contribute to our future growth potential : we expect to realize the full year benefit in 2015 of business commenced during 2014 in florida , illinois , louisiana , mississippi , new hampshire , ohio , and texas as discussed above . 35 in february 2015 , lhc began operating under a new contract with the louisiana department of health and hospitals to serve bayou health ( medicaid ) beneficiaries . members previously served under the shared savings program were transitioned to the at-risk program on february 1 , 2015. in february 2015 , our south carolina subsidiary , absolute total care , began operating under a new contract with the south carolina department of health and human services and the centers for medicare and medicaid services to serve dual-eligible members as part of the state 's dual demonstration program . in february 2015 , our indiana subsidiary , managed health services , began operating under an expanded contract with the indiana family & social services administration to provide medicaid services under the state 's healthy indiana plan 2.0 program . in february 2015 , centurion began operating under a new contract with the state of vermont department of corrections to provide comprehensive correctional healthcare services . in january 2015 , we signed a definitive agreement to acquire agate resources , inc. , a diversified holding company that offers an array of healthcare products and services to oregon residents . the transaction is expected to close in the third quarter of 2015 , subject to customary closing conditions , including oregon regulatory approval . in january 2015 , magnolia health began operating under a new contract with the state of mississippi to provide services under the children 's health insurance program ( chip ) . in january 2015 , we expanded our participation in health insurance marketplaces to include members in certain regions of illinois and wisconsin . in december 2014 , our subsidiary , cenpatico of arizona , in partnership with university of arizona health plan , was selected by the arizona department of health services/division of behavioral health services to be the regional behavioral health authority for the new southern geographic service area . the new contract is expected to commence in the fourth quarter of 2015. in december 2014 , managed health services , was selected by the indiana family & social services administration to begin contract negotiations to serve its abd medicaid enrollees who will qualify for the new hoosier care connect program . the contract is expected to commence in the first half of 2015. in may 2014 , our texas subsidiary , superior healthplan , was selected by the texas health and human services commission with the centers for medicare and medicaid services to serve dual-eligible members in three counties to provide integrated and coordinated care for individuals who are eligible for both medicare and medicaid . operations are expected to commence in the first quarter of 2015. in february 2014 , the texas health and human service commission expanded our star+plus contracts to include nursing facility benefits . the additional coverage is expected to commence in the first quarter of 2015. in december 2013 , we signed a definitive agreement to purchase a majority stake in fidelis securecare of michigan , inc. ( fidelis ) , a subsidiary of fidelis seniorcare , inc. the transaction is expected to close in the first half of 2015 , subject to certain closing conditions including regulatory approvals , and will include cash payments contingent on the performance of the plan . fidelis was selected by the michigan department of community health to provide integrated healthcare services to members who are dually eligible for medicare and medicaid in macomb and wayne counties . enrollment is expected to commence in the first half of 2015 . 36 membership from december 31 , 2012 to december 31 , 2014 , we increased our managed care membership by 1.5 million , or 57 % . the following table sets forth our membership by state for our managed care organizations : replace_table_token_7_th at december 31 , 2014 , we served 201,300 medicaid members in medicaid expansion programs in california , illinois , massachusetts , new hampshire , ohio and washington included in the table above . the following table sets forth our membership by line of business : replace_table_token_8_th 37 the following table identifies the company 's dual-eligible membership by line of business . the membership tables above include these members . replace_table_token_9_th from december 31 , 2013 to december 31 , 2014 our membership increased as a result of : product and geographic expansions in florida and illinois ; the assignment of members in louisiana under the chs transaction ; the commencement of medicaid expansion programs in california , illinois , massachusetts , new hampshire , ohio , and washington ; the commencement of health insurance marketplaces in certain regions of nine states : arkansas , florida , georgia , indiana , massachusetts , mississippi , ohio , texas and washington ; product expansions in mississippi and texas ; growth in south carolina ; and the commencement of a correctional healthcare service contract in minnesota . story_separator_special_tag from december 31 , 2012 to december 31 , 2013 our membership increased as a result : operations commencing in california , kansas and new hampshire ; geographic expansion in ohio ; growth in washington ; and , the commencement of correctional healthcare services contracts in massachusetts and tennessee . 38 results of operations the following discussion and analysis is based on our consolidated statements of operations , which reflect our results of operations for each of the three years ended december 31 , 2014 , prepared in accordance with generally accepted accounting principles in the united states ( $ in millions , except per share data ) : replace_table_token_10_th n.m. : not meaningful . 39 revenues and revenue recognition our health plans generate revenues primarily from premiums we receive from the states in which we operate . we generally receive a fixed premium per member per month pursuant to our state contracts . we generally receive premium payments and recognize premium revenue during the month in which we are obligated to provide services to our members . in some instances , our base premiums are subject to an adjustment , or risk score , based on the acuity of our membership . generally , the risk score is determined by the state analyzing submissions of processed claims data to determine the acuity of our membership relative to the entire state 's membership . some contracts allow for additional premiums associated with certain supplemental services provided such as maternity deliveries . our contracts with states may require us to maintain a minimum health benefits ratio or may require us to share profits in excess of certain levels . in certain circumstances , our plans may be required to return premium to the state in the event profits exceed established levels . we recognize reductions in revenue in the current period for these programs . other states may require us to meet certain performance and quality metrics in order to receive additional or full contractual revenue . for performance-based contracts , we do not recognize revenue subject to refund until data is sufficient to measure performance . revenues are recorded based on membership and eligibility data provided by the states , which is adjusted on a monthly basis by the states for retroactive additions or deletions to membership data . these eligibility adjustments are estimated monthly and subsequently adjusted in the period known . we continuously review and update those estimates as new information becomes available . it is possible that new information could require us to make additional adjustments , which could be significant , to these estimates . our specialty services generate revenues under contracts with state programs , healthcare organizations , and other commercial organizations , as well as from our own subsidiaries . revenues are recognized when the related services are provided or as ratably earned over the covered period of services . premium and service revenues collected in advance are recorded as unearned revenue . premium and service revenues due to us are recorded as premium and related receivables and are recorded net of an allowance based on historical trends and our management 's judgment of the collectibility of these accounts . as we generally receive payments during the month in which services are provided , the allowance is typically not significant in comparison to total revenues and does not have a material impact on the presentation of our financial condition or results of operations . some states enact premium taxes , similar assessments and provider and hospital pass-through payments , collectively , premium taxes , and these taxes are recorded as a component of revenues as well as operating expenses . additionally , our insurance subsidiaries are subject to the affordable care act annual health insurer fee ( hif ) . the company recognizes revenue associated with the hif on a straight line basis when we have binding agreements for the reimbursement of the fee , including the โ gross-up โ to reflect the hifs non-tax deductible nature . we exclude the hif and premium taxes from our key ratios as we believe they are a pass-through of costs and not indicative of our operating performance . collectively , this revenue is recorded as premium tax and hif revenue in the consolidated statement of operations . the centers for medicare and medicaid services ( cms ) deploys a risk adjustment model that retroactively apportions medicare premiums paid according to health severity and certain demographic factors . the model pays more for members whose medical history indicates they have certain medical conditions . under this risk adjustment methodology , cms calculates the risk adjusted premium payment using diagnosis data from hospital inpatient , hospital outpatient , physician treatment settings as well as prescription drug events . the company estimates the amount of risk adjustment based upon the diagnosis and pharmacy data submitted and expected to be submitted to cms and records revenues on a risk adjusted basis . operating expenses medical costs medical costs include payments to physicians , hospitals , and other providers for healthcare and specialty services claims . medical costs also include estimates of medical expenses incurred but not yet reported , or ibnr , and estimates of the cost to process unpaid claims . we use our judgment to determine the assumptions to be used in the calculation of the required ibnr estimate . the assumptions we consider include , without limitation , claims receipt and payment experience ( and variations in that experience ) , changes in membership , provider billing practices , healthcare service utilization trends , cost trends , product mix , seasonality , prior authorization of medical services , benefit changes , known outbreaks of disease or increased incidence of illness such as influenza , provider contract changes , changes to medicaid fee schedules , and the incidence of high dollar or catastrophic claims . 40 our development of the ibnr estimate is a continuous process which we monitor and refine on a monthly basis as claims receipts and payment information becomes available .
| operating expenses medical costs the table below depicts the hbr for our membership by member category for the year ended december 31 , : replace_table_token_14_th the consolidated hbr for the year ended december 31 , 2013 , of 88.6 % was a decrease of 100 basis points over the comparable period in 2012. the 2013 hbr reflects performance improvement in texas and our individual insurance business from 2012. costs of services cost of services increased by $ 239 million in the year ended december 31 , 2013 , compared to the corresponding period in 2012. this was primarily due to the additional volume resulting from the acquisition of acariahealth . general and administrative expenses general and administrative expenses , or g & a , increased by $ 254 million in the year ended december 31 , 2013 , compared to the corresponding period in 2012. this was primarily due to expenses for additional staff and facilities to support our membership growth , acariahealth transaction costs , as well as performance based compensation . the consolidated g & a expense ratio for the years ended december 31 , 2013 and 2012 was 8.8 % and 8.8 % , respectively . the g & a expense ratio reflects an increase in performance based compensation expense in 2013 as well as acariahealth transaction costs , offset by the benefits of leveraging of expenses over higher revenue in 2013 and our efforts to control costs . impairment loss during 2012 , an impairment analysis of our subsidiary , celtic insurance company , resulted in goodwill and intangible asset impairments of $ 28 million . the impaired identifiable intangible assets of $ 2 million and goodwill of $ 26 million were reported under the specialty services segment ; $ 27 million of the impairment loss was not deductible for income tax purposes . investment and other income , net the following table summarizes the components of other income ( expense ) for the year ended december 31 , ( $ in millions ) : 44 replace_table_token_15_th investment income . the increase in investment income in 2013 primarily reflects an increase in investment balances over 2012. gain
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the increase in revenue is comprised of growth in the cgs , cts and css segments which collectively grew 17.3 % , offset by a decrease in the cms segment due to the foreign currency fluctuations . revenue adjusted for the $ 63.7 million decrease related to foreign exchange increased 8.8 % over the prior year . our 2015 income from operations decreased $ 6.3 million to $ 90.2 million or 7.0 % of revenue , from $ 96.5 or 7.8 % of revenue for 2014 . the decrease is primarily due to the $ 14.9 million adverse impact of foreign currency fluctuations , a goodwill impairment of $ 7.7 million for our webmetro and latin america reporting units in the third and fourth quarter s of 2015 ( see part ii , item 8. financial statements and supplementary data , note 6 to the consolidated financial statements ) , $ 6.5 million of additional investment in sales , research and development , and lower capacity utilization due to the build out of a super site for one of our largest clients . these were partially offset by organic revenue growth and income from the recent acquisitions . income from operations in 2015 and 2014 included $ 9.9 million and $ 3.7 million of restructuring charges and asset impairments , respectively . 24 our offshore delivery centers serve clients based in the u.s. and in other countries and span six countries with 22,500 workstations representing 64 % of our global delivery capabilities . revenue for our cms and cgs segments that is provided in these offshore locations was $ 450 million and represented 43 % of our revenue for 2015 , as compared to $ 457 million and 43 % of our revenue for 2014. at december 31 , 2015 , we had $ 60.3 million of cash and cash equivalents , total debt of $ 107.3 million , and a total debt to total capitalization ratio of 19.6 % . we internally target capacity utilization in our delivery centers at 80 % to 90 % of our available workstations . as of december 31 , 2015 , the overall capacity utilization in our multi-client centers was 71 % . the table below presents workstation data for our multi-client centers as of december 31 , 2015 and 2014 . dedicated and managed centers ( 7,109 and 5,261 workstations , at december 31 , 2015 and 2014 , respectively ) are excluded from the workstation data as unused workstations in these facilities are not available for sale . our utilization percentage is defined as the total number of utilized multi-client production workstations compared to the total number of available multi-client production workstations . we may change the designation of shared or dedicated centers based on the normal changes in our business environment and client needs . replace_table_token_4_th the reduction in utilization in 2015 compared to 2014 is due to the build out of a new supersite for one of our largest clients which was completed in 2015. while w e continue to see demand from all geographic regions to utilize our offshore delivery capabilities and expect this trend to continue with our clients , some of our clients have regulatory pressures to bring the services onshore to the united states . in light of this trend , we plan to continue to selectively retain and grow capacity and expand into new offshore markets while maintaining appropriate capacity in the united states . as we grow our offshore delivery capabilities and our exposure to foreign currency fluctuations increases , we continue to actively manage this risk via a multi-currency hedging program designed to minimize operating margin volatility . critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. ( โ gaap โ ) . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses as well as the disclosure of contingent assets and liabilities . we regularly review our estimates and assumptions . these estimates and assumptions , which are based upon historical experience and on various other factors believed to be reasonable under the circumstances , form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . reported amounts and disclosures may have been different had management used different estimates and assumptions or if different conditions had occurred in the periods presented . below is a discussion of the policies that we believe may involve a high degree of judgment and complexity . 25 revenue recognition we recognize revenue when evidence of an arrangement exists , the delivery of service has occurred , the fee is fixed or determinable and collection is reasonably assured . the bpo inbound and outbound service fees are based on either a per minute , per hour , per transaction or per call basis . certain client programs provide for adjustments to monthly billings based upon whether we achieve , exceed or fail certain performance criteria . adjustments to monthly billings consist of contractual bonuses/penalties , holdbacks and other performance based contingencies . revenue recognition is limited to the amount that is not contingent upon delivery of future services or meeting other specified performance conditions . revenue also consists of services for agent training , program launch , professional consulting , fully-hosted or managed technology and learning innovation . these service offerings may contain multiple element arrangements whereby we determine if those service offerings represent separate units of accounting . a deliverable constitutes a separate unit of accounting when it has standalone value and delivery or performance of the undelivered items is considered probable and substantially within our control . if those deliverables are determined to be separate units of accounting , revenue is recognized as services are provided . story_separator_special_tag if those deliverables are not determined to be separate units of accounting , revenue for the delivered services are bundled into one unit of accounting and recognized over the life of the arrangement or at the time all services and deliverables have been delivered and satisfied . we allocate revenue to each of the deliverables based on a selling price hierarchy of vendor specific objective evidence ( โ vsoe โ ) , third-party evidence , and then estimated selling price . vsoe is based on the price charged when the deliverable is sold separately . third-party evidence is based on largely interchangeable competitor services in standalone sales to similarly situated customers . estimated selling price is based on our best estimate of what the selling prices of deliverables would be if they were sold regularly on a standalone basis . estimated selling price is established considering multiple factors including , but not limited to , pricing practices in different geographies , service offerings , and customer classifications . once we allocate revenue to each deliverable , we recognize revenue when all revenue recognition criteria are met . periodically , we will make certain expenditures related to acquiring contracts or provide up-front discounts for future services . these expenditures are capitalized as contract acquisition costs and amortized in proportion to the expected future revenue from the contract , which in most cases results in straight-line amortization over the life of the contract . amortization of these contract acquisition costs is recorded as a reduction to revenue . during 2014 , new guidance was issued related to how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . the new guidance is effective for years beginning after december 15 , 201 7 and can be adopted retrospectively or as a cumulative effect adjustment . we are currently determining our implementation approach and assessing the impact on the consolidated financial statements . income taxes accounting for income taxes requires recognition of deferred tax assets and liabilities for the expected future income tax consequences of transactions that have been included in the consolidated financial statements or tax returns . under this method , deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse . when circumstances warrant , we assess the likelihood that our net deferred tax assets will more likely than not be recovered from future projected taxable income . we continually review the likelihood that deferred tax assets will be realized in future tax periods under the โ more-likely-than-not โ criteria . in making this judgment , we consider all available evidence , both positive and negative , in determining whether , based on the weight of that evidence , a valuation allowance is required . 26 we follow a two-step approach to recognizing and measuring uncertain tax positions . the first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit . the second step is to estimate and measure the tax benefit as the amount that has a greater than 50 % likelihood of being realized upon ultimate settlement with the tax authority . we evaluate these uncertain tax positions on a quarterly basis . this evaluation is based on the consideration of several factors including changes in facts or circumstances , changes in applicable tax law , and settlement of issues under audit . interest and penalties relating to income taxes and uncertain tax positions are accrued net of tax in provision for income taxes in the accompanying consolidated statements of comprehensive income ( loss ) . in the future , our effective tax rate could be adversely affected by several factors , many of which are outside our control . our effective tax rate is affected by the proportion of revenue and income before taxes in the various domestic and international jurisdictions in which we operate . further , we are subject to changing tax laws , regulations and interpretations in multiple jurisdictions in which we operate , as well as the requirements , pronouncements and rulings of certain tax , regulatory and accounting organizations . we estimate our annual effective tax rate each quarter based on a combination of actual and forecasted results of subsequent quarters . consequently , significant changes in our actual quarterly or forecasted results may impact the effective tax rate for the current or future periods . impairment of long-lived assets we evaluate the carrying value of property , plant and equipment and definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . an asset is considered to be impaired when the forecasted undiscounted cash flows of an asset group are estimated to be less than its carrying value . the amount of impairment recognized is the difference between the carrying value of the asset group and its fair value . fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates . goodwill and indefinite-lived intangible assets we evaluate goodwill and indefinite-lived intangible assets for possible impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . we use a three step process to assess the realizability of goodwill . the first step , step 0 , is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit .
| customer growth services replace_table_token_6_th the increase in revenue for the customer growth services segment was due to $ 29.4 million increase in client programs offset by program completions of $ 10.4 million and a $ 5.4 million reduction due to foreign currency fluctuations . the operating income as a percentage of revenue decreased to 2.4 % in 2015 as compared to 6.3 % in 2014 . this decre ase was primarily driven by a $ 5.9 million goodwill impairment for the web m etro reporting unit ( see part ii , item 8. financial statements and supplementary data , note 6 to the consolidated financial statements ) , a $ 1.8 million decrease due to foreign currency fluctuations and the completion of established programs . these were partially offset by increased profits from additional business booked during 2015 which began operating in 2015 . included in the operating income was amortization related to acquired intangibles of $ 2.7 million and $ 2.7 million for the year ended december 31 , 2015 and 2014 , respectively . customer technology services replace_table_token_7_th the increase in revenue for the customer technology services segment was related to increases in both the cisco and avaya offerings including recurring revenue for the cloud and managed services solutions . the operating income as a percentage of revenue increased to 8.5 % in 2015 as compared to 3.2 % in 2014 . the improvement in operating income margin is attributable to increased revenue in combination with lower selling , general and administrative expenses . also as the revenue grows for the cloud and managed services solutions , the margins increase due to higher utilization of fixed expenses . included in the operating income was amortization related to acquired intangibles of $ 4.2 million and $ 4 .4 million for the year ended december 31 , 2015 and 2014 , respectively . customer strategy services replace_table_token_8_th 30 the increase in revenue for the customer strategy services segment was primarily related to the acquisition of rogensi in august 2014 , as well as organic growth across several of
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yield10 brings a unique history and skill set captured in its grain platform for developing advanced crop traits and increasing the concentration of specific biochemicals of commercial interest in crops . our plan is to use grain to develop a source of revenue from funded research and development collaborations . we also plan to develop a source of revenue from funded research and development collaborations . we are currently engaged in a range of discussions with third parties with respect to different crops , traits and products in the feed , food and pharmaceutical sectors . 45 government grants during 2018 we entered into a sub-award with michigan state university ( `` msu '' ) to support a department of energy ( `` doe '' ) funded grant entitled `` a systems approach to increasing carbon flux to seed oil. `` our participation under this projected five-year grant will be awarded on an annual basis with the first year commencing september 15 , 2017. although funding for the first three years under this sub-award has been appropriated through september 2020 for $ 1,698 , we anticipate that each of the remaining two years will be awarded annually to yield10 through september 14 , 2022 for total sub-award funding of $ 2,957 , provided the u.s. congress continues to appropriate funds for the program , we are able to make progress towards meeting grant objectives and we remain in compliance with other terms and conditions of the sub-award . as of december 31 , 2019 , proceeds of $ 473 remain to be earned from the msu sub-award . this includes amounts for reimbursement to our subcontractors , as well as reimbursement for our employees ' time , benefits and other expenses related to future performance . program title funding agency total government funds total revenue recognized through december 31 , 2019 remaining amount to be recognized as of december 31 , 2019 contract/grant expiration subcontract from michigan state university project funded by doe entitled `` a systems approach to increasing carbon flux to seed oil '' department of energy $ 1,698 $ 1,225 $ 473 september 15 , 2020 critical accounting estimates and judgments our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and related disclosures . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates . we believe that our significant accounting policies , which are described in note 2 to our consolidated financial statements , involve a degree of judgment and complexity . accordingly , we believe that the specific accounting policies and significant judgments described below are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . grant revenue government research grants currently represent our sole source of revenue . we recognize government grants as revenue because the grants are central to the company 's ongoing crop science program . revenue is earned as research expenses related to the grants are incurred and revenue earned on government grants , but not yet invoiced as of the balance sheet date , are recorded as unbilled receivables in the accompanying consolidated balance sheets for the years ended december 31 , 2019 and december 31 , 2018 . funds received from government grants in advance of work being performed are recorded as deferred revenue until earned . performance-based compensation accrual our employee compensation program includes a potential for bonus payments based on company and individual performance against annual goals that are established early in the fiscal year by management and the company 's board of directors . bonus payments are generally paid at the end of february following the most recently completed fiscal year . the compensation committee is responsible for reviewing annual performance against goals and approving bonus payments for the company 's executive officers . annual cash bonuses are accrued evenly throughout the fiscal year unless management and or the compensation committee determine that bonus compensation payments are unlikely to be paid at the existing rate . in that event , we make a cumulative year-to-date adjustment to our bonus accrual and adjust quarterly accruals for the remainder of the year in order to achieve a bonus compensation accrual at year-end that matches expected bonus payments . our quarterly performance-based compensation expense and accrual balances may vary significantly during the year as performance judgments change and we revise our estimates . 46 stock-based compensation the accounting standards for stock-based compensation require that all stock-based awards be recognized as an expense in the consolidated financial statements and that such expense be measured based on the fair value of the award . determining the appropriate fair value model and calculating the fair value of stock-based payment awards requires the use of highly subjective assumptions , including the expected life of the stock-based payment awards and stock price volatility . we use the black-scholes option-pricing model to value our service-based option grants and to determine the related compensation expense . generally , we recognize the fair value of stock awards evenly over their vesting periods provided the individual receiving the award meets continuing service conditions . the assumptions used in calculating the fair value of stock-based awards represent management 's best estimates , but the estimates involve inherent uncertainties and the application of management judgment . see note 10 to the consolidated financial statements for further discussion on the key assumptions used to determine the fair values of option grants pursuant to the black-scholes option pricing model . story_separator_special_tag income taxes due to the company 's history of annual income tax losses , it has never incurred significant income tax expenses . the company has , however , recorded significant deferred income tax assets for net operating loss carry forwards and research tax credits that are available to offset future income taxes . deferred income taxes are measured by applying currently enacted tax rates to the differences between financial statement and income tax reporting . we routinely assess the realizability of the company 's deferred tax assets and have historically concluded that it is unlikely that these deferred tax assets will be realized under accounting standards and therefore we have maintained a full valuation allowance . moi is our wholly-owned research and development subsidiary located in canada . moi performs research services for us under a research services agreement subject to intercompany transfer pricing regulations that annually results in moi reporting taxable income in canada . moi files separate federal and provincial income tax returns in canada and has accumulated research credits that may be used to offset future taxable income . for the year ended december 31 , 2019 , we have concluded , based on our assumption of moi 's continued profitability derived from intercompany transfer pricing , that the subsidiary will more likely than not continue to show taxable income in future tax years . we have concluded , as a a result , that a full valuation allowance against moi 's deferred tax asset related to the research credits is no longer appropriate . securities offerings on november 19 , 2019 , we closed on two securities offerings that included a public offering and a private placement . the public portion of the offerings included sale of common stock , series a convertible preferred stock and warrants to purchase common stock . the private placement included the sale of series b convertible preferred stock and warrants to purchase common stock . see note 9 to the consolidated financial statements for further discussion on the november 2019 concurrent securities offerings . we primarily followed the guidance of asc 480 , distinguishing liabilities from equity , and asc 815 , derivatives and hedging , in reaching conclusions that the series a convertible preferred stock , the series b convertible preferred stock and the warrants issued in the offering should be recorded in permanent equity , temporary equity and liabilities , respectively , in our consolidated balance sheet as of december 31 , 2019 . we also applied applicable accounting guidance in order to calculate the fair value of the warrants sold in the offerings and determined that the black-scholes fair value of the liability classified warrants exceeded the proceeds received in the offering . this resulted in a charge of $ 13,018 to other income ( expense ) on the date of issuance . at december 31 , 2019 , we completed a mark-to-market revaluation of the warrants and recorded a gain of $ 9,541 within other income ( expense ) for the year ended december 31 , 2019 . comparison of the years ended december 31 , 2019 and 2018 revenue replace_table_token_1_th total revenue was $ 806 and $ 556 for the years ended december 31 , 2019 and 2018 , respectively , and was derived solely from our research grants . grant revenue for the year ended december 31 , 2019 was earned from the company 's doe 47 sub-award with michigan state university . during the year ended december 31 , 2018 , $ 419 in grant revenue was earned from the msu sub-award and $ 137 was earned from the company 's completed doe camelina grant . we anticipate that msu grant revenue will decrease approximately 20 percent over the next twelve months based on annual budget appropriations awarded under the grant . our forecast related to grant revenue is subject to change should we apply for , and receive , new grants during 2020. expenses replace_table_token_2_th research and development expenses research and development expenses of $ 4,848 and $ 4,783 for the years ended december 31 , 2019 and 2018 , respectively , remained consistent with a negligible increase of $ 65 between the two years . during the year ended december 31 , 2019 , however , employee compensation and benefits increased by $ 233 , primarily as a result of increased employee payroll of $ 255 from the addition of headcount and our recording of $ 157 in bonus expense . we did not record bonuses during the year ended december 31 , 2018 . these increases in employee payroll and bonus expense were partially offset by a $ 196 reduction in stock compensation expense . facility related expenses decreased by $ 260 from $ 1,009 during the year ended december 31 , 2018 to $ 749 during the year ended december 31 , 2019 . the decrease is primarily due to a $ 263 reduction in lease expense as a result of modifying our woburn facility lease in november 2019 to return 7,409 square feet to the landlord for the remaining seven-year term of the lease . based on our current financial forecasts , we expect research and development expenses will increase during 2020 as we add research personnel to support our strategic objectives . our forecasts related to research and development expenses are subject to significant change as events and opportunities occur during 2020 that could result in modifications to our business plans . general and administrative expenses story_separator_special_tag . our total unrestricted cash , cash equivalents and short-term investments as of december 31 , 2019 , totaled $ 11,117 as compared to $ 5,769 at december 31 , 2018 . as of december 31 , 2019 , we had no outstanding debt .
| in accordance with applicable accounting guidance , the warrants were recorded at their full fair value and the difference between the fair value and the proceeds of $ 13,018 was recorded to other income ( expense ) . see note 9 - capital stock and warrants , in our audited financial statements for the year ended december 31 , 2019 . offering costs as discussed above , the proceeds of the combined november 2019 offerings were allocated solely to the liability classified warrants . all of the offering costs of $ 1,254 were therefore assigned to the warrants and expensed immediately to other income ( expense ) in according with accounting guidance related to debt issuance costs . change in fair value of warrants the fair value of the liability classified warrants issued in the november 2019 offerings are subject to mark-to-market adjustment on each balance sheet date . we remeasured the fair value of the warrant liabilities at december 31 , 2019 and recognized a gain of $ 9,541 within other income ( expense ) . the significant reduction in black-scholes valuation was primarily the result of the closing market price of the company 's stock declining from $ 10.82 on november 14 , 2019 to $ 6.86 on december 31 , 2019. interest income interest income for the years ended december 31 , 2019 and december 31 , 2018 was derived from investment income earned from the company 's cash equivalents and short-term investments . liquidity and capital resources we require cash to fund our working capital needs , to purchase capital assets , to pay our lease obligations and other operating costs . the primary sources of our liquidity have historically included equity financings , government research grants and income earned on cash equivalents and short-term investments . since our inception , we have incurred significant expenses related to our research , development and commercialization efforts . with the exception of 2012 , when we recognized $
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the net interest spread of our portfolio of debt investments can be impacted by ( i ) the timing and extent of changes in the composition of our portfolio as a result of purchases and sales of assets or the repayment of debt , including our cdo debt , repurchase agreements and other bonds , and the incurrence of new debt , ( ii ) the yields on new investments , which varies depending on the credit quality of the issuer , and ( iii ) changes in our estimates of the yields on securities acquired at a discount for credit quality . for instance , the net interest spread of our debt investments increases if we sell assets with lower yields relative to other assets in our portfolio or repay debt ( such as in connection with an asset sale or refinancing ) that has a higher interest rate relative to other financing on our portfolio ( assuming no other changes to the composition of our portfolio ) . conversely , the net interest spread of our portfolio decreases if we sell assets with higher yields relative to other assets in our portfolio or repay debt ( such as in connection with an asset sale ) that has a lower interest rate relative to other financing on our portfolio ( again , assuming no other changes to the composition of our portfolio ) . management continually monitors market conditions to opportunistically effect purchases and sales of debt investments . golf business with respect to our golf business , trends in consumer discretionary spending as well as climate and weather patterns have a significant impact on the markets in which we operate . our golf business is subject to seasonal fluctuations caused by significant reductions in golf activities as well as revenue in the first and fourth quarters of each year , as a result of shorter days and colder 52 temperatures . consequently , a significantly larger portion of our revenue from our golf operations is earned in the second and third quarters of our fiscal year . in addition , severe weather patterns can also negatively impact our results of operations . a severe weather pattern is forecasted for the western united states in early 2016 and is expected to bring significantly higher amounts of rain and snow than usual . this could negatively impact our public golf operations in that region and our first quarter financial performance . while consumer spending in the traditional golf industry has generally been declining in recent years , we believe improving economic conditions and improvements in local housing markets will help drive membership growth and increase the number of golf rounds played . in addition , we believe growth in related industries , including in leisure entertainment , can positively impact our golf business . application of critical accounting policies management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( โ gaap โ ) . the preparation of financial statements in conformity with gaap requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses . our estimates are based on information available to management at the time of preparation of the consolidated financial statements , including the result of historical analysis , our understanding and experience of the company 's operations , our knowledge of the industry and market-participant data available to us . actual results have historically been in line with management 's estimates and judgments used in applying each of the accounting policies described below and management periodically re-evaluates accounting estimates and assumptions . actual results could differ from these estimates and materially impact our consolidated financial statements . however , the company does not expect our assessments and assumptions below to materially change in the future . a summary of our significant accounting policies is presented in note 2 to our consolidated financial statements , which appear in part ii , item 8 . โ financial statements and supplementary data. โ the following is a summary of our accounting policies that are most affected by judgments , estimates and assumptions . variable interest entities variable interest entities ( โ vies โ ) are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties . a vie is required to be consolidated by its primary beneficiary , and only by its primary beneficiary , which is defined as the party who has the power to direct the activities of a vie that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the vie that could potentially be significant to the vie . the vies in which we have a significant interest include our cdos . we do not have the power to direct the relevant activities of cdo v , as a result of an event of default which allows for us to be removed as collateral manager of this cdo and prevents us from purchasing or selling certain collateral within this cdo , and therefore this cdo is not consolidated as of december 31 , 2015. similar events of default in the future , if they occur , could cause us to deconsolidate additional financing structures . our subprime securitizations are also considered vies , but we do not control the decisions that most significantly impact their economic performance and no longer receive a significant portion of their returns , and therefore do not consolidate them . in addition , our investments in rmbs , cmbs , cdo securities and real estate related and other loans may be deemed to be variable interests in vies , depending on their structure . story_separator_special_tag we monitor these investments and analyze the potential need to consolidate the related securitization entities pursuant to the vie consolidation requirements . these analyses require considerable judgment in determining whether an entity is a vie and determining the primary beneficiary of a vie since they involve subjective determinations of significance , with respect to both power and economics . the result could be the consolidation of an entity that otherwise would not have been consolidated or the deconsolidation of an entity that otherwise would have been consolidated . valuation of securities we have classified all of our real estate securities as available for sale . as such , they are carried at fair value with net unrealized gains or losses reported as a component of accumulated other comprehensive income , to the extent impairment losses are considered temporary as described below . fair value may be based upon broker quotations , counterparty quotations or pricing services quotations , which provide valuation estimates based upon reasonable market order indications or a good faith estimate thereof and 53 are subject to significant variability based on market conditions , such as interest rates , credit spreads and market liquidity . a significant portion of our securities are currently not traded in active markets and therefore have little or no price transparency . as a result , we have estimated the fair value of these illiquid securities based on internal pricing models rather than the sources described above . the determination of estimated cash flows used in pricing models is inherently subjective and imprecise . changes in market conditions , as well as changes in the assumptions or methodology used to determine fair value , could result in a significant and immediate increase or decrease in our book equity . for securities valued with pricing models , these inputs include the discount rate , assumptions relating to prepayments , default rates and loss severities , as well as other variables . see note 10 to our consolidated financial statements in part ii , item 8 . โ financial statements and supplementary data โ for information regarding the fair value of our investments , and respective estimation methodologies , as of december 31 , 2015 . our securities must be categorized by the โ level โ of inputs used in estimating their fair values . level 1 would be assets or liabilities valued based on quoted prices for identical instruments in active markets . we have no level 1 assets or liabilities . level 2 would be assets or liabilities valued based on quoted prices in active markets for similar instruments , on quoted prices in less active or inactive markets , or on other โ observable โ market inputs . level 3 would be assets or liabilities valued based significantly on โ unobservable โ market inputs . fair value under gaap represents an exit price in the normal course of business , not a forced liquidation price . if we were forced to sell assets in a short period to meet liquidity needs , the prices we receive could be substantially less than the recorded fair values . we generally classify non-binding broker and pricing service quotations we receive as level 3 inputs . such quotations are quoted prices in generally inactive and illiquid markets for identical or similar securities . these quotations are generally received via email and contain disclaimers which state that they are โ indicative โ and `` not actionable โ - meaning that the party giving the quotation is not bound to actually purchase the security at the quoted price . these quotations are generally based on models prepared by the brokers , and we have little visibility into the inputs they use . based on quarterly procedures we have performed with respect to quotations received from these brokers , including comparison to the outputs generated from our internal pricing models and transactions we have completed with respect to these securities , as well as on our knowledge and experience of these markets , we have generally determined that these quotes represent a reasonable estimate of fair value . for the $ 155.3 million carrying value of securities valued using quotations as of december 31 , 2015 , a 100 basis point change in credit spreads would impact estimated fair value by approximately $ 8.6 million . our estimation of the fair value of level 3 assets valued using internal models ( as described below ) involves significant judgment . we validated the inputs and outputs of our models by comparing them to available independent third party market parameters and models for reasonableness , as well as historical performance . we believe the assumptions we used are within the range that a market participant would use and factor in the liquidity conditions currently in the markets . in 2015 , the inputs to our models , including discount rates , prepayment speeds , default rates and severity assumptions , have generally remained consistent with the assumptions used at december 31 , 2014 . for securities valued with internal models , which have an aggregate fair value of $ 9.7 million as of december 31 , 2015 , a 10 % unfavorable change in our assumptions would result in the following decreases in such aggregate fair value ( in thousands ) : cdo outstanding face amount $ 14,632 fair value $ 9,731 effect on fair value with 10 % unfavorable change in : discount rate $ ( 459 ) prepayment rate $ ( 160 ) default rate $ ( 154 ) loss severity $ ( 178 ) the sensitivity analysis is hypothetical and should be used with caution . in particular , the results are calculated by stressing a particular economic assumption independent of changes in any other assumption ; in practice , changes in one factor may result in changes in another , which might counteract or amplify the sensitivities .
| interest expense interest expense decreased by $ 17.9 million during the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 primarily due to : ( i ) a $ 10.0 million decrease in swap interest expense due to a lower notional balance in 2015 compared to 59 2014 , ( ii ) a $ 2.4 million decrease in the other debt segment primarily due to the payoff of the debt following the sale of the manufactured housing and residential mortgage loan portfolio in may 2014 , ( iii ) a $ 5.6 million decrease in the cdo segment due to paydowns of debt as a result of paydowns and sales of assets , ( iv ) a decrease of $ 1.1 million primarily due to repurchase of the golf debts in august 2015 , and ( v ) a decrease of $ 0.5 million related to expenses recognized on the subprime mortgage loans subject to call option . this was offset by ( i ) an increase of $ 1.1 million due to higher balances of repurchase agreements financing the agency rmbs portfolio , ( ii ) an increase of $ 0.4 million related to higher capital lease financing costs associated with the golf business , and ( iii ) a $ 0.2 million increase related to higher interest accretion expense related to the golf membership deposit liabilities . valuation ( reversal ) allowance on loans the valuation allowance ( reversal ) on loans change of $ 12.0 million during the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 is primarily due to a $ 12.8 million increase in allowances related to our real estate related loans offset by a $ 0.8 million decrease in allowances related to our manufactured housing and residential mortgage loan portfolios . other-than-temporary impairment on securities , net we recorded other-than-temporary impairments of $ 2.0 million on two debt securities , $ 0.4 million on one equity security and $ 7.5 million on an equity method investment during the year ended december 31 , 2015 . we did not record other-than-temporary impairment during the year ended december 31 , 2014 . operating revenues the operating revenues increased by $ 4.3 million during the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 , due to ( i ) an increase of $ 3.1 million from member dues from continuing operations , ( ii ) an increase of $ 4.6 million in food and beverage sales revenue from continuing operations as a result of enhanced marketing programs , and ( iii ) an increase of $ 4.9 million in other revenues from continuing operations primarily due to a
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distribution activity the following table sets forth the cash dividends paid or payable per share during the year ended december 31 , 2011 : replace_table_token_8_th 34 leasing activity on december 6 , 2011 we entered into a lease renewal of approximately 138,000 square feet at one of our industrial buildings located in kent , washington , which was 100 % leased as of december 31 , 2011. on december 20 , 2011 , we entered into a lease of approximately 166,000 square feet at our industrial building located in miami lakes , florida , which was approximately 94 % leased as of december 31 , 2011. the lease includes an expansion option exercisable within 13 months for an additional approximately 24,000 square feet . on december 30 , 2011 , we entered into a lease of approximately 302,000 square feet at our industrial building located in hialeah , florida , which was 100 % leased as of december 31 , 2011. on december 30 , 2011 we entered into a lease of approximately 75,000 square feet at our industrial building located in jessup , maryland , which was 100 % leased as of december 31 , 2011. we executed new or renewal leases for a total of approximately 761,000 square feet during the fourth quarter of 2011 , which represented approximately 22 % of our total rentable square feet as of december 31 , 2011. collectively , our properties were approximately 92.5 % leased to 72 tenants as of december 31 , 2011 , which is an increase from our occupancy of approximately 70.6 % as of december 31 , 2010. the number of square feet under leases that we anticipate will expire in 2012 was reduced to a total representing approximately 2 % of our total rentable square feet as of december 31 , 2011. recent developments public follow-on offering on january 13 , 2012 , we completed a public follow-on offering of 4,000,000 shares of our common stock at a price per share of $ 14.25 . 93,000 shares were sold in the offering to our executive and senior officers and our board of directors . no underwriting discount or commission was paid on such shares . on february 13 , 2012 , we sold an additional 61,853 shares of our common stock at a price per share of $ 14.25 upon the exercise by the underwriters of their option to purchase additional shares . we estimate that the net proceeds of the offering were approximately $ 54.7 million after deducting the underwriting discount of approximately $ 2.8 million and other estimated offering expenses of approximately $ 0.4 million . we used approximately $ 41.0 million of the net proceeds to repay outstanding borrowings under our senior revolving credit facility on january 13 , 2012 and intend to use the remainder of the net proceeds to invest in industrial properties and for general business purposes . amendments to our senior revolving credit facility on january 19 , 2012 , we entered into a second amendment to amended and restated senior revolving credit agreement ( the ยamended facilityย ) with keybank national association , as administrative agent and as a lender and the other lenders thereunder , which provides for certain modifications to our $ 80.0 million revolving credit facility . the amended facility extends the maturity date to january 19 , 2015 and provides for one 12-month extension option exercisable by us , subject among other things , to there being an absence of an event of default under the amended facility and to our payment of an extension fee . the amendment provides that outstanding borrowings are limited to the lesser of $ 80.0 million and 60 % of the value of the borrowing base properties ( 50 % prior to the amendment ) . interest on the amended facility will continue to generally be paid based upon , at our option , either ( i ) libor plus the applicable libor margin or ( ii ) the applicable base rate which is the greater of the administrative agent 's prime rate plus 1.00 % , 0.50 % above the federal funds effective rate , or thirty-day libor plus the applicable libor margin for libor rate loans under the amended facility . the applicable libor margin will range from 2.50 % to 3.50 % ( 3.00 % to 4.25 % prior to the amendment ) depending on the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value . the amended facility requires payment of an annual unused facility fee in an amount equal to 0.25 % or 0.35 % depending on the unused portion of the credit facility . we will continue to guarantee the obligations of the borrower ( a wholly-owned subsidiary ) under the amended facility . 35 secured financing on january 30 , 2012 we entered into a $ 20.0 million non-recourse mortgage loan at a fixed annual interest rate of 3.79 % that matures on february 5 , 2019. the mortgage loan is secured by five of our properties aggregating approximately 442,000 square feet . a portion of these proceeds were used to pay down the term loan . contractual commitments subsequent to december 31 , 2011 , we entered into two contracts with third-party sellers to acquire two industrial properties as described under the heading ยcontractual obligationsย in this annual report on form 10-k. there is no assurance that we will acquire the properties under contract because the proposed acquisitions are subject to the completion of satisfactory due diligence , various closing conditions and the consent of the mortgage lender . distribution activity on february 21 , 2012 , our board of directors authorized us to declare a cash dividend in the amount of $ 0.10 per share of our common stock payable on april 19 , 2012 to the stockholders of record as of the close of business on april 5 , 2012. outlook we believe that industrial rents have generally stopped falling in our markets and , in some cases , are rising modestly . story_separator_special_tag with national availability likely ending 2011 at above 13 % , we believe it will take time before the broader markets exhibit significant rent growth . we see a growing set of acquisition opportunities . in the intermediate term we expect to seek to grow our assets to levels that will allow us to optimize our operating efficiency , increase our shareholder liquidity and position us to achieve an investment grade credit rating to broaden our debt financing options . we believe the long-term operating results from our functional , infill coastal assets combined with sound balance sheet management and our strong corporate governance and exceptionally aligned executive management compensation will benefit our shareholders over time . the primary source of our operating revenues and earnings is rents received from tenants under operating leases at our properties , including reimbursements from tenants for certain operating costs . we seek long-term earnings growth primarily through increasing rents and operating income at existing properties and acquiring properties in our six target markets . we intend to seek to grow our portfolio by utilizing one or more of cash on hand , future borrowings under our credit facility , future sales of common or preferred equity and future placements of secured or unsecured debt . in the first two months of 2012 , we have completed a public follow-on offering of our common stock , amended our credit facility , entered into a secured financing and entered into two contracts to acquire two industrial properties , all as described in this annual report on form 10-k. inflation although the u.s. economy has been experiencing relatively flat inflation rates recently , and a wide variety of industries and sectors are affected differently by changing commodity prices , inflation has not had a significant impact on us in our markets of operation . most of our leases require the tenants to pay their share of operating expenses , including common area maintenance , real estate taxes and insurance , thereby reducing our exposure to increases in costs and operating expenses resulting from inflation . in addition , approximately 45.1 % our outstanding leases expire within five years which enables us to seek to replace existing leases with new leases at the then-existing market rate . 36 story_separator_special_tag rating and be in a position to issue unsecured debt and perpetual preferred stock . prior to attaining an investment grade rating , we intend to primarily utilize non-recourse debt secured by individual properties or pools of properties with a targeted maximum loan-to-value of 65 % at the time of financing , or recourse bank term loans and credit facilities . we may also assume debt in connection with property acquisitions which may have a higher loan-to-value . we expect to meet our short-term liquidity requirements generally through net cash provided by operations , existing cash balances and , if necessary , short-term borrowings under our credit facility . we believe that our net cash provided by operations will be adequate to fund operating requirements , pay interest on any borrowings and fund distributions in accordance with the reit requirements of the federal income tax laws . in the near-term , we intend to fund future investments in properties with term loans , mortgages and borrowings under our credit facility . we expect to meet our long-term liquidity requirements , including with respect to other investments in industrial properties , property acquisitions and scheduled debt maturities , through borrowings under our credit facility , periodic issuances of common stock , perpetual preferred stock , and long-term secured and unsecured debt , and , in the future , with proceeds from the disposition of properties . the success of our acquisition strategy may depend , in part , on our ability to obtain and borrow under our credit facility and to access additional capital through issuances of equity and debt securities . on january 13 , 2012 , we completed a public follow-on offering of 4,000,000 shares of our common stock at a price per share of $ 14.25. on february 13 , 2012 , we sold an additional 61,853 shares of our common stock at a price per share of $ 14.25 upon the exercise by the underwriters of their option to purchase additional shares . we estimate that the net proceeds of the offering , after deducting the underwriting discount and estimated offering costs , were approximately $ 54.7 million . we used approximately $ 41.0 million of the net proceeds to repay outstanding borrowings under our senior revolving credit facility on january 13 , 2012 and intend to use the remainder of the net proceeds to invest in industrial properties and for general business purposes . 38 as of december 31 , 2011 , our market equity capitalization was as follows : market equity capitalization as of december 31 , 2011 security shares outstanding 1 market price 2 market value common stock 9,308,670 $ 15.14 $ 140,933,264 1 includes 133,526 shares of unvested restricted stock 2 closing price of our shares of common stock on the new york stock exchange on december 31 , 2011 in dollars per share we have an $ 80.0 million credit facility . the amount available under our credit facility may be increased up to $ 150.0 million , subject to the approval of the administrative agent and the identification of lenders willing to make available additional amounts . interest on our credit facility will generally be paid based upon , at our option , either ( i ) libor plus the applicable libor margin or ( ii ) the applicable base rate which is the greater of the administrative agent 's prime rate plus 1.00 % , 0.50 % above the federal funds effective rate , or thirty-day libor plus the applicable libor margin for libor rate loans under our credit facility .
| total revenues increased by approximately $ 13.5 million to $ 17.5 million for the year ended december 31 , 2011 from $ 4.0 million for the period from february 16 , 2010 ( commencement of operations ) to december 31 , 2010. this increase is due primarily to property acquisitions during 2010 and 2011. in addition , for the quarter and year ended december 31 , 2011 , approximately $ 0.1 million and $ 0.9 million , respectively , was recorded in straight-line rental revenues related to contractual rent abatements given to certain tenants . property operating expenses . property operating expenses increased by approximately $ 5.0 million to $ 6.3 million for the year ended december 31 , 2011 from $ 1.3 million for the period from february 16 , 2010 ( commencement of operations ) to december 31 , 2010. this increase is due primarily to property acquisitions during 2010 and 2011. depreciation and amortization . depreciation and amortization increased by approximately $ 3.6 million to $ 4.9 million for the year ended december 31 , 2011 from $ 1.3 million for the period from february 16 , 2010 ( commencement of operations ) to december 31 , 2010. this increase is due to property acquisitions during 2010 and 2011. general and administrative expenses . general and administrative expenses increased by approximately $ 1.3 million to $ 5.4 million for the year ended december 31 , 2011 from $ 4.1 million for the period from february 16 , 2010 ( commencement of operations ) to december 31 , 2010. this increase was driven primarily by our having a full year of expenses for the year ended december 31 , 2011 compared to the shorter period from february 16 , 2010 ( commencement of operations ) to december 31 , 2010. acquisition costs . acquisition costs decreased by approximately $ 0.3 million to $ 2.0 million for the year ended december 31 , 2011 from $ 2.3 million for the period from february 16 , 2010 ( commencement of operations ) to december 31 , 2010. this decrease is due to a lower volume of property acquisitions
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as a result of such restructuring , effective as of such date , trust iii is no longer consolidated in our financial statements , and a gain of $ 25,325,000 was recorded in the 2018 fourth quarter reflecting the deconsolidation . critical accounting policies we follow financial accounting and reporting policies that are in accordance with u.s. generally accepted accounting principles ( gaap ) . some of these significant accounting policies require management to make difficult , subjective or complex judgments . the policies noted below , however , are deemed to be our ยcritical accounting policiesย under the definition given to this term by the sec : those policies that are most important to the presentation of a company 's financial condition and results of operations , and require 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 . the judgments used by management in applying the critical accounting policies may be affected by deterioration in the economic environment , which may result in changes to future financial results . specifically , subsequent evaluations of the loan portfolio , in light of the factors then prevailing , may result in significant changes to the allowance for loan losses in future periods , and the inability to collect on outstanding loans could result in increased loan losses . allowance for loan losses in analyzing the adequacy of the allowance for loan losses , the company uses historical delinquency and actual loss rates with a three-year look-back period for medallion loans and a one-year look-back period for recreation loans and home improvement loans . the allowance is evaluated on a regular basis by management and is based upon management 's periodic review of the collectability of the loans in light of historical experience , the nature and size of the loan portfolio , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral , prevailing economic conditions , and excess concentration risks . this evaluation is inherently subjective , as it requires estimates that are susceptible to significant revision as more information becomes available . our methodology to calculate the general reserve portion of the allowance includes the use of quantitative and qualitative factors . we initially determine an allowance based on quantitative loss factors for loans evaluated collectively for impairment . the quantitative loss factors are based primarily on historical loss rates , after considering loan type , historical loss and delinquency experience . the quantitative loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels or other risks . qualitative loss factors are used to modify the reserve determined by the quantitative factors and are designed to account for losses that may not be included in the quantitative calculation according to management 's best judgment . performing loans are recorded at book value and the general reserve maintained to absorb expected losses consistent with gaap . all medallion loans that reach 90 days or more delinquent require a specific allowance reserve for those loans , which is determined on an individual basis . the allowance is then recorded so the net value of the loan is either equal to the market or collateral value of the loan . we charge-off loans in the period that such loans are deemed uncollectible or when they reach 120 days delinquent regardless of whether the loan is a recreation , home improvement or medallion loan . the methodology used in the periodic review of reserve adequacy , which is performed at least quarterly , is designed to be responsive to changes in portfolio credit quality and inherent credit losses . the changes are 43 reflected in both the pooled formula reserve and in specific reserves as the collectability of larger classified loans is regularly recalculated with new information as it becomes available . management is primarily responsible for the overall adequacy of the allowance . medallion loan collateral valuation due to the low volume of market transfer activity the taxi medallion collateral fair value is derived quarterly for each jurisdiction using recent market transfer activity , to the extent it is available , and a discounted cash flow model . recent market transfers published by the jurisdiction are averaged to derive the transfer activity value . when analyzing transfer activity , management does not consider transaction outliers in the average calculation nor transactions which are confirmed through third-party sources as not arms-length . for the discounted cash flow model value , significant inputs include the discount rate , taxi fare/lease revenue and associated expenses such as vehicle costs , fuel , credit card processing fees , repair costs , and insurance premiums . a higher discount rate , lower taxi fare/lease revenue and higher associated expenses each produce a lower fair value . at period end , the transfer activity and discounted cash flow values create the fair value range . a weight is ascribed to each value in order to determine the final market value . average balances and rates ( bank holding company accounting ) the following table shows the company 's consolidated average balance sheets , interest income and expense , and the average interest earning/bearing assets and liabilities for nine months ended december 31 , 2018. replace_table_token_7_th 44 replace_table_token_8_th ( 1 ) includes financed sales of this collateral to third parties reported separately from the loan portfolio , and that are conducted by the bank of $ 3,134. during the nine months , our net loans receivable had a yield of 11.73 % , which was driven by the recreation loans partly offset by the medallion loan yield driven by the market and the overall decline in the balance . the recreation loans are consumer loans used in large part to purchase recreational vehicles , boats and trailers and the recreation loan portfolio produces the majority of our interest income . story_separator_special_tag of our debt , we use certificates of deposit to provide the funding for our consumer loans ( recreation and home improvement ) and a portion of our medallion loans . in addition , due to the restructuring of the dz loan , the overall borrowings declined , but the rate increased due to current market conditions . 45 rate/volume analysis ( bank holding company accounting ) the following table presents the change in interest income and expense due to changes in the average balances ( volume ) and average rates by calculated for the period indicated . replace_table_token_9_th our interest expense is driven by the interest rates payable on our bank certificates of deposit , short-term credit facilities with banks , fixed-rate , long-term debentures issued to the sba , and other short-term notes payable . medallion bank issues brokered bank certificates of deposit , which are our lowest borrowing costs . medallion bank is able to bid on these deposits at a wide variety of maturity levels which allows for improved interest rate management strategies . our cost of funds is primarily driven by the rates paid on our various debt instruments and their relative mix , and changes in the levels of average borrowings outstanding . see note 7 to the consolidated financial statements for details on the terms of our outstanding debt . our debentures issued to the sba typically have terms of ten years . 46 we measure our borrowing costs as our aggregate interest expense for all of our interest-bearing liabilities divided by the average amount of such liabilities outstanding during the period . the following tables show the average borrowings and related borrowing costs for the years ended december 31 , 2018 , 2017 and 2016. our average balances decreased during the current year , reflecting the contraction in the loan portfolios , mainly due to the deconsolidation of trust iii and the consumer loan sale in the third quarter of 2018. the increase in borrowing costs primarily reflected the repricing of term borrowings based upon the current market and increased deposit balances reflecting a lengthening of their maturity profile . replace_table_token_10_th ( 1 ) balance includes the nine months ended december 31 , 2018 under bank holding company accounting and three months ended march 31 , 2018 under investment company accounting . we will continue to seek sba funding through medallion capital to the extent it offers attractive rates . sba financing subjects its recipients to limits on the amount of secured bank debt they may incur . we use sba funding to fund loans that qualify under the sbia and sba regulations . we believe that financing operations primarily with short-term floating rate secured bank debt has generally decreased our interest expense , but has also increased our exposure to the risk of increases in market interest rates , which we mitigate with certain interest rate strategies . at december 31 , 2018 short-term adjustable rate debt constituted 6 % of total debt , and 47 were 55 % ( 15 % on a managed basis which included borrowings of our consolidated and unconsolidated subsidiaries ) and 59 % ( 16 % on a managed basis ) as of december 31 , 2017 and 2016. provision and allowance for loan loss ( bank holding company accounting ) the below is based upon activity beginning on april 2 , 2018. during the nine months ended december 31 , 2018 , the new york medallion value slightly decreased to a net realizable value of $ 181,000 , from $ 183,500 at march 31 , 2018 and in the 2018 fourth quarter , the net realizable value of the other markets declined as loans continue to age over 120 days . the provision was slightly improved by the deconsolidation of trust iii in the 2018 fourth quarter , leading to a reversal of $ 8,161,000 of provision . the provision also included $ 5,708,000 of a general reserve , for the company , for current and performing medallion loans under 90 days past due , as an additional buffer against future losses . this figure excludes the general reserve of $ 17,351,000 at the bank , which was netted against loan balances at consolidation on april 2 , 2018. replace_table_token_11_th ( 1 ) beginning balance for the nine months december 31 , 2018 ended reflects the transition to bank holding company accounting by netting previously established unrealized depreciation against the gross loan balances resulting in a starting point of zero for this table . ( 2 ) as of december 31 , 2018 , cumulative charge-offs of loans and loans in process of foreclosure in the medallion portfolio were $ 215,789 , representing collection opportunities for the company . ( 3 ) includes $ 5,708 of a general reserve , for the company , for current and performing medallion loans under 90 days past due , as an additional buffer against future losses , representing 16 % of the total allowance , and 4 % of the loans in question . this figure excludes the general reserve for the bank , which was netted against loan balances at consolidation on april 2 , 2018 . ( 4 ) includes $ 8,161 of a reversal of provision for loan loss related to the deconsolidation of trust iii in the 2018 fourth quarter . 48 the following table presents the allowance by segment as a percent of loans as of december 31 , 2018 under bank holding company accounting . replace_table_token_12_th the following tables set forth the pre-tax changes in our unrealized appreciation ( depreciation ) on investments , for the three months ended march 31 , 2018 and for the years ended december 31 , 2017 and 2016 under investment company accounting . replace_table_token_13_th under both bank holding company accounting and investment company accounting , we generally follow a practice of discontinuing the accrual of interest income on our loans that are in arrears as to payments for a 49 period of 90 days or more .
| 61 net interest income was $ 71,987,000 and the net interest margin was 8.19 % for the nine months ended . noninterest income , which is mainly comprised of sponsorship and race winnings at rpac , late charges , write-downs of loan collateral , impairment of equity investments and other miscellaneous income , was $ 41,946,000 for the nine months . the activity also included the gain on the deconsolidation of trust iii of $ 25,325,000. operating expenses were $ 62,081,000 for the nine months . salaries and benefits expense was $ 19,357,000 for the period , professional fees were $ 8,609,000 , primarily reflecting legal costs for a variety of corporate and investment-related matters , race team costs were $ 7,121,000 , loan servicing costs were $ 3,470,000 , primarily reflecting the cost of servicing the recreation and home improvement consumer loans , and occupancy and other operating expenses were $ 17,909,000. in addition , impairment on goodwill of $ 5,615,000 was recorded in the nine months . total income tax expense was $ 709,000 for the nine months . see note 8 for more information . loan collateral in process of foreclosure was $ 49,495,000 at december 31 , 2018 , an increase from $ 21,749,000 at april 2 , 2018. the increase primarily reflected the re-classification of $ 31,099,000 from nonperforming loans shown as investments in the 2018 first quarter and the net increase in loans that reached 120 days past due and were charged down to collateral value and reclassified to loans in process of foreclosure , partially offset by the deconsolidation of trust iii , the writedowns of collateral values and the cash received in settlement of these assets . goodwill and intangible assets were $ 204,785,000 at december 31 , 2018 , which arose as a result of election to no longer report as a bdc as of april 2 , 2018 and was in connection with the consolidation of medallion bank and rpac . see note 2 for further information regarding goodwill and intangible assets . 2018 first quarter under investment company
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change in fair value of contingent consideration liability the purchase price for the acquisition of ebuys in fiscal 2016 included a contingent consideration reflecting future amounts to be paid to the sellers of ebuys contingent upon achievement of certain milestones . during fiscal 2017 , we recorded a net gain of $ 32.7 million reflecting the elimination of the contingent consideration liability as a result of our decision to exit the ebuys business . during fiscal 2016 , we made fair value adjustments to the contingent consideration liability based on discounted cash flows of the projected earnings performance measure and recorded a net gain of $ 20.2 million as a result of the fair value adjustments net of accretion and other adjustments . non-operating income ( expenses ) , net due to the acquisition of the remaining interest in tsl during the second quarter of fiscal 2018 , we remeasured to fair value our previously held assets , which included our equity investment in tsl and notes and accounts receivable from tsl . as a result of the remeasurement , we recorded a loss of $ 34.0 million to non-operating income ( expenses ) , net . also during fiscal 2018 , we reclassified a net loss of $ 12.2 million of foreign currency translation related to the previously held balances from accumulated other comprehensive loss to non-operating income ( expenses ) , net . income taxes the effective tax rate for fiscal 2018 was 318.5 % compared to 46.9 % for fiscal 2017 and 38.8 % for fiscal 2016 . the effective tax rates reflect the impact of federal , state and local , and foreign taxes . on december 22 , 2017 , the u.s. tax reform was enacted in the u.s. , which included the reduction in the federal statutory tax rate from 35 % to 21 % . during fiscal 2018 , offsetting the favorable rate reduction from the u.s. tax reform , we had $ 2.1 million of tax expense due to finalizing the u.s. tax reform implementation and we had additional tax provision expense of approximately $ 20.0 million due to recording an additional valuation allowance and nondeductible discrete items , primarily related to the charges recorded as a result of the acquisition of tsl . during fiscal 2017 , the effective tax rate was significantly impacted by the recognition of $ 10.1 million of additional net tax expense as a result of implementing u.s. tax reform . income ( loss ) from equity investment in tsl income ( loss ) from equity investment in tsl includes our portion of the loss in tsl 's operations , offset by the interest income on the notes receivable . fiscal year 2018 only included the first quarter reflecting the pre-acquisition period whereas fiscal years 2017 and 2016 included the full year . liquidity and capital resources overview our primary ongoing operating cash flow requirements are for inventory purchases , capital expenditures for new stores , improving our information technology systems and infrastructure growth . our working capital and inventory levels typically build seasonally . on may 10 , 2018 , we acquired the remaining interest in tsl using cash on hand for $ 36.2 million cad ( $ 28.2 million united states dollars ( `` usd '' ) ) , net of acquired cash of $ 8.5 million cad ( $ 6.6 million usd ) . on november 5 , 2018 , we completed the acquisition of camuto group for $ 171.3 million , net of acquired cash of $ 9.7 million . also on november 5 , 2018 , we acquired a 40 % interest in the newly formed abg-camuto joint venture for $ 56.8 million in partnership with authentic brands group llc . the purchase price of the camuto group acquisition , along with the acquired equity investment in abg-camuto , was funded with available cash and borrowings on the revolving line of credit of $ 160.0 million . the purchase price is subject to adjustment primarily based upon a working capital provision as provided by the purchase agreement . 22 as a result of our decision to exit the town shoes banner during fiscal 2018 , we incurred $ 19.5 million of charges to exit the town shoes banner , which included lease exit charges , severance , and inventory write-downs . we are committed to a cash management strategy that maintains liquidity to adequately support the operation of the business , pursue our growth strategy and withstand unanticipated business volatility . we believe that cash generated from our operations , together with our current levels of cash and investments , as well as availability under our credit facility , are sufficient over the next 12 months and the foreseeable future to maintain our ongoing operations , support seasonal working capital requirements , fund capital expenditures , and repurchase common shares under our share repurchase program . operating cash flows for fiscal 2018 , our net cash provided by operations was $ 175.3 million compared to $ 191.0 million for fiscal 2017 . the decrease in net cash provided by operating activities was driven by a decrease in net income after adjusting for non-cash activity , including depreciation and amortization , impairment charges , the loss on previously held assets in tsl , loss on foreign currency reclassified from accumulated other comprehensive loss , stock-based compensation expense , change in fair value of contingent consideration liability , the change in deferred income taxes , and lease exit non-cash charges . this decrease was significantly impacted by acquisition-related costs and lease exit obligations settled with landlords as a result of the closure of the town shoes banner . this decrease was offset due to improvements in working capital . net cash provided by operations in fiscal 2017 decreased to $ 191.0 million from $ 212.9 million for fiscal 2016 . story_separator_special_tag the decrease in net cash provided by operating activities was primarily driven by the timing of working capital payments due to the extra week in fiscal 2017 , primarily related to occupancy-related payments . net income was relatively flat after adjusting for non-cash activity , which primarily included impairment charges , the change in the fair value of the contingent consideration liability , depreciation and amortization , stock-based compensation expense , and the change in deferred income taxes . investing cash flows for fiscal 2018 , net cash used in investing activities was $ 282.0 million , which was due to the acquisitions of tsl and camuto group , capital expenditures of $ 65.4 million and $ 16.0 million of additional borrowings by tsl prior to the acquisition , partially offset by the net liquidation of our available-for-sale securities . for fiscal 2017 , net cash used in investing activities was $ 59.0 million , which included the payment of $ 56.3 million for capital expenditures and $ 57.4 million of additional borrowings by tsl . for fiscal 2016 , net cash used in investing activities was $ 27.3 million , which included $ 87.6 million for capital expenditures , offset by net proceeds from the sale of investments of $ 124.8 million , which were used to fund our share repurchases , payment of dividends and the acquisition of ebuys . financing cash flows for fiscal 2018 , net cash provided by financing activities was $ 30.0 million , which was due to borrowings on our revolving line of credit of $ 160.0 million , offset by the payment of dividends and the repurchase of class a common shares under the share repurchase program . for fiscal 2017 and 2016 , net cash used in financing activities was $ 71.4 million and $ 110.5 million , respectively , primarily related to the payment of dividends and the repurchase of class a common shares under the share repurchase program . on august 17 , 2017 , the board of directors authorized the repurchase of an additional $ 500 million of class a common shares under our share repurchase program , which was added to the $ 33.5 million remaining from the previous authorization . during fiscal 2018 , we repurchased 2.0 million class a common shares at a cost of $ 47.5 million , with $ 476.6 million of class a common shares that remain authorized under the program as of february 2 , 2019 . the share repurchase program may be suspended , modified or discontinued at any time , and we have no obligation to repurchase any amount of our common shares under the program . shares will be repurchased in the open market at times and in amounts considered appropriate based on price and market conditions . 23 debt credit facility - on august 25 , 2017 , we entered into a senior unsecured revolving credit agreement ( the `` credit facility '' ) with a maturity date of august 25 , 2022 that replaced our previous secured revolving credit agreement and letter of credit agreement . on october 10 , 2018 , the credit facility was amended to include the acquisition of camuto group as a permitted acquisition and , following the acquisition , to utilize an accordion feature that provided for an increase to the revolving line of credit . on november 5 , 2018 , following the acquisition of camuto group , the amended credit facility was increased with no change to the sub-limits . as of february 2 , 2019 , the credit facility provided a revolving line of credit up to $ 400 million , with sub-limits for the issuance of up to $ 50 million in letters of credit , swing loan advances of up to $ 15 million , and the issuance of up to $ 75 million in foreign currency revolving loans and letters of credit . the credit facility may be used to provide funds for working capital , capital expenditures , share repurchases , other expenditures , and permitted acquisitions as defined by the credit facility . our credit facility allows the payments of dividends by us or our subsidiaries , provided that immediately before and after a dividend payment there is no event of default , as defined in our credit facility . loans issued under the revolving line of credit bear interest , at our option , at a base rate or an alternate base rate as defined in the credit facility plus a margin based on our leverage ratio , with an interest rate of 4.0 % as of february 2 , 2019 . any loans issued in cad bear interest at the alternate base rate plus a margin based on our leverage ratio . interest on letters of credit issued under the credit facility is variable based on our leverage ratio and the type of letters of credit , with an interest rate of 1.5 % as of february 2 , 2019 . commitment fees are based on the average unused portion of the credit facility at a variable rate based on our leverage ratio . as of february 2 , 2019 , we had $ 160.0 million outstanding borrowings under the credit facility and $ 4.5 million in letters of credit issued , resulting in $ 235.5 million available for borrowings . interest expense related to the credit facility includes interest on borrowings and letters of credit , commitment fees and the amortization of debt issuance costs . debt covenants- the credit facility contains financial and other covenants , including , but not limited to , limitations on indebtedness , liens and investments , as well as the maintenance of a leverage ratio not to exceed 3.25:1 and a fixed charge coverage ratio not to be less than 1.75:1 .
| net income for fiscal 2017 was $ 67.5 million , or $ 0.84 per diluted share , which included net after-tax charges of $ 55.5 million , or $ 0.68 per diluted share , primarily related to impairment charges , inventory write-downs , amortization of intangibles and the change in fair value of the contingent consideration liability associated with ebuys , restructuring costs , foreign exchange net losses , and the initial net tax expense impact of implementing the u.s. tax reform . in addition to the acquisitions of tsl and camuto group , we have continued making investments in our business that support our long-term growth objectives . during fiscal 2018 , we invested $ 65.4 million in capital expenditures compared to $ 56.3 million during fiscal 2017 . our capital expenditures during fiscal 2018 were primarily related to nine new store openings , store remodels and business infrastructure . we plan to open approximately 11 to 16 new stores in fiscal 2019 . results of operations the following represents selected components of our consolidated results of operations , with associated percentages of total revenue : replace_table_token_2_th 19 net sales net sales for fiscal 2018 increased by 13.1 % from fiscal 2017 and net sales for fiscal 2017 increased by 3.4 % from fiscal 2016 . the following summarizes the change in total net sales from the previous fiscal year : replace_table_token_3_th the following summarizes net sales by segment : replace_table_token_4_th ( 1 ) excludes intersegment net sales in fiscal 2018 of $ 9.8 million , which is eliminated in consolidation . ( 2 ) other represents net sales for abg and ebuys . the following summarizes our comparable sales change : replace_table_token_5_th fiscal 2018 vs. fiscal 2017 - the increase in total net sales was driven by incremental sales from acquired businesses , a 6.1 % increase in comparable sales , and an increase for non-comparable store sales , partially offset by the loss of sales from the exit of gordmans stores and ebuys and an additional week of sales included in fiscal 2017. within the u.s. retail segment , comparable sales increased primarily due to higher comparable transactions driven by an increase in traffic , partially offset by a decline in comparable average dollar sales
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( xi ) deposit attrition ; ( xii ) rapidly changing technology ; ( xiii ) unanticipated regulatory or judicial proceedings and liabilities and other costs ; ( xiv ) changes in the cost of funds , demand for loan products or demand for financial services ; and ( xv ) other economic , competitive , governmental or technological factors affecting our operations , markets , products , services and prices . such developments could have an adverse impact on cnb 's financial position and results of operations . the forward-looking statements contained herein are based upon management 's beliefs and assumptions . any forward-looking statement made herein speaks only as of the date on which it is made . factors or events that could cause our actual results to differ may emerge from time to time , and it is not possible for us to predict all of them . cnb undertakes no obligation to publicly update or revise any forward-looking statements included in this annual report on form 10-k , whether as a result of new information , future events or otherwise , except to the extent required by law . in light of these risks , uncertainties and assumptions , the forward-looking events discussed might not occur and you should not put undue reliance on any forward-looking statements . general overview this report contains references to financial measures that are not defined in gaap . management uses non-gaap financial information in its analysis of the corporation 's performance . management believes that these non-gaap measures provide a greater understanding of ongoing operations , enhance comparability of results of operations with prior periods and show the effects of significant gains and charges in the periods presented . the corporation 's management believes that investors may use these non-gaap measures to analyze the corporation 's financial performance without the impact of unusual items or events that may obscure trends in the corporation 's underlying performance . this non-gaap data should be considered in addition to results prepared in accordance with gaap , and is not a substitute for , or superior to , gaap results . limitations associated with non-gaap financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that different companies might calculate these measures differently . 24 non-gaap measures reflected within the discussion below include evaluations on the impact of ppp-related assets , merger costs , branch closure costs and fhlb prepayment penalties on various metrics of the corporation 's financial performance , including calculations related to : tangible common equity/tangible assets ; average loans and average earning assets utilized in the calculation of yield on loans , yield on earning assets and net interest margin ; return on average assets , return on average common equity and return on average tangible common equity ; efficiency ratio ; earnings per share ; non-performing assets/total assets and allowance for loan credit/loans . a reconciliation of these non-gaap financial measures is provided below in the `` non-gaap financial measures '' section . management looks to return on average equity , earnings per common share , asset quality , and other metrics to measure the performance of the corporation . the interest rate environment will continue to play an important role in the future earnings of the corporation . in order to address the challenging interest rate and competitive environments , the corporation continues to evaluate , develop and implement strategies necessary to support its ongoing financial performance objectives . in addition , the global outbreak of covid-19 and the public health measures that have been undertaken in response have had , and will continue to have , significant repercussions across regional and global economies and financial markets . the covid-19 pandemic , its associated responsive measures and the resulting economic slowdown have disrupted our business and are expected to continue to have a significant impact on our business , financial performance and operating results . since we can not estimate when the covid-19 pandemic and the associated responsive measures will end , we can not estimate the ultimate operational and financial impact of covid-19 on our business . however , management will continue to proactively implement strategies to mitigate the impact of the pandemic on the corporation 's business , risk profile and financial performance . to address the challenges arising as a result of the covid-19 pandemic , and in order to continue to deliver essential services to the communities the corporation serves while maintaining a high level of safety for customers and employees , the corporation implemented its pandemic response plan . among other things , significant actions taken include : implemented communication plans to ensure employees , customers and critical vendors are kept abreast of developments affecting the corporation 's operations ; restricted all non-essential travel and instituted a mandatory quarantine period for anyone who has traveled to certain impacted areas ; temporarily closed all branch lobbies to non-employees , except for certain limited cases by appointment only . based on updated governmental guidelines , the corporation re-opened its branch lobbies , while enforcing safe practices in order to serve its consumer and business customers . in addition , the corporation continued to offer its customers alternatives through its drive-through capabilities , network of atms , internet banking , mobile application and telephone customer service capabilities ; expanded remote-access availability for the corporation 's workforce to work from home or other remote locations . the corporation has taken appropriate efforts to ensure that activities are performed in accordance with the corporation 's compliance and information security policies , which are designed to ensure customer data and other information is properly safeguarded ; instituted mandatory social distancing policies for those employees not working remotely . members of branch and operation teams were split into separate teams to provide a higher level of safety for employees and redundancy for key functions across the corporation . story_separator_special_tag based upon updated governmental guidelines , the corporation has reintegrated its branch teams and the majority of its operation teams , while continuing to require social distancing , wearing of masks and other appropriate safety precautions ; and to ensure the safety of its customers and employees , the corporation continues to monitor the covid-19 pandemic closely and update its response plan accordingly . 25 non-interest costs are expected to increase with the growth of the corporation ; however , management 's growth strategies are also expected to result in an increase in earning assets as well as enhanced non-interest income , which is expected to more than offset increases in non-interest expenses in 2021 and beyond . although the corporation 's discussion regarding its financial performance distinguishes between certain markets and private banking , it does not meet the criteria for discrete segment reporting of its operating results . management 's conclusion was based on the limited level of financial information available to segregate operating results , coupled with the fact that no operating results are available for the corporation 's chief operating decision maker to review on a regular basis . all dollar amounts are stated in thousands , except share and per share data and other amounts as indicated . financial condition the following table presents ending balances , growth , and the percentage change of certain measures of our financial condition for specified years ( dollars in millions ) : replace_table_token_4_th 26 the loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans . the allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures . see note 1 , `` summary of significant accounting policies , '' and note 4 , `` loans , '' for more information about pooling of loans for the allowance for credit losses . the following table presents average balances of certain measures of our financial condition and net interest margin for the specified years . replace_table_token_5_th ( 1 ) includes unamortized discounts and premiums . average balance is computed using the amortized cost of securities . the average yield has been computed using the historical amortized cost average balance for available for sale securities . 27 ( 2 ) average yields and interest income are stated on a fully taxable equivalent basis using the corporation 's marginal federal income tax rate of 21 % for the years end december 31 , 2020 , 2019 and 2018. interest income has been increased by $ 1.4 million , $ 1.5 million , and $ 1.4 million for the years ended december 31 , 2020 , 2019 , and 2018 , respectively , as a result of the effect of tax-exempt interest and dividends earned by the corporation . ( 3 ) average balance outstanding includes the average balance outstanding of all nonaccrual loans . loans consist of the average of total loans less average unearned income . included in loan interest income is loan fees of $ 10,438 , $ 4,048 , and $ 3,935 for the years ended december 31 , 2020 , 2019 , and 2018 , respectively . loan fees for the year ended december 31 , 2020 included $ 5.1 million in paycheck protection program ( `` ppp '' ) deferred processing fees . the following table presents the change in net interest income for the years specified . replace_table_token_6_th ( 1 ) the change in interest due to both volume and rate have been allocated entirely to volume changes . ( 2 ) changes in interest income on tax-exempt securities and loans are presented on a fully taxable-equivalent basis , using the corporation 's marginal federal income tax rate of 21 % for the year ended december 31 , 2020 and december 31 , 2019. cash and cash equivalents cash and cash equivalents totaled $ 532.7 million at december 31 , 2020 , including additional excess liquidity of $ 483.2 million held at the federal reserve . cash and cash equivalents totaled $ 193.0 million at december 31 , 2019. the significant increase in liquidity is the result of the corporation 's growth in deposits during 2020. in addition to the corporation 's deposit growth strategies , management believes the liquidity needs of the corporation are satisfied by the current balance of cash and cash equivalents , federal home loan bank financing availability , and the portions of the securities and loan portfolios that mature within one year . the corporation expects that these sources of funds will enable it to meet cash obligations and off-balance sheet commitments as they come due . 28 securities securities available for sale and trading securities totaled $ 591.6 million and $ 552.1 million at december 31 , 2020 and 2019 , respectively . note 3 , `` securities , '' in the consolidated financial statements provides more detail concerning the composition of the corporation 's securities portfolio and the process for evaluating securities for impairment . the following table sets forth the carrying value of our debt securities available-for-sale portfolio at year-end december 31 , 2020 , 2019 , and 2018. replace_table_token_7_th the following table sets forth the maturities of debt securities in our available-for-sale portfolio as of december 31 , 2020. maturity distribution of debt securities available-for-sale december 31 , 2020 replace_table_token_8_th ( 1 ) the weighted average yields are based on market value and effective yields weighted for the scheduled maturity with tax-exempt securities adjusted to a taxable-equivalent basis using a tax rate of 21 % . ( 2 ) the portfolio contains no holdings of a single issuer that exceeds 10 % of shareholders ' equity other than the us treasury and governmental sponsored entities . the corporation generally purchases debt securities over time and does not attempt to `` time '' its transactions , which allows for more efficient management of fluctuations in the interest rate environment .
| excluding after-tax merger costs , prepayment penalties and branch closure costs , adjusted return on average assets was 0.99 % for the year ended december 31 , 2020 , compared to 1.18 % for the year ended december 31 , 2019. as a measure of the corporation 's efficiency in management of its expenses , the efficiency ratio was 65.10 % for twelve months ended december 31 , 2020. excluding after-tax merger costs , prepayment penalties and branch closure costs , the adjusted efficiency ratio was 57.41 % for the twelve months ended december 31 , 2020 , compared to 60.07 % for the comparable period in 2019. the improvement in efficiency ratio resulted from the impact of ppp-related fees , coupled with an overall lower level of business activity resulting from the pandemic and the corporation 's internal cost management initiatives focusing on travel restrictions , a hiring freeze , lower marketing expenditures and other expense management initiatives . interest income and expense net interest income for the twelve months ended december 31 , 2020 increased 15.9 % to $ 134.7 million from the twelve months ended december 31 , 2019 , driven by an organic growth of $ 560.9 million in earning assets , coupled with $ 336.3 million in ppp-related loans , estimated ppp-related deposits and paycheck protection program lending facility ( `` ppplf '' ) related assets ( collectively the `` ppp-related assets '' ) . in addition , the twelve months ended december 31 , 2020 included ppp-related fees totaling approximately $ 5.1 million . net interest margin on a fully tax-equivalent basis was 3.34 % and 3.69 % for the twelve months ended december 31 , 2020 and 2019 , respectively , excluding $ 336.3 million in ppp-related assets , the net interest margin on a fully-tax equivalent basis was 3.50 % for the twelve months ended december 31 , 2020. the yield on earning assets of 4.15 % for the twelve months ended december 31 , 2020 included $ 336.3 million in ppp-related assets . excluding ppp-related assets and ppp-related fees , the yield on earning assets was 4.37 % for the twelve months ended december 31 , 2020 , a decrease of 56 basis points from 4.93 % for the twelve months ended december 31 , 2019 , primarily as a result of the lower interest
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except for the lowest dose tested in japan , which was only 5 mg/kg/day of crv431 , all four studies demonstrated that crv431 resulted in a statistically significant reduction of fibrosis , compared to vehicle control , whether the study drug was given for 3 , 6 , 10 or 11-weeks once daily by oral gavage . significant reductions in fibrosis scores were observed at both 20 and 50 mg/kg/day . 39 in longer-term experiments in the nash mouse model , crv431 dosing began on week 20 , for a period of 10 weeks . hepatocellular carcinoma ( hcc ) begins to develop at about 20 weeks in this model . crv431 was administered by oral gavage at 50 mg/kg/day . our results indicated that crv431 significantly ( p=0.02 ) reduced tumor burden ( number and size of nodules ) compared with vehicle control mice . this score reflected a tumor burden reduction of about 52 % . altogether , the most robust and consistent crv431 effects in the nash model were reductions in fibrosis and cancerous nodules . our phase 1 single ascending dose study was performed in healthy volunteers administered crv431 orally at doses of 75 , 225 , 375 , and 525 mg. this study design was a randomized , partially blinded , placebo-controlled trial to evaluate the safety , tolerability , and pk of crv431 . a total of 6 subjects were given crv431 in each of the four dosing cohorts . an additional 2 subjects were given placebo in each of these cohorts , so that a total of 24 subjects received crv431 and a total of 8 subjects received placebo . the tmax occurred generally at about one hour . as expected , corresponding cmax values increased with increasing dose . systemic exposures , as determined by auc were linear ( r2 = 0.914 ) up to 375 mg , but aucs ( systemic exposures ) did not appreciably change from 375 mg to 525 mg. terminal elimination half-life was approximately 100 hours . in the phase 1 study of crv431 , there were no severe adverse events ( saes ) . the adverse events ( aes ) reported were mild to moderate in nature and were almost all not related to study drug . there were no grade 3 or 4 lab abnormalities , and all vital signs and ecgs remained normal . on may 10 , 2018 , we submitted an investigational new drug application ( โ ind โ ) to the u.s. food and drug administration ( โ fda โ ) to support initiation of our crv431 hbv clinical development program in the united states and received approval in june 2018. we completed the first segment of our phase 1 clinical activities for crv431 in october 2018 wherein we reached a major clinical milestone of positive data from a phase i trial of crv431 in humans . this achievement triggered the first milestone payment , as stated in the merger agreement for the acquisition of ciclofilin pharmaceuticals , inc. ( โ ciclofilin โ ) and we paid a related milestone payment of $ 1,000,000 and issued 1,439 shares of our common stock with a fair value of $ 55,398 , representing 2.5 % of our issued and outstanding common stock as of june 2016 , to the ciclofilin shareholders . on june 17 , 2019 , we submitted an ind to the fda to support initiation of our crv431 nash clinical development program in the united states and received approval in july 2019. we completed the first segment of a phase 1 multiple ascending dose clinical trial in december 2019. financial operations overview from inception through december 31 , 2019 , we have an accumulated deficit of approximately $ 83.2 million . from inception through december 31 , 2019 , we have not generated any revenue from operations and expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products . we do not expect to have such for several years , if at all . on july 3 , 2018 , we completed a rights offering pursuant to its effective registration statement on form s-1 . we offered units in the rights offering and each unit sold in connection with the rights offering consists of 1 share of our series c convertible preferred stock , or series c , and 8 common stock warrants . upon completion of the offering , pursuant to the rights offering , we sold an aggregate of 10,826 units at an offering price of $ 1,000 per unit comprised of 10,826 shares of series c and 88,928 common stock warrants . we received net proceeds of $ 9.9 million , after deducting expenses relating to the rights offering , including dealer-manager fees and offering expenses , totaling approximately $ 0.9 million , and excluding any proceeds received upon exercise of any warrants . the common stock warrants are exercisable at $ 108.50 per share and subject to adjustments upon the occurrence of certain dilutive events . the warrants expire on the fifth anniversary from their original issuance date . we may redeem the warrants for $ 0.01 per warrant if our common stock closes above $ 434 per share for ten consecutive trading days , provided that we may not do so prior to the first anniversary of the closing of the unit offering . the warrants were sold under a written public offering . if a warrant is exercised during a period where a registration statement is not declared effective , we can not assert that settlement in unregistered shares is permitted . as a result , the warrants are liability classified and carried at their estimated fair value at each reporting period until they are exercised , terminated or otherwise settled . on march 13 , 2019 , we entered into a securities purchase agreement ( the โ securities purchase agreement โ ) with an accredited investor ( the โ investor โ ) . story_separator_special_tag pursuant to the securities purchase agreement , we issued to the investor in a private placement ( the โ private placement โ ) ( i ) 47,429 shares of our common stock and ( ii ) an unsecured $ 1.25 million aggregate principal amount debenture ( the โ debenture โ ) . the maturity date of the debenture was june 30 , 2019. prior to the maturity date , no interest accrued on the debenture . upon an event of default , including upon the non-repayment of the principal amount at the maturity date , interest shall accrue on the debenture at an interest rate equal to the lesser of 18 % per annum or the maximum rate permitted by applicable law until such principal amount is paid in full . the debenture ranks junior to our existing secured indebtedness . 40 on april 25 , 2019 , we announced the pricing of a public offering with total gross proceeds of approximately $ 2,140,000 before deducting placement agent fees and other offering expenses payable by us that closed on april 29 , 2019. the securities offered by us consist of ( i ) class a units each consisting of one share of common stock and one warrant to purchase one share of common stock at a combined price of $ 8.40 per class a unit , and ( ii ) class b units each consisting of one share of series d convertible preferred stock , with a stated value of $ 1,000 per share , and convertible into 119 shares of common stock per share of series d convertible preferred stock , and warrants to purchase 119 shares of common stock , at a combined price of $ 1,000 per class b unit . the aggregate number of shares of common stock to be issued pursuant to the class a units and issuable upon conversion of all the series d convertible preferred stock is 254,762. the aggregate number of warrants issued in the offering was 254,762. the warrants have an exercise price of $ 8.40 , are exercisable upon issuance and expire five years from the date of issuance . on may 28 , 2019 , the company effected a 1 for 70 reverse stock split of the company 's common stock . the par value and the number of authorized shares of the common and convertible preferred stock were not adjusted as a result of the reverse stock split . all common stock share and per-share amounts for all periods presented have been adjusted retroactively to reflect the reverse stock split . on june 18 , 2019 , we announced the pricing of a public offering with total gross proceeds of $ 15,600,000 before deducting placement agent fees and other offering expenses payable by us ( the โ offering โ ) . the offering closed on june 20 , 2019. the securities offered by us consisted of ( i ) class a units each consisting of one share of common stock and one warrant to purchase one share of common stock at a combined price of $ 6.00 per class a unit , and ( ii ) class b units each consisting of one share of series e preferred stock , with a stated value of $ 1,000 per share , and convertible into approximately 167 shares of common stock per share of series e preferred stock , and warrants to purchase 167 shares of common stock , at a combined price of $ 1,000 per class b unit . the aggregate number of shares of common stock to be issued pursuant to the class a units and issuable upon conversion of all the series e preferred stock is 2,600,000. the aggregate number of warrants issued in the offering was 2,600,000. the warrants have an exercise price of $ 6.00 , are exercisable upon issuance and expire five years from the date of issuance . our product development efforts are in their early stages and we can not make estimates of the costs or the time they will take to complete . the risk of completion of any program is high because of the many uncertainties involved in bringing new drugs to market including the long duration of clinical testing , the specific performance of proposed products under stringent clinical trial protocols , the extended regulatory approval and review cycles , our ability to raise additional capital , the nature and timing of research and development expenses and competing technologies being developed by organizations with significantly greater resources . recent developments on february 12 , 2020 , we entered into an at market issuance sales agreement ( the โ sales agreement โ ) with b. riley fbr , inc. , as agent ( โ b . riley fbr โ ) , pursuant to which we may offer and sell , from time to time , through b. riley fbr , shares of our common stock , par value $ 0.0001 per share ( the โ common stock โ ) , having an aggregate offering price of up to $ 7,000,000 ( the โ shares โ ) . the offer and sale of the shares will be made pursuant to a shelf registration statement on form s-3 and the related prospectus ( file no . 333-229534 ) filed by us with the securities and exchange commission ( the โ sec โ ) on february 6 , 2019 , as amended on february 13 , 2019 , and declared effective by the sec on february 19 , 2019 , as supplemented by a prospectus supplement dated february 12 , 2020 and filed with the sec pursuant to rule 424 ( b ) under the securities act of 1933 , as amended ( the โ securities act โ ) .
| the change is primarily related to our state tax benefit of $ 1.0 million offset by changes related to foreign taxes in 2019 and an adjustment for the utilization of indefinite deferred tax liabilities in 2018 that did not occur in 2019. net loss for the year ended december 31 , 2019 was $ 6.7 million , which was the result of the operating expenses discussed above , a loss of $ 0.2 million for the change in fair value of debt , a $ 0.6 million loss for interest expense , which was offset by income of $ 0.6 million resulting from the change in fair value of derivative instruments related to our warrants . net loss for the year ended december 31 , 2018 was $ 9.4 million , which was the result of the operating expenses discussed above , a loss of $ 0.1 million for the change in fair value of debt , a $ 0.3 million loss for interest expense , which was offset by income of $ 5.1 million resulting from the change in fair value of derivative instruments related to our warrants . liquidity and capital resources as of december 31 , 2019 , we had working capital of $ 13.1 million compared to working capital of $ 0.1 million as of december 31 , 2018. the increase of $ 13.0 million in working capital is primarily related to an increase in cash and cash equivalents of $ 11.1 million and a decrease in convertible debt of $ 1.4 million . 46 cash flows the following table summarizes our cash flows for the year ended december 31 , 2019 and 2018 : replace_table_token_1_th as of december 31 , 2019 , we had $ 13.9 million in cash . net cash used in operating activities was $ 7.6 million for the year ended december 31 , 2019 consisting of our net loss of $ 6.7 million , adjusted for non-cash charges primarily of $ 0.5 million for the change in the debt discount recorded as interest expense and $ 0.2 million for the change in fair value of our debt . this was offset by $ 0.6 million for the changes in fair value of derivative instruments and contingent consideration and $ 0.3 million for the change in deferred taxes . changes in working capital accounts had a negative impact of $ 0.8
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unless otherwise noted , discussions below pertain only to our continuing operations . acquisition of ict on february 2 , 2010 , we completed the acquisition of ict group , inc. ( ยictย ) , a pennsylvania corporation and a leading global provider of outsourced customer management and bpo solutions . we refer to such acquisition herein as the ยict acquisition.ย as a result of the ict acquisition on february 2 , 2010 , each outstanding share of ict 's common stock , par value $ 0.01 per share , was converted into the right to receive $ 7.69 in cash , without interest , and 0.3423 of a share of sykes common stock , par value $ 0.01 per share ; each outstanding ict stock option , whether or not then vested and exercisable , became fully vested and exercisable immediately prior to , and then was canceled at , the effective time of the acquisition , and the holder of such option became entitled to receive an amount in cash , without interest and less any applicable taxes to be withheld , equal to ( i ) the excess , if any , of ( 1 ) $ 15.38 over ( 2 ) the exercise price per share of ict common stock subject to such ict stock option , multiplied by ( ii ) the total number of shares of ict common stock underlying such ict stock option , with the aggregate amount of such payment rounded up to the nearest cent . if the exercise price was equal to or greater than $ 15.38 , then the stock option was canceled without any payment to the stock option holder ; and each outstanding ict restricted stock unit ( ยrsuย ) became fully vested and then was canceled and the holder of such vested awards became entitled to receive $ 15.38 in cash , without interest and less any applicable taxes to be withheld , in respect of each share of ict common stock into which the rsu would otherwise have been convertible . 29 the total aggregate purchase price of the transaction of $ 277.8 million was comprised of $ 141.1 million in cash and 5.6 million shares of sykes common stock valued at $ 136.7 million . the transaction was funded through borrowings consisting of a $ 75 million short-term loan from keybank national association ( ยkeybankย ) in december 2009 , due march 31 , 2010 , and a $ 75 million term loan from a syndicate of banks due in varying installments through february 1 , 2013. both of these loans were repaid during 2010 and are no longer available for borrowings . see ยliquidity & capital resourcesย later in this item 7 for further information . the results of operations of ict have been reflected in the accompanying consolidated statement of operations for the year ended december 31 , 2011 and the period from february 2 , 2010 to december 31 , 2010. story_separator_special_tag and acquisition costs of 0.9 % , lower depreciation of 0.3 % and lower other taxes of 0.2 % . in the emea segment , as a percentage of revenues , general and administrative expenses decreased to 27.8 % for 2011 from 30.8 % in 2010. this decrease of 3.0 % , as a percentage of revenues , was primarily attributable to lower compensation costs of 1.2 % , lower merger and acquisition costs of 1.0 % , lower facility-related costs of 0.6 % , lower travel costs of 0.3 % , lower legal and professional fees of 0.3 % and lower other costs of 0.4 % , partially offset by higher severance costs of 0.8 % primarily due to the closure of certain sites in connection with the fourth quarter 2011 exit plan . net ( gain ) loss on disposal of property and equipment net ( gain ) on disposal of property and equipment was $ ( 3.0 ) million during 2011 , primarily due to the gain on the sale of land and a building located in minot , north dakota . net loss on disposal of property and equipment was $ 0.1 million during 2010. net ( gain ) on insurance settlement net ( gain ) on insurance settlement of $ ( 0.5 ) million and $ ( 2.0 ) million in 2011 and 2010 , respectively , primarily relates to funds received for flood damage from typhoon ondoy to the building and contents of one of our customer contact management centers located in marikina city , the philippines ( acquired as part of the ict acquisition ) . the damaged property and equipment had been written down by ict prior to the ict acquisition in february 2010. no additional funds are expected related to the typhoon ondoy insurance claim . impairment of goodwill and intangibles we make certain estimates and assumptions , including , among other things , an assessment of market conditions and projections of cash flows , investment rates and cost of capital and growth rates when estimating the value of our intangibles . based on actual and forecasted operating results and deterioration of the related customer base in our ict-acquired united kingdom operations , the emea segment recorded a $ 0.4 million impairment of goodwill and intangibles , primarily customer relationships , during 2010 ( none in 2011 ) . impairment of long-lived assets during 2011 , we recorded a $ 1.7 million impairment of long-lived assets , primarily leasehold improvements and equipment , consisting of $ 1.2 million in the americas segment and $ 0.5 million in the emea segment . during 2010 , we recorded a $ 3.3 million impairment of long-lived assets , primarily leasehold improvements and equipment , consisting of $ 3.1 million in the americas segment and $ 0.2 million in the emea segment . the impairments represented the amount by which the carrying value of the assets exceeded the estimated fair value of those assets which can not be redeployed to other locations . story_separator_special_tag interest income interest income was $ 1.4 million for 2011 , compared to $ 1.2 million in 2010. the increase of $ 0.2 million reflects higher average balances of interest bearing investments in cash and cash equivalents . interest ( expense ) interest ( expense ) was $ ( 1.1 ) million for 2011 , compared to $ ( 4.9 ) million in 2010. the decrease of $ 3.8 million reflects interest and fees on higher average levels of borrowings in 2010 related to the ict acquisition . other ( expense ) other ( expense ) , net , was $ ( 2.1 ) million for 2011 , compared to $ ( 5.9 ) million in 2010. the net decrease in other 34 ( expense ) , net , of $ 3.8 million was primarily attributable to a decrease of $ 3.1 million in forward currency contract losses ( which were not designated as hedging instruments ) and a decrease of $ 1.4 million in foreign currency transaction losses , net of gains , partially offset by a decrease of $ 0.7 million in other miscellaneous income , net . other ( expense ) excludes the cumulative translation effects and unrealized gains ( losses ) on financial derivatives that are included in ยaccumulated other comprehensive incomeย in shareholders ' equity in the accompanying consolidated balance sheets . income taxes the provision for income taxes of $ 11.3 million for 2011 was based upon pre-tax income of $ 63.7 million , compared to the provision for income taxes of $ 2.2 million for 2010 based upon pre-tax income of $ 28.3 million . the effective tax rate was 17.8 % for 2011 , compared to an effective tax rate of 7.8 % for 2010. the increase in the effective tax rate of 10.0 % resulted primarily from the shift of earnings to higher tax jurisdictions , partially offset by a favorable foreign tax rate differential , changes in uncertain tax positions due to the favorable settlements of tax audits and expiring statutes of limitation , in conjunction with 2010 tax benefits related to the ict legal entity reorganization . on december 17 , 2010 the tax relief , unemployment insurance reauthorization , and job creation act of 2010 ( the ยtax relief actย ) was enacted . included in the tax relief act is the extension until december 31 , 2011 of internal revenue code section 954 ( c ) ( 6 ) . as a result of this extension , we changed our intent to distribute current earnings from various foreign operations to their foreign parents . these tax provisions permit continued tax deferral through 2011 on such distributions that would otherwise be taxable immediately in the united states . while the distributions are not taxable in the united states , related withholding taxes of $ 2.7 million are included in the provision for income taxes in the accompanying consolidated statement of operations for 2011. prior to the passage of the tax relief act , we determined that we intended to distribute all of the current year and future years ' earnings of a non-u.s. subsidiary to its foreign parent . withholding taxes of $ 0.9 million related to this distribution are included in the provision for income taxes in the accompanying consolidated statement of operations for 2011 . ( loss ) from discontinued operations in november 2011 , we committed to a plan to sell our spanish operations . also , in december 2010 , we sold our argentine operations . accordingly , we have reflected the operating results related to these operations as discontinued operations in the accompanying consolidated statements of operations for all periods presented . the ( loss ) from discontinued operations , net of taxes , totaled $ ( 4.6 ) million and $ ( 12.9 ) million for 2011 and 2010 , respectively . the gain ( loss ) on sale , net of taxes , of the argentine operations totaled $ 0.5 million and $ ( 23.5 ) million for 2011 and 2010 , respectively . the gain on sale during 2011 resulted from the reversal of the accrued liability related to the expiration of the indemnification to the purchaser for the possible loss of a specific client business . net income ( loss ) as a result of the foregoing , we reported income from continuing operations for 2011 of $ 65.5 million , an increase of $ 27.6 million from 2010. this increase was principally attributable to a $ 47.4 million increase in revenues , a $ 25.0 million decrease in general and administrative costs , a $ 3.1 million increase in net gain on disposal of property and equipment , a $ 1.6 million decrease in impairment of long-lived assets and a decrease in impairment of goodwill and intangibles of $ 0.4 million , partially offset by a $ 48.4 million increase in direct salaries and related costs and a $ 1.5 million decrease in net gain on insurance settlement . in addition to the $ 27.6 million increase in income from continuing operations , we experienced a $ 3.8 million decrease in other expense , net , a decrease in interest expense of $ 3.8 million , a $ 0.2 million increase in interest income , a decrease of $ 8.3 million in loss from discontinued operations and a $ 24.0 million decrease in loss on sale of discontinued operations , partially offset by an increase of $ 9.1 million in the tax provision , resulting in net income of $ 48.3 million for 2011 , an increase of $ 58.6 million compared to 2010 .
| revenues from our offshore operations represented 47.8 % of americas ' revenues , compared to 47.7 % in 2010. while operating margins generated offshore are generally comparable to those in the united states , our ability to maintain these offshore operating margins longer term is difficult to predict due to potential increased competition for the available workforce , the trend of higher occupancy costs and costs of functional currency fluctuations in offshore markets . we weight these factors in our focus to re-price or replace certain sub-profitable target client programs . emea 's revenues increased $ 18.6 million , including the positive foreign currency impact of $ 9.9 million , for the year ended december 31 , 2011 from the comparable period in 2010 , principally due to new client programs and higher volumes within new and certain existing clients . this $ 18.6 million increase is net of a $ 1.2 million decrease in revenues due to the closure of certain sites in connection with the fourth quarter 2010 exit plan . direct salaries and related costs direct salaries and related costs increased $ 48.4 million , or 6.7 % , to $ 763.9 million for 2011 from $ 715.5 million in 2010. on a reporting segment basis , direct salaries and related costs from the americas segment increased $ 31.1 million , including the negative foreign currency impact of $ 16.9 million , for 2011 from 2010. direct salaries and related costs from the emea segment increased $ 17.3 million , including the negative foreign currency impact of $ 7.2 million , for 2011 from 2010. in the americas segment , as a percentage of revenues , direct salaries and related costs increased to 63.5 % for 2011 from 62.2 % in 2010. this increase of 1.3 % , as a percentage of revenues , was primarily attributable to higher compensation costs of 1.4 % ( principally related to lower volumes within certain existing clients without a commensurate reduction in labor costs ) and higher other costs of 0.1 % , partially offset by lower communication costs of 0.2 % . in the emea segment , as a percentage of revenues , direct salaries and related costs increased to 73.8 % for 2011 from 71.9 % in 2010. this increase of 1.9 % , as a percentage of revenues , was primarily attributable to higher severance costs of 0.7 %
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egg prices will likely remain volatile and future prices will depend on levels of supply and the recovery of institutional 20 demand for eggs which was adversely impacted as a result of the 2015 shortages caused by ai . there have been no positive tests for ai at any of our locations , and we have significantly increased the biosecurity measures at all of our facilities ; however , we can not be certain our flocks will not be affected by ai or other diseases in the future . ๏ปฟ we are one of the largest producers and marketers of value-added specialty shell eggs in the u.s. for accounting and tax purposes , we classify nutritionally enhanced , cage-free , organic and brown eggs as specialty shell eggs . they have been a significant and growing segment of the market in recent years . during our fiscal 2016 an increasing number of large restaurant chains , food service companies and grocery chains , including our largest customers , announced goals to transition to a cage-free egg supply chain by specified future dates . we are working with our customers to achieve smooth progress in meeting their goals , and have been making and expect to continue to make significant investments in new and remodeled facilities to meet this demand , including through our red river joint venture discussed below . ๏ปฟ for fiscal 201 6 , we produced approximately 7 8 % of the total number of shell eggs sold by us , with approximately 4 % of such shell egg production provided by contract producers . contract producers utilize their facilities to produc e shell eggs from layers owned by us . we own the shell eggs produced under these arrangements . for fiscal 201 6 , approximately 2 2 % of the total number of shell eggs sold by us were purchased from outside producers for resale . ๏ปฟ our cost of production is materially affected by feed costs , which are highly volatile and subject to wide fluctuation . for fiscal 201 6 , feed costs averaged about 6 0 % of our total farm egg production cost . changes in market prices for corn and soybean meal , the primary ingredients in the feed we use , result in changes in our cost of goods sold . for our last five fiscal years , average feed cost per dozen sold ranged from a low of $ 0 . 41 in fiscal 201 6 to a high of $ 0.54 in fiscal 2013. the cost of our primary feed ingredients , which are commodities , are subject to factors over which we have little or no control such as volatile price changes caused by weather , size of harvest , transportation and storage costs , demand and the agricultural and energy policies of the u.s. and foreign governments . the large 2015 crops increased available supplies for corn and soybean meal which favorably impacted our results for fiscal 2016 , compared to the same period of fiscal 2015. increased u.s. acreage for both corn and soybeans in 2016 should provide adequate domestic supplies for both of our primary feed ingredients . domestic corn supplies could be particularly robust , although domestic soybean stocks could be negatively impacted by increased exports due to reduced supplies from south america . ๏ปฟ during the fourth quarter of fiscal 201 5 , the company entered into the red river valley egg farm , llc ( โ red river โ ) joint venture with rose acre farms , inc. construction of the state of the art shell egg production complex near bogata , red river county , texas is nearing completion . the first flock was placed in november 2015 a n d we expect the complex to be completely stocked in early calendar 2017 . the plans for the complex provide capacity for approximately 1.8 million cage-free laying hens . in fiscal 2016 we incurred $ 34.0 million of construction and startup costs associated with the joint venture . ๏ปฟ the acquisition of our joint venture partner 's 50 % interest in delta egg farm , llc ( โ delta egg โ ) as described in note 2 of the notes to the consolidated financial statements is referred to below as the โ acquisition โ . our fiscal 201 6 , 201 5 and 201 4 financial results include the operations of del ta egg beginning march 1 , 2014. prior to march 1 , 2014 , our 50 % interest in the earnings of delta egg wa s included in equity in earnings of affiliates under the equity method of accounting . ๏ปฟ we effected a 2-for-1 stock split for share s of our common stock and class a common stock in october 2014 , and all per share amounts in this report have been adjusted as necessary to reflect the split . ๏ปฟ 21 results of operations ๏ปฟ the following table sets forth , for the fiscal years indicated , certain items from our consolidated statements of income expressed as a percentage of net sales . ๏ปฟ ๏ปฟ replace_table_token_4_th ๏ปฟ executive overview of results โ may 28 , 201 6 , may 30 , 201 5 , and may 3 1 , 201 4 ๏ปฟ our operating results are significantly affected by wholesale shell egg market prices and feed costs , which can fluctuate widely and are outside of our control . the majority of our shell eggs are sold at prices related to the urner barry spot egg market quotations for the southeastern and southcentral regions of the country , or formulas related to our costs of production which include the cost of corn and soybean meal . the following table shows our net income , net average shell egg selling price , feed cost per dozen produced , and the average urner barry wholesale large shell egg prices in the southeast region , for each of our three most recent fiscal years . ๏ปฟ ๏ปฟ replace_table_token_5_th 1- average thursday price for the large market ( i.e . story_separator_special_tag generic shell egg s ) in the southeastern region ๏ปฟ the shell egg industry has traditionally been subject to periods of high profitability followed by periods of significant loss . the periods of high profitability have often reflect ed increased consumer demand relative to supply while the periods of significant loss have often reflect ed excess supply for the then prevailing consumer demand . historically , demand for shell eggs increases in line with overall population growth . as reflected above , our operating results fluctuate with changes in the spot egg market quote and feed costs . the net average shell egg selling price is the blended price for all sizes and grades of shell eggs , including non-graded shell egg sales , breaking stock and undergrades . in fiscal 2014 and 201 5 , our average net selling price increase d , reflecting strong demand for shell eggs across our markets , and feed costs decreased each year over the previous year . in fiscal 2016 , our net average selling price increased over the previous year primarily due to supply constraints during much of our fiscal year resulting from the ai outbreak , and feed costs decreased . gross profit and n e t income for fiscal 201 6 increased significantly compared to th e prior year , primarily due to increased selling prices and a decrease in feed costs . ๏ปฟ 22 fiscal year ended may 28 , 201 6 compared to fiscal year ended may 3 0 , 201 5 ๏ปฟ net sales ๏ปฟ in fiscal 201 6 , approximately 9 6 % of our net sales consisted of shell eggs and approximately 4 % was egg products . net sales fo r the fiscal year ended may 28 , 201 6 were $ 1 , 908.7 million , an increase of $ 332 .6 million , or 21.1 % , from net sales of $ 1 , 576 . 1 million for fiscal 201 5 . in fiscal 201 6 total dozens of eggs sold de creased and egg selling prices increased as compared to fiscal 201 5 . in fiscal 201 6 total dozens of shell eggs sold were 1,0 53 . 6 million , a de crease of 9.5 million dozen , o r 0.9 % , compared to 1,063 . 1 million sold in fiscal 201 5 story_separator_special_tag egg product sales were $ 70.7 million , an increase of $ 25.3 million , or 55.7 % , compared to $ 4 5 . 4 million for fiscal 201 5 . e gg products volume for fiscal 201 6 was 58.5 million pounds , a n in crease of 7.5 million pounds , or 14.7 % , compared to 51 . 0 million pounds for fiscal 201 5 . the increases in our sales volume and market prices for egg products in the current fiscal year were due to a shortage of supply from the ai affected locations of other producers , as the ai outbreak had a disproportionately large impact on suppliers of egg products . in fiscal 201 6 , the selling price per pound was $ 1.213 compared to $ 0 . 8 91 for fiscal 201 5 , an increase of 36.1 % . ๏ปฟ 24 cost of sales ๏ปฟ cost of sales consists of c osts directly related to producing , processing and packing shell eggs , purchases of shell eggs from outside producers , processing and packing of liquid and frozen egg products and other non-egg costs . farm production costs are those costs incurred at the egg production facility , including feed , facility , hen amortization , and other related farm production costs . the following table presents the key variables affecting our cost of sales : ๏ปฟ ๏ปฟ replace_table_token_7_th ๏ปฟ cost of sales for the fiscal year ended may 28 , 201 6 was $ 1,260.6 million , an increase of $ 80.2 million , or 6.8 % , compared to $ 1 , 1 80 . 4 million for fiscal 201 5 . comparing fiscal 2016 to fiscal 2015 , d ozens produced and average cost per dozen purchased from outside shell egg producers increased while cost of feed ingredients decreased . this fiscal year we pro duced 77.8 % of the eggs sold by us , as compared to 7 5 . 1 % for the previous year . feed cost for fiscal 201 6 was $ 0 . 41 4 per dozen , compared to $ 0.4 39 per dozen for the prior fiscal year , a decrease of 5.7 % . the decrease in feed cost per dozen resulted in a decrease in cost of sales of $ 20.6 million for fiscal 2016 compared with 20 15 . ๏ปฟ for the thirteen weeks ended may 28 , 2016 , compared to the same period of 2015 , cost of sales decreased from $ 293.6 million in the fourth quarter of fiscal 2015 , to $ 262.3 million in the current period . this decrease of $ 31.3 million , or 10.7 % , was primarily the result of decreased cost of outside egg purchases from $ 1.43 per dozen in the fourth quarter of fiscal 2015 to $ 1.11 in the comparable period of fiscal 2016. feed cost per dozen for the fourth quarter of fiscal 2016 was $ 0.396 , compared to $ 0.406 for the same quarter of fiscal 2015 , a decrease of 2.5 % . ๏ปฟ gross profit increased from 25.1 % of net sales for fiscal 201 5 , to 34.0 % of net sales for fiscal 201 6 . the improvement is the result of lower feed costs and increased egg selling prices . 25 selling , general , and administrative expenses ๏ปฟ ๏ปฟ replace_table_token_8_th ๏ปฟ selling , general and administrative expenses , which include costs of marketing , distribution , accounting and corporate overhead , were $ 177.8 million in fiscal 201 6 , an increase of $ 17.4 million , or 10.8 % , compared to $ 160 .
| 2 % for fiscal 201 5 . sales of non-specialty shell eggs accounted for approximately 75.1 % and 78.1 % of total shell egg volumes in fiscal 201 6 and 201 5 , respectively . ๏ปฟ for the thirteen-week period ended may 28 , 201 6 , non-specialty shell eggs represented approximately 55.6 % of our shell egg revenue , compared to 68 . 5 % for the thirteen-week period ended may 3 0 , 201 5 , reflecting the large decrease in net average selling price for non-specialty eggs during the current period compared to the same period of last year . for the t hirteen-week period 23 ended may 28 , 201 6 , non-specialty shell eggs accounted for approximately 75.0 % of the total shell egg volume , compared to 77 . 1 % for the comparable period of 201 5 . ๏ปฟ specialty eggs , which inclu de nutritionally enhanced , cage- free , organic and brown eggs , continued to make up a larger portion of our total shell egg revenue and dozens in fiscal 201 6 . for fiscal 201 6 , specialty eggs accounted for 29.1 % of shell egg revenue , compared to 27 . 2 % in fiscal 201 5 , and 22.9 % of shell egg volume in fiscal 201 6 , compared to 1 9 . 8 % in fiscal 201 5 . additionally , for fiscal 20 1 6 , specialty eggs sold through co-pack arrangements accounted for 2.7 % of shell egg revenue , com pared to 2 . 8 % in fiscal 20 1 5 , and 2.0 % of shell egg volume in fiscal 201 6 and 2015 . specialty egg retail prices are less cyclical than non-specialty shell egg prices and are generally higher due to consumer willingness to pay for the perceived increased benefits from these products .
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asc 105-10 establishes the fasb accounting standards codification ( the ยcodificationย ) as the source of authoritative accounting principles recognized by the fasb to be applied by nongovernmental entities in the preparation of financial statements in conformity with u.s. gaap . rules and interpretive releases of the sec under authority of federal securities laws are also sources of authoritative u.s. gaap for sec registrants . all guidance contained in the codification carries an equal level of authority . the codification superseded all existing non-sec accounting and reporting standards . all other non-grandfathered , non-sec accounting literature not included in the codification is non-authoritative . the fasb will not issue new standards in the form of statements , fasb staff positions or emerging issues task force abstracts . instead , it will issue accounting standards updates ( ยasusย ) . the fasb will not consider asus as authoritative in their own right . asus will serve only to update the codification , provide background information about the guidance and provide the basis for conclusions on the change ( s ) in the codification . references made to fasb guidance throughout this document have been updated for the codification . in december 2007 , the asc topic 805 , ย business combinations ย ( ยasc 805ย ) was issued . asc 805 requires the acquirer of a business to recognize and measure the identifiable assets acquired , the liabilities assumed , and any non-controlling interest in the acquiree at fair value . asc 805 also requires transaction costs related to the business combination to be expensed as incurred . asc 805 applies prospectively to business combinations ; the effective date for the company is january 1 , 2009. the impact of asc 805 on future business combinations can not currently be determined . in may 2009 , the fasb issued guidance now codified as fasb asc topic 855 , ย subsequent events , ย to establish principles and requirements for subsequent events . the guidance sets forth the date after the balance sheet date during which management of a reporting entity shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements . the guidance also identifies the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date . the guidance is effective for interim or annual financial periods ending after june 15 , 2009 , and shall be applied prospectively . the company adopted the provisions of the guidance during the year ended december 31 , 2009 and its impact on the company 's disclosures was not significant . 13 critical accounting policies our financial statements and accompanying notes are prepared in accordance with u.s. generally accepted accounting principles . the preparation of our financial statements requires management to make estimates , assumptions and judgments that affect the amounts reported . these estimates , assumptions and judgments are affected by management 's application of accounting policies , which are discussed in note 2 of item 8 , financial statements and supplementary data of this report . actual results may differ from these estimates under different assumptions or conditions . the critical accounting policies have been reviewed with the audit committee of our board of directors . revenue recognition revenue is recognized on the accrual basis , which is at the time of shipment of goods or acceptance at the united states postal service . accounts receivable and allowance for doubtful accounts a trade receivable is recorded at the value of the sale . we perform periodic credit evaluations of our customers ' financial condition and generally do not require collateral . generally , amounts not collected from customers within 120 days of the due date of the invoice are credited to an allowance for doubtful accounts . after collection efforts have been exhausted , uncollected balances are charged off to the allowance . inventory valuation inventories are stated at the lower of cost or market , with cost being determined in accordance with the first-in , first-out method . costs included in inventory are the cost to purchase the raw material , the direct labor incurred on work in progress and finished goods , and an overhead factor based on other indirect manufacturing costs incurred . deferred tax asset and liability valuation allowances we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities . deferred tax assets are reduced , if deemed necessary , by a valuation allowance for the amount of tax benefits not expected to be realized . in 2009 we recorded a $ 0.5 million full valuation allowance on our net federal deferred tax asset due to the uncertainty with respect to utilizing the deferred tax asset related to our tax loss carry-forward based on a history of operating losses . investment tax credits are recognized on the flow through method . specifically and with respect to deferred tax assets , we had gross deferred assets at december 31 , 2009 of $ 4.6 million related to new york state tax credits . these credits are subject to certain statutory provisions , such as length of available carry-forward period and minimum tax , which reduces the probability of realization of the full value of such credits . management estimates the amount of credits we are likely to realize in the future based on actual historical realization rates and the statutory carry-forward period . as a result of the analysis performed as of december 31 , 2009 , we do not expect to be able to utilize these credits and management adjusted the valuation allowance for these credits to $ 4.6 million . stock-based compensation stock-based compensation awards granted are valued at fair market value at the date of the grant and are charged to expense ratably over the requisite service period . stock compensation expense is included in selling story_separator_special_tag asc 105-10 establishes the fasb accounting standards codification ( the ยcodificationย ) as the source of authoritative accounting principles recognized by the fasb to be applied by nongovernmental entities in the preparation of financial statements in conformity with u.s. gaap . rules and interpretive releases of the sec under authority of federal securities laws are also sources of authoritative u.s. gaap for sec registrants . all guidance contained in the codification carries an equal level of authority . the codification superseded all existing non-sec accounting and reporting standards . all other non-grandfathered , non-sec accounting literature not included in the codification is non-authoritative . the fasb will not issue new standards in the form of statements , fasb staff positions or emerging issues task force abstracts . instead , it will issue accounting standards updates ( ยasusย ) . the fasb will not consider asus as authoritative in their own right . asus will serve only to update the codification , provide background information about the guidance and provide the basis for conclusions on the change ( s ) in the codification . references made to fasb guidance throughout this document have been updated for the codification . in december 2007 , the asc topic 805 , ย business combinations ย ( ยasc 805ย ) was issued . asc 805 requires the acquirer of a business to recognize and measure the identifiable assets acquired , the liabilities assumed , and any non-controlling interest in the acquiree at fair value . asc 805 also requires transaction costs related to the business combination to be expensed as incurred . asc 805 applies prospectively to business combinations ; the effective date for the company is january 1 , 2009. the impact of asc 805 on future business combinations can not currently be determined . in may 2009 , the fasb issued guidance now codified as fasb asc topic 855 , ย subsequent events , ย to establish principles and requirements for subsequent events . the guidance sets forth the date after the balance sheet date during which management of a reporting entity shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements . the guidance also identifies the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date . the guidance is effective for interim or annual financial periods ending after june 15 , 2009 , and shall be applied prospectively . the company adopted the provisions of the guidance during the year ended december 31 , 2009 and its impact on the company 's disclosures was not significant . 13 critical accounting policies our financial statements and accompanying notes are prepared in accordance with u.s. generally accepted accounting principles . the preparation of our financial statements requires management to make estimates , assumptions and judgments that affect the amounts reported . these estimates , assumptions and judgments are affected by management 's application of accounting policies , which are discussed in note 2 of item 8 , financial statements and supplementary data of this report . actual results may differ from these estimates under different assumptions or conditions . the critical accounting policies have been reviewed with the audit committee of our board of directors . revenue recognition revenue is recognized on the accrual basis , which is at the time of shipment of goods or acceptance at the united states postal service . accounts receivable and allowance for doubtful accounts a trade receivable is recorded at the value of the sale . we perform periodic credit evaluations of our customers ' financial condition and generally do not require collateral . generally , amounts not collected from customers within 120 days of the due date of the invoice are credited to an allowance for doubtful accounts . after collection efforts have been exhausted , uncollected balances are charged off to the allowance . inventory valuation inventories are stated at the lower of cost or market , with cost being determined in accordance with the first-in , first-out method . costs included in inventory are the cost to purchase the raw material , the direct labor incurred on work in progress and finished goods , and an overhead factor based on other indirect manufacturing costs incurred . deferred tax asset and liability valuation allowances we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities . deferred tax assets are reduced , if deemed necessary , by a valuation allowance for the amount of tax benefits not expected to be realized . in 2009 we recorded a $ 0.5 million full valuation allowance on our net federal deferred tax asset due to the uncertainty with respect to utilizing the deferred tax asset related to our tax loss carry-forward based on a history of operating losses . investment tax credits are recognized on the flow through method . specifically and with respect to deferred tax assets , we had gross deferred assets at december 31 , 2009 of $ 4.6 million related to new york state tax credits . these credits are subject to certain statutory provisions , such as length of available carry-forward period and minimum tax , which reduces the probability of realization of the full value of such credits . management estimates the amount of credits we are likely to realize in the future based on actual historical realization rates and the statutory carry-forward period . as a result of the analysis performed as of december 31 , 2009 , we do not expect to be able to utilize these credits and management adjusted the valuation allowance for these credits to $ 4.6 million . stock-based compensation stock-based compensation awards granted are valued at fair market value at the date of the grant and are charged to expense ratably over the requisite service period . stock compensation expense is included in selling
| because we provide products such as personalized dinner and cocktail napkins , small boxes for sundries at events , and other celebration type items both for the retail and corporate markets , this product line is also heavily impacted by economic downturns . nonetheless , we believe that in the stock packaging market , we are a leader with over 4,000 customers that we serve around the world . also , in personalized print where we compete with much larger companies , we have developed a strong brand as krepe-kraft among event planners and wedding coordinators . our website , www.partybasics.com , has had some success , and we also provide our products to third-party web-stores as well . revenue 2009 compared with 2008 for fiscal 2009 , revenue was $ 48.9 million which was virtually unchanged from revenue in 2008. the custom folding cartons product line had sales of $ 34.9 million in 2009 , an increase of 13.7 % from 2008 , mainly attributable to sales to new customers and additional business with existing customers . the stock packaging product line had sales of $ 9.0 million in 2009 , down 7.4 % from $ 9.7 million in 2008. the decline from the prior year was mainly due to weakness in general business conditions . this product line is sold primarily to retail confectioners who continue to be negatively affected by the current state of the economy . the personalized print product line had sales of $ 3.0 million in 2009 , down 22.4 % , from $ 3.9 million in 2008. the decline from the prior year was mainly due to weakness in general business conditions . the specialty print and direct mail product line had sales of $ 1.5 million in 2009 , a decrease of 63.7 % , from $ 4.2 million in 2008. in june 2009 , the company rationalized its product lines and exited the specialty print and direct mail market . there were no specialty print and direct mail sales in the third and fourth quarters of 2009 . 2008 compared with 2007 for fiscal 2008 , revenue was $ 48.9 million compared with $ 48.2
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during the year ended december 31 , 2020 , we sold a total of 58.8 acres of land from our holdings in windmill farms for $ 12.9 million , in aggregate , resulting in gains on sale of $ 11.1 million . in addition , we sold 26.8 acres of land from our holdings in mercer crossing during the year ended december 31 , 2020 for $ 15.8 million , resulting in a gain on sale of $ 10.3 million . financing activities on february 15 , 2018 , we issued $ 39.2 million in series b bonds ( see note 11 in our consolidated financial statements ) that bear interest at 6.80 % and mature on july 31 , 2025. the proceeds were used to fund development activity , pay down debt and other general corporate purposes . on july 19 , 2018 , we issued an additional $ 19.8 million of series b bonds ( see note 11 in our consolidated financial statements ) in a private placement . we used the proceeds from the issuance to fund our development activities . on july 28 , 2019 , we paid off the $ 41.5 million mortgage note payable on browning place , which resulted in a loss on early extinguishment of debt of $ 5.2 million . concurrent with the repayment of the mortgage note payable , we issued $ 78.1 million of series c bonds ( see note 11 in our consolidated financial statements ) , which are collateralized by browning place , bear interest at 4.65 % and mature on january 31 , 2023. on november 30 , 2020 , issued $ 19.7 million in additional series a bonds ( see note 11 in our consolidated financial statements ) for $ 18.8 million in net proceeds . we used the proceeds to fund in part our bond payments that were due on january 30 , 2021. on december 3 , 2020 , we extended our $ 14.7 million loan from hsw partners to june 17 , 2021 . on march 2 , 2021 , we extended our $ 1.2 million loan on athens to august 28 , 2022 . 19 on march 4 , 2021 , we received a commitment from our lender to extend the maturity of our $ 10.4 million loan on windmill farms until february 28 , 2023 at a reduced interest rate of 5 % . development activities during the year ended december 31 , 2020 , we completed the construction of parc at denham springs phase ii and sugar mill phase iii for a total cost of $ 17.2 million and $ 14.2 million , respectively . our current developments projects at december 31 , 2020 , are as follow : ( dollars in thousands ) replace_table_token_8_th ( 1 ) costs include construction hard costs , construction soft costs and loan borrowing costs . critical accounting policies the preparation of our consolidated financial statements in conformity with united states generally accepted accounting principles ( โ gaap โ ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . some of these estimates and assumptions include judgments on revenue recognition , estimates for common area maintenance and real estate tax accruals , provisions for uncollectible accounts , impairment of long-lived assets , the allocation of purchase price between tangible and intangible assets , capitalization of costs and fair value measurements . our significant accounting policies are described in more detail in note 2โsummary of significant accounting policies in our notes to the consolidated financial statements . however , the following policies are deemed to be critical . fair value of financial instruments we apply the guidance in asc topic 820 , โ fair value measurements and disclosures , โ to the valuation of real estate assets . these provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date , establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy . the hierarchy gives the highest priority to quoted prices in active markets ( level 1 measurements ) and the lowest priority to unobservable data ( level 3 measurements ) , such as the reporting entity 's own data . the valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows : level 1โunadjusted quoted prices for identical and unrestricted assets or liabilities in active markets . level 2โquoted prices for similar assets and liabilities in active markets , and inputs that are observable for the asset or liability , either directly or indirectly , for substantially the full term of the financial instrument . level 3โunobservable inputs that are significant to the fair value measurement . a financial instrument 's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement . 20 related parties we apply asc topic 805 , โ business combinations โ , to evaluate business relationships . related parties are persons or entities who have one or more of the following characteristics , which include entities for which investments in their equity securities would be required , trust for the benefit of persons including principal owners of the entities and members of their immediate families , management personnel of the entity and members of their immediate families and other parties with which the entity may deal if one party controls or can significantly influence the decision making of the other story_separator_special_tag during the year ended december 31 , 2020 , we sold a total of 58.8 acres of land from our holdings in windmill farms for $ 12.9 million , in aggregate , resulting in gains on sale of $ 11.1 million . in addition , we sold 26.8 acres of land from our holdings in mercer crossing during the year ended december 31 , 2020 for $ 15.8 million , resulting in a gain on sale of $ 10.3 million . financing activities on february 15 , 2018 , we issued $ 39.2 million in series b bonds ( see note 11 in our consolidated financial statements ) that bear interest at 6.80 % and mature on july 31 , 2025. the proceeds were used to fund development activity , pay down debt and other general corporate purposes . on july 19 , 2018 , we issued an additional $ 19.8 million of series b bonds ( see note 11 in our consolidated financial statements ) in a private placement . we used the proceeds from the issuance to fund our development activities . on july 28 , 2019 , we paid off the $ 41.5 million mortgage note payable on browning place , which resulted in a loss on early extinguishment of debt of $ 5.2 million . concurrent with the repayment of the mortgage note payable , we issued $ 78.1 million of series c bonds ( see note 11 in our consolidated financial statements ) , which are collateralized by browning place , bear interest at 4.65 % and mature on january 31 , 2023. on november 30 , 2020 , issued $ 19.7 million in additional series a bonds ( see note 11 in our consolidated financial statements ) for $ 18.8 million in net proceeds . we used the proceeds to fund in part our bond payments that were due on january 30 , 2021. on december 3 , 2020 , we extended our $ 14.7 million loan from hsw partners to june 17 , 2021 . on march 2 , 2021 , we extended our $ 1.2 million loan on athens to august 28 , 2022 . 19 on march 4 , 2021 , we received a commitment from our lender to extend the maturity of our $ 10.4 million loan on windmill farms until february 28 , 2023 at a reduced interest rate of 5 % . development activities during the year ended december 31 , 2020 , we completed the construction of parc at denham springs phase ii and sugar mill phase iii for a total cost of $ 17.2 million and $ 14.2 million , respectively . our current developments projects at december 31 , 2020 , are as follow : ( dollars in thousands ) replace_table_token_8_th ( 1 ) costs include construction hard costs , construction soft costs and loan borrowing costs . critical accounting policies the preparation of our consolidated financial statements in conformity with united states generally accepted accounting principles ( โ gaap โ ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . some of these estimates and assumptions include judgments on revenue recognition , estimates for common area maintenance and real estate tax accruals , provisions for uncollectible accounts , impairment of long-lived assets , the allocation of purchase price between tangible and intangible assets , capitalization of costs and fair value measurements . our significant accounting policies are described in more detail in note 2โsummary of significant accounting policies in our notes to the consolidated financial statements . however , the following policies are deemed to be critical . fair value of financial instruments we apply the guidance in asc topic 820 , โ fair value measurements and disclosures , โ to the valuation of real estate assets . these provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date , establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy . the hierarchy gives the highest priority to quoted prices in active markets ( level 1 measurements ) and the lowest priority to unobservable data ( level 3 measurements ) , such as the reporting entity 's own data . the valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows : level 1โunadjusted quoted prices for identical and unrestricted assets or liabilities in active markets . level 2โquoted prices for similar assets and liabilities in active markets , and inputs that are observable for the asset or liability , either directly or indirectly , for substantially the full term of the financial instrument . level 3โunobservable inputs that are significant to the fair value measurement . a financial instrument 's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement . 20 related parties we apply asc topic 805 , โ business combinations โ , to evaluate business relationships . related parties are persons or entities who have one or more of the following characteristics , which include entities for which investments in their equity securities would be required , trust for the benefit of persons including principal owners of the entities and members of their immediate families , management personnel of the entity and members of their immediate families and other parties with which the entity may deal if one party controls or can significantly influence the decision making of the other
| 21 the following table shows the total number of income-producing properties , and other key financial measures as of december 31 , 2020 and 2019 : replace_table_token_9_th comparison of the year ended december 31 , 2020 to the year ended december 31 , 2019 : our $ 33.6 million increase in net income during the year ended december 31 , 2020 is primarily attributed to the following : the $ 1.5 million increase in operating profits in our multifamily segment is primarily due a $ 2.1 million increase at our lease-up properties offset in part by a decrease at our disposition properties . the increase in profit at our lease-up properties is due to an increase in occupancy at overlook at allenville phase ii , parc at denham springs phase ii and forest grove in 2020. the $ 5.0 million increase in operating profits in our commercial segment is primarily due to a $ 6.0 million lease termination payment at browning place offset in part by a decrease in rental revenue at our same properties due to a decline in occupancy . the lease termination payment relates to a former tenant that has been replaced by a new tenant at increased rents . the $ 5.2 million loss on extinguishment of debt in 2019 is due to the early extinguishment of our mortgage note payable on browning place ( see `` financing activities '' in management 's overview ) . the $ 17.3 million increase in gain on sale of assets is due to an increase of $ 10.3 million sales of land ; the sale of bridge view plaza , farnham park and villager in 2020 ( see `` acquisitions and dispositions '' in management 's overview ) ; and the recognition of $ 3.0 million in gain in 2020 from sales that had been previously deferred . the $ 2.2 million decrease in loss from joint ventures is due to the increased in occupancy of the various lease-up properties at vaa . 22 comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018 : see item 7 of part ii in our annual report on form 10-k for the year ended december 31 , 2019 filed with the sec on march 30 , 2020 for a discussion of our results of operations for the year ended december 31 , 2019. liquidity and capital resources our principal sources of cash have been , and will continue to be , property operations ; proceeds from land and income-producing property sales ; collection of mortgage notes receivable ; collections
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both landscape maintenance services and snow removal services can also include enhancement services that represent supplemental maintenance or improvement services generally provided under contracts of short duration related to specific services . revenue for landscape maintenance and snow removal services under fixed fee models is recognized over time using an output based method . additionally , a portion of our recurring fixed fee landscape maintenance and snow removal services are recorded under the series guidance . the right to invoice practical expedient , defined within note 3 โ revenue โ to our audited consolidated financial statements , is generally applied to revenue related to landscape maintenance and snow removal services performed in relation to per occurrence contracts as well as enhancement services . when use of the practical expedient is not appropriate for these contracts , revenue is recognized using a cost-to-cost input method . fees for contracted landscape maintenance services are typically billed on an equal monthly basis . fees for fixed fee snow removal services are typically billed on an equal monthly basis during snow season , while fees for time and material or other activity-based snow removal services are typically billed as the services are performed . fees for enhancement services are typically billed as the services are performed . development services for development services , revenue is primarily recognized over time using the cost-to-cost input method , measured by the percentage of cost incurred to date to the estimated total cost for each contract , which we believe to be the best measure of progress . the full amount of anticipated losses on contracts is recorded as soon as such losses can be estimated . these losses have been immaterial in prior periods . changes in job performance , job conditions and estimated profitability , including final contract settlements , may result in revisions to costs and revenue and are recognized in the period in which the revisions are determined . expenses cost of services provided cost of services provided is comprised of direct costs we incur associated with our operations during a period and includes employee costs , subcontractor costs , purchased materials , operating equipment and vehicle costs . employee costs consist of wages and other labor-related expenses , including benefits , workers compensation and healthcare costs , for those employees involved in delivering our services . subcontractor costs consist of costs relating to our qualified service partner network in our maintenance services segment and subcontractors we engage from time to time in our development services segment . when our use of subcontractors increases , we may experience incrementally higher costs of services provided . operating equipment and vehicle costs primarily consist of depreciation related to branch operating equipment and vehicles and related fuel expenses . a large component of our costs are variable , such as labor , subcontractor expense and materials . selling , general and administrative expense selling , general and administrative expense consists of costs incurred related to compensation and benefits for management , sales and administrative personnel , equity-based compensation , branch and office rent and facility operating costs , depreciation expense related to branch and office locations , as well as professional fees , software costs , goodwill impairment , gains and losses on divestitures , and other miscellaneous expenses . corporate expenses , including corporate executive compensation , finance , legal and information technology , are included in consolidated selling , general and administrative expense and not allocated to the business segments . amortization expense amortization expense consists of the periodic amortization of intangible assets , including customer relationships , non-compete agreements and trademarks , recognized when kkr acquired us on december 18 , 2013 and in connection with businesses we have acquired since december 18 , 2013. interest expense interest expense relates primarily to our long term debt . see note 10 โ long-term debt โ to our audited consolidated financial statements included in part ii . item 8 of this form 10-k. 34 income tax ( expense ) benefit the benefit for income taxes includes u.s. federal , state and local income taxes . our effective tax rate differs from the statutory u.s. income tax rate due to the effect of state and local income taxes , tax credits and certain nondeductible expenses . our effective tax rate may vary from quarter to quarter based on recurring and nonrecurring factors including , but not limited to the geographical distribution of our pre-tax earnings , changes in the tax rates of different jurisdictions , the availability of tax credits and nondeductible items . changes in judgment due to the evaluation of new information resulting in the recognition , derecognition or remeasurement of a tax position taken in a prior annual period are recognized separately in the period of the change . in addition , on december 22 , 2017 , the u.s. tax cuts and jobs act ( the โ 2017 tax act โ ) was enacted . the 2017 tax act reduced the u.s. corporate income tax rate from 35 % to 21 % . as a result of the enactment , our corporate tax rate for fiscal 2019 is 21 % . based on the applicable tax rates and number of days in fiscal 2018 before and after the 2017 tax act , we had a 2018 blended corporate tax rate of 24.5 % for fiscal 2018. other income ( expense ) other income ( expense ) consists primarily of losses on debt extinguishment and investment gains and losses related to investments held in rabbi trust . how we assess the performance of our business we manage operations through the two operating segments described above . in addition to our gaap financial measures , we review various non-gaap financial measures , including adjusted ebitda , adjusted net income , adjusted earnings per share ( โ adjusted eps โ ) , free cash flow and adjusted free cash flow . story_separator_special_tag we believe adjusted ebitda , adjusted net income and adjusted eps are helpful supplemental measures to assist us and investors in evaluating our operating results as they exclude certain items whose fluctuations from period to period do not necessarily correspond to changes in the operations of our business . adjusted ebitda represents net ( loss ) income before interest , taxes , depreciation , amortization and certain non-cash , non-recurring and other adjustment items . adjusted net income is defined as net income ( loss ) including interest , and depreciation and excluding other items used to calculate adjusted ebitda and further adjusted for the tax effect of these exclusions and the removal of the discrete tax items . adjusted eps is defined as adjusted net income divided by the weighted average number of common shares outstanding for the period used in the calculation of basic eps . we believe that the adjustments applied in presenting adjusted ebitda , adjusted net income and adjusted eps are appropriate to provide additional information to investors about certain material non-cash items and about non-recurring items that we do not expect to continue at the same level in the future . we believe free cash flow and adjusted free cash flow are helpful supplemental measures to assist us and investors in evaluating our liquidity . free cash flow represents cash flows from operating activities less capital expenditures , net of proceeds from sales of property and equipment . adjusted free cash flow represents free cash flow as further adjusted for the acquisition of certain legacy properties associated with our acquired valleycrest business . we believe free cash flow and adjusted free cash flow are useful to provide additional information to assess our ability to pursue business opportunities and investments and to service our debt . free cash flow and adjusted free cash flow have limitations as analytical tools , including that they do not account for our future contractual commitments and exclude investments made to acquire assets under finance leases and required debt service payments . management regularly uses these measures as tools in evaluating our operating performance , financial performance and liquidity , while other measures can differ significantly depending on long-term strategic decisions regarding capital structure and capital investments . management uses adjusted ebitda , adjusted net income , adjusted eps , free cash flow and adjusted free cash flow to supplement comparable gaap measures in the evaluation of the effectiveness of our business strategies , to make budgeting decisions , to establish discretionary annual incentive compensation and to compare our performance against that of other peer companies using similar measures . in addition , we believe that adjusted ebitda , adjusted net income , adjusted eps , free cash flow and adjusted free cash flow are frequently used by investors and other interested parties in the evaluation of issuers , many of which also present adjusted ebitda , adjusted net income , adjusted eps , free cash flow and adjusted free cash flow when reporting their results in an effort to facilitate an understanding of their operating and financial results and liquidity . management supplements gaap results with non-gaap financial measures to provide a more complete understanding of the factors and trends affecting the business than gaap results alone . 35 adjusted ebitda , adjusted net income and adjusted eps are provided in addition to , and should not be considered as alternatives to , net income ( l oss ) or any other performance measure derived in accordance with gaap , and free cash flow and adjusted free cash flow are provided in addition to , and should not be considered as an alternative to , cash flow from operating activities or any other measure d erived in accordance with gaap as a measure of our liquidity . adjusted ebitda , adjusted net income , adjusted eps , free cash flow and adjusted free cash flow have limitations as analytical tools , and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under gaap . in addition , because not all companies use identical calculations , the presentations of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company . additionally , these measures are not intended to be a measure of free cash flow available for management 's discretionary use as they do not consider certain cash requirements such as interest payments , tax paym ents and debt service requirements . for a reconciliation of the most directly comparable gaap measures , see โ non-gaap financial measures โ below . trends and other factors affecting our business various trends and other factors affect or have affected our operating results , including : seasonality our services , particularly in our maintenance services segment , have seasonal variability such as increased mulching , flower planting and intensive mowing in the spring , leaf removal and cleanup work in the fall , snow removal services in the winter and potentially minimal mowing during drier summer months . this can drive fluctuations in revenue , costs and cash flows for interim periods . we have a significant presence in geographies that have a year-round growing season , which we refer to as our evergreen markets . such markets require landscape maintenance services twelve months per year . in markets that do not have a year-round growing season , which we refer to as our seasonal markets , the demand for our landscape maintenance services decreases during the winter months . typically , our revenues and net income have been higher in the spring and summer seasons , which correspond with our third and fourth fiscal quarters following the change of our fiscal year end date to september 30 , effective september 30 , 2017. the lower level of activity in seasonal markets during our first and second fiscal quarters is partially offset by revenue from our snow removal services . such seasonality causes our results of operations to vary from quarter to quarter .
| this increase was largely driven by an increase of $ 22.2 million related to the sale of brightview tree company , consisting principally of a goodwill impairment of $ 15.5 million and a loss on sale of $ 5.7 million . the increase was also driven by an increase of $ 20.1 million related to our acquired businesses , consisting of an increase of $ 14.9 million of incremental overhead and an increase of $ 5.2 million in business integration costs . in addition , the increase was attributable to $ 9.7 million of expenses related to the company 's response to the covid-19 pandemic , principally temporary and incremental salary and related expenses , and personal protective equipment , cleaning and supply purchases ; as well as an increase of $ 11.0 million for salaries and other employee related expenses , principally incentive compensation ; an increase of $ 8.3 million for stock compensation and related taxes ; and a $ 5.8 million expense related to a change in estimates and actuarial assumptions associated with the company 's self-insured liability amounts . as a percentage of revenue , selling , general and administrative expense increased 370 basis points for the fiscal year ended september 30 , 2020 to 22.5 % , from 18.8 % in the 2019 period . amortization expense amortization expense for the fiscal year ended september 30 , 2020 decreased $ 0.5 million , or 0.9 % , to $ 55.8 million , from $ 56.3 million in the 2019 period . the decrease was principally due to a $ 6.6 million decrease in the amortization of historical intangible assets recognized in connection with the kkr acquisition and the valleycrest acquisition , based on the pattern consistent with expected future cash flows calculated at that time , partially offset by a $ 6.1 million increase in amortization expense for intangible assets recognized in connection with our acquired businesses subsequent to the valleycrest acquisition . 38 other income ( expense ) other income was $ 1.3 million for the fiscal year ended september 30 , 2020 compared to $ 0.0 million of income in the 2019 period . the income in the 2020 period was due to a gain
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the company uses adjusted earnings before interest and taxes ( `` adjusted ebit '' ) and adjusted earnings before interest , taxes , depreciation and amortization ( `` adjusted ebitda '' ) , as calculated in the table below , as non-gaap measures , in internal management reporting and planning processes as well as in evaluating the performance of the company . management believes these measures are useful to investors in evaluating the company 's ongoing operating and financial results . by providing these non-gaap measures , as a supplement to gaap information , we believe we are enhancing investors ' understanding of our business and our results of operations . the non-gaap financial measures are limited in their usefulness and should be considered in addition to , and not in lieu of , u.s. gaap financial measures . further , these non-gaap measures may be unique to the company , as they may be different from non-gaap measures used by other companies . the table below reconciles these metrics to net income as presented in the consolidated statement of income . replace_table_token_6_th 22 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 154,171 in the same period of 2014 . as a percentage of sales , operating expenses increased to 18.6 % in 2015 from 17.5 % in 2014 , due to deleverage from the organic sales decrease and acquisitions . excluding the impact of acquisitions , operating expenses as a percentage of sales was 17.8 % in 2015 and 17.3 % in 2014. income from operations for the wholesale footwear segment , excluding a pre-tax charge of $ 3,045 related to the partial impairment of our wild pair trademark , decreased to $ 100,124 for the year ended december 31 , 2015 compared to $ 105,593 for the year ended december 31 , 2014 . excluding acquisitions , income from operations for the wholesale footwear segment was $ 92,392 in 2015 compared to $ 107,866 in 2014. wholesale accessories segment : net sales generated by the wholesale accessories segment accounted for $ 259,106 , or 18.4 % , and $ 246,608 , or 18.5 % , of total company net sales for the years ended december 31 , 2015 and 2014 , respectively . this represents a $ 12,498 , or 5 % increase year over year with double digit increases in betsey johnson , steve madden and private label handbags partially offset by decreases in big buddha handbags , cold weather accessories and belts . gross profit margin in the wholesale accessories segment decreased to 33.1 % in 2015 from 34.3 % in the prior year primarily due to increased sales in value priced retailers and private label handbags both of which have lower margins . in the year ended december 31 , 2015 , operating expenses increased to $ 47,656 compared to $ 45,867 in the year ended december 31 , 2014 . as a percentage of sales , operating expenses decreased to 18.4 % in 2015 from 18.6 % in 2014 due to the current year amounts including a favorable impact from a benefit received for the reversal of contingent liabilities . income from operations for the wholesale accessories segment decreased 1 % to $ 38,220 in 2015 compared to $ 38,773 in 2014 . 25 retail segment : net sales generated by the retail segment accounted for $ 240,312 , or 17.1 % , and $ 207,302 , or 15.5 % , of total company net sales for the years ended december 31 , 2015 and 2014 , respectively , which represents a $ 33,010 or 15.9 % increase , year over year . this growth is primarily due to an increase in comparable store sales of 11.2 % driven by better fashion footwear trends , stronger product assortment and improvement in conversion rate , and the net addition of nine stores from the prior year . excluding the acquisition of sm mexico retail stores , net sales increased 12.0 % . during 2015 , we added seven full price stores and eight outlets and closed six full price locations . as a result , we had 169 retail stores as of december 31 , 2015 , compared to 160 stores as of december 31 , 2014 . the 169 stores currently in operation include 123 steve madden full price stores , 40 steve madden outlet stores , one steven store , one superga store and four e-commerce websites . comparable store sales ( sales of those stores , including the e-commerce websites , that were open for all of 2015 and 2014 ) for the year ended december 31 , 2015 increased 11.2 % when compared to the prior year . the company excludes new locations from the comparable store base for the first year of operations . stores that are closed for renovations are removed from the comparable store base . during the year ended december 31 , 2015 , gross margin increased to 60.9 % from 60.1 % in 2014 primarily due to decreased promotional activity compared to the prior year . in 2015 , operating expenses increased to $ 126,607 from $ 115,043 in 2014 primarily due to the incremental cost associated with new store openings and the acquisition of sm mexico . operating expenses included a benefit of $ 3,048 related to income arising from the early termination of our lease for our 5th avenue , new york store , which was closed during the first quarter of 2015. excluding this benefit , operating expenses were $ 129,655 . excluding the lease benefit , operating expenses as a percentage of sales decreased to 54.0 % in 2015 from 55.5 % in the prior year . for the year ended december 31 , 2015 , income from operations for the retail segment increased to $ 19,702 compared to $ 9,553 in the prior year . excluding the benefit of $ 3,048 in the first quarter of 2015 , income from operations for the retail segment was $ 16,654 . story_separator_special_tag first cost segment : the first cost segment generated income from operations of $ 6,795 for the year ended december 31 , 2015 , compared to $ 6,438 in 2014 . licensing segment : during the year ended december 31 , 2015 , the licensing segment generated income of $ 9,852 as compared to the prior year income of $ 7,285 . year ended december 31 , 2014 vs. year ended december 31 , 2013 consolidated : total net sales for the year ended december 31 , 2014 increased by 2 % to $ 1,334,951 from $ 1,314,223 for fiscal year 2013 . for the year ended december 31 , 2014 , gross margin as a percentage of net sales was 35.1 % compared to 36.7 % in the prior year . operating expenses increased in 2014 to $ 315,081 from $ 295,223 in 2013 . as a percentage of sales , operating expenses increased to 23.6 % in the year ended december 31 , 2014 compared to 22.5 % in the previous year . commission and licensing fee income decreased to $ 13,723 in 2014 compared to $ 15,632 in 2013 . during the year ended december 31 , 2014 , income from operations decreased to $ 167,642 and net income attributable to steven madden , ltd. decreased to $ 111,880 compared to income from operations of $ 203,768 and net income attributable to steven madden , ltd. of $ 132,007 in 2013 . wholesale footwear segment : net sales generated by the wholesale footwear segment was $ 881,041 , or 66 % , and $ 860,448 , or 65 % , of our total net sales for the years ended december 31 , 2014 and 2013 , respectively . this represents a $ 20,593 , or 2.4 % increase year over year . excluding sales attributable to acquisitions in each year , organic net sales decreased 0.8 % . organic wholesale branded net sales were flat compared to the year ended 2013 with double digit growth in sales of steve madden men 's , report , steve madden kids and freebird by steven products being offset by decreases in sales of steve madden women 's products and olsenboye ( licensed brand ) products . the decrease in steve madden women 's was driven by a lack of fashion footwear trends while olsenboye decreased as a result of discontinuation of sales under the olsenboye brand in 2014. organic wholesale private label business was down 2.2 % . 26 gross profit margin decreased to 29.5 % in 2014 from 30.7 % in the prior year , primarily due to the impact of increased product markdown allowances and the dolce vita acquisition . excluding the impact of acquisitions gross profit margin was 30.1 % in 2014 . in the year ended december 31 , 2014 , operating expenses were $ 154,171 compared to $ 146,913 in the same period of 2013 . as a percentage of sales , operating expenses increased to 17.5 % in 2014 from 17.1 % in 2013 , due to the acquisition of dolce vita and deleverage from the organic sales decrease . excluding the impact of acquisitions , operating expenses as a percentage of sales was 17.3 % in 2014 . income from operations for the wholesale footwear segment decreased to $ 105,593 for the year ended december 31 , 2014 compared to $ 116,951 for the year ended december 31 , 2013 . excluding acquisitions , income from operations for the wholesale footwear segment was $ 107,866 in 2014. wholesale accessories segment : net sales generated by the wholesale accessories segment accounted for $ 246,608 , or 18.5 % , and $ 244,163 , or 18.6 % , of total company net sales for the years ended december 31 , 2014 and 2013 , respectively . this represents a $ 2,445 , or 1 % increase year over year with double digit increases in private label and betsey johnson handbags almost fully offset by decreases in steve madden and big buddha handbags , cold weather accessories and belts . gross profit margin in the wholesale accessories segment decreased to 34.3 % in 2014 from 36.6 % in the prior year primarily due to increased sales in lower margin private label handbags and margin decreases in steve madden handbags and cold weather accessories due to increased markdown allowances and higher product returns . in the year ended december 31 , 2014 , operating expenses increased to $ 45,867 compared to $ 44,569 in the year ended december 31 , 2013 . as a percentage of sales , operating expenses increased to 18.6 % in 2014 from 18.3 % in 2013 . income from operations for the wholesale accessories segment decreased 13.3 % to $ 38,773 in 2014 compared to $ 44,738 in 2013 . retail segment : net sales generated by the retail segment accounted for $ 207,302 , or 15.5 % , and $ 209,612 , or 16 % , of total company net sales for the years ended december 31 , 2014 and 2013 , respectively , which represents a $ 2,310 , or 1 % , decrease , year over year . this decrease reflects a decline in comparable store sales of 8.1 % driven by a lack of fashion footwear trends partially offset by the addition of retail stores since the fourth quarter of 2013 . during 2014 we added three full price stores and 15 outlets and closed five full price locations . we also acquired the dolce vita online store , 21 stores from our mexico acquisition and four stores from our new joint venture in south africa . as a result , we had 160 retail stores as of december 31 , 2014 , compared to 121 stores as of december 31 , 2013 . the 160 stores in operation as of december 31 , 2014 include 122 steve madden full price stores , 32 steve madden outlet stores , one steven store , one superga store and four e-commerce websites .
| our accounts receivable average collection days were 67 days in 2015 compared to 62 days in 2014 . as of december 31 , 2015 , we had $ 193,303 in cash , cash equivalents and marketable securities , no short or long-term debt and total stockholders ' equity of $ 678,663 . working capital increased to $ 283,020 as of december 31 , 2015 , compared to $ 264,635 on december 31 , 2014 . the following tables set forth information on operations for the periods indicated : 23 replace_table_token_7_th 24 results of operations ( $ in thousands ) year ended december 31 , 2015 vs. year ended december 31 , 2014 consolidated : net sales for the year ended december 31 , 2015 increased by 5.3 % to $ 1,405,239 from $ 1,334,951 for fiscal year 2014 . for the year ended december 31 , 2015 , gross margin as a percentage of net sales increased to 35.6 % compared to 35.1 % in the prior year . operating expenses increased in 2015 to $ 342,446 from $ 315,081 in 2014 . operating expenses included a benefit of $ 3,048 related to income arising from the early termination of our lease for our 5th avenue , new york store , which was closed during the first quarter of 2015. excluding this benefit , operating expenses were $ 345,494 . excluding the aforementioned benefit , the increase in operating expenses is primarily due to the increase in retail store locations and the impact of recent acquisitions , partially offset by the reversal of contingent liabilities . operating expenses , excluding the aforementioned lease termination income , as a percentage of sales increased to 24.6 % in the year ended december 31 , 2015 compared to 23.6 % in the previous year due to operating expense deleverage on lower organic sales . commission and licensing fee income increased to $ 16,647 in 2015 compared to $ 13,723 in
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in 2009 , the minister of public utilities of the government of belize published a declaratory order designating cw-belize as a public utility provider . with this order the public utilities commission of belize ( โ puc โ ) has the authority to regulate cw-belize 's activities . in 2011 in the puc issued a second order that requires cw-belize to take various actions mandated by the puc that would be significant to its operations . cw-belize has applied for declaratory judgment and has been granted a temporary injunction to stay the enforcement of the second order by the puc until such time as the matter can be heard by the courts . see further discussion of this matter at โ item 1a . risk factors. โ british virgin islands we hold an equity position in , and shared management of , oc-bvi . this affiliate produces potable water from two reverse osmosis seawater conversion plants located at bar bay , tortola and the island of jost van dyke . the plants at bar bay and jost van dyke have a total installed capacity of 720,000 and 60,000 u.s. gallons per day , respectively , and provide water to the department of water and sewerage of the ministry of communications and works of the government of the british virgin islands . during the three years ended december 31 , 2011 , oc-bvi also sold water to the department of water and sewerage from a plant with a 1.7 million u.s. gallon per day capacity located at baughers bay , tortola . in 2007 , the bvi government initiated litigation against oc-bvi over ownership of the baughers bay plant . on march 29 , 2010 , as the result of a court decision granting the bvi government ownership of this plant , oc-bvi vacated the baughers bay plant and the bvi government assumed direct responsibility for its operations . oc-bvi remains involved in litigation with the bvi government over the final amounts due oc-bvi for water supplied from the baughers bay plant . the final resolution of this litigation , which is currently under appeal , could significantly impact the value of our investment in oc-bvi . see further discussion of this matter at โ item 1a . risk factors. โ 36 bermuda in january 2007 , our affiliate , consolidated water ( bermuda ) limited ( โ cw-bermuda โ ) entered into a design , build , sale and operating agreement with the government of bermuda for a desalination plant to be built in two phases at tynes bay along the northern coast of bermuda . under the agreement , cw-bermuda constructed and operated the plant from the second quarter of 2009 through the termination of the agreement on june 30 , 2011. we entered into a management services agreement with cw-bermuda for the design , construction and operation of the tynes bay plant , under which we received fees for direct services , purchasing activities and proprietary technology . although we own only 40 % of the common shares of cw-bermuda , we consolidate its results in our consolidated financial statements as we are its primary financial beneficiary . as a result of the termination of its agreement with the bermuda government , we do not expect to receive any future fees or revenues from cw-bermuda . 37 critical accounting estimates the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . our actual results could differ significantly from such estimates and assumptions . certain of our accounting estimates or assumptions constitute โ critical accounting estimates โ for us due to the fact that : the nature of these estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change ; and the impact of the estimates and assumptions on financial condition and results of operations is material . our critical accounting estimates relate to ( i ) the valuation of our equity investment in our affiliate , oc-bvi ; ( ii ) goodwill and intangible assets ; and ( iii ) plant construction revenues and costs . valuation of equity investment in oc-bvi . we account for our investment in oc-bvi under the equity method of accounting for investments in common stock . this method requires recognition of a loss on an equity investment that is other than temporary , and indicates that a current fair value of an equity investment that is less than its carrying amount may indicate a loss in the value of the investment . the final resolution of oc-bvi 's on-going dispute and litigation with the bvi government relating to the baughers bay plant may result in a fair value of our investment in oc-bvi that is less than our carrying value for this investment . as a quoted market price for oc-bvi 's stock is not available , to test for possible impairment of our investment in oc-bvi we estimate its fair value by calculating the expected cash flows from our investment in oc-bvi by ( i ) estimating the expected cash flows from oc-bvi 's contract with the bvi government to supply water from its bar bay plant ; ( i ) identifying various possible outcomes of the baughers bay litigation and estimating the cash flows associated with each possible outcome ; and ( iii ) assigning a probability to each baughers bay outcome and associated expected cash flows based upon discussions held to date by oc-bvi 's management with the bvi government and oc-bvi 's legal counsel . story_separator_special_tag the resulting probability weighted sum represents the expected cash flows , and our best estimate of future cash flows , to be derived from our investment in oc-bvi , which are present-valued to estimate oc-bvi 's fair value . the identification of the possible outcomes for the baughers bay dispute , the projections of cash flows for each outcome , and the assignment of relative probabilities to each outcome all represent significant estimates made by us . while we have used our best judgment to identify the possible outcomes and expected cash flows for these outcomes and assign relative probabilities to each outcome , these estimates are by their nature highly subjective and are also subject to material change by our management over time based upon additional information from oc-bvi 's management and legal counsel , and a change in the status of oc-bvi 's litigation with the bvi government . after considering the september and october 2009 rulings of the eastern caribbean supreme court relating to the baughers bay litigation and an announcement by the bvi government in february 2010 that it had signed a contract with another company to construct and operate a plant to provide potable water to the greater tortola area served by the baughers bay plant , we determined that the carrying value of our investment in oc-bvi exceeded the estimated fair value for our investment in oc-bvi and therefore recognized impairment losses aggregating approximately $ 4.7 million for the year ended december 31 , 2009. the remaining carrying value of our investment in oc-bvi as of december 31 , 2011 of $ 6.6 million assumes that the bvi government will ultimately pay oc-bvi the full amount awarded by the eastern caribbean supreme court in its 2009 rulings . to date , the bvi government has paid only $ 5 million of the $ 10.4 million awarded by this court . the bvi government has appealed these rulings , and the eastern caribbean court of appeals could ultimately overturn the rulings of the eastern caribbean supreme court or require the bvi government to pay oc-bvi an amount lower than the amount awarded by the eastern caribbean supreme court . should the bvi government be successful in its appeal to reduce the $ 10.4 million court award , we will be required to record charges that will reduce our earnings by an amount approximately equal to 44 % of any reduction of the $ 10.4 million previously awarded by the court . if the bvi government is successful in its appeal , or if the bvi government fails to honor the terms of the contract for the bar bay plant , the actual cash flows from oc-bvi could vary materially from the expected cash flows we used in determining oc-bvi 's fair value as of december 31 , 2011 , and we would be required to record an additional loss to reduce the carrying value of our investment in oc-bvi . such impairment loss would reduce our earnings and could have a material adverse impact on our results of operations and financial condition . 38 goodwill and other intangible assets . goodwill represents the excess costs over fair value of the assets of an acquired business . goodwill and intangible assets acquired in a business combination accounted for as a purchase and determined to have an indefinite useful life are not amortized , but are tested for impairment at least annually . intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment . we evaluate the possible impairment of goodwill annually as part of our reporting process for the fourth quarter of each fiscal year . management identifies our reporting units and determines the carrying value of each reporting unit by assigning the assets and liabilities , including the existing goodwill and intangible assets , to those reporting units . we determine the fair value of each reporting unit by calculating the expected cash flows from each reporting unit and compare the fair value to the carrying amount of the reporting unit . to the extent the carrying amount of the reporting unit exceeds the fair value of the reporting unit , we are required to perform the second step of the impairment test , as this is an indication that the reporting unit goodwill may be impaired . in this step , we compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill . the implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all the assets ( recognized and unrecognized ) and liabilities of the reporting unit in a manner similar to a purchase price allocation . the residual fair value after this allocation is the implied fair value of the reporting unit goodwill . if the implied fair value is less than its carrying amount , the impairment loss is recorded . for each of the years in the three-year period ended december 31 , 2011 we estimated the fair value of each of our reporting units by applying the discounted cash flow method , the subject company stock price method , the guideline public company method , and the mergers and acquisitions method . the discounted cash flow method relied upon seven-year discrete projections of operating results , working capital and capital expenditures , along with a terminal value subsequent to the discrete period . these seven-year projections were based upon historical and anticipated future results , general economic and market conditions , and considered the impact of planned business and operational strategies . the discount rates for the calculations represented the estimated cost of capital for market participants at the time of each analysis . we did not adjust our projections for any possible impact of negotiations underway with the cayman islands government for the renewal of our exclusive retail license .
| interest expense decreased to $ 1,141,744 for the year ended december 31 , 2011 from $ 1,584,771 for the year ended december 31 , 2010 as a result of $ 246,851 in interest capitalized for the expansion of our blue hills plant and the prepayment on september 30 , 2010 of $ 1.5 million of our 7.5 % bonds payable . we recognized earnings on our investment in oc-bvi for the years ended december 31 , 2011 and 2010 of $ 838,652 and $ 1,235,146 , respectively . see further discussion of oc-bvi at โ liquidity and capital resources โ material commitments , contingencies and expenditures โ oc-bvi litigation. โ results by segment retail segment : the retail segment contributed $ 2,840,613 and $ 3,397,210 to our income from operations for the years ended december 31 , 2011 and 2010 , respectively . revenues generated by our retail water operations were $ 23,356,338 and $ 21,864,252 for the years ended december 31 , 2011 and 2010 , respectively . the number of gallons sold by the retail segment decreased by approximately 4 % from 2010 to 2011 due to water sales made in the first quarter of 2010 at bulk water rates to the water authority cayman ( โ wac โ ) to replace water previously supplied by the red gate plant while such plant was under refurbishment . excluding this water sold to the wac , the number of gallons sold by the retail segment increased by approximately 3 % from 2010 to 2011. the increase in retail revenues from 2010 to 2011 is due to ( i ) the annual first quarter adjustment to our base rates , as our retail segment increased its base rates by approximately 2 % due to an upward movement in the consumer price indices used to determine such rate adjustment ; and ( ii ) higher energy prices in 2011 which resulted in energy pass through charges to our retail customers that were approximately $ 890,000 higher in 2011 than in 2010. retail segment gross profit was $ 11,859,740 ( 51 % of revenues ) and $ 11,502,950 ( 53 % of revenues ) for the years ended december 31 , 2011 and 2010 , respectively . the slight
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23 management overview the company 's 2015 net income totaled $ 30,064,000 , or $ 2.27 per diluted share , which was a record level of earnings for the company and represented a 6 % increase on a per share basis over the company 's 2014 net income of $ 28,344,000 , or $ 2.14 per diluted share . the company 's return on average equity for 2015 was 12.5 % , representing the eleventh consecutive year the company has achieved a double-digit return on equity . the record earnings performance during 2015 was attributable to an increased level of net interest income , driven by a higher level of earning assets , increased levels of non-interest income , and solid and improved asset quality . these positive impacts were partially mitigated by an increased level of non-interest expenses . on march 1 , 2016 the company completed its acquisition of river valley bancorp , and its subsidiaries , including river valley financial bank . immediately following this transaction , river valley bancorp 's subsidiary bank , river valley financial bank , was merged into german american 's similarly-named subsidiary bank , german american bancorp . this transaction provides a strategic opportunity for german american to enhance its presence in the southeast indiana market area . critical accounting policies and estimates allowance for loan losses the company maintains an allowance for loan losses to cover probable incurred credit losses at the balance sheet date . loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . allocations of the allowance may be made for specific loans , but the entire allowance is available for any loan that , in management 's judgment , should be charged-off . a provision for loan losses is charged to operations based on management 's periodic evaluation of the necessary allowance balance . evaluations are conducted at least quarterly and more often if deemed necessary . the ultimate recovery of all loans is susceptible to future market factors beyond the company 's control . the company has an established process to determine the adequacy of the allowance for loan losses . the determination of the allowance is inherently subjective , as it requires significant estimates , including the amounts and timing of expected future cash flows on impaired loans , estimated losses on other classified loans and pools of homogeneous loans , and consideration of past loan loss experience , the nature and volume of the portfolio , information about specific borrower situations and estimated collateral values , economic conditions , and other factors , all of which may be susceptible to significant change . the allowance consists of two components of allocations , specific and general . these two components represent the total allowance for loan losses deemed adequate to cover losses inherent in the loan portfolio . commercial and agricultural loans are subject to a standardized grading process administered by an internal loan review function . the need for specific reserves is considered for credits when graded impaired or when : ( a ) the customer 's cash flow or net worth appears insufficient to repay the loan ; ( b ) the loan has been criticized in a regulatory examination ; ( c ) the loan is on non-accrual ; or , ( d ) other reasons where the ultimate collectability of the loan is in question , or the loan characteristics require special monitoring . specific allowances are established in cases where management has identified significant conditions or circumstances related to an individual credit that we believe indicates the loan is impaired . specific allocations on impaired loans are determined by comparing the loan balance to the present value of expected cash flows or expected collateral proceeds . allocations are also applied to categories of loans not considered individually impaired but for which the rate of loss is expected to be greater than historical averages , including non-performing consumer or residential real estate loans . such allocations are based on past loss experience and information about specific borrower situations and estimated collateral values . general allocations are made for commercial and agricultural loans that are graded as substandard based on migration analysis techniques to determine historical average losses for similar types of loans . general allocations are also made for other pools of loans , including non-classified loans , homogeneous portfolios of consumer and residential real estate loans , and loans within certain industry categories believed to present unique risk of loss . general allocations of the allowance are primarily made based on historical average for loan losses for these portfolios , judgmentally adjusted for economic , external and internal factors and portfolio trends . economic factors include evaluating changes in international , national , regional and local economic and business conditions that affect the collectability of the loan portfolio . internal factors include evaluating changes in lending policies and procedures ; changes in the nature and volume of the loan portfolio ; and changes in experience , ability and depth of lending management and staff . in setting our external and internal factors we also consider the overall level of the allowance for loan losses to total loans ; our allowance coverage as compared to similar size bank holding companies ; and regulatory requirements . 24 due to the imprecise nature of estimating the allowance for loan losses , the company 's allowance for loan losses includes a minor unallocated component . the unallocated component of the allowance for loan losses incorporates the company 's judgmental determination of inherent losses that may not be fully reflected in other allocations , including factors such as economic uncertainties , lending staff quality , industry trends impacting specific portfolio segments , and broad portfolio quality trends . therefore , the ratio of allocated to unallocated components within the total allowance may fluctuate from period to period . story_separator_special_tag securities valuation securities available-for-sale are carried at fair value , with unrealized holding gains and losses reported separately in accumulated other comprehensive income ( loss ) , net of tax . the company obtains market values from a third party on a monthly basis in order to adjust the securities to fair value . equity securities that do not have readily determinable fair values are carried at cost . additionally , when securities are deemed to be other than temporarily impaired , a charge will be recorded through earnings ; therefore , future changes in the fair value of securities could have a significant impact on the company 's operating results . in determining whether a market value decline is other than temporary , management considers the reason for the decline , the extent of the decline , the duration of the decline and whether the company intends to sell or believes it will be required to sell the securities prior to recovery . as of december 31 , 2015 , gross unrealized losses on the securities available-for-sale portfolio totaled approximately $ 4,360,000 and gross unrealized gains totaled approximately $ 10,400,000. income tax expense income tax expense involves estimates related to the valuation allowance on deferred tax assets and loss contingencies related to exposure from tax examinations . a valuation allowance reduces deferred tax assets to the amount management believes is more likely than not to be realized . in evaluating the realization of deferred tax assets , management considers the likelihood that sufficient taxable income of appropriate character will be generated within carry-back and carry-forward periods , including consideration of available tax planning strategies . tax related loss contingencies , including assessments arising from tax examinations and tax strategies , are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated . in considering the likelihood of loss , management considers the nature of the contingency , the progress of any examination or related protest or appeal , the views of legal counsel and other advisors , experience of the company or other enterprises in similar matters , if any , and management 's intended response to any assessment . story_separator_special_tag ( 2 ) loans held-for-sale and non-accruing loans have been included in average loans . interest income on loans includes loan fees of $ 2,102 , $ 2,036 and $ 2,055 for 2015 , 2014 and 2013 , respectively . 27 the following table sets forth for the periods indicated a summary of the changes in interest income and interest expense resulting from changes in volume and changes in rates : net interest income โ rate / volume analysis ( tax-equivalent basis , dollars in thousands ) replace_table_token_3_th ( 1 ) the change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each . see the company 's average balance sheet and the discussions headed uses of funds , sources of funds , and โ risk management โ liquidity and interest rate risk management โ for further information on the company 's net interest income , net interest margin , and interest rate sensitivity position . provision for loan losses the company provides for loan losses through regular provisions to the allowance for loan losses . the provision is affected by net charge-offs on loans and changes in specific and general allocations required on the allowance for loan losses . provisions for loan losses totaled $ 0 , $ 150,000 , and $ 350,000 in 2015 , 2014 , and 2013 , respectively . the lack of provision for loan loss expense in 2015 was attributable to continued improvement in the key asset quality metrics of the company as well as a reduction in the historical loss allocation as a result of years of higher losses migrating out of the look-back period that is used in the company 's standard methodology for determining the adequacy of its allowance for loan and lease losses . during 2015 , as previously stated , there was no provision for loan losses while net charge-offs represented approximately 3 basis points of average loans . during 2014 , the provision for loan loss represented approximately 1 basis point of average outstanding loans while the company realized net recoveries of approximately 1 basis point of average outstanding loans . the company 's allowance for loan losses represented 0.92 % of total loans at year-end 2015 compared with 1.03 % at year-end 2014. under acquisition accounting , loans are recorded at fair value which includes a credit risk component , and therefore the allowance on loans acquired is not carried over from the seller . provisions for loan losses in all periods were made at a level deemed necessary by management to absorb estimated , probable incurred losses in the loan portfolio . a detailed evaluation of the adequacy of the allowance for loan losses is completed quarterly by management , the results of which are used to determine provisions for loan losses . management estimates the allowance balance required using past loan loss experience , the nature and volume of the portfolio , information about specific borrower situations and estimated collateral values , economic conditions , and other qualitative factors . refer also to the sections entitled critical accounting policies and estimates and โ risk management - lending and loan administration โ for further discussion of the provision and allowance for loan losses . 28 non-interest income during 2015 , non-interest income increased $ 3,507,000 or 15 % compared with 2014. during 2014 , non-interest income increased $ 322,000 or 1 % compared with 2013. replace_table_token_4_th ( 1 ) n/m = not meaningful trust and investment product fees increased $ 282,000 , or 8 % , during 2015 compared with 2014 primarily due to growth in assets under management within the company 's trust advisory group .
| 25 net interest income increased $ 1,213,000 or 2 % ( an increase of $ 2,081,000 or 3 % on a tax-equivalent basis ) during year ended december 31 , 2015 compared with 2014. the increased level of net interest income during 2015 compared with 2014 was driven by a higher level of earning assets and in particular growth of the loan portfolio . in addition , the increased level of net interest income was attributable to a shift from the taxable securities portfolio to the non-taxable securities portfolio . the net interest margin represents tax-equivalent net interest income expressed as a percentage of average earning assets . the tax equivalent net interest margin was 3.70 % in 2015 compared to 3.76 % during 2014. the yield on earning assets totaled 3.98 % during 2015 compared to 4.06 % in 2014 while the cost of funds ( expressed as a percentage of average earning assets ) totaled 0.28 % during 2015 compared to 0.30 % in 2014. the decline in the net interest margin during 2015 compared with 2014 was largely attributable to the continued downward pressure on earning asset yields being driven by the low market interest rate environment and a competitive marketplace for lending opportunities . partially mitigating the decline in earning asset yields was the continued decline in the company 's cost of funds . accretion of loan discounts on acquired loans contributed approximately 4 basis points to the net interest margin during 2015 compared with 6 basis points during 2014. net interest income increased $ 5,822,000 or 9 % ( an increase of $ 6,672,000 or 9 % on a tax-equivalent basis ) during the year ended december 31 , 2014 compared with 2013. the increased level of net interest income during 2014 compared with 2013 was driven by a higher level of earning assets and a higher net interest margin ( expressed as a percentage of average earning assets ) . the tax equivalent net interest margin was 3.76 % during 2014 compared to 3.67 % during 2013. the yield on earning assets totaled 4.06 % during 2014 compared to 4.04 % in 2013 while
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we acquired headway in order to acquire additional digital media platforms that we believe will enhance our offerings to the u.s. hispanic marketplace as well as enhance our international footprint . the transaction was funded from cash on hand , for an aggregate cash consideration of $ 12.0 million , net of $ 4.5 million of cash acquired , and contingent consideration with a fair value of $ 15.9 million as of the acquisition date . the following is a summary of the purchase price allocation for our acquisition of headway ( unaudited ; in millions ) : accounts receivable $ 19.8 intangible assets subject to amortization 15.9 goodwill 15.9 current liabilities ( 19.7 ) deferred tax ( 4.0 ) the acquisition of headway includes a contingent consideration arrangement that requires additional consideration to be paid by us to headway based upon the achievement of certain annual performance benchmarks over a three-year period . the range of the total undiscounted amounts we could pay under the contingent consideration agreement over the three-year period is between $ 0 and $ 27.0 million . the fair value of the contingent consideration recognized on the acquisition date of $ 15.9 million was estimated by applying the real options approach using level 3 inputs as further discussed in note 10. the agreement also includes payments of up to approximately $ 7.5 million to certain key employees , which will be treated as post-acquisition compensation expense and accrued as earned . the fair value of the assets acquired includes trade receivables of $ 19.8 million . the gross amount due under contract is $ 20.9 million , of which $ 1.1 million is expected to be uncollectable . the goodwill , which is not expected to be deductible for tax purposes , is assigned to the digital media segment and is attributable to headway 's workforce and expected synergies from combining headway 's operations with those of our own . during the quarter ended december 31 , 2017 , we recorded measurement period adjustments primarily to adjust the fair value of intangible assets and contingent consideration to the final valuations and to reflect the value of deferred tax liabilities at the tax rates of the foreign jurisdictions they relate to . the following unaudited pro forma information for the years ended december 31 , 2017 and 2016 has been prepared to give effect to the acquisition of headway as if the acquisition had occurred on january 1 , 2016. this pro forma information does not purport to represent what the actual results of operations of the company would have been had this acquisition occurred on such date , nor does it purport to predict the results of operations for any future periods . 50 replace_table_token_7_th the unaudited pro forma information for the years ended december 31 , 2017 and 2016 , was adjusted to exclude acquisition fees and costs of $ 0.5 million and $ 0.8 million , respectively , which were expensed in connection with the acquisition . kmir-tv and kpse-ld on november 1 , 2017 , we completed the acquisition of television stations kmir-tv , the local nbc affiliate , and kpse-ld , the local mynetworktv affiliate , both of which serve the palm springs , california area , for an aggregate $ 21 million . we acquired these stations to enhance our offerings in those markets in which we already compete . we evaluated the transferred set of activities , assets , inputs and processes applied to these inputs in this acquisition and determined that the acquisition constituted a business . the following is a summary of the purchase price allocation for the acquisition of television stations kmir-tv and kpse-ld ( in millions ) : property and equipment $ 2.9 intangible assets subject to amortization 3.6 goodwill 4.6 fcc licenses 9.9 the goodwill , which is not expected to be deductible for tax purposes , is assigned to the television segment and is attributable to the stations ' workforce and expected synergies from combining the stations ' operations with our own . the following unaudited pro forma information for the years ended december 31 , 2017 and 2016 has been prepared to give effect to the acquisition of television stations kmir-tv and kpse-ld as if the acquisition had occurred on january 1 , 2016. this pro forma information does not purport to represent what the actual results of operations of the company would have been had this acquisition occurred on such date , nor does it purport to predict the results of operations for any future periods . 51 replace_table_token_8_th kmcc-tv on january 16 , 2018 , we completed the acquisition of television station kmcc-tv , which serves the las vegas , nevada area , for an aggregate $ 3.6 million . wjal-tv in connection with the fcc auction for broadcast spectrum ( see note 3 ) , in the second quarter of 2017 we exercised our rights under a channel sharing agreement to acquire rights to utilize spectrum in the washington , d.c. market in exchange for payment of approximately $ 32.6 million . during the third quarter of 2017 , we relocated our television station wjal-tv , previously serving the hagerstown , maryland market , to the washington , d.c. market . the transaction was treated as an asset acquisition and was recorded in โ intangible assets not subject to amortization โ on our consolidated balance sheet . 52 results of operations separate financial data for each of the company 's operating segments is provided below . segment operating profit ( loss ) is defined as operating profit ( loss ) before corporate expenses and foreign currency ( gain ) loss . the company evaluates the performance of its operating segments based on the following ( in thousands ) : replace_table_token_9_th * percentage not meaningful . story_separator_special_tag 53 ( 1 ) consolidated adjusted ebitda means net income ( loss ) plus gain ( loss ) on sale of assets , depreciation and amortization , non-cash impairment charge , non-cash stock-based compensation included in operating and corporate expenses , net interest expense , other income ( loss ) , gain ( loss ) on debt extinguishment , income tax ( expense ) benefit , equity in net income ( loss ) of nonconsolidated affiliate , non-cash losses , syndication programming amortization less syndication programming payments , revenue from fcc spectru m incentive auction less related expenses , expenses associated with investments , acquisitions and dispositions and certain pro-forma cost savings . we use the term consolidated adjusted ebitda because that measure is defined in our 2017 credit facility and does not include gain ( loss ) on sale of assets , depreciation and amortization , non-cash impairment charge , non-cash stock-based compensation , net interest expense , other income ( loss ) , gain ( loss ) on debt extinguishment , income tax ( expense ) benefit , equit y in net income ( loss ) of nonconsolidated affiliate , non-cash losses , syndication programming amortization and does include syndication programming payments , revenue from fcc spectrum incentive auction less related expenses , expenses associated with invest ments , acquisitions and dispositions and certain pro-forma cost savings . since consolidated adjusted ebitda is a measure governing several critical aspects of our 2017 credit facility , we believe that it is important to disclose consolidated adjusted ebitda to our investors . we may increase the aggregate principal amount outstanding by an additional amount equal to $ 100.0 million plus the amount that would result in our total net leverage ratio , or the ratio of consolidated total senior debt ( net of up to $ 75.0 million of unrestricted cash ) to trailing-twelve-month consolidated adjusted ebitda , not exceeding 4.0. in addition , beginning december 31 , 2018 , at the end of every calendar year , in the event our total net leverage ratio is within certain ranges , we must make a debt prepayment equal to a certain percentage of our excess cash flow , which is defined as consolidated adjusted ebitda , less consolidated interest expense , less debt principal payments , less taxes paid , less other amounts set forth in the definition of excess cash flow in the 2017 credit agreement . the total leverage ratio was as follows ( in each case as of december 31 ) : 2017 , 4.4 to 1 ; 2016 , 3.1 to 1. while many in the financial community and we consider consolidated adjusted ebitda to be important , it should be considered in addition to , but not as a substitute for or superior to , other measures of liquidity and financial performance prepared in accordance with accounting principles generally accepted in the united states of america , such as cash flows from operating activities , operating income and net income . as consolidated adjusted ebitda excludes non-cash gain ( loss ) on sale of assets , non-cash depreciation and amortization , non-cash impairment charge , non-cash stock-based compensation expense , net interest expense , other income ( loss ) , gain ( loss ) on debt extinguishment , income tax ( expense ) benefit , equity in net income ( loss ) of nonconsolidated affiliate , non-cash losses , syndication programming amortization less syndication programming payments , revenue from fcc spectrum incentive auction less related expenses , expenses associated with investments , acquisitions and dispositions and certain pro-forma cost savings , consolidated adjusted ebitda has certain limitations because it excludes and includes several important financial line items . therefore , we consider both non-gaap and gaap measures when evaluating our business . consolidated adjusted ebitda is also used to make executive compensation decisions . 54 consolidated adjusted ebitda is a non-gaap measure . the most directly comparable gaap financial measure to consolidated adjusted ebitda is cash flows from operating activities . a reconciliation of this non-gaap measure to cash flows from operating activities follows ( in thousands ) : replace_table_token_10_th ( footnotes on preceding page ) year ended december 31 , 2017 compared to year ended december 31 , 2016 consolidated operations revenue from advertising and retransmission consent . net revenue from advertising and retransmission consent increased to $ 272.1 million for the year ended december 31 , 2017 from $ 258.5 million for the year ended december 31 , 2016 , an increase of $ 13.6 million . of the overall increase , $ 34.0 million was attributable to our digital media segment and was primarily due to the acquisition of headway during the second quarter of 2017 , which did not contribute to net revenue in prior periods . the overall increase was partially offset by a decrease in our television segment of $ 11.5 million due primarily to a decrease in local revenue and a decrease in political advertising revenue , which was not material in 2017 , partially offset by an increase in national advertising revenue and an increase in retransmission consent revenue . additionally , the overall increase was partially offset by a decrease in our radio segment of $ 8.9 million due primarily to decreases in local and national advertising revenue , and a decrease in political advertising revenue , which was not material in 2017 . 55 revenue from spectrum usage rights . net revenue from spectrum usage rights was $ 263.9 million for the year ended december 31 , 2017. we did not generate revenue from spectrum usage rights in 2016. we currently anticipate that for the full year 2018 , net revenue will increase from digital media , retransmission consent revenue , and political revenue , compared to 2017. we anticipate revenue from spectrum usage rights will decrease in 2018. cost of revenue-television ( spectrum usage rights ) .
| this increase was partially offset by a decrease in national revenue in our pre-existing digital business driven by shifts in the digital advertising industry toward video advertising and the increased use of automated buying platforms , referred to in our industry as programmatic revenue . relationship with univision substantially all of our television stations are univision- or unimรกs-affiliated television stations . our network affiliation agreement with univision provides certain of our owned stations the exclusive right to broadcast univision 's primary network and unimรกs network programming in their respective markets . under the network affiliation agreement , we retain the right to sell no less than four minutes per hour of the available advertising time on stations that broadcast univision network programming , and the right to sell approximately four and a half minutes per hour of the available advertising time on stations that broadcast unimรกs network programming , subject to adjustment from time to time by univision . under the network affiliation agreement , univision acts as our exclusive third-party sales representative for the sale of certain national advertising on our univision- and unimรกs-affiliate television stations , and we pay certain sales representation fees to univision relating to sales of all advertising for broadcast on our univision- and unimรกs-affiliate television stations . we also generate revenue under two marketing and sales agreements with univision , which give us the right to manage the marketing and sales operations of univision-owned univision affiliates in six markets โ albuquerque , boston , denver , orlando , tampa and washington , d.c. under our proxy agreement with univision , we grant univision the right to negotiate the terms of retransmission consent agreements for our univision- and unimรกs-affiliated television station signals . among other things , the proxy agreement provides terms relating to compensation to be paid to us by univision with respect to retransmission consent agreements entered into with mvpds . during the years ended december 31 , 2017 and 2016 , retransmission consent revenue accounted for approximately $ 31.4 million and $
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delinquency is computed on the basis of the date of the last full contractual payment on a loan ( known as the recency method ) and on the basis of the amount past due in accordance with original payment terms of a loan ( known as the contractual method ) . upon refinancings , the contractual delinquency of a loan is measured based upon the terms of the new agreement , and is not impacted by the refinanced loan 's classification as a new loan or modification of the existing loan . management closely monitors portfolio delinquency using both methods to measure the quality of the company 's loan portfolio and the probability of credit losses . the following table classifies the gross loans receivable of the company that were delinquent on a contractual basis for at least 61 days at march 31 , 2014 , 2013 , and 2012 : replace_table_token_9_th 25 when excluding the impact of payroll deduct loans in mexico , the accounts contractually delinquent 61+ days were 4.8 % at march 31 , 2014. our payroll deduct loans in mexico are installment loans to union members where we have an agreement with the union to deduct the loan payment from the member 's payroll and remit it on the members behalf to the company . the additional administrative process , which is unique to the payroll deduct product , often results in a higher level of contractual delinquencies . however , the historical net charge-offs to average net loans are lower than the overall company ratio . the payroll deduct loans have increased from 25.3 % of our mexican portfolio at march 31 , 2013 to 37.9 % at march 31 , 2014. in fiscal 2014 approximately 83.9 % of the company 's loans were generated through refinancings of outstanding loans and the origination of new loans to previous customers . a refinancing represents a new loan transaction with a present customer in which a portion of the new loan proceeds is used to repay the balance of an existing loan and the remaining portion is advanced to the customer . for fiscal 2014 , 2013 , and 2012 , the percentages of the company 's loan originations that were refinancings of existing loans were 73.5 % , 75.3 % , and 75.9 % , respectively . the company 's refinancing policies , while limited by state regulations , in all cases consider the customer 's payment history and require that the customer has made multiple payments on the loan being considered for refinancing . a refinancing is considered a current refinancing if the customer is no more than 45 days delinquent on a contractual basis . delinquent refinancings may be extended to customers who are more than 45 days past due on a contractual basis if the customer completes a new application and the manager believes that the customer 's ability and intent to repay has improved . it is the company 's policy to not refinance delinquent loans in amounts greater than the original amounts financed . in all cases , a customer must complete a new application every two years . during fiscal 2014 and 2013 , delinquent refinancings represented 1.5 % and 1.4 % , respectively , of the company 's total loan volume . charge-offs , as a percentage of loans made by category , are greatest on loans made to new borrowers and less on loans made to former borrowers and refinancings . this is as expected due to the payment history experience available on repeat borrowers . however , as a percentage of total loans charged off , refinancings represent the greatest percentage due to the volume of loans made in this category . the following table depicts the charge-offs as a percent of loans made by category and as a percent of total charge-offs during fiscal 2014 : replace_table_token_10_th the company maintains an allowance for loan losses in an amount that , in management 's opinion , is adequate to provide for losses inherent in the existing loan portfolio . the company charges against current earnings , as a provision for loan losses , amounts added to the allowance to maintain it at levels expected to cover probable losses of principal . when establishing the allowance for loan losses , the company takes into consideration the growth of the loan portfolio , current levels of charge-offs , current levels of delinquencies , and current economic factors . the company uses a mathematical calculation to determine the initial allowance at the end of each reporting period . the calculation originated as management 's estimate of future charge-offs and is used to allocate expenses to the branch level . there are two components when calculating the allowance for loan losses , which the company refers to as the general reserve and the specific reserve . this calculation is a starting point and over time , and as needed , additional provisions have been added as determined by management to ensure the allowance is adequate . the general reserve is 4.25 % of the gross loan portfolio . the specific reserve generally represents 100 % of all loans 91 or more days past due on a recency basis , including bankrupt accounts in that category . this methodology is based on historical data showing that the collection of loans 91 days or more past due and bankrupt accounts is remote . 26 a process is then performed to determine the adequacy of the allowance for loan losses , as well as considering trends in current levels of delinquencies , charge-off levels , and economic trends ( such as energy and food prices ) . the primary tool used is the movement model ( on a contractual and recency basis ) which considers the rolling twelve months of delinquency to determine expected charge-offs . story_separator_special_tag the sum of expected charge-offs , determined from the movement model ( on a contractual and recency basis ) plus an amount related to delinquent refinancings are compared to the allowance resulting from the mathematical calculation to determine if any adjustments are required to make the allowance adequate . management would also determine if any adjustments are needed if the consolidated annual provision for loan losses is less than total charge-offs . management uses a precision level of 5 % of the allowance for loan losses compared to the aforementioned movement model , when determining if any adjustments are needed . the company 's policy is to charge off at the earlier of when such loans are deemed to be uncollectible or when six months have elapsed since the date of the last full contractual payment . however , the company 's practice is to charge off an account the earlier of when the account is deemed uncollectible or 120 days past due on a recency basis ( at march 31 , 2014 approximately $ 4.2 million were 120 days or more past due ) . the company 's charge-off policy and practice have been consistently applied and no changes have been made during the periods reported . the company 's historical annual charge-off rate for the past 11 years has ranged from 13.3 % to 16.7 % of net loans . management considers the charge-off policy when evaluating the appropriateness of the allowance for loan losses . to estimate the losses , the company uses historical information for net charge-offs and average loan life . this method is based on the fact that many customers refinance their loans prior to the contractual maturity . average contractual loan terms are approximately twelve months and the average loan life is approximately eight months . the company had an allowance for loan losses that approximated six months of average net charge-offs at march 31 , 2014 , 2013 , and 2012 . management believes that the allowance is sufficient to cover estimated losses for its existing loans based on historical charge-offs and average loan life . a large percentage of loans that are charged off during any fiscal year are not on the company 's books at the beginning of the fiscal year . the company believes that it is not appropriate to provide for losses on loans that have not been originated , that twelve months of net charge-offs are not needed in the allowance due to the average life of the loan portfolio being less than twelve months , and that the method employed is in accordance with generally accepted accounting principles . the following is a summary of the changes in the allowance for loan losses for the years ended march 31 , 2014 , 2013 , and 2012 : replace_table_token_11_th _ ( 1 ) average loans receivable have been determined by averaging month-end gross loans receivable less unearned interest and deferred fees over the indicated period . quarterly information and seasonality the company 's loan volume and corresponding loans receivable follow seasonal trends . the company 's highest loan demand typically occurs from october through december , its third fiscal quarter . loan demand has generally been the lowest and loan repayment highest from january to march , its fourth fiscal quarter . loan volume and average balances typically remain relatively level during the remainder of the year . this seasonal trend affects quarterly operating performance through corresponding fluctuations in interest and fee income and insurance commissions earned and the provision for loan losses recorded , as well as fluctuations in the company 's cash needs . consequently , operating results for the company 's third fiscal quarter generally are significantly lower than in other quarters and operating results for its fourth fiscal quarter are significantly higher than in other quarters . 27 the following table sets forth , on a quarterly basis , certain items included in the company 's unaudited consolidated financial statements and shows the number of offices open during fiscal years 2014 and 2013 . replace_table_token_12_th recently issued accounting pronouncements see part ii , item 8 , financial statements and supplementary data . note 1- summary of significant accounting policies and common stock repurchases to the consolidated financial statements for the impact of new accounting pronouncements . liquidity and capital resources the company has financed and continues to finance its operations , acquisitions , office expansion through a combination of cash flows from operations and borrowings from its institutional lenders . the company has generally applied its cash flows from operations to fund its increasing loan volume , fund acquisitions , repay long-term indebtedness , and repurchase its common stock . as the company 's gross loans receivable increased from $ 671.2 million at march 31 , 2009 to $ 1.1 billion at march 31 , 2014 , net cash provided by operating activities for fiscal years 2014 , 2013 and 2012 was $ 246.0 million , $ 232.0 million and $ 219.4 million , respectively . the company 's primary ongoing cash requirements relate to the funding of new offices and acquisitions , the overall growth of loans outstanding , the repayment of long-term indebtedness and the repurchase of its common stock . as of march 31 , 2014 , approximately 16.6 million shares have been repurchased since 1996 for an aggregate purchase price of approximately $ 733.9 million . during fiscal 2014 the company repurchased 2.1 million shares for $ 190.5 million . on march 17 , 2014 , the board of directors authorized the company to repurchase up to $ 50.0 million of the company 's common stock . this repurchase authorization follows , and is in addition to , a similar repurchase authorization of $ 50.0 million announc ed on february 6 , 2014 and $ 25.0 million announced on november 27 , 2013. after taking into account all shares repurchased through may 28 , 2014 ( including pending repurchase
| the company prepared approximately 55,000 , 53,000 and 48,000 returns in each of the fiscal years 2014 , 2013 and 2012 , respectively . revenues from the company 's tax preparation business amounted to approximately $ 9.1 million , a 4.8 % increase over the $ 8.7 million earned during fiscal 2013 . the following table sets forth certain information derived from the company 's consolidated statements of operations and balance sheets , as well as operating data and ratios , for the periods indicated : replace_table_token_8_th ( 1 ) average gross loans receivable have been determined by averaging month-end gross loans receivable over the indicated period . ( 2 ) average net loans receivable have been determined by averaging month-end gross loans receivable less unearned interest and deferred fees over the indicated period . ( 3 ) operating margin is computed as total revenues less provision for loan losses and general and administrative expenses as a percentage of total revenues . comparison of fiscal 2014 versus fiscal 2013 net income was $ 106.6 million during fiscal 2014 , a 2.4 % increase over the $ 104.1 million million earned during fiscal 2013 . this increase resulted primarily from an increase in operating income ( revenues less provision for loan losses and general and administrative expenses ) of $ 7.8 million , or 4.2 % , partially offset by a $ 3.8 million and a $ 1.4 million increase in interest expense and income tax expense , respectively . total revenues increased to $ 617.6 million in fiscal 2014 , a $ 33.9 million , or 5.8 % , increase over the $ 583.7 million in fiscal 2013 . revenues from the 1,131 offices open throughout both fiscal years increased by 3.7 % . at march 31 , 2014 , the company had 1,271 offices in operation , an increase of 68 offices from march 31 , 2013 . interest and fee income during fiscal 2014 increased by $ 36.7 million ,
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32 our revenue is predominately derived from core athenahealth-branded business services . in most cases , we charge clients a percentage of payments collected by us on behalf of our clients , connecting our financial results directly to those of our clients and our ability to drive revenue to medical practices . therefore , the key drivers of our revenue include growth in the number of physicians and other healthcare providers working within our client accounts , the collections of these physicians and providers , and the number of services purchased . to provide these services , we incur expenses in several categories , including cost of revenue , selling and marketing , research and development , and general and administrative expense . in general , our cost of revenue increases as our volume of work increases , whereas our selling and marketing expense increases in proportion to our intended growth rate of adding new accounts to our network of medical groups and hospital clients . our research and development and general and administrative expense categories are less directly related to growth of revenues and relate more to our planning for the future and our overall business management activities . we manage our cash and our use of credit facilities to ensure adequate liquidity and to ensure adherence to related financial covenants . critical accounting policies our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states , or 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 and liabilities , the disclosures of contingent assets and liabilities as of the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . we base our assumptions , estimates and judgments on historical experience , current trends , and other factors we believe to be relevant at the time we prepare our consolidated financial statements . the accounting estimates used in the preparation of our consolidated financial statements will change as new events occur , as more experience is acquired , as additional information is obtained , and as our operating environment changes . on a regular basis , we review the accounting policies and assumptions , and update our assumptions , estimates , and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with gaap . additionally , we may employ outside experts to assist in our evaluations . 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 . our significant accounting policies are discussed in note 1 โ nature of operations and summary of significant accounting policies , to our accompanying consolidated financial statements . we consider the following accounting policies to be โ critical accounting policies , โ as they require management to make difficult , subjective , or complex judgments , and to make estimates about the effect of matters that are inherently uncertain . we have reviewed these critical accounting policies and related disclosures with the audit committee of our board of directors . 33 description judgment and uncertainties effect if actual results differ from assumptions revenue recognition all revenue , other than initial implementation and provider adds revenue , is recognized when the service is performed . we recognize revenue when there is evidence of an arrangement , the service has been provided to the client , the collection of the fees is reasonably assured , and the amount of fees to be paid by the client is fixed or determinable . we derive the majority of our revenue from business services associated with our integrated , network-enabled services and from subscriptions to and sponsored clinical information and decision support services for our point of care medical application . our integrated services consist of medical billing and practice management ; electronic health record , or ehr ; patient engagement ; order transmission and care coordination ; and population health management , which are supported by our network , athenanet . our clients typically purchase one-year service contracts related to our integrated , network-enabled services that renew automatically . in most cases , our clients may terminate their agreements with 90 days ' notice without cause . we typically retain the right to terminate client agreements in the same timeframe . our clients are billed monthly , in arrears , typically based upon a percentage of collections posted to our network ; minimum fees ; flat fees ; or per-claim fees , where applicable . we do not recognize revenue for business services until these collections are posted , as the fees are not fixed or determinable until such time . invoices are generated within the first two weeks of the subsequent month . for most of our clients , amounts due are then deducted from a pre-defined bank account one week after invoice receipt via an auto-debit transaction . unbilled amounts that have been earned are accrued and recorded as revenue , and are included in our accounts receivable balances . determining whether and when some of our revenue recognition criteria have been satisfied often involves judgments that can have a significant impact on the timing and amount of revenue we report . the determination of the amount of revenue we can recognize each accounting period related to certain non-refundable , upfront fees associated with our integrated network-enabled services requires management to make estimates and judgments on the expected client life . we determined the expected client life considering the following key factors : - renewal rate considerations - economic life of the service the expected client life , or expected performance period , for the years presented is 12 years . story_separator_special_tag multiple element arrangements , which are single arrangements that contain more than one offering or deliverable that results in more than one unit of accounting , require judgments as to how to allocate the arrangement consideration to each deliverable . we maintain a standard price list by service ; however , certain incentives , such as discounts , may be offered to clients . due to the variability in the value of the discount offered for individual services sold on a stand-alone basis across multiple contracts , we have not been able to conclude that a consistent number of stand-alone sales of a deliverable have been priced within a reasonably narrow range in order to assert that we have established vendor-specific objective evidence , or vsoe , of selling price . although we believe that our approach to estimates and judgments is reasonable , actual results could differ , and we may be exposed to increases or decreases in revenue that could be material . our method to establish our besp , including our model and our assumptions , may prove to be inaccurate , in which case we may have understated or overstated the revenue recognized in an accounting period . for example , if our besp is too high or too low for an individual element of an arrangement , the amount of revenue recognized within each reporting period would be inaccurate . the amount of deferred revenue associated with separable deliverables subject to our established besp is $ 17.6 million and $ 23.1 million as of december 31 , 2016 and 2015 , respectively . our estimate of the expected performance period may prove to be inaccurate , in which case we may have understated or overstated the revenue recognized in an accounting period . for example , if , in the future , we need to increase our expected performance period to a period longer than 12 years , the amount we would recognize in each accounting period would decrease . on the other hand , if , in the future , we need to decrease our expected performance period to a period shorter than 12 years , the amount we would recognize in each accounting period would increase . the amount of deferred revenue related to initial implementation and provider add fees is $ 57.0 million and $ 62.9 million as of december 31 , 2016 and 2015 , respectively . 34 description judgment and uncertainties effect if actual results differ from assumptions subscriptions to the epocrates point of care medical application are entered into by members via an internal or third-party digital distribution platform or through a redeemable subscription code which expires within six to 12 months of issuance . payment associated with these subscription fees occurs at the time of order , which is in advance of the services being performed ; such payments are therefore recorded as deferred revenue . these fees are recognized ratably once activated over the contracted subscription term . if a subscription code expires before it is redeemed , revenue is recognized upon expiration . sponsored clinical information and decision support service clients are charged a fee for the service or group of services to be provided and are typically billed a portion of the contracted fee upon signing of the agreement with the balance billed upon one or more future milestones . each service deliverable within these multiple element arrangements is accounted for as a separate unit if the delivered item or items have value to the client on a stand-alone basis . we allocate arrangement consideration to each unit or element of the arrangement based on the relative selling price of each element . certain expenses related to the implementation of a client , such as out-of-pocket travel , are typically reimbursed by the client . this is accounted for as both revenue and expense in the period the cost is incurred . other services consist primarily of tenant-based operating lease revenue , which is straight-lined over the term of the lease . when we can not establish vsoe , we determine if we can establish third-party evidence , or tpe , of selling price . tpe is determined based on competitor prices for interchangeable deliverables when sold separately . our services differ significantly from that of our peers and our offerings contain a significant level of customization and differentiation such that the comparable pricing of offerings with similar functionality can not be obtained . furthermore , we are unable to reliably determine what similar competitor offerings ' selling prices are on a stand-alone basis . therefore , we are unable to determine tpe . since vsoe and tpe do not exist , we use our best estimate of the selling price , or besp , to establish the relative selling value and to allocate total consideration to each element in the arrangement . we determine besp for a service by performing an analysis of recent stand-alone sales of that service , which takes into account market conditions , competitive landscape , and pricing practices . 35 description judgment and uncertainties effect if actual results differ from assumptions purchased intangible assets and goodwill business combinations , including purchased intangible assets , are accounted for at fair value . acquisition costs are expensed as incurred and recorded in general and administrative expenses . measurement period adjustments relate to information that we should have known at the time of acquisition ; these adjustments and any other changes to purchase accounting are included in earnings in the current period . the fair value amount assigned to intangible assets is based on an exit price from a market participant 's viewpoint , and utilizes data such as discounted cash flow analysis and replacement cost models . we review acquired intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . indefinite-lived intangible assets are reviewed for recoverability at least annually , or more frequently if indicators of impairment are present or changes in circumstances suggest that impairment may exist .
| in addition , amortization expense increased $ 13.3 million due to an increase in new software functionality that we placed in service , such as certain projects associated with athenaone for hospitals and health systems , in the year ended december 31 , 2016 . finally , cost of revenue increased $ 6.7 million in the year ended december 31 , 2016 due to our investment in various software subscriptions necessary to support our clients and our operations . replace_table_token_7_th selling and marketing expense . selling and marketing expense increased for the year ended december 31 , 2016 , primarily due to increases in compensation costs and consulting fees . the increase in compensation for the year ended december 31 , 2016 was $ 9.9 million , and was largely due to a 15 % increase in headcount that was partially offset by a lower increase in variable compensation from december 31 , 2015 . the increase in consulting fees for the year ended december 31 , 2016 was $ 4.3 million . we hired additional sales personnel and utilized consultants to focus on adding new clients and increasing penetration within new and existing markets . 41 research and development expense . research and development expense increased for the year ended december 31 , 2016 primarily due to compensation costs and allocated amortization expense . compensation costs increased $ 10.2 million for the year ended december 31 , 2016 , primarily due to restructuring costs incurred for strategic re-alignment purposes during the three months ended december 31 , 2016. in addition , research and development expense for the year ended december 31 , 2016 was impacted by a $ 6.2 million increase in amortization expense related to capitalized software projects that were ultimately decided not to be placed in service . general and administrative expense . general and administrative expense increased in the year ended december 31 , 2016 , primarily due to professional services fees and compensation costs . general and administrative expense was impacted by an increase
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48 operating revenues decreased $ 194 million in 2015 compared with 2014 due primarily to a decrease in gas purchased for resale expenses ( $ 272 million ) , offset in part by higher revenues from the gas rate plan ( $ 77 million ) reflecting primarily higher delivery volumes attributable to oil-to-gas conversions . gas purchased for resale decreased $ 272 million in 2015 compared with 2014 due to lower unit costs ( $ 274 million ) , offset by higher sendout volumes ( $ 2 million ) . other operations and maintenance expenses increased $ 22 million in 2015 compared with 2014 due primarily to higher operating costs attributable to emergency response ( $ 45 million ) , offset in part by lower pension costs ( $ 12 million ) and a decrease in the surcharges for assessments and fees that are collected in revenues from customers ( $ 10 million ) . other operations and maintenance expenses for emergency response activities in 2015 and 2014 were above amounts for such costs reflected in the company 's gas rate plan . the company has requested nyspsc authorization to defer for recovery as a regulatory asset $ 29 million and $ 35 million of such incremental costs incurred in 2014 and 2015 , respectively . the company anticipates requesting deferral of 2016 incremental costs in 2017. at december 31 , 2015 , the company had not deferred any such incremental costs . depreciation and amortization increased $ 10 million in 2015 compared with 2014 due primarily to higher gas utility plant balances . taxes , other than income taxes increased $ 4 million in 2015 compared with 2014 due primarily to higher property taxes ( $ 8 million ) and a sales and use tax refund received in 2014 ( $ 2 million ) , offset in part by lower state and local revenue taxes ( $ 6 million ) . steam cecony 's results of steam operations for the year ended december 31 , 2015 compared with the year ended december 31 , 2014 is as follows : replace_table_token_30_th cecony 's steam sales and deliveries in 2015 compared with 2014 were : replace_table_token_31_th ( a ) other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company 's rate plans . see note b to the financial statements in item 8 . ( b ) after adjusting for variations , principally weather and billing days , steam sales and deliveries decreased 2.1 percent in 2015 compared with 2014 . operating revenues increased $ 1 million in 2015 compared with 2014 due primarily to higher fuel expenses ( $ 25 million ) and higher revenues from the steam rate plan ( $ 13 million ) , offset in part by the weather impact on revenues ( $ 21 million ) and lower purchased power costs ( $ 20 million ) . 49 purchased power expenses decreased $ 20 million in 2015 compared with 2014 due to a decrease in unit costs ( $ 18 million ) and purchased volumes ( $ 2 million ) . fuel expenses increased $ 25 million in 2015 compared with 2014 due to higher unit costs ( $ 33 million ) , offset by lower sendout volumes ( $ 8 million ) . other operations and maintenance expenses decreased $ 3 million in 2015 compared with 2014 due primarily to a decrease in the surcharges for assessments and fees that are collected in revenues from customers . taxes , other than income taxes increased $ 19 million in 2015 compared with 2014 due primarily to higher property taxes ( $ 18 million ) and a sales and use tax refund received in 2014 ( $ 1 million ) . taxes , other than income taxes at $ 1.9 billion , taxes other than income taxes remain one of cecony 's largest operating expenses . the principal components of , and variations in , taxes other than income taxes were : replace_table_token_32_th ( a ) includes a sales and use tax refund of $ 15 million . ( b ) including sales tax on customers ' bills , total taxes other than income taxes in 2015 and 2014 were $ 2,302 million and $ 2,267 million , respectively . other income ( deductions ) other income ( deductions ) decreased $ 16 million in 2015 compared with 2014 due primarily to the gain on sale of certain non-utility properties in 2014. net interest expense net interest expense increased $ 47 million in 2015 compared with 2014 due primarily to new debt issuances in late 2014. income tax expense income taxes increased $ 19 million in 2015 compared with 2014 due primarily to higher income before income tax expense . o & r replace_table_token_33_th 50 electric o & r 's results of electric operations for the year ended december 31 , 2015 compared with the year ended december 31 , 2014 is as follows : replace_table_token_34_th o & r 's electric sales and deliveries in 2015 compared with 2014 were : replace_table_token_35_th ( a ) o & r 's new york electric delivery revenues are subject to a revenue decoupling mechanism , as a result of which , delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved . o & r 's electric sales in new jersey and pennsylvania are not subject to a decoupling mechanism , and as a result , changes in such volumes do impact revenues . ( b ) โ residential/religious โ generally includes single-family dwellings , individual apartments in multi-family dwellings , religious organizations and certain other not-for-profit organizations . ( c ) other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company 's electric rate plan . see note b to the financial statements in item 8 . ( d ) after adjusting for weather and other variations , electric delivery volumes in o & r 's service area decreased.0.9 percent in 2015 compared with 2014 . story_separator_special_tag operating revenues decreased $ 17 million in 2015 compared with 2014 due primarily to lower purchased power expenses ( $ 28 million ) , offset in part by higher revenues from the new york electric rate plan ( $ 19 million ) . purchased power expenses decreased $ 28 million in 2015 compared with 2014 due to a decrease in unit costs ( $ 24 million ) and purchased volumes ( $ 4 million ) . other operations and maintenance expenses increased $ 5 million in 2015 compared with 2014 due primarily to the charge-off of certain regulatory assets ( $ 4 million ) and an increase in surcharges for assessments and fees that are collected in revenues from customers ( $ 1 million ) . depreciation and amortization increased $ 4 million in 2015 compared with 2014 due primarily to higher electric utility plant balances . taxes , other than income taxes increased $ 1 million in 2015 compared with 2014 due primarily to higher property taxes and state and local revenue taxes . gas o & r 's results of gas operations for the year ended december 31 , 2015 compared with the year ended december 31 , 2014 is as follows : 51 replace_table_token_36_th o & r 's gas sales and deliveries , excluding off-system sales , in 2015 compared with 2014 were : replace_table_token_37_th ( a ) revenues from new york gas sales are subject to a weather normalization clause and a revenue decoupling mechanism , as a result of which , delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved . ( b ) after adjusting for weather and other variations , total firm sales and transportation volumes increased 1.7 percent in 2015 compared with 2014 . operating revenues decreased $ 30 million in 2015 compared with 2014 due primarily to the decrease in gas purchased for resale ( $ 37 million ) , offset in part by higher revenues from the gas rate plan ( $ 3 million ) . gas purchased for resale decreased $ 37 million in 2015 compared with 2014 due to a decrease in unit costs ( $ 30 million ) and purchased volumes ( $ 7 million ) . other operations and maintenance expenses increased $ 10 million in 2015 compared with 2014 due primarily to the charge-off of certain regulatory assets ( $ 14 million ) , offset in part by lower pension costs ( $ 2 million ) . depreciation and amortization increased $ 3 million in 2015 compared with 2014 due primarily to higher gas utility plant balances . taxes , other than income taxes increased $ 1 million in 2015 compared with 2014 due primarily to higher property taxes . taxes , other than income taxes taxes , other than income taxes , increased $ 2 million in 2015 compared with 2014 . the principal components of taxes , other than income taxes , were : replace_table_token_38_th ( a ) including sales tax on customers ' bills , total taxes other than income taxes in 2015 and 2014 were $ 88 million and $ 86 million , respectively . 52 other income ( deductions ) other income ( deductions ) decreased $ 7 million in 2015 compared with 2014 due primarily to the impairment of pike assets held for sale ( see note u to the financial statements in item 8 ) . income tax expense income taxes decreased $ 5 million in 2015 compared with 2014 due primarily to lower income before income tax expense . competitive energy businesses the competitive energy businesses ' results of operations for the year ended december 31 , 2015 compared with the year ended december 31 , 2014 is as follows : replace_table_token_39_th operating revenues increased $ 139 million in 2015 compared with 2014 due primarily to higher electric retail revenues . electric retail revenues increased $ 158 million in 2015 as compared with 2014 due to higher sales volume ( $ 163 million ) , offset by lower unit prices ( $ 5 million ) . wholesale revenues decreased $ 33 million in 2015 compared with 2014 due primarily to lower sales volumes . solar revenues increased $ 12 million in 2015 as compared with 2014 due primarily to an increase in solar electric production projects in operation . net mark-to-market values increased $ 128 million in 2015 as compared with 2014 , of which $ 131 million in gains are reflected in purchased power expenses and $ 3 million in losses are reflected in revenues . other revenues increased $ 5 million in 2015 as compared with 2014 , due primarily to higher energy services revenues . purchased power expenses decreased $ 44 million in 2015 compared with 2014 due to changes in mark-to-market gains ( $ 131 million ) and lower unit prices ( $ 45 million ) , offset by higher volumes ( $ 132 million ) . gas purchased for resale decreased $ 9 million in 2015 compared with 2014 due primarily to lower volumes . other operations and maintenance expenses increased $ 26 million in 2015 compared with 2014 due primarily to an increase in energy services costs ( $ 11 million ) , other general operating expenses ( $ 11 million ) and business development costs ( $ 4 million ) . depreciation and maintenance expense increased $ 3 million in 2015 compared with 2014 due primarily to an increase in solar electric production projects in operation during 2015. gain on sale of solar electric production projects decreased $ 45 million reflecting the may 2014 sale by con edison development of 50 percent of its membership interest in california solar ( see note q to the financial statements in item 8 ) . other income ( deductions ) other income ( deductions ) increased $ 6 million in 2015 compared to 2014 primarily reflecting income from renewable electric production projects accounted for under the equity method .
| ( d ) other includes parent company and consolidation adjustments . ( e ) earnings per share on a diluted basis were $ 4.05 a share , $ 3.71 a share and $ 3.61 a share in 2015 , 2014 and 2013 , respectively . the companies ' results of operations for 2015 , as compared with 2014 , and for 2014 , as compared with 2013 , primarily reflect the performance of the rate plans of con edison 's utility subsidiaries , growth in gas delivery service related to oil-to-gas conversions and the weather impact on its steam delivery service . the rate plans provide for revenues to cover expected increases in certain operating costs including depreciation and property taxes . in 44 addition , the results of operations reflect higher profits from the competitive energy businesses ' retail electric supply business . the results of operations also include the impairment of pike assets held for sale , the gain on sale of solar electric production projects , the impact of lilo transactions and the net mark-to-market effects of the competitive energy businesses . the following table presents the estimated effect on earnings per share and net income for 2015 as compared with 2014 , and 2014 as compared with 2013 , resulting from these and other major factors : replace_table_token_22_th ( a ) under the revenue decoupling mechanisms in the utilities ' new york electric and gas rate plans and the weather-normalization clause applicable to their gas businesses , revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved . in general , the utilities recover on a current basis the fuel , gas purchased for resale and purchased power costs they incur in supplying energy to their full-service customers ( see โ recoverable energy costs โ in note a and โ rate plans โ in note b to the financial statements in item 8 ) . accordingly , such costs do not generally affect the companies ' results of operations . ( b ) these variations include a sales and use tax refund received
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accordingly , while we believe the presentation of these operating metrics is helpful to investors in understanding our business , these metrics have limitations and should not be considered as substitutes for analysis of our financial results reported under generally accepted accounting principles ( โ gaap โ ) . in addition , we believe that other companies , including companies in our industry , do not present similar operating metrics and that there is no commonly accepted method of calculating these metrics , which may reduce their usefulness as comparative measures . ( 2 ) unique patient count is defined as each unique , longitudinally matched , de-identified natural person represented in our more 2 registry ยฎ as of the end of the period presented . ( 3 ) medical event count is defined as the total number of discrete medical events as of the end of the period presented ( for example , a discrete medical event typically results from the presentation of a patient to a physician for the diagnosis of diabetes and congestive heart failure in a single visit , the presentation of a patient to an emergency department for chest pain , etc. ) . ( 4 ) pam is defined as the sum of the analytical processes performed on each respective patient within patient populations covered by clients under contract . as used in the metric , an โ analytical process โ is a distinct set of data calculations undertaken by us which is initiated and completed within our platform solutions to examine a specific question such as whether a patient is believed to have a condition such as diabetes , or worsening of the disease , during a specific time period . trends and factors affecting our future performance a number of factors influence our growth and performance . we see many of these factors as being more quantitatively driven , such as the rate of growth of the underlying data counts within our datasets , the ongoing investment in innovation , and our revenue mix of subscription-based platform offerings . additionally , there are several factors that influence our growth and performance that are less quantitatively driven , including seasonality , macro-economic forces , including as a result of the covid-19 pandemic , and trends within healthcare ( such as payment models , incentivization , and regulatory oversight ) that can be driven by changes in federal and state laws and regulations , as well as private sector market forces . growth of datasets . healthcare costs in the united states have been increasing significantly for many years . this rise in healthcare costs has driven a broad transition from consumption-based payment models to quality and value-based payment models across the healthcare landscape . as a result , the specific disease and comorbidity status , clinical and quality outcomes , resource utilization , and care details of the individual patient have become increasingly relevant to the various constituents across the healthcare delivery system . concurrently , the count and complexity of diseases , diagnostics , and treatmentsโas well as payment models and regulatory oversight requirementsโhave soared . in this setting , granular data has become critical to determining and improving quality and financial performance in healthcare . our more 2 registry ยฎ is our largest principal dataset and serves as a proxy for our general growth of datasets within inovalon . the growth of our datasets that inform our analytical capabilities and comparative analytics is a key aspect of our provision of value to our clients and is indicative of our overall growth and capabilities . innovation and platform development . our business model is based upon our ability to deliver value to our clients through our platform solutions and related services focused on the achievement of meaningful and measurable improvements in clinical quality outcomes and financial performance in healthcare . our ability to deliver this value is dependent in part on our ability to continue to innovate , design new capabilities , enter into new agreements with clients for new platforms , and bring these capabilities to market in an enterprise scale . our continued ability to innovate our platform and bring differentiated capabilities to market is an important aspect of our business success . 38 our investment in innovation includes costs for research and development , capitalized software development , and capital expenditures related to hardware and software platforms on which our platform solutions are deployed as summarized below ( in thousands , except percentages ) . replace_table_token_4_th _ ( 1 ) research and development primarily includes employee costs related to the development and enhancement of our service offerings . ( 2 ) capitalized software development includes capitalized costs incurred to develop and enhance functionality for our platform solutions . ( 3 ) research and development infrastructure investments include strategic capital expenditures related to hardware and software platforms under development or enhancement . mix of subscription-based platform offerings and legacy solutions . in 2018 , we executed an intentional transition in our offering portfolio from legacy platform solutions to subscription-based cloud-based platform offerings with add-on advisory services . subscription-based cloud-based platform offerings are generally defined as modular , cloud-based solutions that utilize dynamic , high-speed cloud-based compute and storage , offer enhanced data visualization capabilities , and are tied to subscription-based contract structures where revenue is predominantly based on factors such as the number of patients under contract or similar relevant metrics ( e.g. , the number of prescriptions issued ) , the size of the client , and or a specific period of time . additionally , we are continually expanding our offerings of cloud-based saas solutions enabled by the inovalon one ยฎ platform which utilize artificial intelligence and machine learning application combined with real-world data assets to supplement our cloud-based solutions . legacy platform solutions are continuing to decrease as a percentage of total revenue and are generally defined as solutions historically not cloud-based in nature and not tied to subscription-based contract structures . story_separator_special_tag we believe subscription-based cloud-based platform offerings provide more advanced capabilities , higher value , and greater visibility to clients , as well as improved visibility , market differentiation , and financial performance for us . we expect that subscription-based cloud-based platform offerings will continue to represent an increasing share of our total revenue , contributing to an increasing base of recurring revenue . additionally , through the ability acquisition in april 2018 , we expanded our subscription-based cloud-based platform offering revenues and we continue to achieve revenue synergies realized through i ) the infusion of inovalon 's data and analytics into ability 's existing offerings , ii ) the combination of the inovalon one ยฎ platform and my ability ยฎ platform capabilities to introduce new and more vertically integrated offerings which appeal to both organizations ' traditional market base , iii ) the enhancement of inovalon 's offerings from ability 's provider point-of-care data , connectivity , and workflow presence , and iv ) the leveraging of ability 's sales channel , techniques and capacity . breadth of healthcare industry connectivity . the healthcare industry is undergoing a significant transition as it becomes increasingly data-driven . as part of this transition , participants across the healthcare industry , including health plans , pharmaceutical companies , medical device manufacturers , and diagnostic companies , are increasingly interested in achieving timely and seamless access to relevant data and being able to drive impact directly with providers and their patients . concurrently , providers are also increasingly interested in access to more advanced analytical tools to support and improve their clinical and financial performance . enhancing and expanding our industry connectivity with payer administrative systems , provider facilities , diagnostic systems , pharmacy systems , healthcare industry systems ( e.g. , electronic healthcare record systems , health information exchange systems , claims processing systems , decision support systems , etc . ) , and other healthcare clinical and business systems , offers the potential for increased differentiation in the healthcare marketplace as well as improved efficiency of our operations . 39 client and analytical process count growth . our business is generally driven by the number of underlying patients for which our platform solutions are being utilized . as such , we track the number of analytical processes that we run on patients each month in fulfillment of our client contracts , as totaled for the trailing 12 months . we believe that pam is indicative of our overall level of analytical activity , and we expect our period-to-period comparisons of our pam to be indicative of underlying growth of our business , although changes in levels of analytical activity do not always directly translate to changes in financial performance of our business . differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability of our data-driven intervention platforms may result in increases in analytical activity that do not result in proportional increases in revenue , or net income ( and vice versa ) . therefore , in situations in which a new engagement is initiated for analytical processes that have a higher than average fee rate , revenue could expand disproportionately faster than the increase in pam . likewise , if engagements for analytical processes that have a higher than average fee rate are concluded then such conclusions can negatively affect revenue disproportionately more than pam . seasonality . the nature of our customers ' end-market results in partial seasonality reflected in both revenue and cost of revenue differences during the year . regulatory impact of data submission deadlines in , for example , january , march , june , and september drive some degree of predictable timing of analytics and data processing activity variances from quarter to quarter . further , regulatory clinical encounter deadlines of june 30th and december 31st drive predictable intervention concentrations variances from quarter to quarter . the timing of these factors results in analytical and intervention activity mix variances , which have limited predictable impact in the aggregate on our financial performance from quarter to quarter . however , quarter to quarter financial performance may increasingly vary from historical seasonal trends as we continue to expand into adjacent markets and increase the portion of our revenue generated from new offerings . further , we also expect the impact of seasonality to decrease over time as we expand our mix of revenue generated from a subscription-based model . the timing of new contract signings and their respective implementations can also lead to variances in our seasonal revenue performance . regulatory , economic and industry trends . our clients are affected , sometimes directly and sometimes counter-intuitively , by macro-economic trends such as economic growth ( or economic recession ) , inflation , and unemployment . these macro-economic trends may also be impacted by the covid-19 pandemic and the recent u.s. presidential election . further , industry trends in federal and state laws and regulations , as well as emerging trends in private sector payment models , affect our clients ' businesses and their need for technologies and services to support these challenges . these factors have various effects on our business , and on occasion have resulted in the slowing or cessation of the decision-making process by clients adopting our technologies and services . on the other hand , changes in macro-economic trends and the industry landscape have accelerated the need for our technologies and services from time-to-time , particularly as regulators introduce complex requirements with which our clients must comply . components of results of operations revenue we earn revenue primarily through the sale or subscription licensing of our platform solutions , as well as revenue from related arrangements for advisory , implementation , and support services . platform solutions include arrangements for technology-based offerings representing subscription-based cloud-based platform offerings , including solutions offered through the my ability ยฎ software platform and real-time accessibility of comprehensive patient-specific healthcare data and analytical insights through inovalon datastream , and legacy platform solutions that are not cloud-based and not billed under a subscription-based contract structure .
| cost of revenue during the year ended december 31 , 2020 , cost of revenue was substantially unchanged compared with the year ended december 31 , 2019 and was primarily attributable to an increase in professional third-party costs of $ 4.6 million and an increase in stock-based compensation of $ 0.3 million , which was offset by a decrease in employee-related expense of $ 3.4 million , and a decrease in travel-related expenses of $ 1.5 million . cost of revenue as a percentage of revenue was 25 % and 26 % for the years ended december 31 , 2020 and 2019 , respectively . sales and marketing during the year ended december 31 , 2020 , sales and marketing expense increased by $ 0.5 million , or 1 % , compared with the year ended december 31 , 2019. the increase was primarily attributable to an increase in employee-related expense of $ 3.1 million and an increase in stock-based compensation of $ 1.2 million , which was partially offset by a decrease in travel-related expenses of $ 2.0 million and a decrease in advertising expenses of $ 1.6 million . sales and marketing expense as a percentage of revenue was 9 % and 10 % for the years ended december 31 , 2020 and 2019 , respectively . research and development during the year ended december 31 , 2020 , research and development expense decreased by $ 0.2 million , or 1 % , compared with the year ended december 31 , 2019. the decrease was primarily attributable to a decrease in employee-related expense of $ 1.6 million , which was partially offset by an increase in professional third-party costs of $ 1.4 million . 44 general and administrative during the year ended december 31 , 2020 , general and administrative expense increased by $ 15.9 million , or 8 % , compared with the year ended december 31 , 2019. the increase was primarily attributable to an increase in employee-related expense of $ 9.4 million , an increase in stock-based compensation of $ 9.2 million , an adjustment to the fair value of contingent consideration of $ 3.3 million , and
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in some cases , you can identify forward-looking statements by terminology such as โ may , โ โ will , โ โ should , โ โ expect , โ โ plan , โ โ anticipate , โ โ believe , โ โ estimate , โ โ predict , โ โ potential โ or โ continue , โ the negative of such terms , or other comparable terminology . these statements are only predictions . actual events or results may differ materially from those in the forward-looking statements as a result of various important factors . although we believe that the expectations reflected in the forward-looking statements are reasonable , such should not be regarded as a representation by lapis technologies , inc. ( โ lapis โ or the โ company โ ) , or any other person , that such forward-looking statements will be achieved . the business and operations of lapis technologies , inc. and its subsidiaries are subject to substantial risks , which increase the uncertainty inherent in the forward-looking statements contained in this report . because these forward-looking statements involve risks and uncertainties , there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements , including our plans , objectives , expectations and intentions and other factors discussed under โ risk factors , โ included in this annual report on form 10-k for the period ended december 31 , 2011. the following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report . executive overview lapis technologies , inc. ( `` lapis '' or the `` company '' ) was formed in delaware on january 31 , 2002 under the name enertec electronics , inc. the company via our wholly-owned subsidiary enertec systems 2001 ltd ( `` enertec systems '' ) , an israeli corporation formed on august 28 , 2001 , is a manufacturer and provider of various military and airborne systems , simulators , automatic test equipment ( โ ate โ ) , electronic components and products related to power supplies , converters and other power conversion products . our business is focused in two major product lines : ( i ) the development and manufacturing of simulators and automatic test equipment ( ate ) to a large variety of command and control systems and at all levels of maintenance , development and integration and ( ii ) the development and manufacturing of comprehensive , large scale , electronics systems for the military industry providing comprehensive solutions to power supply , command and control including systems design , development , manufacturing and implementation on a turn-key basis . our operations are located in israel and serve leading israeli defense integrators in the market for both local israeli and worldwide sales . we combine our deep expertise in the industry with strong technical capabilities to provide a complete range of high quality products , systems and services on a global scale . by integrating our abilities and focusing on business and project teams , we leverage our corporate knowledge and experience , intellectual property and infrastructure to develop innovative solutions for clients we serve worldwide . liquidity and capital resources as of december 31 , 2011 , our cash balance was $ 940,000 as compared to $ 626,000 at december 31 , 2010. total current assets at december 31 , 2011 were $ 12,071,000 as compared to $ 8,794,000 at december 31 , 2010. our accounts receivable at december 31 , 2011 were $ 7,947,000 as compared to $ 4,532,000 at december 31 , 2010. the increase of 75 % in accounts receivable is mainly due to a delay in the collection of $ 1,700,000 which was received on january 1 , 2012. as of december 31 , 2011 , our working capital was $ 7,960,000 as compared to $ 4,361,000 at december 31 , 2010. the increase in working capital is due primarily to the increase in accounts receivables . the current portion of long-term loans as of december 31 , 2011 was $ 1,766,000 as compared to $ 93,000 at december 31 , 2010. we had no short term loans as of december 31 , 2011 , as compared to $ 256,000 as of december 31 , 2010 . 10 as of at december 31 , 2011 , our total debt was $ 6,352,000 of which $ 3,000,000 consists of a loan from uta , warrants liability in the amount of $ 799,000 and the remainder is commercial bank debt , as compared to $ 910,000 at december 31 , 2010. these funds were borrowed as follows : $ 1,766,000 as various short-term bank loans with current maturities due through 2011 , and $ 4,586,000 using long-term loans . as a result , we increased the amount borrowed for the year ended december 31 , 2011 by $ 5,442,000 compared to december 31 , 2010. the increase is due to an increase in working capital needs and the acquisition of the remaining 27 % of the shares of our wholly-owned subsidiary , enertec systems . as of december 31 , 2011 , we are current with ( i ) all of our bank debt and compliant with all the terms of our bank debt ( ii ) all of our uta debt and compliant with all the terms of our uta debt . financing needs although we currently do not have any material commitments for capital expenditures , we expect our capital requirements to increase over the next several years as we continue to support the growth of our business , develop manufacture and market larger scale solutions , support our growing manufacturing and finance needs , continue the development and testing of our suite of products and systems , increase management , marketing and administration infrastructure , and embark on developing in-house business capabilities and facilities . our future liquidity and story_separator_special_tag in some cases , you can identify forward-looking statements by terminology such as โ may , โ โ will , โ โ should , โ โ expect , โ โ plan , โ โ anticipate , โ โ believe , โ โ estimate , โ โ predict , โ โ potential โ or โ continue , โ the negative of such terms , or other comparable terminology . these statements are only predictions . actual events or results may differ materially from those in the forward-looking statements as a result of various important factors . although we believe that the expectations reflected in the forward-looking statements are reasonable , such should not be regarded as a representation by lapis technologies , inc. ( โ lapis โ or the โ company โ ) , or any other person , that such forward-looking statements will be achieved . the business and operations of lapis technologies , inc. and its subsidiaries are subject to substantial risks , which increase the uncertainty inherent in the forward-looking statements contained in this report . because these forward-looking statements involve risks and uncertainties , there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements , including our plans , objectives , expectations and intentions and other factors discussed under โ risk factors , โ included in this annual report on form 10-k for the period ended december 31 , 2011. the following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report . executive overview lapis technologies , inc. ( `` lapis '' or the `` company '' ) was formed in delaware on january 31 , 2002 under the name enertec electronics , inc. the company via our wholly-owned subsidiary enertec systems 2001 ltd ( `` enertec systems '' ) , an israeli corporation formed on august 28 , 2001 , is a manufacturer and provider of various military and airborne systems , simulators , automatic test equipment ( โ ate โ ) , electronic components and products related to power supplies , converters and other power conversion products . our business is focused in two major product lines : ( i ) the development and manufacturing of simulators and automatic test equipment ( ate ) to a large variety of command and control systems and at all levels of maintenance , development and integration and ( ii ) the development and manufacturing of comprehensive , large scale , electronics systems for the military industry providing comprehensive solutions to power supply , command and control including systems design , development , manufacturing and implementation on a turn-key basis . our operations are located in israel and serve leading israeli defense integrators in the market for both local israeli and worldwide sales . we combine our deep expertise in the industry with strong technical capabilities to provide a complete range of high quality products , systems and services on a global scale . by integrating our abilities and focusing on business and project teams , we leverage our corporate knowledge and experience , intellectual property and infrastructure to develop innovative solutions for clients we serve worldwide . liquidity and capital resources as of december 31 , 2011 , our cash balance was $ 940,000 as compared to $ 626,000 at december 31 , 2010. total current assets at december 31 , 2011 were $ 12,071,000 as compared to $ 8,794,000 at december 31 , 2010. our accounts receivable at december 31 , 2011 were $ 7,947,000 as compared to $ 4,532,000 at december 31 , 2010. the increase of 75 % in accounts receivable is mainly due to a delay in the collection of $ 1,700,000 which was received on january 1 , 2012. as of december 31 , 2011 , our working capital was $ 7,960,000 as compared to $ 4,361,000 at december 31 , 2010. the increase in working capital is due primarily to the increase in accounts receivables . the current portion of long-term loans as of december 31 , 2011 was $ 1,766,000 as compared to $ 93,000 at december 31 , 2010. we had no short term loans as of december 31 , 2011 , as compared to $ 256,000 as of december 31 , 2010 . 10 as of at december 31 , 2011 , our total debt was $ 6,352,000 of which $ 3,000,000 consists of a loan from uta , warrants liability in the amount of $ 799,000 and the remainder is commercial bank debt , as compared to $ 910,000 at december 31 , 2010. these funds were borrowed as follows : $ 1,766,000 as various short-term bank loans with current maturities due through 2011 , and $ 4,586,000 using long-term loans . as a result , we increased the amount borrowed for the year ended december 31 , 2011 by $ 5,442,000 compared to december 31 , 2010. the increase is due to an increase in working capital needs and the acquisition of the remaining 27 % of the shares of our wholly-owned subsidiary , enertec systems . as of december 31 , 2011 , we are current with ( i ) all of our bank debt and compliant with all the terms of our bank debt ( ii ) all of our uta debt and compliant with all the terms of our uta debt . financing needs although we currently do not have any material commitments for capital expenditures , we expect our capital requirements to increase over the next several years as we continue to support the growth of our business , develop manufacture and market larger scale solutions , support our growing manufacturing and finance needs , continue the development and testing of our suite of products and systems , increase management , marketing and administration infrastructure , and embark on developing in-house business capabilities and facilities . our future liquidity and
| this was a decrease of $ 138,000 , or 6.5 % , compared to the year ended december 31 , 2010. this decrease in operating expenses is primarily due to the ( i ) change of control in lapis in november 2009 and the increased general and administrative expenses incurred as a result of the new controlling shareholder 's during 2010 as compared to 2011 , desire to strengthen the lapis and or enertec systems management and corporate headquarters services to the business unit and partially offset by an increase in selling expenses of $ 43,000 for the year ended december 31 , 2011 compared to the same period of 2010 , primarily due to lapis 's efforts to increase marketing efforts for more projects and new customers . 11 our net income was $ 1,359,000 for the year ended december 31 , 2011 compared to a net income of $ 1,619,000 in the year ended december 31 , 2010. this represents a decrease in net income of $ 260,000 or 16 % . the decrease was primarily the result of interest expenses related to warrant liability ( approximately 31 % from the decrease of $ 260,000 in net income ) . as of december 31 , 2011 , we had two customers that accounted for approximately 91 % of our accounts receivable . research and development costs research and development costs are part of operating expenses . research and development costs for the year ended december 31 , 2011 and the year ended december 31 , 2010 were $ 240,000 and $ 250,000 , respectively . off-balance sheet arrangements we do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition , revenues , and results of operations , liquidity or capital expenditures . critical accounting policies concentration of credit risk - concentrations of credit risk with respect to trade receivables are limited to customers dispersed primarily across israel . all trade receivables are concentrated in the manufacturing and distribution of electronic components segment of the economy ; accordingly the company is exposed to business and economic risk . although the company does not currently foresee a concentrated credit risk associated with these trade receivables , repayment is dependent upon the financial stability of this segment of the economy . revenue recognition and customer deposits - revenue is recorded as product is shipped , the price has been fixed or determined , collectability is reasonably assured and all material specific performance obligations have been completed . the product sold by the company is made to the specifications of each customer ; sales returns and allowances are allowed on a case-by-case
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our dollar tree segment is the leading operator of discount variety stores offering merchandise at the fixed price of $ 1.00. our family dollar segment operates general merchandise retail discount stores providing consumers with a selection of competitively-priced merchandise in convenient neighborhood stores . our net sales are derived from the sale of merchandise . two major factors tend to affect our net sales trends . first is our success at opening new stores or adding new stores through mergers or acquisitions . second is the performance of stores once they are open . sales vary at our existing stores from one year to the next . we refer to this as a change in comparable store net sales , because we include only those stores that are open throughout both of the periods being compared , beginning after the first fifteen months of operation . we include sales from stores expanded during the year in the calculation of comparable store net sales , which has the effect of increasing our comparable store net sales . the term 'expanded ' also includes stores that are relocated . our acquired family dollar stores are included in the comparable store net sales calculation beginning in the fourth quarter of fiscal 2016 ; however , they are not included in the annual comparable store net sales calculation until fiscal 2017. stores that have been rebannered are considered to be new stores and are not included in the calculation of the comparable store net sales change until after the first fifteen months of operation under the new banner . at february 3 , 2018 , we operated stores in 48 states and the district of columbia , as well as stores in five canadian provinces . a breakdown of store counts and square footage by segment for the years ended february 3 , 2018 and january 28 , 2017 is as follows : replace_table_token_8_th 27 stores are included as rebanners when they close or open , respectively . comparable store net sales for dollar tree may be negatively affected when a family dollar store is rebannered near an existing dollar tree store . the average size of stores opened in 2017 was approximately 8,180 selling square feet ( or about 10,180 gross square feet ) for the dollar tree segment and 7,160 selling square feet ( or about 8,860 gross square feet ) for the family dollar segment . for 2018 , we continue to plan to open stores that are approximately 8,000 - 10,000 selling square feet ( or about 10,000 - 12,000 gross square feet ) for the dollar tree segment and approximately 6,000 - 8,000 selling square feet ( or about 7,000 - 9,000 gross square feet ) for the family dollar segment . we believe that these size stores are our optimal sizes operationally and give our customers a shopping environment which invites them to shop longer , buy more and make return visits , which increases our customer traffic . fiscal 2017 ended on february 3 , 2018 and included 53 weeks , commensurate with the retail calendar . the 53rd week in 2017 added approximately $ 406.6 million in sales . fiscal 2016 and fiscal 2015 which ended on january 28 , 2017 and january 30 , 2016 , respectively , each included 52 weeks . in fiscal 2017 , comparable store net sales increased by 1.9 % on a constant currency basis . this increase is based on a 53-week comparison for both years . constant currency basis refers to the calculation excluding the impact of currency exchange rate fluctuations . we calculated the constant currency basis increase by translating the current year 's comparable store net sales in canada using the prior year 's currency exchange rates . we believe that the constant currency basis provides a more accurate measure of comparable store net sales performance . including the impact of currency , comparable store net sales increased the same 1.9 % as a result of a 0.9 % increase in the number of transactions and a 1.0 % increase in average ticket . on a constant currency basis , comparable store net sales increased 3.4 % in the dollar tree segment and increased 0.4 % in the family dollar segment in fiscal 2017 . comparable store net sales in the dollar tree segment increased 3.5 % when adjusted for the impact of canadian currency fluctuations . comparable store net sales are positively affected by our expanded and relocated stores , which we include in the calculation , and are negatively affected when we open new stores , rebanner stores or expand stores near existing stores . we believe comparable store net sales continued to be positively affected by a number of our dollar tree initiatives , as debit and credit card penetration continued to increase in 2017 , and we continued the roll-out of frozen and refrigerated merchandise to more of our dollar tree stores . at february 3 , 2018 , the dollar tree segment had frozen and refrigerated merchandise in approximately 5,205 stores , which includes re-bannered stores , compared to approximately 4,785 stores at january 28 , 2017 . we believe that the addition of frozen and refrigerated product enables us to increase sales and earnings by increasing the number of shopping trips made by our customers . we believe our initiatives at family dollar are positively affecting the comparable store net sales performance . among these is a store renovation initiative . during fiscal 2017 , we completed approximately 375 family dollar renovations . these renovations have focused on creating an exciting and more productive family dollar shopping experience . renovations bring some of the oldest stores to our brand standard , including more productive end-caps , highlighting more relevant and prominent seasonal offerings , assortment expansions in beverage and snacks , hair care , and food in coolers and freezers . category adjacencies and updating our front-end checkout are also part of the renovation program . story_separator_special_tag we are making a number of improvements to the conditions of our stores to provide our customers with a consistent and improved shopping experience . in addition , we have focused on re-branding our private brand labels in our stores . these private brands are being developed to provide national brand comparable quality and great values for our customers , as part of our compare and save marketing program . we are adding additional coolers and freezers to facilitate expansion of our product offerings . our point-of-sale technology provides us with valuable sales and inventory information to assist our buyers and improve our merchandise allocation to our stores . we believe that this has enabled us to better manage our inventory flow in our stores resulting in more efficient distribution and store operations . we must continue to control our merchandise costs , inventory levels and our general and administrative expenses as increases in these items could negatively impact our operating results . acquisition and divestiture on july 6 , 2015 we completed the acquisition and family dollar became a direct , wholly-owned subsidiary . under the acquisition , the family dollar shareholders received $ 59.60 in cash and 0.2484 shares of our common stock for each share of family dollar common stock they owned , plus cash in lieu of fractional shares ( the `` merger consideration '' ) . as of the acquisition date , each outstanding performance share right of family dollar common stock was canceled in exchange for the right of the holder to receive the merger consideration ( the `` psr payment '' ) . the aggregate amount we paid for the merger consideration and psr payment was $ 6.8 billion in cash and we issued 28.5 million shares of our common stock , valued at $ 2.3 billion based on the closing price of our common stock on july 2 , 2015 . 28 for a complete description of the acquisition refer to our current report on form 8-k filed with the sec on july 8 , 2015. we incurred $ 39.2 million in acquisition-related expenses in 2015 , excluding acquisition-related interest expense . we also expended approximately $ 165.7 million in capitalizable debt-issuance costs related to the financing of the acquisition and $ 61.5 million and $ 78.8 million of debt-issuance costs was included as a reduction in `` long-term debt , net , excluding current portion '' at february 3 , 2018 and january 28 , 2017 , respectively . we expect to achieve approximately $ 300 million in annual cost savings synergies by july 2018 , and we will incur $ 300 million in one-time costs to achieve these synergies . in 2015 , we completed the offering of $ 3.25 billion of senior notes and entered into a credit facility and term loan providing for $ 6.2 billion in senior secured credit facilities . see `` liquidity and capital resources '' for a further discussion of these transactions . in connection with the acquisition , we divested 330 family dollar stores to settle federal trade commission charges that the acquisition would be anticompetitive in certain local markets . the 330 family dollar stores , 325 of which were open at the time of the divestiture , represented approximately $ 45.5 million of annual operating income . in accordance with purchase accounting , the net effect of the divestiture on our assets and liabilities is fully reflected in the table summarizing the estimates of fair value set forth in `` note 2 - acquisition '' . in the first and second quarters of 2017 , we evaluated the collectability of certain receivables from dollar express relating to the divestiture . based on information then available , we determined that outstanding amounts totaling $ 53.5 million were not recoverable and recorded impairment charges to write down the receivables to zero . in the fourth quarter of 2017 , a settlement was reached , under which sycamore partners and dollar express paid us $ 35.0 million which resulted in a partial reversal of the receivables impairment in our fiscal fourth quarter 2017. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > operating income for 2016 increased to $ 1,704.8 million compared with $ 1,049.7 million in 2015. operating income margin increased to 8.2 % in 2016 from 6.8 % in 2015. the increase in operating income is the result of an incremental $ 430.3 million of operating income in the family dollar segment , due to the additional 22 weeks of operations in 2016 compared to 2015 and a $ 224.8 million increase in operating income in the dollar tree segment partially offset by the loss of operating income from the 325 stores which were divested on november 1 , 2015. in the prior year , the family dollar segment incurred an operating loss of $ 30.8 million as a result of unusually high markdowns related to sku rationalization and planned liquidations and the amortization of stepped-up inventory that was sold during the period . interest expense , net . interest expense , net was $ 375.5 million in 2016 compared to $ 599.4 million in 2015. the variance is due to the following : an $ 89.5 million breakage fee related to the prepayment of the senior notes in 2015 ; a $ 39.5 million prepayment fee , a $ 17.4 million write-off of the original issuance discount and a $ 5.9 million write-off of deferred financing costs related to the term loan b refinancing in 2015 ; a $ 1.0 billion prepayment of term loan b-1 principal in the fourth quarter of 2015 , which resulted in the accelerated expensing of $ 19.0 million of amortizable non-cash deferred financing costs in 2015 and lower interest expense in 2016 ; an additional $ 242.0 million prepayment of term loan b-1 in the third quarter of 2016 which resulted in lower interest expense in 2016 ; 31 the term loans were refinanced in the third quarter of 2016 which resulted in lower interest rates and the accelerated expensing of $ 26.6 million
| as a percentage of sales , selling , general and administrative expenses were 22.6 % in 2017 and 2016. fiscal 2017 , includes an $ 18.5 million receivable impairment related to the divestiture and a $ 12.6 million increase to the dollar tree workers ' compensation reserves to record these on an undiscounted basis . excluding the receivable impairment and the workers ' compensation reserve increase , selling , general and administrative expenses decreased to 22.4 % , as a percentage of sales , due to the leverage from the 53rd week and the net of the following : lower depreciation costs ; lower store operating costs as a percentage of sales ; higher advertising costs ; and , higher payroll costs . operating income . operating income for 2017 increased to $ 1,999.1 million compared with $ 1,704.8 million in 2016 and operating income margin increased to 9.0 % in 2017 from 8.2 % in 2016. in the fourth quarter of 2017 , we benefited with respect to the tcja . we expect to continue to benefit going forward and estimate the benefit to be approximately $ 250.0 million in fiscal 2018. we plan to reinvest approximately $ 100.0 million of this tax savings into the following : increased store hours , including training for associates ; higher average hourly rates ; adding family dollar eligible associates to the dollar tree retirement savings plan starting in fiscal 2017 and increasing contributions in fiscal 2018 ; and , instituting paid maternity leave for eligible associates . this reinvestment could reduce operating income margin in 2018. interest expense , net . interest expense , net was $ 301.8 million in 2017 compared to $ 375.5 million in 2016. the decrease is due to lower debt outstanding in the current year as a result of $ 990.1 million in prepayments in the third and fourth quarters of 2016 as well as the $ 500.0 million prepayment in the second quarter of 2017. fiscal 2016 also includes the expensing of $ 26.6 million of amortizable non-cash deferred financing costs and $ 2.6 million
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the carrying amount of a long-lived asset to be held and used is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset . impairment indicators or triggering events for long-lived assets to be held and used are assessed by project and include significant fluctuations in estimated net operating income , occupancy changes , significant near-term lease expirations , current and historical operating and or cash flow losses , construction costs , estimated completion dates , rental rates , and other market factors . we assess the expected undiscounted cash flows based upon numerous factors , including , but not limited to , construction costs , available market information , current and historical operating results , known trends , current market/economic conditions that may affect the property , and our assumptions about the use of the asset , including , if necessary , a probability-weighted approach if multiple outcomes are under consideration . upon determination that an impairment has occurred , a write-down is recognized to reduce the carrying amount to its estimated fair value . if an impairment loss is not required to be recognized , the recognition of depreciation is adjusted prospectively , as necessary , to reduce the carrying amount of the real estate to its estimated disposition value over the remaining period that the real estate is expected to be held and used . we may adjust depreciation of properties that are expected to be disposed of or redeveloped prior to the end of their useful lives . revenue recognition our existing tenant leases and future tenant leases are generally expected to be triple-net leases , an arrangement under which the tenant maintains the property while paying us rent and property management fees . we account for our leases as operating leases . under this method , leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term , unless the collectability of minimum lease payments is not reasonably predictable . rental increases based upon changes in the cpi are recognized only after the changes in the indexes have occurred and are then applied according to the lease agreements . contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses will be included in tenant reimbursements in the period when such costs are incurred . contractually obligated real estate taxes that are paid directly by the tenant to the tax authorities are not reflected in our consolidated financial statements . 53 we record revenue for each of our properties on a cash basis due to the uncertainty of collectability of lease payments from each tenant due to its limited operating history and the uncertain regulatory environment in the united states relating to the medical-use cannabis industry . stock-based compensation stock-based compensation for equity awards is based on the grant date fair value of the equity instrument and is recognized over the requisite service period . if awards are forfeited prior to vesting , we reverse any previously recognized expense related to such awards in the period during which the forfeiture occurs and reclassify any non-forfeitable dividends previously paid on these awards from retained earnings to compensation expense . income taxes we have been organized to operate our business so as to qualify to be taxed as a reit , for u.s. federal income tax purposes , commencing with our taxable year ended december 31 , 2017. under the reit operating structure , we are permitted to deduct dividends paid to our stockholders in determining our taxable income for u.s. federal income tax purposes . as long as our dividends equal or exceed our taxable net income , we generally will not be required to pay u.s. federal income tax on such income . the tax cuts and jobs act was enacted in december 2017 and is generally effective for tax years beginning in 2018. see also item 1a , `` risk factors , '' under the caption `` legislative , regulatory or administrative changes could adversely affect us or our stockholders . '' adoption of new or revised accounting standards as an `` emerging growth company '' under the jobs act , we can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an `` emerging growth company '' can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . an `` emerging growth company '' may opt out of the extended transition period for complying with new or revised accounting standards . a decision to opt out , however , is irrevocable . we have elected not to opt out of such extended transition period , which means that when a standard is issued or revised and it has different application dates for public or private companies , we can adopt the standard for the private company . this may make comparison of our financial statements with a public company that either is not an `` emerging growth company '' or is an `` emerging growth company '' that has opted out of using the extended transition period difficult or impossible as different or revised accounting standards may be used . impact of real estate and credit markets in the commercial real estate market , property prices generally continue to fluctuate . likewise , during certain periods , the u.s. credit markets have experienced significant price volatility , dislocations , and liquidity disruptions , which may impact our access to and cost of capital . we continually monitor the commercial real estate and u.s. credit markets carefully and , if required , will make decisions to adjust our business strategy accordingly . off-balance sheet arrangements we have no unconsolidated investments or any other off-balance sheet arrangements story_separator_special_tag the carrying amount of a long-lived asset to be held and used is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset . impairment indicators or triggering events for long-lived assets to be held and used are assessed by project and include significant fluctuations in estimated net operating income , occupancy changes , significant near-term lease expirations , current and historical operating and or cash flow losses , construction costs , estimated completion dates , rental rates , and other market factors . we assess the expected undiscounted cash flows based upon numerous factors , including , but not limited to , construction costs , available market information , current and historical operating results , known trends , current market/economic conditions that may affect the property , and our assumptions about the use of the asset , including , if necessary , a probability-weighted approach if multiple outcomes are under consideration . upon determination that an impairment has occurred , a write-down is recognized to reduce the carrying amount to its estimated fair value . if an impairment loss is not required to be recognized , the recognition of depreciation is adjusted prospectively , as necessary , to reduce the carrying amount of the real estate to its estimated disposition value over the remaining period that the real estate is expected to be held and used . we may adjust depreciation of properties that are expected to be disposed of or redeveloped prior to the end of their useful lives . revenue recognition our existing tenant leases and future tenant leases are generally expected to be triple-net leases , an arrangement under which the tenant maintains the property while paying us rent and property management fees . we account for our leases as operating leases . under this method , leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term , unless the collectability of minimum lease payments is not reasonably predictable . rental increases based upon changes in the cpi are recognized only after the changes in the indexes have occurred and are then applied according to the lease agreements . contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses will be included in tenant reimbursements in the period when such costs are incurred . contractually obligated real estate taxes that are paid directly by the tenant to the tax authorities are not reflected in our consolidated financial statements . 53 we record revenue for each of our properties on a cash basis due to the uncertainty of collectability of lease payments from each tenant due to its limited operating history and the uncertain regulatory environment in the united states relating to the medical-use cannabis industry . stock-based compensation stock-based compensation for equity awards is based on the grant date fair value of the equity instrument and is recognized over the requisite service period . if awards are forfeited prior to vesting , we reverse any previously recognized expense related to such awards in the period during which the forfeiture occurs and reclassify any non-forfeitable dividends previously paid on these awards from retained earnings to compensation expense . income taxes we have been organized to operate our business so as to qualify to be taxed as a reit , for u.s. federal income tax purposes , commencing with our taxable year ended december 31 , 2017. under the reit operating structure , we are permitted to deduct dividends paid to our stockholders in determining our taxable income for u.s. federal income tax purposes . as long as our dividends equal or exceed our taxable net income , we generally will not be required to pay u.s. federal income tax on such income . the tax cuts and jobs act was enacted in december 2017 and is generally effective for tax years beginning in 2018. see also item 1a , `` risk factors , '' under the caption `` legislative , regulatory or administrative changes could adversely affect us or our stockholders . '' adoption of new or revised accounting standards as an `` emerging growth company '' under the jobs act , we can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an `` emerging growth company '' can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . an `` emerging growth company '' may opt out of the extended transition period for complying with new or revised accounting standards . a decision to opt out , however , is irrevocable . we have elected not to opt out of such extended transition period , which means that when a standard is issued or revised and it has different application dates for public or private companies , we can adopt the standard for the private company . this may make comparison of our financial statements with a public company that either is not an `` emerging growth company '' or is an `` emerging growth company '' that has opted out of using the extended transition period difficult or impossible as different or revised accounting standards may be used . impact of real estate and credit markets in the commercial real estate market , property prices generally continue to fluctuate . likewise , during certain periods , the u.s. credit markets have experienced significant price volatility , dislocations , and liquidity disruptions , which may impact our access to and cost of capital . we continually monitor the commercial real estate and u.s. credit markets carefully and , if required , will make decisions to adjust our business strategy accordingly . off-balance sheet arrangements we have no unconsolidated investments or any other off-balance sheet arrangements
| the increase in property expenses primarily related to properties that we acquired in 2018. general and administrative expense . general and administrative expense for the year ended december 31 , 2018 increased by approximately $ 878,000 , or 16 % , to approximately $ 6.4 million , compared to $ 5.5 million for the year ended december 31 , 2017. the increase in general and administrative expense was primarily due to higher cash compensation to employees and higher public company costs , travel and occupancy costs , partially offset by a decrease in non-cash stock-based compensation . compensation expense for the year ended december 31 , 2018 and 2017 included approximately $ 1.5 million and $ 1.7 million , respectively , of non-cash stock-based compensation . severance . during the year ended december 31 , 2017 , we incurred $ 113,000 in severance expense related to the cessation of employment of one of our executive officers in june 2017. depreciation expense . the increase in depreciation expense was related to depreciation on properties that we acquired in 2017 and 2018 , the placement into service of our property in michigan that was previously under construction , and the placement into service of tenant improvements at certain of our properties . interest and other income . interest and other income primarily related to interest earned on our short-term investments and cash and cash equivalents . the increase in interest and other income was due to amortization of discounts on short-term investments and higher interest bearing investments and cash balances , as a result of the net proceeds received from our series a preferred stock in 2017 and common stock offerings completed in 2017 and 2018. preferred stock dividend . preferred stock dividend relates to dividends for our series a preferred stock , which we issued in october 2017. liquidity and capital resources liquidity is a measure of our ability to meet potential cash requirements . we expect to use significant cash to acquire our target properties , pay dividends to our stockholders , fund our
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in addition , over the past several years our teammate turnover has remained relatively constant , which we believe was a major contributor to our continued clinical performance improvements and also a major driver in our ability to improve productivity in 2010. we will continue to focus on these stakeholders and our clinical outcomes as we believe these are fundamental long-term value drivers . our overall financial performance was solid for 2010 and was characterized by the following as compared to 2009 : consolidated revenue growth of approximately 6.0 % ; an increase of approximately 6.0 % in the overall number of treatments that we provided ; consolidated operating income growth of approximately 6.0 % ; and strong operating cash flows of $ 840 million . however , we believe that 2011 will be more challenging as we implement medicare 's new payment system that began in january 2011 , in which all esrd payments will be made under a single bundled payment rate that provides for an annual inflation adjustment based upon a market basket index , less a productivity improvement factor . the new bundled payment rate provides a fixed rate to encompass all goods and services provided during the dialysis treatment , including pharmaceuticals that were historically separately reimbursed irrespective of the level of pharmaceuticals administered or additional services performed . approximately 94 % of our 2010 consolidated net operating revenues were derived directly from our dialysis and related lab services business . approximately 83 % of our 2010 dialysis and related lab services revenues were derived from outpatient hemodialysis services in the 1,580 centers that we consolidate . other dialysis services , which are operationally integrated with our dialysis operations , are peritoneal dialysis , home-based hemodialysis , hospital inpatient hemodialysis services and management and administrative services . these services collectively accounted for the balance of our 2010 dialysis and related lab services revenues . our other business operations include ancillary services and strategic initiatives which are primarily aligned with our core business of providing kidney dialysis services to our network of patients . these consist primarily of pharmacy services , infusion therapy services , disease management services , vascular access services , esrd clinical research programs and physician services . these services generated approximately $ 374 million of net operating revenues in 2010 , representing an 18 % increase as compared to 2009. the ancillary services and strategic initiatives net operating revenues in 2010 accounted for approximately 6 % of our consolidated net operating revenues . operating losses from our ancillary services and strategic initiatives decreased from $ 12 million in 2009 to $ 6 million in 2010 , primarily as a result of improved profitability in our pharmacy and disease management businesses . we currently expect to continue to invest in our ancillary services and strategic initiatives as we work to develop successful new business operations . however , any significant change in market conditions , business performance or in the regulatory environment may impact the economic viability of any of these strategic initiatives . any unfavorable changes could result in a write-off or an impairment of some or all of our investments , including goodwill , in these strategic initiatives , or could also result in significant termination costs if we were to exit a certain line of business . the principal drivers of our dialysis and related lab services revenues are : the number of treatments , which is primarily a function of the number of chronic patients requiring approximately three treatments per week , as well as , to a lesser extent , the number of treatments for peritoneal dialysis services and home-based dialysis and hospital inpatient dialysis services ; average dialysis revenue per treatment ; and the number of laboratory patient tests . 41 the total patient base is a relatively stable factor , which we believe is influenced by a demographically growing need for dialysis services , our relationships with referring physicians together with the quality of our clinical care , and our ability to open and acquire new centers . in 2010 , we were able to increase our overall network of patients that we serviced by approximately 6 % as compared to 2009. average dialysis and related lab services revenue per treatment in 2010 and prior was primarily driven by our mix of commercial and government ( principally medicare and medicaid ) patients , the mix and intensity of physician-prescribed pharmaceuticals , commercial and government payment rates , and our billing and collecting operations performance . beginning in 2011 , with the implementation of medicare 's new single bundled payment rate system , the intensities of physician-prescribed pharmaceuticals will have a lesser impact on our average dialysis and related lab services revenue per treatment since payment for these pharmaceuticals will be included in the bundled payment . on average , payment rates from commercial payors are significantly higher than medicare , medicaid and other government program payment rates , and therefore the percentage of commercial patients to total patients represents a major driver of our total average dialysis revenue per treatment . the percentage of commercial patients covered under contracted plans as compared to commercial patients with out-of-network providers can also significantly affect our average dialysis revenue per treatment . in 2010 , the growth of our government-based patients continued to outpace the growth of our commercial patients , which has been a trend that we have experienced for the past two years . we believe the growth in our government-based patients is driven primarily by improved mortality and the current economic recession . this trend has negatively impacted our average dialysis revenue per treatment as a result of receiving a larger proportion of our revenue from lower payment rates associated with these additional government-based patients . story_separator_special_tag the following table summarizes our dialysis and related lab services revenues for the year ended december 31 , 2010 : revenues medicare and medicare-assigned plans 57 % medicaid and medicaid-assigned plans 6 % other government-based programs 3 % total government-based programs 66 % commercial ( including hospital dialysis services ) 34 % total dialysis and related lab services revenues 100 % government payment rates are principally determined by federal medicare and state medicaid policy . these payment rates have historically had limited potential for rate increases and are sometimes at risk of reduction as federal and state governments face increasing budget pressures . medicare payment rates for dialysis services through 2008 have not been routinely increased to compensate for the impact of inflation . in july 2008 , mippa was passed by congress that provided dialysis providers with an increase in the composite rate of 1.0 % that went into effect on january 1 , 2009 and an additional 1.0 % that went into effect on january 1 , 2010. this legislation also changed the way medicare will pay for dialysis services in 2011. the new payment system also provides for an annual inflation adjustment based upon a market basket index , less a productivity adjustment , beginning in 2012. also beginning in 2012 , the rule provides for up to a 2 % annual payment withhold that can be earned back by facilities that meet certain defined clinical performance standards . the new payment system reimburses providers based on a single bundled or average payment for each medicare treatment provided . this new bundled payment amount is designed to cover all dialysis services which were historically included in the composite rate and all separately billable esrd services such as pharmaceuticals and laboratory costs . the new bundled payment rate is adjusted for certain patient characteristics , a geographic wage index and certain other factors . this initial 2011 bundled payment rate includes reductions of 2 % and 3.1 % , respectively , to conform to the provisions of mippa and to establish neutrality . further , there is a 5.94 % reduction tied to an expanded list of 42 case mix adjustors which can be earned back based upon the presence of these certain patient characteristics and co-modalities at the time of treatment . there are also other provisions which may impact payment including an outlier pool and a low volume facility adjustment . we are now at risk for variations in pharmaceutical utilization since reimbursement is set at a fixed average reimbursement rate . dialysis payment rates from commercial payors can vary significantly and a major portion of our commercial rates are set at contracted amounts with large payors and are subject to intense negotiation pressure . our commercial payment rates also include payments for out-of-network patients that on average are higher than our in-network contract rates . in 2010 , we were successful in increasing some of our commercial payment rates which contributed to an increase in our average dialysis revenue per treatment and helped offset some of the overall decline in our average dialysis revenue per treatment . in 2010 , we also entered into several new commercial contracts with certain commercial payors that will primarily pay us a single bundled payment rate for all dialysis services provided to patients covered by the commercial insurance plans . these contracts contain annual escalators and effectively eliminate all payments for out-of-network patients . we are continuously in the process of negotiating agreements with our commercial payors and payors are aggressive in their negotiations . if our negotiations result in overall commercial rate reductions in excess of overall commercial rate increases , this would have a material adverse effect on our operating results . in addition , if there are sustained or increased job losses in the united states as a result of current economic conditions , or depending upon changes to the healthcare regulatory system , we could experience a decrease in the number of patients under commercial plans . approximately 26 % of our dialysis and related lab services revenues for the year ended december 31 , 2010 were from physician-prescribed pharmaceuticals , with epo accounting for approximately 18 % of our dialysis and related lab services revenues . therefore , in 2010 and prior , changes in physician practice patterns , pharmaceutical protocols , pharmaceutical intensities and changes in commercial and governmental payment rates for epo significantly influenced our revenue . for example , in 2010 , the intensities of physician-prescribed pharmaceutical decreased significantly from 2009 , which negatively impacted our average dialysis revenue per treatment . beginning in january 2011 , the majority of our pharmaceuticals will no longer be separately billable as a result of the new medicare single bundled payment rate system and as a result of some of our new commercial contracts that also implemented single bundled payment rates . our operating performance with respect to dialysis services billing and collection can also be a significant factor in the average dialysis and related lab services revenue per treatment we actually realize . over the past several years we have invested heavily in new systems and processes that we believe have helped improve our operating performance and reduced our regulatory compliance risks and we expect to continue to improve these systems . in 2010 , we continued to upgrade our systems and implemented process changes and will continue to do so in 2011 to effectively capture the necessary patient characteristics and certain other factors under medicare 's new bundled payment system . we believe this will help minimize reductions in our reimbursement amounts from medicare and enhance our overall billing and collection performance associated with our payors . however , as we implement these system upgrades , our collection performance as well as our dialysis and related lab services revenue per treatment could be negatively impacted . our revenue recognition involves significant estimation risks .
| consolidated net operating revenues for 2009 increased by approximately $ 449 million or approximately 7.9 % from 2008. this increase was primarily due to an increase in dialysis and related lab services net revenues of approximately $ 377 million , principally due to an increase in the number of treatments , and an increase of approximately $ 72 million in the ancillary services and strategic initiatives net revenues driven primarily from growth in our pharmacy services , disease management services and from our infusion therapy services . consolidated operating income consolidated operating income of $ 997 million for 2010 increased by approximately $ 57 million , or 6.1 % , from 2009. this increase was primarily attributable to an increase in revenue as a result of additional treatments from non-acquired growth and acquisitions in dialysis and related lab services , partially offset by a decline in our average dialysis revenue per treatment of approximately $ 3 , as described below . operating income also increased as a result of continued cost control initiatives , improved productivity , overall lower pharmaceutical costs and lower operating losses in our ancillary services and strategic initiatives , partially offset by the negative impact of a decline in the intensities of physician-prescribed pharmaceuticals , higher labor costs and increases in other operating costs of our dialysis centers . consolidated operating income of $ 940 million for 2009 increased by approximately $ 71 million , or 8.2 % , from 2008. this increase was primarily attributable to an increase in revenue as a result of non-acquired treatment growth in dialysis and related lab services , as well as an increase in our average dialysis revenue per treatment of approximately $ 6 as described below . operating income also increased as a result of cost control initiatives , improved productivity and lower operating losses in our ancillary services and strategic initiatives , which losses were reduced by approximately $ 18 million in 2009 , partially offset by the negative impact of higher pharmaceutical , labor and benefit costs , and increases in other operating costs of our dialysis centers . 46 operating segments dialysis and related lab services replace_table_token_9_th net operating revenues dialysis and related lab services net operating revenues for 2010 increased by approximately $ 281 million or approximately 4.9 % from
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