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the constant currency basis assumes that the exchange rate was constant for the periods presented ( in thousands ) : for the years ended december 31 , 2019 vs. 2018 changes in : revenue $ ( 493 ) costs of revenue and operating expenses 1,626 income from operations $ 1,133 the net effect of our foreign currency exchange rate changes for the year ended december 31 , 2019 was a $ 0.5 million decrease in revenue and a $ 1.6 million increase in operating expenses versus the year ended december 31 , 2018 was due to a stronger us dollar on average during the year 2019. story_separator_special_tag serif ; margin : 0pt 0 ; text-indent : 0.5in '' > product development product development expenses consist primarily of labor-related costs . product development expenses increased 10 % , or $ 0.4 million , to $ 4.6 million for the year ended december 31 , 2019 from $ 4.2 million for the year ended december 31 , 2018. the increase is primarily related to $ 1.0 million of additional work by the technical staff in building and enhancing our product offerings . this was partially offset by reduction in staff of $ 0.5 million and incentive compensation of $ 0.1 million . as a percentage of total revenue , product development expenses increased to 18 % for the year ended december 31 , 2019 from 14 % for the year ended december 31 , 2018. the increase in product development expenses as a percentage of revenue is primarily due to the aforementioned higher costs . depreciation depreciation expense consists of depreciation of long-lived property and equipment . depreciation expense increased 57 % , or $ 0.1 million , to $ 0.2 million for the year ended december 31 , 2019 from $ 0.1 million for the year ended december 31 , 2018. the increase of expense was due to expenditures made to acquire additional computer hardware . as a percentage of revenue , depreciation expense increased to 1 % for the year ended december 31 , 2019 from less than 1 % for the year ended december 31 , 2018. the increase is related to the cost as proportioned to the lower revenues . amortization amortization expense consists of amortization of identifiable intangibles related to our acquisitions of evolving systems labs , evolving systems nc , evol bls , and the lumata entities . amortization expense decreased 3 % , or less than $ 0.1 million , to $ 1.0 million for the year ended december 31 , 2019 from $ 1.0 million for the year ended december 31 , 2018. as a percentage of revenue , amortization expense increased to 4 % for the year ended december 31 , 2019 from 3 % for the year ended december 31 , 2018. the increase is related to the cost as proportioned to the lower revenues . goodwill impairment loss goodwill impairment losses were recorded as a result of goodwill impairment analysis conducted since our market capitalization declined to a level that was less than the net book value of our stockholders ' equity . the company recorded a $ 6.7 million write-off of all goodwill in the fiscal year ended december 31 , 2019. this is a decrease from the $ 17.8 million goodwill impairment loss recorded in fiscal year ended december 31 , 2018. interest expense interest expense includes the amortization of debt issuance costs and interest expense from our term loans . interest expense for the year ended december 31 , 2019 decreased 34 % , or $ 0.2 million , to $ 0.3 million as compared to $ 0.5 million for the year ended december 31 , 2018. the decrease was related to the reduction of the outstanding balance of term loans which included the retirement of the older note . the decrease in interest expense as a percentage of revenue is primarily due to the aforementioned lower costs . other ( expense ) income for the year ended december 31 , 2019 , we had $ 0.1 million in other income , net , which consisted of mostly of the net proceeds from settlement of insurance claim after legal fees regarding coverage on the dispute settled with a former ssm contractor . this was a decrease of $ 0.3 million in other income from year ended december 31 , 2018 which consisted of : ( 1 ) when we acquired telespree on october 24 , 2013 , we agreed to make a final cash payment on october 24 , 2014 of $ 0.5 million . this payment was subject to reduction for certain claims and we notified the seller 's representative that we were asserting claims against the final cash payment and the contractually agreed time period has lapsed . accordingly , we eliminated the liability as of june 30 , 2018 and recognized $ 0.5 million gain in other income ; ( 2 ) at the end of the second quarter we agreed to a mutual release and settlement agreement and a contribution agreement ( the “ ssm agreements ” ) with certain parties related to our september 30 , 2015 acquisition of ssm . the ssm agreements settled a dispute with a former ssm contractor , of which $ 0.1 million was on the company 's behalf and recorded as other expense ; ( 3 ) when we acquired evol bls on july 3 , 2017 , we agreed to make up to three annual cash payments equal to 50 % of the evol bls revenue in excess of $ 4.8 million for the 12-month periods ending july 3 , 2018 , 2019 and 2020. the company also agreed to guarantee the evol bls obligations under the purchase agreement . as of june 30 , 2018 , evol bls has exceeded their projected revenues and we estimated the total annual cash payments for the three 12-month periods to be $ 0.8 million , which is a $ 0.4 million increase . story_separator_special_tag we recognized $ 0.4 million in interest expense as a result of our increased obligation , and ( 4 ) $ 0.4 million in other income from eliminating certain allowances , unearned revenue and accrued liabilities that primarily came from the bls and lumata entities at the time of our acquisition . foreign currency exchange losses resulting from transactions denominated in a currency other than the functional currency of the respective subsidiary increased 156 % , or $ 1.3 million , to a $ 0.5 million loss for the year ended december 31 , 2019 compared to a $ 0.8 million gain for the year ended december 31 , 2018 that was generated primarily through the re-measurement of certain non-functional currency denominated financial assets and liabilities of our foreign subsidiaries . 25 income tax expense we recorded net income tax expense of $ 1.1 million for the year ended december 31 , 2019 and net income tax benefit of $ 0.4 million for the year ended december 31 , 2018. the net expense for the year ended december 31 , 2019 consisted of current tax expense of $ 0.8 million related to $ 0.3 million income tax expense incurred by our indian based operations and $ 1.3 million of foreign taxes paid for with holdings of local taxes that could not be used as a tax credit due to the current year losses offset by research and development credits from our u.k. based operations of $ 0.5 million . also offset by the amt refund of $ 0.4 million . deferred tax expense of $ 0.4 million related to us tax refund of amt credits . the net benefit during the year ended december 31 , 2018 consisted of current income tax expense of $ 0.5 million and a deferred tax benefit of $ 0.9 million . the current tax expense consists of income tax primarily from our u.s. and u.k. based operations . the deferred tax benefit primarily consists of benefits from establishing deferred tax assets of $ 0.5 million for our foreign tax credit ( “ ftc ” ) carryforwards , $ 0.2 million for net operating losses from certain u.k. subsidiaries that are expected to be used by another u.k. subsidiary and $ 0.2 million decrease in net deferred tax liabilities . we use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return . for those benefits to be recognized , a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities . as of december 31 , 2019 , and 2018 , we had no liability for unrecognized tax benefits . we do not believe there will be any material changes to our unrecognized tax positions over the next twelve months . financial condition our working capital position decreased 53 % , or $ 4.3 million to $ 3.8 million at december 31 , 2019 from $ 8.1 million at december 31 , 2018. the decrease in working capital is related to the decrease in cash and unbilled work in progress partially offset by reduction in the short term portion of term loan and accounts payable . liquidity and capital resources we have historically financed operations through cash flows from operations as well as debt and equity transactions . at december 31 , 2019 , our principal sources of liquidity were $ 3.1 million in cash and cash equivalents and $ 6.7 million in contract receivables , net of allowances . our anticipated uses of cash in the future will be to fund the expansion of our business through both organic growth as well as possible acquisition activities , the expansion of our customer base internationally , and term loan payments . other uses of cash may include capital expenditures and technology expansion . during 2017 , in connection with the acquisition of the lumata entities , evol holdings entered into a term loan facility agreement , a debenture and a subordination deed with east west bank as lender in the amount of $ 4.7 million ( the “ lumata facility ” ) . we used the full amount of the lumata facility to fund the acquisition . the lumata facility requires the company to make monthly principal payments of approximately $ 131,400 that commenced on july 31 , 2018 and interest at the greater of ( a ) 3.5 % or ( b ) the variable rate of interest that appears in the wall street journal on a monthly measurement date , plus in either case 1.5 % . the lumata facility is secured by substantially all of the assets of the company . on september 24 , 2019 the company agreed in principle to the terms of a new amendment and on october 4 , 2019 , we entered into the first amendment ( “ first amendment ” ) to the lumata facility . the purpose of the first amendment was to waive certain events of non-compliance with respect to covenants not achieved in prior periods and to amend future covenant requirements . the first amendment also required evolving systems to make an advance payment of principal of $ 666,666.66. the remaining terms and conditions of the lumata facility and payment schedule remain unchanged . the company also agreed to pay east west bank 's legal fees in connection with the transaction . the unpaid balance of the lumata facility is scheduled to be paid off on january 31 , 2021. on february 29 , 2016 , we retired our previous revolving credit facility and we entered into a term loan agreement with east west bank ( “ term loan ” ) for $ 6.0 million .
| costs of revenue , excluding depreciation and amortization costs of revenue , excluding depreciation and amortization , consist primarily of personnel costs and other direct costs associated with these personnel , facilities costs , costs of third-party software and partner commissions . costs of revenue includes product development expenses related to software features requested in advance of their scheduled availability which are funded by customers as part of a managed service offering . costs of revenue , excluding depreciation and amortization decreased $ 1.7 million , or 16 % , to $ 8.7 million for the year ended december 31 , 2019 from $ 10.4 million for the year ended december 31 , 2018. the decrease in revenues has allowed for experienced resources to work on product development and other internal projects . this has caused a decrease in costs of $ 1.1 million . reduction in third party consultants and software charges from the prior year were $ 0.4 million and reduction in incentive compensation and recognition programs were $ 0.2 million . as a percentage of revenue , cost of revenue , excluding depreciation and amortization was 34 % for the year ended december 31 , 2019 and 2018. this was primarily due to the aforementioned reduction of costs . sales and marketing sales and marketing expenses primarily consist of compensation costs , including incentive compensation and commissions , travel expenses , advertising , marketing and facilities expenses . sales and marketing expenses increased 13 % , or $ 0.9 million , to $ 7.5 million for the year ended december 31 , 2019 from $ 6.6 million for the year ended december 31 , 2018. the increase in expenses is attributable to $ 0.5 million in costs from additional staff and increased travel expense of $ 0.1 million to facilitate meeting existing and potential new customers , along with an increase in marketing spend of $ 0.3 million . as a percentage of total revenue , sales and marketing expenses for the year ended december 31 , 2019 increased to 29 % from 22 %
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based on clinical data , we expect that rhopressa ® will have the potential to compete with non-pga products as a preferred adjunctive therapy to pgas , due to its targeting of the diseased tm , its demonstrated ability to reduce iop at consistent levels across tested baselines , and its preferred once-daily dosing relative to currently marketed non-pga products . adjunctive therapies currently represent nearly one-half of the glaucoma prescription market in the united states , according to iqvia . we believe that rhopressa ® may also become a preferred therapy where pgas are contraindicated , for patients who do not respond to pgas and for patients who choose to avoid the cosmetic issues associated with pga products . we resubmitted our nda for rhopressa ® to the fda on february 28 , 2017 , and received approval from the fda on december 18 , 2017 , two months earlier than the scheduled pdufa date of february 28 , 2018. fda approval was based on efficacy data from three phase 3 registration trials for rhopressa ® , rocket 1 , rocket 2 and rocket 4 , in which once-daily rhopressa ® was demonstrated to be non-inferior to twice-daily timolol . in addition , the 12-month safety data from the rocket 2 registration trial confirmed a favorable safety profile for the drug and demonstrated a consistent iop-reducing effect throughout the 12-month period at the specified measurement time points . we also included as supportive data the 90-day efficacy results of our mercury 1 trial for roclatan tm , further discussed below , with the nda submission for rhopressa ® . our rocket 4 trial for rhopressa ® was designed to generate adequate six-month safety data for european regulatory approval , along with efficacy and safety data from our other phase 3 registration trials for rhopressa ® , rocket 1 and rocket 2. we expect to file an maa for rhopressa ® with the ema in the second half of 2018. we also initiated phase 1 and phase 2 clinical trials in the united states in the fourth quarter of 2017 , which are designed to meet the requirements of japan 's pmda for potential regulatory submission of rhopressa ® in japan . these clinical trials enrolled japanese and japanese-american subjects to support subsequent phase 3 registration trials that are expected to be conducted in japan . roclatan tm our advanced-stage product candidate , roclatan tm , is a once-daily fixed-dose combination of rhopressa ® and latanoprost . we believe , based on our clinical data , that roclatan tm has the potential to provide a greater iop-reducing effect than any currently marketed glaucoma medication . therefore , we believe that roclatan tm , if approved , could compete with both pga and non-pga therapies and become the product of choice for patients requiring maximal iop reduction , including those with higher iops and those who present with significant disease progression despite use of currently available therapies . we have completed two phase 3 registration trials for roclatan tm . the first phase 3 registration trial for roclatan tm , named “ mercury 1 , ” was a 12-month safety trial with a 90-day efficacy readout . mercury 1 achieved its primary efficacy endpoint of demonstrating statistical superiority of roclatan tm to each of its components , including rhopressa ® and the market-leading pga , latanoprost , and the safety and tolerability results showed no drug-related serious adverse events . on july 19 , 2017 , we announced the mercury 1 12-month safety results , noting the safety results for roclatan tm showed no treatment-related serious adverse events and minimal evidence of treatment-related systemic effects . there were no new adverse events that developed over the 12-month period relative to the 90-day results , and there were no drug-related serious or systemic adverse events . the second phase 3 registration trial for roclatan tm , named “ mercury 2 , ” was a 90-day efficacy and safety trial also designed to demonstrate statistical superiority of roclatan tm to each of its components . the mercury 2 trial design was identical to that of mercury 1 , except that mercury 2 was a 90-day trial without the additional nine-month safety extension included in mercury 1. both mercury 1 and mercury 2 achieved their 90-day primary efficacy endpoints of demonstrating statistical superiority of roclatan tm over each of its components at all measured time points in patients with maximum baseline iops of above 20 mmhg to below 36 mmhg . we expect to submit an nda for roclatan tm to the fda in the second quarter of 2018. mercury 1 and mercury 2 will also be used for european approval of roclatan tm , and we initiated a third phase 3 registration trial for roclatan tm , named “ mercury 3 , ” in europe during the third quarter of 2017. mercury 3 , a six-month safety trial , is designed to compare roclatan tm to ganfort ® , a fixed-dose combination product of bimatoprost , a pga , and timolol marketed in europe . if successful , mercury 3 is expected to improve our commercialization prospects in europe . we currently expect to read out topline 90-day efficacy data for the trial in the first half of 2019 and to submit an maa with the ema for roclatan tm by the end of 2019 . 66 pipeline opportunities our stated objective is to build a major ophthalmic pharmaceutical company . we are evaluating possible uses of our existing proprietary portfolio of rho kinase inhibitors beyond glaucoma and ophthalmology . our owned preclinical small molecule , ar-13503 ( an earlier generation of which was known as ar-13154 ) , has demonstrated the potential for the treatment of diabetic retinopathy and wet amd by inhibiting rho kinase and protein kinase c. as the active metabolite of ar-13154 ( s ) , ar-13503 has shown lesion size decreases in an in vivo preclinical model of wet amd at levels similar to the current market-leading wet amd anti-vegf product . story_separator_special_tag when used in combination with the market-leading anti-vegf product , ar-13503 produced greater lesion size reduction than the anti-vegf product alone in a model of proliferative diabetic retinopathy . this molecule has not yet been tested in humans in a clinical trial setting . pending additional studies , ar-13503 may have the potential to provide an entirely new mechanism and pathway to treat diabetic retinopathy , wet amd and related diseases of the retina , such as dme . we expect to submit an ind for ar-13503 in 2019. since ar-13503 is a small molecule with a short half-life , and the aforementioned diseases are located in the back of the eye , a delivery mechanism is needed to deliver the molecule to the back of the eye for a sustained delivery period . to that end , on july 31 , 2017 , we announced that we entered into a collaborative research , development and licensing agreement with dsm , a global science-based company headquartered in the netherlands . the research collaboration agreement includes an option to license dsm 's bio-erodible polymer implant technology for sustained delivery of certain aerie compounds to treat ophthalmic diseases . this technology uses polyesteramide polymers to produce an injectable , thin fiber that is minute in size . preclinical experiments have demonstrated early success in conjunction with ar-13503 , including demonstration of linear , sustained elution rates over several months and achievement of target retinal drug concentrations . further , on october 4 , 2017 , we acquired the rights to use print ® technology in ophthalmology and certain other assets from envisia . the print ® technology is a proprietary system capable of creating precisely-engineered sustained release products utilizing fully-scalable manufacturing processes . in addition , we acquired envisia 's intellectual property rights relating to envisia 's preclinical dexamethasone steroid implant for the potential treatment of dme that also utilizes the print ® technology , which we refer to as ar-1105 . we expect to submit an ind for ar-1105 in late 2018. we will also focus on using print ® to manufacture injectable implants containing ar-13503 , potentially in conjunction with the bio-erodible polymer from dsm . we may continue to enter into research collaboration arrangements , license , acquire or develop additional product candidates and technologies to broaden our presence in ophthalmology , and we continually explore and discuss potential additional opportunities for new ophthalmic products , delivery alternatives and new therapeutic areas with potential partners . we are currently focused on the evaluation of technologies for the delivery of our owned molecules to the back of the eye over sustained periods . we are also currently screening our owned library of rho kinase inhibitors for indications beyond ophthalmology , considering third-party studies and trials have demonstrated potential for rho kinase inhibition in treating certain disease categories . we are initially focused on exploring potential opportunities for our molecules in pulmonary health , dermatology and cancers . financial overview our cash , cash equivalents and investments totaled $ 249.7 million as of december 31 , 2017 , and we have subsequently raised an additional $ 136.2 million through a now-completed “ at-the-market ” offering and through sales of our common stock pursuant to an underwriting agreement dated january 23 , 2018 related to a registered public offering . we believe our cash and investments balances are adequate to provide for our current ongoing needs , though there may be need for additional financing activity as we continue to grow , including the potential use of a line of credit to finance the potential growth in our inventories and accounts receivable once rhopressa ® is launched , which we expect to be in the mid-second quarter of 2018. see “ —liquidity and capital resources ” below for further discussion . we have incurred net losses since our inception in june 2005. to date , we have not generated any revenue . we received fda approval for rhopressa ® on december 18 , 2017 , and expect to launch rhopressa ® in the united states in mid-second quarter of 2018. as a result , we expect to commence generating product revenues from sales of rhopressa ® in mid-2018 . we will not generate any revenue from roclatan tm or any future product candidates unless and until we obtain regulatory approval and commercialize such products . historically , our operations have primarily been limited to research and development and raising capital . as of december 31 , 2017 , we had an accumulated deficit of $ 461.7 million . we recorded net losses of $ 145.1 million , $ 99.1 million and $ 74.4 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . our capital resources and business efforts are largely focused on preparation for commercialization of rhopressa ® , advancing our product pipeline , international expansion 67 and construction of our manufacturing facility in athlone , ireland . as a result , we expect to continue to incur operating losses until such a time when rhopressa ® is , or roclatan tm or any other products that may be approved in the future are , commercially successful , if at all . if we do not successfully commercialize rhopressa ® or roclatan tm or any future product candidates , if approved , we may be unable to generate product revenue or achieve profitability . we may be required to obtain further funding through public or private offerings , debt financing , collaboration and licensing arrangements or other sources . adequate additional funding may not be available to us on acceptable terms , or at all . if we are unable to raise capital when needed or on acceptable terms , we may be forced to delay , reduce or eliminate our research and development programs or commercialization or manufacturing efforts .
| excluding the impact of the envisia asset acquisition , research and development expenses decreased by $ 5.1 million primarily related to the completion of the phase 3 registration trials for rhopressa ® and roclatan tm for u.s. approval , partially offset by expenses incurred for roclatan tm registration trials for european approval and for rhopressa ® clinical trials designed for potential future approval in japan . research and development expenses for rhopressa ® totaled $ 5.3 million and $ 12.0 million for the years ended december 31 , 2017 and 2016 , respectively . research and development expenses for roclatan tm totaled $ 7.5 million and $ 15.4 million for the years ended december 31 , 2017 and 2016 , respectively . in addition , employee-related expenses increased by $ 6.4 million for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 due to an increase in headcount to support the growth of our operations . other income ( expense ) , net other income ( expense ) , net consists of the following : replace_table_token_7_th other income ( expense ) , net decreased by $ 0.8 million for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 . the decrease was primarily related to additional interest income for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 due to the increase in our cash , cash equivalents and investments , partially offset by an increase in unrealized foreign exchange loss included in other expense related to the remeasurement of our euro-denominated build-to-suit lease obligation , which is held by a subsidiary with a u.s. dollar functional currency . 72 comparison of the years ended december 31 , 2016 and 2015 the following table summarizes the results of our operations for the years ended december 31 , 2016 and 2015 : replace_table_token_8_th selling , general and administrative expenses selling , general and administrative expenses increased by $ 13.8 million for the year ended
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abaloparatide-sc tymlos was approved in the united states in april 2017 for the treatment of postmenopausal women with osteoporosis at high risk for fracture . the first commercial sales of tymlos in the united states occurred in may 2017 and as of february 2018 , tymlos was available and covered for approximately 259 million u.s. insured lives , representing approximately 86 % of u.s. insured lives . we are commercializing tymlos in the united states through our commercial organization . we have built a distribution network for tymlos in the united states , comprised of well-established distributors and specialty pharmacies . under our distribution model , both the distributors and specialty pharmacies take physical delivery of tymlos and the specialty pharmacies dispense tymlos directly to patients . we hold worldwide commercialization rights to abaloparatide-sc , except for japan , where we have an option to negotiate a co-promotion agreement with teijin for abaloparatide-sc . the combined 25-month fracture data from our phase 3 clinical trial program for tymlos formed the basis of our regulatory submissions in the united states and europe . in november 2015 , we submitted a marketing authorisation application ( `` maa '' ) for abaloparatide-sc to the ema , which was validated and is currently undergoing active regulatory assessment by the chmp . in december 2017 , the chmp issued a third day-180 list of outstanding issues . as part of its on-going risk-benefit assessment , the chmp informed the company that it intends to refer the maa to a scientific advisory group for additional advice . we expect that the chmp may adopt an opinion regarding our maa during the first half of 2018. we intend to enter a collaboration for the commercialization of abaloparatide-sc outside of the united states and japan . in may 2017 , we announced positive top-line results from the completed 24-month activextend clinical trial of tymlos , which met all of its primary and secondary endpoints . in activextend , patients who had completed 18 months of tymlos ( abaloparatide ) injections or placebo in the active phase 3 trial were transitioned to receive 24 additional months of open-label alendronate . for the subset of active trial patients ( n=1139 ) that enrolled in the activextend trial , the previous tymlos-treated patients had a significant 84 % relative risk reduction ( p < 0.0001 ) in the incidence of new vertebral fractures compared with patients who received placebo followed by alendronate . they also demonstrated a 39 % risk reduction in nonvertebral fractures ( p=0.038 ) , a 34 % risk reduction clinical fractures ( p=0.045 ) and a 50 % risk reduction in major osteoporotic fractures ( p=0.011 ) compared with patients who received placebo followed by alendronate . at the 43-month timepoint , for all patients ( n=1645 ) that enrolled in the active trial , tymlos-treated patients had a statistically significant risk reduction in new vertebral fractures ( p < 0.0001 ) , nonvertebral fractures ( p=0.038 ) , clinical fractures ( p=0.045 ) , and major osteoporotic fractures ( p < 0.001 ) , compared with patients who received placebo followed by alendronate . while not a pre-specified endpoint , there was also a statistically significant risk reduction in hip fractures ( p=0.027 ) at the 43-month time point in the tymlos-treated patients , compared with patients who received placebo followed by alendronate . the adverse events reported during the alendronate treatment period were similar between the previous tymlos-treated patients and the previous placebo group . the incidences of cardiovascular adverse events including serious adverse events were similar between groups . there have been no cases of osteonecrosis of the jaw or atypical femoral fracture in the entire tymlos development program . the results from the completed activextend trial were presented at a major scientific meeting in september 2017 and we submitted a labeling supplement in connection with this data to the fda in december 2017. in july 2017 , we entered into a license and development agreement with teijin for abaloparatide-sc in japan . pursuant to the agreement , we received an upfront payment and may receive additional milestone payments upon the achievement of certain regulatory and sales milestones , and a fixed low double-digit royalty based on net sales of abaloparatide-sc in japan during the royalty term . in addition , we have an option to negotiate for a co-promotion agreement with teijin for abaloparatide-sc in japan . in late 2017 , we gained agreement with the fda on the design of a clinical trial in men with osteoporosis which , if successful , will form the basis of a supplemental nda seeking to expand the use of tymlos to treat men with osteoporosis at high risk for fracture . the study will be a randomized , double-blind , placebo-controlled trial that will enroll approximately 225 men with osteoporosis . the primary endpoint is change in lumbar spine bmd at 12 months compared with placebo . in previous clinical trials , tymlos has demonstrated increases in bmd in postmenopausal women . the study will include specialized high-resolution imaging of bone structure in a subset of the study participants . we expect to initiate the trial in the first quarter of 2018. in the first half of 2018 , we plan to initiate a bone histomorphometry study , which would enroll approximately 25 postmenopausal women with osteoporosis to evaluate the early effects of tymlos on tissue-based bone remodeling and structural indices . 62 abaloparatide-patch we are also developing abaloparatide-patch , based on 3m 's patented microstructured transdermal system technology , for potential use as a short wear-time transdermal patch . we hold worldwide commercialization rights to the abaloparatide-patch technology and we are developing abaloparatide-patch toward future global regulatory submissions to build upon the potential success of tymlos . our development strategy for abaloparatide patch is to bridge to the established efficacy and safety of our approved abaloparatide-sc formulation . we commenced a human replicative clinical evaluation of the optimized abaloparatide-patch in december 2015 , with the goal of achieving comparability to abaloparatide-sc . story_separator_special_tag in september 2016 , we presented results from this evaluation of the first and second abaloparatide-patch prototypes , demonstrating that formulation technology can modify the pharmacokinetic profile of abaloparatide , including tmax , half-life ( “ t1/2 ” ) , and area under the curve ( “ auc ” ) . in march 2018 , we announced that through further optimization we had achieved comparability to the abaloparatide-sc profile with a third prototype ( the “ current abaloparatide-patch ” ) . the current abaloparatide-patch optimized the drug-device combination through process improvements , a finalized formulation , selection of a dose ( 300 µg ) , and the introduction of a new clinical applicator . together these changes , which were designed to improve the ease of use and patient experience , resulted in an increased half-life and auc ( 915 pg.hr/ml for the current abaloparatide-patch , compared to 242 pg.hr/ml for the first patch prototype , 645 pg.hr/ml for the second patch prototype , and 936 pg.hr/ml for abaloparatide-sc ) . in january 2018 , we met with the fda to align on a regulatory and development path for registration of abaloparatide-patch . we gained alignment with the agency on a single , pivotal bmd non-inferiority bridging study to support an nda submission . the fda agreed that , depending on the study results , a randomized , open label , active-controlled , non-inferiority phase 3 study of up to 500 patients with postmenopausal osteoporosis at high risk of fracture would be sufficient to gain approval for abaloparatide-patch . the fda confirmed that the primary endpoint will be change in lumbar spine bmd at 12 months and that the non-inferiority margin must preserve 75 % of the active control ( abaloparatide-sc ) based on the lower bound of the 95 % confidence interval . we expect to initiate this pivotal study in mid-2019 and to complete it in 2020. on february 27 , 2018 , we entered into a scale-up and commercial supply agreement with 3m company pursuant to which 3m has agreed to exclusively manufacture phase 3 and global commercial supplies of abaloparatide-patch . elacestrant ( rad1901 ) elacestrant is a serd that we are evaluating for potential use as a once daily oral treatment for hormone-receptor positive breast cancer . we hold worldwide commercialization rights to elacestrant . elacestrant is currently being investigated in women with advanced er-positive and her2-negative breast cancer , the most common subtype of the disease . studies completed to date indicate that the compound has the potential for use as a single agent or in combination with other therapies for the treatment of breast cancer . to date , no dose limiting toxicities have been reported in the elacestrant program . we have completed enrollment in our 18-f fluoroestradiol positron emission tomography ( “ fes-pet ” ) imaging study and dose-escalation part a and expansion study parts b and c phase 1 breast cancer trials . in june 2017 , we discussed the data from these ongoing phase 1 studies with the fda to gain alignment on defining the next steps for our elacestrant breast cancer program , including the design of a phase 2 trial . in this meeting , the fda agreed that a single-arm monotherapy phase 2 study of up to 200 patients , could be appropriate with the primary endpoint being orr , coupled with dor . depending on the study results , which must demonstrate an improvement over then available therapies , this study could be considered a pivotal study for accelerated approval as long as a confirmatory study is ongoing at the time of our nda submission . in october 2017 , the fda granted fast track designation for our elacestrant breast cancer program . in february 2018 we received scientific advice from the european medicines agency ( “ ema ” ) regarding a potential single-arm monotherapy phase 2 trial of elacestrant in patients with er+ , her2- advanced or metastatic breast cancer . in addition , we had a further meeting in february 2018 with the fda regarding the registrational pathway for elacestrant at which we confirmed fda 's guidance for a single-arm study and gained alignment with the agency on an alternative potential comparator study design for our monotherapy program . based on feedback from the ema and the fda , we now intend to conduct a single , randomized , controlled phase 2 trial of elacestrant as a third-line monotherapy in approximately 300 patients with er+/her2- advanced/metastatic breast cancer . patients in the study would be randomized to receive either elacestrant or the investigator 's choice of an approved hormonal agent and the primary endpoint of the study will be progression-free survival ( pfs ) . the study would also include a planned interim pfs analysis . we believe that , depending on results , this single trial would support applications for global marketing approvals for elacestrant as a third-line monotherapy . in addition , depending on results of the interim analysis , the company could seek accelerated approval for elacestrant in the united states . we will provide further study details when the phase 2 study is started , which we expect will be in the second half of 2018. phase 1 - dose-escalation and expansion study 63 in december 2014 , we commenced a phase 1 , multicenter , open-label , multiple-part , dose-escalation study of elacestrant in postmenopausal women with er-positive and her2-negative advanced breast cancer in the united states to determine the recommended dose for a phase 2 clinical trial and to make a preliminary evaluation of the potential anti-tumor effect of elacestrant . part a of this phase 1 study was designed to evaluate escalating doses of elacestrant . the part b expansion cohort was initiated at 400-mg daily dosing in march 2016 to allow for an evaluation of additional safety , tolerability and preliminary efficacy .
| this decrease was primarily a result of a decrease of $ 15.3 million in program spending for the elacestrant investigational drug product , a decrease of $ 15.3 million in program spending related to tymlos , and a decrease of $ 2.4 million of program spending for the abaloparatide-patch investigational drug product . these decreases were partially offset by an increase in compensation related costs due to growth in headcount from 107 research and development employees as of december 31 , 2016 to 131 research and development employees as of december 31 , 2017 . selling , general and administrative expenses —for the year ended december 31 , 2017 , selling , general , and administrative expense was $ 186.7 million , as compared to $ 77.5 million for the year ended december 31 , 2016 , an increase of $ 109.1 million , or 141 % . this increase was primarily due to increased professional support costs of approximately $ 37.3 million , including $ 18.4 million of promotional costs and $ 14.2 million of professional fees related to the commercial launch of tymlos . this increase in spend was also driven by a $ 60.5 million increase in compensation expense , including an increase of $ 5.4 million of non-cash stock-based compensation expense , due to growth in headcount from 130 general and administrative employees as of december 31 , 2016 to 430 selling , general , and administrative employees as of december 31 , 2017 . other ( expense ) , net —for the year ended december 31 , 2017 , other expense , net of other income , was $ 0.2 million , as compared to $ 0.3 million during the year ended december 31 , 2016 . other expense , net of other income , for the year ended december 31 , 2017 consisted primarily of other taxes and foreign currency revaluation losses . the $ 0.3 million of other expense , net of income , for the year ended december 31 , 2016 was primarily due to other taxes . interest income ( expense ) , net —for
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( filed herewith ) 23.2 consent of efp rotenberg , llp ( filed herewith ) 31.1 certification of the chief executive officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 31.2 certification of the principal financial officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.1 certification of the chief executive officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.2 certification of the principal financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 29 s i g n a t u r e s pursuant to the requirements of section 13 and 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . espey mfg . & electronics corp. patrick enright jr. patrick enright jr. president and chief executive officer david o'neil treasurer and principal financial officer david o'neil september 24 , 2015 katrina sparano assistant treasurer katrina sparano september 24 , 2015 howard pinsley chairman of the board howard pinsley september 24 , 2015 barry pinsley director barry pinsley september 24 , 2015 michael w. wool director michael w. wool september 24 , 2015 paul j. corr director paul j. corr september 24 , 2015 alvin o. sabo director alvin o. sabo september 24 , 2015 carl helmetag director carl helmetag september 24 , 2015 30 story_separator_special_tag business outlook management expects revenues in fiscal year 2016 to be consistent with fiscal year 2015 revenues . expectations are for product mix and margins to remain favorable for fiscal year 2016. during fiscal 2015 new orders received by the company were approximately $ 27.7 million . the total backlog at june 30 , 3015 was approximately $ 36.4 million . it is presently anticipated that a minimum of $ 26 million of orders comprising the june 30 , 2015 backlog will be filled during the fiscal year ending june 30 , 2016. the minimum of $ 26 million does not include any shipments which may be made against orders subsequently received during the fiscal year ending june 30 , 2016. see discussions below for further detail on the customer mix included in the backlog . in addition to the backlog , the company currently has outstanding opportunities representing in excess of $ 44.8 million in the aggregate for both repeat and new programs . the outstanding quotations encompass various new and previously manufactured power supplies , transformers , and subassemblies . however , there can be no assurance that the company will acquire any of the anticipated orders described above , many of which are subject to allocations of the united states defense spending and factors affecting the defense industry and industrial locomotive power supply procurement generally . management continues to evaluate our sales strategy including the professional and technical resources necessary to keep pace with the changing market conditions and needs of our customers . the company has added to and re-aligned current sales and engineering resources , in order to focus on penetrating opportunities with new and existing customers . the company continues quoting current and new customers for programs of varying sizes . three significant customers represented 61 % and 59 % of the company 's total sales in fiscal 2015 and 2014 , respectively . these sales are in connection with multiyear programs in which the company is a significant subcontractor . the june 30 , 2015 backlog of $ 36.4 million includes orders from two customers that represent 49 % and 13 % of the total backlog . this high concentration level with two customers presents significant risk . a loss of one of these customers or programs related to these customers could significantly impact the company . historically , a small number of customers have accounted for a large percentage of the company 's total sales in any given fiscal year . management continues to pursue opportunities with current and new customers with an overall objective of lowering the concentration of sales , mitigating excessive reliance upon a single major product of a particular program and minimizing the impact of the loss of a single significant customer . management continues to evaluate its business development functions and potential revised courses of action in order to diversify its customer base . management , along with the board of directors , continues to evaluate the need and use of the company 's working capital . capital expenditures are expected to be approximately $ 250,000 for fiscal 2016. expectations are that the working capital will be required to fund orders , dividend payments , and general operations of the business . from time to time , management along with the mergers and acquisitions committee of the board of directors examine opportunities involving acquisitions or other strategic options , including buying certain products or product lines . the criteria for consideration are synergies with the company 's existing product base and accretion to earnings . story_separator_special_tag 0 0 6pt ; text-align : justify '' > our significant accounting policies are described in note 2 to the financial statements . we believe our most critical accounting policies include revenue recognition and cost estimation on our contracts . revenue recognition and estimates a significant portion of our business is comprised of development and production contracts . generally revenues on long-term fixed-price contracts are recorded on a percentage of completion basis using units of delivery as the measurement basis for story_separator_special_tag ( filed herewith ) 23.2 consent of efp rotenberg , llp ( filed herewith ) 31.1 certification of the chief executive officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 31.2 certification of the principal financial officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.1 certification of the chief executive officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.2 certification of the principal financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 29 s i g n a t u r e s pursuant to the requirements of section 13 and 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . espey mfg . & electronics corp. patrick enright jr. patrick enright jr. president and chief executive officer david o'neil treasurer and principal financial officer david o'neil september 24 , 2015 katrina sparano assistant treasurer katrina sparano september 24 , 2015 howard pinsley chairman of the board howard pinsley september 24 , 2015 barry pinsley director barry pinsley september 24 , 2015 michael w. wool director michael w. wool september 24 , 2015 paul j. corr director paul j. corr september 24 , 2015 alvin o. sabo director alvin o. sabo september 24 , 2015 carl helmetag director carl helmetag september 24 , 2015 30 story_separator_special_tag business outlook management expects revenues in fiscal year 2016 to be consistent with fiscal year 2015 revenues . expectations are for product mix and margins to remain favorable for fiscal year 2016. during fiscal 2015 new orders received by the company were approximately $ 27.7 million . the total backlog at june 30 , 3015 was approximately $ 36.4 million . it is presently anticipated that a minimum of $ 26 million of orders comprising the june 30 , 2015 backlog will be filled during the fiscal year ending june 30 , 2016. the minimum of $ 26 million does not include any shipments which may be made against orders subsequently received during the fiscal year ending june 30 , 2016. see discussions below for further detail on the customer mix included in the backlog . in addition to the backlog , the company currently has outstanding opportunities representing in excess of $ 44.8 million in the aggregate for both repeat and new programs . the outstanding quotations encompass various new and previously manufactured power supplies , transformers , and subassemblies . however , there can be no assurance that the company will acquire any of the anticipated orders described above , many of which are subject to allocations of the united states defense spending and factors affecting the defense industry and industrial locomotive power supply procurement generally . management continues to evaluate our sales strategy including the professional and technical resources necessary to keep pace with the changing market conditions and needs of our customers . the company has added to and re-aligned current sales and engineering resources , in order to focus on penetrating opportunities with new and existing customers . the company continues quoting current and new customers for programs of varying sizes . three significant customers represented 61 % and 59 % of the company 's total sales in fiscal 2015 and 2014 , respectively . these sales are in connection with multiyear programs in which the company is a significant subcontractor . the june 30 , 2015 backlog of $ 36.4 million includes orders from two customers that represent 49 % and 13 % of the total backlog . this high concentration level with two customers presents significant risk . a loss of one of these customers or programs related to these customers could significantly impact the company . historically , a small number of customers have accounted for a large percentage of the company 's total sales in any given fiscal year . management continues to pursue opportunities with current and new customers with an overall objective of lowering the concentration of sales , mitigating excessive reliance upon a single major product of a particular program and minimizing the impact of the loss of a single significant customer . management continues to evaluate its business development functions and potential revised courses of action in order to diversify its customer base . management , along with the board of directors , continues to evaluate the need and use of the company 's working capital . capital expenditures are expected to be approximately $ 250,000 for fiscal 2016. expectations are that the working capital will be required to fund orders , dividend payments , and general operations of the business . from time to time , management along with the mergers and acquisitions committee of the board of directors examine opportunities involving acquisitions or other strategic options , including buying certain products or product lines . the criteria for consideration are synergies with the company 's existing product base and accretion to earnings . story_separator_special_tag 0 0 6pt ; text-align : justify '' > our significant accounting policies are described in note 2 to the financial statements . we believe our most critical accounting policies include revenue recognition and cost estimation on our contracts . revenue recognition and estimates a significant portion of our business is comprised of development and production contracts . generally revenues on long-term fixed-price contracts are recorded on a percentage of completion basis using units of delivery as the measurement basis for
| in addition , the company agreed to a final contract settlement in december 2014 , relating to one of the cancelled programs , resulting in a reduction in cost of sales totaling $ 560,000. the reduction in loss contracts impact on gross profit was also offset , in part , by decreases caused from product mix , specifically , the reduction in build-to-print contract revenue for the 6 period which typically yields higher profit margins compared to other programs . the losses incurred in fiscal year 2014 were related to several programs which were subsequently cancelled . selling , general , and administrative expenses were $ 2,711,807 for the fiscal year ended june 30 , 2015 , a decrease of $ 502,243 , or 15.6 % as compared to the prior year . the decrease for fiscal 2015 relates primarily to a reduction in salary expense due to reductions in the number of employees primarily in officers ( ceo ) and program administration . employment of full time equivalents at june 30 , 2015 was 145 people compared with 150 people at june 30 , 2014. the company will continue to evaluate selling , general and administrative employment levels based on projected revenues . other income for the fiscal years ended june 30 , 2015 and 2014 was $ 68,050 and $ 148,753 , respectively . the decrease is primarily due to a decrease in income from scrap sales . interest income is a function of the level of investments and investment strategies which generally tend to be conservative . the effective income tax rate was 29.2 % in fiscal 2015 and 20.3 % in fiscal 2014. the effective tax rate is less than the statutory tax rate mainly due to the benefit the company receives on its “ qualified production activities ” under the american jobs creation act of 2004 and the benefit derived from the dividends paid on allocated esop shares . the increase in the effective tax rate for fiscal 2015 is primarily due to the decrease in the benefit received on dividends paid on allocated esop shares in the current fiscal year when compared to the prior year . net income for fiscal 2015 , was $ 3,183,127 or $ 1.40 and $
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we expect our current cash , cash equivalents and short-term investments will be sufficient to fund our current operating plan into the second half of 2023. 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 . in order to complete the development of our product candidates and to build the sales , marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates , if approved , we will require substantial additional funding . until we can generate a sufficient amount of revenue from the commercialization of our product candidates , we may seek to raise any necessary additional capital through the sale of equity , debt financings or other capital sources , which could include income from collaborations , strategic partnerships or marketing , distribution or licensing arrangements with third parties or from grants . to the extent that we raise additional capital through the sale of equity or convertible debt securities , the ownership interest of our stockholders will be or could be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders . debt financing and preferred equity financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , including restricting our operations and limiting our ability to incur liens , issue additional debt , pay dividends , repurchase our common stock , make certain investments or engage in merger , consolidation , licensing or asset sale transactions . if we raise funds through collaborations , strategic partnerships and other similar arrangements with third parties , we may be required to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves . we may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms , or at all . if we are unable to raise additional funds when needed , we may be required to delay , reduce or eliminate our product development or future commercialization efforts . we have based our projections of operating capital requirements on our current operating plan , which is based on several assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect . because of the numerous risks and uncertainties associated with research , development and commercialization of product candidates , we are unable to estimate the exact amount and timing of our working capital requirements . our future funding requirements will depend on many factors , including : the scope , progress , results and costs of researching and developing our product candidates , and conducting preclinical studies and clinical trials ; the costs , timing and outcome of regulatory review of our product candidates ; the costs of future activities , including product sales , medical affairs , marketing , manufacturing and distribution , for any of our product candidates for which we receive marketing approval ; the costs of manufacturing commercial-grade products and sufficient inventory to support commercial launch ; the revenue , if any , received from commercial sale of our products , should any of our product candidates receive marketing approval ; the cost and timing of hiring new employees to support our continued growth ; the costs of preparing , filing and prosecuting patent applications , maintaining and enforcing our intellectual property rights and defending intellectual property-related claims ; the ability to establish and maintain collaborations on favorable terms , if at all ; the extent to which we acquire or in-license other product candidates and technologies ; and the timing , receipt and amount of sales of , or milestone payments related to or royalties on , our current or future product candidates , if any . a change in the outcome of any of these or other factors with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate . furthermore , our operating plan may change in the future , and we may need additional funds to meet operational needs and capital requirements associated with such operating plan . 110 cash flows the following table summarizes our cash flows for each of the periods presented below ( in thousands ) : replace_table_token_10_th operating activities net cash used in operating activities during the year ended december 31 , 2020 of $ 45.3 million was primarily attributable to our net loss of $ 73.7 million , adjusted for addbacks for non-cash expenses of $ 26.4 million , which includes stock-based compensation of $ 5.3 million , depreciation of $ 1.0 million and non-cash stock consideration in acquisitions of $ 19.8 million and a net increase in working capital of $ 2.0 million . net cash used in operating activities during the year ended december 31 , 2019 of $ 23.5 million was primarily attributable to our net loss of $ 26.9 million , adjusted for addbacks for non-cash expenses of $ 2.1 million , which includes stock-based compensation of $ 1.1 million and depreciation of $ 1.0 million and a net increase in working capital of $ 1.2 million . net cash used in operating activities during the year ended december 31 , 2018 of $ 20.7 million was primarily attributable to our net loss of $ 21.4 million , adjusted for addbacks for non-cash expenses of $ 1.4 million , which includes stock-based compensation of $ 0.5 million and depreciation of $ 0.9 million and a net decrease in working capital of $ 0.7 million . investing activities net cash used in investing activities during the year ended december 31 , 2020 of $ 216.0 million was story_separator_special_tag we expect our current cash , cash equivalents and short-term investments will be sufficient to fund our current operating plan into the second half of 2023. 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 . in order to complete the development of our product candidates and to build the sales , marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates , if approved , we will require substantial additional funding . until we can generate a sufficient amount of revenue from the commercialization of our product candidates , we may seek to raise any necessary additional capital through the sale of equity , debt financings or other capital sources , which could include income from collaborations , strategic partnerships or marketing , distribution or licensing arrangements with third parties or from grants . to the extent that we raise additional capital through the sale of equity or convertible debt securities , the ownership interest of our stockholders will be or could be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders . debt financing and preferred equity financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , including restricting our operations and limiting our ability to incur liens , issue additional debt , pay dividends , repurchase our common stock , make certain investments or engage in merger , consolidation , licensing or asset sale transactions . if we raise funds through collaborations , strategic partnerships and other similar arrangements with third parties , we may be required to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves . we may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms , or at all . if we are unable to raise additional funds when needed , we may be required to delay , reduce or eliminate our product development or future commercialization efforts . we have based our projections of operating capital requirements on our current operating plan , which is based on several assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect . because of the numerous risks and uncertainties associated with research , development and commercialization of product candidates , we are unable to estimate the exact amount and timing of our working capital requirements . our future funding requirements will depend on many factors , including : the scope , progress , results and costs of researching and developing our product candidates , and conducting preclinical studies and clinical trials ; the costs , timing and outcome of regulatory review of our product candidates ; the costs of future activities , including product sales , medical affairs , marketing , manufacturing and distribution , for any of our product candidates for which we receive marketing approval ; the costs of manufacturing commercial-grade products and sufficient inventory to support commercial launch ; the revenue , if any , received from commercial sale of our products , should any of our product candidates receive marketing approval ; the cost and timing of hiring new employees to support our continued growth ; the costs of preparing , filing and prosecuting patent applications , maintaining and enforcing our intellectual property rights and defending intellectual property-related claims ; the ability to establish and maintain collaborations on favorable terms , if at all ; the extent to which we acquire or in-license other product candidates and technologies ; and the timing , receipt and amount of sales of , or milestone payments related to or royalties on , our current or future product candidates , if any . a change in the outcome of any of these or other factors with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate . furthermore , our operating plan may change in the future , and we may need additional funds to meet operational needs and capital requirements associated with such operating plan . 110 cash flows the following table summarizes our cash flows for each of the periods presented below ( in thousands ) : replace_table_token_10_th operating activities net cash used in operating activities during the year ended december 31 , 2020 of $ 45.3 million was primarily attributable to our net loss of $ 73.7 million , adjusted for addbacks for non-cash expenses of $ 26.4 million , which includes stock-based compensation of $ 5.3 million , depreciation of $ 1.0 million and non-cash stock consideration in acquisitions of $ 19.8 million and a net increase in working capital of $ 2.0 million . net cash used in operating activities during the year ended december 31 , 2019 of $ 23.5 million was primarily attributable to our net loss of $ 26.9 million , adjusted for addbacks for non-cash expenses of $ 2.1 million , which includes stock-based compensation of $ 1.1 million and depreciation of $ 1.0 million and a net increase in working capital of $ 1.2 million . net cash used in operating activities during the year ended december 31 , 2018 of $ 20.7 million was primarily attributable to our net loss of $ 21.4 million , adjusted for addbacks for non-cash expenses of $ 1.4 million , which includes stock-based compensation of $ 0.5 million and depreciation of $ 0.9 million and a net decrease in working capital of $ 0.7 million . investing activities net cash used in investing activities during the year ended december 31 , 2020 of $ 216.0 million was
| the following table summarizes our external and internal costs for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_7_th we expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates , including investments in manufacturing , as our programs advance into later stages of development and as we conduct additional clinical trials . 107 acquired in-process research and development expenses in august 2020 , we acquired the rights to certain patents , patent applications and know-how from mirati under the mirati license agreement . as consideration for the asset rights , we issued to mirati 588,235 shares of our common stock , valued at approximately $ 13.0 million based upon the closing price of our common stock on the acquisition date . in october 2020 , we also acquired the rights to certain patent applications and know-how from voronoi under the voronoi license agreement . as consideration for the asset rights , we made an up-front cash payment to voronoi of $ 5.0 million and issued to voronoi 283,259 shares of the company 's common stock issued , valued at approximately $ 6.8 million based upon the closing price of our common stock on the acquisition date . as the assets licensed from mirati and voronoi were in early development at the time they were acquired , we concluded that there was no alternative future use for the assets and recorded the value of the asset rights acquired of $ 13.0 million and $ 11.8 million , from mirati and voronoi , respectively , to acquired in-process research and development at the closing of transactions , resulting in a total charge of $ 24.8 million for the year ended december 31 , 2020. general and administrative expenses general and administrative expenses were $ 13.4 million for the year ended december 31 , 2020 compared to $ 5.7 million for the same period in 2019 , an increase of $ 7.7 million . this
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a slower retail environment , driven by the oil and gas producing regions of canada , contributed to the decrease in 2016 , as well as negative currency rate movement , which had an unfavorable three percent impact on sales for 2016 compared to 2015 . other foreign countries : sales in other foreign countries , primarily in europe , increased 11 percent in 2017 compared to 2016 . sales of orvs , snowmobiles , and global adjacent markets vehicles increased , partially offset by decreased sales of motorcycles due to the victory wind down . currency rate movements had a favorable one percentage point impact on sales for 2017 compared to 2016. sales in other foreign countries , primarily in europe , were flat for 2016 compared to 2015 . sales of motorcycles and global adjacent markets vehicles increased , but were offset by decreased sales of snowmobiles and orvs , as well as negative currency rate movements , which had an unfavorable three percentage point impact on sales for 2016 compared to 2015. cost of sales : the following table reflects our cost of sales in dollars and as a percentage of sales : replace_table_token_10_th for 2017 , cost of sales increased 20 percent to $ 4,103.8 million compared to $ 3,411.0 million in 2016 . the increase in cost of sales in 2017 is primarily attributed to the acquisition of tap in november 2016 , victory motorcycles wind down costs , and manufacturing network realignment costs , partially offset by lower warranty costs . for 2016 , cost of sales increased one percent to $ 3,411.0 million compared to $ 3,380.2 million in 2015 . the increase in cost of sales in 2016 is primarily attributed to higher warranty costs incurred related to product recalls , partially offset by decreased production . additionally , depreciation and amortization increased due to higher capital expenditures to increase production capacity and capabilities . 26 gross profit : the following table reflects our gross profit in dollars and as a percentage of sales : replace_table_token_11_th consolidated . consolidated gross profit , as a percentage of sales , was approximately flat in 2017 due to increased volumes and mix and gross vip cost savings , offset by victory wind down costs and promotional costs . 2017 gross profit includes the negative impact of $ 57.8 million of victory motorcycle wind down costs , $ 13.0 million of realignment costs , and $ 13.0 million of inventory step-up accounting adjustments related to the tap acquisition . foreign currencies had a negative impact to gross profit of approximately $ 7.4 million for 2017 , when compared to the prior year period . consolidated gross profit , as a percentage of sales , decreased in 2016 due to increased warranty and promotional costs and negative currency impacts , partially offset by lower commodity costs and product cost reduction efforts . during 2016 , we incurred additional warranty expense equating to approximately 250 basis points of negative impact to gross profit margins , related primarily to increased warranty costs associated with vehicle recalls , of which approximately 200 basis points is considered to be one-time in nature . gross profit in absolute dollars decreased due to lower sales volume , unfavorable product mix , higher promotions and higher warranty costs , partially offset by lower commodity costs and cost savings from product cost reduction efforts . foreign currencies had a negative impact to gross profit of approximately $ 43.0 million for 2016 , when compared to the prior year period . orv/snowmobiles . gross profit , as a percentage of sales , increased from 2016 to 2017 , primarily due to increased volumes , product mix , and lower warranty costs , partially offset by higher promotions . included in warranty expense are costs related to recall activity . gross profit , as a percentage of sales , decreased from 2015 to 2016 , primarily due to decreased volumes , higher warranty costs and higher promotions , partially offset by product cost reduction efforts . included in warranty expense are costs related to recall activity , primarily for certain rzr vehicles . motorcycles . gross profit , as a percentage of sales , decreased from 2016 to 2017 , primarily due to $ 57.8 million of costs incurred related to the wind down of victory motorcycles , including increased promotions and inventory charges , and lower slingshot volume . gross profit , as a percentage of sales , decreased from 2015 to 2016 , primarily due to higher warranty costs associated with slingshot , partially offset by increased sales volumes of indian and victory motorcycles , and the absence of costs incurred in 2015 related to additional manufacturing costs and inefficiencies associated with our spirit lake , iowa motorcycle facility paint system . global adjacent markets . gross profit , as a percentage of sales , decreased from 2016 to 2017 , primarily due to costs incurred for manufacturing network realignment of $ 13.0 million . gross profit , as a percentage of sales , increased from 2015 to 2016 , primarily due to the acquisition of taylor-dunn and increased sales volumes of aixam vehicles . aftermarket . gross profit , as a percentage of sales , increased from 2016 to 2017 , primarily due to the acquisition of tap . 2017 gross profit includes the negative impact of $ 13.0 million of inventory step-up accounting adjustments related to the tap acquisition . gross profit , as a percentage of sales , decreased from 2015 to 2016 , primarily due to the acquisition of tap in november 2016 . 2016 gross profit included approximately $ 9.0 million related to a purchase accounting inventory step-up adjustment . story_separator_special_tag 27 operating expenses : the following table reflects our operating expenses in dollars and as a percentage of sales : replace_table_token_12_th operating expenses for 2017 , as a percentage of sales and in absolute dollars , increased primarily due to the tap acquisition , increased variable compensation expenses , increased research and development expenses and increased selling and marketing costs related to new products , partially offset by decreased legal related expenses . 2017 operating expenses included $ 10.1 million of victory motorcycles wind down costs , $ 14.0 million of tap integration expenses , and $ 9.1 million of corporate restructuring and realignment expenses . operating expenses for 2016 , as a percentage of sales and in absolute dollars , increased primarily due to higher general and administrative expenses due to increased legal expenses and other costs related to product recalls and approximately one month of tap operating expenses . operating expenses also increased due to acquisitions and acquisition-related expenses , including approximately $ 13.0 million of acquisition-related expenses for the tap acquisition , as well as increased research and development expenses for ongoing product refinement and innovation . income from financial services : the following table reflects our income from financial services : replace_table_token_13_th income from financial services decreased three percent to $ 76.3 million in 2017 compared to $ 78.5 million in 2016 . the decrease in 2017 is primarily due to a four percent decrease in retail credit contract volume and decreased income generated from the wholesale portfolio due to lower orv dealer inventory levels , partially offset by higher income from the sale of extended service contracts . income from financial services increased 13 percent to $ 78.5 million in 2016 compared to $ 69.3 million in 2015 . the increase in 2016 is primarily due to a 10 percent increase in retail credit contract volume and increased profitability generated from the retail credit portfolios with performance finance , sheffield financial and synchrony bank and higher income from the sale of extended service contracts . 28 remainder of the income statement : replace_table_token_14_th interest expense . the increase in 2017 compared to 2016 , and 2016 to 2015 is primarily due to increased debt levels through borrowings on our term loan facility and revolving credit facility , primarily to finance the tap acquisition . equity in loss of other affiliates . reflects losses at eicher-polaris private limited ( eppl ) related to continued operating activities associated with the production of the multix personal vehicle . we have recorded our proportionate 50 percent share of eppl losses . other expense , net . the change primarily relates to foreign currency exchange rate movements and the corresponding effects on foreign currency transactions , currency hedging positions and balance sheet positions related to our foreign subsidiaries from period to period , a first quarter impairment of a cost method investment recorded due to the wind down of victory motorcycles , and a subsequent fourth quarter gain on a sale of the previously impaired investment . provision for income taxes . the income tax rate for 2017 was 45.9 % as compared with 32.0 % and 33.6 % in 2016 and 2015 , respectively . the higher income tax rate for 2017 , compared with 2016 was due to $ 55.4 million of charges , primarily related to a non-cash write-down of deferred tax assets as a result of the passing of the u.s. tax reform bill in the fourth quarter of 2017 , offset by favorable changes related to share-based payment accounting , asu no . 2016-09 , and the related excess tax benefits now recognized as a reduction to income tax expense . the lower income tax rate for 2016 , compared with 2015 was primarily due to the decrease in 2016 pretax income , as the beneficial impact of discrete items increases with lower pretax earnings . for 2017 , 2016 and 2015 , the income tax provision was positively impacted by the united states congress extending and permanently enacting the research and development income tax credit . we expect our future effective tax rate to be approximately 23 % due to the u.s. tax reform bill in the fourth quarter of 2017. weighted average shares outstanding . the change in the weighted average diluted shares outstanding from 2016 to 2017 and from 2015 to 2016 is primarily due to share repurchases under our stock repurchase program . critical accounting policies the significant accounting policies that management believes are the most critical to aid in fully understanding and evaluating our reported financial results include the following : revenue recognition , sales promotions and incentives , dealer holdback programs , share-based employee compensation , product warranties and product liability . revenue recognition . revenues are recognized at the time of shipment to the dealer , distributor or other customers , or at the time of delivery for our retail aftermarket locations . historically , product returns , whether in the normal course of business or resulting from repurchases made under the floorplan financing program , have not been material . however , we have agreed to repurchase products repossessed by the finance companies up to certain limits . our financial exposure is limited to the difference between the amount paid to the finance companies and the amount received on the resale of the repossessed product . no material losses have been incurred under these agreements . we have not historically recorded any significant sales return allowances because we have not been required to repurchase a significant number of 29 units . however , an adverse change in retail sales could cause this situation to change . polaris sponsors certain sales incentive programs and accrues liabilities for estimated sales promotion expenses and estimated holdback amounts that are recognized as reductions to sales when products are sold to the dealer or distributor customer . sales promotions and incentives .
| however , during the first quarter ended march 31 , 2017 , as a result of the acquisition of tap , the company established a new reporting segment , aftermarket , which includes the results of tap as well as the other aftermarket brands . the comparative 2016 23 and 2015 results were reclassified to reflect the new reporting segment structure . our sales by reporting segment were as follows : replace_table_token_8_th orv/snowmobiles off-road vehicles orv sales , inclusive of pg & a sales , of $ 3,225.3 million in 2017 , which include core atv , ranger , and rzr side-by-side vehicles , increased eight percent from 2016 . this increase reflects increased orv shipments , driven by rzr and ranger shipments . polaris ' north american orv unit retail sales to consumers increased low-single digits percent for 2017 compared to 2016 , with atv unit retail sales approximately flat and side-by-side vehicles unit retail sales increasing low-single digits percent over the prior year . north american dealer inventories of orvs decreased six percent from 2016 . orv sales outside of north america increased approximately 11 percent in 2017 compared to 2016 . for 2017 , the average orv per unit sales price increased approximately four percent compared to 2016 's per unit sales price . reclassified orv sales , inclusive of pg & a sales , of $ 2,976.6 million in 2016 , which include core atv , ranger and rzr side-by-side vehicles , decreased nine percent from 2015 . this decrease reflects internal challenges such as delayed model year 2017 shipments , as well as external challenges such as currency pressures , heightened competitive product offerings , market share declines and slower retail sales , including in oil and gas producing regions of north america . polaris ' north american orv unit retail sales to consumers decreased mid-single digits percent for 2016 compared to 2015 , with atv unit retail sales decreasing high-single digits percent and side-by-side vehicles unit retail sales decreasing mid-single digits percent over the prior year . north american dealer inventories of orvs decreased 11 percent from 2015 . orv sales outside of north america
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selling , general and administrative expense was as follows ( in thousands ) : replace_table_token_4_th 2019 v. 2018 selling , general and administrative expense increased $ 1.2 million from 2018 to 2019. the increase was primarily due to a $ 0.8 million increase in stock-based compensation expense due to the timing of awards granted , as well as a $ 0.4 increase in severance expense associated with the resignation of our former chief financial officer . 37 restructurings in june 2019 , we executed a restructuring plan ( `` the 2019 plan '' ) to make the operation of the company more efficient . the 2019 plan included an approximately 2 % reduction in workforce , primarily in the areas of sales and operations . in april 2018 , we executed a restructuring plan ( `` the 2018 plan '' ) to make the operation of the company more efficient . the 2018 plan included an approximately 5 % reduction in workforce , primarily in the areas of development , marketing and administration . the 2018 plan also included closing the hong kong office and reducing the size of the toronto office . in september 2017 , in connection with our acquisition of vixs systems , inc. , we executed a restructuring plan ( `` the 2017 plan '' ) to secure significant synergies between vixs and pixelworks . the 2017 plan included an approximately 15 % reduction in workforce , primarily in the area of development , however , it also impacted administration and sales . restructuring expense for the years ended december 31 , 2019 , 2018 and 2017 , was as follows ( in thousands ) : replace_table_token_5_th during 2019 , we incurred expenses of $ 0.4 million related to the 2019 plan , which consisted of costs associated with employee severance and benefits . the 2019 plan was complete as of the second quarter of 2019 and we did not incur any further charges related to the 2019 plan after the second quarter of 2019. through december 31 , 2019 , the cumulative amount incurred related to the 2019 plan is $ 0.4 million . during 2018 , we incurred expenses of $ 1.5 million related to the 2018 plan , which consisted of costs associated with facility closures and consolidations , and costs associated with employee severance and benefits . the 2018 plan was completed at the end of 2018 and we did not incur any further charges related to the 2018 plan after the fourth quarter of 2018. through december 31 , 2019 , the cumulative amount incurred related to the 2018 plan is $ 1.5 million . during 2017 , we incurred expenses of $ 1.9 million related to the 2017 plan , which consisted of costs associated with employee severance and benefits . the 2017 plan was completed in the first quarter of 2018 and we did not incur any further restructuring charges related to the 2017 plan after the first quarter of 2018. through december 31 , 2019 , the cumulative amount incurred related to the 2017 plan is $ 1.9 million . interest income ( expense ) and other , net interest expense and other , net , consisted of the following ( in thousands ) : replace_table_token_6_th 38 provision for income taxes the provision for income taxes was as follows ( in thousands ) : replace_table_token_7_th the income tax expense recorded for the year ended december 31 , 2019 is comprised of $ 0.5 million in current and deferred tax expense for our profitable cost-plus foreign jurisdictions and accruals for tax contingencies in foreign jurisdictions , partially offset by the reversal of previously recorded tax contingencies due to the expiration of the applicable statute of limitations . the income tax expense recorded for the year ended december 31 , 2018 is comprised of $ 0.5 million in current and deferred tax expense for our profitable cost-plus foreign jurisdictions and accruals for tax contingencies in foreign jurisdictions , partially offset by the reversal of previously recorded tax contingencies due to the expiration of the applicable statute of limitations . as of december 31 , 2019 and 2018 , we continue to record a full valuation allowance against our u.s. net deferred tax assets as it is not more likely than not that we will realize a benefit from these assets in a future period . we have not provided a valuation allowance against any of our other foreign net deferred tax assets , with the exception of canada , as we have concluded it is more likely than not that we will realize a benefit from these assets in a future period because our subsidiaries in these jurisdictions are cost-plus taxpayers . as of december 31 , 2019 , we have federal , state and foreign net operating loss carryforwards of approximately $ 174.5 million , $ 10.9 million , and $ 38.5 million respectively , which will begin expiring in 2020. as of december 31 , 2019 , we have available federal , state and foreign research and experimentation tax credit carryforwards of approximately $ 9.5 million , $ 4.7 million and $ 28.1 million respectively . the federal and state tax credits began expiring in 2020 while the foreign tax credits have an indefinite life . in addition , our canadian subsidiary has unclaimed scientific and experimental expenditures to be carried forward and applied against future income in canada of approximately $ 121.0 million . we have a general foreign tax credit of $ 0.6 million which will begin expiring in 2020. our ability to utilize our federal net operating losses may be limited by section 382 of the internal revenue code of 1986 , as amended , which imposes an annual limit on the ability of a corporation that undergoes an `` ownership change '' to use its net operating loss carryforwards to reduce its tax liability . an ownership change is generally defined as a greater than 50 % increase in equity ownership by 5 % shareholders in any three-year period . story_separator_special_tag 39 liquidity and capital resources cash and cash equivalents total cash and cash equivalents decreased $ 10.6 million from $ 17.9 million at december 31 , 2018 to $ 7.3 million at december 31 , 2019 . short-term marketable securities was $ 7.0 million at december 31 , 2019 , and $ 6.1 million at december 31 , 2018 . the net decrease in cash , cash equivalents and short-term marketable securities of $ 9.8 million was the result of $ 10.4 million used in operating activities , $ 3.1 million used for purchases of property and equipment and licensed technology and $ 0.8 million in payments on other asset financings . these decreases were partially offset by $ 3.9 million in net proceeds from the sale of patents and $ 0.6 million in proceeds from the issuances of common stock under our employee equity incentive plans . total cash and cash equivalents decreased $ 9.6 million from $ 27.5 million at december 31 , 2017 to $ 17.9 million at december 31 , 2018 . short-term marketable securities was $ 6.1 million at december 31 , 2018 , and zero at december 31 , 2017. the net decrease in cash , cash equivalents and short-term marketable securities of $ 3.5 million was the result of $ 2.2 million used in payments on convertible debt , $ 2.1 million used for purchases of property and equipment and $ 1.9 million in payments on other asset financings . these decreases were partially offset by $ 1.7 million in proceeds from the issuances of common stock under our employee equity incentive plans and $ 1.0 million provided by operating activities . as of december 31 , 2019 , our cash , cash equivalents and short-term marketable securities balance consisted of $ 6.0 million in cash , $ 2.5 million in commercial paper , $ 2.2 million in u.s. government treasury bills , $ 2.2 million in corporate debt securities and $ 1.3 million in cash equivalents held in u.s. dollar denominated money market funds . our investment policy requires that our portfolio maintains a weighted average maturity of less than 12 months . additionally , no maturities can extend beyond 24 months and concentrations with individual securities are limited . at the time of purchase , short-term credit rating must be rated at least a-2 / p-2 / f-2 by at least two nationally recognized statistical rating organizations ( `` nrsro '' ) and securities of issuers with a long-term credit rating must be rated at least a or a3 by at least two nrsros . our investment policy is reviewed at least annually by our audit committee . accounts receivable , net accounts receivable , net increased to $ 10.9 million at december 31 , 2019 from $ 7.0 million at december 31 , 2018 . average number of days sales outstanding increased to 61 days at december 31 , 2019 from 31 days at december 31 , 2018 . the increase in accounts receivable and days sales outstanding was due to normal fluctuations in the timing of sales and customer receipts within the fourth quarter of 2019 , and the fourth quarter of 2018. inventories inventories increased to $ 5.4 million at december 31 , 2019 from $ 3.0 million at december 31 , 2018 primarily due to increased mobile inventory balances to meet increasing demand . inventory turnover decreased to 7.9 at december 31 , 2019 from 12.3 at december 31 , 2018 primarily due to higher average inventory balances during the fourth quarter of 2019 compared to the fourth quarter of 2018. inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter . capital resources short-term line of credit on december 21 , 2010 , we entered into a loan and security agreement with silicon valley bank ( the `` bank '' ) , which was amended on december 14 , 2012 , december 4 , 2013 , december 18 , 2015 , december 15 , 2016 , july 21 , 2017 , december 21 , 2017 , december 18 , 2018 and december 18 , 2019 ( as amended , the `` revolving loan agreement '' ) . the revolving loan agreement provides a secured working capital-based revolving line of credit ( the `` revolving line '' ) in an aggregate amount of up to the lesser of ( i ) $ 10.0 million , or ( ii ) $ 2.5 million plus 80 % of eligible domestic accounts receivable and certain foreign accounts receivable . the revolving line has a maturity date of december 27 , 2020. in addition , the revolving loan agreement provides for non-formula advances of up to $ 10.0 million which may be made solely during the last five business days of any fiscal month or quarter and which must be repaid by us on or before the fifth business day after the applicable fiscal month or quarter end . due to their repayment terms , non-formula advances do not provide us with usable liquidity . the revolving loan agreement , as amended , contains customary affirmative and negative covenants as well as customary events of default . the occurrence of an event of default could result in the acceleration of our obligations under the revolving loan agreement , as amended , and an increase to the applicable interest rate , and would permit the bank to exercise remedies with respect to its security interest . as of december 31 , 2019 , we were in compliance with all of the terms of the revolving loan agreement , as amended . as of december 31 , 2019 and december 31 , 2018 , we had no outstanding borrowings under the revolving line . 40 liquidity as of december 31 , 2019 , our cash , cash equivalents and short-term marketable securities balance of $ 14.2 million was highly liquid . we anticipate that our existing working capital will be adequate to fund our operating , investing and financing needs for at least the next twelve months .
| inventory step up and backlog amortization decreased compared to 2018 as we sold through the remainder of the inventory we acquired in the acquisition of vixs ( the `` acquisition '' ) in the first quarter of 2019. pixelworks ' gross profit margin is subject to variability based on changes in revenue levels , product mix , average selling prices , startup costs , restructuring charges , amortization related to acquired developed technology , amortization of inventory step-up and backlog , and the timing and execution of manufacturing ramps as well as other factors . 36 research and development research and development expense includes compensation and related costs for personnel , development-related expenses including non-recurring engineering and fees for outside services , depreciation and amortization , expensed equipment , facilities and information technology expense allocations and travel and related expenses . co-development agreement during the first quarter of 2017 , we entered into a best efforts co-development agreement ( the `` co-development agreement '' ) with a customer to defray a portion of the research and development expenses incurred in connection with our development of an integrated circuit product to be sold exclusively to the customer . our development costs exceeded the amounts received from the customer and we retain ownership of any modifications or improvements to our pre-existing intellectual property and may use such improvements in products sold to other customers . under the co-development agreement , $ 4.0 million was payable by the customer within 60 days of the date of the agreement and two additional payments of $ 2.0 million were each payable upon completion of certain development milestones . as amounts became due and payable , they were offset against research and development expense on a pro rata basis . we recognized offsets to research and development expense of $ 4.0 million related to the co-development agreement during each of the years ended december 31 , 2018 and 2017. all milestones under the co-development agreement were completed as of december 31 , 2018. research and development expense was as follows ( in thousands ) : replace_table_token_3_th 2019 v. 2018 research and development expense increased $ 3.1 million from 2018 to 2019. the increase was
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corporate governance we are not listed as an issuer , nor have we applied to be listed as an issuer , on any national securities exchange or inter-dealer quotation system in the united states . for the purposes of compliance with applicable securities rules , our board of directors affirmatively determines the independence of each of our directors using the independence standards required by a national securities exchange , the nasdaq stock market , including the consideration of any relationship which , in the opinion of the board of directors , would interfere with the exercise of independent judgment in carrying out the director 's responsibilities as a member of our board of directors . during its annual review of director independence , our board of directors determined that messrs. ben-or and mr. feldhay and ms. ben ami are each independent under the director independence standards of story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and notes and the other financial information included elsewhere in this annual report on form 10-k for the fiscal year ending december 31 , 2010. in addition to historical information , this discussion and analysis contains forward-looking statements based on current expectations that involve risks , uncertainties and assumptions , such as our plans , objectives , expectations and intentions . our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements as a result of various factors . overview until suspension of our business activities due to financial considerations in october 2008 , we , through our subsidiary , topspin israel , were engaged in the design , research , development and manufacturing of imaging devices that utilize mri technology by means of miniature probes that image various body organs . until 2008 , our main product was an intravascular mri , or ivmri , catheter system for imaging and characterizing the tissue composition of coronary plaque during a conventional cardiac catheterization procedure . as previously disclosed in current reports on form 8-k filed on september 25 , 2008 , september 29 , 2008 and october 16 , 2008 , we executed a supplemental indenture with wilmington trust company ( in its capacity as trustee for our series a debentures ) and the ziv haft trust company ltd. ( in its capacity as co-trustee of our series a debentures ) which supplemented the original indenture governing the series a debentures and provided for the conversion of each nis 1.00 of principal amount of series a debentures held by eligible bondholders into nine ( 9 ) shares of our common stock and nis 0.25 in cash . as contemplated by the supplemental indenture and the settlement agreement , dated july 13 , 2008 , between the company and the co-trustee , on october 12 , 2008 , all of the outstanding nis 50,000,000 of the series a debentures were converted into 450,000,000 shares of our common stock . upon the completion of this conversion , all of our outstanding series a debentures were removed from trading on the tase . we issued the cash payment contemplated by the settlement agreement on october 26 , 2008 in the amount of nis 12,513,000 ( approximately $ 3,291,162 ) . 7 this payment significantly reduced our cash resources , and , together with the discontinuation of grants from ocs , materially and adversely affected our business and the cash we have available to maintain research and development , marketing , and other activities conducted in the ordinary course of our business . our reduced cash position caused us to suspend our activities as of october 27 , 2008. we were forced to terminate all of our employees except three employees in our finance department and three employees who were on maternity leave at the time ( each of whose employment was terminated prior to march 31 , 2009 ) , and we incurred termination fees in connection with the early termination of our property and motor vehicle lease . as of december 31 , 2010 , we employed only one full-time employeeour ceoand our financial function is currently satisfied by third-party provider . critical accounting policies the consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states ( us gaap ) , applied on a consistent basis , as follows : financial statements in nis : a majority of the company 's costs and expenses are incurred in new israeli shekels , or nis . in addition , the company finances its operations from mainly nis denominated resources , mainly from equity raisings . the company 's management believes that the nis is the primary currency of the economic environment in which the company operates . thus , the functional currency of the company is the nis . accordingly , monetary accounts maintained in currencies other than the nis are re-measured into nis in accordance with asc 830 ( formerly sfas no . 52 ) , foreign currency matters . all transaction gains and losses of re-measured monetary balance sheet items are reflected in the statement of operations as financial income or expenses , as appropriate . substantially all the operations and assets of the company are conducted in nis in israel and it has no assets and operations in the us . the company 's equity securities are traded in israel in nis . as such the company 's management believes that the functional and reporting currency is nis . use of estimates : the preparation of financial statements in conformity with us gaap requires management to make estimates and assumptions that affect the amounts reported and disclosure of contingent assets and liabilities in the financial statements and accompanying notes . actual results could differ from those estimates . principles of consolidation : the consolidated financial statements include the accounts of the subsidiary over which the company story_separator_special_tag corporate governance we are not listed as an issuer , nor have we applied to be listed as an issuer , on any national securities exchange or inter-dealer quotation system in the united states . for the purposes of compliance with applicable securities rules , our board of directors affirmatively determines the independence of each of our directors using the independence standards required by a national securities exchange , the nasdaq stock market , including the consideration of any relationship which , in the opinion of the board of directors , would interfere with the exercise of independent judgment in carrying out the director 's responsibilities as a member of our board of directors . during its annual review of director independence , our board of directors determined that messrs. ben-or and mr. feldhay and ms. ben ami are each independent under the director independence standards of story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and notes and the other financial information included elsewhere in this annual report on form 10-k for the fiscal year ending december 31 , 2010. in addition to historical information , this discussion and analysis contains forward-looking statements based on current expectations that involve risks , uncertainties and assumptions , such as our plans , objectives , expectations and intentions . our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements as a result of various factors . overview until suspension of our business activities due to financial considerations in october 2008 , we , through our subsidiary , topspin israel , were engaged in the design , research , development and manufacturing of imaging devices that utilize mri technology by means of miniature probes that image various body organs . until 2008 , our main product was an intravascular mri , or ivmri , catheter system for imaging and characterizing the tissue composition of coronary plaque during a conventional cardiac catheterization procedure . as previously disclosed in current reports on form 8-k filed on september 25 , 2008 , september 29 , 2008 and october 16 , 2008 , we executed a supplemental indenture with wilmington trust company ( in its capacity as trustee for our series a debentures ) and the ziv haft trust company ltd. ( in its capacity as co-trustee of our series a debentures ) which supplemented the original indenture governing the series a debentures and provided for the conversion of each nis 1.00 of principal amount of series a debentures held by eligible bondholders into nine ( 9 ) shares of our common stock and nis 0.25 in cash . as contemplated by the supplemental indenture and the settlement agreement , dated july 13 , 2008 , between the company and the co-trustee , on october 12 , 2008 , all of the outstanding nis 50,000,000 of the series a debentures were converted into 450,000,000 shares of our common stock . upon the completion of this conversion , all of our outstanding series a debentures were removed from trading on the tase . we issued the cash payment contemplated by the settlement agreement on october 26 , 2008 in the amount of nis 12,513,000 ( approximately $ 3,291,162 ) . 7 this payment significantly reduced our cash resources , and , together with the discontinuation of grants from ocs , materially and adversely affected our business and the cash we have available to maintain research and development , marketing , and other activities conducted in the ordinary course of our business . our reduced cash position caused us to suspend our activities as of october 27 , 2008. we were forced to terminate all of our employees except three employees in our finance department and three employees who were on maternity leave at the time ( each of whose employment was terminated prior to march 31 , 2009 ) , and we incurred termination fees in connection with the early termination of our property and motor vehicle lease . as of december 31 , 2010 , we employed only one full-time employeeour ceoand our financial function is currently satisfied by third-party provider . critical accounting policies the consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states ( us gaap ) , applied on a consistent basis , as follows : financial statements in nis : a majority of the company 's costs and expenses are incurred in new israeli shekels , or nis . in addition , the company finances its operations from mainly nis denominated resources , mainly from equity raisings . the company 's management believes that the nis is the primary currency of the economic environment in which the company operates . thus , the functional currency of the company is the nis . accordingly , monetary accounts maintained in currencies other than the nis are re-measured into nis in accordance with asc 830 ( formerly sfas no . 52 ) , foreign currency matters . all transaction gains and losses of re-measured monetary balance sheet items are reflected in the statement of operations as financial income or expenses , as appropriate . substantially all the operations and assets of the company are conducted in nis in israel and it has no assets and operations in the us . the company 's equity securities are traded in israel in nis . as such the company 's management believes that the functional and reporting currency is nis . use of estimates : the preparation of financial statements in conformity with us gaap requires management to make estimates and assumptions that affect the amounts reported and disclosure of contingent assets and liabilities in the financial statements and accompanying notes . actual results could differ from those estimates . principles of consolidation : the consolidated financial statements include the accounts of the subsidiary over which the company
| liquidity and capital resources we have not had any revenues from operations since our inception in september 1999. we financed our operations principally through private and public sales of equity securities , convertible notes and through grants from the office of the chief scientist of the israeli ministry of industry , trade and labor , an israeli governmental agency . in february 2009 , we raised net proceeds of nis 900,000 ( approximately $ 236,717 ) through the sale of 240,000 shares of our common shares of $ 0.001 par value and 58,064,516 warrants exercisable into 116,129 common . each warrant is exercisable into one common share for the exercise price of nis 0.01 for a period of 4 years following the issuance date . as of december 31 , 2010 , our assets were approximately nis 82,000 ( approximately $ 23,105 ) , of which cash and cash equivalents were approximately nis 33,000 ( approximately $ 9,298 ) . as of december 31 , 2010 , our liabilities were approximately nis 1,975,000 ( approximately $ 529,065 ) . we believe that our cash resources are insufficient for our operations at current levels for the next twelve months . we are contemplating and pursuing possibilities for new business activities for the company and new avenues for raising capital . we may not be able to raise additional funds required to resume our regular business operations or to engage in new fields of business that we may decide to pursue . the global stock and credit markets are experiencing significant price volatility , dislocations and liquidity disruptions , which have caused market prices of many stocks to fluctuate substantially and the spreads on prospective debt financings to widen considerably . these circumstances have materially impacted liquidity in the financial markets , making terms for certain financings less attractive , and in certain cases have resulted in the unavailability of certain types of financing . continued uncertainty in the stock and credit markets may negatively affect our ability to raise necessary additional
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31.1 certification by the chief executive officer pursuant to rule 13a-14 ( a ) of the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 . 31.2 certification by the chief financial officer pursuant to rule 13a-14 ( a ) of the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 . 32 certification by the chief executive officer and chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 . 101 the following materials from the registrant 's annual report on form 10-k for the year ended december 31 , 2012 , formatted in xbrl ( extensible business reporting language ) : ( 1 ) the consolidated balance sheets , ( 2 ) the consolidated statements of operations and comprehensive income , ( 3 ) the consolidated statements of cash flows , and ( 4 ) notes to consolidated financial statements . * represents a management contract , or compensatory plan , contract or arrangement required to be filed pursuant to regulation s-k. 64 story_separator_special_tag the information required by this item is incorporated herein by reference to the management 's discussion and analysis of financial condition and results of operations section of our 2012 annual report to stockholders filed as exhibit 13.1 to this form 10-k. item 7a . qualitative and quantitative disclosure about market risk the information required by this item is incorporated herein by reference to the management 's discussion and analysis of financial condition and results of operations section of our 2012 annual report to stockholders under the caption `` liquidity and capital resources market risk , '' filed as exhibit 13.1 to this form 10-k. item 8. financial statements and supplementary data reference is made to the index to financial statements contained in item 15. item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures evaluation of disclosure controls and procedures . we maintain disclosure controls and procedures ( as defined in rule 13a-15 ( e ) under the securities exchange act of 1934 ( the `` exchange act '' ) ) that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the exchange act is recorded , processed , summarized and reported within the time periods specified in the sec 's rules and forms , and that such information is accumulated and communicated to our management , including our chief executive officer and chief financial officer , as appropriate to allow timely decisions regarding required disclosures . because of inherent limitations , disclosure controls and procedures , no matter how well designed and operated , can provide only reasonable , and not absolute , assurance that the objectives of disclosure controls and procedures are met . our management , with the participation of our chief executive officer and chief financial officer , evaluated the effectiveness of the design and operation of our disclosure controls and procedures . based on that evaluation , our chief executive officer and chief financial officer concluded that , as of the end of the period covered by this report , our disclosure controls and procedures are effective at a reasonable assurance level . management 's report on internal control over financial reporting . our management 's report on internal control over financial reporting is set forth in our 2012 annual report to stockholders filed as exhibit 13.1 to this form 10-k and is incorporated herein by reference . changes in internal control over financial reporting . there was no change in our internal control over financial reporting ( as defined in rule 13a-15 ( f ) ) that occurred during the fourth quarter of 2012 that has materially affected , or is reasonably likely to materially affect , our internal control over financial reporting . item 9b . other information during the fourth quarter of the year covered by this report , the audit committee of our board of directors approved certain audit , audit-related and non-audit tax compliance and tax consulting services to be provided by ernst & young llp , the company 's independent registered public accounting firm . this disclosure is made pursuant to section 10a ( i ) ( 2 ) of the exchange act , as added by section 202 of the sarbanes-oxley act of 2002 . 47 part iii item 10. directors , executive officers and corporate governance the information required by this item is incorporated herein by reference to the definitive proxy statement for our 2013 annual meeting of stockholders to be filed with the commission pursuant to regulation 14a and the information included under the caption `` executive officers of the registrant '' in part i hereof . item 11. executive compensation the information required by this item is incorporated herein by reference to the definitive proxy statement for our 2013 annual meeting of stockholders to be filed with the commission pursuant to regulation 14a . item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by this item is incorporated herein by reference to the definitive proxy statement for our 2013 annual meeting of stockholders to be filed with the commission pursuant to regulation 14a . item 13. certain relationships and related transactions and director independence the information required by this item is incorporated herein by reference to the definitive proxy statement for our 2013 annual meeting of stockholders to be filed with the commission pursuant to regulation 14a . item 14. principal accountant fees and services the information required by this item is incorporated herein by reference to the definitive proxy statement for our 2013 annual meeting of stockholders to be filed with the commission pursuant to regulation 14a . 48 part iv item 15. exhibits and story_separator_special_tag 31.1 certification by the chief executive officer pursuant to rule 13a-14 ( a ) of the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 . 31.2 certification by the chief financial officer pursuant to rule 13a-14 ( a ) of the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 . 32 certification by the chief executive officer and chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 . 101 the following materials from the registrant 's annual report on form 10-k for the year ended december 31 , 2012 , formatted in xbrl ( extensible business reporting language ) : ( 1 ) the consolidated balance sheets , ( 2 ) the consolidated statements of operations and comprehensive income , ( 3 ) the consolidated statements of cash flows , and ( 4 ) notes to consolidated financial statements . * represents a management contract , or compensatory plan , contract or arrangement required to be filed pursuant to regulation s-k. 64 story_separator_special_tag the information required by this item is incorporated herein by reference to the management 's discussion and analysis of financial condition and results of operations section of our 2012 annual report to stockholders filed as exhibit 13.1 to this form 10-k. item 7a . qualitative and quantitative disclosure about market risk the information required by this item is incorporated herein by reference to the management 's discussion and analysis of financial condition and results of operations section of our 2012 annual report to stockholders under the caption `` liquidity and capital resources market risk , '' filed as exhibit 13.1 to this form 10-k. item 8. financial statements and supplementary data reference is made to the index to financial statements contained in item 15. item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures evaluation of disclosure controls and procedures . we maintain disclosure controls and procedures ( as defined in rule 13a-15 ( e ) under the securities exchange act of 1934 ( the `` exchange act '' ) ) that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the exchange act is recorded , processed , summarized and reported within the time periods specified in the sec 's rules and forms , and that such information is accumulated and communicated to our management , including our chief executive officer and chief financial officer , as appropriate to allow timely decisions regarding required disclosures . because of inherent limitations , disclosure controls and procedures , no matter how well designed and operated , can provide only reasonable , and not absolute , assurance that the objectives of disclosure controls and procedures are met . our management , with the participation of our chief executive officer and chief financial officer , evaluated the effectiveness of the design and operation of our disclosure controls and procedures . based on that evaluation , our chief executive officer and chief financial officer concluded that , as of the end of the period covered by this report , our disclosure controls and procedures are effective at a reasonable assurance level . management 's report on internal control over financial reporting . our management 's report on internal control over financial reporting is set forth in our 2012 annual report to stockholders filed as exhibit 13.1 to this form 10-k and is incorporated herein by reference . changes in internal control over financial reporting . there was no change in our internal control over financial reporting ( as defined in rule 13a-15 ( f ) ) that occurred during the fourth quarter of 2012 that has materially affected , or is reasonably likely to materially affect , our internal control over financial reporting . item 9b . other information during the fourth quarter of the year covered by this report , the audit committee of our board of directors approved certain audit , audit-related and non-audit tax compliance and tax consulting services to be provided by ernst & young llp , the company 's independent registered public accounting firm . this disclosure is made pursuant to section 10a ( i ) ( 2 ) of the exchange act , as added by section 202 of the sarbanes-oxley act of 2002 . 47 part iii item 10. directors , executive officers and corporate governance the information required by this item is incorporated herein by reference to the definitive proxy statement for our 2013 annual meeting of stockholders to be filed with the commission pursuant to regulation 14a and the information included under the caption `` executive officers of the registrant '' in part i hereof . item 11. executive compensation the information required by this item is incorporated herein by reference to the definitive proxy statement for our 2013 annual meeting of stockholders to be filed with the commission pursuant to regulation 14a . item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by this item is incorporated herein by reference to the definitive proxy statement for our 2013 annual meeting of stockholders to be filed with the commission pursuant to regulation 14a . item 13. certain relationships and related transactions and director independence the information required by this item is incorporated herein by reference to the definitive proxy statement for our 2013 annual meeting of stockholders to be filed with the commission pursuant to regulation 14a . item 14. principal accountant fees and services the information required by this item is incorporated herein by reference to the definitive proxy statement for our 2013 annual meeting of stockholders to be filed with the commission pursuant to regulation 14a . 48 part iv item 15. exhibits and
| consolidated financial statements simon property group , inc. and subsidiaries ' consolidated financial statements and independent registered public accounting firm 's reports are included in our 2012 annual report to stockholders , filed as exhibit 13.1 to this form 10-k and are incorporated herein by reference .
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estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances , including , but without limitation , changes in interest rates , performance of the economy , financial condition of borrowers and laws and regulations . the following are the accounting policies we believe are critical . allowance for loan losses . we recognize that losses will be experienced on loans and that the risk of loss will vary with , among other things , the type of loan , the creditworthiness of the borrower , general economic conditions and the quality of the collateral for the loan . we maintain an allowance for loan losses inherent in the loan portfolio . the allowance for loan losses represents management 's estimate of probable losses based on all available information . the allowance for loan losses is based on management 's evaluation of the collectability of the loan portfolio , including past loan loss experience , known and inherent losses , information about specific borrower situations , estimated collateral values , and current economic conditions . the loan portfolio and other credit exposures are reviewed regularly by management in its determination of the allowance for loan losses . the methodology for assessing the appropriateness of the allowance includes a review of historical losses , peer group comparisons , industry data and economic conditions . as an integral part of their examination process , regulatory agencies periodically review our allowance for loan losses and may require us to make additional provisions for estimated losses based upon judgments different from those of management . in establishing the allowance for loan losses , loss factors are applied to various pools of outstanding loans . loss factors are derived using our historical loss experience and may be adjusted for factors that affect the collectability of the portfolio as of the evaluation date . commercial loans over $ 1.0 million that are criticized are evaluated individually to determine the required allowance for loan losses and to evaluate the potential impairment . although management believes that it uses the best information available to establish the allowance for loan losses , future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations . because future events affecting borrowers and collateral can not be predicted with certainty , there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of loans deteriorate as a result of the factors discussed previously . any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations . the allowance is based on information known at the time of the review . changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings . such changes could impact future results . management believes that all known losses as of december 31 , 2012 and 2011 have been recorded as of those dates . valuation of investment securities . our investment securities are classified as either held-to-maturity or available-for-sale . held-to-maturity securities are carried at amortized cost , while available-for-sale securities are carried at fair value . unrealized gains or losses , net of deferred taxes , are reported in other comprehensive income . in general , fair value is based upon quoted market prices of identical assets , when available . if quoted market prices are not available , fair value is based upon valuation models that use cash flow , security structure and other observable information . where sufficient data is not available to produce a fair valuation , fair value is based on broker quotes for similar assets . semi-annually ( at may 31 and november 30 ) , we validate the prices received from these third parties by comparing them to prices provided by a different independent pricing service . we have also reviewed the detailed valuation methodologies provided to us by our pricing services . broker quotes may be adjusted to ensure that financial instruments are recorded at fair value . adjustments may include unobservable parameters , among other things . no adjustments were made to any broker quotes received by us . we conduct a quarterly review and evaluation of all investment securities to determine if any declines in fair value are other than temporary . in making this determination , we consider the period of time the securities were in an unrealized loss position , the percentage decline in comparison to the securities ' amortized cost , the financial condition of the issuer , if applicable , and the delinquency or default rates of underlying collateral . we consider our intent to sell the investment securities evaluated and the likelihood that we will not have to sell the investment securities before recovery of their cost basis . if impairment exists , credit related impairment losses are recorded in earnings while noncredit related impairment losses are recorded in accumulated other comprehensive income . any future deterioration in the fair value of an investment security , or the determination that the existing unrealized loss of an investment security is other-than-temporary , may have a material adverse affect on future earnings . 31 goodwill . goodwill is not subject to amortization but must be tested for impairment at least annually , and possibly more frequently if certain events or changes in circumstances arise . impairment testing requires that the fair value of each reporting unit be compared to its carrying amount , including goodwill . reporting units are identified based upon analyzing each of our individual operating segments . a reporting unit is defined as any distinct , separately identifiable component of an operating segment for which complete , discrete financial information is available that management regularly reviews . story_separator_special_tag goodwill is allocated to the carrying value of each reporting unit based on its relative fair value at the time it is acquired . determining the fair value of a reporting unit requires a high degree of subjective management judgment . with the assistance of an independent third party , we evaluate goodwill for possible impairment using four valuation methodologies including a public market peers approach , a comparable transactions approach , a control premium approach and a discounted cash flow approach . future changes in the economic environment or the operations of the reporting units could cause changes to these variables , which could give rise to declines in the estimated fair value of the reporting unit . declines in fair value could result in impairment being identified . we have established june 30 of each year as the date for conducting our annual goodwill impairment assessment . quarterly , we evaluate if there are any triggering events that would require an update to our previous assessment . the variables are selected as of that date and the valuation model is run to determine the fair value of each reporting unit . we did not identify any individual reporting unit where the fair value was less than the carrying value . deferred income taxes . we use the asset and liability method of accounting for income taxes . using this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance is established . deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled . we exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets . these judgments require us to make projections of future taxable income . the judgments and estimates we make in determining our deferred tax assets , which are inherently subjective , are reviewed on an ongoing basis as regulatory and business factors change . a reduction in estimated future taxable income could require us to record a valuation allowance . changes in levels of valuation allowances could result in increased income tax expense , and could negatively affect earnings . pension benefits . pension expense and obligations are dependent on assumptions used in calculating such amounts . these assumptions include discount rates , anticipated salary increases , interest costs , expected return on plan assets , mortality rates , and other factors . in accordance with u.s. generally accepted accounting principles , actual results that differ from the assumptions are amortized over average future service and , therefore , generally affect recognized expense . while management believes that the assumptions used are appropriate , differences in actual experience or changes in assumptions may affect our pension obligations and future expense . in determining the projected benefit obligations for pension benefits at december 31 , 2012 and 2011 , we used a discount rate of 4.06 % and 4.39 % , respectively . we use the citigroup pension liability index rates matching the duration of our benefit payments as of the measurement date to determine the discount rate . our measurement date is december 31 . 32 balance sheet analysis assets . total assets at december 31 , 2012 were $ 7.943 billion , a decrease of $ 15.1 million , or 0.2 % , from $ 7.958 billion at december 31 , 2011. this decrease in assets was primarily caused by a decrease in our interest-earning deposits in other financial institutions of $ 230.6 million , or 38.9 % , to $ 362.8 million at december 31 , 2012 from $ 593.4 million at december 31 , 2011. cash and investments . total cash and investments decreased by $ 142.2 million , or 7.8 % , to $ 1.686 billion at december 31 , 2012 , from $ 1.828 billion at december 31 , 2011. this decrease was a result of using cash to fund an increase in net loans receivable of $ 148.9 million and the repurchase of 4,403,262 shares of common stock at a total cost of $ 52.0 million during 2012. loans receivable . net loans receivable increased by $ 148.9 million , or 2.7 % , to $ 5.629 billion at december 31 , 2012 , from $ 5.480 billion at december 31 , 2011. during 2012 personal banking loans decreased by $ 188,000 , or 0.1 % compared to last year . consumers continue to take advantage of historically low interest rates as residential mortgage loans increased by $ 18.3 million , even with the sale of $ 236.5 million of our wholesale mortgage loans into the secondary market . however , consumers appear to have concerns about incurring addition debt as home equity loans and other consumer loans decreased by $ 8.1 million and $ 10.3 million , respectively , during the year . our efforts to expand beyond traditional residential mortgage lending continues to produce results as our commercial banking loan portfolio increased by $ 151.1 million , or 8.3 % to $ 1.975 billion at december 31 , 2012 from $ 1.824 billion at december 31 , 2011. commercial real estate loans increased by $ 150.0 million , or 10.5 % , and commercial loans increased by $ 1.1 million compared to the prior year . total loans 30 days or more delinquent decreased by $ 17.5 million , or 10.0 % , to $ 157.4 million at december 31 , 2012 from $ 174.9 million at december 31 , 2011. the december 31 , 2012 amount consisted of 3,642 loans , while the december 31 , 2011 amount consisted of 3,412 loans .
| interest income on loans receivable decreased by $ 8.0 million , or 2.4 % , to $ 320.9 million for the year ended december 31 , 2011 from $ 328.9 million for the year ended december 31 , 2010. this decrease was attributable to a decrease in the average yield , which was partially offset by an increase in the average balance of loans receivable . the average yield on loans receivable decreased by 18 basis points , to 5.82 % for the year ended december 31 , 2011 , from 6.00 % for the year ended december 31 , 2010. this decrease is primarily due to the re-pricing of variable rate loans and the origination of new loans in a lower interest rate environment . average loans receivable increased by $ 21.1 million , or 0.4 % , to $ 5.509 billion for the year ended december 31 , 2011 from $ 5.488 billion for the year ended december 31 , 2010. this increase was attributable both to our efforts in attracting and maintaining quality personal and business loan relationships as well as increased loan demand in the fourth quarter . interest income on mortgage-backed securities decreased by $ 1.8 million , or 7.2 % , to $ 23.5 million for the year ended december 31 , 2011 from $ 25.3 million for the year ended december 31 , 2010. this decrease was attributable to a decrease in the average yield earned on mortgage-backed securities , which was partially offset by an increase in the average balance of mortgage-backed securities . the average yield on mortgage-backed securities decreased by 42 basis points , to 2.68 % for the year ended december 31 , 2011 , from 3.10 % for the year ended december 31 , 2010. this decrease in yield is primarily the result of the continued low interest rate environment throughout 2011 which caused the rates on our variable rate securities to decrease as they re-price . the average mortgage-backed securities balance increased by $ 58.2 million , or 7.1 % , to $ 874.4 million for the year ended
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medical segment revenue growth in 2015 reflected the inclusion of carefusion 's sales for the second half of the current year , growth in the medication and procedural solutions unit 's international sales of safety-engineered products and growth in the diabetes care unit 's sales of pen needles . life sciences segment revenue growth in 2015 was largely driven by sales of safety-engineered products in the preanalytical systems unit as well as by growth in the diagnostic systems unit . revenues in the united states of $ 5.069 billion in 2015 increased 48.4 % from 2014. international revenues in 2015 grew 3.6 % to $ 5.213 billion , which includes an estimated unfavorable foreign exchange translation impact of 12.6 % . in addition to the inclusion of carefusion 's sales in results for the second half of the current year , u.s. revenue growth reflected strength in the medical segment 's overall legacy product portfolio , the diagnostic systems unit 's benefit from a stronger than normal flu season , and growth in the biosciences unit 's research reagent sales and instrument placements . in addition to growth attributable to the carefusion acquisition , international revenues for 2015 reflected growth from both segments due to sales in emerging markets and of safety-engineered products . worldwide sales of safety-engineered products reflected the inclusion of carefusion 's sales of safety-engineered products for the second half of the fiscal year , as well as growth that was attributable to bd 's legacy safety-engineered products . u.s. sales of safety-engineered products in 2015 of $ 1.471 billion increased 21.8 % compared with 2014 and international safety-engineered products revenues of $ 1.128 billion grew 10.9 % , which reflected the estimated unfavorable impact of foreign currency translation of 14 % . we continue to invest in research and development , geographic expansion , and new product promotions to drive further revenue and profit growth . our ability to sustain our long-term growth will depend on a number of factors , including our ability to expand our core business ( including geographical expansion ) , develop innovative new products , and continue to improve operating efficiency and organizational effectiveness , including the integration of carefusion . while the economic environment for the healthcare industry has stabilized , pricing pressures continue for some of our products . healthcare utilization has stabilized and slightly improved in the united states ; however , any destabilization in the future could adversely impact our u.s. businesses . additionally , macroeconomic challenges in europe continue to constrain healthcare utilization , although we 17 currently view the environment as stable . in emerging markets , the company 's growth is dependent primarily on government funding for healthcare systems . our financial position remains strong , with cash flows from operating activities totaling $ 1.73 billion in 2015. at september 30 , 2015 , we had $ 1.44 billion in cash and equivalents and short-term investments . we continued to return value to our shareholders in the form of dividends . during fiscal year 2015 , we paid cash dividends of $ 485 million . no shares were repurchased during fiscal year 2015 due to the suspension of our share repurchase program for the near term , in connection with the carefusion acquisition , as our focus subsequent to closing the acquisition has been on the reduction of debt levels and the payment of dividends . each reporting period , we face currency exposure that arises from translating the results of our worldwide operations to the u.s. dollar at exchange rates that fluctuate from the beginning of such period . the ongoing strength of the u.s. dollar resulted in an unfavorable foreign currency translation impact to our revenue growth during the year , as discussed above . we evaluate our results of operations on both a reported and a foreign currency-neutral basis , which excludes the impact of fluctuations in foreign currency exchange rates . we calculate foreign currency-neutral percentages by converting our current-period local currency financial results using the prior-period foreign currency exchange rates and comparing these adjusted amounts to our current-period reported results . from time to time , we may purchase forward contracts and options to partially protect against adverse foreign exchange rate movements . gains or losses on our derivative instruments are largely offset by the gains or losses on the underlying hedged transactions . we do not enter into derivative instruments for trading or speculative purposes . for further discussion , refer to note 13 to the consolidated financial statements contained in item 8. financial statements and supplementary data . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; '' > bd viper system unfavorably impacted the diagnostic system unit 's revenues in both 2015 and 2014. the biosciences unit 's revenue growth in 2015 was driven by research instrument and reagent sales in the united states , partially offset by weaker international sales due to lower levels of research funding in japan . the biosciences unit 's revenue growth in 2014 was driven by double-digit growth of sales in emerging markets and was also driven by clinical reagent sales in all regions , as well as by instrument placements in both asia and the united states . replace_table_token_10_th life sciences segment 's gross profit margin as a percentage of revenues was lower in fiscal year 2015 compared with 2014 primarily due to unfavorable foreign currency translation , as well as various immaterial items . gross profit margin as a percentage of revenues in the life sciences segment was lower in 2014 compared with 2013 primarily due to the impact of unfavorable product mix , unfavorable foreign currency translation , costs associated with plant shutdowns and various immaterial items . selling and administrative expense as a percentage of life sciences revenues decreased in 2015 compared with 2014 as the prior-year period reflected the previously discussed charge relating to the early termination of a distributor 20 arrangement . story_separator_special_tag a decrease of selling and administrative expense as a percent of revenues in 2014 reflected the net favorable impact of various immaterial items , partially offset by the distributor arrangement termination charge . research and development expense in 2015 was flat compared with research and development expense in 2014 , which reflected an increase of $ 20 million , or 8 % , compared with spending in 2013. research and development expense in 2015 reflected increased investment in new products and platforms , including the bd viper tm and bd max tm platforms , and increased spending relating to the acquisitions of gencell biosystems ( `` gencell '' ) and cellular research , inc. ( `` cellular research '' ) in the first and fourth quarters of fiscal year 2015 , respectively . these increases in 2015 spending were lower in comparison to the increased spending in 2014 , which reflected the $ 20 million asset write-off and costs associated with workforce reduction actions , as previously discussed . geographic revenues bd 's worldwide revenues by geography in fiscal years 2015 , 2014 and 2013 were as follows : replace_table_token_11_th the medical segment 's u.s. revenue growth reflected the inclusion of carefusion 's u.s. sales of approximately $ 1.5 billion in the results for the second half of fiscal year 2015 , as well as overall strength in the segment 's legacy product portfolio , which was particularly driven by sales of flush and safety-engineered products . u.s. life sciences revenue growth in 2015 benefited from a stronger than normal influenza season , as discussed previously , and growth in the biosciences unit 's research reagents and instrument placements , reflecting a favorable funding environment in the u.s. market . u.s. life sciences growth in 2015 was unfavorably impacted by share losses related to the bd probetec and bd vipe r systems . u.s. revenue growth for our medical segment in 2014 reflected sales of pen needles in the diabetes care unit . the pharmaceutical systems unit 's revenue growth in 2014 benefited from the annualized impact of the safety syringes acquisition . u.s. life sciences revenue growth in 2014 benefited from growth in the biosciences unit 's clinical reagents and instrument placements . u.s. life sciences growth in 2014 was unfavorably impacted by a decline in women 's health and cancer platform sales , as previously discussed , and by share losses related to the bd probetec and bd viper systems . international revenue growth in the medical segment in 2015 reflected the inclusion of carefusion 's sales in results for the second half of the current year , as well as growth of sales in emerging markets and sales of safety-engineered products in the medication and procedural solutions and pharmaceutical systems units . the medical segment 's international revenue growth additionally reflected sales of flush products as well as sales of pen needles in the diabetes care unit . international life sciences revenue growth in 2015 was largely driven by growth in emerging markets as well as by sales of safety-engineered products . international life sciences revenue growth in 2015 also benefited from growth in sales of microbiology products , including lab automation products , but was partially offset by weaker biosciences unit sales primarily due to lower levels of research funding in japan . emerging market revenues in 2015 of $ 2.143 million represented an increase of 0.9 % over fiscal year 2014 , including a 8.3 % unfavorable impact due to foreign currency translation , and accounted for approximately 21 % of our total revenues . international revenues in 2014 reflected growth in both segments . international medical and life sciences revenue growth in 2014 was largely driven by emerging market growth as well as by sales of safety-engineered products . international life sciences revenue growth in 2014 also benefited from the kiestra acquisition . emerging market revenues in 2014 of $ 2.123 billion represented an increase of 9.3 % over the prior year , including a 3.0 % unfavorable impact due to foreign currency translation , and accounted for approximately 25 % of our total revenues . 21 gross profit margin and operating expenses gross profit margin , selling and administrative expense and research and development expense as percentages of revenues in 2015 , 2014 and 2013 were as follows : replace_table_token_12_th gross profit margin the decrease in gross profit margin in 2015 compared with 2014 reflected an unfavorable impact of 550 basis points due to purchase accounting adjustments to reflect carefusion 's inventory at fair value on the acquisition date , as well as the amortization and depreciation impacts of intangible and fixed assets , respectively , that were acquired in the carefusion acquisition . gross margin for the current-year period also reflected an estimated unfavorable impact of 50 basis points relating to foreign currency translation and a favorable operating performance impact of approximately 80 basis points , which primarily reflected lower manufacturing costs from continuous improvement projects . the decrease in gross profit margin in 2014 compared with 2013 reflected an estimated unfavorable impact of 60 basis points relating to foreign currency translation . operating performance reflected benefits of 100 basis points relating to lower manufacturing costs from continuous improvement projects and lower pension costs . these benefits were more than offset by unfavorable impacts of approximately 130 basis points , including unfavorable product mix and the costs to remediate a quality issue , as previously discussed . the unfavorable impact to operating performance also reflected higher start-up and raw material costs , as well as the employee termination costs resulting from workforce reduction actions , also previously discussed . selling and administrative aggregate expenses in 2015 reflected the inclusion of carefusion 's selling and administrative expenses in the second half of the current year 's results , as well as the depreciation of fixed assets acquired in the carefusion acquisition which were recorded at fair value . selling and administrative expense in 2015 was favorably impacted by foreign currency translation of approximately $ 138 million .
| the amount additionally includes a $ 20 million charge recorded by our life sciences segment for asset write-offs primarily resulting from the discontinuance of an instrument product development program . the asset write-offs were largely attributable to capitalized product software , but also included a lesser amount attributable to fixed assets . ( f ) the amount in 2013 represented a pre-tax charge of $ 341 million relating to an unfavorable verdict in the lawsuit filed against bd by retractable technologies , inc. ( “ rti ” ) and a pre-tax charge of $ 22 million associated with a litigation settlement related to indirect purchaser antitrust class action cases . the amount in 2015 represents a charge for rti 's attorneys ' fees . for further discussion of these charges , which were recorded in selling and administrative expense , refer to note 5 to the consolidated financial statements contained in item 8. financial statements and supplementary data . ( g ) represents non-cash charges primarily resulting from lump sum benefit payments made from bd 's u.s. supplemental pension plan . for further discussion , refer to note 8 to the consolidated financial statements contained in item 8. financial statements and supplementary data . ( h ) includes an $ 11 million charge recorded by our life sciences segment in selling and administrative expense for contract termination costs that resulted from the early termination of a european distributor arrangement . also includes a $ 5 million charge in cost of products sold resulting from the adjustment to the carrying amount of an asset that is being held for sale , and a gain of $ 8 million in other income ( expense ) , net , resulting from the sale of a company in which we held a small equity ownership interest . medical segment the following is a summary of medical revenues by organizational unit : replace_table_token_7_th ( a ) `` nm '' denotes that the percentage is not meaningful ; `` na '' denotes that the percentage is not applicable . ( b ) represents
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because future events affecting borrowers and collateral can not be predicted with certainty , there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of loans deteriorate as a result of the factors discussed previously . any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations . the allowance is based on information known at the time of the review . changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings . such changes could impact future results . for further information related to our allowance for loan losses , see note 1 ( f ) of the notes to the consolidated financial statements . valuation of investment securities . our investment securities are classified as either held-to-maturity or available-for-sale . held-to-maturity securities are carried at amortized cost , while available-for-sale securities are carried at fair value . unrealized gains or losses on available-for-sale securities , net of deferred taxes , are reported in other comprehensive income . fair values are determined as described in note 16 of the notes to the consolidated financial statements . semi-annually ( at may 31 27 and november 30 ) , we validate the prices received from these third parties by comparing them to prices provided by a different independent pricing service . we have reviewed the detailed valuation methodologies provided to us by our pricing services . additional information related to our investment securities can be found in note 1 ( d ) of the notes to the consolidated financial statements . we conduct a quarterly review of all investment securities to determine if any declines in fair value are other than temporary . in making this determination , we consider the period of time the securities have been in an unrealized loss position , the percentage decline in comparison to the securities ' amortized cost , the financial condition of the issuer , if applicable , and the delinquency or default rates of underlying collateral . we consider our intent to sell the investment securities evaluated and the likelihood that we will not have to sell the investment securities before recovery of their cost basis . if impairment exists , credit related impairment losses are recorded in earnings while noncredit related impairment losses are recorded in accumulated other comprehensive income , net of income taxes . any future deterioration in the fair value of an investment security , or the determination that the existing unrealized loss of an investment security is other-than-temporary , may have a material adverse affect on future earnings . goodwill . goodwill is not subject to amortization but must be tested for impairment at least annually , and possibly more frequently if certain events or changes in circumstances arise . impairment testing requires that the fair value of each reporting unit be compared to its carrying amount , including goodwill . reporting units are identified based upon analyzing each of our individual operating segments . a reporting unit is defined as any distinct , separately identifiable component of an operating segment for which complete , discrete financial information is available that management regularly reviews . goodwill is allocated to the carrying value of each reporting unit based on its relative fair value at the time it is acquired . determining the fair value of a reporting unit requires a high degree of subjective management judgment . with the assistance of an independent third party , we evaluate goodwill for possible impairment using four valuation methodologies including a public market peers approach , a comparable transactions approach , a control premium approach and a discounted cash flow approach . future changes in the economic environment or the operations of the reporting units could cause changes to these variables , which could give rise to declines in the estimated fair value of the reporting unit . declines in fair value could result in impairment being identified . we have established june 30 of each year as the date for conducting our annual goodwill impairment assessment . quarterly , we evaluate if there are any triggering events that would require an update to our previous assessment . the variables are selected as of june 30 and the valuation model is run to determine the fair value of each reporting unit . we did not identify any individual reporting unit where the fair value was less than the carrying value as of june 30 , 2015. deferred income taxes . we use the asset and liability method of accounting for income taxes . using this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance is established . deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled . we exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets . these judgments require us to make projections of future taxable income . the judgments and estimates we make in determining our deferred tax assets , which are inherently subjective , are reviewed on an ongoing basis as regulatory and business factors change . a reduction in estimated future taxable income could require us to record a valuation allowance . changes in levels of valuation allowances could result in increased income tax expense , and could negatively affect earnings . pension benefits . pension expense and obligations are dependent on assumptions used in calculating such amounts . story_separator_special_tag these assumptions include discount rates , anticipated salary increases , interest costs , expected return on plan assets , mortality rates , and other factors . in accordance with u.s. generally accepted accounting principles , actual results that differ from the assumptions are amortized over average future service and , therefore , generally affect recognized expense . while management believes that the assumptions used are appropriate , differences in actual experience or changes in assumptions may affect our pension obligations and future expense . in determining the projected benefit obligations for pension benefits at december 31 , 2015 and 2014 , we used a discount rate of 4.25 % and 3.89 % , respectively . we use the citigroup pension liability index rates matching the duration of our benefit payments as of the measurement date , december 31 , to determine the discount rate . 28 balance sheet analysis on august 14 , 2015 , we acquired lnb , the parent company of the lorain national bank . as a result , we acquired assets with a fair value of $ 1.211 billion , including investment securities with a fair value of $ 184.2 million , loans with a fair value of $ 928.1 million , and we assumed deposits of $ 1.034 billion and borrowings of $ 63.2 million . the following table shows certain assets and liabilities at the dates indicated for comparative purposes : replace_table_token_8_th assets . total assets at december 31 , 2015 were $ 8.952 billion , an increase of $ 1.177 billion , or 15.1 % , from $ 7.775 billion at december 31 , 2014. this increase in assets was due primarily to the addition of $ 1.211 billion , at fair value , of assets related to the lnb acquisition . additionally , originated net loans receivable increased by $ 304.1 million during 2015. partially offsetting these increases were decreases in marketable securities and interest-earning deposits in other financial institutions of $ 110.0 million and $ 73.3 million , respectively . a discussion of significant changes follows . cash and interest-earning deposits in other financial institutions . total cash decreased by $ 73.3 million , or 30.5 % , to $ 167.4 million at december 31 , 2015 , from $ 240.7 million at december 31 , 2014. this decrease was a result of using cash to pay for merger considerations for lnb and to fund loan growth . investment securities . investment securities decreased by $ 110.0 million , or 10.8 % , to $ 906.1 billion at december 31 , 2015 from $ 1.016 billion at december 31 , 2014. this decrease was a result of using the cash flow generated from these portfolios to fund loan growth , the lnb acquisition , and to payoff fhlb term advances . during the year ended december 31 , 2015 , we did not have any other-than-temporary credit related impairment charges within our investment portfolio . 29 the following table sets forth certain information regarding the amortized cost and fair value of our available-for-sale investment securities portfolio and mortgage-backed securities portfolio at the dates indicated . replace_table_token_9_th the following table sets forth certain information regarding the amortized cost and fair value of our held-to-maturity investment securities portfolio and mortgage-backed securities portfolio at the dates indicated . replace_table_token_10_th 30 the following table sets forth information regarding the issuers and the carrying value of our mortgage-backed securities at the dates indicated . replace_table_token_11_th further information and analysis of our investment portfolio , including tables with information related to gross unrealized gains and losses on available-for sale and held-to-maturity investment securities and tables showing the fair value and gross unrealized losses on investment securities aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position are located in note 4 of the notes to the consolidated financial statements . 31 investment portfolio maturities and yields . the following table sets forth the scheduled maturities , carrying values , amortized cost , market values and weighted average yields for our investment securities and mortgage-backed securities portfolios at december 31 , 2015. adjustable-rate mortgage-backed securities are included in the period in which interest rates are next scheduled to adjust . replace_table_token_12_th 32 loans receivable . net loans receivable increased by $ 1.237 billion , or 20.9 % , to $ 7.159 billion at december 31 , 2015 , from $ 5.922 billion at december 31 , 2015. this increase was due primarily to the addition of $ 928.1 million , at fair value , of loans related to the lnb acquisition . additionally , originated loans increased by $ 304.1 million , or 5.1 % , with retail banking loans increasing by $ 193.1 million , or 5.0 % , and commercial banking loans increasing by $ 111.0 million , or 5.1 % . the increase in retail banking loans occurred primarily in our residential mortgage loan portfolio , which increased by $ 171.3 million , or 6.8 % , as a result of refocusing on our traditional lending niche and improving our application and underwriting processes . in addition , our efforts to expand beyond traditional residential mortgage lending continued to produce results as our commercial real estate loan portfolio increased by $ 121.2 million , or 6.7 % . the following table sets forth the recorded investment in loans receivable by state ( based on borrowers ' domicile ) at december 31 , 2015. replace_table_token_13_th ( 1 ) percentage of total mortgage loans ( 2 ) percentage of total home equity loans ( 3 ) percentage of total other consumer loans ( 4 ) percentage of total commercial real estate loans ( 5 ) percentage of total commercial loans ( 6 ) percentage of total loans 33 set forth below are selected data related to the composition of our loan portfolio by type of loan as of the dates indicated . replace_table_token_14_th ( 1 ) consists primarily of secured and unsecured personal loans .
| to an increase in the average balance of 39 loans receivable of $ 576.8 million , or 9.8 % , to $ 6.460 billion for the year ended december 31 , 2015 from $ 5.883 billion for the year ended december 31 , 2014. this increase is due to continued success in growing business banking relationships , the retention of residential mortgage loan originations , and the addition of nearly $ 1.0 billion of loans related to the lnb acquisition . partially offsetting this increase was a decline in the average yield which decreased to 4.62 % for the year ended december 31 , 2015 from 4.79 % for the year ended december 31 , 2014. the continued decline in average yield is due primarily to the historically low level of market interest rates . interest income on mortgage-backed securities decreased by $ 1.5 million , or 14.5 % , to $ 8.8 million for the year ended december 31 , 2015 from $ 10.3 million for the year ended december 31 , 2014. this decrease is the result of decreases in both the average balance and average yield . the average balance of mortgage-backed securities decreased by $ 81.1 million , or 13.9 % , to $ 500.8 million for the year ended december 31 , 2015 from $ 581.9 million for the year ended december 31 , 2014 due primarily to redirecting cash flows from these securities to fund the lnb acquisition and fund loan growth . the average yield on mortgage-backed securities decreased by one basis point to 1.76 % for the year ended december 31 , 2015 from 1.77 % for the year ended december 31 , 2014. interest income on investment securities decreased by $ 1.6 million , or 15.2 % , to $ 8.8 million for the year ended december 31 , 2015 from $ 10.4 million for the year ended december 31 , 2014. this decrease is the result of decreases in both the average balance and average yield . the average yield on investment securities
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level 2 instruments include inputs other than level 1 that are observable , either directly or indirectly , such as quoted prices for similar assets or liabilities ; quoted prices for identical instruments in markets that are not active ; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities . level 3 instruments include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . our auction rate securities are classified as level 3 instruments . management uses a combination of the market and income approach to derive the fair value of auction rate securities , which include third party valuation results , investment broker provided market information and available information on the credit quality of the underlying collateral . as a result , the determination of fair value for level 3 instruments requires significant management judgment and subjectivity . our level 3 instruments are classified as long-term marketable securities on our condensed consolidated balance sheets and are entirely made up of auction rate securities that consist of student loan asset-backed notes . such loans are insured by the federal government or guaranteed by the federal family educational loan program ( `` ffelp '' ) . fair value measurement may be sensitive to various unobservable inputs such as the ability of students to repay their loans , or change in the provision of government guarantees policy toward guaranteeing loan repayment . if students are unable to pay back their loans or the government changes its policy , our investments may be further impaired . inventory . inventories are recorded at the lower of actual cost ( approximated by standard cost ) determined on a first-in-first-out basis or market . we establish provisions for inventory if it is obsolete or we hold quantities which are in excess of projected customer demand . the creation of such provisions results in a write-down of inventory to net realizable value and a charge to cost of sales . asset impairments . long-lived assets , including amortizable intangible assets , are carried on our financial statements based on their cost less accumulated depreciation or amortization . we monitor the carrying value of our long-lived assets for potential impairment and test the recoverability of such assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable . these events or changes in circumstances , including management decisions pertaining to such assets , are referred to as impairment indicators . if an impairment indicator occurs , we perform a test of recoverability by comparing the carrying value of the asset group to its undiscounted expected future cash flows . if the carrying values are in excess of undiscounted expected future cash flows , we measure any impairment by comparing the fair value of the asset group to its carrying value . fair value is generally determined by considering ( i ) internally developed discounted projected cash flow analysis of the asset group ; ( ii ) actual third-party valuations ; and or ( iii ) information available regarding the current market for similar asset groups . if the fair value of the asset group is determined to be less than the carrying amount of the asset group , an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs and is included in our consolidated statement of operations and comprehensive ( loss ) income . estimating future cash flows requires significant judgment and projections may vary from the cash flows eventually realized , which could impact our ability to accurately assess whether an asset has been impaired . no impairment charges were recorded for the fiscal year ended 2012 . valuation of goodwill . goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized . we review goodwill for impairment annually during the fourth quarter and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable . when evaluating whether goodwill is impaired , the company makes a qualitative assessment to determine if it is more likely than not that its fair value is less than its carrying amount . if the qualitative assessment determines that it is more likely than not that its fair value is less than its carrying amount , the fair value of the reporting unit is compared with its carrying value ( including goodwill ) . if the fair value of the reporting unit is less than its carrying value , an indication of goodwill impairment exists for the reporting unit and the company must measure the impairment loss . the impairment loss , if any , is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the implied fair value of the 26 goodwill . the implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill . fair value of the reporting unit is determined using a discounted cash flow analysis . if the fair value of the reporting unit exceeds its carrying value , no further impairment analysis is needed . for purposes of testing goodwill for impairment , the company operates as a single reporting unit . no goodwill impairment charges were recorded for the fiscal year ended 2012 . restructuring charges . expenses associated with exit or disposal activities are recognized when incurred under asc 420 , “ exit or disposal cost obligations. ” however , because we have a history of paying severance benefits , the cost of severance benefits associated with a restructuring charge is recorded when such costs are probable and the amount can be reasonably estimated in accordance with asc 712 , “ compensation - nonretirement postemployment benefits. story_separator_special_tag ” when leased facilities are vacated , an amount equal to the total future lease obligations from the date of vacating the premises through the expiration of the lease , net of estimated sublease income , is recorded as a part of restructuring charges . accounting for income taxes . our provision for income tax is comprised of our current tax liability and changes in deferred tax assets and liabilities . deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse . valuation allowances are provided to reduce deferred tax assets to an amount that in management 's judgment is more-likely-than-not to be recoverable against future taxable income . at december 29 , 2012 , u.s. income taxes were not provided on approximately $ 2.0 million of the undistributed earnings of our chinese subsidiary . we intend to reinvest these earnings indefinitely . if these earnings were distributed to the u.s. in the form of dividends or otherwise , we would be subject to additional u.s. income taxes . our income tax calculations are based on application of the respective u.s. federal , state or foreign tax law . the company 's tax filings , however , are subject to audit by the relevant tax authorities . accordingly , we recognize tax liabilities based upon our estimate of whether , and the extent to which , additional taxes will be due when such estimates are more-likely-than-not to be sustained . an uncertain income tax position will not be recognized if it has less than a 50 % likelihood of being sustained . to the extent the final tax liabilities are different than the amounts originally accrued , the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations and comprehensive ( loss ) income . in assessing the realizability of deferred tax assets , we evaluate both positive and negative evidence that may exist and consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . any adjustment to the net deferred tax asset valuation allowance is recorded in the consolidated statements of operations and comprehensive ( loss ) income in the period that the adjustment is determined to be required . stock-based compensation . we use the black-scholes option pricing model to estimate the fair value of substantially all share-based awards consistent with the provisions of asc 718 , “ compensation - stock compensation. ” option pricing models , including the black-scholes model , require the use of input assumptions , including expected volatility , expected term , expected dividend rate , and expected risk-free rate of return . the assumptions for expected volatility and expected term most significantly affect the grant date fair value . restricted stock unit grants are part of the company 's equity compensation practices for employees who receive equity grants . the restricted stock units granted to employees generally vest quarterly over a four-year period beginning on the grant date . 27 story_separator_special_tag style= '' font-family : times new roman ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > 2011 when compared to fiscal 2010 . in both years , new product revenue increased primarily due to strong volume ramping of certain new products , principally to customers in the consumer and communications end markets . these revenue increases were driven by strong acceptance of certain new consumer product offerings and a general migration of customers to new products from our mainstream and mature products . revenue for mainstream products decreased 18 % in fiscal 2012 when compared to fiscal 2011 . mainstream product revenue declined due primarily to macroeconomic factors affecting the communications and computing end markets as well as reduced volume as customers migrated to newer technology . revenue for mainstream products decreased 1 % in fiscal 2011 when compared to fiscal 2010 . mature product revenue decreased 35 % in fiscal 2012 when compared to fiscal 2011 . mature product revenue decreased primarily due to macroeconomic factors , reduced volume as accelerated sales of certain late life-cycle products ended and customers migrated to newer technology . revenue for mature products increased 7 % in fiscal 2011 when compared to fiscal 2010 . this increase is driven by a relatively high volume of late product life-cycle buys on certain of our mature products . * product classifications : new : latticeecp3 , machxo2 , power manager ii , and ice40 mainstream : ispmach 4000ze , ispmach 4000/z , latticesc , latticeecp2/m , latticeecp , latticexp2 , latticexp , machxo , ispclock a/d/s , software and ip mature : ispxpld , ispxpga , fpsc , orca 2 , orca 3 , orca 4 , isppac , isplsi 8000v , ispmach 5000b , ispmach 2lv , ispmach 5lv , isplsi 2000v , isplsi 5000v , ispmach 5000vg , all 5-volt cplds , ispgdx2 , gdx/v , ispmach 4/lv , ice65 , ispclock , power manager i , all splds * product categories are modified as appropriate relative to our portfolio of products and the generation within each major product family . new products consist of our latest generation of products , while mainstream and mature are older or based on unique late stage customer-based production needs . generally , product categories are adjusted every two to three years , at which time prior periods are reclassified to conform to the new categorization . in the first fiscal quarter of 2012 we reclassified our new , mainstream and mature product categories to better reflect our current product portfolio . 30 revenue by geography we assign revenue to geographies based on customer ship-to address at the point where revenue is recognized .
| for fpga products , the strong growth in new product volume , driven by customers migrating from our mainstream and mature products , offset more than one-half of the volume declines experienced by certain of our older mainstream and mature products , which were affected by both declines in our military business and the migration to new products . 28 pld and fpga revenue for fiscal 2011 increased approximately 5 % and 11 % , respectively , when compared to fiscal 2010 . in fiscal 2011 , pld product volume increased due largely to late product life-cycle buys on several low density mature products . in addition , pld product volume also increased for certain new products in both the consumer and communications end markets . fpga products in fiscal 2011 experienced significant volume increases due largely to communications end market customers migrating to newer technology and late product life-cycle buys on mature products , principally in our military business , which is part of our industrial and other end market . revenue by end market the following end market data is derived from data that is provided to us by our distributors and end customers . with a diverse base of customers who in some cases manufacture end products spanning multiple end markets , the assignment of revenue to a specific end market requires the use of estimates and judgment . therefore , actual results may differ from those reported . the composition of our revenue by end market for fiscal years 2012 , 2011 and 2010 was as follows ( dollars in thousands ) : replace_table_token_9_th the communications market continues to represent our largest end market . our revenue in this market is largely dependent on a small number of large telecommunications equipment providers ; however no individual end customer exceeded 10 % of total revenue in 2012 , 2011 , or 2010. for fiscal 2012 , the communications market revenue declined 10 % when compared to fiscal 2011 and declined 4 % when comparing fiscal 2011 to fiscal 2010 . these declines were driven primarily by macroeconomic weakness which impacted infrastructure investments in the communications market in the second half of fiscal 2011 and throughout fiscal 2012. for fiscal 2012 , the
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estimated future dismantlement , restoration and abandonment costs , net of salvage values , are taken into account . liquidity and capital resources : our primary sources of liquidity are cash generated from our operations , through our producing oil and gas properties , field services business and sales of acreage . net cash provided by operating activities for the year ended december 31 , 2016 was $ 11.0 million , compared to $ 21 million in the prior year . excluding the effects of significant unforeseen expenses or other income , our cash flow from operations fluctuates primarily because of variations in oil and gas production and prices or changes in working capital accounts . our oil and gas production will vary based on actual well performance but may be curtailed due to factors beyond our control . our realized oil and gas prices vary due to world political events , supply and demand of products , product storage levels , and weather patterns . we sell the vast majority of our production at spot market prices . accordingly , product price volatility will affect our cash flow from operations . to mitigate price volatility we sometimes lock in prices for some portion of our production through the use of derivatives . if our exploratory drilling results in significant new discoveries , we will have to expend additional capital in order to finance the completion , development , and potential additional opportunities generated by our success . we believe that , because of the additional reserves resulting from the successful wells and our record of reserve growth in recent years , we will be able to access sufficient additional capital through bank financing . maintaining a strong balance sheet and ample liquidity are key components of our business strategy . for 2017 , we will continue our focus on preserving financial flexibility and ample liquidity as we manage the risks facing our industry . our 2017 capital budget is reflective of decreased commodity prices and has been established based on an expectation of available cash flows , with any cash flow deficiencies expected to be funded by borrowings under our revolving credit facility . as we have done historically to preserve or enhance liquidity we may adjust our capital program throughout the year , divest assets , or enter into strategic joint ventures . we are actively in discussions with financial partners for funding to develop our asset base and , if required , pay down our revolving credit facility should our borrowing base become limited due to the deterioration of commodity prices . on february 15 , 2017 , the company and its lenders entered into a third amended and restated credit agreement with a maturity date of february 15 , 2021 , providing for a credit facility totaling $ 300 million , with a borrowing base of $ 75 million . as of march 31 , 2017 the company has $ 24.8 million in outstanding borrowings and $ 40.2 million in availability under this facility . the bank reviews the borrowing base semi-annually and , at their discretion , may decrease or propose an increase to the borrowing base relative to a redetermined estimate of proved oil and gas reserves . the next borrowing base review is scheduled for june 2017. our oil and gas properties are pledged as collateral for the line of credit and we are subject to certain financial and operational covenants defined in the agreement . we are currently in compliance with these covenants and expect to be in compliance over the next twelve months . if we do not comply with these covenants on a continuing basis , the lenders have the right to refuse to advance additional funds under the facility and or declare all principal and interest immediately due and payable . our borrowing base may decrease as a result of lower natural gas or oil prices , operating difficulties , declines in reserves , lending requirements or regulations , the issuance of new indebtedness or for other reasons set forth in our revolving credit agreement . in the event of a decrease in our borrowing base due to declines in commodity prices or otherwise , our ability to borrow under our revolving credit facility may be limited and we could be required to repay any indebtedness in excess of the redetermined borrowing base . 36 our credit agreement required us to hedge a portion of our production as forecasted for the pdp reserves included in our borrowing base review engineering reports . accordingly the company has in place the following swap agreements for oil and natural gas . replace_table_token_11_th in accordance with sec rules governing the scheduling of the drilling of pud reserves we have only included in our yearend reserve report , the 18 pud locations for which we have an afe and a definitive plan to drill . as described below , additional capital expenditures are expected in both our west texas and oklahoma regions . our west texas horizontal drilling program began in 2015 with the drilling of two wells . through december 31 , 2016 we have drilled and completed eight wells . development is continuing and we are currently participating in an additional 19 horizontal wells in this program . as of march 31 , 2017 , these wells are in various stages of being drilled , completed , have been placed on production , or are waiting on hydraulic fracture stimulation . we anticipate the drilling of an additional 13 wells in 2017 , although afes and specific plans for drilling have not been received . although the actual count may vary , this additional activity brings the anticipated total to 32 horizontal wells drilled in 2017 in our west texas horizontal drilling program . in addition , the company is participating for less than 1 % interest in 13 other horizontal wells . story_separator_special_tag in upton county , texas , we are developing a contiguous 3,900 acre block with our joint venture partner , apache corporation , where the company holds approximately 48 % interest in 2,606 gross acres . through yearend 2016 six wells had been drilled and completed . in the first quarter of 2017 an additional eight wells have been spud and are in various stages of being drilled or completed . apache corporation has indicated their plans to pad drill the acreage and that future phases of the development will result in approximately 60 horizontal wells being drilled at a cost of about $ 470 million . we own various interests ranging from 14 % to 49 % in the lands to be developed in this project and expect our share of these capital expenditures to be approximately $ 120 million . the actual number of wells to be drilled and the timing of the drilling may vary based on commodity market conditions . apache drilling plans indicate an additional nine wells will be drilled later this year at a cost of $ 60 million , of which our share is approximately $ 19 million . these wells meet the definition of proved undeveloped reserves , however , they were not included in our yearend reserve report because we had not yet received afes and formal drilling plans . also in upton county , the company is participating for 4 % interest with apache in the development of a 640 acre block where six wells , that were spud in 2016 , have been completed and are on production as of march 31 , 2017. these wells were included in our year end reserve report as proved undeveloped reserves . in 2016 we commenced our martin county , texas horizontal drilling program with the drilling of two wells that began production in july , 2016. these wells were drilled on a 960 acre block that the company is developing with rsp permian . an additional two wells were spud in the fourth quarter of 2016 and as of march 31 , 2017 , they are both producing . these two wells were included as puds in our yearend reserve report with the company owning 35 % to 38 % interest . rsp permian drilling plans indicate an additional two wells will be drilled in 2017 , however , these were not included in the reserves report , as afes for these have not yet been received . the company maintains an acreage position of 21,166 gross ( 13,021 net ) acres in the permian basin in west texas , primarily in reagan , upton , midland and martin counties . we believe this acreage has significant resource potential in multiple spraberry and wolfcamp intervals that support the potential drilling of as many as 250 additional wells . 37 our oklahoma horizontal development program , which began in 2012 , has participated in 24 horizontal wells for approximately $ 23 million through the first quarter of 2017. over this same time period the company choose to retain an over-riding royalty interest in 21 other horizontal wells . presently the company is participating with 17.6 % interest in a horizontal well in canadian county operated by devon energy and with 11.8 % interest in a horizontal well in kingfisher county operated by marathon oil company . our share of these two wells will be approximately $ 2.2 million . we have also elected to retain an orri in two additional horizontal wells currently being drilled in garfield and canadian counties . in addition , we are currently participating for 50 % interest in a vertical well in garvin county with an expected cost , net to primeenergy , of $ 1.3 million . as of march 31 , 2017 , all five wells have been spud and are either drilling , in the process of being completed and production tested , or are waiting on hydraulic fracture stimulation . the horizontal activity on company acreage is primarily focused in canadian , garvin , grady and kingfisher counties where we have approximately 2,295 net acres . we believe our acreage has significant additional resource potential that could support the drilling of 78 new horizontal wells based on an estimate of only two wells per section with our share of the capital expenditure being about $ 42 million at an average 10.5 % ownership level . in 2016 , the limited partners of the company managed drilling funds , located in west virginia , voted to terminate the partnerships , sell the wells to the company and retain their proportionate share of the leases previously held by those partnerships . these leases may potentially see future development should the horizontal shale plays of the appalachian basin expand into these areas . to supplement cash flow and finance our drilling program we have sold or farmed out certain acreage in exchange for cash and a royalty or working interest in both west texas and oklahoma . during 2016 proceeds under these agreements were approximately $ 34.4 million and during the first quarter of 2017 we have closed on transactions for an additional $ 46.9 million . as of march 2017 , the company has $ 6.3 million outstanding on our equipment financing facilities which are secured by substantially all of our field service equipment . the majority of our capital spending is discretionary , and the ultimate level of expenditures will be dependent on our assessment of the oil and gas business environment , the number and quality of oil and gas prospects available , the market for oilfield services , and oil and gas business opportunities in general . the company has in place both a stock repurchase program and a limited partnership interest repurchase program . spending under these programs in 2016 was $ 1.3 million .
| replace_table_token_12_th realized net gains ( losses ) on derivative instruments , net include net losses of $ 0.04 million and net gains of $ 0.02 million on the settlements of crude oil and natural gas derivatives , respectively for the year ended december 31 , 2016. this item included net gains of $ 18.1 million and $ 3.0 million on the settlements of crude oil and natural gas derivatives , respectively for the year ended december 31 , 2015. oil and gas prices received including the impact of derivatives were : replace_table_token_13_th we do not apply hedge accounting to any of our commodity based derivatives thus changes in the fair market value of commodity contracts held at the end of a reported period , referred to as mark-to-market adjustments , are recognized as unrealized gains and losses in the accompanying consolidated statements of operations . as oil and natural gas prices remain volatile , mark-to-market accounting treatment creates volatility in our revenues . during the year ended december 31 , 2016 we recognized net unrealized losses of $ 1.7 million associated with crude oil fixed swaps and $ 1.9 million associated with natural gas fixed swap contracts due to market fluctuations in natural gas and crude oil futures market prices between july 2016 and december 31 , 2016. during the year ended december 31 , 2015 , we recognized net unrealized losses of $ 14.6 million associated with crude oil fixed swaps and collars and $ 2.3 million associated with natural gas fixed swap contracts due to market fluctuations in natural gas and crude oil futures market prices between january 1 , 2015 and december 31 , 2015. field service income decreased $ 5.5 million , or 26.3 % from $ 20.9 million for the year ended december 31 , 2015 to $ 15.4 million for the year ended december 31 , 2016. we reduced rates on our workover rig and hot oiler services during 2016 in response to the reduced commodity prices .
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in october 2018 , the court issued a ruling invalidating all asserted claims of the applicable patent . janssen has appealed the court 's decision . in november 2018 , the u.s. court of appeals for the federal circuit denied janssen 's request for an injunction pending appeal . as a result , several generic versions of zytiga ® have entered the market , resulting in a decline in sales of zytiga ® in the united states . in 2018 , the company reported u.s. sales of $ 1.8 billion for zytiga ® . see note 21 to the consolidated financial statements for a description of legal matters regarding zytiga ® . the pulmonary hypertension therapeutic area was established with the acquisition of actelion ltd on june 16 , 2017. sales in 2018 represented a full year as compared to half a year in 2017. sales of opsumit ® ( macitentan ) and uptravi ® ( selexipag ) were positively impacted by market growth and share gains while sales of tracleer ® ( bosetan ) were negatively impacted by increased use of opsumit ® and generics . cardiovascular/metabolism/other products sales were $ 5.8 billion , a decline of 7.5 % as compared to the prior year . lower sales of invokana ® /invokamet ® ( canagliflozin ) in the u.s. was primarily due to an increase in price discounts , higher rebates and market share decline driven by competitive pressure . lower sales of xarelto ® ( rivaroxaban ) were driven by an increase in discounts and rebates , partially offset by an increase in market share . 20 during 2018 , the company advanced its pipeline with several regulatory submissions and approvals for new drugs and additional indications for existing drugs as follows : product name ( chemical name ) indication us approval eu approval us filing eu filing darzalex ® ( daratumumab ) frontline multiple myeloma transplant ineligible patients in combination with bortezomib , melphalan , and prednisone erdafitinib treatment of locally advanced or metastatic urothelial cancer erleada ( apalutamide ) treatment of non-metastatic castration-resistant prostate cancer esketamine antidepressant for treatment-resistant depression in adults imbruvica ® ( ibrutinib ) treatment of waldenstrom 's macroglobulinemia used in combination with rituximab treatment for previously untreated chronic lymphocytic leukemia in combination with obinutuzumab invokana ® ( canagliflozin ) reduce the risk of death in type 2 diabetes with established , or risk for , cardiovascular disease . ( canvas/canvas-r ) juluca ® ( rilpivirine and dolutegravir ) single-tablet , once-daily , two-drug regimen for the treatment of hiv-1 infection opsumit ® ( macitentan ) treatment of adults with inoperable chronic thromboembolic pulmonary hypertension to improve exercise capacity and pulmonary vascular resistance stelara ® ( ustekinumab ) treatment of adults with moderately to severely active ulcerative colitis symtuza ® ( darunavir/cobicistat/ emtricitabine/tenofovir alafenamide ) a complete darunavir-based single-tablet regimen for the treatment of hiv-1 infection tremfya ® ( guselkumab ) patient controlled injector for the treatment of adults living with moderate to severe plaque psoriasis xarelto ® ( rivaroxaban ) treatment to reduce the risk of major cardiovascular events in people with chronic coronary or peripheral artery disease for the prevention of venous thromboembolism for medically ill patients zytiga ® ( abiraterone acetate ) treatment of hormone naïve metastatic prostate cancer pharmaceutical segment sales in 2017 were $ 36.3 billion , an increase of 8.3 % from 2016 , which included operational growth of 8.0 % and a positive currency impact of 0.3 % . u.s. sales were $ 21.5 billion , an increase of 6.7 % . international sales were $ 14.8 billion , an increase of 10.8 % , which included 10.1 % operational growth and a positive currency impact of 0.7 % . in 2017 , acquisitions and divestitures had a net positive impact of 3.8 % on the operational sales growth of the worldwide pharmaceutical segment . adjustments to previous reserve estimates , as compared to the prior year , negatively impacted the reported pharmaceutical segment operational growth by approximately 1.8 % , primarily in the immunology and cardiovascular/metabolism/other therapeutic areas . 21 medical devices segment the medical devices segment sales in 2018 were $ 27.0 billion , an increase of 1.5 % from 2017 , which included an operational increase of 1.1 % and a positive currency impact of 0.4 % . u.s. sales were $ 12.8 billion , an increase of 0.1 % as compared to the prior year . international sales were $ 14.2 billion , an increase of 2.8 % as compared to the prior year , with an operational increase of 1.9 % and a positive currency impact of 0.9 % . in 2018 , acquisitions and divestitures had a net negative impact of 1.5 % on the worldwide operational sales growth of the medical devices segment as compared to 2017. major medical devices franchise sales : * replace_table_token_6_th ( 1 ) previously referred to as cardiovascular ( 2 ) on june 30 , 2014 , the company divested the ortho-clinical diagnostics business ( the diagnostics franchise ) and amounts represent transitional service agreement that concluded in 2017 . * prior year amounts have been reclassified to conform to current year presentation * * products acquired from abbott medical optics ( amo ) on february 27 , 2017 * * * percentage greater than 100 % or not meaningful the surgery franchise sales were $ 9.9 billion in 2018 , an increase of 3.6 % from 2017. growth in advanced surgery was primarily driven by endocutter , biosurgery and energy products . growth in general surgery was primarily driven by wound care products . growth in specialty surgery was primarily driven by advanced sterilization products . story_separator_special_tag the orthopaedics franchise sales were $ 8.9 billion in 2018 , a decrease of 1.9 % from 2017. the decline in spine & other was primarily due to the codman neurosurgery divestiture and share loss in spine partially offset by new product launches . the decline in knees was primarily due to competitive pressure in the u.s. partially offset by growth in asia pacific . growth in hips and trauma was due to continued uptake of new products . the vision franchise achieved sales of $ 4.6 billion in 2018 , an increase of 12.1 % from 2017. growth was primarily driven by strength of the astigmatism and daily disposable lenses in the oasys ® contact lenses category . surgical growth was driven by cataract performance primarily outside the u.s. the interventional solutions franchise ( includes the cerenovus business previously included in spine and other in orthopaedics ) sales were $ 2.6 billion , an increase of 15.2 % from 2017. strong growth in the electrophysiology business was driven by atrial fibrillation procedure growth and continued uptake of the thermocool smarttouch ® contact force sensing catheter . the diabetes care franchise sales were $ 1.0 billion , a decrease of 37.5 % from 2017. the decline was primarily due to divestiture of its lifescan business in the fiscal fourth quarter of 2018 and the company 's decision to exit the animas insulin pump business in the fiscal fourth quarter of 2017. the medical devices segment sales in 2017 were $ 26.6 billion , an increase of 5.9 % from 2016 , which included an operational increase of 5.7 % and a positive currency impact of 0.2 % . u.s. sales were $ 12.8 billion , an increase of 4.5 % as compared to the prior year . international sales were $ 13.8 billion , an increase of 7.1 % as compared to the prior year , with an 22 operational increase of 6.7 % and a positive currency impact of 0.4 % . in 2017 , acquisitions and divestitures had a net positive impact of 4.2 % on the worldwide operational sales growth of the medical devices segment as compared to 2016. analysis of consolidated earnings before provision for taxes on income consolidated earnings before provision for taxes on income was $ 18.0 billion , $ 17.7 billion and $ 19.8 billion for the fiscal years ended 2018 , 2017 and 2016 , respectively . as a percent to sales , consolidated earnings before provision for taxes on income was 22.1 % , 23.1 % , and 27.5 % in 2018 , 2017 and 2016 , respectively . cost of products sold and selling , marketing and administrative expenses : cost of products sold and selling , marketing and administrative expenses as a percent to sales were as follows : * replace_table_token_7_th * prior years amounts were reclassified to conform to current year presentation ( adoption of asu 2017-07 ) in 2018 , cost of products sold as a percent to sales decreased to 33.2 % from 33.3 % as compared to the same period a year ago primarily due to lower inventory step-up costs related to the actelion acquisition and favorable product and segment mix driven by a higher percentage of sales from the pharmaceutical segment . this was mostly offset by higher amortization expense primarily related to the actelion acquisition on june 16 , 2017. intangible asset amortization expense of $ 4.4 billion was included in cost of products sold for 2018 as compared to $ 3.0 billion in 2017. there was a decrease in the percent to sales of selling , marketing and administrative expenses in 2018 as compared to the prior year , primarily due to lower costs relative to sales growth in the pharmaceutical business and favorable segment mix . in 2017 , cost of products sold as a percent to sales increased to 33.3 % from 30.3 % as compared to the same period a year ago . the unfavorable increase was primarily driven by $ 2.3 billion of higher amortization expense and charges for inventory step-up related to the recent acquisitions , primarily actelion . intangible asset amortization expense of $ 3.0 billion was included in cost of products sold for 2017 as compared to $ 1.2 billion in 2016. there was an increase in the percent to sales of selling , marketing and administrative expenses in 2017 as compared to the prior year , primarily due to investments in new product launches partially offset by favorable mix . 23 research and development expense : research and development expense by segment of business was as follows : * replace_table_token_8_th * prior years amounts were reclassified to conform to current year presentation ( adoption of asu 2017-07 ) * * as a percent to segment sales research and development activities represent a significant part of the company 's business . these expenditures relate to the processes of discovering , testing and developing new products , upfront payments and milestones , improving existing products , as well as ensuring product efficacy and regulatory compliance prior to launch . the company remains committed to investing in research and development with the aim of delivering high quality and innovative products . in 2018 , worldwide costs of research and development activities increased by 1.7 % compared to 2017 but decreased as a percent of sales . the decrease as a percent of sales in the pharmaceutical segment was attributable to lower costs relative to sales growth . the increased dollar spend in the medical devices and pharmaceutical segments was for investment spending to advance the pipeline . in 2017 , worldwide costs of research and development activities increased by 15.9 % compared to 2016. the increase as a percent of sales was primarily in the pharmaceutical segment due to general portfolio progression as well as collaborative agreements entered into with idorsia ltd. and legend biotech .
| sales by companies in the western hemisphere ( excluding the u.s. ) achieved growth of 1.2 % as compared to the prior year , including operational growth of 8.2 % and a negative currency impact of 7.0 % . sales by companies in the asia-pacific , africa region achieved growth of 10.5 % as compared to the prior year , including operational growth of 9.4 % and a positive currency impact of 1.1 % . in 2018 , the company had three wholesalers distributing products for all three segments that represented approximately 14.0 % , 11.0 % and 11.0 % of the total consolidated revenues . in 2017 , the company had two wholesalers distributing products for all three segments that represented approximately 14.0 % and 10.0 % of the total consolidated revenues . in 2016 , the company had two wholesalers distributing products for all three segments that represented approximately 13.5 % and 10.7 % of the total consolidated revenues . 17 analysis of sales by business segments consumer segment consumer segment sales in 2018 were $ 13.9 billion , an increase of 1.8 % from 2017 , which included 2.2 % operational growth and a negative currency impact of 0.4 % . u.s. consumer segment sales were $ 5.8 billion , an increase of 3.5 % . international sales were $ 8.1 billion , an increase of 0.7 % , which included 1.4 % operational growth and a negative currency impact of 0.7 % . in 2018 , acquisitions and divestitures had a net negative impact of 1.0 % on the operational sales growth of the worldwide consumer segment . major consumer franchise sales : replace_table_token_4_th the beauty franchise sales of $ 4.4 billion increased 4.3 % as compared to the prior year . growth was primarily driven by neutrogena ® , ogx ® and aveeno ® products as well as strength of dr. ci : labo and dabao ® products outside the u.s. growth was partially offset by the divestiture of nizoral ® . the over-the-counter ( otc ) franchise sales of $ 4.3 billion increased 5.0 % as compared to the prior year . growth was primarily driven by share , consumption and market growth across multiple brands including zyrtec ® , tylenol ® and children 's motrin ® , as well as
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we sell all of our solutions as subscription services , either through oems and service providers , which are considered cyren customers , or as complete security services directly , or indirectly via our partners , to enterprises . 36 cost of revenue personnel costs , which consist of salaries , benefits , bonuses and stock-based compensation for employees that operate our network and provide support services to our customers , as well as data center costs , are the most significant components of our cost of revenues . other costs include third party contractors , royalties for use of third-party technologies , amortization of intangibles and depreciation of data center equipment . we expect these costs may increase in absolute dollars as we continue to optimize our cloud infrastructure and our support services , but should reduce as a percentage of overall revenue . operating expenses our operating expenses consist of research and development , sales and marketing , and general and administrative expenses . personnel costs , which consist of salaries , benefits , bonuses , and stock-based compensation , are the most significant component of our operating expenses . operating expenses also include allocated overhead costs for facilities , it and depreciation . we expect operating expenses to increase in absolute dollars as we continue to grow . research and development . research and development expenses consists primarily of personnel costs , outsourced engineering and threat analysis services . we believe these investments are crucial for our ability to continue to enhance the functionality of our services , as well as to develop and introduce new services to the market . we expect research and development expenses may decrease as we release our new products later in 2020. development costs related to internal use technology that supports our security services are capitalized on the balance sheet , while other development costs are expensed as they are incurred . sales and marketing . sales and marketing expenses primarily include personnel costs , sales commissions , marketing activities , and travel associated with sales and marketing . we market and sell our services worldwide through our sales organization and distribution channels . we capitalize sales commissions paid to internal sales personnel and amortize these expenses over an estimated period of benefit that reflects the expected future revenue streams . we reduced sales and marketing expense in 2019 but anticipate that we may need to increase investment in these areas as we launch or new products and enhance our sales and marketing teams to support our further growth . our sales personnel are typically not immediately productive , and therefore the increase in expenses we incur when adding personnel is not immediately accompanied by increased revenue and in some cases may not result in increased revenue if these new sales personnel are unsuccessful in becoming productive . general and administrative . general and administrative expenses consist primarily of personnel costs , audit fees , legal expenses , recruiting expenses and other general operating costs . we expect our general and administrative expenses to continue to grow in absolute dollars as we continue our operational growth . other income ( expense ) , net other income ( expense ) , net consists generally of capital gain or loss from the sale of assets . however , in the first quarter of 2019 , we reached a financial settlement with the former shareholders of eleven related to the legal dispute regarding the amount and timing of the earn-out payments related to the acquisition of eleven ( the “ eleven settlement ” ) . since the financial settlement was less than the accrued interest and the unpaid earn-out consideration on the company 's balance sheet was reflected as other income during the period . financial expenses , net financial expenses , net consist mainly of foreign exchange gains and losses , interest expense on our outstanding debt and interest income earned on our cash and cash equivalents . in 2019 , these expenses also included income related to the accounting for a multi-year arrangement where a customer paid upfront the full contract value . this has been deemed a significant financing component under asc 606. tax benefit our tax benefit is derived primarily from income taxes in foreign jurisdictions in which we conduct business . we estimate income taxes in each of the jurisdictions in which we operate . this process involves determining income tax expense together with calculating the deferred income tax expense related to temporary differences resulting from the differing treatment of items for tax and accounting purposes . 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 . these temporary differences result in deferred tax assets and liabilities , which are included net as applicable within our balance sheets . for most of our recent years , we have incurred operating losses in israel and the u.s. , where we have recorded a full valuation allowance against our deferred tax assets in those jurisdictions . 37 story_separator_special_tag text-indent : 0.5in '' > the company 's german subsidiary is subject to german tax at a consolidated rate of approximately 30 % . other non-israeli subsidiaries are taxed according to the tax laws in their respective countries of residence . we do not provide deferred tax liabilities when we intend to reinvest earnings of foreign subsidiaries indefinitely . as of december 31 , 2019 , there are no undistributed earnings of foreign subsidiaries . we may currently qualify as an “ industrial company ” within the definition of the law for the encouragement of industry ( taxation ) , as such , we may be eligible for certain tax benefits , including , inter alia , special depreciation rates for machinery , equipment and buildings , amortization of patents , certain other intangible property rights and deduction of share issuance expenses . story_separator_special_tag net operating loss carry-forwards as of december 31 , 2019 , cyren 's net operating loss carryforwards for tax purposes amounted to $ 91.7 million and capital loss carryforwards of $ 17.8 million which may be carried forward and offset against taxable income in the future , for an indefinite period . as of december 31 , 2019 , the u.s. subsidiary had net operating loss carryforwards of $ 39.7 million for federal tax purposes and $ 11.1 million for state tax purposes . these losses may offset any future u.s. taxable income of the u.s. subsidiary and will expire in the years 2020 through 2039. management currently believes that based upon its estimations for future taxable income , it is more likely than not that the deferred tax assets regarding the loss carryforwards will not be utilized in the foreseeable future . thus , a valuation allowance was provided to reduce deferred tax assets to their realizable value . liquidity and capital resources we finance our operations primarily from our cash and cash equivalents and cash from operations . as of december 31 , 2019 , and 2018 , we had approximately $ 11.6 million and $ 17.6 million of cash and cash equivalents , respectively . our future capital requirements will depend on many factors , including , but not limited to our growth , market acceptance of our offerings , the timing and extent of spending to support our efforts to develop our platform and the expansion of sales and marketing activities . we may be required to seek additional equity or debt financing . in the event that additional financing is required from outside sources , we may not be able to raise it on terms acceptable to us or at all . if we are unable to raise additional capital when desired , our business , financial condition and results of operations could be adversely affected . 39 outlook during 2020 , we expect to continue to incur capital expenditures associated with r & d and data center infrastructure . over the past several years , the company has devoted substantially most of its effort to research and development , product development and increasing revenues through additional investments in sales & marketing . the company generated a loss of $ 18.0 million and negative cash flow of $ 6.9 million from operating activities in the twelve-month period ended december 31 , 2019 , and has an accumulated deficit of $ 231.3 million as of december 31 , 2019. the company is planning to finance its operations from its existing and future working capital resources and to continue to evaluate additional sources of capital and financing . however , there is no assurance that additional capital and or financing will be available to the company , and even if available , whether it will be on terms acceptable to the company or in amounts required . accordingly , the company 's board modified its contingency plan , to be effected if needed , in whole or in part , at its discretion , to allow the company to continue its operations and meet its cash obligations . the contingency plan consists of cost reduction , which include mainly the following steps : reduction in consultants ' expenses , headcount , compensation paid to key management personnel and capital expenditures . the company and the board believes that its existing capital resources and other future measures that may be implemented , if so required , will be adequate to satisfy its expected liquidity requirements for at least twelve months from the filing date . cash flows from operating activities in 2019 , net cash used in operating activities was $ 6.9 million and was primarily due to a net loss of $ 18.0 million adjusted for non-cash activity of $ 3.8 million amortization of intangible assets , $ 1.9 million depreciation of property and equipment , $ 2.4 million stock-based compensation expenses , $ 1.2 million amortization of deferred commissions , $ 1.3 million in amortization of operating lease right-of-use assets associated with the adoption of asc 842 effective january 1 , 2019 , $ 2.9 million increase in deferred revenues , $ 1.5 million increase in trade receivables , net and offset by a decrease in deferred commissions of $ 1.0 million , a decrease trade payable of $ 0.7 and a decrease of $ 1.0 in employee and payroll accruals , accrued expenses and other liabilities and a decrease in operating lease liabilities of $ 1.2 million . in 2018 , net cash used in operating activities was $ 11.5 million and was primarily due to a net loss of $ 19.4 million adjusted for non-cash activity of $ 4.2 million amortization of intangible assets , $ 1.9 million depreciation of property and equipment , $ 1.4 million stock-based compensation expenses , $ 1.4 million amortization of deferred commissions , $ 0.7 million increase in deferred revenues , $ 0.5 million increase in employee and payroll accruals , accrued expenses and other liabilities , and offset by an increase in deferred commissions of $ 2.3 million . cash flows from investing activities in 2019 , net cash used in investing activities consisted of $ 3.7 million for capitalization of technology and $ 1.5 million used to purchase property and equipment . in 2018 , net cash used in investing activities consisted of $ 2.0 million for capitalization of technology and $ 3.3 million used to purchase property and equipment . our capital expenditures over the last three years consisted primarily of continued investment in r & d and also purchases of property and equipment to modernize and expand our data centers and to invest in our infrastructure in order to support new business and the growth of the company . cash flows from financing activities in 2019 , net cash generated by financing activities was $ 6.0 million and was due to net proceeds of $ 8.0 million from the rights offering , $ 0.7 million proceeds from exercise of options , and offset by $ 2.7
| million during 2019 compared to 2018. these increases are required as a foundation for the continued growth of the business . intangible amortization expenses decreased by $ 0.3 million in 2019 compared to 2018 , which included additional expense in 2019 related to $ 0.2 million of intangible asset impairment recorded . allocated costs from operating expenses related to our corporate and it departments contributed to $ 0.1 million of an increase in 2019 compared to 2018 as a result of higher operating costs associated with those departments . this increase had an accounting impact of reducing the gross margin in accordance with u.s. gaap . research and development , net . research and development expenses for 2019 in the amount of $ 15.8 million decreased by $ 0.3 million compared to $ 16.1 million in 2018 , which represents a 2 % annual decrease . payroll and related expenses , net decreased by approximately $ 0.8 million primarily driven by lower headcount and an increase in the capitalization of payroll related costs due to an increase in new product development in 2019. outside services and outsourced engineering expenses associated with our increased investment in r & d increased by $ 0.5 million . r & d headcount during 2019 decreased from 140 to 132 employees . sales and marketing . sales and marketing expenses for 2019 totaling $ 13.8 million decreased by $ 2.4 million , compared to $ 16.2 million in 2018. the change is mainly due to a $ 0.8 million decrease in payroll and related expenses due to lower headcount , a $ 1.0 million decrease in expenses related to outside services associated with marketing activities , $ 0.2 million decrease in travel related expenses , a $ 0.2 million decrease associated with amortization of intangible assets and a $ 0.2 million decrease in allocated costs from the corporate and it departments due to lower headcount during
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transaction costs increased by $ 2.7 million to $ 3.2 million for the year ended december 31 , 2020. the increase in transaction costs includes costs incurred by the company to facilitate the private and public offerings of common stock of $ 1.8 million and costs associated with abandoned acquisitions as well fees incurred for property acquisitions throughout the period of $ 0.9 million . interest expense . interest expense decreased by $ 6.2 million to $ 4.7 million for the year ended december 31 , 2020. the decrease is primarily attributed to the decrease in the effective interest rate and total borrowings outstanding throughout the period as compared to the prior year . net gain on sales of real estate . net gain on sales of real estate increased $ 0.6 million to $ 6.2 million for the year ended december 31 , 2020. the table below summarizes the properties sold for the periods indicated ( in thousands ) : replace_table_token_6_th net income ( loss ) . net income increased $ 7.9 million to $ 0.1 million for the year ended december 31 , 2020 from a net loss of $ 8.0 million for the prior year . net income increased primarily due to the growth in the size of our real estate investment portfolio , which generated additional rental revenues , and due to the decreases in impairment and interest expenses , offset by the impact of increases in depreciation and amortization expenses related to our growth , and to increases in general and administrative expenses and transaction costs , primarily the result of becoming a public company , as set forth above . liquidity and capital resources our primary capital requirements are to fund property acquisitions and required interest payments , as well as working capital needs , operating expenses , and capital expenditures . our capital resources primarily consist of cash from operations , sales of 35 equity securities ( including the private offering and initial public offering ) and borrowings under our credit facility . as of december 31 , 2020 , we had a $ 175.0 million term loan and no borrowings outstanding under our $ 250.0 million revolver . we believe that the net proceeds of $ 227.3 million from our initial public offering plus both our cash flows from operations and available borrowing capacity will be adequate to support our ongoing operations and to fund our debt service requirements , capital expenditures and working capital for at least the next 12 months . credit facility in december 2019 , we entered into a credit facility consisting of ( i ) a $ 175.0 million senior secured term loan and ( ii ) a $ 250.0 million senior secured revolver . wells fargo securities , llc is lead arranger and bookrunner and wells fargo bank , national association is administrative agent under the credit facility ( the “ administrative agent ” ) . the term loan matures on december 23 , 2024 and the revolver matures on december 23 , 2023 , subject to extension of up to one year . the administrative agent released the collateral in connection with the company 's satisfaction of the collateral release requirements in the fourth quarter of 2020 , therefore interest rates under the credit facility are based on the company 's consolidated total leverage ratio , and are determined by ( a ) in the case of the term loan either ( i ) libor , plus a margin ranging from 1.15 % to 1.60 % , based on the company 's consolidated total leverage ratio , or ( ii ) a base rate ( as defined in the credit facility ) , plus a margin ranging from 0.15 % to 0.60 % , based on the company 's consolidated total leverage ratio and ( b ) in the case of the revolver either ( i ) libor , plus a margin ranging from 1.20 % to 1.80 % , based on the company 's consolidated total leverage ratio , or ( ii ) a base rate ( as defined in the credit facility ) , plus a margin ranging from 0.20 % to 0.80 % , based on the company 's consolidated total leverage ratio . prior to the collateral release , the credit facility was secured by a first priority perfected security interest in and lien on all existing and future equity interests of the company 's direct and indirect subsidiaries of any eligible property ( as defined in the credit facility ) owned by the company or any of the company 's subsidiaries . the credit facility provided that the administrative agent has the option to release the collateral securing the credit facility upon delivery of satisfactory evidence from the company that collateral release requirements ( as defined in the credit facility ) have been met , which requirements include , among others , conditions related to the unencumbered asset value and asset diversification of the company . the company uses interest rate derivative contracts to manage its exposure to changes in interest rates on its variable rate debt . these derivatives are considered cash flow hedges and are recorded on a gross basis at fair value . effective september 28 , 2020 , such derivatives were used to hedge the variable cash flows associated with the term loan . historical cash flow information year ended december 31 , 2020 compared with the period from january 1 to december 22 , 2019 to assist with the understanding of historical cash flows , we have discussed changes from our predecessor 's statement of cash flows data for the period ended december 22 , 2019 to the year ended december 31 , 2020. we believe this provides the most meaningful information despite the 2019 period having nine fewer days of cash flow activity than the 2020 period . replace_table_token_7_th cash flows provided by operating activities . story_separator_special_tag net cash provided by operating activities increased by $ 6.8 million for the year ended december 31 , 2020 compared to the period from january 1 , 2019 to december 22 , 2019. the increase was largely attributed to the increase in total number of properties as well as increases of $ 5.1 million in depreciation and amortization expense , $ 2.5 million in stock based compensation , $ 3.1 million in accounts payable , accrued expenses and other current liabilities , offset primarily by a decrease of $ 4.5 million in the provision for impairments . cash flows used in investing activities . net cash used in investing activities increased by $ 438.1 million for the year ended december 31 , 2020 compared to the period ended from january 1 , 2019 to december 22 , 2019. the company spent $ 408.6 36 million on the acquisition of real estate during the year ended december 31 , 2020 compared to $ 1.2 million for the period from january 1 , 2019 to december 22 , 2019. additionally , the company sold 15 properties during the year ended december 31 , 2020 for net proceeds of $ 48.1 million compared to 30 properties sold for the period from january 1 , 2019 to december 22 , 2019 for net proceeds of $ 77.6 million . cash flows provided by financing activities . net cash provided by financing activities increased by $ 355.0 million for the year ended december 31 , 2020 compared to the period from january 1 , 2019 to december 22 , 2019. the increase is attributed to the private offering of common stock of $ 54.5 million and the initial public offering of $ 227.3 million which occurred during 2020. additionally , the company had no net borrowings or payments on debt during 2020 compared to net payments of $ 77.0 million for the period from january 1 , 2019 to december 22 , 2019. contractual obligations and commitments as of december 31 , 2020 , we had one contractual obligation related to the maturity on our $ 175.0 million term loan with the scheduled principal payment due on december 23 , 2024. during 2020 , the company borrowed and repaid $ 50.0 million on our $ 250.0 million revolver at a weighted average interest rate , exclusive of deferred financing costs , of 1.54 % to fund specifically identified property acquisitions . the following table provides information with respect to our commitments as of december 31 , 2020 ( in thousands ) : replace_table_token_8_th 1 effective september 28 , 2020 , the company entered into an interest rate hedge to fix the total company interest rate on the company 's term loan . accordingly , the projected interest rate obligations for the variable rate term loan is based on the hedged fixed rate ( one-month ) of 0.21 % compared to the variable term loan one-month libor rate as of december 31 , 2020 of 0.15 % , plus a margin of 1.15 % based on the $ 175.0 million term loan outstanding through the maturity date of december 23 , 2024 . 2 we are subject to a variable unutilized borrowing fee on the unused portion of our $ 250.0 million revolver . as of december 31 , 2020 , we have no borrowings on our $ 250.0 million revolver and incurred a fee at 0.25 % . this reflects our projected unutilized borrowing fee as if the revolver has no borrowing through the maturity date of december 23 , 2023 at 0.25 % . income taxes we elected to be treated and to qualify as a reit for u.s. federal income tax purposes under the code , commencing with our short taxable year ended december 31 , 2019 upon the filing of our u.s. federal income tax return for such taxable year . as a reit , we generally will not be subject to u.s. federal income tax on income that we distribute to our stockholders . if we fail to qualify as a reit in any taxable year , we will be subject to u.s. federal income tax on our taxable income at the regular corporate tax rate . we believe that we are organized and have operated in a manner that has enabled us to qualify to be taxed as a reit commencing with our short taxable year ended december 31 , 2019 , and we intend to continue to operate so as to satisfy the requirements for qualification as a reit for u.s. federal income tax purposes . we must declare and pay dividends to maintain our status as a reit and we were required to declare and pay a dividend of $ 0.2 million relating to our 2019 fiscal period by december 31 , 2020. accordingly , we declared and paid dividends in the second half of 2020 which were inclusive of the $ 0.2 million obligation for 2019. see “ note 9 – stockholders ' equity , partners ' capital and preferred equity ” of our consolidated financial statements . we made a joint election with netstreit trs for it to be treated as a trs . as a trs , netstreit trs will be subject to u.s. federal , state , and local income taxes on its taxable income . in general , netstreit trs may perform services for our tenants , hold assets that we can not hold directly and may engage in any real estate or non-real estate-related business . our predecessor was not a federal taxable entity and no provision for federal income taxes was recognized in its consolidated financial information . 37 recent accounting pronouncements a discussion of new accounting standards and the possible effects of these standards on our consolidated financial statements is included in “ note 2 - summary of significant accounting policies ” of our consolidated financial statements . critical accounting policies and estimates our accounting policies have been established to conform with u.s. gaap .
| revenue for the year ended december 31 , 2020 increased by $ 13.4 million to $ 33.7 million from $ 19.8 million for the period from january 1 , 2019 to december 22 , 2019 and $ 0.5 million for the period from december 23 , 2019 to december 31 , 2019. this is primarily due to an increase in the real estate portfolio from 122 properties as of january 1 , 2019 to 203 properties as of december 31 , 2020. the increase includes an increase in rental income of $ 8.4 million , straight-line rental revenue of $ 2.7 million , property expense reimbursement revenue of $ 1.4 million , amortization of above- and below market lease related intangible assets of $ 0.6 million , lower bad debt expense of $ 0.2 million and other net increases of $ 0.1 million . total operating expenses . total expenses increased by $ 12.1 million to $ 35.2 million for the year ended december 31 , 2020 as compared to $ 22.8 million for the period from january 1 , 2019 to december 22 , 2019 and $ 0.3 million for the period from 34 december 23 , 2019 to december 31 , 2019. the increase in operating expenses is attributed to the increase in the number of operating properties and the completion of the company 's initial public offering in august 2020. total operating expenses include the following : property expenses . property expenses increased $ 1.4 million to $ 2.6 million for the year ended december 31 , 2020. the increase is primarily attributed to the increase in the real estate portfolio from 122 to 203 properties . the largest increases are from property taxes of $ 0.9 million and maintenance of $ 0.4 million . general and administrative expenses . general and administrative expenses increased $ 7.7 million to $ 11.3 million for the year ended december 31 , 2020. the increase is primarily due to payroll expense associated with the internalization of management to support the company as a newly public company of $ 3.0 million , an increase of restricted-share based expense of $ 2.5 million , an increase of employee bonus compensation of $ 1.6 million , offset by the elimination of management fees of $ 2.8 million charged to the company by affiliates . the increase also includes insurance related expenses of $ 0.6 million , general
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you , however , should consult further disclosures ( including disclosures of a forward-looking nature ) that the company may make in any subsequent annual report on form 10-k , quarterly report on form 10-q , or current report on form 8-k. results of operations overview the company focuses on the following four core strategic objectives . management believes these strategic objectives will guide its efforts to achieving its vision , to deliver the unparalleled customer experience , all the while seeking to improve net income and strengthen the balance sheet . 24 the first strategic objective is a focus on improving operating efficiencies . over the past two quarters , an in-depth review of the organization was completed to identify efficiencies . the company plans to utilize this review to simplify our organizational and reporting structures , streamline back office functions and take advantage of synergies among various platforms and distribution networks . the company has identified a total of $ 32.9 million in annualized savings to be realized over the coming quarters as a result of the elimination of employee positions and business process improvements . these savings are discussed further in the company 's current report on form 8-k filed january 26 , 2016. this total does not include the additional cost savings we expect to recognize related to the marquette integration , or any ongoing efficiencies identified through our normal course of business . the company continues to invest in technological advances that will help management drive operating efficiencies in the future through improved data analysis and automation . the company also continues to evaluate core systems and will invest in enhancements that it believes will yield operating efficiencies . the second strategic objective is a focus on net interest income through loan and deposit growth . during 2015 , continued progress on this strategy was illustrated by an increase in net interest income of $ 62.0 million , or 17.7 percent , from the previous year . the company has continued to show increased net interest income in a historically low rate environment through the effects of increased volume of average earning assets and a low cost of funds in its consolidated balance sheets . on may 31 , 2015 , the marquette acquisition was completed , which added earning assets with an acquired value of $ 1.2 billion to the company 's consolidated balance sheets . average earning assets increased $ 1.6 billion , or 10.6 percent from december 31 , 2014. the funding for these assets was driven primarily by an 8.5 percent increase in average interest-bearing liabilities and a 14.1 percent increase in average noninterest-bearing demand deposits . average loan balances increased $ 1.4 billion , or 20.8 percent compared to the same period in 2014. net interest margin , on a tax-equivalent basis , increased 15 basis points compared to the same period in 2014. the third strategic objective is to grow the company 's fee-based businesses . as the industry continues to experience economic uncertainty , the company has continued to emphasize its fee-based operations . by maintaining a diverse source of revenues , this strategy has helped reduce the company 's exposure to sustained low interest rates . during 2015 , noninterest income decreased $ 32.2 million , or 6.5 percent , to $ 466.5 million for the year ended december 31 , 2015 , compared to the same period in 2014. this change is discussed in greater detail below under noninterest income . the company continues to emphasize its asset management , brokerage , bankcard services , healthcare services , and treasury management businesses . at december 31 , 2015 , noninterest income represented 53.1 percent of total revenues , compared to 58.8 percent at december 31 , 2014. the fourth strategic objective is a focus on capital management . the company places a significant emphasis on the maintenance of a strong capital position , which management believes promotes investor confidence , provides access to funding sources under favorable terms , and enhances the company 's ability to capitalize on business growth and acquisition opportunities . the company continues to maximize shareholder value through a mix of reinvesting in organic growth , evaluating acquisition opportunities that complement the strategies , increasing dividends over time , and properly utilizing a share repurchase program . at december 31 , 2015 , the company had $ 1.9 billion in total shareholders ' equity . this is an increase of $ 249.9 million , or 15.2 percent , compared to total shareholders ' equity at december 31 , 2014. this increase is primarily attributable to the issuance of common stock for the acquisition of marquette of $ 179.7 million on may 31 , 2015. at december 31 , 2015 , the company had a total risk-based capital ratio of 12.80 percent . the company repurchased 164,335 shares of common stock at an average price of $ 51.46 per share during 2015. further , the company paid $ 46.0 million in dividends during 2015 , which represents an 11.2 percent increase compared to 2014. earnings summary the company recorded consolidated net income of $ 116.1 million for the year-ended december 31 , 2015. this represents a 3.8 percent decrease over 2014. net income for 2014 was $ 120.7 million , or a decrease of 9.9 percent compared to 2013. basic earnings per share for the year ended december 31 , 2015 , were $ 2.46 per share compared to $ 2.69 per share in 2014 and $ 3.25 per share in 2013. basic earnings per share for 2015 decreased 25 8.6 percent as compared to 2014 , which decreased 17.2 percent as compared to 2013. fully diluted earnings per share decreased 7.9 percent as compared to 2014 , which decreased 17.2 percent as compared to 2013. the company 's net interest income increased to $ 412.1 million in 2015 compared to $ 350.1 million in 2014 and $ 333.3 million in 2013. in total , a favorable volume variance coupled with a smaller favorable rate variance , resulted in a $ 62.0 million increase in net interest income in story_separator_special_tag 2015 , compared to 2014. see table 2 on page 29. the favorable volume variance on earning assets was predominantly driven by the increase in average loan balances of $ 1.4 billion , or 20.8 percent , for 2015 compared to the same period in 2014. net interest margin , on a tax-equivalent basis , increased to 2.64 percent for 2015 , compared to 2.49 percent for the same periods in 2014. the marquette acquisition added earning assets with an acquired value of $ 1.2 billion primarily from loan balances with an acquired value of $ 980.4 million at may 31 , 2015. marquette also added interest-bearing liabilities with an acquired value of $ 910.8 million primarily from interest-bearing deposits of $ 708.7 million at may 31 , 2015. despite the current low interest rate environment , the company continues to see benefit from interest-free funds . the impact of this benefit increased two basis points compared to 2014 and is illustrated on table 3 on page 30. the $ 16.8 million increase in net interest income in 2014 , compared to 2013 , is primarily a result of a favorable volume variance . the favorable volume variance on earning assets was predominantly driven by the increase in average loan balances of $ 754.0 million , or 12.1 percent , for 2014 compared to the same period in 2013. the current economic environment has made it difficult to anticipate the future of the company 's margins . the magnitude and duration of this impact will be largely dependent upon the frb 's policy decisions and market movements . see table 20 in item 7a on page 55 for an illustration of the impact of a rate increase or decrease on net interest income as of december 31 , 2015. the company had a decrease of $ 32.2 million , or 6.5 percent , in noninterest income in 2015 , as compared to 2014 , and a $ 6.9 million , or 1.4 percent , increase in 2014 , compared to 2013. the decrease in 2015 is primarily attributable to lower trust and securities processing income and unrealized equity losses on alternative investments offset by increased gains on the sales of securities available for sale . trust and securities processing income decreased $ 26.0 million , or 9.0 percent , for the year ended december 31 , 2015 , compared to the same period in 2014. equity earnings on alternative investments decreased $ 16.2 million for the year ended december 31 , 2015 primarily related to valuation declines in equity-method investments in pcm . gains of $ 10.4 million on securities available for sale were recognized during the year ended december 31 , 2015 compared to $ 4.1 million during the same period in 2014. the change in noninterest income in 2015 from 2014 , and 2014 from 2013 is illustrated on table 6 on page 33. noninterest expense increased in 2015 by $ 38.1 million , or 5.7 percent , compared to 2014 and increased in 2014 by $ 42.5 million , or 6.8 percent , compared to 2013. the increase in 2015 is primarily driven by an increase of $ 47.9 million , or 13.4 percent , in salary and employee benefit expense , and a $ 9.9 million , or 18.5 percent increase in equipment expense driven by increased computer hardware and software expense , which was partially offset by the $ 20.3 million contingency reserve recorded in 2014. the increase in noninterest expense in 2015 from 2014 , and 2014 from 2013 is illustrated on table 7 on page 34. net interest income net interest income is a significant source of the company 's earnings and represents the amount by which interest income on earning assets exceeds the interest expense paid on liabilities . the volume of interest earning assets and the related funding sources , the overall mix of these assets and liabilities , and the rates paid on each affect net interest income . table 2 summarizes the change in net interest income resulting from changes in volume and rates for 2015 , 2014 and 2013. net interest margin , presented in table 1 on page 27 , is calculated as net interest income on a fully tax equivalent basis ( fte ) as a percentage of average earning assets . net interest income is presented on a tax-equivalent basis to adjust for the tax-exempt status of earnings from certain loans and investments , which are primarily obligations of state and local governments . a critical component of net interest income and related net interest margin is the percentage of earning assets funded by interest-free sources . table 3 analyzes net interest 26 margin for the three years ended december 31 , 2015 , 2014 and 2013. net interest income , average balance sheet amounts and the corresponding yields earned and rates paid for the years 2013 through 2015 are presented in table 1 below . the following table presents , for the periods indicated , the average earning assets and resulting yields , as well as the average interest-bearing liabilities and resulting yields , expressed in both dollars and rates . table 1 three year average balance sheets/yields and rates ( tax-equivalent basis ) ( in millions ) replace_table_token_5_th 27 ( 1 ) interest income and yields are stated on a fully tax-equivalent ( fte ) basis , using a marginal tax rate of 36 % . the tax-equivalent interest income and yields give effect to disallowance of interest expense , for federal income tax purposes related to certain tax-free assets . rates earned/paid may not compute to the rates shown due to presentation in millions . the tax-equivalent interest income totaled $ 23.8 million , $ 21.2 million , and $ 22.2 million in 2015 , 2014 , and 2013 , respectively . ( 2 ) loan fees are included in interest income . such fees totaled $ 11.4 million , $ 9.9 million , and $ 10.9 million in 2015 , 2014 , and 2013 , respectively .
| additional increases include $ 19.0 million in increased technology , occupancy , and other service-based expenses as compared to the same period last year , an increase of $ 3.2 million in legal and consulting expense driven by acquisition expenses related to marquette , and $ 2.5 million of increased amortization of intangibles related to the new intangibles acquired related to marquette . these increases are partially offset by a $ 20.3 million decrease in the contingency reserve recorded in 2014 with no comparable amount recorded during 2015. on june 30 , 2014 , the company entered into a settlement agreement to resolve objections to its calculation of the earn-out amount owed to the sellers of pcm and a related incentive bonus calculation for the employees of pcm . a contingency reserve of $ 20.3 million was recorded in 2014 related to the settlement . table 9 payment solutions operating results replace_table_token_14_th for the year ended december 31 , 2015 , payment solutions net income decreased $ 0.6 million , or 2.2 percent , to $ 26.6 million compared to the same period in 2014. net interest income increased $ 6.0 million , or 11.6 percent and provision for loan losses decreased $ 0.9 million for the year ended december 31 , 2015 , compared to the same period in 2014. noninterest income increased $ 6.8 million , or 8.1 percent , driven by an increase in deposit service charges of $ 3.9 million due to increases in health savings accounts and corporate services income and an increase of $ 1.7 million in card services income due to increased interchange fees . noninterest expense increased by $ 12.1 million , or 12.9 percent , primarily due to a $ 5.0 million increase in salaries and benefits and $ 6.0 million of increased technology , occupancy , and other service-based expenses as compared to the same period last year . 36 table 10 institutional investment management operating results replace_table_token_15_th for the year ended december 31 , 2015 , institutional investment management net income decreased $ 11.9 million , or 40.9 percent , compared to the same period last
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once the order is released , our customer services professionals monitor the shipment and the return of the shipper to us for cleaning , quality assurance testing and reuse . · “ customer managed solution , ” a limited customer implemented solution whereby we supply our cryoport express ® shippers to clients in a fully charged state , but leaving it to the client to manage the shipping , including the selection of the shipping and delivery service provider and the return of the shipper to us . . · “ powered by cryoport sm , ” available to providers of shipping and delivery services who seek to offer a “ branded ” cryogenic logistics solution as part of their service offerings , with “ powered by cryoport sm ” appearing prominently on the offering software interface and packaging . this solution can also be private labeled upon meeting certain requirements , such as minimum required shipping volumes . · “ integrated solution , ” which is our outsource solution . it is our most comprehensive solution and involves our management of the entire cryogenic logistics process for our client , including cryoport employees at the client 's site to manage the client 's cryogenic logistics function in total . · “ regenerative medicine point-of-care repository solution , ” designed for allogeneic therapies . in this model we supply our cryoport express ® shipper to ship and store cryogenically preserved life science products for up to 6 days ( or longer periods with supplementary shippers ) at a point-of-care site , with the cryoport express ® shipper serving as a temporary freezer/repository enabling the efficient and effective distribution of temperature sensitive allogeneic cell-based therapies without the expense , inconvenience , and potential costly failure of an on-sight , cryopreservation device . our customer service professionals monitor each shipment throughout the predetermined process including the return of the shipper to us . when the cryoport operations center receives the cryoport express ® shipper package it is cleaned , put through quality assurance testing , and returned to inventory for reuse . · “ personalized medicine and cell-based immunotherapy solution , ” designed for autologous therapies . in this model our cryoport express ® shipper serves as an enabling technology for the safe transportation of manufactured autologous cellular-based immunotherapy market by providing a comprehensive logistics solution for the verified chain of custody and condition transport from , ( a ) the collection of the patient 's cells in a hospital setting , to ( b ) a central processing facility where they are manufactured into a personalized medicine , to ( c ) the safe , cryogenically preserved return of these irreplaceable cells to a point-of-care treatment facility . if required , the cryoport express ® shipper can then serve as a temporary freezer/repository to allow the efficient distribution of this personalized medicine to the patient when and where the medical provider needs it most without the expense , inconvenience , and potential costly failure of an on-sight , cryopreservation device . our customer services professionals monitor each shipment throughout the predetermined process , including the return of the shipper to us . when the cryoport operations center receives the cryoport express ® shipper package it is cleaned , put through quality assurance testing , and returned to inventory for reuse . 34 strategic logistics alliances we have sought to establish strategic alliances as a method of marketing our solutions providing minus 150° c shipping conditions to the life sciences industry . we have focused our efforts on leading companies in the logistics services industry as well as participants in the life sciences industry . in connection with our alliances with providers of shipping services , we refer to their respective offerings as “ powered by cryoport sm ” to reflect our solutions being integrated into our alliance partner 's services . cryoport now serves and supports the three largest integrators in the world , responsible for over 85 % of worldwide airfreight , with its advanced cryogenic logistics solutions for life sciences . we operate with each independently and confidentially in support of their respective market and sales strategies . we maintain our independent partnerships with strict confidentiality guidelines within the company . these agreements represent a significant validation of our solutions and the way we conduct our business . fedex . in january 2013 , we entered into a master agreement with federal express corporation ( “ fedex ” ) ( the “ fedex agreement ” ) renewing these services and providing fedex with a non-exclusive license and right to use a customized version of our cryoportal tm for the management of shipments made by fedex customers . the fedex agreement became effective on january 1 , 2013 and , unless sooner terminated as provided in the fedex agreement , expires on december 31 , 2015. fedex has the right to terminate this agreement at any time for convenience upon 180 days ' notice . under our fedex agreement , we provide frozen shipping logistics services through the combination of our purpose-built proprietary technologies and turnkey management processes . fedex markets and sells cryoport 's services for frozen temperature-controlled cold chain transportation as its fedex ® deep frozen shipping solution on a non-exclusive basis and at its sole expense . during fiscal year 2013 , the company worked closely with fedex to further align its sales efforts and accelerate penetration within fedex 's life sciences customer base through improved processes , sales incentives , joint customer calls and more frequent communication at the sales and executive level . in addition , fedex has developed a fedex branded version of the cryoportal tm software platform , which is “ powered by cryoport sm ” for use by fedex and its customers giving them access to the full capabilities of our cloud-based logistics management software platform . dhl . in june 2014 , we entered into a master agreement with lifeconex , a part of dhl global forwarding ( “ dhl ” ) . story_separator_special_tag this relationship with dhl is a further implementation of the company 's expansion of distribution partnerships under the “ powered by cryoport sm ” model described above , allowing us to expand our sales and marketing reach through our partners and build awareness of the benefits of our validated cryogenic solution offerings . dhl can now enhance and supplement its cold chain logistics offerings to its life sciences and healthcare customers with cryoport 's validated cryogenic solutions . dhl added 15 additional certified life sciences stations in the second quarter of 2014 bringing the thermonet network to 60 stations in operation . over the course of rolling out our new relationship , this expanded network will offer cryoport 's cryogenic solutions under the dhl brands as “ powered by cryoport sm ” . in addition , dhl 's customers will be able to have direct access to our cloud-based order entry and tracking portal to order cryoport express ® solutions and receive preferred dhl shipping rates and discounts . our proprietary logistics management operating platform , the cryoportal tm , is integrated with dhl 's tracking and billing systems to provide dhl life sciences and healthcare customers with a seamless way of accessing critical information regarding shipments of biological material worldwide . ups . in october 2014 , we added united parcel services , inc. ( “ ups ” ) as our third major distributor by entering into an agreement with ups oasis supply corporation , a part of ups , whereby ups will offer our validated and comprehensive cryogenic solutions to its life sciences and healthcare customers on a global basis . this relationship with ups is a further implementation of the company 's expansion of distributors under the “ powered by cryoport sm ” model described above , allowing us to further expand our sales and marketing reach through our partners and build awareness of the benefits of our validated cryogenic solution offerings through ups . over the course of rolling out our new relationship with ups , ups customers will have direct access to our cloud-based order entry and tracking portal to order cryoport express ® solutions and gain access to ups 's broad array of domestic and international shipping and logistics solutions at competitive prices . our proprietary logistics management operating platform , the cryoportal tm , is integrated with ups 's tracking and billing systems to provide ups life sciences and healthcare customers with a seamless way of accessing critical information regarding shipments of biological material worldwide . 35 these agreements the three largest integrators in the world represent a significant validation of our solutions and the way we conduct our business . life sciences agreements zoetis . in december 2012 , we signed an agreement with pfizer inc. relating to zoetis inc. ( formerly the animal health business unit of pfizer inc. ) pursuant to which we were engaged to manage frozen shipments of a key poultry vaccine . under this arrangement , cryoport provides on-site logistics personnel and its logistics management operating platform , the cryoportal tm to manage shipments from the zoetis manufacturing site in the united states to domestic customers as well as various international distribution centers . as part of our logistics management services , cryoport is constantly analyzing logistics data and processes to further introduce economies and reliability throughout the network , ensuring products arrive at their destinations in specified conditions , on-time and with the optimum utilization of resources . the company manages zoetis ' total fleet of dewar flask shippers used for this purpose , including liquid nitrogen shippers . in july 2013 the agreement was amended to expand cryoport 's scope to manage all logistics of zoetis ' key frozen poultry vaccine to all zoetis ' international distribution centers as well as all domestic shipments . in october 2013 , the agreement was further amended to further expand cryoport 's role to include the logistics management for a second poultry vaccine . liventa biosciences . in february 2014 , we entered into a services agreement with liventa bioscience , inc. ( “ liventa ” ) , a privately-held , commercial stage biotechnology company focused on cell-based biologics in the orthopedic industry . under this agreement , liventa will use cryoport 's regenerative medicine point-of-care repository solution for the logistics of its cell-based therapies requiring cryogenic temperatures and also provide cryoport express ® solutions to other biologics suppliers within the orthopedic arena . the agreement combines cryoport 's proprietary , purpose-built cold chain logistics solutions for cell-based and advanced biologic tissue forms with liventa 's distribution capability to orthopedic care providers . the implementation of cryoport 's regenerative medicine point-of-care repository solution will eliminate the risks of degradation and also eliminate the need for expensive onsite cryogenic freezers for storage of cell-based orthopedic therapies . this will enable liventa to confidently serve orthopedic practices , surgical centers , pain clinics , hospitals and , eventually , pharmacies and specialty care providers . the agreement has an initial three-year term and may be renewed for consecutive three-year terms , unless earlier terminated by either party . liventa also agreed to certain performance criteria and the issuance of 150,000 shares of its common stock to cryoport in exchange for an opportunity for the exclusive right to offer , market and promote cryoport express ® solutions for cellular-based therapies requiring cryogenic temperatures for use in the orthopedic arena in the united states . in summary , we serve the life sciences industry with cryogenic logistics solutions that are advanced , comprehensive , reliable , validated , and efficient . our clients include those companies and institutions that have logistics requirements for personalized medicine , immunotherapies , stem cells , cell lines , tissue , vaccines , in-vitro fertilization , cord blood , and other temperature sensitive commodities of life sciences . going concern as reported in the report of independent registered public accounting firm to our march 31 , 2015 and 2014 consolidated financial statements , we have incurred recurring losses and negative cash flows from operations since inception .
| the increase in gross margin is primarily due to the increase in net revenue combined with a reduction in freight as a percentage of revenues and a decrease of fixed manufacturing costs . cost of revenues for the year ended march 31 , 2015 was 70.3 % of revenues , as compared to 83.6 % of revenues for the prior year . our cost of revenues are primarily comprised of freight charges , payroll and related expenses related to our operations center in california , third-party charges for our european and asian operations centers in holland and singapore , depreciation expenses of our cryoport express® shippers and supplies and consumables used for our solutions . the increase in cost of revenues is primarily due to freight charges from the growth in shipments . selling , general and administrative expenses . selling , general and administrative expenses increased $ 1.3 million , or 25.5 % for the year ended march 31 , 2015 as compared to the prior year . this increase is primarily due to salaries and recruiting fees incurred to expand our sales force , the engagement of an investor relations firm and related activities , equity based compensation charges , public company related expenses including legal , sox and financial reporting expenses and banking charges as a result of the higher business volume . research and development expenses . research and development expenses decreased $ 56,500 or 13.8 % for the year ended march 31 , 2015 , as compared to the prior year . our research and development efforts are focused on continually improving the features of the cryoport express ® solutions including the company 's cloud-based logistics management platform , the cryoportal tm , the cryoport express ® shippers and development of additional accessories to facilitate the efficient shipment of life science commodities using our solution . we use an outside software development company and other third parties to provide some of these services . research and development expenses to date have consisted primarily of costs associated with the continually improving the features of the cryoport express ® solution
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key financial and operating metrics we regularly monitor a number of metrics in order to measure our current performance and project our future performance . these metrics aid us in developing and refining our growth strategies and making strategic decisions . beginning with the three months ended march 31 , 2016 , we refined the calculation of effective interest yield , or eiy , and certain related definitions to present eiy on a business day adjusted basis and to reflect the substantial growth and impact of ondeck marketplace in 2015. in addition , effective january 1 , 2016 , we adopted a new requirement in accordance with accounting principles generally accepted in the united states of america , or gaap , regarding the presentation of debt issuance costs . all revisions have been applied retrospectively . 38 replace_table_token_3_th originations originations represent the total principal amount of the term loans we made during the period , plus the total amount drawn on lines of credit during the period . many of our repeat term loan customers renew their term loan before their existing term loan is fully repaid . in accordance with industry practice , originations of such repeat term loans are presented as the full renewal loan principal , rather than the net funded amount , which would be the renewal term loan 's principal net of the unpaid principal balance on the existing term loan . loans referred to , and originated by , our issuing bank partner and later purchased by us are included as part of our originations . effective interest yield effective interest yield is the rate of return we achieve on loans outstanding during a period . it is calculated as our business day adjusted annualized interest income divided by average loans . annualization is based on 252 business days per year , which is typical weekdays per year less u.s. federal reserve bank holidays . net deferred origination costs in loans held for investment and loans held for sale consist of deferred origination fees and costs . deferred origination fees include fees paid up front to us by customers when loans are originated and decrease the carrying value of loans , thereby increasing the effective interest yield earned . deferred origination costs are limited to costs directly attributable to originating loans such as commissions , vendor costs and personnel costs directly related to the time spent by the personnel performing activities related to loan origination and increase the carrying value of loans , thereby decreasing the effective interest yield earned . recent pricing trends are discussed under the subheading “ key factors affecting our performance - pricing. ” net interest margin net interest margin , is calculated as business day adjusted annualized net interest income divided by average interest earning assets . net interest income represents interest income less funding cost during the period . interest income is net of fees on loans held for investment and held for sale . net deferred origination costs in loans held for investment and loans held for sale consist of deferred origination costs as offset by corresponding deferred origination fees . deferred origination fees include fees paid up front to us by customers when loans are originated . deferred origination costs are limited to costs directly attributable to originating loans such as commissions , vendor costs and personnel costs directly related to the time spent by the personnel performing activities related to loan origination . funding cost is the interest expense , fees , and amortization of deferred debt issuance costs we incur in connection with our lending activities across all of our debt facilities . annualization is based on 252 business days per year , which is typical weekdays per year less u.s. federal reserve bank holidays . marketplace gain on sale rate marketplace gain on sale rate equals our gain on sale revenue from loans sold through ondeck marketplace divided by the carrying value of loans sold , which includes both unpaid principal balance sold and the remaining carrying value of the net deferred origination costs . a portion of loans regularly sold through ondeck marketplace are or may be loans which were initially 39 designated as held for investment upon origination . the portion of such loans sold in a given period may vary materially depending upon market conditions and other circumstances . cost of funds rate cost of funds rate is our funding cost , which is the interest expense , fees and amortization of deferred debt issuance costs we incur in connection with our lending activities across all of our debt facilities , divided by average funding debt outstanding . for full years , it is calculated as our funding cost divided by average funding debt outstanding and for interim periods it is calculated as our annualized funding cost for the period divided by average funding debt outstanding . provision rate provision rate equals the provision for loan losses divided by the new originations volume of loans held for investment , net of originations of sales of such loans within the period . because we reserve for probable credit losses inherent in the portfolio upon origination , this rate is significantly impacted by the expectation of credit losses for the period 's originations volume . this rate may also be impacted by changes in loss estimates for loans originated prior to the commencement of the period . the denominator of the provision rate formula includes the new originations volume of loans held for investment , net of originations of sales of such loans within the period . however , the numerator reflects only the additional provision required to provide for loan losses on the net funded amount during such period . therefore , all other things equal , an increased volume of loan rollovers and line of credit repayments and re-borrowings in a period will reduce the provision rate . a portion of loans regularly sold through ondeck marketplace are or may be loans which were initially designated as held for investment upon origination . story_separator_special_tag the portion of such loans sold in a given period may vary materially depending upon market conditions and other circumstances . the provision rate is not directly comparable to the net cumulative lifetime charge-off ratio because ( i ) the provision rate reflects estimated losses at the time of origination while the net cumulative lifetime charge-off ratio reflects actual charge-offs , ( ii ) the provision rate includes provisions for losses on both term loans and lines of credit while the net cumulative lifetime charge-off ratio reflects only charge-offs related to term loans and ( iii ) the provision rate for a period reflects the provision for losses related to all loans held for investment while the net cumulative lifetime charge-off ratio reflects lifetime charge-offs of term loans related to a particular cohort of term loans . reserve ratio reserve ratio is our allowance for loan losses as of the end of the period divided by the unpaid principal balance as of the end of the period . 15+ day delinquency ratio 15+ day delinquency ratio equals the aggregate unpaid principal balance for our loans that are 15 or more calendar days past due as of the end of the period as a percentage of the unpaid principal balance . the unpaid principal balance for our loans that are 15 or more calendar days past due includes loans that are paying and non-paying . because the majority of our loans require daily repayments , excluding weekends and holidays , they may be deemed delinquent more quickly than loans from traditional lenders that require only monthly payments . 15+ day delinquency ratio is not annualized , but reflects balances as of the end of the period . net charge-off rate net charge-off rate is calculated as our annualized net charge-offs for the period divided by the average unpaid principal balance outstanding . annualization is based on 4 quarters per year and is not business day adjusted . net charge-offs are charged-off loans in the period , net of recoveries . net interest margin after credit losses ( nimal ) net interest margin after credit losses ( nimal ) , is calculated as our business day adjusted annualized net interest income after credit losses divided by average interest earning assets . net interest income after credit losses represents interest income less funding cost and net charge-offs during the period . interest income is net of deferred costs and fees on loans held for investment and held for sale . net deferred origination costs in loans held for investment and loans held for sale consist of deferred origination costs as offset by corresponding deferred origination fees . deferred origination fees include fees paid up front to us by customers when loans are originated . deferred origination costs are limited to costs directly attributable to originating loans such as commissions , vendor costs and personnel costs directly related to the time spent by the personnel performing activities related to loan origination . funding cost is the interest expense , fees , and amortization of deferred debt issuance costs we incur in connection with our lending activities across all of our debt facilities . net charge-offs are charged-off loans in the period , net of recoveries . annualization is based on 252 business days per year , which is typical weekdays per year less u.s. federal reserve bank holidays . 40 adjusted expense ratio ( aer ) adjusted expense ratio ( aer ) represents our annualized operating expense , adjusted to exclude the impact of stock-based compensation , divided by average loans under management . annualization is based on 252 business days per year , which is typical weekdays per year less u.s. federal reserve bank holidays . adjusted operating yield ( aoy ) adjusted operating yield ( aoy ) represents our net interest margin after credit losses ( nimal ) less the adjusted expense ratio ( aer ) . 41 on deck capital , inc. and subsidiaries consolidated average balance sheets ( in thousands , except share and per share data ) replace_table_token_4_th average balance sheet items for the period represent the average as of the beginning of the month in the period and as of the end of each month in the period . non-gaap financial measures we believe that the non-gaap metrics in this report can provide useful supplemental measures for period-to-period comparisons of our core business and useful supplemental information to investors and others in understanding and evaluating our operating results . however , non-gaap metrics are not calculated in accordance with gaap , and should not be considered an alternative to any measures of financial performance calculated and presented in accordance with gaap . other companies may calculate these non-gaap metrics differently than we do . adjusted ebitda adjusted ebitda represents our net income ( loss ) , adjusted to exclude interest expense associated with debt used for corporate purposes ( rather than funding costs associated with lending activities ) , income tax expense , depreciation and amortization , 42 stock-based compensation expense and warrant liability fair value adjustments . stock-based compensation includes employee compensation as well as compensation to third-party service providers . our use of adjusted ebitda has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our results as reported under gaap . some of these limitations are : although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future , and adjusted ebitda does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements ; adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; adjusted ebitda does not reflect the potentially dilutive impact of equity-based compensation ; adjusted ebitda does not reflect interest associated with debt used for corporate purposes or tax payments that may represent a reduction in cash available to us ; adjusted ebitda does not reflect the potential costs we would incur if
| this increase was partially offset by a decrease of $ 2.5 million related to servicing fees which was driven by the decrease in ondeck marketplace loan sales cost of revenue replace_table_token_25_th provision for loan losses . provision for loan losses increased by $ 75.1 million , or 100 % , from $ 74.9 million in 2015 to $ 150.0 million in 2016 . this increase was primarily attributable to the increase in originations of term loans and lines of credit originated and held for investment . in accordance with gaap , we recognize revenue on loans over their term , but provide for probable credit losses on the loans at the time they are originated . we then periodically adjust our estimate of those probable credit losses based on actual performance and changes in loss estimates . as a result , we believe that analyzing provision for loan losses as a percentage of originations , rather than as a percentage of gross revenue , provides more useful insight into our operating performance . our provision for loan losses as a percentage of originations held for investment , or the provision rate , increased from 5.8 % in 2015 to 7.4 % in 2016 . the increase in the provision rate was , in part , the result of an increase in loss reserves in 2016 related to our term loans with original maturities of 15 months or more ( see part ii -item 7 - key factors affecting our performance - credit performance . ) in addition , the 2015 provision rate was at near-historical lows due to the year 's better than average credit environment as well as sales of certain longer term loans to investors through ondeck marketplace . funding costs . funding costs increased by $ 12.2 million , or 60.3 % , from $ 20.2 million in 2015 to $ 32.4 million in 2016 . the increase in
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as of december 31 , 2018 , we had an accumulated deficit of $ 406.3 million , $ 90.8 million of which has been accumulated since january of 2011 , when our company began its focus on bacteriophage development . we anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the development and obtaining regulatory approval of our product candidates . we currently expect to use our existing cash and cash equivalents for the continued research and development of our product candidates , including through our targeted phage therapies strategy , and for working capital and other general corporate purposes . we expect to continue to incur significant and increasing operating losses at least for the next several years . we do not expect to generate product revenue unless and until we successfully complete development and obtain marketing approval for at least one of our product candidates . we may also use a portion of our existing cash and cash equivalents for the potential acquisition of , or investment in , product candidates , technologies , formulations or companies that complement our business , although we have no current understandings , commitments or agreements to do so . our existing cash and cash equivalents will not be sufficient to enable us to complete all necessary development of any potential product candidates . accordingly , we will be required to obtain further funding through one or more other public or private equity offerings , debt financings , collaboration , strategic financing or licensing arrangements or other sources . adequate additional funding may not be available to us on acceptable terms , or at all . if we are unable to raise capital when needed or on acceptable terms , we may be required to defer , reduce or eliminate significant planned expenditures , restructure , curtail or eliminate some or all of our development programs or other operations , dispose of assets , enter into arrangements that may require us to relinquish rights to certain of our product candidates , technologies or potential markets , file for bankruptcy or cease operations altogether . any of these events could have a material adverse effect on our business , financial condition and results of operations and result in a loss of investment by our stockholders . on january 12 , 2018 , we completed a registered public offering of 4,000,000 shares of common stock at an offering price of $ 1.00 per share , for aggregate gross proceeds of $ 4.0 million . we received net proceeds from the offering of approximately $ 3.4 million , after deducting placement agent fees and other offering expenses . on march 22 , 2018 , we completed a registered direct offering of 2,743,640 shares of common stock at an offering price of $ 1.10 per share , for aggregate gross proceeds of $ 3.0 million . we received net proceeds from the offering of approximately $ 2.8 million , after deducting placement agent fees and other offering expenses . on october 16 , 2018 , we completed an underwritten public offering and sold 14,875,000 shares of our common stock and 2,125,000 pre-funded warrants to purchase common stock , and common stock warrants to purchase 17,500,000 shares of common stock . the combined price to the public for each share of common stock and accompanying common stock warrant was $ 0.40. the combined price to the public for each pre-funded warrant and accompanying common stock warrant was $ 0.39. each pre-funded warrant is exercisable for one share of common stock at an exercise price of $ 0.01 per share . the common stock warrants are exercisable at a price of $ 0.40 per share of common stock , and will expire five years from the date of issuance . we received net proceeds from the offering of approximately $ 5.8 million , after deducting the underwriting discount and commissions and other offering expenses payable by us . in september 2018 , we announced that we had received the official minutes from our august 2018 type b pre-ind meeting with the fda regarding our proposed clinical development of ab-sa01 for the treatment of s. aureus bacteremia infections as well as patients with a hip or knee prosthetic joint infection due to s. aureus . the fda expressed general agreement with our proposed clinical trial designs and , based on the current fda feedback , no additional clinical or nonclinical data are required to proceed with two proposed randomized clinical trials . the first such clinical trial would be a phase 1/2 randomized , controlled clinical trial to evaluate the safety and efficacy of ab-sa01 , administered intravenously with the best available antibiotic therapy , compared to placebo plus best available antibiotic therapy , in approximately 100 patients with s. aureus bacteremia . the second such clinical trial would be a phase 1/2 randomized , controlled clinical trial to evaluate the safety and efficacy of ab-sa01 , administered by intra-articular injection and then intravenously with the best available antibiotic therapy , compared to placebo plus the best available antibiotic therapy , in approximately 100 patients with a hip or knee prosthetic joint infection due to s. aureus as an adjunct to surgical treatment . we expect that we would produce our proprietary bacteriophage therapeutics for these clinical trials at our wholly owned manufacturing facility , which is good manufacturing practices ( gmp ) certified by the governmental authorities in the jurisdiction in which it operates . we believe our gmp-facility has the capacity to produce our proprietary bacteriophage therapeutics for these clinical trials through a potential filing of a biologics license application and potential approval . in september 2018 , we also received positive feedback from the fda regarding our clinical development plans for ab-pa01 for the treatment of p. aeruginosa infections . story_separator_special_tag resistant p. aeruginosa is designated as ‘ priority 1 : critical ' pathogen on the world health organization 's priority pathogens list and as ‘ serious threat ' by the u.s. centers for disease control and prevention . the fda expressed general agreement with our proposed clinical trial designs and , based on the current fda feedback , no additional clinical or nonclinical data are required to proceed with two proposed randomized clinical trials . the first such clinical trial would be a phase 1/2 randomized , controlled clinical trial to evaluate the safety and efficacy of ab-pa01 , administered intravenously with the best available antibiotic therapy , compared to placebo plus best available antibiotic therapy , in approximately 100 patients with hospital-acquired and ventilator-associated pneumonia due to p. aeruginosa . the second clinical trial would be a phase 1/2 randomized , controlled clinical trial to evaluate the safety and efficacy of ab-pa01 , administered intravenously with the best available antibiotic therapy , compared to placebo plus best available antibiotic therapy , in approximately 100 patients with p. aeruginosa bacteremia . we intend to seek non-dilutive financing and explore other opportunities to conduct these clinical trials . in addition , in september 2018 we provided updated topline clinical results for our ongoing single-patient expanded access program . 84 % of patients achieved treatment success ( physician 's assessment ) at the end of bacteriophage therapy , defined as complete resolution or significant improvement of baseline signs and symptoms . we have now received clinical outcome results for 21 of the patients provided with our investigational bacteriophage therapeutics , across seven hospitals , and with serious or life-threatening infections not responding to antibiotic therapy . 45 recent events on january 3 , 2019 , we entered into an agreement and plan of merger and reorganization , which included the proposed business combination ( “ merger ” ) of the c3j , a private clinical stage biotechnology company focused on the development of novel targeted antimicrobials and ceres merger sub , inc , a wholly owned subsidiary of ampliphi , with c3j as the surviving company , subject to shareholder approval . at the effective time of the merger , we anticipate that each share of c3j common stock outstanding immediately prior to the effective time of the merger will be converted into the right to receive approximately 0.6892 shares of ampliphi common stock , subject to adjustment to account for a reverse split of ampliphi common stock at a reverse split ratio of between1-for-3 and 1-for-20 , inclusive , to be determined by ampliphi 's board of directors and to be implemented prior to the consummation of the merger . immediately following the merger , the former c3j security holders will own approximately 70 % of the aggregate number of shares of ampliphi common stock and the security holders of ampliphi as of immediately prior to the merger will own approximately 30 % of the aggregate number of shares of ampliphi common stock on a fully diluted basis . in addition , on february 5 , 2019 , certain existing c3j shareholders executed a share purchase agreement with us pursuant to which the shareholders agreed , subject to the satisfaction of customary closing condition , to purchase $ 10.0 million in common stock of the combined company upon the closing of the merger at a price per share equal to ( i ) $ 40.0 million , divided by ( ii ) the total number of shares of our common stock outstanding on a fully diluted , as-converted basis , assuming the conversion , exercise or settlement of all outstanding options , warrants , and restricted stock units as of immediately after the effective time of the merger , but excluding ( a ) any shares of common stock issuable pursuant to the share purchase agreement and ( b ) any shares of our common stock reserved for issuance under any equity incentive plan , stock option plan or similar arrangement but for which awards have not yet been granted as of the effective time of the merger and ( c ) any shares of common stock issuable in connection with out-of-the-money options and out-of-the-money warrants . based on our and c3j 's respective current capitalizations , we expect the purchase price per share to be approximately $ 0.36. story_separator_special_tag loss was $ 2.4 million and $ 4.1 million for the year ended december 31 , 2018 and 2017 , respectively . total changes in operating assets and liabilities resulted in an increase of $ 0.3 million and a reduction of $ 0.5 million in cash used in operations activities for the year ended december 31 , 2018 and 2017 , respectively . investing activities net cash used in investing activities was $ 44,000 and $ 58,000 for the years ended december 31 , 2018 and 2017 , respectively , and was attributable to purchases of property and equipment . financing activities cash provided by financing activities was $ 12.5 million for the year ended december 31 , 2018 and was primarily comprised of 1 ) net cash proceeds of $ 5.8 million from the october 2018 underwritten public offering of common stock , pre-funded warrants and common warrants to purchase common stock , after deducting the underwriting discount and commissions and other expenses related to the offering of approximately $ 1.0 million , 2 ) net cash proceeds of $ 6.2 million from our january 2018 and march 2018 offerings of common stock , after deducting offering costs paid of approximately $ 0.9 million , and 3 ) $ 0.2 million from the exercise of warrants for common stock .
| general and administrative general and administrative expenses for the year ended december 31 , 2018 were $ 5.7 million compared to $ 7.6 million for the year ended december 31 , 2017. the $ 1.9 million decrease was primarily attributable to $ 0.5 million in severance costs incurred in 2017 , $ 0.2 million decrease in non-cash stock-based compensation , a $ 0.4 million decrease in legal , investor relations and other professional and consulting fees , a $ 0.2 million decrease in incentive compensation and a $ 0.5 million non-cash charge in 2017 related to the fair value of 523,210 shares of common stock issued to the shareholders who were party to the common stock issuance agreement . impairment charges impairment charges related to our in-process research and development ( ipr & d ) assets were $ 1.9 million and $ 5.8 million for the year ended december 31 , 2018 and 2017 , respectively . in the second quarter of 2017 , we performed an interim ipr & d impairment test and determined that ipr & d assets were impaired , specifically assets related to our staphylococcal and pseudomonas programs . due to this impairment , we recorded an impairment charge of $ 5.8 million , offset by a related income tax benefit of $ 1.3 million , in the second quarter of 2017. in the fourth quarter of 2018 , we considered the clinical development timelines for both the ab-sa01 and ab-pa01 development programs . we concluded that since the ab-sa01 program is further advanced in the development process , the ab-sa01 program will continue to be advanced and the ab-pa01 program will not be pursued in the near term . as we are not actively pursuing the ab-pa01 program , we have recorded an impairment charge of approximately $ 1.9 million within operating expenses of the consolidated statement of operations in the fourth quarter of 2018 , offset by an income tax benefit of $ 328,000. as of december 31 , 2018 , our ipr & d assets had a remaining book value of $ 2.8 million for the staphylococcal program . 46 other expense for the year ended december 31 , 2018 , we recorded a net gain of $ 86,000 related to the change in fair value of our derivative liabilities , warrants issued in the november 2016 and june 2016 financings , and the net gain was primarily attributable in part to a decline in our common stock price for the period of measurement . for the year ended december 31 , 2017 , we
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beginning in may , in jurisdictions where local restrictions implemented to prevent the further spread of the virus were lifted , our employees began to return to their assigned offices , with limits placed on the number of employees on site at one time . for employees working at our offices and facilities , we have instituted social distancing protocols , increased the level of cleaning and sanitizing in those facilities and undertaken other actions to make these sites safer . we have also substantially reduced employee travel to only essential business needs . as part of our business continuity plans , w e are generally following the requirements and protocols published by the u.s. centers for disease control and the world health organization , and s tate and local governments . if public health authorities dictate further measures to limit further spread of the virus , we may need to reinstate our business continuity plans in certain countries or regions in which we operate . as of the date of this filing , we do not believe our work from home and return to office protocol have materially adversely impacted our internal controls , financial reporting systems or our operations . our data and analytics , product and sales teams are focused on how to refine existing products and services , as well as generate new products and services , to meet the changing needs of our customers in this environment . our technology teams continue to execute on our cloud technology , data and security transformation , including the continued migration of our technology to cloud native environments . to date , the change to our working environment has not caused material disruptions in the execution of these plans . as a response to the ongoing covid-19 pandemic , we have implemented plans to manage our costs . we have significantly limited the addition of new employees and third party contracted services , eliminated all travel except where necessary to meet customer or regulatory needs , and acted to limit discretionary spending . recovery of the global economy from the covid-19 induced recession remains uncertain and may require several years to return to economic levels experienced prior to the pandemic and may affect certain markets or regions we serve differently . any future asset impairment charges , increase in allowance for doubtful accounts , or restructuring charges could be more likely and will be dependent on the severity and duration of this crisis . at december 31 , 2020 , we had approximately $ 1.7 billion in cash and $ 1.1 billion available to borrow under our revolving credit facility that matures in september 2023. in the second quarter of 2020 , we amended our revolving credit facility to increase the maximum leverage ratio through 2021 to provide us with additional financial flexibility . in light of the evolving health , social , economic and business environment , governmental regulations or mandates , and business disruptions that could occur , the potential impact that covid-19 could have on our financial condition and operating results remains highly uncertain . for more information , see “ item 1a . risk factors— our business has been and will continue to be negatively impacted by the recent covid-19 outbreak , ” in this form 10-k. 2017 cybersecurity incident in 2017 , we experienced a cybersecurity incident following a criminal attack on our systems that involved the theft of certain personally identifiable information of u.s. , canadian and u.k. consumers . criminals exploited a software vulnerability in a u.s. website application to gain unauthorized access to our network . in march 2017 , the u.s. department of homeland security distributed a notice concerning the software vulnerability . we undertook efforts to identify and remediate vulnerable systems ; however , the vulnerability in the website application that was exploited was not identified by our security processes . we discovered unusual network activity in late-july 2017 and upon discovery promptly investigated the activity . once the activity was identified as potential unauthorized access , we acted to stop the intrusion and engaged a leading , independent cybersecurity firm to conduct a forensic investigation to determine the scope of the unauthorized access , including the specific information impacted . based on our forensic investigation , the unauthorized access occurred from mid-may 2017 through july 2017. no evidence was found that the company 's core consumer , employment and income , or commercial reporting databases were accessed . on february 10 , 2020 , the u.s. department of justice announced that four members of the chinese people 's liberation army were indicted on criminal charges for their involvement in the 2017 cybersecurity incident . 34 product liability . as a result of the 2017 cybersecurity incident , we offered trustedid ® premier , a credit file monitoring and identity theft protection product , for free to all eligible u.s. consumers who signed up through january 31 , 2018. in late 2018 , the company extended the free credit monitoring services for an additional twelve months for eligible consumers impacted by the 2017 cybersecurity incident by providing them the opportunity to enroll in experian ® idnotify at no cost . we also provided free credit reports and scores , credit monitoring and identity theft protection for twenty four months to impacted consumers in canada and the u.k. we have recorded the expenses necessary to provide this service to those who signed up . the remaining product liability balance at december 31 , 2020 and 2019 was not material to the consolidated financial statements . litigation , claims and government investigations . story_separator_special_tag as a result of the 2017 cybersecurity incident , we were subject to a significant number of proceedings and investigations as described in part i , “ item 3. legal proceedings ” in this form 10-k. we did not record any settlement expenses related to the resolution of these proceedings and investigations for the twelve months ended december 31 , 2020. we recorded expenses , net of insurance recoveries , of $ 800.9 million in other current liabilities and selling , general , and administrative expenses in our consolidated balance sheets and statements of income ( loss ) , respectively , as of and for the twelve months ended december 31 , 2019 , exclusive of our legal and professional services expenses and net of insurance recoveries . the amount accrued represents our best estimate of the liability related to these matters . the company will continue to evaluate information as it becomes known and adjust accruals for new information and further developments in accordance with asc 450-20-25. future costs . we are currently executing substantial initiatives in security and consumer support , and a company-wide transformation of our technology infrastructure , which we refer to as our technology transformation , and incurred substantial increased expenses and capital expenditures in 2018 , 2019 and 2020 related to these initiatives . we expect to continue to incur additional expenses and capital expenditures in 2021 related to these initiatives , although at reduced levels as those incurred in 2020. we incurred significant legal and professional services expenses in 2019 related to the lawsuits , claims and government investigations to which we were a party in 2019 , and expect to continue to incur these expenses until all matters are fully resolved . however , as expected , the level of legal and professional service expenses related to these matters was significantly lower in 2020 due to the settlement of all of the significant matters in the u.s. we will recognize the expenses and capital expenditures referenced herein as they are incurred . insurance coverage . at the time of the 2017 cybersecurity incident , we had $ 125.0 million of cybersecurity insurance coverage , above a $ 7.5 million deductible , to limit our exposure to losses such as those related to this incident . since the announcement of the 2017 cybersecurity incident in september 2017 , we have received the maximum reimbursement under the insurance policy of $ 125.0 million . we also maintained a directors and officers insurance policy of which we have recorded our estimated maximum recoveries as of december 31 , 2020. segment and geographic information segments . the usis segment consists of three service lines : online information solutions , mortgage solutions , and financial marketing services . online information solutions and mortgage solutions revenue is principally transaction-based and is derived from our sales of products such as consumer and commercial credit reporting and scoring , identity management , fraud detection and modeling services . usis also markets certain decisioning software services which facilitate and automate a variety of consumer and commercial credit-oriented decisions . financial marketing services revenue is principally project and subscription based and is derived from our sales of batch credit and consumer wealth information such as those that assist clients in acquiring new customers , cross-selling to existing customers and managing portfolio risk . the workforce solutions segment consists of the verification services and employer services business lines . verification services revenue is transaction-based and is derived primarily from employment and income verification . employer services revenue is derived from our provision of certain human resources business process outsourcing services that include both transaction and subscription based product offerings . these services include unemployment claims management , employment-based tax credit services and other complementary employment-based transaction services . the international segment consists of asia pacific , europe , latin america and canada . canada 's services are similar to our usis offerings . asia pacific , europe and latin america are made up of varying mixes of service lines that are generally consistent with those in our usis reportable segment . we also provide information and technology services to support lenders and other creditors in the collections and recovery management process . 35 global consumer solutions revenue is both transaction and subscription based and is derived from the sale of credit monitoring and identity theft protection products , which we deliver electronically to consumers primarily via the internet in the u.s. , canada , and the u.k. we also sell consumer and credit information to resellers who combine our information with other information to provide direct-to-consumer monitoring , reports and scores . geographic information . we currently have operations in the following countries : argentina , australia , canada , chile , costa rica , ecuador , el salvador , honduras , india , mexico , new zealand , paraguay , peru , portugal , the republic of ireland , spain , the u.k. , uruguay and the u.s. we also offer equifax branded credit services in russia through a joint venture , have investments in consumer and or commercial credit information companies through joint ventures in cambodia , malaysia , singapore and the united arab emirates and have an investment in a consumer and commercial credit information company in brazil . approximately 78 % and 73 % our revenue was generated in the u.s. during the twelve months ended december 31 , 2020 and 2019 , respectively . key performance indicators . management focuses on a variety of key indicators to monitor operating and financial performance . these performance indicators include measurements of operating revenue , change in operating revenue , operating income , operating margin , net income , diluted earnings per share , cash provided by operating activities and capital expenditures .
| we also incurred increased incremental technology and data security costs of $ 20.3 million in 2019. these increased technology and security costs predominantly reflect the investments we are making in our technology transformation , which include costs for enhanced data security . the effect of changes in foreign exchange rates reduced cost of services by $ 33.2 million . selling , general and administrative expenses . selling , general and administrative expenses decreased $ 667.7 million in 2020 compared to 2019. the decrease in 2020 is primarily due to losses , net of insurance recoveries , of $ 800.9 million associated with certain legal proceedings and government investigations related to the 2017 cybersecurity incident that were recorded in 2019 but did not recur in 2020 , partially offset by increased people costs and a restructuring charge taken in the fourth quarter of 2020. the impact of changes in foreign currency exchange rates decreased our selling , general and administrative expenses by $ 10.2 million . selling , general and administrative expenses increased $ 776.9 million in 2019 as compared to 2018. the increase in 2019 is primarily due to losses , net of insurance recoveries , of $ 800.9 million associated with certain legal proceedings and government investigations related to the 2017 cybersecurity incident . the impact of changes in foreign currency exchange rates decreased our selling , general and administrative expenses by $ 24.4 million . depreciation and amortization . depreciation and amortization expense for 2020 and 2019 increased by $ 59.9 million and $ 20.7 million , respectively . the increase is due to amortization of capitalized internal-use software and systems costs and depreciation of production equipment . operating income and operating margin replace_table_token_7_th total company operating margin increased in 2020 versus 2019 , primarily due to increased revenue in 2020 and losses , net of insurance recoveries in 2019 , of $ 800.9 million associated with certain legal proceedings and government investigations related to the 2017 cybersecurity incident which are reflected in selling , general , and administrative expenses in our consolidated
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we believe our products are the only transformer-less power converters with electrical isolation certified for on-grid applications . our technology is protected by a patent portfolio of 36 us and 6 foreign issued patents . we sell our products primarily to systems integrators as part of a larger turn-key system which enable end users to manage their electricity consumption , by reducing demand charges or fossil fuel consumption , integrating renewable energy sources or and form their own microgrid . our products are made by contract manufacturers to our specifications , enabling us to scale production to meet demand on a cost-effective basis without requiring significant expenditures on manufacturing facilities and equipment . our existing products that connect to the power grid are certified for ul 1741 conformance . as our products gain broader acceptance in the power conversion market , we intend to license our proprietary ppsa-based product designs to oems within our target markets , as well as license our technologies for other markets which we do not plan to enter directly . we were founded on may 17 , 2007. to date , operations have been funded primarily through the sale of common stock and , prior to our initial public offering , the issuance of convertible debt . total revenue generated from inception to date as of december 31 , 2015 amounted to $ 10,337,105 with approximately a third of that revenue coming from government grants . we may continue to pursue research and development grants , if and when available , for the purpose of developing new products and improving current products . critical accounting policies the following discussion and analysis of financial condition and results of operations is based upon our financial statements , which have been prepared in conformity with accounting principles generally accepted in the united states of america . certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control . as a result , they are subject to an inherent degree of uncertainty . in applying these policies , we use our judgment to determine the appropriate assumptions to be used in the determination of certain estimates . those estimates are based on our historical operations , our future business plans and projected financial results , the terms of existing contracts , our observance of trends in the industry , information provided by our customers and information available from other outside sources , as appropriate . please see note 2 to our financial statements for a more complete description of our significant accounting policies . revenue recognition . revenue from product sales is recognized when the risks of loss and title pass to the customer , as specified in ( 1 ) the respective sales agreements and ( 2 ) other revenue recognition criteria as prescribed by staff accounting bulletin ( “ sab ” ) no . 101 , “ revenue recognition in financial statements ” , as amended by sab no . 104 , “ revenue recognition ” . we generally sell our products free-on-board shipping and recognize revenue when products are shipped . in prior years , we received payments from government entities in the form of government grants with the most significant being a $ 2.5 million grant from arpa-e awarded on january 30 , 2012. government grants are agreements that generally provide us with cost reimbursement for certain types of research and development activities over a contractually defined period . revenues from government grants are recognized in the period during which we incur the related costs , provided that we have incurred the cost in accordance with the specifications and work plans determined between us and the government entity . costs incurred related to grants are recorded as grant research and development costs . at december 31 , 2014 , we had recognized all grant revenues related to the arpa-e grant and no grant revenue was recognized in the year ended december 31 , 2015. research and development . grant research and development are costs incurred solely related to grant revenues , and are classified as a line item under cost of revenues . other research and development costs are presented as a line item under operating expenses and are expensed as incurred . intangible assets . our intangible assets are primarily related to patents . we capitalize legal costs and filing fees , if any , associated with obtaining patents on our new inventions or other intangible assets . once the asset have been issued or placed in service , we amortize these costs over the shorter of the legal life ( generally a maximum of 20 years ) or its estimated economic life using the straight-line method . 21 income taxes . we account for income taxes using an asset and liability approach that allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years . under the asset and liability approach , deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . a valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before we are able to realize their benefits , or that future deductibility is uncertain . story_separator_special_tag tax benefits from an uncertain tax position are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . stock-based compensation . we apply financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 718 , “ stock compensation , ” when recording stock based compensation . the fair value of each stock option award is estimated on the date of grant using the commonly used black-scholes option valuation model . the assumptions used in the black-scholes model are as follows : grant price — the grant price of the issuances are determined based on the closing share price on the date of grant . risk-free interest rate — the risk free interest rate is based on the implied yield available on us treasury securities at the time of grant with an equivalent term of the expected life of the award . expected lives — as permitted by sab 107 , due to our insufficient history of option activity , we utilize the simplified approach to estimate the options ' expected term , calculated as the midpoint between the vesting period and the contractual life of the award . expected volatility — volatility is estimated based on the historical volatilities of comparable companies . expected dividend yield — dividend yield is based on current yield at the grant date or the average dividend yield over the historical period . we have never declared or paid dividends and have no plans to do so in the foreseeable future . we use a monte carlo simulation pricing model to determine the fair value of performance stock units ( “ psus ” ) . a typical monte carlo exercise simulates a distribution of stock prices to yield an expected distribution of stock prices during and at the end of the performance period . the simulations are repeated many times in order to derive a probabilistic assessment of stock performance . the stock-paths are simulated using assumptions which include expected stock price volatility and risk-free interest rate . we account for stock issued to non-employees in accordance with the provisions of fasb asc 505-50 “ equity based payments to non-employees. ” fasb asc 505-50 states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued , whichever is more reliably measurable . the measurement date occurs as of the earlier of ( a ) the date at which a performance commitment is reached or ( b ) absent a performance commitment , the date at which the performance necessary to earn the equity instruments is complete ( that is , the vesting date ) . story_separator_special_tag respectively . our net working capital increased to $ 14,260,603 as of december 31 , 2015 from $ 7,658,720 as of december 31 , 2014 due primarily to the net cash proceeds of $ 15,924,405 from our follow-on offering in may 2015. operating activities in the year ended december 31 , 2015 resulted in cash outflows of $ 8,046,217 , which were primarily due to the net loss for the period of $ 10,440,643 , offset by stock-based compensation of $ 1,384,763 , favorable balance sheet timing of $ 395,021 , depreciation and amortization of $ 232,852 and the write-off of fixed assets and patents of $ 199,546. operating activities in the year ended december 31 , 2014 resulted in cash outflows of $ 5,469,550 , which were primarily due to the net loss for the period of $ 6,900,219 , offset by stock-based compensation of $ 944,102 , stock compensation paid for services of $ 180,183 , favorable balance sheet timing of $ 150,965 and other non-cash items of $ 155,419. investing activities in the years ended december 31 , 2015 and 2014 resulted in cash outflows of $ 1,421,741 and $ 760,502 , respectively . cash outflows for the acquisition of fixed assets in the years ended december 31 , 2015 and 2014 were $ 791,605 and $ 342,247 , respectively , and cash outflows for the acquisition of intangible assets in the years ended december 31 , 2015 and 2014 were $ 630,136 and $ 418,255 , respectively . cash outflows for the acquisition of fixed assets increased as we purchased equipment and improvements , including electrical upgrades , for our development lab to support current and future products and cash outflows for the acquisition of intangible assets increased as we expanded our intellectual property portfolio . financing activities in the year ended december 31 , 2015 resulted in cash inflows of $ 16,578,233 , related primarily to the issuance of 2,225,825 shares of common stock shares at a public offering price of $ 7.75. net cash proceeds after offering-related expenses were $ 15,924,405. in addition , we received $ 653,828 in net proceeds from the exercise of options and warrants . in the year ended december 31 , 2014 , we received $ 4,966 in net proceeds from the exercise of stock options and warrants . on december 1 , 2014 , we filed a form s-3 shelf registration statement with the securities and exchange commission . the registration statement allows us to offer up to an aggregate $ 75 million of common stock , preferred stock , warrants to purchase common stock or preferred stock or any combination thereof and provides us with the flexibility over three years to potentially raise additional equity in a public or private offering on commercial terms . after the may 2015 follow-on offering , $ 58 million is available to the company under the registration statement . off-balance sheet transactions we do not have any off-balance sheet transactions . trends , events and uncertainties research and development of new technologies is , by its
| the decrease in grant research and development costs was due to the timing of spending under the arpa-e grant , as the arpa-e grant funds were fully utilized by december 31 , 2014. during the year ended december 31 , 2014 , we recognized $ 643,421 in grant research and development costs from our arpa-e grant . gross profit ( loss ) . gross profit for the year ended december 31 , 2015 was $ 387,237 compared to a gross loss of $ 394,998 for the year ended december 31 , 2014. gross profit for the year ended december 31 , 2015 was primarily due to higher product sales compared to the year ended december 31 , 2014 , and the gross profit improvement was partially offset by incremental costs associated with the initial roll-out of new products at low volumes . research and development expenses . research and development expenses increased by $ 3,181,163 , or 136 % , to $ 5,521,390 in the year ended december 31 , 2015 from $ 2,340,227 in the year ended december 31 , 2014. the increase was primarily due to the self-funded bi-directional power switch development costs of $ 1,707,620 , and higher personnel costs of $ 715,033 as we added both firmware and hardware engineering resources . the increase is also attributable to higher development costs for new products , including our grid-resilient 30kw 2-port and multi-port pcs and 125kw 2 port and multi-port pcs , of $ 396,052 and higher product certification costs of $ 231,288 compared to the year ended december 31 , 2014 . 22 general and administrative expenses . general and administrative expenses increased by $ 700,319 , or 23 % , to $ 3,693,450 in the year ended december 31 , 2015 from $ 2,993,131 in the year ended december 31 , 2014. the increase was due primarily to higher stock compensation expense of $ 277,488 , legal and patent fees of $ 160,653 , and personnel costs of $ 137,605. in addition , we wrote off $ 45,641 of capitalized software costs in the year ended december 31 , 2015. sales and marketing expenses . sales and marketing expenses increased by $ 444,934 , or
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the loss on debt extinguishment in 2015 related to the accelerated paydown of term loan b associated with our new senior credit facility . loss on debt extinguishment in 2014 consisted of $ 23.3 million related to the february 2014 redemption of the 2018 notes , of which $ 19.0 million related to the redemption premium and $ 4.3 million related to the write-off of deferred financing fees . a $ 2.0 million loss related to the write-off of deferred financing fees as a result of the senior credit facility refinancing , and $ 0.2 million loss related to the accelerated paydown of term loan b associated with our new senior credit facility . other income ( expense ) - net replace_table_token_17_th * measure not meaningful other income ( expense ) - net for the year ended december 31 , 2015 was $ 25.5 million compared to other income ( expense ) - net of $ ( 5.5 ) million for the prior year . in 2015 , other income ( expense ) - net consists of $ 9.9 million for the gain on sale of kysor panel systems , $ 5.4 million for the gain on sale of an investment property , $ 4.9 million for the gain on acquisition of a previously held equity interest in welbilt thailand , and the remainder due primarily to foreign exchange gains for 2015 . other expense , net primarily consists of foreign exchanges losses in 2014 . income taxes 33 replace_table_token_18_th * measure not meaningful the effective tax rate for the year ended december 31 , 2015 was negative 11.8 % compared to the effective tax rate of 5.1 % for the year ended december 31 , 2014 . the 2015 tax provision benefited by $ 17.8 million related to the divestiture of the kysor panel systems business resulting in a favorable impact to the effective tax rate . the benefit was primarily due to the write-off of $ 13.8 million of the unamortized deferred tax liability that was recorded in purchase accounting and as a result of the utilization of the capital loss carryforward to offset the tax gain . the 2015 effective tax rate was also impacted by nondeductible costs associated with the spin-off of the foodservice business . the 2015 and 2014 effective tax rates were favorably impacted by income earned in jurisdictions where the statutory tax rates were less than 35 % . see further detail at note 15 , `` income taxes . '' earnings ( loss ) from discontinued operations replace_table_token_19_th * measure not meaningful the results from discontinued operations were a gain of $ 0.2 million and a loss of $ 1.4 million , net of income taxes , for the years ended december 31 , 2015 and 2014 , respectively . the activity from discontinued operations in 2015 and 2014 relate primarily to administrative costs and releases of accruals from various businesses disposed of in prior years . see additional discussion at note 5 , “ discontinued operations. ” loss on sale of discontinued operations ( in millions ) 2015 2014 change loss on sale of discontinued operations $ — $ 11.0 * * measure not meaningful loss on sale of discontinued operations was $ 11.0 million for the year ended december 31 , 2014 . this was attributable to the sale of manitowoc dong yue for a loss of $ 9.9 million in the first quarter of 2014 and the settlement of a pension obligation related to a previously disposed entity for a loss of $ 1.1 million in the third quarter of 2014. there were no losses on sale of discontinued operations for the year ended december 31 , 2015 . see additional discussion at note 5 , “ discontinued operations. ” net earnings attributable to noncontrolling interest ( in millions ) 2015 2014 change net earnings attributable to noncontrolling interest $ — $ 3.9 * * measure not meaningful for the year ended december 31 , 2014 , net earnings attributable to a noncontrolling interest of $ 3.9 million attributable to the minority partner in connection with manitowoc dong yue . this was primarily due to loan forgiveness resulting in income of $ 35.6 million by the joint venture partner shown as part of net earnings attributable to noncontrolling interest , net of income taxes , which effectively reduced net earnings attributable to manitowoc shareholders . there were no net earnings attributable to a noncontrolling interest for the year ended december 31 , 2015 . see note 5 , “ discontinued operations , ” for further details on this transaction . year ended december 31 , 2014 compared to 2013 net sales ( in millions ) 2014 2013 change net sales $ 3,886.5 $ 4,048.1 ( 4.0 ) % 34 consolidated net sales decreased 4.0 % in 2014 to $ 3.9 billion from $ 4.0 billion in 2013 . the decrease in net sales was driven by the year-over-year decrease in the crane segment , partially offset by the modest year-over-year increase in the foodservice segment . crane segment sales decreased 8.0 % for the year ended december 31 , 2014 compared to 2013 . the overall decrease in the crane segment was primarily due to weaker demand in the americas region for rough terrain and boom truck cranes . foodservice segment sales increased 2.6 % for the year ended december 31 , 2014 compared to 2013 . foodservice segment sales increased in the americas region across both cold-side and hot-side brands from the prior year due to volume increases primarily driven by new product roll outs . consolidated net sales were unfavorably impacted by approximately $ 0.2 million from foreign currency volatility in relation to the u.s. dollar for the year ended december 31 , 2014 compared with the year ended december 31 , 2013 . further analysis of the changes in sales by segment is presented in the `` sales and operating earnings by segment '' section below . story_separator_special_tag gross profit replace_table_token_20_th gross profit for the year ended december 31 , 2014 decreased 4.0 % to $ 980.5 million compared to $ 1,021.8 million for the year ended december 31 , 2013 . the decrease in consolidated gross profit was attributable primarily to the decrease in crane segment gross profit due to the decrease in sales volume discussed above and unfavorable absorption given the lower sales volumes , partially offset by manufacturing cost reduction initiatives . gross profit for the foodservice segment decreased modestly , primarily due to unfavorable product mix , higher discounts and rebates , and higher warranty costs , partially offset by manufacturing cost reduction initiatives . gross margin in 2014 remained consistent to 2013 at 25.2 % . engineering , selling and administrative expenses replace_table_token_21_th es & a expenses for the year ended december 31 , 2014 increased $ 18.4 million to $ 636.0 million compared to $ 617.6 million for the year ended december 31 , 2013 . crane segment es & a increased $ 16.3 million , or 5.6 % , for the year ended december 31 , 2014 compared to the same period in 2013 . this increase was driven by increased levels of engineering and product development costs and an increase in enterprise resource planning system implementation costs . foodservice es & a expenses increased $ 13.6 million , or 5.2 % , for the year ended december 31 , 2014 compared to 2013 . this increase was primarily driven by non-recurring legal settlements benefiting fiscal 2013 and an increase in sales commissions and marketing costs . corporate es & a decreased $ 11.5 million , or 17.7 % , for the year ended december 31 , 2014 compared to the same period in 2013 . this decrease was primarily due to decreases in employee health expense , short-term incentive compensation , and stock-based compensation . asset impairment expense ( in millions ) 2014 2013 change asset impairment expense $ 1.1 $ — * * measure not meaningful asset impairment expense for the year ended december 31 , 2014 was $ 1.1 million ; there was not any impairment expense for the year ended december 31 , 2013 . this relates to the write-down to fair value of the land , building , and building improvements for a foodservice segment facility which was held for sale . amortization expense replace_table_token_22_th amortization expense for the year ended december 31 , 2014 was $ 35.1 million compared to $ 35.3 million for 2013 . see further detail related to intangible assets at note 11 , “ goodwill and other intangible assets. ” restructuring expense 35 replace_table_token_23_th restructuring expenses for the year ended december 31 , 2014 totaled $ 9.0 million compared to $ 4.8 million in 2013 . crane segment restructuring expenses totaled $ 6.6 million and foodservice restructuring expenses totaled $ 2.4 million . crane segment expenses related to restructuring plans to reduce the cost structure of crane operations through site closings , consolidations , and reductions in workforce across the globe . foodservice segment restructuring expenses related primarily to employee termination benefits due to the movement of certain ice manufacturing activities from manitowoc , wisconsin , to monterrey , mexico . see further detail at note 21 , “ restructuring. ” interest expense & amortization of deferred financing fees replace_table_token_24_th interest expense for the year ended december 31 , 2014 totaled $ 94.0 million versus $ 128.4 million for the year ended december 31 , 2013 . the decrease in interest expense of $ 34.4 million for the year ended december 31 , 2014 compared to the prior year was a result of the company 's refinancing of its senior credit facility during the first quarter of 2014 , as well as its debt reduction efforts and accelerated amortization of the swap monetization gain of $ 8.3 million resulting from the redemption of the 2018 notes , which was presented as a reduction to interest expense for this period . amortization expense for deferred financing fees was $ 4.4 million for the year ended december 31 , 2014 as compared to $ 7.0 million in 2013 . the decrease in amortization expense for deferred financing fees of $ 2.6 million was related to the lower balance of deferred financing fees as a result of the redemption of the 2018 notes and the company 's debt reduction efforts . see further detail at note 13 , `` debt . '' loss on debt extinguishment replace_table_token_25_th * measure not meaningful loss on debt extinguishment for the year ended december 31 , 2014 totaled $ 25.5 million , compared to $ 3.0 million in 2013 . the loss on debt extinguishment in 2014 consisted of $ 23.3 million related to the february 2014 redemption of the 2018 notes , of which $ 19.0 million related to the redemption premium and $ 4.3 million related to the write-off of deferred financing fees . a $ 2.0 million loss related to the write-off of deferred financing fees as a result of the senior credit facility refinancing , and $ 0.2 million loss related to the accelerated paydown of term loan b associated with our new senior credit facility . the loss on debt extinguishment in 2013 was attributable to the accelerated paydown of term loan b associated with our new senior credit facility . other income ( expense ) - net replace_table_token_26_th * measure not meaningful other income ( expense ) - net for the year ended december 31 , 2014 was $ 5.5 million compared to $ 0.8 million for the prior year . other expense primarily consists of foreign exchange losses . income taxes replace_table_token_27_th * measure not meaningful the effective tax rate for the year ended december 31 , 2014 was 5.1 % compared to 16.0 % for the year ended december 31 , 2013 . the 2014 effective rate was favorably impacted by an election with the internal revenue service to treat enodis holdings ltd , the company 's uk holding company , as a partnership for u.s. federal income tax purposes .
| gross profit for the foodservice segment decreased modestly , primarily due to lower margins as a result of start-up cost for kitchencare . gross margin decreased in 2015 to 24.3 % from 25.2 % in 2014 . the decrease in gross margin was primarily due to unfavorable manufacturing absorption on lower volumes in the crane segment . engineering , selling and administrative expenses replace_table_token_11_th engineering , selling and administrative ( es & a ) expenses for the year ended december 31 , 2015 decreased $ 48.4 million to $ 587.6 million compared to $ 636.0 million for the year ended december 31 , 2014 . crane segment es & a expenses decreased $ 41.7 million , or 13.6 % , for the year ended december 31 , 2015 compared to the same period in 2014 . this decrease was driven primarily by foreign currency exchange rates and decreases in wages and benefits due to headcount reductions and cost controls . foodservice segment es & a expenses decreased $ 11.8 million , or 4.3 % , for the year ended december 31 , 2015 compared to 2014 . this decrease was primarily driven by headcount reductions during the fourth quarter of 2014 and first quarter of 2015. corporate es & a increased $ 5.0 million , or 9.4 % , for the year ended december 31 , 2015 compared to the same period in 2014 . this increase was primarily due to increases in wages and benefits and employee health insurance cost . asset impairment expense replace_table_token_12_th * measure not meaningful asset impairment expense for the year ended december 31 , 2015 was $ 24.4 million compared to $ 1.1 million for the year ended december 31 , 2014 . the impairment recorded in 2015 resulted from the write-down of $ 15.4 million on cranes facilities in brazil , which is currently shut down indefinitely , and slovakia , which is now classified as held for sale . the amount also included the write-down of $ 9.0 million related to
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the relative sales performance of our crop and non-crop businesses are as follow : net sales of our crop business in 2016 were $ 272,204 , which constitutes an increase of 5.5 % as compared to net sales of $ 258,090 for that business in 2015. net sales of our non-crop products in 2016 were $ 39,909 , which is an increase of approximately 28 % as compared to $ 31,292 in 2015. a more detailed discussion of product groups and products having a material effect on net sales for each of the crop and non-crop businesses appears below . in our crop business , net sales of insecticides in 2016 ended at $ 119,226 , which was a 2 % increase as compared to sales of $ 117,180 in 2015. for the same period , annual net sales of our granular soil insecticides were up 1 % above 2015. we had increased year-over-year performance from our nemacur ® and mocap ® products sold primarily in international markets along with increased domestic sales of thimet ® used in peanuts , sugar cane and potatoes . while our overall cotton business grew modestly in 2016 , net sales of our cotton foliar insecticide bidrin ® were down slightly due to considerably lighter than normal pest pressure . in general , our overall insecticide business showed a solid performance in 2016. within the product group of herbicides/soil fumigants/fungicides , our crop net sales in 2016 were up 10 % to $ 123,540 as compared to $ 111,897 in 2015. our fumigant product line continued to perform well despite a slight year-over-year decline in revenue caused by wet weather along the west coast which inhibited some on-ground application of this liquid product . midwest restocking demand along with wet spring weather conditions which increased weed proliferation resulted in significantly increased sales for our post-emergent corn herbicide impact . additionally , our newly acquired bromacil products hyvar ® and krovar ® contributed strongly to an overall increase in our herbicide category . within this group , fungicides were essentially flat with the prior year . within our other products group ( which includes plant growth regulators , molluscicides and third party manufacturing activity ) , we experienced an increase of approximately 1.5 % in net sales , ending at $ 29,438 in 2016 , as compared to $ 29,013 in 2015. the major drivers of this performance were stronger year-over-year sales of our cotton defoliant folex ® , increased sales of our citrus fix ® and smartblock ® products , flat performance of our specialty fruit product naa ® and slightly lower sales of our molluscicide metaldehyde . within our non-crop business , 2016 net sales increased by 28 % to $ 39,909 as compared to $ 31,292 recorded in 2015. naled sales ( our dibrom ® brand mosquito adulticide ) rose 2 % in 2016 , in light of rainy conditions in the southern states , and we posted significant increases in our pharmaceutical , our pest strip ® products and our envance ® pest control spray technology . our cost of sales for 2016 was $ 183,825 or 59 % of net sales . this compared to $ 177,480 or 61 % of net sales for 2015. the decrease in cost of sales as a percentage of net sales in 2016 was primarily as a result of manufacturing cost controls and , at the same time , increased factory utilization . these actions together resulted in a 0.6 % reduction in cost of sales . furthermore , raw material prices reduced overall by approximately 0.4 % , driven by domestic cost reductions offset by a significant increase in one key raw material on an international product line driven by a chinese manufacturer 's pricing decision . finally , the company made more sales with higher margins in 2016 and this accounted for the balance of the 2 % improvement in cost of sales . gross profit for 2016 improved by $ 16,386 or 15 % to end at $ 128,288 for the year ended december 31 , 2016 , as compared to $ 111,902 for the prior year . gross margin percentage for 2016 improved by 2 % and ended at 41 % , as compared to 39 % for 2015. the improvement was driven by improved factory cost recovery , strong performance on raw material purchasing and ( as noted above in cost of sales ) some sales mix improvements . 20 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) operating expenses in 2016 increased by $ 7,370 to $ 107,748 or 35 % of sales as compared to $ 100,378 or 35 % in 2015. the differences in operating expenses by department are as follows : replace_table_token_7_th selling expenses slightly increased by $ 390 to end at $ 27,442 for the year ended december 31 , 2016 , as compared to $ 27,052 in 2015. the main drivers for the increased costs are expanded activities in our advertising and marketing efforts and an increase in costs associated with both international and domestic field sales operations . general and administrative expenses increased by $ 3,612 to $ 32,128 for the year ended december 31 , 2016 , as compared to $ 28,516 in 2015. the main drivers for the increase are accruals for incentive compensation following significantly improved financial performance and increased legal expenses , particularly related to the dispute with usepa on the re-importation of depleted thimet containers . research , product development and regulatory expenses increased by $ 2,182 to $ 21,298 for the year ended december 31 , 2016 , as compared to $ 19,116 in 2015. this was driven by increased costs incurred on our simpas product development activities and by timing of product defense studies offset somewhat by benefits from the consolidation and subsequent cost sharing of two industry wide task force groups . story_separator_special_tag freight , delivery and warehousing costs for the year ended december 31 , 2016 increased by $ 1,186 to $ 26,880 , as compared to $ 25,694 in 2015. when expressed as a percentage of sales , freight costs reduced slightly year over year to 8.6 % in 2016 , as compared to 8.9 % in 2015. net interest expense was $ 1,623 in 2016 , as compared to $ 2,562 in 2015. interest costs are summarized in the following table : replace_table_token_8_th the company 's average overall debt for the year ended december 31 , 2016 was $ 59,917 as compared to $ 101,574 for the comparable period of the previous year . as can be seen from the above table , on a gross basis , our effective interest rate increased on our working capital revolver to 2.3 % , as compared to 2.1 % in 2015. this increase was driven by changes in libor rate . the company continues to operate without a fixed rate swap in place . after adjustments related to capitalized interest and including expenses related to the amortization of deferred liabilities , the overall effective rate was 2.7 % for 2016 as compared to 2.5 % in 2015. income tax expense for 2016 was $ 5,540 , as compared to $ 2,009 for 2015. the effective tax rate for 2016 was 29.3 % , as compared to 22.4 % in 2015. the increase in the effective tax rate was primarily driven by improved earnings in jurisdictions with higher income tax rates . while foreign income has declined in 2016 , as compared to 2015 , primarily as a result of product market mix and continued price pressure on generic sourced materials , domestic income increased dramatically , as compared to prior year . 21 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) the company currently is undergoing an examination by the irs for the tax years ended december 31 , 2013 and 2014. while the audit is not yet comp lete , the company has agreed to a proposed adjustment . as a result , the company has increased deferred tax assets and income taxes payable at december 31 , 2015 by $ 12,598. for the year ended december 31 , 2016 , the company recorded losses on its equity investment of $ 353. for the same period of 2015 , the company recorded losses on its equity investment of $ 629 and a loss on dilution in the amount of $ 7 , for a total loss of $ 636 on its equity method investment . in 2016 , our net income was reduced by $ 236 , representing the share of net income of our majority owned subsidiary that was allocated to the non-controlling interest . in 2015 , a net loss of $ 274 was allocated to the non-controlling interest share . net income attributable to american vanguard ended at $ 12,788 or 0.44 per diluted share in 2016 as compared to $ 6,591 or $ 0.23 per diluted share in 2015. liquidity and capital resources the company generated $ 46,406 of cash from operating activities provided during the year ended december 31 , 2016 , as compared to $ 78,568 in the prior year . net income of $ 13,024 , plus non-cash depreciation , amortization of intangibles , other assets and discounted future liabilities generated a total of $ 34,570. stock based compensation of 3,071 , loss from equity method investment of $ 353 and change in value of deferred income taxes of $ 151 , provided a net cash inflow of $ 37,843 , as compared to $ 32,727 for the same period of 2015. as of december 31 , 2016 , our working capital has reduced to $ 130,001 , as compared to $ 139,850 as of december 31 , 2015. this change included a reduction in inventory offset by an increase in receivables , an increased cash position and higher accounts payable levels reflecting both increased factory activity and some capital spending close to the end of the year . at december 31 , 2016 , our receivables ( net of allowances ) were $ 87,206 as compared to $ 75,389 at the end of the prior year . this is primarily a result of increased sales in the final quarter of the year and the market mix of sales in the last 4 months of the year . deferred revenue as of december 31 , 2015 was $ 3,848 , as compared to $ 8,888 at december 31 , 2015. such deferred revenues are primarily driven by customer decisions to take up opportunities to make early payments in return for some early cash incentive programs . inventories ended the year at $ 120,576 , as compared to $ 136,477 at december 31 , 2015. the decrease in inventory level is mainly driven by our corn products and was achieved as a result of constant attention to working through a disciplined sales and operation plan for all our products , balancing manufacturing cost recovery , plant capacity and customer needs . during the year we closely monitored channel inventory as our products worked through the distribution channel to the growers . by the end of 2016 , we determined that channel inventories of our key products were at or near historically normal levels . in addition , it should be noted that the company purchases and holds raw material , intermediate or finished goods inventory from time to time based on a single annual purchase from a single source or supplier , potentially resulting in peaks in the carrying value of inventory . furthermore , in order to achieve efficient manufacturing runs , the company may manufacture a particular product only one time a year and then carry high levels of that inventory for a period of time . timing of payments made on prepaid expenses and other assets caused an increase of $ 3,872 during the year .
| 25 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) the company 's total net sales for the year ended december 31 , 2015 were down 3 % to $ 289,382 , as compared to $ 298,634 for the year ended december 31 , 2014. net sales of our crop business in 2015 were $ 258,090 , which constitutes a decrease of nearly 4 % as compared to net sales of $ 267,710 for that business in 2014. net sales of our non-crop products in 2015 were $ 31,292 , which is an increase of approximately 1 % as compared to $ 30,924 in 2014. a more detailed discussion of product groups and products having a material effect on net sales for each of the crop and non-crop businesses appears below . in our crop business , net sales of insecticides in 2015 ended at $ 117,180 , which was a 14 % decline as compared to $ 135,705 in 2014. for the same period , annual net sales of our granular soil insecticides were down 4 % below 2014 , primarily driven by reduced equipment sales , while sales of our corn soil insecticides remained relatively flat . we had increased year-over-year performance from our nemacur ® and mocap ® products in international markets offset by a decline in domestic thimet ® sales due to seasonally delayed purchasing which are likely to shift to later in the 2015-2016 season . among our non-granular insecticide products for crop applications , net sales of our cotton foliar insecticide bidrin ® were down due to fewer planted acres in several prime/high usage areas of the southeast region and lighter pest pressure . within the product group of herbicides/soil fumigants/fungicides , our crop net sales in 2015 were up 10 % to $ 111,897 as compared to $ 101,785 in 2014. our fumigant product line continued to perform well . midwest restocking demand for our post-emergent corn herbicide impact resulted in increased
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other income ( expense ) , net - other expense , net , for 2018 was composed of foreign currency ( “ fx ” ) losses of $ 7.1 and net losses on asset dispositions and other of $ 0.3 , partially offset by non-service-related pension and postretirement benefits of $ 1.3 and gains of $ 0.6 related to the remeasurement of indemnification receivables from and obligations to third parties related 22 to certain of the company 's domestic and foreign defined benefit pension and postretirement obligations . of the $ 7.1 of fx losses , $ 5.8 related to the effect of the devaluation of the angolan kwanza against the u.s. dollar during 2018 and the impact of that devaluation on certain kwanza-denominated cash and cash equivalents held by the company . other income , net , for 2017 was composed of gains of $ 3.5 related to the remeasurement of an indemnification receivable from a third party related to certain of the company 's foreign defined benefit pension obligations , net gains on asset sales and other of $ 2.9 , non-service-related pension and postretirement benefits of $ 0.9 and other items of $ 0.3 , partially offset by fx losses of $ 4.9 and investment-related losses of $ 1.4. the investment-related losses represented unrealized losses on our investment in an equity security . other expense , net , for 2016 was composed of non-service-related pension and postretirement costs of $ 2.5 , fx losses of $ 2.2 , net settlement costs related to certain legal and tax-related claims of $ 0.7 and investment-related losses of $ 0.5 , partially offset by net gains on asset sales and other of $ 2.5. interest expense , net - interest expense , net , is comprised primarily of interest expense related to our senior notes and senior credit facilities and , to a lesser extent , interest expense related to our trade receivables financing arrangement , capital lease obligations and miscellaneous lines of credit , partially offset by interest income on cash and cash equivalents . interest expense , net , included interest expense of $ 54.5 , $ 67.2 and $ 60.6 , and interest income of $ 7.4 , $ 4.7 and $ 3.5 , respectively , during 2018 , 2017 and 2016 , respectively . the decrease in interest expense in 2018 , compared to 2017 , was due primarily to a lower level of average outstanding borrowings under our term loan facility . the reduction in our term loan borrowings was due primarily to voluntary principal repayments of $ 110.0 during 2018 and $ 100.0 during the fourth quarter of 2017. see note 10 to our consolidated financial statements for additional details on our third-party debt . loss on early extinguishment of debt - in august 2016 , we completed the redemption of all of our 6.875 % senior notes due in august 2017 for a total redemption price of $ 636.4. as a result of the redemption , we recorded a charge of $ 38.9 during 2016 , which related to premiums paid to redeem the senior notes of $ 36.4 , the write-off of unamortized deferred financing fees of $ 1.9 , and other costs associated with the extinguishment of the senior notes of $ 0.6. income tax benefit ( provision ) - during 2018 , we recorded an income tax provision of $ 71.1 on $ 115.8 of income before income taxes , resulting in an effective tax rate of 61.4 % . the effective tax rate for 2018 was impacted by income tax charges of ( i ) $ 22.2 for adjustments to the deemed repatriation tax and related elections and ( ii ) $ 9.6 resulting from losses occurring in certain jurisdictions where the tax benefit of those losses is not expected to be realized . during 2017 , we recorded an income tax provision of $ 11.1 on $ 57.9 of income before income taxes , resulting in an effective tax rate of 19.2 % . the effective tax rate for 2017 was impacted by an income tax benefit of $ 71.2 related to revaluation of our net deferred tax liabilities resulting from the change in the u.s. federal tax rate , including the reduction for earnings that were not indefinitely reinvested , and income tax charges of ( i ) $ 50.4 for the deemed repatriation tax and ( ii ) $ 11.6 resulting from losses occurring in certain jurisdictions where the tax benefit of those losses is not expected to be realized . during 2016 , we recorded an income tax benefit of $ 101.0 on $ 482.0 of loss before income taxes , resulting in an effective tax rate of 21.0 % . the effective tax rate for 2016 was impacted by tax benefits of ( i ) $ 59.3 resulting from the $ 426.4 goodwill and intangible assets impairment charge recorded by our power and energy reporting unit during the second quarter ( an effective tax rate of 13.9 % ) , as ( a ) the majority of the goodwill of the power and energy reporting unit had no basis for income tax purposes and ( b ) the impairment charge resulted in the addition of a valuation allowance for deferred income tax assets in certain jurisdictions , and ( ii ) $ 23.8 resulting from a tax incentive realized in poland related to the expansion of our manufacturing facility in that country . results of reportable segments the following information should be read in conjunction with our consolidated financial statements and related notes . non-gaap measures - throughout the following discussion of reportable segments , we use “ organic revenue ” growth ( decline ) to facilitate explanation of the operating performance of our reportable segments . organic revenue growth ( decline ) is a non-gaap financial measure , and is not a substitute for net revenue growth ( decline ) . refer to the explanation of this measure and purpose of use by management under “ results of operations-non-gaap measures. story_separator_special_tag ” 23 food and beverage replace_table_token_5_th revenues - for 2018 , the increase in revenues , compared to 2017 , was due primarily to an increase in organic revenue , an increase in revenue recognized as a result of our application of the new revenue recognition standard in 2018 , and a weakening of the u.s. dollar during the period against various foreign currencies . the increase in organic revenue was due primarily to higher volumes of aftermarket and components sales , which were partially offset by a lower volume of systems revenues . for 2017 , the decrease in revenues , compared to 2016 , was due to a decrease in organic revenue , partially offset by the weakening of the u.s. dollar during the period against various foreign currencies . the decrease in organic revenue was due primarily to the impact on revenues of a lower backlog as of the beginning of 2017 , compared to the beginning of 2016 , due to a decline in dairy pricing which began in 2015 , and the resulting impact on the placement of large systems orders throughout 2016 and the first half of 2017. the reduced volume of systems revenue in 2017 was partially offset by increased revenues of component parts and aftermarket sales . income - for 2018 , the increase in income and margin , compared to 2017 , was primarily due to the revenue growth noted above , savings from restructuring actions in connection with the company 's global realignment program concluded in the fourth quarter of 2017 and other cost reduction initiatives , and a decrease in variable incentive compensation , based on the company 's performance relative to certain incentive targets in 2018 as compared to 2017 's performance relative to that year 's targets . for 2017 , the moderate decrease in income and increase in margin , compared to 2016 , was primarily due to the revenue decline noted above and the effects of an increase in incentive compensation , which were substantially mitigated by improved productivity in our poland facility , improved project execution , and savings from restructuring actions and other cost reduction initiatives . backlog - the segment had backlog of $ 317.2 and $ 371.7 as of december 31 , 2018 and 2017 , respectively . of the $ 54.5 year-over-year decline in backlog , $ 40.4 was attributable to organic decline and $ 14.1 was attributable to the impact of fluctuations in foreign currencies relative to the u.s. dollar . the organic decline was due primarily to a reduction in large dry dairy systems orders , partially offset by increases in component and aftermarket backlog . approximately 90 % of the segment 's backlog as of december 31 , 2018 is expected to be recognized as revenue during 2019 . 24 power and energy replace_table_token_6_th revenues - for 2018 , the increase in revenues , compared to 2017 , was due primarily to an increase in organic revenue and , to a lesser extent , the impact of our application of the new revenue recognition standard in 2018 and a weakening of the u.s. dollar during the period against various foreign currencies . the increase in organic revenue reflects increased aftermarket sales and , to a lesser extent , shipments of original equipment ( “ oe ” ) pumps into north american midstream pipeline oil applications . for 2017 , the decrease in revenues , compared to 2016 , was due to a decrease in organic revenue . the decline in organic revenue reflects the impact on revenues of a lower backlog as of the beginning of 2017 , compared to the beginning of 2016 , due primarily to reduced customer spending , particularly for oe used in upstream and midstream oil applications , as well as lower aftermarket revenues . income - for 2018 , income and margin increased , compared to 2017 , primarily due to the revenue growth noted above and savings from restructuring actions and other cost reduction initiatives . the favorable effect of these items was partially offset by the effects of increased costs on oil and gas related projects , noted primarily during the second half of 2018 , compared to the respective 2017 period . for 2017 , income and margin increased , compared to 2016 , primarily due to savings from restructuring actions and other cost reduction initiatives , the effects of which were partially offset by the revenue decline noted above and increased incentive compensation . backlog - the segment had backlog of $ 412.3 and $ 409.1 as of december 31 , 2018 and 2017 , respectively . of the $ 3.2 year-over-year growth in backlog , $ 17.9 was attributable to organic growth , driven primarily by a higher level of oe pump and valve orders in nuclear power and north american midstream oil applications , partially offset by $ 14.7 attributable to the impact of fluctuations in foreign currencies relative to the u.s. dollar . approximately 83 % of the segment 's backlog as of december 31 , 2018 is expected to be recognized as revenue during 2019 . industrial replace_table_token_7_th 25 revenues - for 2018 , the increase in revenues , compared to 2017 , was due primarily to an increase in organic revenue and , to a lesser extent , the impact of our application of the new revenue recognition standard in 2018 and a weakening of the u.s. dollar during the period against various foreign currencies . the increase in organic revenue was across a variety of industrial segment product lines , including primarily an increased volume of shipments of mixers , dehydration equipment , pumps and hydraulic tools . for 2017 , the decrease in revenues , compared to 2016 , was due to a decrease in organic revenue , partially offset by the weakening of the u.s. dollar during the period against various foreign currencies .
| the pre-tax loss in the 2016 period included charges of ( i ) $ 442.2 related to the impairment of goodwill and intangible assets primarily of our power and energy reportable segment and ( ii ) $ 38.9 related to the early extinguishment of debt as a result of our redemption and refinancing in august 2016 of previously outstanding 6.875 % senior notes that were due in august 2017. the increase in pre-tax income compared to 2016 primarily resulted from there being no similar charges in the 2017 period as well as a reduction in restructuring and other related charges related to our global realignment program during 2017. cash flows from ( used in ) operations in 2018 , decreased to $ 105.6 ( from $ 205.0 in 2017 ) , primarily as a result of ( i ) increases in working capital driven by the timing of project execution and associated milestone payments and ( ii ) increased payments for incentive 19 compensation , partially offset by ( iii ) increased cash flows generated by the improved operating results of our segments during the period and ( iv ) reduced spending on restructuring actions . in 2017 , increased to $ 205.0 ( from $ ( 27.9 ) in 2016 ) , primarily as a result of ( i ) improvements in working capital driven by the timing of project execution and associated milestone payments , ( ii ) pension benefit payments of $ 65.9 to certain former officers of the company during 2016 which did not recur during 2017 and ( iii ) reduced payments for incentive compensation . results of operations cyclicality of end markets , seasonality and competition - the financial results of many of our businesses closely follow changes in the industries and end markets they serve . in our food and beverage reportable segment , system revenues are highly correlated to timing on capital projects , which may cause significant fluctuations in our financial performance from period to period . fluctuations in dairy commodity prices and production of dairy related products , particularly those aimed at serving the china market , can influence the timing of capital spending by many end customers in our food and beverage reportable segment . in our power and energy reportable segment , capital spending on original equipment by our customers in the oil and gas industries is heavily influenced
| 15,505 |
we are also identifying and assessing additional technologies that we believe could provide us with additional products and capabilities , and thereby provide additional revenue streams , although there is no assurance that we will be able to obtain or utilize any of them profitably . regulatory activities ce mark for fda-approved hiv tests – we were audited by our notified body in september and our technical file is being reviewed . we expect a decision on ce marking of these products soon . fda approval for dpp® hiv 1/2 screening assay for use with oral fluid or blood samples – we received fda approval of our pre-marketing application ( pma ) for this product on december 19 , 2012 as we announced . we are now working towards a clia waiver with the expectation that it will be granted before the end of 2013. our current plan is to initiate the clia study in march 2013 , have the submission into fda by july , and have a clia waiver during the fourth quarter . dpp® syphilis screen & confirm - during the fourth quarter of 2012 we received data that we had been pursuing that we believe support a de novo fda 510 ( k ) clearance regulatory pathway for the product . as a result we submitted this data and other information to the fda so that we could re-initiate clinical trials and submit our 510 ( k ) application by the middle of 2013. in addition to a scientific journal publication in december 2012 of the results of a large study that was conducted with this product in 2010-2011 in china , we have received additional data from other studies of this product that we believe will also be useful in supporting our regulatory file . there is no point-of-care test for syphilis that differentiates between active and past , previously treated cases , and there continues to be a substantial interest in this product by public health groups in the united states and abroad . we are confident that our dpp® syphilis screen & confirm test detects primary infections more accurately than the legacy laboratory test known as rapid plasma reagin ( “ rpr ” ) . in late february we received a response from the fda that will enable us to pursue the regulatory pathway that we outlined in our submission . however there were some questions that we have concerning the fda response and we intend to have those clarified in a meeting being scheduled this month . while we confirm our intended study approach with fda , we are completing our protocol , have identified three clinical sites and their contracts , with the expectation that we will commence the studies in may , submit the 510 ( k ) application to fda by the end of the third quarter , and have an fda clearance by mid-2014 . dpp® hiv-syphilis – we have submitted this product for evaluation by the cdc and the who has accepted this product for pre-qualification in their global procurement scheme . other international registrations are pending . we have not yet submitted a guidance request to the fda for determining the pathways for getting this multiplex combination product approved/cleared by the fda , but plan to soon . however we still plan to initiate the syphilis studies ( the hiv component of this test is already approved pursuant to the pma approval received in december 2012 ) , in may , submit the 510 ( k ) application to fda by the end of the third quarter , and have an fda clearance by mid-2014 . sure check® hiv otc study - we completed the self-testing study to meet the requirements for submitting an ide ( “ investigational device exemption ” ) application in order to commence clinical trials for this product in 2013. the ide application can be filed now and we plan to do this soon . thereafter , assuming the ide is granted , the phase ii observed user clinical trials could be commenced during 2013 and the pivotal trial could be completed during 2014. this would enable a pma approval by late-2015 . there have been very significant recent developments related to this market opportunity , as the first rapid hiv test for home use was recommended for approval by the fda 's blood products advisory committee ( “ bpac ” ) in a unanimous vote , and the test was in fact approved by the fda in early july with widespread media attention . the manufacturer of this product , orasure technologies , inc. ( “ orasure ” ) , launched this product in retail drug stores during october . orasure 's final clinical trial for the home-use version enrolled 5,798 subjects from 17 high prevalence sites and three low prevalence sites across the country . orasure gave subjects the test to take home and perform themselves , but also collected blood samples to compare to the results of the home-based testing . the specificity of the test remained relatively high , 99.98 % ( 95 % ci : 99.90–100 % ) , and above bpac 's recommended threshold . however , sensitivity dropped in comparison to professional use of the kit to 92.98 % from 99.3 % . 26 given this low performance threshold , we believe we are very well positioned with our sure check® hiv 1/2 blood test as well as our other fda-approved products . however we believe that the development of this market will take time , and that its development will likely require orasure to invest significantly in its development , as it is now . orasure 's first-three month period results for this product , which was in the fourth quarter of 2012 , reported in february 2013 did nothing to change this expectation . story_separator_special_tag although we still believe that chembio is the only other company that for all practical purposes has a product , let alone multiple products , that can participate in this new market , we have serious reservations about the size of the opportunity , particularly in relation to the significant investment of funds required in order to achieve regulatory approval and then commercialize the product . nevertheless , because orasure 's product was approved with lower sensitivity than was previously expected by the fda , this provides an opportunity for chembio 's product ( s ) to achieve improved performance – either with its blood and or oral fluid hiv tests . we believe it is critical to go to this market with a substantially improved sensitivity and comparable specificity to orasure 's product , and a lower price ( which would include lower packaging and distribution costs as compared with orasure ) , and our current efforts are focused in this direction . there can be no assurance that any of the aforementioned research & development and or regulatory products or activities will result in any product approvals or commercialization , nor that any of the existing research and development activities , or any new potential development programs or collaborations will materialize or that they will meet regulatory or any other technical requirements and specifications , and or that if continued , will result in completed products , or that such products , if they are successfully completed , can or will be successfully commercialized . recent events the company entered into an employment agreement effective march 5 , 2013 ( the `` employment agreement '' ) , with mr. esfandiari to continue as the company 's senior vice president of research and development for an additional term of three years through march 5 , 2016. see item 11 for more details . in accordance with the terms of the company 's 2008 stock incentive plan , on february 26 , 2013 , the company granted , to certain employees of the company , options to purchase an aggregate of 16,360 shares of the company 's common stock . the exercise price for these options was to be equal to the last traded price for the company 's common stock on february 26 , 2013 , which was at $ 5.56 per share . the options become exercisable on the effective date of the grant . each option granted will expire and terminate , if not exercised sooner , upon the earlier to occur of ( a ) 30 days after termination of the employee 's employment with the company or ( b ) the fifth anniversary of the effective date of the grant . the following table identifies the portions of these options issued to officers of the company . name of executive officer number of shares of common stock options richard bruce - vice president of operations 1,520 javan esfandiari – executive vice president of r & d 4,765 tom ippolito - vice president of regulatory affairs , qa & qc 1,775 richard j. larkin – chief financial officer 1,670 lawrence a. siebert – chief executive officer 5,215 michael steele – vice president of sales and marketing 785 sharon klugewicz – vice president of qa/qc 630 on may 30 , 2012 , the company effected a 1-for-8 reverse split of its common stock . this was done to allow the company to move to the nasdaq trading market from the otcqb market , which occurred on june 7 , 2012. as a result of the reverse stock split , the 63,967,265 outstanding common shares were reduced to 7,995,918 outstanding common shares on may 30 , 2012 . 27 results of operations for the year ended december 31 , 2012 as compared with the year ended december 31 , 2011 income : income before income taxes for the year ended december 31 , 2012 increased to $ 1,451,000 from $ 1,076,000 for the year ended december 31 , 2011. net income decreased from $ 6.2 million for 2011 to $ .94 million for 2012 despite the increase in income before taxes . the decrease in net income is primarily attributable to a $ 5.1 million benefit resulting from the partial elimination of the deferred tax asset valuation allowance in 2011. in 2012 , as a result of a 39.6 % increase in net product sales and a 34.7 % decrease in non-product revenues , the company had a $ 1,400,000 , or 14.9 % , increase in its gross margin , to $ 10,790,000. this increased gross margin funded increased operating expenses , the most significant of which was an increase in commission expenses of $ 606,000 , due to the increased sales in brazil . revenues : replace_table_token_4_th revenues for our lateral flow hiv tests and related components during the year ended december 31 , 2012 increased by $ 640,000 over the same period in 2011. this was primarily attributable to increased sales in the u.s. , through alere , of $ 515,000 , and increased sales in africa of $ 329,000 ; and was partially offset by decreased sales in other regions . adding to these increases were increased other sales , which increased by 144 % , or $ 433,000 , primarily from increased sales of chagas . sales of our dpp® products in 2012 increased by $ 5,831,000 , or 137 % , compared to levels in 2011 as brazil began ramping up their programs in 2012 for the five anvisa-approved dpp® products .
| you can identify forward-looking statements by terminology such as “ may , ” “ could ” , “ will , ” “ should , ” “ expects , ” “ intends , ” “ plans , ” “ anticipates , ” “ believes , ” “ estimates , ” “ predicts , ” “ potential , ” “ continues ” or the negative of these terms or other comparable terminology . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . except as may be required by applicable law , we do not undertake or intend to update or revise our forward-looking statements , and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments . thus , you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements . you should carefully review and consider the various disclosures we make in this report and our other reports filed with the securities and exchange commission that attempt to advise interested parties of the risks , uncertainties and other factors that may affect our business . all of the company 's future products that are currently being developed are based on its patented dual path platform ( dpp® ) , which is a unique diagnostic point-of-care platform that has certain advantages over lateral flow technology . the company has completed development of several products that employ the dpp® technology , two of which will be marketed under chembio 's label ( dpp® hiv 1/2 screening assay and dpp® syphilis screen & confirm ) and several others that have been developed specifically related to private label agreements with the oswaldo cruz foundation ( “ fiocruz ” ) for the brazilian public health market , as explained below . all of the company 's products other than its lateral flow tests ( see products and our rapid test technologies ) are based on the company 's patented
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the 2017 tax act transitions international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on non-u.s. earnings . the 2017 tax act also includes a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries ' previously untaxed foreign earnings ( “ toll tax ” ) . changes in tax rates and tax laws are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate . therefore , during the year ended december 31 , 2017 , we recorded a charge totaling $ 25.1 million related to our estimate of the provisions of the 2017 tax act , including an estimated $ 23.3 million expense under the toll tax . during the year ended december 31 , 2018 we finalized the impact of the 2017 tax act and recorded a benefit of $ 3.7 million , reducing the net impact to $ 21.4 million and increasing the toll tax to $ 33.5 million . the toll tax is being paid over an eight-year period , starting in 2018 , and will not accrue interest . recent developments on february 6 , 2019 , we declared a quarterly dividend of twenty-one cents ( $ 0.21 ) per share on each outstanding share of class a common stock and class b common stock payable on march 15 , 2019 to stockholders of record on march 1 , 2019. on february 6 , 2019 , the board of directors authorized a stock repurchase program of up to $ 150 million of our class a common stock to be purchased from time to time on the open market or in privately negotiated transactions . the timing and number of shares repurchased will be determined by management based on its evaluation of market conditions and other factors . story_separator_special_tag style= '' margin:0pt ; font-family : times new roman , times , serif ; font-size : 10pt ; '' > prior to 2017 , our europe segment was formerly referred to as emea ( europe , middle east , and africa ) and our apmea segment was formerly referred to as asia-pacific . as of january 1 , 2017 , we began reporting the results of watts industries middle east , an indirect , wholly owned subsidiary , within our apmea segment to align with internal operating changes . these results had previously been reported within our former emea segment . this change did not affect our reportable segments but represented only a change in composition that better aligned with the structure of our internal organization . the 2016 results by segment have been retrospectively revised for comparative purposes . net sales . our business is reported in three geographic segments : americas , europe and apmea . our net sales in each of these segments for the years ended december 31 , 2017 and 2016 were as follows : replace_table_token_10_th 27 the change in net sales was attributable to the following : replace_table_token_11_th the change in organic net sales as a percentage of consolidated net sales and of segment net sales in the americas excludes divested sales for both periods presented . our products are sold to wholesalers , oems , diy chains and through various specialty channels . the change in organic net sales by channel was attributable to the following : replace_table_token_12_th the organic sales increase of $ 7.0 million was partially muted by the $ 15.1 million impact of our ongoing product rationalization efforts across our regions , as we continue to focus on our core product lines . the product rationalization mainly affected our diy and oem channels . organic net sales in the americas increased $ 7.4 million mainly from growth in the wholesale channel , driven by valve , hvac , and drainage products . this increase was partially offset by declines in the specialty channels , where we experienced weakness in our tankless water heater and condensing boiler products . there was also a decrease in the diy channel due to the product rationalization discussed above . organic net sales in europe increased $ 2.5 million primarily due to growth in the wholesale channel from increased sales of our drains products . this increase was also due to higher demand for our electronics products in germany . these increases were partially offset by product rationalization and reduced demand for our hvac products in italy . organic net sales in apmea decreased $ 2.9 million driven primarily by the impact of product rationalization . this decrease was offset partly by higher demand in china for our residential underfloor heating products and commercial valves products , as well as growth in south korea from an expanded product offering . the net increase in sales due to foreign exchange was primarily due to the appreciation of the euro and the canadian dollar against the u.s. dollar in 2017. we can not predict whether foreign currencies will appreciate or depreciate against the u.s. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or negative impact on our net sales . the decrease in total net sales due to divested products of $ 3.5 million relates to the discontinuation of product lines we divested by the end of the first quarter of 2016 in the americas segment as part of our americas transformation program . the increase in net sales from acquisitions in the americas and apmea segments are related to the fourth quarter 2016 acquisition of pvi and the first quarter 2016 acquisition of watts korea , respectively . 28 gross profit . story_separator_special_tag gross profit and gross profit as a percent of net sales ( gross margin ) for 2017 and 2016 were as follows : year ended december 31 , 2017 december 31 , 2016 ( dollars in millions ) gross profit $ 602.4 $ 565.6 gross margin 41.4 % 40.5 % the increase in gross margin percentage is attributable to increased volume , manufacturing productivity , changes to our product mix , and incremental savings from our transformation and restructuring programs primarily within the americas and europe . selling , general and administrative expenses . selling , general and administrative , or sg & a , expenses increased $ 8.2 million , or 1.9 % , in 2017 compared to 2016. the increase in sg & a expenses was attributable to the following : replace_table_token_13_th sg & a expenses increased primarily as a result of our 2016 acquisitions of pvi and watts korea , as well as increases in foreign exchange primarily from the appreciation of the euro and the canadian dollar against the u.s. dollar compared to 2016. organically sg & a expenses decreased $ 7.3 million compared to 2016 , primarily related to a decline in product liability costs of $ 9.4 million , lower transformation costs of $ 8.1 million as we completed our transformation program in 2017 , and lower property tax and other tax charges of $ 1.1 million . the decline in product liability costs was primarily due to the resolution of the class action lawsuits related to certain legacy claims for undifferentiated products which we have exited , and the associated reduction in reported claims . the organic decrease was partially offset by $ 8.2 million for investments in strategic initiatives , which includes $ 2.5 million in research and development costs , and $ 4.2 million of higher distribution and freight costs . total sg & a expenses , as a percentage of sales , were 29.7 % in 2017 compared to 30.3 % in 2016. restructuring . in 2017 , we recorded a net charge of $ 6.8 million , primarily for the transformation of our americas business , involuntary terminations and other costs incurred as part of our restructuring initiatives , as compared to a net charge of $ 4.7 million in 2016. for a more detailed description of our current restructuring plans , see note 3 of notes to consolidated financial statements in this annual report form 10-k. other long‑lived asset impairment charges . in 2017 , we recorded an impairment of $ 1.0 million , primarily related to a technology asset in the americas operating segment . in 2016 , we recorded impairment charges of $ 0.5 million , primarily related to an indefinite lived tradename in the europe operating segment . see note 7 of notes to consolidated financial statements in this annual report on form 10 ‑ k for additional information regarding these impairments . gain on disposition . in the second quarter of 2016 , we recorded a pre-tax gain of $ 8.7 million related to the sale of a china subsidiary that was dedicated to the production of non-core products and part of the transformation of our americas and apmea businesses . the pre-tax gain included a non-cash accumulated currency translation adjustment of $ 7.3 million . 29 operating income ( loss ) . operating income ( loss ) by geographic segment for 2017 and 2016 was as follows : replace_table_token_14_th the increase ( decrease ) in operating income ( loss ) is attributable to the following : replace_table_token_15_th the increase in consolidated operating income was primarily driven by increased volume and gross margin improvements in the americas , as well as savings from our restructuring initiatives in europe . the increase in operating income was also driven by reduced transformation costs compared to 2016 in the americas and apmea as our transformation program was completed in 2017. contributing to the increase in consolidated operating income was $ 2.9 million from the acquisition of pvi . included in operating income in 2016 was an $ 8.7 million gain on a disposition of a china subsidiary . interest expense . interest expense decreased $ 3.5 million , or 15.5 % , in 2017 from 2016 as we repaid over $ 150 million in outstanding debt during 2017. further , our weighted average interest rate decreased marginally year to year as we retired higher cost private placement debt in the middle of 2016 , and replaced it with lower cost revolver debt . we also replaced certain u.s. based revolver debt with lower cost euro denominated debt in late 2016. refer to note 12 of the notes to consolidated financial statements in this annual report on form 10-k for further details . other expense ( income ) , net . other expense ( income ) , net , decreased $ 5.5 million to a net expense balance of $ 1.1 million in 2017 as compared to a net other income balance of ( $ 4.4 ) million in 2016. included in other income in 2016 was a $ 1.7 million non-cash gain recognized on the acquisition of watts korea . the remaining decrease is primarily due to net foreign currency transaction losses in 2017. income taxes . our effective income tax rate changed to 48.9 % in 2017 , from 34.1 % in 2016. the tax rate increased primarily due to the impact of the 2017 tax act , which was enacted on december 22 , 2017 , and has resulted in significant changes to the u.s. corporate income tax system . these changes include lowering the corporate tax rate from 35 % to 21 % in 2018 , implementing a territorial tax system , and imposing a one-time deemed repatriation toll tax on cumulative undistributed foreign earnings . net income .
| the net increase in sales due to foreign exchange was mainly due to the appreciation of the euro against the u.s. dollar in 2018. we can not predict whether foreign currencies will appreciate or depreciate against the u.s. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or negative impact on our net sales . gross profit . gross profit and gross profit as a percent of net sales ( gross margin ) for 2018 and 2017 were as follows : replace_table_token_6_th gross profit and gross margin percentage increased compared to 2017 , due to increased pricing , higher sales volume , productivity initiatives , and restructuring savings , which were partially offset by higher material costs , mainly due to increased copper and stainless steel commodity costs , as well as higher inbound transportation costs and general inflation . 25 selling , general and administrative expenses . selling , general and administrative , or sg & a , expenses increased $ 32.4 million , or 7.5 % , in 2018 compared to 2017. the increase in sg & a expenses was attributable to the following : replace_table_token_7_th the organic increase was primarily related to investments in strategic growth initiatives of $ 16.7 million , including investments in research and development for new product initiatives , commercial excellence , and technology and information systems . the organic increase was also due to higher variable costs related to increased sales volume totaling $ 12.2 million , and inflation of $ 4.4 million primarily related to transportation costs . these increases were partially offset by restructuring savings within the americas and europe of $ 3.6 million , as well as a decrease in amortization costs of $ 3.2 million for certain intangible assets that reached the end of their useful lives . the increase in foreign exchange was mainly due to the appreciation of the euro against the u.s. dollar . total sg & a expenses , as a percentage of sales , were 29.7 % in 2018 and 2017. restructuring . in 2018 , we recorded a net charge of $ 3.4 million , primarily related to restructuring actions associated with our european headquarters and cost savings initiatives within certain manufacturing facilities in europe , as compared to a net charge of $ 6.8 million in 2017. for a more detailed description of our
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per share ; the above warrant shares and exercise prices have been retroactively adjusted to reflect the 2011 and 2012 reverse stock splits . historically , the warrants were reflected as a component of equity as opposed to liabilities on the consolidated balance sheets and the consolidated statements of operations did not include the subsequent non-cash changes in estimated fair value of the warrants in accordance with accounting standards codification 815 , derivatives and hedging ( “ asc 815 ” ) . the warrant agreements contain a provision for net cash settlement at the option of the holder in the event that there is a fundamental transaction ( as contractually defined in the warrant agreements ) . the company had previously conducted in-depth analysis in prior years of its other warrants and concluded that all fundamental transactions were within the control of the company and thus equity treatment for the warrants was appropriate . however , new insight on derivatives , obtained by the company during the process of analyzing the accounting guidance for the november 2012 warrants , prompted the company to re-assess its prior position . under the guidance of acs 815 , warrant instruments that could potentially require net cash settlement in the absence of express language precluding such settlement , should be initially classified as derivative liabilities as their estimated fair values , regardless of the likelihood that such instruments will ever be settled in cash . in periods subsequent to issuance , changes in the estimated fair value of the derivative instruments should be reported in the statement of operations . the audit committee , together with management , determined that the financial statements in the affected periods should be restated to reflect the warrants as liabilities , with subsequent changes in their estimated fair value recorded as non-cash income or expense in each affected period . -21- the company has restated its audited consolidated financial statements for the year ending december 31 , 2011 and the related disclosures . the company has not amended its previously filed annual reports on form 10-k for the years ended december 31 , 2010 and 2009 or its quarterly reports on form 10-q for the periods march 31 , 2010 , june 30 , 2010 , and september 30 , 2010 to correct these misstatements . in addition to the restatement noted above , the consolidated statements of operations for the year ended december 31 , 2011and the consolidated balance sheets then ended have also been retroactively adjusted to give effect to the company 's september 2012 reverse stock splits , and for the discontinued operations as discussed in note 1 “ summary of significant accounting policies – nature of business and basis of presentation. ” the following discussion and analysis of our financial condition and results of operations incorporates the restated amounts . for this reason , the information set forth in this section may not be comparable to discussion and information in our previously filed annual report on form 10-k for the fiscal year ended december 31 , 2011. story_separator_special_tag block ; margin-left : 0pt ; margin-right : 0pt '' > in february , 2013 , a newly formed virginia subsidiary of the company , nuta technology corp. , entered into a non-binding letter of intent to acquire various patents covering wireless communications . if the acquisition is completed , the company may engage in commercialization activities related to the inventions that are the subject of such patents . in late february , 2013 , the board of directors appointed harvey j. kesner as interim chief executive officer of the company . in early march , 2013 , we issued series c convertible preferred stock in exchange for warrants we issued in our november , 2012 private placement transaction . the company is examining its business strategies and strategic alternatives . it has deferred any substantial financial commitments in its biospherics unit . results of operations—2012 compared with 2011 revenue revenue in 2012 is primarily related to royalty fees from an oil detection agreement . no substantial revenue is expected from the biospherics segment until the company is successful in selling or licensing its technology . research and development research and development expenditures relate solely to the biospherics segment and consist primarily of salaries and related personnel costs , fees paid to consultants and outside service providers , and other expenses related to our efforts to develop spx106t for use in lowering triglyceride and cholesterol levels . we expense our research and development costs as they are incurred . the company does not intend to incur any material r & d costs for its biospherics unit in 2013 or thereafter and currently is seeking buyers to acquire the biospherics inventory and business in whole or in part or to joint venture or license such business . the company believes it is unlikely that a buyer may be identified and as a result may liquidate or dispose of its inventory of tagatose for which material storage fees are being incurred . the company may be required to incur costs for disposal and cessation of this segment . the decrease in r & d costs in 2012 of $ 919,000 from 2011 reflects the completion of spx106t preclinical studies . no further studies are presently planned . selling , general and administrative our selling , general and administrative expenses consist primarily of salaries and related expenses for executive , finance and other administrative personnel , professional fees and other corporate expenses , including facilities-related expenses . s , g & a expenses were consistent between years . story_separator_special_tag severance/retention expense for the continuing staff is being recognized evenly over the required performance period from the date of each agreement , with $ 40,000 recognized in 2012 and the remaining $ 475,000 to be recognized during the first half of 2013. no severance expenses were incurred in 2011. other income from change in fair value of warrants other income from change in fair value of warrants is the result of decreases in the carrying amount of the warrant liability caused by changes in the fair value as determined using a black-scholes option valuation method . the difference between the other income from change in fair value of warrants realized in 2011 compared to 2012 is the result of a more pronounced change in the company 's stock price for the year ending 2011 . -23- loss on issuance of warrants the loss on issuance of warrants reflects the difference in the fair market value of the warrants as determined using a black-scholes option valuation method and the proceeds received . the proceeds received from warrants issued with other instruments ( such as common stock or preferred stock ) are determined based upon the fair value of liability classified warrants with the residual allocated to the other instruments . the increase between years is directly related to the change in the company 's stock price between years . interest income interest income in 2012 and 2011 was primarily derived from interest earned on the net proceeds of our equity offerings . other income in october 2010 , the company was awarded two one-time grants from the u.s. government under the patient protection and affordable care act . the awards were for the company 's diabetes and triglyceride research . as a result , in 2011 the company recognized $ 51,000 in other income and a related tax expense of $ 14,000. no grants were recognized in 2012. gain on settlement of obligations on january 14 , 2011 , biospherics incorporated , a wholly-owned subsidiary of the company , filed a complaint for injunction relief and damages in the united states district court for the district of maryland against inalco s.p.a. ( the “ complaint ” ) . the complaint alleged that inalco had breached the 2009 manufacturing support and supply agreement as inalco ( i ) refused to supply d-tagatose previously paid for by biospherics , ( ii ) refused to provide a promised bank guarantee , and ( iii ) shut-down its d-tagatose production facilities . on march 16 , 2011 , both parties signed a settlement agreement whereby inalco agreed to supply spherix with 8.5 metric tons of d-tagatose , which has been received by spherix , and both parties have agreed to release each other from any other obligations under the previous agreement . as a result , the company recognized a gain of $ 600,000 in march 2011 on the release from its purchase obligation . in january 2011 , the company entered into a letter agreement with gilbert v. levin and m. karen levin pursuant to which the company agreed to make a one-time lump sum payment of $ 450,000 to the levins in full satisfaction of the company 's obligation to make a series of continuing payments to the levins relating to their prior employment by the company . per the terms of the agreement , gilbert v. levin resigned as a member of the board of directors of the company on january 13 , 2011. the company 's estimated liability to the levins at december 31 , 2010 , and prior to the above agreement was approximately $ 695,000. the $ 450,000 lump sum payment was made on january 31 , 2011 , and the company recognized the $ 245,000 difference as a gain on settlement of obligations in january 2011. income tax expense the 2011 income tax expense was directly related to the above mentioned u.s. government grants in the other income discussion . no tax expense was incurred in 2012. discontinued operations the operations of spherix consulting , inc. have been retroactively adjusted as discontinued operations as a result of the december 3 , 2012 sale noted above . the spherix consulting segment generated nearly all of the company 's revenue and provided technical support for the company 's biospherics segment . replace_table_token_5_th sales backlog none -24- critical accounting estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( “ us gaap ” ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of the contingent assets and liabilities at the date of the financial statements and revenue and expenses for the period reported . estimates are based upon historical experience and various other assumptions that are believed to be reasonable under the circumstances . these estimates are evaluated periodically and form the basis for making judgments regarding the carrying values of assets and liabilities and the reported amount of revenue and expenses . actual results may differ substantially from these estimates . spherix 's critical accounting policies are those it believes are the most important in determining its financial condition and results , and require significant subjective judgment by management as a result of inherent uncertainties . a summary of the company 's significant accounting policies is set out in the notes to the consolidated financial statements . such policies are discussed below . accounting for taxes and valuation allowances we currently have significant deferred tax assets , resulting from net operating loss carry forwards . these deferred tax assets may reduce taxable income in future periods . based on the company 's losses and its accumulated deficit , the company has provided a full valuation allowance against the net deferred tax asset .
| the company 's board of directors in reviewing its options determined to undertake a major re-examination of its business strategies and to explore strategic alternatives . immediate action was taken to reduce expenses , and the decision was made to terminating the employment contracts of employees of the consulting business , and to either cease the consulting business or dispose of it for nominal consideration . further the board was reduced to four members . to facilitate any transition to a new business and continue to satisfy our other responsibilities , retention agreements were entered into with dr. lodder as president , mr. clayton as chief financial officer , treasurer and corporate secretary , and ms. barton as executive assistant . the company 's review and evaluation of its existing business is continuing and this effort may result in the further divestiture or winding down of our historic businesses and the possible entry into a new , yet identified business , including via acquisitions . in mid-november , 2012 , the board of directors and the holders of approximately 70 % of our common stock approved the following actions , which became effective on december 17 , 2012 : · an increase in our authorized capital stock to 50,000,000 shares of common stock , par value $ 0.0001 per share , and 5,000,000 shares of preferred stock , par value $ 0.0001 per share ; · the adoption of the spherix incorporated 2012 equity incentive plan , pursuant to which up to 125,000 shares of common stock may be issued to employees , officers and directors via stock options and grants of restricted stock ; and · approval of the issuance of up to 483,657 shares of our common stock pursuant to the exercise of our series b warrants issued in our november 2012 private placement transaction . on december 3 , 2012 , the company sold all of the issued and outstanding capital stock of its consulting subsidiary , spherix consulting , inc. for nominal consideration of less than $ 1,000. on november
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all research and development expenses are expensed as incurred . approved patent applications are capitalized and amortized using the straight-line method over their remaining estimated lives . patent amortization begins at the time of patent application approval , and does not exceed 20 years . other ( income ) and expense , net . other ( income ) and expense , net primarily includes interest expense from amounts owed under the lease of our headquarters facility and doj settlement , and interest income from money market funds . net operating loss carryforwards . we have established valuation allowances to fully offset our deferred tax assets due to the uncertainty about our ability to generate the future taxable income necessary to realize these deferred assets , particularly in light of our historical losses . the future use of net operating loss carryforwards is dependent on us attaining profitable operations and will be limited in any one year under internal revenue code section 382 due to significant ownership changes ( as defined in section 382 ) resulting from our equity financings . at june 30 , 2018 , we had net operating loss carryforwards for federal and state income tax reporting purposes of approximately $ 275.0 million , which will expire at various dates through fiscal 2037. critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of our consolidated financial statements requires us to make estimates , assumptions and judgments that affect amounts reported in those statements . our estimates , assumptions and judgments , including those related to revenue recognition , deferred revenue and stock-based compensation , are updated as appropriate at least quarterly . we use authoritative pronouncements , our technical accounting knowledge , cumulative business experience , valuation specialists , judgment and other factors in the selection and application of our accounting policies . while we believe that the estimates , assumptions and judgments that we use in preparing our consolidated financial statements are appropriate , these estimates , assumptions and judgments are subject to factors and uncertainties regarding their outcome . therefore , actual results may materially differ from these estimates . some of our significant accounting policies require us to make subjective or complex judgments or estimates . an accounting estimate is considered to be critical if it meets both of the following criteria : ( 1 ) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made , and ( 2 ) different estimates that reasonably could have been used , or changes in the estimate that are reasonably likely to occur from period to period , would have a material impact on the presentation of our financial condition , results of operations , or cash flows . revenue recognition . we sell the majority of our products via direct shipment to hospitals or clinics , and in fiscal 2018 we began shipping to our distributor in japan . we recognize revenue when all of the following criteria are met : persuasive evidence of an arrangement exists ; delivery has occurred ; the sales price is fixed or determinable ; and collectability is reasonably assured . revenue recognition may occur upon shipment or upon delivery to the customer site , based on the contract terms . we record estimated sales returns , discounts and rebates as a reduction of net sales . deferred revenue associated with the upfront payment received under our distribution agreement with medikit is recognized in relation to the estimated future sales under the agreement . the short term portion represents the expected amount of deferred revenue that will be recognized over the next year . the estimate of future sales under contract will continue to be assessed and adjusted accordingly . 33 costs related to products delivered are recognized in the period the revenue is recognized . cost of goods sold consists primarily of raw materials , direct labor , and manufacturing overhead . stock-based compensation . we have stock-based compensation plans that include nonvested share awards and an employee stock purchase plan . we determine the fair value of nonvested share awards with market conditions using the monte carlo simulation . fair value of nonvested share awards that vest based upon performance or time conditions is determined by the closing market price of our stock on the date of grant . stock-based compensation expense is recognized ratably over the requisite service period for the awards expected to vest . fair value of shares purchased under the employee stock purchase plan are estimated on the grant date , which is the first date in the six-month purchase period . stock-compensation expense is recognized over the purchase period based on the anticipated amount of shares to be purchased . management 's key assumptions are developed with input from independent third-party valuation advisors . during the years ended june 30 , 2018 , 2017 and 2016 , we recorded stock-based compensation expense of $ 10.3 million , $ 10.4 million , and $ 13.0 million , respectively . legal proceedings . in accordance with fasb guidance , we record a liability in our consolidated financial statements related to legal proceedings when a loss is known or considered probable and the amount can be reasonably estimated . if the reasonable estimate of a known or probable loss is a range , and no amount within the range is a better estimate than any other , the minimum amount of the range is accrued . if a loss is reasonably possible , but not known or probable , and can be reasonably estimated , the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements . in most cases , significant judgment is required to estimate the amount and timing of a loss to be recorded . story_separator_special_tag expenses . story_separator_special_tag these amounts were partially offset by lower incentive compensation expense . selling , general , and administrative expenses for the years ended june 30 , 2018 and 2017 include $ 9.1 million and $ 8.7 million , respectively , for stock-based compensation . we expect our selling , general and administrative expenses to increase as revenue grows in fiscal 2019 , but at a rate slightly less than the rate of revenue growth . research and development expenses . research and development expenses increased by $ 3.8 million , or 16.8 % , from $ 22.9 million for the year ended june 30 , 2017 to $ 26.8 million for the year ended june 30 , 2018 . research and development expenses relate to the specific projects to develop new products or expand into new markets , such as the development of new versions of our peripheral oas and coronary oas , and ancillary products , and pad and cad clinical studies . the increase was primarily due to the ramp-up of our eclipse clinical study and new development projects . research and development expenses for the years ended june 30 , 2018 and 2017 include $ 1.0 million for stock-based compensation . we generally expect to incur higher research and development expenses in fiscal 2019 than amounts incurred for the year ended june 30 , 2018 as we continue enrollment in the eclipse clinical study and invest in expanding our product portfolio . fluctuations could occur based on the number of projects and studies and the timing of expenditures . 35 comparison of fiscal year ended june 30 , 2017 with fiscal year ended june 30 , 2016 replace_table_token_4_th net revenues . net revenues increased by $ 26.7 million , or 15.0 % , from $ 178.2 million for the year ended june 30 , 2016 , to $ 204.9 million for the year ended june 30 , 2017. revenues from our peripheral oas increased $ 13.5 million , or 10.5 % , primarily reflecting an 11.5 % increase in the number of devices sold . sales of our coronary oas increased by approximately $ 11.2 million , or 31.2 % , reflecting 32.2 % more devices sold . the increase in peripheral and coronary oas sales are primarily due to the expansion of our customer base . other product revenue increased $ 2.0 million , or 14.1 % , during the year ended june 30 , 2017 , driven by increased sales of our peripheral and coronary oas , which the other products support . cost of goods sold . cost of goods sold increased by $ 4.0 million , or 11.3 % , from $ 35.4 million for the year ended june 30 , 2016 to $ 39.4 million for the year ended june 30 , 2017. these amounts represent the cost of materials , labor and overhead for single-use catheters , guide wires , pumps , and other ancillary products . the increase was primarily due to increased sales levels and a one-time charge of $ 1.5 million related to the initiation of a voluntary recall of one type of our saline infusion pumps , partially offset by lower costs per unit driven by manufacturing efficiencies and cost reductions . gross margin increased to 80.8 % for the year ended june 30 , 2017 from 80.1 % for the year ended june 30 , 2016 due to lower costs per unit , as discussed above . cost of goods sold for the years ended june 30 , 2017 and 2016 includes $ 689,000 and $ 794,000 , respectively , for stock-based compensation . selling , general and administrative expenses . selling , general , and administrative expenses decreased by $ 18.4 million , or 11.3 % , from $ 162.5 million for the year ended june 30 , 2016 to $ 144.1 million for the year ended june 30 , 2017 primarily due to lower payroll-related and travel expenses from a decrease in headcount from the year ended june 30 , 2016 , commission plan changes , $ 1.5 million of fiscal 2016 costs associated with the departure of our former ceo , and a reduction in medical device excise tax expense due to the suspension of the tax effective january 1 , 2016. partially offsetting the decreases was a charge of $ 1.3 million for employment litigation costs and an increase in incentive compensation expense due to performance . selling , general , and administrative expenses for the years ended june 30 , 2017 and 2016 include $ 8.7 million and $ 10.4 million , respectively , for stock-based compensation , which decreased due to the reduction in headcount and a change in vesting terms for our performance-based restricted stock awards granted in fiscal 2017 from those granted in fiscal 2016. research and development expenses . research and development expenses decreased by $ 3.0 million , or 11.7 % , from $ 25.9 million for the year ended june 30 , 2016 to $ 22.9 million for the year ended june 30 , 2017. research and development expenses relate to the specific projects to develop new products or expand into new markets , such as the development of new versions of our peripheral and coronary oas , and ancillary products , and pad and cad clinical studies . the decrease primarily related to the completion of enrollment in several of our clinical studies and lower payroll-related expenses from a decrease in headcount from the year ended june 30 , 2016. partially offsetting these were higher patent expense and incentive compensation expense due to performance . research and development expenses for the years ended june 30 , 36 2017 and 2016 include $ 1.0 million and $ 1.8 million , respectively , for stock-based compensation , which decreased due to the reduction in headcount . restructuring charges . in march 2016 , we announced a broad-based restructuring to reduce costs as a key part of our plan to balance revenue growth with a pathway to profitability and positive cash flow .
| 34 prior to february 2018 , all of our revenues have been in the united states ; however , sales in japan commenced in february 2018. in november 2016 , we signed an exclusive distribution agreement with medikit to sell our peripheral and coronary oas in japan , and in march 2017 , we received approval from japan 's ministry of health , labor and welfare for our coronary oas micro crown . on february 1 , 2018 , the coronary oas micro crown received reimbursement approval in japan , followed by the first commercial sales , making japan the first international market for any of our products . in july 2018 , we entered into an exclusive distribution agreement with orbusneich to sell our peripheral and coronary oas outside of the united states and japan . we expect that sales under this agreement will commence in fiscal 2019. we expect our revenue to increase as we continue to increase the number of physicians using the devices , increase the usage per physician , introduce new and improved products such as the orbusneich balloons and zilient guidewires , generate additional clinical data , and expand into new geographies , partially offset by potential decreases in average selling prices . cost of goods sold . cost of goods sold increased 0.1 % , from $ 39.4 million for the year ended june 30 , 2017 to $ 39.5 million for the year ended june 30 , 2018 . these amounts represent the cost of materials , labor and overhead for single-use catheters , guide wires , pumps , and other ancillary products . the small increase in cost of goods sold was due to greater unit volumes offset by the $ 1.5 million one-time charge in the year ended june 30 , 2017 related to the voluntary recall of one type of our saline infusion pumps , as well as lower costs per unit driven by manufacturing efficiencies and cost reductions in the current year ended june 30 , 2018 . gross margin increased to 81.8 % for the year ended june 30 , 2018 from 80.8 % for the year ended june 30 , 2017 due to lower costs per unit , as discussed above . cost of goods sold for the years ended june 30 , 2018 and 2017 includes $ 275,000 and $ 689,000 , respectively , for stock-based compensation . we expect that gross
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the governance and nominating committee also performs oversight of the business ethics and compliance program , and reviews compliance with ambac 's code of business conduct . | ambac financial group , inc. 30 2015 form 10-k | the strategy and risk policy committee oversees the management of risk and risk appetite primarily with respect to strategic plans and initiatives , oversight of ambac 's capital structure , financing and treasury matters and oversight of management 's process for the identification , evaluation and mitigation of ambac 's financial and commercial-related risks . the full board also receives quarterly updates from board committees , and the board provides guidance to individual committee activities as appropriate . in order to assist the board of directors in overseeing ambac 's risk management , ambac uses enterprise risk management , a company-wide initiative that involves the board of directors , management and other personnel in an integrated effort to identify , assess and manage risks that may affect the company 's ability to execute on its corporate strategy and fulfill its business objectives . these activities entail the identification , prioritization and assessment of a broad range of risks ( e.g. , credit , financial , legal , liquidity , market , model , operational , regulatory and strategic ) , and the formulation of plans to manage these risks or mitigate their effects . the enterprise risk committee ( “ erc ” ) is a management committee which is comprised of senior level management responsible for assisting in the management of the company 's risks on an individual and aggregate basis . the erc produces the relevant risk management information for senior management , the board of directors and applicable board committees . critical accounting policies and estimates ambac 's consolidated financial statements have been prepared in accordance with gaap . this section highlights accounting estimates management views as critical because they require management to make difficult and subjective judgments regarding matters that are inherently uncertain and subject to change . these estimates are evaluated on an on-going basis based on historical developments , market conditions , industry trends and other information that is reasonable under the circumstances . there can be no assurance that actual results will conform to estimates , and that reported results of operations will not be materially adversely affected by the need to make future accounting adjustments to reflect changes in these estimates from time to time . management has identified the following critical accounting policies and estimates : ( i ) loss and loss expense reserves , ( ii ) valuation of financial instruments , ( iii ) valuation of deferred tax assets , and ( iv ) goodwill . management has discussed each of these critical accounting policies and estimates with the audit committee , including the reasons why they are considered critical , and how current and anticipated future events impact those determinations . additional information about these policies can be found in note 2. basis of presentation and significant accounting policies to the consolidated financial statements included in part ii , item 8 in this form 10-k. losses and loss expense reserves : the loss and loss expense reserves ( `` loss reserves '' ) discussed in this section relate only to ambac 's non-derivative financial guarantee business for insurance policies issued to beneficiaries , including unconsolidated vies . ambac 's loss reserves include : i ) unpaid claims and ii ) estimates of expected future losses , net of expected future recoveries . unpaid claims , which include accrued interest , represent claims that have not yet been paid for policies allocated to the segregated account . expected future losses , net of expected future recoveries , represent the present value of probability-weighted estimated net cash flows discounted at a risk-free discount rate . while unpaid claims are known and therefore not a subjective estimate , expected future losses , net of expected future recoveries , are inherently uncertain . as such , the remaining discussion is limited to addressing expected future losses , net of expected future recoveries . the evaluation process for expected future losses is subject to certain estimates and judgments regarding the probability of default by the issuer of the insured security , probability of settlement outcomes ( which may include commutation , litigation settlements , refinancings and or other settlement outcomes ) and the expected loss severity of credits for each insurance contract . as the probability of default for an individual credit increases and or the severity of loss given a default increases , our loss reserve for that insured obligation will also increase . political , economic , credit or other unforeseen events could have an adverse impact on default probabilities and loss severities . the loss reserves for many transactions are derived from the issuer 's creditworthiness . for public finance issuers loss reserves will consider not only creditworthiness but also the political and economic status and prospects . the loss reserves for other transactions which have no direct issuer support , such as most structured finance exposures , including rmbs and pooled student loan exposures , are derived from the default activity and loss given default of collateral supporting the transactions . many transactions have a combination of issuer/entity and collateral support . loss reserves reflect our assessment of the transaction 's overall structure , support and expected performance . loss reserve volatility will be a direct result of the credit performance of our insured portfolio , including the number , size , bond types and quality of credits included in our loss reserves as well as our ability to execute workout strategies and commutations . the number and severity of credits included in our loss reserves depend to a large extent on transaction specific attributes , but will generally increase during periods of economic stress and decline during periods of economic prosperity . reinsurance contracts mitigate our loss reserve . since ambac has little exposure ceded to reinsurers , it is unlikely to have a significant effect on loss reserve volatility . story_separator_special_tag the table below indicates the gross par outstanding and gross loss reserves ( including loss expenses ) related to policies in ambac 's loss and loss expense reserves at december 31 , 2015 and 2014 : | ambac financial group , inc. 31 2015 form 10-k | replace_table_token_25_th ( 1 ) ceded par outstanding on policies with loss reserves and ceded loss and loss expense reserves at december 31 , 2015 and 2014 , are $ 847 and $ 44 and $ 915 and $ 100 , respectively . ceded loss and loss expense reserves are included in reinsurance recoverable on paid and unpaid losses . ( 2 ) loss and loss expense reserves at december 31 , 2015 of $ 2,859 are included in the balance sheet in the following line items : loss and loss expense reserves : $ 4,088 and subrogation recoverable : $ 1,229 . loss and loss expense reserves at december 31 , 2014 of $ 3,799 are included in the balance sheet in the following line items : loss and loss expense reserves : $ 4,752 and subrogation recoverable : $ 953 . ( 3 ) included in gross loss and loss expense reserves are unpaid claims of $ 3,459 and $ 3,274 at december 31 , 2015 and 2014 , respectively , related to policies allocated to the segregated account , inclusive of accrued interest payable on deferred amounts of $ 491 and $ 329 , respectively . see note 2. basis of presentation and significant accounting policies for a description of the cash flow and statistical methodologies used to develop loss reserves . most of our reserved credits with large loss reserves utilize the cash flow method of reserving . alternative cash flow scenarios are developed to represent the range of possible outcomes and resultant future claims payments and timing . both scenarios and probabilities are adjusted regularly to reflect changes in status , outlook and our analysis and views . significant judgment is used to develop the cash flow assumptions , and there can be no certainty that the modeled scenarios or probabilities will not deviate materially from either the ultimate outcomes or any developments in advance of such outcomes . in some cases , such as the rmbs and pooled student loans , which are described more fully below , cash flow projections include the modeling of an issuer or transaction 's future revenues and expenses to determine the resources available to pay debt service on our insured obligations . in other cases , such as many public finance exposures including our puerto rico exposures , we do not specifically forecast resources available to pay debt service in the cash flow model itself . rather , we consider the issuers ' overall ability and willingness to pay , including the fiscal , economic , legal and political framework . we then develop multiple scenarios where issuer debt service is paid , missed and or haircut with claims paid then modeled for any recovery amount and timing . in our experience , this has been an effective approach to loss reserving these types of credits , but there is no certainty our assumptions as to scenarios or probabilities will not be subject to material changes as developments occur or that this method will be as effective in the future as it has been in the past . rmbs expected future losses ambac insures rmbs transactions collateralized by first-lien mortgages . ambac classifies its insured first-lien rmbs exposure principally into two broad credit risk classes : mid-prime ( including alt-a , interest only , and negative amortization ) and sub-prime . mid-prime loans were typically made to borrowers who had credit profiles stronger than sub-prime loans , but weaker than prime loans . compared with mid-prime loans , sub-prime loans typically had higher loan-to-value ratios , reflecting the greater difficulty that sub- prime borrowers have in making down payments and the propensity of these borrowers to extract equity during refinancing . ambac has also insured rmbs transactions collateralized predominantly by second-lien mortgage loans such as closed-end seconds and home equity lines of credit . a second-lien mortgage loan is a type of loan in which the borrower uses the equity in their home as collateral and the second-lien loan is subordinate to the first-lien loan outstanding on the home . borrowers are obligated to make monthly payments on both their first and second-lien loans . if the borrower defaults on the payments due under these loans and the property is subsequently liquidated , the liquidation proceeds are first utilized to pay off the first-lien loan ( as well as other costs ) and any remaining funds are applied to pay off the second-lien loan . as a result of this subordinate position to the first-lien loan , second-lien loans carry a significantly higher severity in the event of a loss , approaching or exceeding 100 % . ambac primarily utilizes a statistically based cash flow model ( “ rmbs cash flow model ” ) to develop estimates of projected losses for both our first and second lien transactions . the rmbs cash flow model projects collateral performance utilizing : ( i ) the transaction 's underlying loans ' characteristics and status , ( ii ) projected home price appreciation ( “ hpa ” ) and ( iii ) projected interest rates . we source hpa projections from a market accepted vendor and interest rate projections are developed from market sources . we generally utilize waterfall projections from a market accepted vendor which models securitization deal structures . in some cases , we may utilize an alternative waterfall structure when our legal and commercial analysis of the transaction 's payment structure differs from the vendor 's waterfall structure . we compare monthly claims submitted against the trustees ' reports , third-party provided waterfall models and our understanding of the transactions ' structures to identify and resolve discrepancies . we also systematically review the vendor 's published waterfall revisions to further identify material discrepancies .
| replace_table_token_24_th the reduction in total net par outstanding was accelerated by several company-led initiatives , including the following notable transactions : $ 929 million ( us equivalent ) of net par exposure to eurotunnel ; $ 335 million ( us equivalent ) of net par to rome airport ; $ 208 million of net par exposure to distressed pooled aircraft lease securitizations ; $ 1,067 million of student loan net par exposure , including commutations of $ 182 million to south carolina student loan corp. and $ 643 million to national collegiate student loan trust ; and $ 241 million of net par exposure to the puerto rico highways and transportation authority . the reduction in below investment grade net par outstanding was primarily due to ( i ) ratings upgrades and commutations of student loan policies , ( ii ) reductions to residential mortgage-backed securities during the year as a result of both prepayments by issuers and claims presented to ambac assurance and ( iii ) upgrades of housing credits to investment grade . although our insured portfolio has performed satisfactorily over the course of 2015 , we have experienced stress within our $ 2.2 billion of exposures to puerto rico across several different issuing entities ( all below investment grade ) . each issuing entity has its own credit risk profile attributable to discreet revenue sources , direct general obligation pledges and general obligation guarantees . refer to part i , item 1 in this form 10-k for a further discussion of our exposures to the commonwealth of puerto rico . ambac : as of december 31 , 2015 the total cash and investments of ambac was $ 261.4 million , which include the following : liquid investments in asset backed and short-term securities of $ 147.6 million investments in ambac-insured securities with a fair value of $ 76.3 million investments in ambac assurance surplus notes with a fair value of $ 12.2 million , which is eliminated in consolidation residual interest in a vie trust that was created in 2014 to monetize ambac 's ownership interest in junior surplus notes issued by the segregated account . ambac 's carrying value of this investment was $ 25.3 million at december 31 , 2015. refer to note 1. background and business description
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” we paid $ 1.49 billion for these assets , which included $ 935 million for inventory . pursuant to the purchase and sale agreement , we may also be required to pay bp a contingent earnout of up to an additional $ 700 million over six years , subject to certain conditions . in july 2014 , we paid bp $ 180 million for the first period 's contingent earnout . these assets are part of our refining & marketing and pipeline transportation segments . our financial results and operating statistics for the periods prior to the acquisition do not include amounts for the galveston bay refinery and related assets . see item 8. financial statements and supplementary data – note 5 for additional information on these acquisitions and investments . see item 8. financial statements and supplementary data – note 26 for information regarding our future contributions to the sax pipeline project and the sandpiper pipeline project . share repurchases on july 30 , 2014 , our board of directors approved an additional $ 2.0 billion share repurchase authorization expiring in july 2016 . as of december 31 , 2014 , our board of directors had approved $ 8.0 billion in total share repurchase authorizations since january 1 , 2012 and we have repurchased a total of $ 6.27 billion of our common stock under these authorizations , leaving $ 1.73 billion available for repurchases . under these authorizations , we have acquired 89 million shares at an average cost per share of $ 70.35 . liquidity as of december 31 , 2014 , we had cash and cash equivalents of $ 1.49 billion and no borrowings or letters of credit outstanding under our $ 2.5 billion revolving credit agreement or $ 1.3 billion trade receivables securitization facility . as of january 31 , 2015 , eligible trade receivables supported borrowings of $ 700 million . mplx had $ 385 million of borrowings outstanding under its $ 1 billion revolving credit agreement as of december 31 , 2014 . the above discussion contains forward-looking statements with respect to the estimated construction costs , timing and completion of the sandpiper and sax pipeline projects and the share repurchase authorizations . factors that could affect the estimated construction costs , timing and completion of the sandpiper and sax pipeline projects , include , but are not limited to , availability of materials and labor , unforeseen hazards such as weather conditions , delays in obtaining or conditions imposed by necessary government and third-party approvals and other risks customarily associated with construction projects . factors that could affect the share repurchase authorizations and the timing of any repurchases include , but are not limited to , business conditions , availability of liquidity and the market price of our common stock . these factors , among others , could cause actual results to differ materially from those set forth in the forward-looking statements . overview of segments refining & marketing refining & marketing segment income from operations depends largely on our refining & marketing gross margin and refinery throughputs . our refining & marketing gross margin is the difference between the prices of refined products sold and the costs of crude oil and other charge and blendstocks refined , including the costs to transport these inputs to our refineries and the costs of products purchased for resale . the crack spread is a measure of the difference between market prices for refined products and crude oil , commonly used by the industry as a proxy for the refining margin . crack spreads can fluctuate significantly , particularly when prices of refined products do not move in the same relationship as the cost of crude oil . as a performance benchmark and a comparison with other industry participants , we calculate midwest ( chicago ) and usgc crack spreads that we believe most closely track our operations and slate of products . lls prices and a 6-3-2-1 ratio of products ( 6 barrels of lls crude oil producing 3 barrels of unleaded regular gasoline , 2 barrels of ultra-low sulfur diesel and 1 barrel of three percent residual fuel oil ) are used for these crack-spread calculations . 45 refined product prices have historically moved relative to international crude oil prices like brent crude . in recent years , domestic u.s. crude oils , such as wti and lls , traded at prices less than brent due to the growth in u.s. crude oil production , logistical constraints and other market factors . these price discounts compared to brent favorably impacted the lls 6-3-2-1 crack spread . during 2011 and continuing through the first half of 2013 , wti traded at prices significantly less than brent and lls , which favorably impacted our refining & marketing gross margin . the differential between wti and lls significantly narrowed during the second half of 2013 with a further narrowing broadly continuing through 2014. in addition , the differential between lls and brent narrowed significantly during the second half of 2014. the spread between domestic crude oils and brent could remain narrow if there is a change in existing u.s. energy policy regarding crude oil exports , or if low crude oil prices reduce u.s. crude oil production growth substantially . if either were to occur , it could reduce our refining & marketing gross margin . our refineries can process significant amounts of sour crude oil , which typically can be purchased at a discount to sweet crude oil . the amount of this discount , the sweet/sour differential , can vary significantly , causing our refining & marketing gross margin to differ from crack spreads based on sweet crude oil . in general , a larger sweet/sour differential will enhance our refining & marketing gross margin . future crude oil differentials will be dependent on a variety of market and economic factors , as well as u.s. energy policy . the following table provides sensitivities showing an estimated change in annual net income due to potential changes in market conditions . story_separator_special_tag replace_table_token_22_th ( a ) weighted 38 percent chicago and 62 percent usgc lls 6-3-2-1 crack spreads and assumes all other differentials and pricing relationships remain unchanged . ( b ) lls ( prompt ) – [ delivered cost of sour crude oil : arab light , kuwait , maya , western canadian select and mars ] . ( c ) assumes 20 percent of crude oil throughput volumes are wti-based domestic crude oil . in addition to the market changes indicated by the crack spreads , the sweet/sour differential and the discount of wti to lls , our refining & marketing gross margin is impacted by factors such as : the types of crude oil and other charge and blendstocks processed ; our refinery yields ; the selling prices realized for refined products ; the impact of commodity derivative instruments used to hedge price risk ; the cost of products purchased for resale ; and the potential impact of lower of cost or market adjustments to inventories in periods of declining prices . inventories are stated at the lower of cost or market . the cost of our crude oil and refined product inventories is determined under the last in , first out ( “ lifo ” ) method . during periods of rapidly declining prices , the lifo cost basis of our crude oil and refined product inventories may have to be written down to market value . despite a significant drop in refined product prices in 2014 , we determined that the lifo cost basis of our crude oil and refined product inventories was recoverable as of december 31 , 2014 . if prices decrease further in 2015 , we may be required to recognize a lower of cost or market adjustment to these inventories , which totaled approximately 96 million barrels as of december 31 , 2014 . refining & marketing segment income from operations is also affected by changes in refinery direct operating costs , which include turnaround and major maintenance , depreciation and amortization and other manufacturing expenses . changes in manufacturing costs are primarily driven by the cost of energy used by our refineries , including purchased natural gas , and the level of maintenance costs . planned major maintenance activities , or turnarounds , requiring temporary shutdown of certain refinery operating units , are periodically performed at each refinery . the following table lists the refineries that had significant planned turnaround and major maintenance activities for each of the last three years . year refinery 2014 catlettsburg , galveston bay , garyville and robinson 2013 canton , catlettsburg , galveston bay , garyville and robinson 2012 catlettsburg , detroit , garyville and robinson 46 the table below sets forth the location and daily crude oil refining capacity of each of our refineries at december 31 of each year . replace_table_token_23_th ( a ) we acquired the galveston bay refinery on february 1 , 2013. speedway our retail marketing gross margin for gasoline and distillate , which is the price paid by consumers less the cost of refined products , including transportation , consumer excise taxes and bankcard processing fees , impacts the speedway segment profitability . numerous factors impact gasoline and distillate demand throughout the year , including local competition , seasonal demand fluctuations , the available wholesale supply , the level of economic activity in our marketing areas and weather conditions . gasoline demand in padd 2 is estimated to have grown by about half a percent in 2014 after climbing by 1.4 percent in 2013. meanwhile , gasoline demand in padd 1 is estimated to have grown by 1.5 percent in 2014 after a 1.5 percent decline in 2013 , reversing a three-year trend of declines and returning to 2012 levels . strong economic growth in the last three quarters of 2014 and strongly falling prices throughout the second half supported gasoline demand . distillate demand was supported by severe winter temperatures in early 2014 and a very strong harvest season . padd 2 distillate demand is estimated to have grown by 3.7 percent in 2014 after climbing by 1.6 percent in 2013. padd 1 estimated distillate demand grew over five percent after climbing by 8.8 percent in 2013. market demand increases for gasoline and distillate generally increase the product margin we can realize . the gross margin on merchandise sold at convenience stores historically has been less volatile and has contributed substantially to speedway 's gross margin . more than half of speedway 's gross margin was derived from merchandise sales in 2014 . speedway 's convenience stores offer a wide variety of merchandise , including prepared foods , beverages and non-food items . pipeline transportation the profitability of our pipeline transportation operations primarily depends on tariff rates and the volumes shipped through the pipelines . a majority of the crude oil and refined product shipments on our common carrier pipelines serve our refining & marketing segment . in 2012 , new transportation services agreements were entered into between mpc and mplx , which resulted in higher tariff rates . the volume of crude oil that we transport is directly affected by the supply of , and refiner demand for , crude oil in the markets served directly by our crude oil pipelines . key factors in this supply and demand balance are the production levels of crude oil by producers in various regions or fields , the availability and cost of alternative modes of transportation , the volumes of crude oil processed at refineries and refinery and transportation system maintenance levels . the volume of refined products that we transport is directly affected by the production levels of , and user demand for , refined products in the markets served by our refined product pipelines . in most of our markets , demand for gasoline and distillate peaks during the summer driving season , which extends from may through september of each year , and declines during the fall and winter months .
| mplx 's initial assets consisted of a 51 percent general partner interest in pipe line holdings , which owns a network of common carrier crude oil and product pipeline systems and associated storage assets in the midwest and gulf coast regions of the united states , and a 100 percent interest in a butane storage cavern in west virginia . we originally retained a 49 percent limited partner interest in pipe line holdings . on may 1 , 2013 , we sold a five percent interest in pipe line holdings to mplx for $ 100 million , which was financed by mplx with cash on hand . on march 1 , 2014 , we sold mplx a 13 percent interest in pipe line holdings for $ 310 million . mplx financed this transaction with $ 40 million of cash on-hand and $ 270 million of borrowings on its bank revolving credit agreement . on october 30 , 2014 , we announced plans to substantially accelerate the growth of mplx , which is expected to provide unitholders an average annual distribution growth rate percentage in the mid-20s over the next five years as we build meaningful scale more quickly . we believe this increased scale provides mplx greater flexibility to fund organic projects and to pursue acquisition opportunities . on december 1 , 2014 , we sold and contributed interests in pipe line holdings totaling 30.5 percent to mplx for $ 600 million in cash and 2.9 million mplx common units valued at $ 200 million . mplx financed the sales portion of this transaction with $ 600 million of borrowings on its bank revolving credit facility . the sales and contribution of our interests in pipe line holdings to mplx resulted in a change of our ownership in pipe line holdings , but not a change in control . we accounted for these sales as transactions between entities under common control and did not record a gain or loss . 43 on december 8 , 2014 , mplx completed a
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during fiscal 2018 , the company recorded an $ 11.1 million discrete income tax benefit for the re-measurement of deferred tax assets and liabilities due to the change in the federal corporate income tax rate on which the deferred taxes are based . the discrete income tax benefit drove a 12.0 % effective income tax rate for the year ended september 30 , 2018. excluding the $ 11.1 million benefit recorded to income tax expense , the company 's combined federal , state , and local effective income tax rate was 29.6 % for the year ended september 30 , 2018 as compared to 29.9 % for the year ended september 30 , 2019. book versus tax deductions the amount of cash flow generated in any given year depends upon a variety of factors including the amount of cash income taxes required , which will increase as depreciation and amortization decreases . the amount of depreciation and amortization that we deduct for book ( i.e. , financial reporting ) purposes will differ from the amount that the company can deduct for federal tax purposes . the table below compares the estimated depreciation and amortization for book purposes to the amount that we expect to deduct for federal tax purposes , based on currently owned assets . while we file our tax returns based on a calendar year , the amounts below are based on our 31 september 30 fiscal year , and the tax amounts include any 100 % bonus depreciation available for fixed asset purchases . however , this table does not include any forecast of future annual capital purchases . estimated depreciation and amortization expense replace_table_token_10_th weather hedge contracts weather conditions have a significant impact on the demand for home heating oil and propane because certain customers depend on these products principally for space heating purposes . actual weather conditions may vary substantially from year to year , significantly affecting the company 's financial performance . to partially mitigate the adverse effect of warm weather on cash flow , we have used weather hedging contracts for a number of years with several providers . under these contracts , we are entitled to a payment if the total number of degree days within the hedge period is less than the ten year average . the “ payment thresholds , ” or strikes , are set at various levels . conversely , we are obligated to make a payment capped at $ 5.0 million if degree days exceed the ten year average . the hedge period runs from november 1 through march 31 , taken as a whole , for each respective fiscal year . for fiscal 2019 and 2018 , we recorded a charge of $ 2.1 million and $ 1.9 million , respectively , for amounts paid under our weather hedge contracts , reflecting colder weather than the ten year average . for fiscal 2020 and 2021 , the maximum that the company can receive annually is $ 12.5 million and the maximum that it would be obligated to pay annually is $ 5.0 million . per gallon gross profit margins we believe home heating oil and propane margins should be evaluated on a cents per gallon basis ( before the effects of increases or decreases in the fair value of derivative instruments ) , as we believe that such per gallon margins are best at showing profit trends in the underlying business , without the impact of non-cash changes in the market value of hedges before the settlement of the underlying transaction . a significant portion of our home heating oil volume is sold to individual customers under an arrangement pre-establishing a ceiling price or fixed price for home heating oil over a set period of time , generally twelve to twenty-four months ( “ price-protected ” customers ) . when these price-protected customers agree to purchase home heating oil from us for the next heating season , we purchase option contracts , swaps and futures contracts for a substantial majority of the heating oil that we expect to sell to these customers . the amount of home heating oil volume that we hedge per price-protected customer is based upon the estimated fuel consumption per average customer per month . in the event that the actual usage exceeds the amount of the hedged volume on a monthly basis , we may be required to obtain additional volume at unfavorable costs . in addition , should actual usage in any month be less than the hedged volume , our hedging costs and losses could be greater , thus reducing expected margins . derivatives fasb asc 815-10-05 derivatives and hedging requires that derivative instruments be recorded at fair value and included in the consolidated balance sheet as assets or liabilities . to the extent our interest rate derivative instruments designated as cash flow hedges are effective , as defined under this guidance , changes in fair value are recognized in other comprehensive income until the forecasted hedged item is recognized in earnings . we have elected not to designate our commodity derivative instruments as hedging instruments under this guidance and , as a result , the changes in fair value of the derivative instruments are recognized in our statement of operations . 32 therefore , we experience volatility in earnings as outstanding derivative instruments are marked to market and non-cash gains and lo sses are recorded prior to the sale of the commodity to the customer . the volatility in any given period related to unrealized non-cash gains or losses on derivative instruments can be significant to our overall results . however , we ultimately expect those gains and losses to be offset by the cost of product when purchased . revenue recognition effective october 1 , 2018 , we adopted the requirements of accounting standards update ( asu ) 2014-09 , revenue from contracts with customers ( topic 606 ) ( “ asu no . 2014-09 ” ) . story_separator_special_tag in accordance with the new revenue standard requirements , our consolidated statement of operations and the consolidated balance sheets were impacted due to ( a ) a portion of our sales being accounted for as service revenue that was previously accounted for as product revenue ; ( b ) a decrease in revenue as a result of the deferment of certain customer credits that were previously accounted for as delivery and branch expenses and expensed as incurred ; and ( c ) a decrease in delivery and branch expenses for the deferment of commissions provided to company employees that were previously expensed as incurred . refer to note 3 ( revenue recognition to the consolidated financial statements ) for the impact of the adoption of the revenue recognition accounting standard on our consolidated statement of operations and our consolidated balance sheets , as of and for the twelve months ended september 30 , 2019. customer attrition we measure net customer attrition on an ongoing basis for our full service residential and commercial home heating oil and propane customers . net customer attrition is the difference between gross customer losses and customers added through marketing efforts . customers added through acquisitions are not included in the calculation of gross customer gains . however , additional customers that are obtained through marketing efforts or lost at newly acquired businesses are included in these calculations . customer attrition percentage calculations include customers added through acquisitions in the denominators of the calculations on a weighted average basis . gross customer losses are the result of a number of factors , including price competition , move-outs , credit losses , conversions to natural gas and service disruptions . when a customer moves out of an existing home , we count the “ move out ” as a loss , and if we are successful in signing up the new homeowner , the “ move in ” is treated as a gain . customer gains and losses of home heating oil and propane customers replace_table_token_11_th replace_table_token_12_th 33 for fiscal 2019 , the company lost 25,100 accounts ( net ) , or 5.4 % , of its home heating oil and propane customer base , compared to 14,600 accounts lost ( net ) , or 3.2 % , of its home heating oil and propane customer base , during fiscal 2018. gross customer gains were 700 less than the prior year 's comparable period , and gross customer lo sses were 9,800 accounts higher . gross customer losses exceeded the prior year primarily due to the company 's decision not to renew certain low margin accounts , along with increased losses due to credit and the price of home heating oil and propane . for fiscal 2018 , the company lost 14,600 accounts ( net ) , or 3.2 % , of our home heating oil and propane customer base , compared to 6,800 accounts lost ( net ) , or 1.5 % , of our home heating oil and propane customer base , during the twelve months ended september 30 , 2017. our net customer attrition was worse by 7,800 accounts . while our gross customer gains were 1,900 accounts higher than the prior year 's comparable period , our gross customer losses were 9,700 accounts higher . gross customer losses exceeded the prior year primarily due to the price of home heating oil and propane , credit issues , and service disruptions . during fiscal 2019 , we estimate that we lost ( 1.4 % ) of our home heating oil and propane accounts to natural gas conversions versus ( 1.3 % ) for fiscal 2018 and ( 1.2 % ) for fiscal 2017. losses to natural gas in our footprint for the heating oil and propane industry could be greater or less than the company 's estimates . conversions to natural gas may continue as it remains less expensive than home heating oil on an equivalent btu basis . acquisitions the timing of acquisitions and the type of products sold by the acquired companies will impact year-over-year comparisons . during fiscal 2019 , the company acquired a liquid product dealer and the assets of a propane dealer and , in january 2019 , purchased one of its subcontractors . the subcontractor acquisition had revenue of approximately $ 11 million during the 12 month period prior to date of acquisition , and star accounted for approximately 60 % of its revenue ( any such revenue will be eliminated in consolidation , but the company will benefit from lower costs related to such revenue ) . during fiscal 2018 the company completed six acquisitions . the following tables detail the company 's acquisition activity and the volumes sold by each acquired company during the 12-month period prior to the date of acquisition . replace_table_token_13_th ( a ) the business acquired in january did not sell any petroleum products . replace_table_token_14_th 34 seasonality the following matters should be considered in analyzing our financial results . the company 's fiscal year ends on september 30. all references to quarters and years , respectively , in this document are to the fiscal quarters and fiscal years unless otherwise noted . the seasonal nature of our business has resulted , on average , during the last five years , in the sale of approximately 30 % of the volume of home heating oil and propane in the first fiscal quarter and 50 % of the volume in the second fiscal quarter , the peak heating season . approximately 25 % of the volume of motor fuel and other petroleum products is sold in each of the four fiscal quarters . we generally realize net income during the quarters ending december and march and net losses during the quarters ending june and september . in addition , sales volume typically fluctuates from year to year in response to variations in weather , wholesale energy prices and other factors . degree day a “ degree day ” is an industry measurement of temperature designed to evaluate energy demand and consumption .
| product sales for fiscal 2019 , product sales increased $ 61.7 million , or 4.4 % , to $ 1.5 billion , compared to $ 1.4 billion in fiscal 2018 , due to an increase in the volume of motor fuel and other petroleum products sold and , to a lesser extent , the impact of higher selling prices of heating oil and propane , albeit at a lower volume . the adoption of asu no . 2014-09 lowered home heating oil and propane product sales by $ 11.4 million and reduced home heating oil and propane average selling prices by $ 0.0331 per gallon due to ( a ) the new accounting for certain upfront credits given to customers , which reduced revenue by $ 4.4 million ; and ( b ) the accounting for a portion of sales that are now accounted for as service revenue ( $ 7.0 million ) . installations and services sales for fiscal 2019 , installation and service sales increased $ 14.3 million , or 5.3 % , to $ 287.8 million , compared to $ 273.5 million for fiscal 2018 , as increases relating to acquisitions ( $ 10.9 million ) , and the adoption of asu no . 2014-09 ( $ 6.6 million ) , and a small increase in the base business ( $ 0.3 million ) were partially offset by a $ 3.5 million reduction in revenue due to the sale of the company 's security business in september 2018. cost of product for fiscal 2019 , cost of product increased $ 40.7 million , or 4.3 % , to $ 998.6 million , compared to $ 957.9 million for fiscal 2018 , due to an increase in total volume of 3.5 % and a $ 0.0141 per gallon , or 0.7 % , increase in wholesale product cost . gross profit—product the table below calculates our per gallon margins and reconciles product gross profit for home heating oil and propane and motor fuel and other petroleum products . we believe the change in home heating oil and propane margins
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management monitors the carrying value of inventories using inventory control and review processes that include , but are not limited to , sales forecast review , inventory status reports , and inventory reduction programs . we record inventory write downs to market based on expected usage information for raw materials and historical selling trends for finished goods . if the assumptions made by management do not occur , we may need to record additional write downs . revenue recognition revenue is recognized when risk of ownership and title pass to the buyer , generally upon the shipment of the product . all sales are made to authorized dealers whose application for dealer status has been approved and who have been informed of general sales policies . any changes in company terms are documented in the most recently published price lists . pricing is fixed and determinable according to the company 's published equipment and parts price lists . title to all equipment and parts sold shall pass to the buyer upon delivery to the carrier and is not subject to a customer acceptance provision . proof of the passing of title is documented by the signing of the delivery receipt by a representative of the carrier . post shipment obligations are limited to any claim with respect to the condition of the equipment or parts . a provision for warranty expenses , based on sales volume , is included in the financial statements . our returns policy allows for new and saleable parts to be returned , subject to inspection and a restocking charge which is included in net sales . whole goods are not returnable . shipping costs charged to customers are included in net sales . freight costs incurred are included in cost of goods sold . in certain circumstances , upon the customer 's written request , we may recognize revenue when production is complete and the good is ready for shipment . at the buyer 's request , we will bill the buyer upon completing all performance obligations , but before shipment . the buyer dictates that we ship the goods per their direction from our manufacturing facility , as is customary with this type of agreement , in order to minimize shipping costs . the written agreement with the customer specifies that the goods will be delivered on a schedule to be determined by the customer , with a final specified delivery date , and that we will segregate the goods from our inventory , such that they are not available to fill other orders . this agreement also specifies that the buyer is required to purchase all goods manufactured under this agreement . title of the goods will pass to the buyer when the goods are complete and ready for shipment , per the customer agreement . at the transfer of title , all risks of ownership have passed to the buyer , and the buyer agrees to maintain insurance on the manufactured items that have not yet been shipped . we have operated using bill and hold agreements with certain customers for many years , with consistent satisfactory results for both buyer and seller . the credit terms on this agreement are consistent with the credit terms on all other sales . all risks of loss are shouldered by the buyer , and there are no exceptions to the buyer 's commitment to accept and pay for these manufactured goods . revenues recognized at the completion of production in 2014 and 2013 were approximately $ 628,000 and $ 788,000 , respectively . 13 our modular buildings segment is in the construction industry , and , as such , accounts for long-term contracts on the percentage-of-completion method . revenue and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion . contract losses are recognized when current estimates of total contract revenue and contract cost indicate a loss . estimated contract costs include any and all costs appropriately allocable to the contract . the provision for these contract losses will be the excess of estimated contract costs over estimated contract revenues . costs and profit in excess of amounts billed are classified as current assets and billings in excess of cost and profit are classified as current liabilities . story_separator_special_tag sales revenues and operations . similar to other farm equipment manufacturers , we are affected by items unique to the farm industry , including fluctuations in farm income resulting from the change in commodity prices , crop damage caused by weather and insects , government farm programs , interest rate fluctuations , and other unpredictable variables . other uncertainties include our oem customers and the decisions they make regarding their current supply chain structure , inventory levels , and overall business conditions . management believes that our business is dependent on the farming industry for the bulk of our sales revenues . as such , our business tends to reap the benefits of increases in farm net income , as farmers tend to purchase equipment in lucrative times and forgo purchases in less profitable years . direct government payments are declining and costs of agricultural production are increasing ; therefore , we anticipate that further increases in the value of production will benefit our business , while any future decreases in the value of production will decrease farm net income and may harm our financial results . as with other farm equipment manufacturers , we depend on our network of dealers to influence customers ' decisions , and dealer influence is often more persuasive than a manufacturer 's reputation or the price of the product . seasonality sales of our agricultural products are seasonal ; however , we have tried to decrease this impact of seasonality through the development of beet harvesting machinery coupled with private labeled products , as the peak periods for these different products occur at different times . story_separator_special_tag management monitors the carrying value of inventories using inventory control and review processes that include , but are not limited to , sales forecast review , inventory status reports , and inventory reduction programs . we record inventory write downs to market based on expected usage information for raw materials and historical selling trends for finished goods . if the assumptions made by management do not occur , we may need to record additional write downs . revenue recognition revenue is recognized when risk of ownership and title pass to the buyer , generally upon the shipment of the product . all sales are made to authorized dealers whose application for dealer status has been approved and who have been informed of general sales policies . any changes in company terms are documented in the most recently published price lists . pricing is fixed and determinable according to the company 's published equipment and parts price lists . title to all equipment and parts sold shall pass to the buyer upon delivery to the carrier and is not subject to a customer acceptance provision . proof of the passing of title is documented by the signing of the delivery receipt by a representative of the carrier . post shipment obligations are limited to any claim with respect to the condition of the equipment or parts . a provision for warranty expenses , based on sales volume , is included in the financial statements . our returns policy allows for new and saleable parts to be returned , subject to inspection and a restocking charge which is included in net sales . whole goods are not returnable . shipping costs charged to customers are included in net sales . freight costs incurred are included in cost of goods sold . in certain circumstances , upon the customer 's written request , we may recognize revenue when production is complete and the good is ready for shipment . at the buyer 's request , we will bill the buyer upon completing all performance obligations , but before shipment . the buyer dictates that we ship the goods per their direction from our manufacturing facility , as is customary with this type of agreement , in order to minimize shipping costs . the written agreement with the customer specifies that the goods will be delivered on a schedule to be determined by the customer , with a final specified delivery date , and that we will segregate the goods from our inventory , such that they are not available to fill other orders . this agreement also specifies that the buyer is required to purchase all goods manufactured under this agreement . title of the goods will pass to the buyer when the goods are complete and ready for shipment , per the customer agreement . at the transfer of title , all risks of ownership have passed to the buyer , and the buyer agrees to maintain insurance on the manufactured items that have not yet been shipped . we have operated using bill and hold agreements with certain customers for many years , with consistent satisfactory results for both buyer and seller . the credit terms on this agreement are consistent with the credit terms on all other sales . all risks of loss are shouldered by the buyer , and there are no exceptions to the buyer 's commitment to accept and pay for these manufactured goods . revenues recognized at the completion of production in 2014 and 2013 were approximately $ 628,000 and $ 788,000 , respectively . 13 our modular buildings segment is in the construction industry , and , as such , accounts for long-term contracts on the percentage-of-completion method . revenue and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion . contract losses are recognized when current estimates of total contract revenue and contract cost indicate a loss . estimated contract costs include any and all costs appropriately allocable to the contract . the provision for these contract losses will be the excess of estimated contract costs over estimated contract revenues . costs and profit in excess of amounts billed are classified as current assets and billings in excess of cost and profit are classified as current liabilities . story_separator_special_tag sales revenues and operations . similar to other farm equipment manufacturers , we are affected by items unique to the farm industry , including fluctuations in farm income resulting from the change in commodity prices , crop damage caused by weather and insects , government farm programs , interest rate fluctuations , and other unpredictable variables . other uncertainties include our oem customers and the decisions they make regarding their current supply chain structure , inventory levels , and overall business conditions . management believes that our business is dependent on the farming industry for the bulk of our sales revenues . as such , our business tends to reap the benefits of increases in farm net income , as farmers tend to purchase equipment in lucrative times and forgo purchases in less profitable years . direct government payments are declining and costs of agricultural production are increasing ; therefore , we anticipate that further increases in the value of production will benefit our business , while any future decreases in the value of production will decrease farm net income and may harm our financial results . as with other farm equipment manufacturers , we depend on our network of dealers to influence customers ' decisions , and dealer influence is often more persuasive than a manufacturer 's reputation or the price of the product . seasonality sales of our agricultural products are seasonal ; however , we have tried to decrease this impact of seasonality through the development of beet harvesting machinery coupled with private labeled products , as the peak periods for these different products occur at different times .
| this decrease is primarily a result of the gain on sale of assets recognized in fiscal 2013 and lower net sales by our agricultural products , modular buildings , and pressurized vessels segments , offset by net sales by our tools segment and a decrease in certain operating expenses as compared to 2013. our effective tax rate for the years ending november 30 , 2014 and 2013 was 28.2 % and 29.7 % , respectively . agricultural products . our agricultural products segment 's sales revenue for the fiscal year ended november 30 , 2014 was $ 27,952,000 , compared to $ 28,199,000 during the same period of 2013 , a decrease of $ 247,000 , or 0.9 % . the decrease was due to decreased sales in our beet harvester and the product lines manufactured under uhc , but was somewhat offset by increased sales of our grinder mixer product line , and sales by agro trend and the associated product lines for the full 2014 fiscal year . gross profit for the fiscal year ended november 30 , 2014 was 25.6 % , compared to 23.1 % for the same period in 2013. this increase in margin was due to changes in product mix , reductions in inventory obsolescence , and gains made in managing labor inefficiencies . our agricultural products segment 's operating expenses for the fiscal year ended november 30 , 2014 were $ 5,051,000 , compared to $ 5,275,000 for the same period in 2013 , a decrease of $ 224,000 or 4.2 % . this segment 's operating expenses for the fiscal year ended november 30 , 2014 were 18.1 % of sales , compared to 18.7 % of sales for the same period in 2013. the decrease in operating expenses is largely due to decreased accruals for bonuses . total income from operations for our agricultural products segment during the fiscal year ended november 30 , 2014 was $ 2,099,000 , compared to $ 1,234,000 for the same period in 2013 , an increase of $ 865,000 or 70.1 % . pressurized vessels . our pressurized vessels segment 's net sales for the fiscal year ended november 30 , 2014 were $ 1,736,000 , compared to $ 2,137,000 for the same period in 2013 , a decrease of
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we saw a significant increase in demand across many of our categories in the year ended december 31 , 2020 , such as liquid hand soap , dish liquid , bar soap and cleaners , driven by consumer pantry-loading and increased consumption of our products . we believe that some of the increase in consumption in these categories is sustainable in light of changes in consumer behavior related to covid-19 . in other categories , such as oral care and pet food , consumer demand trends continued to normalize in the second half of the year ended december 31 , 2020. across our business , changes in consumer demand for our products vary by product category and geography depending on , among other things , the severity of the covid-19 outbreak and retailer availability . at the same time , during the year ended december 31 , 2020 , we experienced declines in certain channels , including professional sales and travel retail , due to the economic slowdown and restricted consumer movement in many geographies throughout the world . we also continue to see changes in the purchasing patterns of our consumers , including the nature and or frequency of visits by consumers to retailers and dental , veterinary and skin health professionals and a shift in many markets to purchasing our products online . in some instances during the year ended december 31 , 2020 , we were not able to keep up with the increased consumer demand for our products , and our products were at times out of stock on retailers ' shelves . in some cases , we have incurred additional costs as we worked to meet this increased demand . despite continuing to significantly ramp up production of in-demand products , we expect that some of our products may continue to be out of stock on retailers ' shelves for a period of time . covid-19 and government steps to reduce the spread and address the impact of covid-19 have impacted and may continue to impact our consumers ' ability to purchase and our ability to manufacture and distribute our products . while we believe that , in the long-term , consumer demand for the products in our categories will continue to be strong , uncertainties continue surrounding the timing and extent of the pandemic and the recovery from it . these uncertainties include : the impact of the timing and scale of changes to travel and movement restrictions in certain geographies , the availability and widespread distribution and use of safe and effective covid-19 vaccines and when communities will reach herd immunity , the timing and impact of consumer pantry-loading and destocking activity in certain markets , product demand trends and the impact of covid-19 on the global economy . our retail customers , contract manufacturers , logistics providers and other third parties are also being impacted by the global pandemic ; their success in addressing covid-19 and maintaining their operations could impact consumer access to and sales of our products . we expect the ongoing economic impact and health concerns associated with covid-19 to continue to impact consumer behavior , shopping patterns and consumption preferences despite the lifting of government restrictions and the reopening of economies around the world . 26 ( dollars in millions except per share amounts ) while we currently expect to be able to continue operating our business as described above and we intend to continue to work with government authorities and to follow the necessary protocols to maintain the health and safety of our employees and contract providers , uncertainty resulting from covid-19 could result in an unforeseen additional disruption to our business , including our global supply chain and retailer network , and or require us to incur additional operational costs . for more information about the anticipated covid-19 impact , see “ outlook ” below . business strategy to achieve our business and financial objectives , we are focused on innovating our core businesses ; improving our brand building activities with an elevated brand purpose model and the use of equity advertising ; innovating to gain market share in high growth segments and adjacencies ; expanding into new channels and markets ; maximizing growth online ; and investing to drive consumption in growing populations . we continue to develop initiatives to build strong relationships with consumers , dental , veterinary and skin health professionals and traditional and ecommerce retailers . in addition , we continue to invest behind our brands , not just in terms of advertising , but also to build key growth capabilities in areas such as innovation and data and analytics . we also continue to broaden our ecommerce offerings , including direct-to-consumer and subscription services . we continue to believe that growth opportunities are greater in those areas of the world in which economic development and rising consumer incomes expand the size and number of markets for our products . we are also working to integrate our sustainability and social impact and diversity , equity and inclusion strategies across our organization . we are also changing the way we work to drive growth and how we approach innovation to respond to the dynamic retail landscape and the evolving preferences of our customers and consumers . the retail landscape , the ease of new entrants into the market in many of our categories and the evolving preferences of our customers and consumers demand that we work differently and faster in an agile , authentic and culturally relevant manner to drive innovation . the investments needed to drive growth are supported by strong cash flow performance and our disciplined capital allocation strategy . these investments are developed through continuous , company-wide initiatives to lower costs and increase effective asset utilization . through these initiatives , which are referred to as our funding-the-growth initiatives , we seek to become even more effective and efficient throughout our businesses . story_separator_special_tag these initiatives are designed to reduce costs associated with direct materials , indirect expenses , distribution and logistics and advertising and promotional materials , among other things , and encompass a wide range of projects , examples of which include raw material substitution , reduction of packaging materials , consolidating suppliers to leverage volumes and increasing manufacturing efficiency through sku reductions and formulation simplification . we also continue to prioritize our investments in high growth segments within our oral care , personal care and pet nutrition businesses , including by expanding our portfolio in premium skin health . significant items impacting comparability on january 31 , 2020 , we acquired hello products llc ( “ hello ” ) , an oral care business , for cash consideration of $ 351. the acquisition was financed with a combination of debt and cash . this acquisition is part of our strategy to focus on high growth segments within our oral care , personal care and pet nutrition businesses . see note 3 , acquisitions to the consolidated financial statements for additional information . the provision for income taxes for the year ended december 31 , 2020 includes $ 71 of income tax benefits , of which $ 45 relates to previously recorded foreign withholding taxes and $ 26 relates to a previously recorded valuation allowance against a deferred tax asset . as described more fully in “ results of operations-income taxes , ” below , both items were previously recorded in connection with the charge recorded in 2017 and revised in 2018 related to the tax cuts and jobs act ( the “ tcja ” ) . 27 ( dollars in millions except per share amounts ) our restructuring program , known as the “ global growth and efficiency program , ” concluded on december 31 , 2019. initiatives under the global growth and efficiency program fit within the program 's three focus areas of expanding commercial hubs , extending shared business services and streamlining global functions and optimizing the global supply chain and facilities . during the year ended december 31 , 2020 , we adjusted the accrual balances related to certain projects approved prior to the conclusion of the global growth and efficiency program to reflect our revised estimate of remaining liabilities , which resulted in a reduction of $ 16 ( $ 13 aftertax ) to restructuring accruals . no new restructuring projects were approved for implementation during the year ended december 31 , 2020. during the year ended december 31 , 2019 , we incurred costs of $ 132 ( $ 102 aftertax ) resulting from the global growth and efficiency program . for more information regarding the global growth and efficiency program , see “ restructuring and related implementation charges ” below and note 4 , restructuring and related implementation charges to the consolidated financial statements . in december 2019 , the swiss government enacted changes to its corporate tax regime , which included , among other items , the repeal of certain preferential tax regimes and an increase to the cantonal tax rate for future periods . additionally , the government provided transition rules which allowed companies to record goodwill for tax purposes , partially offsetting the impact on cash taxes of the higher cantonal rate over the next ten years . as a result of these changes , we recorded a net benefit of $ 29 to the provision for income taxes . in september 2019 , we acquired laboratoires filorga cosmétiques s.a. ( “ filorga ” ) , a skin health business , for cash consideration of 1,548 ( approximately $ 1,712 ) . in the third quarter of 2020 , we completed the purchase of the outstanding non-controlling interest of filorga 's joint venture based in hong kong and covering the hong kong and china markets for approximately 85 ( approximately $ 99 ) in cash . see note 3 , acquisitions to the consolidated financial statements for additional information . in 2019 , we received a favorable judgment regarding certain value-added tax previously paid in brazil . as a result of the favorable judgment , during the fourth quarter of 2019 , we filed an application with the brazilian government to recover value-added tax previously paid and recorded a benefit of $ 30 pretax ( $ 20 aftertax ) . the recovery will be utilized to offset corporate income tax payments in brazil in future periods . 28 ( dollars in millions except per share amounts ) outlook looking forward , we expect global macroeconomic , political and market conditions to remain challenging , especially due to covid-19 . during the covid-19 pandemic , we have seen improvement in category growth rates due to heightened demand for certain health and hygiene products , particularly liquid hand soap , dish liquid , bar soap and cleaners . we believe some of this increased consumption is sustainable due to consumer behavior changes resulting from covid-19 . however , we expect increased volatility across all of our categories and it is therefore difficult to predict category growth rates over the next six to twelve months . in the longer term , we expect category growth rates to remain below historical levels . while the global marketplace in which we operate has always been highly competitive , we continue to experience heightened competitive activity in certain markets from strong local competitors , from other large multinational companies , some of which have greater resources than we do , and from new entrants into the market in many of our categories . such activities have included more aggressive product claims and marketing challenges , as well as increased promotional spending and geographic expansion . we have seen increases in promotional activities in certain markets as retailers try aggressively to get consumers back into the stores after prolonged “ stay at home ” and other government restrictions ease , a trend we expect will continue .
| % for full year 2020 , down 0.7 share points from full year 2019 , and its share of the global manual toothbrush market was 31.1 % for full year 2020 , up 0.2 share points from full year 2019. full year 2020 market shares in toothpaste were up in north america and latin america , flat in europe and down in asia pacific and africa/eurasia versus full year 2019. in the manual toothbrush category , full year 2020 market shares were up in north america , latin america , europe and africa/eurasia and down in asia pacific versus full year 2019. for additional information regarding the company 's use of market share data and limitations of such data , see “ market share information ” below . net sales for hill 's pet nutrition were $ 2,883 in 2020 , an increase of 14.0 % from 2019 , driven by volume growth of 10.5 % and net selling price increases of 4.0 % , partially offset by negative foreign exchange of 0.5 % . organic sales for hill 's pet nutrition increased 14.5 % in 2020. the increase in organic sales in 2020 versus 2019 was primarily due to increases in organic sales in the science diet and prescription diet categories . 30 ( dollars in millions except per share amounts ) gross profit/margin worldwide gross profit increased 7 % to $ 10,017 in 2020 from $ 9,325 in 2019. gross profit in both periods included acquisition-related costs . gross profit in 2019 included charges resulting from the global growth and efficiency program . excluding these items in both periods , as applicable , gross profit increased to $ 10,021 in 2020 from $ 9,336 in 2019 , reflecting an increase of $ 472 resulting from higher net sales and an increase of $ 213 resulting from higher gross profit margin . worldwide gross profit margin increased to 60.8 % in 2020 from 59.4 % in 2019. excluding the items described above in both periods , as applicable ,
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in addition , we have introduced products in the latter half of 2013 that are intended to move our tools closer the production line . we believe sales to the semiconductor market will grow as this market continues to strengthen and demand for our latest products continues to develop . our industry group also includes , to a much lesser extent , sales to companies in the mining and oil and gas markets . in 2013 , revenue was flat compared with 2012 and orders were down significantly . mining companies sharply reduced their capital spending due to market conditions affecting their businesses and our wellsite-oriented products did not penetrate the oil and gas markets as we had anticipated . we are now focusing our efforts in the oil and gas markets toward reservoir characterization where we believe there are more significant opportunities . as part of this strategy , we recently acquired lithicon as , a provider of digital rock technology services and pore-scale micro computed tomography ( µct , or microct ) equipment to oil and gas companies worldwide . while we believe that this strategy will allow us to introduce new products and address new markets in 2014 , we do not expect it to materially impact our revenues until after 2014. within the science group , sales of our products for materials science research drive the largest portion of our revenues . growth in this area has come primarily from emerging countries , such as china , as these economies continue to invest in their research , development and education infrastructure . we expect continued growth to the extent that this trend continues in 2014 and from sales in the second half of 2014 of new products first introduced in 2013. sales to researchers in both cell and structural biology showed significant growth near the end of 2013 after two years of generally flat orders . the primary driver of this growth has been increased penetration of electron microscopy into structural biology applications and adoption of our products in correlative microscopy for cell biology . we expect these revenues to continue to grow as these markets , and our ability to address them and acquire new customers , grow . gross margin increased by 210 basis points from 2011 to 2012 and 70 basis points from 2012 to 2013. we are seeking continued gross margin improvement in 2014. in addition to increasing our proportion of newer , higher-margin products and application-specific products , we expect lower costs from continued sourcing improvements and initial production from our new leased facility in the czech republic , which is scheduled to open in the second half of 2014. we expect to incur approximately $ 4.0 million in restructuring costs in the second half of 2014 related to the relocation of this facility and related exit costs . operating expenses are expected to increase in 2014 primarily due to acquisitions , the increase in staff in sales and service personnel , increased spending for research and development , and higher stock-based compensation expense . our net income grew in 2013 principally as a result of the growth of our revenues , and to a lesser extent , improvement in our gross margins . continued growth in our net income , apart from the costs associated with acquisitions and the restructuring , will depend upon these trends continuing . please review the risk factors described in part i , item 1a of this annual report on form 10-k for the risk factors that could cause our results to vary from the outlook described above . 23 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > to fewer sales to research customers and a decline within the semiconductor industry as demand shifted to the asia-pacific region . 25 the $ 34.5 million , or 13.4 % , increase in sales to the u.s. and canada in 2012 compared to 2011 was primarily due to an increase in shipments to semiconductor customers , growth in sales to mining , oil and gas customers , an increase in maintenance and repair revenue on our installed base driven by continued organic growth , and the inclusion of revenue from acquired businesses . europe our european region also includes central america , south america , africa ( excluding south africa ) , the middle east and russia . the $ 25.9 million , or 10.6 % , increase in sales to europe in 2013 compared to 2012 was primarily due to increased sales of high-end , high-resolution systems to science group customers and full-year inclusion of revenue from acquired businesses . currency fluctuations increased sales to europe by $ 8.1 million , or 3.0 % , in 2013 compared to 2012 . the $ 16.6 million , or 6.3 % , decrease in sales to europe in 2012 compared to 2011 was primarily due to change in the mix of sales to the semiconductor industry as demand moved away from europe and shifted to customers in the asia-pacific region , as well as a decrease in the number of high-end , high-resolution systems sold for structural and cell biology research . currency fluctuations also decreased sales to europe by $ 19.0 million , or 7.8 % , in 2012 compared to 2011. asia-pacific region and rest of world the $ 40.9 million , or 11.5 % , increase in sales to the asia-pacific region and rest of world in 2013 compared to 2012 was primarily driven by increased sales to science group customers , increased maintenance and repair revenue due to a larger installed base and increased sales to semiconductor customers as the region continues to expand manufacturing capacity . currency fluctuations , specifically the weakening of the yen compared to the dollar , decreased sales to this region by $ 16.4 million , or 4.1 % , in 2013 compared to 2012 . story_separator_special_tag the $ 47.4 million , or 15.4 % , increase in sales to the asia-pacific region and rest of world in 2012 compared to 2011 was primarily driven by increased sales to semiconductor customers and increased spending by our science group customers , as well as increased maintenance and repair revenue from acquired businesses . despite the adverse impact of the weakening yen , overall currency fluctuations had an insignificant impact in 2012 compared to 2011. cost of sales and gross margin our gross margin ( gross profit as a percentage of net sales ) by segment was as follows : replace_table_token_9_th cost of sales includes manufacturing costs , such as materials , labor ( both direct and indirect ) and factory overhead , as well as all of the costs of our customer service function such as labor , materials , travel and overhead . the four primary drivers affecting gross margin include : product mix , operational efficiencies , competitive pricing pressure and currency movements . cost of sales increased $ 12.6 million , or 2.6 % , to $ 488.7 million in 2013 compared to $ 476.1 million in 2012 , primarily due to increased sales in our science group , offset somewhat by improved operating efficiencies in the manufacture of our high-end , high-resolution systems . currency fluctuations decreased cost of sales by $ 1.7 million in 2013 compared to 2012 . the net effect on our gross margin from currency fluctuations during 2013 compared to 2012 was a decrease of $ 6.0 million , or 0.3 percentage points . cost of sales increased $ 17.0 million , or 3.7 % , to $ 476.1 million in 2012 compared to $ 459.1 million in 2011 , primarily due to increased sales . currency fluctuations reduced cost of sales by $ 24.7 million in 2012 compared to 2011. the net effect on our gross margin from currency fluctuations during 2012 compared to 2011 was an increase of $ 6.1 million , or 1.6 percentage points . increasing gross margins is a major focus of the company . during 2013 we introduced the largest number of new products in a single year in the company 's history , all of which are designed to improve gross margins . while the impact on gross margins from new products introduced in 2013 was minor , we expect to yield improved margins over time as we ramp up volumes of the new products . in addition , we have an ongoing effort to reduce cost of goods sold which includes a number of initiatives such as better factory utilization , re-working of the supply chain , re-design of existing products and control of quality on parts costs which is reducing installation and warranty expense . 26 industry group the increase in industry group gross margin in 2013 compared to 2012 was due primarily to change in product mix as we sold more sample preparation solutions , which generally carry higher average margins , as well as an increase in margins on service and maintenance revenue . currency fluctuations decreased industry group gross margin in 2013 compared to 2012 by $ 2.8 million , or 0.2 percentage points . the increase in industry group gross margin in 2012 compared to 2011 was due primarily to an increased number of sample preparation and high-resolution systems sold which carried higher average margins . maintenance and repair revenue increased due to an expansion of the installed base , operational efficiencies , and the inclusion of sales from acquired businesses . currency fluctuations improved industry group gross margin in 2012 compared to 2011 by $ 4.0 million , or 1.4 percentage points . science group the increases in science group gross margin in 2013 compared to 2012 was primarily due to the inclusion of revenue from acquired businesses , increased sales of high-resolution systems which carried higher average margins , and increased maintenance and repair revenue . currency fluctuations decreased science group gross margin in 2013 compared to 2012 by $ 3.2 million , or 0.3 percentage points . the increase in science group gross margin in 2012 compared to 2011 was primarily due to materials cost savings realized in the manufacture of our high-resolution systems , and the inclusion of revenue from acquired business . we realized some operational cost savings as a result of manufacturing a higher percentage of products at our brno , czech republic facility . also contributing was increased maintenance and repair revenue due to a larger installed base , and increased margin on that revenue due to the more efficient use of resources . currency fluctuations increased science group gross margin in 2012 compared to 2011 by $ 3.0 million , or 2.0 percentage points . research and development costs research and development ( “ r & d ” ) costs include labor , materials , overhead and payments to third parties for research and development of new products and new software or enhancements to existing products and software and are expensed as incurred . we periodically receive funds from various organizations to subsidize our research and development . these funds are reported as an offset to research and development expense . during all periods we received subsidies from european governments for technological developments primarily for semiconductor and life sciences equipment . r & d costs , net of subsidies , were as follows ( in thousands ) : replace_table_token_10_th r & d costs increased in 2013 compared to 2012 primarily due to increased headcount and project spending focused on new product introductions and support of current growth opportunities . the full year inclusion of the r & d expense from our acquired businesses also contributed to the increase . the impact of currency fluctuations increased r & d costs by $ 1.5 million , or 1.5 % , in 2013 compared to 2012 .
| 24 net sales by segment net sales by market segment ( in thousands ) and as a percentage of net sales were as follows : replace_table_token_7_th industry group the $ 5.7 million , or 1.3 % , decrease in industry group sales in 2013 compared to 2012 was primarily due to fewer sales to semiconductor customers as a result of their capital purchasing cycles and reduced demand for our products from mining customers due to lower commodity prices , especially for gold , platinum and copper . currency fluctuations decreased industry group revenue by $ 4.1 million , or 1.0 % , and revenue from acquired businesses increased revenue by $ 3.1 million , or 0.7 % , as compared to the prior year . the $ 56.9 million , or 15.1 % , increase in industry group sales in 2012 compared to 2011 was primarily due to increased demand for certain products as the industry shifted to smaller semiconductor manufacturing process nodes . more generally , as our customers have migrated to higher resolution systems , we realized increased sales of products which have higher average selling prices as compared to our lower resolution products . additionally , we saw increased sales from continued penetration in the oil and gas and mining industries and the inclusion of sales from acquired businesses . currency fluctuations decreased industry group sales by $ 5.3 million , or 1.2 % , and revenue from acquired businesses increased revenue by $ 16.3 million , or 2.0 % , in 2012 as compared to 2011. science group the $ 41.4 million , or 9.0 % , increase in science group sales in 2013 compared to 2012 was primarily driven by increased revenue from high-end , high-resolution systems sold to research and science customers globally , the full year inclusion of revenue from acquired businesses , and increased maintenance and repair revenue realized from year-over-year increases to our installed base . we saw increased sales to emerging countries as they expanded their scientific infrastructure . in addition , sales of our high-end , high-resolution systems for structural and cell biology applications increased over 2012. currency fluctuations decreased science group sales by $ 4.1 million , or 0.9 % , and revenue from acquired businesses increased revenue by $ 12.1 million , or 2.6 % , as compared to the prior year . the $
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how we evaluate our business productivity of operations our soda ash production volume is primarily dependent on the following three factors : ( 1 ) operating rate , ( 2 ) quality of our mined trona ore and ( 3 ) recovery rates . operating rate is a measure of utilization of the effective production capacity of our facilities and is determined in large part by productivity rates and mechanical on-stream times , which is the percentage of actual run times over the total time scheduled . we implement two planned outages of our mining and surface operations each year , typically in the second and third quarters . during these outages , which last approximately one week , we repair and replace equipment and parts . periodically , we may experience minor unplanned outages caused by various factors , including equipment failures , power outages or service interruptions . the quality of our mine ore is determined by measuring the trona ore recovered as a percentage of the deposit , which includes both trona ore and insolubles . plant recovery rates are generally determined by calculating the soda ash produced divided by the sum of the soda ash produced plus soda ash that is not recovered from the process . all of these factors determine the amount of trona ore we require to produce one short ton of soda ash and liquor , which we refer to as our “ ore to ash ratio. ” our ore to ash ratio for the years ended december 31 , 2015 , 2014 and 2013 , was 1.52 : 1.0 , 1.52 : 1.0 and 1.59 : 1.0 , respectively . freight and logistics the soda ash industry is logistics intensive and involves careful management of freight and logistics costs . these freight costs make up a large portion of the total delivered cost to the customer . union pacific is our largest provider of domestic rail freight services and accounted for 83.9 % , 74.4 % and 80.6 % of our total freight costs for the years ended december 31 , 2015 , 2014 and 2013 , respectively . our agreement with union pacific generally requires that the freight rate we are charged be increased annually based on a published index tied to certain rail industry metrics . we generally pass on to our customers increases in our freight costs but we may be unsuccessful in doing so . sales net sales include the amounts we earn on sales of soda ash . we recognize revenue from our sales when there is persuasive evidence of an arrangement between us and the customer , products have been delivered to the customer , selling price is fixed , determinable or reasonably estimated and collection is reasonably assured . substantially all of our sales are derived from sales of soda ash , which we sell through our exclusive sales agent , ciner corp. a small amount of our sales is derived from sales of production purge , which is a by-product liquor solution containing soda ash that is produced during the processing of trona ore. for the purposes of our discussion below , we include these transactions in domestic sales of soda ash and in the volume of domestic soda ash sold . sales prices for sales through ansac include the cost of freight to the ports of embarkation for overseas export or to laredo , texas for sales to mexico . sales prices for other international sales may include the cost of rail freight to the port of embarkation , the cost of ocean freight to the port of disembarkation for import by the customer and the cost of inland freight required for delivery to the customer . cost of products sold expenses relating to employee compensation , energy , including natural gas and electricity , royalties and maintenance materials constitute the greatest components of cost of products sold . these costs generally increase in line with increases in sales volume . 52 energy . a major item in our cost of products sold is energy , comprised primarily of natural gas and electricity . we primarily use natural gas to fuel our above-ground processing operations , including the heating of calciners , and we use electricity to power our underground mining operations , including our continuous mining machines , or continuous miners , and shuttle cars . the monthly henry hub natural gas settlement prices , over the past five years , have ranged between $ 1.93 and $ 6.00 . the monthly henry hub natural gas settlement prices as of december 31 , 2015 and 2014 , were $ 1.93 and $ 3.48 per mmbtu , respectively . in order to mitigate the risk of gas price fluctuations , we hedge a portion of our forecasted natural gas purchases by entering into physical or financial gas hedges generally ranging between 20 % and 80 % of our expected monthly gas requirements , on a sliding scale , for approximately the next five years . see item 7a , “ quantitative and qualitative disclosures about market risk - commodity price risks , ” for additional information . employee compensation . see item 8 , “ financial statements and supplementary data—note 10 , “ employee compensation , ” for information on the various plans . royalties . we pay royalties to the state of wyoming , the u.s. bureau of land management and rock springs , which are calculated based upon a percentage of the value of soda ash sold , or a certain sum per each ton of such products . we also pay a production tax to sweetwater county , and trona severance tax to the state of wyoming that is calculated based on a formula that utilizes the volume of trona ore mined and the value of the soda ash produced . story_separator_special_tag selling , general and administrative expenses selling , general and administrative expenses incurred by our affiliates on our behalf are allocated to us based on the time the employees of those companies spend on our business and the actual direct costs they incur on our behalf . selling , general and administrative expenses incurred by ansac on our behalf are allocated to us based on the proportion of ansac 's total volumes sold for a given period attributable to the soda ash sold by us to ansac . prior to the closing of the transaction on october 23 , 2015 , under the omnibus agreement we reimbursed oci enterprises and its affiliates for the expenses incurred by them in providing services to us , and we also reimbursed oci enterprises for certain direct operating expenses they paid on our behalf . subsequent to the closing of the transaction , on october 23 , 2015 the partnership entered into a services agreement ( the “ services agreement ” ) , among the partnership , our general partner and ciner corp. pursuant to the services agreement , ciner corp has agreed to provide the partnership with certain corporate , selling , marketing , and general and administrative services , in return for which the partnership has agreed to pay ciner corp an annual management fee , subject to quarterly adjustments , and reimburse ciner corp for certain third-party costs incurred in connection with providing such services . in addition , under the joint venture agreement governing ciner wyoming , ciner wyoming reimburses us for employees who operate our assets and for support provided to ciner wyoming . results of operations a discussion and analysis of the factors contributing to our results of operations is presented below for the periods and as of the dates indicated . the consolidated financial statements for the year ended december 31 , 2013 , presents the results of operations for the partnership , reflecting the combined ownership interests previously held by our predecessor on a combined basis , adjusted for certain push-down accounting effects . prior to the completion of the restructuring , non-controlling interests in the consolidated financial statements of the predecessor represented the 1.0 % limited partner interest in ciner wyoming , formerly oci wyoming llc , owned by oci wyoming co. ( “ wyoming co. ” ) and the 48.51 % general partner interest in ciner wyoming owned by nrp . subsequent to the restructuring and ipo , non-controlling interests in the consolidated financial statements of the partnership consisted of 39.37 % general partner interest and 9.63 % limited partner interest in ciner wyoming owned by nrp . the financial statements , together with the following information , are intended to provide investors with a reasonable basis for assessing our historical operations , but should not serve as the only criteria for predicting our future performance . 53 the following tables set forth our results of operations for the years ended december 31 , 2015 , 2014 and 2013 . replace_table_token_9_th ( 1 ) ore to ash ratio expresses the number of short tons of trona ore needed to produce one short ton of soda ash and liquor and includes our deca rehydration recovery process . ( 2 ) for a discussion of the non-gaap financial measure adjusted ebitda , please read “ non-gaap financial measures ” of this management 's discussion and analysis . ( 3 ) reflects adjusted ebitda divided by sales volumes . 54 analysis of results of operations the following table sets forth a summary of net sales , sales volumes and average sales price , and the percentage change between the periods : replace_table_token_10_th 2015 compared to 2014 story_separator_special_tag style= '' vertical-align : top '' > a decrease of 6.3 % in depreciation , depletion and amortization expense to $ 22.4 million for year ended december 31 , 2014 , compared to $ 23.9 million for the year ended december 31 , 2013 , due primarily to certain in-service equipment reaching their maximum depreciable lives , moderately offset by , fixed asset additions during the year ; and a decrease of 3.1 % in royalties paid to $ 19.0 million for the year ended december 31 , 2014 , as compared to $ 19.6 million for the year ended december 31 , 2013 , driven by a reduction in the federal royalty rate from 6 % to 4 % ( “ helium stewardship act of 2013 ” ) , which expired in september 2015 , partially offset by an increase in royalty accruals due to increased production volumes during the year ; partly offset by an increase of 16.7 % in natural gas costs to $ 38.5 million for the year ended december 31 , 2014 , compared to $ 33.0 million for the year ended december 31 , 2013 , due to higher prices and production volume growth ; and an increase of 0.8 % in freight costs to $ 123.7 million for the year ended december 31 , 2014 , as compared to $ 122.7 million for the year ended december 31 , 2013 , due to higher sales volume . gross profit . gross profit increased by 25.9 % to $ 117.3 million for the year ended december 31 , 2014 , compared to $ 93.1 million for the year ended december 31 , 2013 , primarily due to the increase in average sales price and higher volumes sold over the period as discussed above . selling , general and administrative expenses .
| maintenance supply costs of 6.5 % to $ 19.6 million for year ended december 31 , 2015 , compared to $ 18.4 million for the year ended december 31 , 2014 , partly due to scope of maintenance projects and unplanned equipment repairs ; and an increase of 5.8 % in depreciation , depletion and amortization expense to $ 23.7 million for year ended december 31 , 2015 , compared to $ 22.4 million for the year ended december 31 , 2014 ; partly offset by a decrease of 5.5 % in energy costs to $ 61.8 million for the year ended december 31 , 2015 , compared to $ 65.4 million for the year ended december 31 , 2014 , due primarily to lower natural gas prices ; and a decrease of 1.3 % in freight costs to $ 122.1 million for the year ended december 31 , 2015 , as compared to $ 123.7 million for the year ended december 31 , 2014 , due to one of our large domestic customer contracts taking delivery of product at our plant . 55 gross profit . gross profit increased by 11.1 % to $ 130.3 million for the year ended december 31 , 2015 , compared to $ 117.3 million for the year ended december 31 , 2014 , primarily due to higher volumes sold and higher international prices over the period as discussed above . operating income . as a result of the foregoing , operating income increased by 14.8 % to $ 110.1 million for the year ended december 31 , 2015 compared to $ 96.0 million for the year ended december 31 , 2014 . net income . as a result of the foregoing , net income increased by 15.6 % to $ 106.2 million for the year ended december 31 , 2015 , compared to $ 91.9 million for the year ended december 31 , 2014 . 2014 compared to 2013 consolidated results net sales
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the increase in sg & a expenses as a percentage of net sales in 2018 was due primarily to the previously mentioned expense increases . the increase in sg & a expenses in 2017 compared to 2016 was due primarily to higher sales and marketing expenses in the united states and europe , mainly to support the thvt program , and higher personnel-related costs . the decrease in sg & a expenses as a percentage of net sales in 2017 was due primarily to leverage from our higher thvt sales in the united states and japan . research and development ( `` r & d '' ) expenses the increase in r & d expenses in 2018 compared to 2017 was due primarily to investments in our transcatheter structural heart programs , including spending on clinical trials . the increase in r & d expenses in 2017 compared to 2016 was due primarily to investments in our transcatheter structural heart programs , including development expenses associated with the cardioband reconstruction system . 29 intellectual property litigation expenses ( income ) , net we incurred intellectual property litigation expenses , including settlements and external legal costs , of $ 214.0 million , $ 39.2 million and $ 32.6 million during 2018 , 2017 and 2016 , respectively . in january 2019 , we reached an agreement with boston scientific to settle all outstanding patent disputes for a one-time payment to boston scientific of $ 180.0 million , which was included as an expense in 2018. the settlement covers alleged past damages and no further royalties will be owed by either party . in november 2017 , we recorded a $ 112.5 million litigation gain related to the theft of trade secrets . change in fair value of contingent consideration liabilities , net the change in fair value of contingent consideration liabilities resulted in income of $ 5.7 million , income of $ 9.9 million , and expense of $ 1.1 million for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . the income in 2018 and 2017 was due primarily to longer product development timelines , which reduced the probability of milestone achievements . these gains were net of expenses associated with changes in the fair value of the liabilities associated with the december 2017 acquisition of harpoon medical inc. , the achievement by valtech cardio ltd. of a regulatory milestone , adjustments to discount rates , and accretion of interest due to the passage of time . for further information , see note 10 to the `` consolidated financial statements . '' special charges , net for information on special charges , see note 4 to the `` consolidated financial statements. `` interest expense interest expense was $ 29.9 million , $ 23.2 million , and $ 19.2 million in 2018 , 2017 , and 2016 , respectively . the increase in interest expense for 2018 as compared to 2017 resulted primarily from higher average interest rates . the increase in interest expense for 2017 as compared to 2016 resulted primarily from a higher average debt balance , partially offset by lower average interest rates . interest income interest income was $ 32.0 million , $ 20.3 million , and $ 10.8 million in 2018 , 2017 , and 2016 , respectively . the increase in interest income for 2018 and 2017 resulted primarily from higher average interest rates . other ( income ) expense , net ( in millions ) replace_table_token_6_th the net foreign exchange ( gains ) losses relate primarily to the foreign currency fluctuations in our global trade and intercompany receivable and payable balances , offset by the gains and losses on derivative instruments intended as an economic hedge of those exposures . the loss ( gain ) on investments primarily represents our net share of gains and losses in investments accounted for under the equity method , and realized gains and losses on our available-for-sale money market and cost method investments . the non-service cost components of net periodic pension benefit ( credit ) cost includes the costs of our defined benefit plans that are not attributed to services rendered by eligible employees during the year , such as interest costs , expected return on plan assets , and amortization of actuarial gains or losses . certain costs associated with realignments , including settlements 30 and curtailments , have been included as a component of `` special ( gains ) charges , net. `` for further information , see notes 4 and 12 to the `` consolidated financial statements. `` in march 2016 , we contributed $ 5.0 million to the edwards lifesciences foundation , a related-party not-for-profit organization intended to provide philanthropic support to health- and community-focused charitable organizations . the contribution was irrevocable and was recorded as an expense at the time of payment . provision for income taxes our effective income tax rates for 2018 , 2017 , and 2016 were impacted as follows ( in millions ) : replace_table_token_7_th on december 22 , 2017 , public law 115-97 , commonly referred to as the tax cuts and jobs act ( the `` 2017 act '' ) , was signed into law . the 2017 act ( 1 ) reduced the u.s. federal corporate tax rate from 35 percent to 21 percent for tax years beginning after december 31 , 2017 , ( 2 ) required companies to pay a one-time mandatory deemed repatriation tax on the cumulative earnings of certain foreign subsidiaries that were previously tax deferred , and ( 3 ) created new taxes on certain foreign earnings in future years . on december 22 , 2017 , staff accounting bulletin no . story_separator_special_tag 118 ( `` sab 118 '' ) was issued to address the application of generally accepted accounting principles in the united states of america ( `` gaap '' ) in situations when a registrant does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the 2017 act . in accordance with sab 118 , as of december 31 , 2017 , we estimated provisional amounts for ( 1 ) $ 3.3 million of tax benefits in connection with the remeasurement of certain tax assets and liabilities , ( 2 ) $ 297.4 million of net tax expense recorded in connection with the one-time mandatory deemed repatriation tax on cumulative earnings of certain foreign subsidiaries , and ( 3 ) $ 32.3 million of tax benefits associated with a tax reform related restructuring . in accordance with sab 118 , during 2018 we adjusted the provisional amounts as described below . as a result of internal revenue service ( `` irs '' ) guidance issued subsequent to the 2017 act , the $ 32.3 million of tax benefits associated with the tax reform related restructuring mentioned above were reversed . in addition , during 2018 , we recorded a $ 12.8 million reduction in the repatriation tax and an additional benefit of $ 3.7 million in connection with the remeasurement of deferred tax assets . in accordance with sab 118 , we completed our accounting for the 2017 act during the fourth quarter of 2018. our effective tax rate for 2018 is lower than our effective tax rate for 2017 primarily because of the benefit from the reduction in the u.s. federal corporate rate from 35 % to 21 % and tax benefits related to the settlement of tax audits . in addition , the effective rate for 2017 included the one-time impact of the mandatory taxation of previously unrepatriated earnings , partially offset by the revaluation of tax-related balance sheet items due to the u.s. tax rate changes required by the 2017 act . 31 uncertain tax positions as of december 31 , 2018 and 2017 , gross uncertain tax positions were $ 150.7 million and $ 225.6 million , respectively . we estimate that these liabilities would be reduced by $ 42.7 million and $ 94.0 million , respectively , from offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments , state income taxes , and timing adjustments . the net amounts of $ 108.0 million and $ 131.6 million , respectively , if not required , would favorably affect our effective tax rate . a reconciliation of the beginning and ending amount of uncertain tax positions , excluding interest , penalties , and foreign exchange , is as follows ( in millions ) : replace_table_token_8_th the table above summarizes the gross amounts of uncertain tax positions without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such uncertain tax positions were settled . we recognize interest and penalties , if any , related to uncertain tax positions in the provision for income taxes . as of december 31 , 2018 , we had accrued $ 4.6 million ( net of $ 1.9 million tax benefit ) of interest related to uncertain tax positions , and as of december 31 , 2017 , we had accrued $ 7.4 million ( net of $ 2.9 million tax benefit ) of interest related to uncertain tax positions . during 2018 , 2017 , and 2016 , we recognized interest ( benefit ) expense , net of tax benefit , of $ ( 2.8 ) million , $ ( 7.3 ) million , and $ 4.0 million , respectively , in “ provision for income taxes ” on the consolidated statements of operations . we strive to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time . while we have accrued for matters we believe are more likely than not to require settlement , the final outcome with a tax authority may result in a tax liability that is more or less than that reflected in the consolidated financial statements . furthermore , we may later decide to challenge any assessments , if made , and may exercise our right to appeal . the uncertain tax positions are reviewed quarterly and adjusted as events occur that affect potential liabilities for additional taxes , such as lapsing of applicable statutes of limitations , proposed assessments by tax authorities , negotiations between tax authorities , identification of new issues , and issuance of new legislation , regulations , or case law . we believe that adequate amounts of tax and related penalty and interest have been provided in income tax expense for any adjustments that may result from our uncertain tax positions . at december 31 , 2018 , all material state , local , and foreign income tax matters have been concluded for years through 2008. during 2018 , we signed agreements with the irs to settle tax years 2009 through 2014 including transfer pricing matters and the tax treatment of a portion of a litigation settlement payment received in 2014. the irs began its examination of the 2015 and 2016 tax years during the fourth quarter of 2018. during 2018 , we executed an advance pricing agreement ( `` apa '' ) between the united states and switzerland governments for tax years 2009 through 2020 covering various transfer pricing matters and we have updated our transfer pricing policies accordingly . certain intercompany transactions covering tax years 2015 through 2018 were not resolved and those related tax positions remain uncertain . these transfer pricing matters may be significant to our consolidated financial statements .
| the following is a summary of important developments during 2018 : we received ce mark for the sapien 3 ultra system for transcatheter aortic valve replacement in severe , symptomatic aortic stenosis patients and we received fda approval for the sapien 3 ultra system for those patients who are determined to be at intermediate or greater risk of open-heart surgery ; we received ce mark for our self-expanding centera valve for severe , symptomatic aortic stenosis patients at high risk of open-heart surgery , and we initiated a pivotal trial in the united states to study centera for severe , symptomatic aortic stenosis patients at intermediate risk of open-heart surgery ; we received regulatory approval of our acumen hypotension prediction index in the united states . this technology leverages predictive analytics to alert clinicians of hypotension , or low blood pressure , before it occurs in their surgical patients ; we received ce mark for the edwards cardioband tricuspid valve reconstruction system for the treatment of tricuspid regurgitation ; 23 we received fda approval for the acumen suite of intelligent decision-support solutions for use on the hemosphere advanced monitoring platform ; and we reached an agreement with boston scientific corporation ( `` boston scientific '' ) in january 2019 to settle all outstanding patent disputes for a one-time payment to boston scientific of $ 180.0 million . we are dedicated to generating robust clinical , economic , and quality of life evidence increasingly expected by patients , clinicians , and payors in the current healthcare environment , with the goal of encouraging the adoption of innovative new medical therapies that demonstrate superior outcomes . results of operations net sales by major regions ( dollars in millions ) replace_table_token_4_th international net sales include the impact of foreign currency exchange rate fluctuations . the impact of foreign currency exchange rate fluctuations on net sales is not necessarily indicative of the impact on net income due to the corresponding effect of foreign currency exchange rate fluctuations on international manufacturing and operating costs , and our hedging activities . for more information , see `` quantitative and qualitative disclosures
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collection is deemed probable if we expect the customer to be able to pay amounts under the arrangement as those amounts become due . if we determine that collection is not probable as the amounts become due , we generally conclude that collection becomes probable upon cash collection . delivery . delivery is considered to occur when a product is shipped and the risk of loss and rewards of ownership have transferred to the customer . for digital downloads , delivery is considered to occur when the software is made available to the customer for download . for services and other , delivery is generally considered to occur as the service is delivered , which is determined based on the underlying service obligation . online-enabled games the majority of our software games can be connected to the internet whereby a consumer may be able to download unspecified content or updates on a when-and-if-available basis ( “ unspecified updates ” ) for use with the original game software . in addition , we may also offer an online matchmaking service that permits consumers to play against each other via the internet without a separate fee . u.s. gaap requires us to account for the consumer 's right to receive unspecified updates or the matchmaking service for no additional fee as a “ bundled ” sale , or multiple-element arrangement . we have an established historical pattern of providing unspecified updates to online-enabled software games ( e.g. , player roster updates to madden nfl 13 ) at no additional charge to the consumer . we do not have vendor specific objective evidence of fair value ( “ vsoe ” ) for these unspecified updates , and thus , as required by u.s. gaap , we recognize revenue from the sale of 26 these online-enabled games over the period we expect to offer the unspecified updates to the consumer ( “ estimated offering period ” ) . estimated offering period the offering period is not an explicitly defined period and thus , we recognize revenue over an estimated offering period , which is generally estimated to be six months beginning in the month after delivery . determining the estimated offering period is inherently subjective and is subject to regular revision based on historical online usage . for example , in determining the estimated offering period for unspecified updates associated with our online-enabled games , we consider the period of time consumers are online as online connectivity is required . during the first quarter of each fiscal year , we review consumers ' online gameplay of all online-enabled games that have been released 12 to 24 months prior to the evaluation date . for example , if our evaluation date is april 1 , 2013 , we evaluate all online-enabled games released between april 1 , 2011 and march 31 , 2012. based on this population of games , for all players that register the game online within the first six months of release of the game to the general public , we compute the weighted-average number of days for each online-enabled game , based on when a player initially registers the game online to when that player last plays the game online . we then compute the weighted-average number of days for all online-enabled games by multiplying the weighted-average number of days for each online-enabled game by its relative percentage of total units sold from these online-enabled games ( i.e. , a game with more units sold will have a higher weighting to the overall computation than a game with fewer units sold ) . under a similar computation , we also consider the estimated period of time between the date a game unit is sold to a reseller and the date the reseller sells the game unit to an end consumer . based on the sum of these two calculations , we then consider the results from prior years , known online gameplay trends , as well as disclosed service periods for competitors ' games to determine the estimated offering period for future sales . similar computations are also made for the estimated service period related to our mmo games , which is generally estimated to be eighteen months . we are currently evaluating our estimated offering period for fiscal 2014. while we consistently apply this methodology , inherent assumptions used in this methodology include which online-enabled games to sample , whether to use only units that have registered online , whether to weight the number of days for each game , whether to weight the days based on the units sold of each game , determining the period of time between the date of sale to reseller and the date of sale to the consumer and assessing online gameplay trends . other multiple-element arrangements in some of our multiple element arrangements , we sell tangible products with software and or software-related offerings . these tangible products are generally either peripherals or ancillary collectors ' items , such as figurines and comic books . revenue for these arrangements is allocated to each separate unit of accounting for each deliverable using the relative selling prices of each deliverable in the arrangement based on the selling price hierarchy described below . if the arrangement contains more than one software deliverable , the arrangement consideration is allocated to the software deliverables as a group and then allocated to each software deliverable in accordance with asc 985-605. we determine the selling price for a tangible product deliverable based on the following selling price hierarchy : vsoe ( i.e . , the price we charge when the tangible product is sold separately ) if available , third-party evidence ( “ tpe ” ) of fair value ( i.e . , the price charged by others for similar tangible products ) if vsoe is not available , or our best estimate of selling price ( “ besp ” ) if neither vsoe nor tpe is available . story_separator_special_tag determining the besp is a subjective process that is based on multiple factors including , but not limited to , recent selling prices and related discounts , market conditions , customer classes , sales channels and other factors . in accordance with asc 605 , provided the other three revenue recognition criteria other than delivery have been met , we recognize revenue upon delivery to the customer as we have no further obligations . we must make assumptions and judgments in order to ( 1 ) determine whether and when each element is delivered , ( 2 ) determine whether vsoe exists for each undelivered element , and ( 3 ) allocate the total price among the various elements , as applicable . changes to any of these assumptions and judgments , or changes to the elements in the arrangement , could cause a material increase or decrease in the amount of revenue that we report in a particular period . sales returns and allowances and bad debt reserves we reduce revenue primarily for estimated future returns and price protection which may occur with our distributors and retailers ( “ channel partners ” ) . price protection represents our practice to provide our channel partners with a credit allowance to lower their wholesale price on a particular product in the channel . the amount of the price protection is generally the difference between the old wholesale price and the new reduced wholesale price . in certain countries for our pc and console packaged 27 goods software products , we also have a practice of allowing channel partners to return older software products in the channel in exchange for a credit allowance . as a general practice , we do not give cash refunds . when evaluating the adequacy of sales returns and price protection allowances , we analyze the following : historical credit allowances , current sell-through of our channel partner 's inventory of our software products , current trends in retail and the video game industry , changes in customer demand , acceptance of our software products , and other related factors . in addition , we monitor the volume of sales to our channel partners and their inventories , as substantial overstocking in the distribution channel could result in high returns or higher price protection in subsequent periods . in the future , actual returns and price protections may materially exceed our estimates as unsold software products in the distribution channels are exposed to rapid changes in consumer preferences , market conditions or technological obsolescence due to new platforms , product updates or competing software products . while we believe we can make reliable estimates regarding these matters , these estimates are inherently subjective . accordingly , if our estimates change , our returns and price protection allowances would change and would impact the total net revenue , accounts receivable and deferred net revenue that we report . we determine our allowance for doubtful accounts by evaluating the following : customer creditworthiness , current economic trends , historical experience , age of current accounts receivable balances , changes in financial condition or payment terms of our customers . significant management judgment is required to estimate our allowance for doubtful accounts in any accounting period . the amount and timing of our bad debt expense and cash collection could change significantly as a result of a change in any of the evaluation factors mentioned above . fair value estimates the preparation of financial statements in conformity with u.s. gaap often requires us to determine the fair value of a particular item in order to fairly present our financial statements . without an independent market or another representative transaction , determining the fair value of a particular item requires us to make several assumptions that are inherently difficult to predict and can have a material impact on the accounting . there are various valuation techniques used to estimate fair value . these include ( 1 ) the market approach where market transactions for identical or comparable assets or liabilities are used to determine the fair value , ( 2 ) the income approach , which uses valuation techniques to convert future amounts ( for example , future cash flows or future earnings ) to a single present value amount , and ( 3 ) the cost approach , which is based on the amount that would be required to replace an asset . for many of our fair value estimates , including our estimates of the fair value of acquired intangible assets , we use the income approach . using the income approach requires the use of financial models , which require us to make various estimates including , but not limited to ( 1 ) the potential future cash flows for the asset or liability being measured , ( 2 ) the timing of receipt or payment of those future cash flows , ( 3 ) the time value of money associated with the expected receipt or payment of such cash flows , and ( 4 ) the inherent risk associated with the cash flows ( risk premium ) . making these cash flow estimates is inherently difficult and subjective , and if any of the estimates used to determine the fair value using the income approach turns out to be inaccurate , our financial results may be negatively impacted . furthermore , relatively small changes in many of these estimates can have a significant impact to the estimated fair value resulting from the financial models or the related accounting conclusion reached . for example , a relatively small change in the estimated fair value of an asset may change a conclusion as to whether an asset is impaired . while we are required to make certain fair value assessments associated with the accounting for several types of transactions , the following areas are the most sensitive to these assessments : business combinations . we must estimate the fair value of assets acquired , liabilities and contingencies assumed , acquired in-process technology , and contingent consideration issued in a business combination .
| the increase in net income was partially offset by ( 1 ) a $ 136 million decrease in gross profit due to an 8 percent decrease in net revenue and ( 2 ) a $ 99 million increase in the provision for income taxes . trends in our business next-generation console systems . both microsoft and sony have announced their plans to release new video game console systems in 2013. in addition , in november 2012 , nintendo released its wiiu , which succeeded the wii . ea is investing in products and services for these next-generation consoles . in the near term , we expect to continue to develop and market products and services for current-generation consoles including the xbox 360 and playstation 3 while also developing products and services for next-generation console systems . the success of our products and services for these next generation consoles depends in part on the commercial success and adequate supply of these new consoles , our ability to accurately predict which platforms will be successful in the marketplace , and our ability to develop commercially successful products and services for these platforms . digital content distribution and services . consumers are spending an ever-increasing portion of their money and time on interactive entertainment that is accessible online , or through mobile digital devices such as smart phones , or through social networks such as facebook . we provide a variety of online-delivered products and services including those available through our origin platform . many of our games that are available as packaged goods products are also available through direct online 24 download via the internet . we also offer online-delivered content and services that are add-ons or related to our packaged goods products such as additional game content or enhancements of multiplayer services . further , we provide other games , content and services that are available only via electronic delivery , such as internet-only games and game services , and games for mobile devices . we significantly increased the revenue that we derive from wireless , internet-derived and advertising ( digital ) products and services from $ 1,159 million in fiscal year 2012
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during the year ended december 31 , 2019 , we reallocated capital from slower-growth markets such as chicago and reinvested the proceeds in higher-growth markets such as miami , denver , and boston . as part of our portfolio strategy , we seek to sell up to 10 % of our portfolio annually and to reinvest the proceeds from such sales in accretive uses such as capital enhancements , redevelopments , some developments , and selective acquisitions with projected fcf internal rates of return higher than expected from the communities being sold . through this disciplined approach to capital recycling , we increase the quality and expected growth rate of our portfolio . as we execute our portfolio strategy , we expect to increase average revenue per aimco apartment home at a rate greater than market rent growth , increase fcf margins , and maintain sufficient geographic and price point diversification to limit volatility and concentration risk . acquisitions we follow a disciplined paired trade policy in making investments . we evaluate potential acquisitions seeking fcf internal rates of returns higher than those of the communities being sold . we prefer well-located real estate where land is a significant percentage of total value and provides potential upside from development or redevelopment . during the year ended december 31 , 2019 , we acquired three properties : one ardmore in ardmore , pennsylvania ; prism ( 50 rogers ) , a community under construction in cambridge , massachusetts ; and 1001 brickell bay drive in miami , florida . together , these acquisitions have an expected weighted-average fcf internal rate of return of 9 % , approximately 300 basis points better than expected from the properties being sold , or to be sold , in paired trades to fund the acquisitions . mezzanine investment on november 26 , 2019 , we made a five-year , $ 275.0 million mezzanine loan at a 10 % annual rate to the partnership owning parkmerced apartments . the loan is secured by a second-priority deed of trust . we simultaneously received a ten-year 22 option to acquire a 30 % interest in the partnership at an exercise price of $ 1 .0 million , increased by 30 % of future capital spending to progress development and redevelopment of parkmerced apartments . parkmerced apartments is a 152-acre site in the southwest corner of san francisco , currently improved with 3,221 apartment homes completed shortly before and after world war ii . these apartment homes are subject to city of san francisco rent control . the development of the site is governed by a development agreement that allows for 8,900 total residential units , with the new units exempt from city of san francisco rent control . the partnership , which is the borrower and in which we have the option to acquire 30 % ownership , owns 3,165 of the existing rent-controlled apartment homes , which excludes apartment homes transferred as part of an earlier phase of development to which we are not a party , as well as the vested right to develop 4,093 of the new market-rate homes . the mezzanine loan provides us with current income with minimal expected downside risk . the option is expected to provide us with an opportunity to participate in substantial value creation from the vested development rights . dispositions during the year ended december 31 , 2019 , we sold 12 apartment communities , generating net proceeds of $ 619.4 million used to fund acquisitions , redevelopment , development , the repurchase of aimco shares in the fourth quarter of 2018 , and other capital investments . we delayed approximately $ 300 million of planned fourth quarter 2019 and january 2020 sales . while this delay temporarily increased leverage , we expect a better execution as the transaction market remains deep , liquid , and attractively priced . balance sheet leverage our leverage strategy seeks to increase financial returns by using leverage with appropriate caution . we limit risk through our balance sheet structure , employing low leverage , primarily non-recourse and long-dated property debt ; build financial flexibility by maintaining ample unused and available credit as well as holding properties with substantial value unencumbered by property debt ; and use partners ' capital when it enhances financial returns or reduces investment risk . our leverage includes our share of long-term , non-recourse property debt encumbering apartment communities , outstanding borrowings on the revolving credit facility , outstanding preferred equity and redeemable noncontrolling interests in a consolidated real estate partnership . please refer to the liquidity and capital resources section for additional information regarding our leverage . our target leverage ratios are proportionate debt and preferred equity to adjusted ebitdare below 7.0x and adjusted ebitdare to adjusted interest expense and preferred dividends greater than 2.5x . our leverage ratios for the three months ended december 31 , 2019 , are presented below : proportionate debt to adjusted ebitdare 7.4x proportionate debt and preferred equity to adjusted ebitdare 7.6x adjusted ebitdare to adjusted interest expense 3.7x adjusted ebitdare to adjusted interest expense and preferred dividends 3.5x we calculate adjusted ebitdare and adjusted interest expense used in our leverage ratios based on the most recent three month amounts , annualized . the sales delay mentioned above increased proportionate debt to adjusted ebitdare and proportionate debt and preferred equity to adjusted ebitdare by 0.3x as of december 31 , 2019. we expect a gradual decline in leverage to ebitdare ratios throughout 2020 , reaching approximately 6.4x and 6.5x , respectively , at year end . in future years , we expect earnings growth from completed redevelopments will increase ebitdare and further reduce our leverage ratios . please refer to the leverage ratios subsection of the non-gaap measures section for further information about the calculation of our leverage ratios . refinancing activity during the year ended december 31 , 2019 , we financed $ 772.6 million of new non-recourse , fixed-rate property debt . story_separator_special_tag these loans have a weighted-average interest rate of 3.32 % , a weighted-average term to maturity of 11.4 years , and contributed an approximately 29 basis point decrease in our annual cost of leverage compared to 2018 . 23 liquidity our liquidity consists of cash balances and available capacity on our revolving credit facility . as of december 31 , 2019 , we had cash and restricted cash of $ 177.7 million and had the capacity to borrow up to $ 517.8 million on our revolving credit facility , after consideration of $ 7.2 million letters of credit backed by the facility . we use our credit facility primarily for working capital and other short-term purposes and to secure letters of credit . we manage our financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt . as of december 31 , 2019 , we held unencumbered apartment communities with an estimated fair market value of approximately $ 2.4 billion . two credit rating agencies rate our creditworthiness , using different methodologies and ratios for assessing our credit , and both have rated our credit and outlook as bbb- ( stable ) , an investment grade rating . although some of the ratios they use are similar to those we use to measure our leverage , there are differences in our methods of calculation and therefore our leverage ratios disclosed above are not indicative of the ratios that may be calculated by these agencies . equity capital activities on february 3 , 2019 , aimco 's board of directors declared a special dividend on the common stock that consisted of $ 67.1 million in cash and 4.5 million shares of common stock . the special dividend also included the regular quarterly cash dividend of $ 0.39 per share . simultaneously , aimco 's board of directors authorized a reverse stock split , effective on february 20 , 2019 , in which every 1.03119 aimco common share was combined into one aimco common share , which was effective at the close of business on february 20 , 2019. taken together , the total number of shares outstanding after the stock dividend and reverse split was unchanged from the number of shares outstanding immediately prior to the two actions . please refer to notes 7 and 8 to the consolidated financial statements in item 8 for further information regarding these transactions and the corresponding impact to the aimco operating partnership 's common unitholders . on january 28 , 2020 , our board of directors declared a quarterly cash dividend of $ 0.41 per share of common stock , representing an increase of 5 % compared to the regular quarterly dividends paid in 2019. this amount is payable on february 28 , 2020 , to stockholders of record on february 14 , 2020. team and culture our team and culture are keys to our success . our intentional focus on a collaborative and productive culture based on respect for others and personal responsibility is reinforced by a preference for promotion from within . we focus on succession planning and talent development to produce a strong , stable team that is the enduring foundation of our success . we offer benefits reinforcing our value of caring for each other , including paid time for parental leave , paid time annually to volunteer in local communities , college scholarships for the children of team members , an emergency fund to help team members in crisis , financial support for our team members who are becoming united states citizens , and a bonus structure at all levels of the organization . we also pay full compensation and benefits for team members who are actively deployed by the united states military . out of hundreds of participating companies in 2019 , aimco was one of only seven recognized as a “ top workplace ” in colorado for each of the past seven years . aimco was also recognized as a top workplace in the bay area in 2019. also in 2019 , aimco was the only real estate company to receive a best award from the association for talent development in recognition of our company-wide success in talent development , marking our second consecutive year receiving this award . results of operations because our operating results depend primarily on income from our apartment communities , the supply of and demand for apartments influences our operating results . additionally , the level of expenses required to operate and maintain our apartment communities and the pace and price at which we redevelop , acquire , and dispose of our apartment communities affect our operating results . the following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying consolidated financial statements in item 8. year ended december 31 , 2019 , compared to december 31 , 2018 net income attributable to aimco and net income attributable to the aimco operating partnership decreased by $ 192.1 million and $ 200.5 million , respectively , for the year ended december 31 , 2019 compared to 2018 , as described more fully below . 24 property operations we have four segments : same store , redevelopment and development , acquisition , and other real estate . our same store segment includes communities that have reached a stabilized level of operations as of the beginning of a two-year comparable period and maintained it throughout the current and comparable prior year , and are not expected to be sold within 12 months . our redevelopment and development segment includes communities that are currently under construction that have not achieved a stabilized level of operations , and those that have been completed in recent years that have not achieved and maintained stabilized operations for both the current and comparable prior year . our acquisition segment includes those communities that we have acquired since the beginning of a two-year comparable period .
| as of december 31 , 2019 , our portfolio included 124 apartment communities with 32,839 apartment homes in which we held an average ownership of approximately 99 % , and approximately 80 % of the value of our portfolio , measured by gross asset value ( the estimated fair value of our communities ) , was attributable to same store communities . our property operations team produced solid results for our portfolio for the year ended december 31 , 2019. same store highlights include : average daily occupancy of 97.1 % , 60 basis points higher than the year ended 2018 ; net operating income increased 4.3 % with a 73.7 % net operating income margin , 40 basis points higher than the margin for the year ended 2018 ; and rent increases on renewals and new leases averaged 4.9 % and 1.9 % , respectively , for a weighted-average increase of 3.4 % , 40 basis points higher than the year ended 2018. our focus on efficient operations through productivity initiatives such as centralization of administrative tasks , optimization of economies of scale at the corporate level , increased automation , and investment in more durable , longer-lived materials has 20 helped us control operating expenses . these and other innovations contributed to limiting growth in same store controllable operating expense , defined as property expenses less taxes , insurance , and utility expenses , compounding for the past 12 years at an annual rate of negative 0.2 % . our 2019 controllable operating expenses were flat compared to 2018. redevelopment and development our second line of business is the redevelopment and some development of apartment communities . through redevelopment activities , we expect to create value by repositioning communities within our portfolio . we undertake ground-up development when warranted by risk-adjusted investment returns , either directly or in connection with the redevelopment of an existing community . when warranted , we rely on the expertise and credit of a third-party developer familiar with the local market to limit our exposure to construction risk . over the past five years ,
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if a determination is made based on the qualitative factors that an impairment does not exist , the company is not required to perform further testing . if the aforementioned qualitative assessment results in the company concluding that it is more likely than not that the fair value of a reporting unit may be less than its carrying amount , the fair value of the reporting unit will be quantitatively determined and compared to its carrying value including goodwill . if the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit , goodwill is not impaired and the company is not required to perform further testing . if the fair value of the reporting unit is less than the carrying value , the company will record a goodwill impairment charge for the amount by which the carrying value exceeds the reporting unit 's fair value in accordance with asu no . 2017-04 , intangiblesgoodwill and other ( topic 350 ) , simplifying the test for goodwill impairment . the company evaluates its reporting units on an annual basis , or more frequently if there are changes in the reporting structure of the company due to acquisitions , realignments or if there are indicators of potential impairment . for the reporting units where the company is consistently able to conclude that no impairment exists using only a qualitative approach , the company 's accounting policy is to perform the second step of the aforementioned goodwill impairment assessment at least once every three years . at july 31 , 2018 , the company performed quantitative assessments of the ers , mals , maks and icra reporting units and a qualitative assessment for the remaining reporting units . no quantitative assessment resulted in the carrying value of the reporting unit exceeding its fair value . each qualitative analysis resulted in the company determining that it was not more likely than not that the fair value of the reporting unit was less than its carrying amount . the company quantitatively tested the ers , mals , maks and icra reporting units as of july 31 , 2018 due to the factors outlined below : » ers this reporting unit was quantitatively assessed to update its valuation to reflect the current assumptions relating to the timing of a strategic shift in the business away from lower margin sales of highly customized software solutions to higher margin saas sales . this migration to saas sales is expected to contribute to a more stable and more profitable base of recurring revenue over the medium to long-term . in 2018 , the company revised its projections for ers to reflect a faster deterioration of the lower margin sales of highly customized software solutions than was previously projected in 2017 . » mals and maks these reporting units were quantitatively assessed at the discretion of the company as they have historically been the reporting units with the lowest amount by which the fair value of a reporting unit exceeds its carrying value . » icra this reporting unit was tested quantitatively due to it having a readily available fair value based on its stock price . determining the fair value of a reporting unit or an indefinite-lived acquired intangible asset ( including its estimated useful life ) involves the use of significant estimates and assumptions . these estimates and assumptions include projections of future operating results and cash flows of each reporting unit that are based on internal budgets and strategic plans , expected long-term growth rates , terminal values , weighted average cost of capital , the effects of external factors and market conditions as well as appropriate comparable market metrics . however , as these estimates and assumptions are unpredictable and inherently uncertain , actual future results may differ from these estimates and the time frame of such changes may be rapid . in addition , the company also makes certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of its reporting units . other assets and liabilities , including applicable corporate assets , are allocated to the extent they are related to the operation of respective reporting units . 32 moody 's 2018 10-k sensitivity analyses and key assumptions for deriving the fair value of a reporting unit the following table identifies the amount of goodwill allocated to each reporting unit as of december 31 , 2018 and the amount by which the net assets of each reporting unit would exceed the fair value under step 2 of the goodwill impairment test as prescribed in asc topic 350 , assuming hypothetical reductions in their fair values as of the date of the last quantitative goodwill impairment assessment for each reporting unit ( july 31 , 2018 for ers , mals , maks and icra ; july 31 , 2016 for mis and content ) . replace_table_token_6_th ( 1 ) omega performance was acquired subsequent to the company 's annual goodwill impairment assessment as of july 31 , 2018. goodwill related to this acquisition is reported within the mals reporting unit . ( 2 ) bureau van dijk was acquired in august 2017 and has not yet been subject to a quantitative goodwill assessment . the purchase price approximates the fair value of the reporting unit at july 31 , 2018 , and accordingly , bureau van dijk was not subject to the sensitivity analysis above . ( 3 ) reis was acquired in october 2018 , subsequent to the company 's annual goodwill impairment assessment as of july 31 , 2018. due to the close proximity of the reis acquisition to december 31 , 2018 , the purchase price approximates the fair value of the reporting unit . story_separator_special_tag methodologies and significant estimates utilized in determining the fair value of reporting units : the following is a discussion regarding the company 's methodology for determining the fair value of its reporting units , excluding icra , as of the date of each reporting unit 's last quantitative assessment ( july 31 , 2018 for ers , mals , and maks and july 31 , 2016 for mis and content ) . as icra is a publicly traded company in india , the company was able to observe its fair value based on its market capitalization . the fair value of each reporting unit , excluding icra , was estimated using a discounted cash flow methodology and comparable public company and precedent transaction multiples . the discounted cash flow analysis requires significant estimates , including projections of future operating results and cash flows of each reporting unit that are based on internal budgets and strategic plans , expected long-term growth rates , terminal values , weighted average cost of capital and the effects of external factors and market conditions . changes in these estimates and assumptions could materially affect the estimated fair value of each reporting unit that could result in an impairment charge to reduce the carrying value of goodwill , which could be material to the company 's financial position and results of operations . moody 's allocates newly acquired goodwill to reporting units based on the reporting unit expected to benefit from the acquisition . the sensitivity analyses on the future cash flows and wacc assumptions described below are as of each reporting unit 's last quantitative goodwill impairment assessment . the following discusses the key assumptions utilized in the discounted cash flow valuation methodology that requires significant management judgment : » future cash flow assumptions the projections for future cash flows utilized in the models are derived from historical experience and assumptions regarding future growth and profitability of each reporting unit . these projections are consistent with the company 's operating budget and strategic plan . cash flows for the five years subsequent to the date of the quantitative goodwill impairment analysis were utilized in the determination of the fair value of each reporting unit . the growth rates assumed a gradual increase in revenue based on a continued improvement in the global economy and capital markets , new customer acquisition and new products . beyond five years , a terminal value was determined using a perpetuity growth rate based on inflation and real gdp growth rates . a sensitivity analysis of the revenue growth rates was performed on all reporting units . for each reporting unit analyzed , a 10 % decrease in the revenue growth rates used would not have resulted in its carrying value exceeding its estimated fair value . » wacc the wacc is the rate used to discount each reporting unit 's estimated future cash flows . the wacc is calculated based on the proportionate weighting of the cost of debt and equity . the cost of equity is based on a risk-free interest rate and an equity risk factor , which is derived from public companies similar to the reporting unit and which captures the perceived risks and uncertainties associated with the reporting unit 's cash flows . the cost of debt component is calculated as the weighted average cost associated moody 's 2018 10-k 33 with all of the company 's outstanding borrowings as of the date of the impairment test and was immaterial to the computation of the wacc . the cost of debt and equity is weighted based on the debt to market capitalization ratio of publicly traded companies with similarities to the reporting unit being tested . the wacc for all reporting units ranged from 8.5 % to 10.5 % as of the date of the reporting unit 's most recent quantitative assessment . differences in the wacc used between reporting units is primarily due to distinct risks and uncertainties regarding the cash flows of the different reporting units . a sensitivity analysis of the wacc was performed on all reporting units as of the date of the reporting unit 's last quantitative goodwill impairment assessment . for each reporting unit analyzed , an increase in the wacc of one percentage point would not result in its carrying value exceeding its fair value . income taxes the company is subject to income taxes in the u.s. and various foreign jurisdictions . the company 's tax assets and liabilities are affected by the amounts charged for services provided and expenses incurred as well as other tax matters such as intercompany transactions . the company accounts for income taxes under the asset and liability method in accordance with asc topic 740. therefore , income tax expense is based on reported income before income taxes , and deferred income taxes reflect the effect of temporary differences between the amounts of assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes . the company is subject to tax audits in various jurisdictions . the company regularly assesses the likely outcomes of such audits in order to determine the appropriateness of liabilities for utps . the company classifies interest related to income taxes as a component of interest expense in the company 's consolidated financial statements and associated penalties , if any , as part of other non-operating expenses . for utps , asc topic 740 requires a company to first determine whether it is more-likely-than-not ( defined as a likelihood of more than fifty percent ) that a tax position will be sustained based on its technical merits as of the reporting date , assuming that taxing authorities will examine the position and have full knowledge of all relevant information . a tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority .
| » d & a increased $ 31.6 million primarily due to amortization of intangible assets acquired as part of the bureau van dijk acquisition . » operating income of $ 1,820.8 million in 2017 increased $ 1,169.9 million compared to 2016 and resulted in an operating margin of 43.3 % , compared to 18.1 % in the prior year . operating income and operating margin in 2016 were suppressed by the $ 863.8 million settlement charge . adjusted operating income of $ 2,001.6 million in 2017 increased $ 348.2 million compared to 2016 , resulting in an adjusted operating margin of 47.6 % compared to 45.9 % in the prior year . » the decrease in non-operating expense , net , compared to the prior year is primarily due to : » the $ 59.7 million ccxi gain in 2017 ; » the $ 111.1 million purchase price hedge gain in 2017 ; partially offset by : » higher interest expense of $ 51.2 million primarily reflecting additional financing in 2017 utilized to fund the payment of the 2016 settlement charge , repay the series 2007-1 notes and fund the bureau van dijk acquisition ; and » fx losses of approximately $ 17 million in the 2017 compared to fx gains of approximately $ 50 million in the prior year . the fx gains in 2016 included approximately $ 35 million related to the liquidation of a non-u.s. subsidiary . » the etr of 43.6 % in 2017 includes a net charge of approximately $ 246 million in the fourth quarter related to the impacts of tax reform in the u.s. and belgium partially offset by the non-taxable ccxi gain and an approximate $ 40 million benefit relating to excess tax benefits on stock-based compensation . the 2016 etr of 50.6 % included the non-deductible nature of the federal portion of the settlement charge . » full year 2017 diluted eps of $ 5.15 was up from $ 1.36 in 2016. adjusted diluted eps of $ 6.07 was up 23 %
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our outsourced manufacturing model allows us to scale our business without the significant capital investment and ongoing expenses required to establish and maintain manufacturing operations . our z-series platforms leverage industry standard components , and we work closely with our contract manufacturer and key suppliers to manage the procurement , quality and cost of these components . we seek to maintain an optimal level of finished goods inventory to meet our forecasted sales and accommodate unanticipated shifts in sales volume and mix while at the same time minimizing cash outflow . we believe that our technological advantages will continue to support our growth and demand for our solutions . however , our business may be affected by future challenging economic conditions , decreased availability of capital for network infrastructure projects , or failure of the market for blue planet to develop . in addition , capital spending in our industry is cyclical and sporadic , can change on short notice and can fluctuate in response to outside factors such as the availability of government stimulus assistance . as a result , changes in spending behavior in any given quarter or during any economic downturn can reduce our revenue . spending on network construction , maintenance , expansion and upgrades is also affected by seasonality , delays in the purchasing cycles and reductions in budgets of network operators . finally , we may face direct and indirect risks as a result of our international operations , including expenses of doing business in multiple jurisdictions , differing regulatory environments , foreign currency fluctuations and varying collection practices . liquidity and capital resources - 2014 notes & warrants offering we require a significant amount of cash resources to operate our business . for example , in the nine months ended september 2014 , we used approximately $ 35.2 million of cash , cash equivalents and marketable securities , including $ 30.4 million used in operating activities . at september 30 , 2014 , we had cash , cash equivalents and marketable securities of $ 28.9 million . at the time of the offering , given our forecasted levels of revenue , expenses and capital expenditures , we believed that our existing cash , cash equivalents and marketable securities , together with our cash collections would be sufficient to meet our projected operating and capital expenditure requirements through the first quarter of 2015. we undertook the notes and warrants offering in the fourth quarter of 2014 in order to provide us with the working capital needed to continue to operate our business beyond the first quarter of 2015. based upon the successful offering of the notes and related warrants in december 2014 , in addition to an improvement in our business environment for the fourth quarter of 2014 and into the first quarter of 2015 , we believe that we have adequate capital resources for at least the next 12 months . how we generate revenue we generate revenue primarily from selling our z-series platforms , licensing our blue planet software-defined networking solutions and providing various professional services . cyan z-series our z-series hardware is a family of high-capacity , multi-layer switching and transport platforms . each z-series platform is comprised of a chassis that supports a variety of interchangeable z-series line cards to provide a wide range of network applications . our customers make an initial purchase of chassis and line cards to address their particular network deployment needs , then typically make subsequent purchases of line cards and or larger chassis as the capacity and service needs of their networks evolve . the majority of our revenue is generated from sales of our z-series platforms . we generally recognize product revenue at the time of shipment provided that all other revenue recognition criteria have been met . cyan blue planet in december 2012 , we launched blue planet , our carrier-grade sdn and nfv platform that is designed to allow network operators of all types to manage their multi-vendor network and simplify the development , deployment and orchestration of scalable services over high-performance networks . in 2014 we introduced the ability to orchestrate virtual resources and functions and chain those to the physical network to streamline service creation and deployment . blue planet is available to customers regardless of whether they have deployed our z-series platforms in their networks . customers may purchase blue planet using standard configurations to address common network needs or may customize their implementations by pairing the blue planet orchestration layer with their own selection of applications and element adapters . we offer blue planet on a variety of models . where we sell blue planet on a term license basis or on a software-as-a-service ( saas ) basis deployed from the cloud , we invoice customers for the entire contract amount at the start of the contract term , which will lead to the majority of these invoiced amounts being treated as deferred revenue that will be recognized ratably over the term of the contract . while term-based licenses currently make up the majority of related revenues , we occasionally license software to customers on a perpetual basis with on-going support and maintenance services . revenue from software that functions together with the tangible hardware elements to deliver the tangible products ' essential functionality is generally recognized upon shipment assuming all other revenue recognition criteria are met . revenue from application software and related software elements which are not considered essential to the functionality of hardware is accounted for in accordance with software industry guidance , and therefore is recognized ratably over the longest service period for post-contract customer support ( pcs ) and professional services as we have not established vsoe for software or the related software elements . cynoc professional services our cynoc offering is a network operations center service through which we monitor , and , in some cases , manage our customers ' multi-vendor networks . additionally , a number of our customers which maintain their own internal noc leverage our services as a backup noc . story_separator_special_tag these services are typically sold to our customers for a one-year term at the time of the initial product sale and renewed on an annual basis thereafter . maintenance , support , training and professional services we offer a range of services , including hardware installation and software and hardware maintenance and support , to provide a variety of customer service products and support through our technical support engineers as well as through our growing network of authorized and certified channel partners . these services are sold to our customers at the time of the initial product sale , typically for one-year terms that customers may choose to renew for successive annual or multi-year periods . these services are invoiced separately at the time of the initial product sale . we also provide training and other professional services to our end-customers , including services related to the implementation , use , functionality and ongoing maintenance of our products . these services are invoiced separately when the services are delivered . deferred revenue our deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenue as of the period end , pending completion of the revenue recognition process . our deferred revenue was $ 7.5 million and $ 19.1 million as of december 31 , 2014 and december 31 , 2013. the majority of our deferred revenue at december 31 , 2013 consisted of amounts related to sales of our z-series platforms , and related primarily to shipped and billed hardware awaiting customer acceptance . the remainder consisted primarily of term license , support and maintenance revenue that is recognized ratably over the contractual service period . at december 31 , 2014 , the majority of our deferred revenue related to term license , support and maintenance revenue that is recognized ratably over the contractual service period . we monitor our deferred revenue balance because it represents a significant portion of revenue to be recognized in future periods . over the longer term , we expect that the proportion of our deferred revenue relating to blue planet will increase relative to z-series related deferred revenue . in most cases , we expect to invoice our customers at the start of the blue planet license term , which will lead to the majority of these invoiced amounts being treated as deferred revenue and recognized ratably over the term of the contract or the associated maintenance period . components of operating results revenue our revenue has historically grown rapidly since our inception , increasing from $ 40.4 million in the year ended december 31 , 2011 , to $ 116.6 million in the year ended december 31 , 2013. however , our revenue for 2014 fell below the level attained in 2013 to $ 100.5 million due to a number of factors , the most significant of which was a reduction in spending by our largest customer windstream . 51 costs of revenue cost of revenue primarily consists of manufacturing costs of our products payable to our contract manufacturer . our cost of revenue also includes third-party manufacturing and supply chain logistics costs , provisions for excess and obsolete inventory , warranty costs , hosting costs , certain allocated costs for facilities , depreciation and other expenses associated with logistics and quality control . additionally , it includes salaries , benefits and stock-based compensation for personnel directly involved with manufacturing , installation , and certain support services . gross margin gross margin , or gross profit as a percentage of revenue , has been and will continue to be affected by a variety of factors . in the near term , we generally expect gross margin to remain relatively flat as our continued efforts and those of our contract manufacturer to manage our supply chain and raw materials pricing and scale efficiencies in our production model are offset against general marketplace price pressure . in the longer term , we expect that the market adoption of blue planet , and the resulting increase in blue planet revenue as a percentage of our revenue , will contribute to increases in gross margin . from time to time , however , we may experience lower gross margin in any particular period as a result of large initial deployments . these deployments typically include a significant proportion of lower-margin z-series chassis . as our customers expand their networks after large initial deployments , they typically purchase additional higher-margin line cards . operating expenses operating expenses consist of research and development , sales and marketing , and general and administrative expenses . personnel-related costs , including stock-based compensation , commission and bonus , are the most significant component of each of these expense categories . the timing and number of additional hires has and could materially affect our operating expenses , both in absolute dollars and as a percentage of revenue , in any particular period . research and development . research and development expense consists primarily of personnel and consultant costs . research and development expense also includes costs for prototypes , lab supplies , product certification , travel , depreciation , recruiting and allocated costs for certain facilities costs . sales and marketing . sales and marketing expense consists primarily of personnel costs including commission costs . we expense commission costs as incurred . sales and marketing expense also includes the costs of consultants , trade shows , marketing programs , promotional materials , demonstration equipment , travel , depreciation , recruiting and allocated costs for certain facilities costs . general and administrative . general and administrative expense consists of personnel costs , professional services costs as well as allocated costs for certain facilities costs . general and administrative personnel include our executive , finance , human resources , it and legal organizations . professional services consist primarily of legal , auditing , accounting , and other consulting costs . restructuring charges .
| we anticipate our first quarter 2015 revenue will be higher than the revenue we recorded in the fourth quarter of 2014 and that our revenue for 2015 as a whole will exceed the revenue we recorded for 2014 as a whole . our revenue growth , however , is susceptible to quarter-to-quarter fluctuations . for example , revenue in the fourth quarter of 2013 declined by $ 16.8 million , or 45 % , from the level achieved in the third quarter of 2013. this decline was primarily a result of decreased revenue from our largest customer as well as lower than anticipated revenue from other customers that had largely depleted their 2013 capital budgets . 59 cost of revenue , gross profit and gross margin replace_table_token_10_th cost of revenue decreased by $ 9.7 million , or 14.2 % , and gross profit decreased by $ 6.4 million , or 13 % , for the year ended december 31 , 2014 from the year ended december 31 , 2013 , corresponding to the decreased revenue . gross margin increased by 0.3 % to 41.6 % from 41.3 % , for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013. cost of revenue increased by $ 11.1 million , or 19.3 % , and gross profit increased by $ 9.6 million , or 25.0 % , for the year ended december 31 , 2013 from the year ended december 31 , 2012 , corresponding to the increased revenue . gross margin increased by 1.1 % to 41.3 % from 40.2 % , for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012. we anticipate our gross margins will fluctuate from period to period depending on the product mix sold , large initial deployments as well as other factors including provisions for warranty , inventory excess and obsolescence charges and the level of revenue experienced in any particular period . research and development replace_table_token_11_th research and development expense increased by $ 3.5 million , or 10.8 % , from the year ended december 31 , 2013 to the year ended december 31 , 2014. the increase was
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the difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference . the nonaccretable difference represents an estimate of the loss exposure of principal and interest related to the pci loan portfolios ; such amount is subject to change over time based on the performance of such loans . the carrying value of pci loans is reduced by payments received , both principal and interest , and increased by the portion of the accretable yield recognized as interest income . the excess of expected cash flows at acquisition over the initial fair value of acquired impaired loans is referred to as the accretable yield and is recorded as interest income over the estimated life of the loans using the effective yield . if estimated cash flows are indeterminable , the recognition of interest income will cease to be recognized . as part of the fair value process and the subsequent accounting , the company aggregate pci loans into pools having common credit risk characteristics such as product type , geographic location and risk rating . increases in expected cash flows over those previously estimated increase the accretable yield and are recognized as interest income prospectively . decreases in the amount and changes in the timing of expected cash flows compared to those previously estimated decrease the accretable yield and usually result in a provision for loan losses and the establishment of an allowance for loan losses . as the accretable yield increases or decreases from changes in cash flow expectations , the offset is a decrease or increase to the nonaccretable difference . the accretable yield is measured at each financial reporting date based on information then currently available and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans . pci loans that are contractually past due are still considered to be accruing and performing as long as there is an expectation that the estimated cash flows will be received . if the timing and amount of cash flows is not reasonably estimable , the loans may be classified as nonaccrual with interest income recognized on either a cash basis or as a reduction of the principal amount outstanding . investment securities the classification and accounting for investment securities are discussed in more detail in notes to consolidated financial statements , note 1 summary of significant accounting policies and note 5 investment securities presented elsewhere herein . under fasb asc 320 , investments , investment securities generally must be classified as held to maturity , available for sale or trading . the appropriate classification is based partially on our ability to hold the securities to maturity and largely on management 's intentions with respect to either holding or selling the securities . the classification of investment securities is significant since it directly impacts the accounting for unrealized gains and losses on securities . unrealized gains and losses on trading securities flow directly through earnings during the periods in which they arise . investment securities that are classified as held to maturity are recorded at amortized cost . unrealized gains and losses on available-for-sale securities are recorded as a separate component of stockholders ' equity ( accumulated other comprehensive income or loss ) and do not affect earnings until realized or are deemed to be other-than-temporarily impaired . the fair values of investment securities are generally determined by quoted market prices obtained from independent external brokers or independent external pricing service providers who have experience in valuing these securities . in obtaining such valuation information from third parties , we have evaluated the methodologies used to develop the resulting fair values . we perform a monthly analysis on the broker quotes received from third parties to ensure that the prices represent a reasonable estimate of the fair value . the procedures include , but are not limited to , initial and on-going review of third party pricing methodologies , review of pricing trends , and monitoring of trading volumes . we review investment securities on an ongoing basis for the presence of other-than-temporary impairment ( otti ) or permanent impairment , taking into consideration current market conditions , fair value in relationship to cost , extent and nature of the change in fair value , issuer rating changes and trends , whether we intend to sell a security or if it is likely that we will be required to sell the security before recovery of our amortized cost basis of the investment , which may be maturity , and other factors . for debt securities , the classification of otti depends on whether we intend to sell the security or if it is more likely than not that we will be required to sell the security before recovery of its costs basis , and on the nature of the impairment . if we intend to sell a 30 security or if it is more likely than not that we will be required to sell the security before recovery , an otti write-down is recognized in earnings equal to the entire difference between the security 's amortized cost basis and its fair value . if we do not intend to sell the security or it is not more likely than not that we will be required to sell the security before recovery , the otti write-down is separated into an amount representing credit loss , which is recognized in earnings , and the amount related to all other factors , which is recognized in other comprehensive income net of tax . a credit loss is the difference between the cost basis of the security and the present value of cash flows expected to be collected , discounted at the security 's effective interest rate at the date of acquisition . the cost basis of an other than temporarily impaired security is written down by the amount of impairment recognized in earnings . the new cost basis is not adjusted for subsequent recoveries in fair value . story_separator_special_tag management does not believe that there are any investment securities that are deemed otti as of december 31 , 2014. income taxes in accordance with the provisions of fasb asc 740 , the company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations , and records adjustments as appropriate . this review takes into consideration the status of current taxing authorities ' examinations of the company 's tax returns , recent positions taken by the taxing authorities on similar transactions , if any , and the overall tax environment . as of each reporting date , management considers the realization of deferred tax assets based on management 's judgment of various future events and uncertainties , including the timing and amount of future income , as well as the implementation of various tax planning strategies to maximize realization of deferred tax assets . a valuation allowance is provided when it is more likely than not that some portion of deferred tax assets will not be realized . as of december 31 , 2014 , management determined that no valuation allowance for deferred tax assets is required , as management believes it is more likely than not that deferred tax assets will be realized principally through future reversals of existing taxable temporary differences . management further believes that future taxable income will be sufficient to realize the benefits of temporary deductible differences that can not be realized through carry-back to prior years or through the reversal of future temporary taxable differences . income taxes are discussed in more detail in notes to consolidated financial statements , note 1 summary of significant accounting policies and note 12 income taxes presented elsewhere herein . 31 executive overview for the years ended december 31 , 2014 , 2013 and 2012 , we recognized net income of $ 49.8 million , $ 39.9 million and $ 90.3 million , respectively . the increase in net income for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 was due mainly to the bargain purchase gain of $ 14.6 million from the acquisition of cbi . the decrease in net income for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 was primarily attributable to the absence of the reversal of the deferred tax asset ( dta ) valuation allowance , which contributed an income tax benefit of $ 46.7 million in 2012. for the years ended december 31 , 2014 , 2013 and 2012 , our earnings per diluted share were $ 1.56 , $ 1.26 and $ 2.87 , respectively . significant financial highlights include : assets increased by $ 1.18 billion , or 38.6 percent , to $ 4.23 billion at december 31 , 2014 , compared to $ 3.05 billion at december 31 , 2013 , primarily due to the acquisition of cbi . during 2013 , assets increased by $ 173.0 million , or 6.0 percent , compared to $ 2.88 billion as of december 31 , 2012. with new loan growth across the portfolio and acquired loans from cbi , gross loans increased by $ 551.2 million , or 24.7 percent , to $ 2.79 billion as of december 31 , 2014 , compared to $ 2.23 billion as of december 31 , 2013. during 2013 , gross loans increased by $ 185.5 million , or 9.1 percent , compared to $ 2.05 billion as of december 31 , 2012. deposits grew by $ 1.04 billion , or 41.6 percent , to $ 3.56 billion as of december 31 , 2014 , compared to $ 2.51 billion as of december 31 , 2013. during 2013 , deposits grew by $ 116.4 million , or 4.9 percent , compared to $ 2.40 billion as of december 31 , 2012. asset quality improved with classified loans ( excluding pci loans ) down 42.4 % year-over-year ; $ 47.4 million as of december 31 , 2014 , compared to $ 82.2 million as of december 31 , 2013. during 2013 , classified loans decreased by $ 21.0 million , or 20.33 percent , compared to $ 103.2 million as of december 31 , 2012. cash dividends of $ 0.28 per share of common stock were paid for the year ended december 31 , 2014 , compared to $ 0.14 per share of common stock for the year ended december 31 , 2013. story_separator_special_tag high-cost time deposits in 2013. the average yield on gross loans decreased by 4 basis points to 5.01 percent in 2014 , after a 29 basis point decrease to 5.05 percent in 2013 from 5.34 percent in 2012. the decreases in 2014 and 2013 were attributable to the current low interest rate environment and high competition . the average yield on interest-earning assets decreased by 11 basis points to 4.33 percent in 2014 , after an increase of 7 basis points to 4.44 percent in 2013 from 4.37 percent in 2012. the decrease in 2014 was due mainly to increases in lower yielding investment securities acquired in the acquisition of cbi partially offset by the increase yield related to the accretion of discount on loans and interest-bearing liabilities related to the cbi acquisition and the increase in 2013 was attributable to deployment of lower yielding funds to higher yielding loans . the average cost on interest-bearing liabilities decreased by 12 basis points to 0.68 percent in 2014 , after a decrease of 27 basis points to 0.80 percent in 2013 from 1.07 percent in 2012. the decrease in 2014 was due primarily to $ 2.3 million amortization of time deposits premiums from the acquisition of cbi and the decrease in 2013 was due mainly to the elimination of interest payments on subordinated debentures and the decline in the balance and cost of jumbo cds . provision for credit losses in anticipation of credit risks inherent in our lending business , we set aside allowance for loan losses through charges to earnings .
| replace_table_token_8_th ( 1 ) loans are net of discounts , deferred fees and related direct costs , excluding loans held for sale and the allowance for loan losses . nonaccrual loans are included in the average loan balance . loan fees have been included in the calculation of interest income . loan fees were $ 1.2 million , $ 1.4 million and $ 1.5 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . ( 2 ) computed on a tax-equivalent basis using an effective marginal rate of 35 percent . ( 3 ) represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities . ( 4 ) represents net interest income as a percentage of average interest-earning assets . 33 excluding the effects of acquisition accounting adjustments , the net interest margin was 3.65 % for the year ended december 31 , 2014. the impact of acquisition accounting adjustments on core loan yield and net interest margin are summarized in the following table : replace_table_token_9_th the table below shows changes in interest income and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated . the variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate . replace_table_token_10_th for the years ended december 31 , 2014 , 2013 and 2012 , net interest income before provision for credit losses on a tax-equivalent basis was $ 122.8 million , $ 105.8 million and $ 98.7 million , respectively . the increase in net interest income in 2014 , as compared to 2013 , was due mainly to increases in average gross loan and other debt securities acquired and increases in low-cost interest-bearing deposits . in addition , the net accretion of discount on loans and interest-bearing liabilities acquired in the cbi acquisition was $ 7.5 million for the year ended december 31 , 2014. the increase
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we do not expect to actively pursue acquisitions made through joint ventures ; however , we may seek to buy out , or sell our joint venture interest to , select existing joint venture partners . we do not expect to actively pursue additional development loans or land leases . while property joint ventures , development loans and land leases played an important role in our growth in the past , we do not expect them to play the same role in our near-term future . 31 although we are planning for continued stabilization and improvement in consumer and commercial spending and lodging demand during 2012 , the manner in which the economy will recover is not predictable , and certain core economic metrics , including unemployment , are not rebounding as quickly as many had hoped . in addition , the market for hotel level financing for new hotels is not recovering as quickly as the economy or broader financial markets . as a result , there can be no assurances that we will be able to grow hotel revenues , occupancy , adr or revpar at our properties as we hope . further , we can not assure that we will not experience defaults under our development loans . the lack of financing for our borrowers and potential buyers may result in borrower defaults or prevent borrowers or us from disposing of properties held for sale . factors that might contribute to less than anticipated performance include those described under the heading “ item 1a . risk factors ” and other documents that we may file with the sec in the future . we will continue to cautiously monitor recovery in lodging demand and rates , our third party hotel managers , our remaining portfolio of hotel development loans and our performance generally . story_separator_special_tag we have invested in hotel development projects by providing mortgage or mezzanine financing to hotel developers and through the acquisition of land that is then leased to hotel developers . interest income is earned on our development loans at rates ranging between 10.0 % and 11.0 % . interest income from development loans receivable was $ 3,427 for the year ended december 31 , 2011 compared to $ 4,686 for the same period in 2010. of the $ 35,747 in development loans receivable outstanding as of december 31 , 2011 , $ 22,444 , or 62.8 % , is invested in hotels that are currently operating and generating revenue and $ 13,303 , or 37.2 % , is invested in a hotel construction project to develop the hyatt union square in new york , ny , which has made significant progress toward completion . on june 14 , 2011 , in connection with entering into a purchase and sale agreement to acquire the hyatt union square project , we ceased accruing interest for this development loan . as hotel developers are engaged in constructing new hotels or renovating existing hotels the hotel properties are typically not generating revenue . it is common for the developers to require construction type loans to finance the projects whereby interest incurred on the loan is not paid currently ; rather it is added to the principal borrowed and repaid at maturity . currently , one of our development loans , which is a loan to an entity affiliated with certain of our non-independent trustees and executive officers , allows the borrower to elect , quarterly , to pay accrued interest in-kind by adding the accrued interest to the principal balance of the loan . as a result , a total of $ 2,094 and $ 2,559 in accrued interest on these development loans was added to principal for the year ended december 31 , 2011 and 2010 , respectively . expenses total hotel operating expenses increased 17.3 % to approximately $ 153,427 for the year ended december 31 , 2011 from $ 130,823 for the year ended december 31 , 2010. consistent with the increase in hotel operating revenues , hotel operating expenses increased primarily due to the acquisitions consummated since the comparable period in 2010 , as mentioned above . in addition , hotel operating expense increased due to an increase in bad debt expense resulting from the bankruptcy of an airline customer with outstanding receivable balances at two of our hotel properties . the acquisitions also resulted in an increase in depreciation and amortization to $ 50,718 for the year ended december 31 , 2011 from $ 44,223 for the year ended december 31 , 2010. similarly , real estate and personal property tax and property insurance increased $ 2,135 , or 12.4 % , in the year ended december 31 , 2011 when compared to the same period in 2010 due to our acquisitions along with a general overall increase in tax assessments and tax rates as the economy improves . general and administrative expense increased by approximately $ 720 from $ 10,230 in 2010 to $ 10,950 in 2011. discretionary incentive compensation related to the 2009 fiscal year was determined subsequent to december 31 , 2009. as result , incentive compensation of $ 1,256 earned for the year ended december 31 , 2009 was recorded in 2010. incentive compensation of $ 1,720 earned for the year ended december 31 , 2010 was accrued in the fourth quarter of 2010. incentive compensation of $ 1,747 earned for the year ended december 31 , 2011 was accrued in the fourth quarter of 2011. an increase in employee headcount and base compensation offsets the decrease in incentive compensation in 2011 , due to the 2009 and 2010 incentive compensation being recorded in 2010. non-cash stock based compensation expense increased $ 941 when comparing the year ended december 31 , 2011 to the same period in 2010. included in stock based compensation for the year ended december 31 , 2011 and 2010 , respectively is $ 3,192 and $ 2,084 of stock based compensation expense for the awards approved by the compensation committee in may 2010 under the multi-year ltip . story_separator_special_tag please refer to “ note 9 – share based payments ” of the notes to the consolidated financial statements for more information about our stock based compensation . amounts recorded on our consolidated statement of operations for acquisition and terminated costs will fluctuate from period to period based on our acquisition activities . acquisition and terminated transaction costs decreased $ 2,060 from $ 4,802 for the year ended december 31 , 2010 to $ 2,742 for the year ended december 31 , 2011 due to acquisitions consummated during the period ended december 31 , 2011. the costs incurred in 2011 were related to the following hotels : $ 716 related to our acquisition of holiday inn express water street , ny ; $ 1,043 related to acquisition of capitol hill suites washington , dc ; $ 165 related to our acquisition of courtyard westside la , ca ; $ 236 related to our acquisition of courtyard miami , fl . the costs incurred in 2010 were related to following hotels : hilton garden inn , glastonbury , ct ; hampton inn times square , new york , ny ; holiday inn express , times square , new york , ny ; candlewood suites times square , new york , ny ; holiday inn wall street , new york , ny ; and hampton inn , washington , dc . acquisition costs typically consist of transfer taxes , legal fees and other costs associated with acquiring a hotel property . the remaining costs related to transactions that were terminated during the year . 34 unconsolidated joint venture investments we recorded income from our investment in unconsolidated joint ventures of $ 1,290 and income of $ 2,257 for the year ended december 31 , 2011 and 2010 , respectively . as a result of the remeasurement of our interest in the hiren boston , llc joint venture , the owner of the courtyard by marriott , in south boston , ma , we recorded gains of $ 2,757 and $ 2,190 for the year ended december 31 , 2011 and 2010 , respectively . in addition , for 2010 , we also recorded a $ 1,818 gain on the remeasurement of our interest in an unconsolidated joint venture that owned the hilton garden inn in glastonbury , ct. excluding these remeasurement gains , we incurred a gain from unconsolidated joint ventures of $ 210 for the year ended december 31 , 2011 compared to a loss of $ 1,751 for 2010. as noted above , we entered into two purchase and sale agreements to dispose of 18 non-core hotel properties , four of which are owned in part by the company through an unconsolidated joint venture . as a result of entering into these purchase and sale agreements , we have recorded an impairment loss of approximately $ 1,677 for those assets where our investment in the joint venture exceeds the anticipated net proceeds distributable to us based on the purchase price . see “ note 12-discontinued operations ” of the notes to the consolidated financial statements for the year ended december 31 , 2011 and 2010 for more information . partially offsetting this impairment loss , was income of approximately $ 158 recorded from our investment in the hiren boston , llc joint venture , recorded during the year ended december 31 , 2011. effective june 20 , 2011 , we determined we were no longer the primary beneficiary of hiren boston , llc and began to account for our investment under the equity method of accounting . for the majority of 2010 hiren boston , llc was a consolidated subsidiary of the company . on july 1 , 2011 , hiren boston llc became an unconsolidated joint venture and is classified as of december 31 , 2011 with unconsolidated joint ventures . see “ note 3 – investment in unconsolidated joint ventures ” of the notes to the consolidated financial statements for the years ended december 31 , 2011 and 2010 for more information . net income/loss net loss applicable to common shareholders for the year ended december 31 , 2011 was $ 35,733 compared to net loss applicable to common shareholders of $ 21,157 for the same period in 2010. operating income for the year ended december 31 , 2011 was $ 40,854 compared to operating income of $ 26,408 during the same period in 2010. the increase in operating income resulted primarily from improved performance of our portfolio and acquisitions that have occurred in 2011. during the year ended december 31 , 2011 , we issued 4,600,000 preferred shares which increased our preferred dividend $ 5,699 for the year ended december 31 , 2011 when compared to 2010. see “ note 1 – organization and summary of significant accounting policies ” of the notes to the consolidated financial statements for the years ended december 31 , 2011 and 2010 for more information . interest expense increased $ 984 from $ 40,718 for the year ended december 31 , 2010 to $ 41,702 for the year ended december 31 , 2011. the increase in interest expense is due primarily to the new debt and associated interest expense for the acquired properties during 2011 and the replacement of our previous line of credit with commerce bank and various other lenders with a new credit facility with td bank , na and various other lenders , which caused an increase in interest expense from 2011 compared to 2010. as noted above , we entered into two purchase and sale agreements to dispose of a portfolio of 18 non-core hotel properties . as a result of entering into these purchase and sale agreements , we have recorded an impairment loss of approximately $ 30,248 for those consolidated assets for which the anticipated net proceeds do not exceed the carrying value . these purchase and sale agreements provide that sales of the individual properties may close at different times and ultimately not all properties may transfer .
| the acquisition of this mortgage note caused us to be the primary beneficiary of the joint venture that owns the courtyard south boston , ma . on july 1 , 2011 , courtyard south boston , ma transferred back to an unconsolidated joint venture property and is represented for six months worth of activity in the table above . 32 comparison of the year ended december 31 , 2011 to december 31 , 2010 ( dollars in thousands , except per share data ) revenue our total revenues for the year ended december 31 , 2011 consisted of hotel operating revenues , interest income from our development loan program and other revenue . hotel operating revenues were approximately 98.7 % and 97.9 % of total revenues for the years ended december 31 , 2011 and 2010 , respectively . hotel operating revenues are recorded for wholly owned hotels that are leased to our wholly owned trs and hotels owned through joint venture interests that are consolidated in our financial statements . hotel operating revenues increased $ 45,508 , or 19.2 % , from $ 237,176 for the year ended december 31 , 2010 to $ 282,684 for the same period in 2011. this increase in hotel operating revenues was primarily attributable to the acquisitions consummated in 2011 and 2010. we acquired interests in the following five consolidated hotels which contributed the following operating revenues for the year ended december 31 , 2011. while we acquired a 100 % interest in the sheraton , new castle , de in 2010 , the property did not open until december 2011. replace_table_token_14_th revenues for all hotels were recorded from the date of acquisition as hotel operating revenues . further , hotel operating revenues for the year ended december 31 , 2011 included revenues for a full year related to five hotels that were purchased during the year ended december 31 , 2010. hotels acquired during the year ended december 31 , 2010 would have a full year of results included in the year ended
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as of december 31 , 2018 , the largest single investment based on fair value represented 4.9 % of our total investment portfolio . as of december 31 , 2018 , the average investment size in each of our portfolio companies was approximately $ 37.1 million based on fair value . through our adviser , we consider potential investments utilizing a four-tiered investment framework and against our existing portfolio as a whole : business and sector selection . we focus on companies with enterprise value between $ 50 million and $ 1 billion . when reviewing potential investments , we seek to invest in businesses with high marginal cash flow , recurring revenue streams and where we believe credit quality will improve over time . we look for portfolio companies that we think have a sustainable competitive advantage in growing industries or distressed situations . we also seek companies where our investment will have a low loan-to-value ratio . we currently do not limit our focus to any specific industry and we may invest in larger or smaller companies on occasion . we classify the industries of our portfolio companies by end-market ( such as healthcare , and business services ) and not by the products or services ( such as software ) directed to those end-markets . as of december 31 , 2018 , the largest industry represented 19.3 % of our total investment portfolio based on fair value . investment structuring . we focus on investing at the top of the capital structure and protecting that position . as of december 31 , 2018 , approximately 97.2 % of our portfolio was invested in secured debt , including 96.9 % in first-lien debt investments . we carefully perform diligence and structure investments to include strong investor covenants . as a result , we structure investments with a view to creating opportunities for early intervention in the event of non-performance or stress . in addition , we seek to retain effective voting control in investments over the loans or particular class of securities in which we invest through maintaining affirmative voting positions or negotiating consent rights that allow us to retain a blocking position . we also aim for our loans to mature on a medium term , between two to six years after origination . for the year ended december 31 , 2018 , the weighted average term on new investment commitments in new portfolio companies was 5.2 years . deal dynamics . we focus on , among other deal dynamics , direct origination of investments , where we identify and lead the investment transaction . a substantial majority of our portfolio investments are sourced through our direct or proprietary relationships . risk mitigation . we seek to mitigate non-credit-related risk on our returns in several ways , including call protection provisions to protect future interest income . as of december 31 , 2018 , we had call protection on 84.1 % of our debt investments based on fair value , with weighted average call prices of 105.7 % for the first year , 103.0 % for the second year and 101.4 % for the third year , in each case from the date of the initial investment . as of december 31 , 2018 , 99.7 % of our debt investments based on fair value bore interest at floating rates ( when including investment specific hedges ) , with 93.4 % of these subject to interest rate floors , which we believe helps act as a portfolio-wide hedge against inflation . relationship with our adviser and tssp our adviser is a delaware limited liability company . our adviser acts as our investment adviser and administrator and is a registered investment adviser with the sec under the advisers act . our adviser sources and manages our portfolio through a dedicated team of investment professionals predominately focused on us . our investment team is led by our chairman and chief executive officer and our adviser 's co-chief investment officer joshua easterly and our adviser 's co-chief investment officer alan waxman , both of whom have substantial experience in credit origination , underwriting and asset management . our investment decisions are made by our investment review committee , which includes senior personnel of our adviser and tpg sixth street partners , llc , or tssp . tssp , with approximately $ 28 billion of assets under management as of september 30 , 2018 , is the global credit and credit-related investment firm partnered with tpg . tssp 's core platforms include tpg specialty lending , tsl europe ( tsle ) , which is aimed at european middle-market loan originations , tssp adjacent opportunities ( tao ) , which has the flexibility to invest across all of tssp 's private credit market investments , tssp opportunities partners ( top ) , which focuses on actively managed opportunistic investments across the credit cycle , tpg institutional credit partners ( ticp ) , which is the firm 's “ public-side ” credit investment platform focused on investment opportunities in broadly syndicated leveraged loan markets , and tssp capital solutions ( tcs ) , which provides financing solutions to growing companies . tssp has a long-term oriented , highly flexible capital base that allows it to invest across industries , geographies , capital structures and asset classes . tssp has extensive experience with highly complex , global public and private investments executed through primary originations , secondary market purchases and restructurings , and has a team of over 58 200 investment and operating professionals . as of december 31 , 2018 , thirty three ( 3 3 ) of these personnel are dedicated to our business , including twenty f ive ( 2 5 ) investment professionals . our adviser consults with tssp in connection with a substantial number of our investments . the tssp platform provides us with a breadth of large and scalable investment resources . story_separator_special_tag we believe we benefit from tssp 's market expertise , insights into industry , sector and macroeconomic trends and intensive due diligence capabilities , which help us discern market conditions that vary across industries and credit cycles , identify favorable investment opportunities and manage our portfolio of investments . tssp and tpg will refer all middle-market loan origination activities for companies domiciled in the united states to us and conduct those activities through us . the adviser will determine whether it would be permissible , advisable or otherwise appropriate for us to pursue a particular investment opportunity allocated to us by tssp and tpg . on december 16 , 2014 , we were granted an exemptive order from the sec that allows us to co-invest , subject to certain conditions and to the extent the size of an investment opportunity exceeds the amount our adviser has independently determined is appropriate to invest , with affiliates of tssp and tpg in middle-market loan origination activities for companies domiciled in the united states and certain “ follow-on ” investments in companies in which we have already co-invested pursuant to the order and remain invested . we believe our ability to co-invest with tssp affiliates is particularly useful where we identify larger capital commitments than otherwise would be appropriate for us . we expect that with the ability to co-invest with tssp affiliates we will continue to be able to provide “ one-stop ” financing to a potential portfolio company in these circumstances , which may allow us to capture opportunities where we alone could not commit the full amount of required capital or would have to spend additional time to locate unaffiliated co-investors . under the terms of the investment advisory agreement and administration agreement , the adviser 's services are not exclusive , and the adviser is free to furnish similar or other services to others , so long as its services to us are not impaired . under the terms of the investment advisory agreement , we will pay the adviser the base management fee , or the management fee , and may also pay certain incentive fees , or the incentive fees . under the terms of the administration agreement , the adviser also provides administrative services to us . these services include providing office space , equipment and office services , maintaining financial records , preparing reports to stockholders and reports filed with the sec , and managing the payment of expenses and the oversight of the performance of administrative and professional services rendered by others . certain of these services are reimbursable to the adviser under the terms of the administration agreement . key components of our results of operations investments we focus primarily on the direct origination of loans to middle-market companies domiciled in the united states . our level of investment activity ( both the number of investments and the size of each investment ) can and does vary substantially from period to period depending on many factors , including the amount of debt and equity capital generally available to middle-market companies , the level of merger and acquisition activity for such companies , the general economic environment and the competitive environment for the types of investments we make . in addition , as part of our risk strategy on investments , we may reduce certain levels of investments through partial sales or syndication to additional investors . revenues we generate revenues primarily in the form of interest income from the investments we hold . in addition , we may generate income from dividends on direct equity investments , capital gains on the sale of investments and various loan origination and other fees . our debt investments typically have a term of two to six years , and , as of december 31 , 2018 , 99.7 % of these investments based on fair value bore interest at a floating rate ( when including investment specific hedges ) , with 93.4 % of these subject to interest rate floors . interest on debt investments is generally payable quarterly or semiannually . some of our investments provide for deferred interest payments or pik interest . for the year ended december 31 , 2018 , 2.5 % of our total investment income was comprised of pik interest . changes in our net investment income are primarily driven by the spread between the payments we receive from our investments in our portfolio companies against our cost of funding , rather than by changes in interest rates . our investment portfolio primarily consists of floating rate loans , and our credit facilities , convertible notes and 2023 notes , after taking into account the effect of the interest rate swaps we have entered into in connection with the convertible notes and 2023 notes , all bear interest at floating rates . 59 macro trends in base interest rates like libor may affect our net investment income over the long term . however , because we generally originate loans to a small number of portfolio companies each quarter , and those investments also vary in size , our results in any given period—including the interest rate on investments that were sold or repaid in a period compared to the interest rate of new investments made during that period—often are idiosyncratic , and reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business . in addition to interest income , our net investment income is also driven by prepayment and other fees , which also can vary significantly from quarter to quarter . the level of prepayment fees is generally correlated to the movement in credit spreads and risk premiums , but also will vary based on corporate events that may take place at an individual portfolio company in a given period—e.g. , merger and acquisition activity , initial public offerings and restructurings .
| from investments , which includes amortization of upfront fees and prepayment fees , increased from $ 177.8 million for the year ended december 31 , 2016 to $ 200.7 million for the year ended december 31 , 2017 , primarily due to an increase in accelerated amortization of upfront fees and prepayment fees . accelerated amortization of upfront fees , primarily from unscheduled paydowns , increased from $ 5.4 million for the year ended december 31 , 2016 to $ 21.1 million for the year ended december 31 , 2017 , and prepayment fees increased from $ 2.6 million for the year ended december 31 , 2016 to $ 12.8 million for the year ended december 31 , 2017. the accelerated amortization and prepayment fees primarily resulted from full paydowns on seven portfolio investments , a partial paydown on one portfolio investment and prepayment fees on four portfolio investments during the year ended december 31 , 2016 , and full paydowns on 22 portfolio investments , partial paydowns on seven portfolio investments and prepayment fees on 12 portfolio investments during the year ended december 31 , 2017. dividend income decreased from $ 1.7 million for the year ended december 31 , 2016 to $ 0.4 million for the year ended december 31 , 2017 due to a partial realization of dividend yielding investments in 2017. other income decreased from $ 12.9 million for the year ended december 31 , 2016 to $ 9.8 million for the year ended december 31 , 2017 , primarily due to lower syndication , amendment and agency fees earned during 2017. expenses operating expenses for the years ended december 31 , 2018 , 2017 and 2016 were as follows : replace_table_token_21_th 66 interest interest expense , including other debt financing expenses , increased from $ 27.4 million for the year ended december 31 , 2017 to $ 42.8 million for the year ended december 31 , 2018. this increase was primarily due to an increase in
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holders of the common stock and the class b stock generally vote together without regard to class on matters submitted to stockholders , including the election of directors . holders of the common stock have one vote per share . holders of the class b stock have 10 votes per share . holders of the common stock , voting separately as a class , are entitled to elect one-sixth of our board of directors . with respect to dividend rights , holders of the common stock are entitled to cash dividends 10 % higher than those declared and paid on the class b stock . hershey trust company , as trustee for the benefit of milton hershey school ( the milton hershey school trust or the trust ) maintains voting control over the hershey company . in addition , the milton hershey school trust currently has three representatives who are members of the board of directors of the company , one of whom is the chairman of the board . these representatives , from time to time in performing their responsibilities on the company 's board , may exercise influence with regard to the ongoing business decisions of our board of directors or management . the trust has indicated that , in its role as controlling stockholder of the company , it intends to retain its controlling interest in the hershey company and the company board , and not the trust board , is solely responsible and accountable for the company 's management and performance . the milton hershey school trust decided to explore a sale of the hershey company in june 2002 , but subsequently decided to terminate the sale process in september 2002. after terminating the sale process , the trustee of the milton hershey school trust advised the pennsylvania office of attorney general in september 2002 that it would not agree to any sale of its controlling interest in the hershey company without approval of the court having jurisdiction over the milton hershey school trust following advance notice to the office of attorney general . subsequently , pennsylvania enacted legislation that requires that the office of attorney general be provided advance notice of any transaction that would result in the milton hershey school trust no longer having voting control of the company . the law provides specific statutory authority for the attorney general to intercede and petition the court having jurisdiction over the milton hershey school trust to stop such a transaction if the attorney general can prove that the transaction is unnecessary for the future economic viability of the company and is inconsistent with investment and management considerations under fiduciary obligations . this legislation could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock and thereby delay or prevent a change in control of the company . noncontrolling interests in subsidiaries in may 2007 , we entered into an agreement with godrej beverages and foods , ltd. , one of india 's largest consumer goods , confectionery and food companies , to manufacture and distribute confectionery products , snacks and beverages across india . under the agreement , we own a 51 % controlling interest in godrej hershey ltd. in january 2009 , the company contributed cash of approximately $ 8.7 million to godrej hershey ltd. and 30 owners of the noncontrolling interests in godrej hershey ltd. contributed approximately $ 7.3 million . in june 2010 , the company and the noncontrolling interests executed a rights agreement with godrej hershey ltd. in the form of unsecured compulsorily and fully convertible debentures . the company contributed cash of approximately $ 11.1 million and the noncontrolling interests contributed $ 9.3 million associated with the rights agreement . the ownership interest percentages in godrej hershey ltd. did not change significantly as a result of these contributions . the noncontrolling interests in godrej hershey ltd. are included in the equity section of the consolidated balance sheets . we own a 51 % controlling interest in hershey do brasil under a cooperative agreement with pandurata netherlands b.v. ( bauducco ) , a leading manufacturer of baked goods in brazil whose primary brand is bauducco . in september 2010 , the company contributed cash of approximately $ 1.0 million to hershey do brasil and bauducco contributed approximately $ 0.9 million . the noncontrolling interest in hershey do brasil is included in the equity section of the consolidated balance sheets . the decrease in noncontrolling interests in subsidiaries from $ 35.3 million as of december 31 , 2010 to $ 23.6 million as of december 31 , 2011 reflected the noncontrolling interests ' share of losses of these entities as well as the impact of currency translation adjustments . the share of losses pertaining to the noncontrolling interests in subsidiaries was $ 7.4 million for the year ended december 31 , 2011 , $ 8.2 million for the year ended december 31 , 2010 and $ 4.1 million for the year ended december 31 , 2009. this was reflected in selling , marketing and administrative expenses . liquidity and capital resources our principal source of liquidity is operating cash flows . our net income and , consequently , our cash provided from operations are impacted by : sales volume , seasonal sales patterns , timing of new product introductions , profit margins and price changes . sales are typically higher during the third and fourth quarters of the year due to seasonal and holiday-related sales patterns . generally , working capital needs peak during the summer months . we meet these needs primarily by utilizing cash on hand or by issuing commercial paper . cash flows from operating activities our cash flows provided from ( used by ) operating activities were as follows : replace_table_token_12_th over the past three years , total cash provided from operating activities was approximately $ 2.5 billion . depreciation and amortization expenses increased in 2011 , story_separator_special_tag holders of the common stock and the class b stock generally vote together without regard to class on matters submitted to stockholders , including the election of directors . holders of the common stock have one vote per share . holders of the class b stock have 10 votes per share . holders of the common stock , voting separately as a class , are entitled to elect one-sixth of our board of directors . with respect to dividend rights , holders of the common stock are entitled to cash dividends 10 % higher than those declared and paid on the class b stock . hershey trust company , as trustee for the benefit of milton hershey school ( the milton hershey school trust or the trust ) maintains voting control over the hershey company . in addition , the milton hershey school trust currently has three representatives who are members of the board of directors of the company , one of whom is the chairman of the board . these representatives , from time to time in performing their responsibilities on the company 's board , may exercise influence with regard to the ongoing business decisions of our board of directors or management . the trust has indicated that , in its role as controlling stockholder of the company , it intends to retain its controlling interest in the hershey company and the company board , and not the trust board , is solely responsible and accountable for the company 's management and performance . the milton hershey school trust decided to explore a sale of the hershey company in june 2002 , but subsequently decided to terminate the sale process in september 2002. after terminating the sale process , the trustee of the milton hershey school trust advised the pennsylvania office of attorney general in september 2002 that it would not agree to any sale of its controlling interest in the hershey company without approval of the court having jurisdiction over the milton hershey school trust following advance notice to the office of attorney general . subsequently , pennsylvania enacted legislation that requires that the office of attorney general be provided advance notice of any transaction that would result in the milton hershey school trust no longer having voting control of the company . the law provides specific statutory authority for the attorney general to intercede and petition the court having jurisdiction over the milton hershey school trust to stop such a transaction if the attorney general can prove that the transaction is unnecessary for the future economic viability of the company and is inconsistent with investment and management considerations under fiduciary obligations . this legislation could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock and thereby delay or prevent a change in control of the company . noncontrolling interests in subsidiaries in may 2007 , we entered into an agreement with godrej beverages and foods , ltd. , one of india 's largest consumer goods , confectionery and food companies , to manufacture and distribute confectionery products , snacks and beverages across india . under the agreement , we own a 51 % controlling interest in godrej hershey ltd. in january 2009 , the company contributed cash of approximately $ 8.7 million to godrej hershey ltd. and 30 owners of the noncontrolling interests in godrej hershey ltd. contributed approximately $ 7.3 million . in june 2010 , the company and the noncontrolling interests executed a rights agreement with godrej hershey ltd. in the form of unsecured compulsorily and fully convertible debentures . the company contributed cash of approximately $ 11.1 million and the noncontrolling interests contributed $ 9.3 million associated with the rights agreement . the ownership interest percentages in godrej hershey ltd. did not change significantly as a result of these contributions . the noncontrolling interests in godrej hershey ltd. are included in the equity section of the consolidated balance sheets . we own a 51 % controlling interest in hershey do brasil under a cooperative agreement with pandurata netherlands b.v. ( bauducco ) , a leading manufacturer of baked goods in brazil whose primary brand is bauducco . in september 2010 , the company contributed cash of approximately $ 1.0 million to hershey do brasil and bauducco contributed approximately $ 0.9 million . the noncontrolling interest in hershey do brasil is included in the equity section of the consolidated balance sheets . the decrease in noncontrolling interests in subsidiaries from $ 35.3 million as of december 31 , 2010 to $ 23.6 million as of december 31 , 2011 reflected the noncontrolling interests ' share of losses of these entities as well as the impact of currency translation adjustments . the share of losses pertaining to the noncontrolling interests in subsidiaries was $ 7.4 million for the year ended december 31 , 2011 , $ 8.2 million for the year ended december 31 , 2010 and $ 4.1 million for the year ended december 31 , 2009. this was reflected in selling , marketing and administrative expenses . liquidity and capital resources our principal source of liquidity is operating cash flows . our net income and , consequently , our cash provided from operations are impacted by : sales volume , seasonal sales patterns , timing of new product introductions , profit margins and price changes . sales are typically higher during the third and fourth quarters of the year due to seasonal and holiday-related sales patterns . generally , working capital needs peak during the summer months . we meet these needs primarily by utilizing cash on hand or by issuing commercial paper . cash flows from operating activities our cash flows provided from ( used by ) operating activities were as follows : replace_table_token_12_th over the past three years , total cash provided from operating activities was approximately $ 2.5 billion . depreciation and amortization expenses increased in 2011 ,
| the change in market share is provided for channels measured by syndicated data which include sales in the food , drug , convenience store and mass merchandiser classes of trade , excluding sales of wal-mart stores , inc. cost of sales and gross margin 2011 compared with 2010 the cost of sales increase of 9.0 % in 2011 compared with 2010 was primarily associated with higher sales volume and significantly higher commodity costs which together increased cost of sales by approximately 8 % , each contributing about half of the increase . increases in other supply chain costs were essentially offset by productivity improvements . business realignment and impairment charges of $ 45.1 million were included in cost of sales in 2011 , compared with $ 13.7 million in the prior year , contributing approximately 1 % of the cost of sales increase . gross margin decreased by 1.0 percentage point in 2011 compared with 2010. higher commodity and other supply chain costs reduced gross margin by about 3.2 percentage points , substantially offset by productivity improvements and price realization of approximately 2.8 percentage points . supply chain productivity and net price realization each contributed approximately half of this gross margin improvement . the impact of higher business realignment and impairment charges recorded in 2011 compared with 2010 reduced gross margin by 0.6 percentage points . 23 2010 compared with 2009 the cost of sales increase of 0.3 % was associated with sales volume increases , resulting in higher cost of sales of about 4 % . increased supply chain costs and slightly higher input costs also contributed to the cost of sales increase . these increases were substantially offset by cost decreases resulting from supply chain productivity improvements , a favorable sales mix and lower product obsolescence costs , which reduced cost of sales by a total of approximately 4.5 % . business realignment and impairment charges of $ 13.7 million were included in cost of sales in 2010 compared with
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if confidential data is later determined to have been released in the course of this event , it is possible that we could be the subject of actions by governmental authorities or claims from persons alleging they suffered damages from such a release . as of the date of this filing , we estimate the costs associated with the intrusion to be approximately $ 1.5 million and are seeking to recover these costs under an applicable insurance policy . although we believe we have now contained the disruption , we anticipate additional work and expense in the future as we continue to respond to the attack and further enhance our security processes and initiatives . critical accounting policies , significant judgments and estimates our consolidated financial statements and the related notes included elsewhere in this form 10-k are prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs , and expenses and related disclosures . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . changes in accounting estimates may occur from period to period . accordingly , actual results could differ significantly from the estimates made by our management . we evaluate our estimates and assumptions on an ongoing basis . to the extent that there are material differences between these estimates and actual results , our future financial statement presentation , financial condition , results of operations , and cash flows will be affected . we believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies . accordingly , these are the policies we believe are the most critical to understanding and evaluating of our audited 2018 consolidated financial statements . revenue recognition we generate revenue primarily from sales of our products and services . our product revenue consists of sales of our mass cytometry , high-throughput genomics and single-cell genomics instruments and consumables , including ifcs , assays , and other reagents . our service revenue consists of post-warranty service contracts , preventive maintenance plans , repairs , installation , training and other specialized product support services . we also receive revenue from our license agreements with third parties . revenue is reported net of any sales , use and value-added taxes we collect from customers as required by government authorities . we recognize revenue based on the amount of consideration we expect to receive in exchange for the goods and services we transfer to the customer . our commercial arrangements typically include multiple distinct products and services , and we allocate revenue to these performance obligations based on their relative standalone selling prices . standalone selling prices ( ssps ) are generally determined using observable data from recent transactions . in cases where sufficient data is not available , we estimate a product 's ssp using a cost plus a margin approach or by applying a discount to the product 's list price . product revenue we recognize product revenue at the point in time when control of the goods passes to the customer and we have an enforceable right to payment . this generally occurs either when the product is shipped from one of our facilities or when it arrives at the customer 's facility , based on the contractual terms . customers generally do not have a unilateral right to return products after delivery . invoices are generally issued at shipment and become due in 30 to 60 days . service revenue we recognize revenue from repairs , installation , training and other specialized product support services at the point in time the work is completed . installation and training services are generally billed in advance of service . repairs and other services are generally billed at the point the work is completed . 42 revenue associated with instrument service contracts is recognized on a straight-line basis over the life of the agreement , which is generally one to three years . we believe this approach is appropriate for service contracts because we provide services on demand throughout the term of the agreement . invoices are generally issued in advance of service on a monthly , quarterly , annual or multi-year basis . payments made in advance of service are reported on our consolidated balance sheet as deferred revenue . contract costs incremental sales commission costs incurred to obtain instrument service contracts are capitalized and amortized to selling , general and administrative expense over the life of the contract , which is generally one to three years . as a practical expedient , we expense sales commissions associated with product support services that are delivered in less than one year as they are incurred . sales commissions associated with the sale of products are expensed as they are incurred . product warranties we generally provide a one-year warranty on our instruments . we accrue for estimated warranty obligations at the time of product shipment . we periodically review our warranty liability and record adjustments based on the terms of warranties provided to customers , and historical and anticipated warranty claim experience . this expense is recorded as a component of cost of product revenue in the consolidated statements of operations . significant judgments applying the revenue recognition practices discussed above often requires significant judgment . judgment is required when identifying performance obligations , estimating ssp and allocating purchase consideration in multi-element arrangements and estimating the future amount of our warranty obligations . significant judgment is also required when interpreting commercial terms and determining when control of goods and services passes to the customer . any material changes created by errors in judgment could have a material effect on our operating results and overall financial condition . story_separator_special_tag goodwill , intangible assets and other long-lived assets goodwill , which has an indefinite useful life , represents the excess of cost over fair value of net assets acquired . our intangible assets include developed technology , patents and licenses . the cost of identifiable intangible assets with finite lives is generally amortized on a straight-line basis over the assets ' respective estimated useful lives . goodwill and intangible assets with indefinite lives are not subject to amortization , but are tested for impairment on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable . we first conduct an assessment of qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount . if we determine that it is more likely than not that the fair value of our reporting unit is less than its carrying amount , we then conduct a two-step test for impairment of goodwill . in the first step , we compare the fair value of our reporting unit to its carrying value . if the fair value of our reporting unit exceeds its carrying value , goodwill is not considered impaired and no further analysis is required . if the carrying value of the reporting unit exceeds its fair value , then the second step of the impairment test must be performed in order to determine the implied fair value of the goodwill . if the carrying value of the goodwill exceeds its implied fair value , then an impairment loss equal to the difference would be recorded . we evaluate our long-lived assets , including finite-lived intangibles , for indicators of possible impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable . if any indicators of impairment exist , we assess the recoverability of the affected long-lived assets by determining whether the carrying value of the asset can be recovered through undiscounted future operating cash flows . if impairment is indicated , we estimate the asset 's fair value using future discounted cash flows associated with the use of the asset and adjust the carrying value of the asset accordingly . we did not recognize any impairment of long-lived assets for any of the periods presented herein . convertible notes in february 2014 , we closed an underwritten public offering $ 201.3 million aggregate principal amount of our 2.75 % senior convertible notes due 2034 ( 2014 notes ) . in march 2018 , we entered into separate privately negotiated transactions with certain holders of our 2014 notes to exchange $ 150.0 million in aggregate principal amount of the 2014 notes for our new 2.75 % exchange convertible senior notes due 2034 ( 2018 notes ) . following the exchange , approximately $ 51.3 million in 43 aggregate principal amount of the 2014 notes remained outstanding in addition to $ 150.0 million in aggregate principal amount of the 2018 notes . as the 2018 notes are convertible , at our election , into cash , shares of our common stock , or a combination of cash and shares of our common stock , we accounted for the 2018 notes under the cash conversion guidance in asc 470 , whereby the embedded conversion option in the 2018 notes was separated and accounted for in equity . the embedded conversion option value was calculated as the difference between ( i ) the total fair value of the 2018 notes and ( ii ) the fair value of a similar debt instrument excluding the embedded conversion option . we determined an embedded conversion option value of $ 29.3 million , which was recorded in additional paid-in-capital and reduced the carrying value of the 2018 notes . the resulting discount on the 2018 notes will be amortized over the expected term of the 2018 notes , using the effective interest method through the first note holder put date of february 6 , 2023. for both the 2014 notes and 2018 notes , offering-related costs , including underwriting costs , were capitalized as debt issuance costs , recorded as an offset to the carrying value of the related notes , and are amortized over the expected term of the related notes using the effective interest method . stock-based compensation our board of directors sets the terms , conditions , and restrictions related to our employee stock purchase plan ( espp ) and the grant of stock options , restricted share units ( rsus ) and performance-based awards under our various stock-based plans . our board of directors determines the number of awards to grant and sets the vesting criteria . for performance-based share awards , our board of directors sets the performance objectives and other vesting provisions in determining the number of shares or value of performance units and performance shares that will be paid out . such payout will be a function of the extent to which performance objectives or other vesting provisions have been achieved . we recognize compensation costs for all stock-based awards , including stock options , rsus , and stock purchased under our espp , based on the grant date fair value of the award . we recognize stock-based compensation expense on a straight-line basis over the requisite service periods for non-performance-based awards . for performance-based stock awards , stock-based compensation expense is recognized over the requisite service period when the achievement of each individual performance goal becomes probable . stock-based compensation cost for restricted stock units granted to employees is measured based on the closing fair market value of our common stock on the date of grant . the fair value of options and stock purchases under espp on the grant date is estimated using the black-scholes option-pricing model , which requires the use of certain subjective assumptions , including expected term , volatility , risk-free interest rate and the fair value of our common stock .
| total revenue total revenue increased by $ 11.0 million or 11 % , to $ 113.0 million for 2018 compared to $ 101.9 million for 2017 , primarily due to increased sales of our mass cytometry instruments and related service revenues , mass cytometry consumables , and microfluidics consumables . revenue grew in 2018 compared to the prior year across all regions for both products and services . the significant growth in the asia-pacific region primarily reflects mass cytometry instrument and consumables growth in japan and china . changes in foreign currency exchange rates had a minimal impact on revenue in 2018. total revenue decreased by $ 2.5 million , or 2 % , to $ 101.9 million for 2017 compared to $ 104.4 million for 2016.the revenue decrease was predominantly in the united states , partially offset by increases in europe and asia-pacific . the decrease in the united states was mainly attributable to lower instrument sales , particularly our single-cell systems , partially offset by an increase in service revenue . the increases in europe and asia-pacific were primarily driven by higher mass cytometry product sales , partially offset by a decrease in sales of our single-cell products . product revenue product revenue increased by $ 9.3 million , or 11 % , to $ 93.7 million for 2018 from $ 84.4 million in 2017. instrument sales increased $ 3.0 million , or 7 % in 2018 compared to 2017 , due to higher mass cytometry instrument sales in the americas and asia-pacific from higher unit volumes and average selling prices , partially offset by softer microfluidic instrument sales in both regions . instrument sales in emea declined in 2018 compared to 2017 , with softer mass cytometry instrument sales partially offset by higher microfluidic instrument sales . consumables sales increased $ 6.3 million , or 15 % in 2018 compared to 2017 , due to unit volume growth in both mass cytometry and microfluidic consumables , which comprise the bulk of our microfluidics business . asia-pacific
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interest expense in the preceding table for fiscal years 2019 and 2018 is net of capitalized interest of $ 8.8 million and $ 13.6 million , respectively . 35 other expense during fiscal 2019 we recorded a loss on debt extinguishment of $ 90.2 million ( see note 8 of the notes to the consolidated financial statements set forth in part ii , item 8 for additional information regarding our debt extinguishment activity ) . income tax benefit ( expense ) income tax benefit for fiscal 2019 was $ 41.3 million . this was primarily comprised of tax benefits related to domestic and international operations generating pre-tax book losses , tax credits , adjustments related to provisional estimates for the impact of the tax act , and a decrease in gross unrecognized tax benefits , offset by tax expenses related to international operations generating pre-tax book income and $ 70.8 million related to the gilti inclusions . for fiscal 2019 , this resulted in an annual effective tax rate of ( 45.0 ) % . income tax expense for fiscal 2018 was $ 57.4 million . this was primarily comprised of tax expense related to the net $ 77.3 million provisional impact of the tax act , international operations generating pre-tax book income and an increase in gross unrecognized tax benefits , offset by tax benefits related to tax credits and domestic and international operations generating pre-tax book losses . for fiscal 2018 , this resulted in an annual effective tax rate of 335.0 % . a valuation allowance has been established against deferred tax assets in the taxing jurisdictions where , based upon the positive and negative evidence available , it is more likely than not that the related deferred tax assets will not be realized . realization is dependent upon generating future income in the taxing jurisdictions in which the operating loss carryovers , credit carryovers , depreciable tax basis , and other deferred tax assets exist . management reevaluates the ability to realize the benefit of these deferred tax assets on a quarterly basis . as of the end of fiscal years 2019 and 2018 , the valuation allowance against domestic and foreign deferred tax assets was $ 40.4 million and $ 42.8 million , respectively . see note 12 of the notes to the consolidated financial statements set forth in part ii , item 8 of this report for additional information regarding income taxes . stock-based compensation under financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` asc '' ) 718 , “ compensation – stock compensation , ” stock-based compensation cost is measured at the grant date , based on the estimated fair value of the award using an option pricing model for stock options ( black-scholes ) and market price for restricted stock units , and is recognized as expense over the employee 's requisite service period . as of march 30 , 2019 , total remaining unearned compensation cost related to unvested restricted stock units and options was $ 74.0 million , which will be amortized over the weighted-average remaining service period of approximately 1.2 years . liquidity and capital resources cash generated by operations is our primary source of liquidity . as of march 30 , 2019 , we had working capital of approximately $ 1,249.2 million , including $ 711.0 million in cash and cash equivalents , compared to working capital of $ 1,402.5 million , including $ 926.0 million in cash and cash equivalents , as of march 31 , 2018 . our $ 711.0 million of total cash and cash equivalents as of march 30 , 2019 , includes approximately $ 476.8 million held by our foreign subsidiaries , of which $ 345.1 million is held by qorvo international pte . ltd. in singapore . if the undistributed earnings of our foreign subsidiaries are needed in the u.s. , we may be required to accrue and pay state income and or foreign local withholding taxes to repatriate these earnings . under our current plans , we may repatriate the foreign earnings of qorvo international pte . ltd. and expect to permanently reinvest the undistributed earnings of our other foreign subsidiaries . 36 credit agreement on december 5 , 2017 , we and certain of our material domestic subsidiaries ( the “ guarantors ” ) entered into a five-year unsecured senior credit facility with bank of america , n.a. , as administrative agent , swing line lender , and l/c issuer , and a syndicate of lenders ( as amended , the “ credit agreement ” ) . on the same date , in connection with the execution of the credit agreement , we terminated our prior credit agreement , dated april 7 , 2015. the credit agreement includes a senior delayed draw term loan of up to $ 400.0 million ( the `` term loan '' ) and a $ 300.0 million revolving line of credit ( the `` revolving facility '' , together with the term loan , the `` credit facility '' ) . in december 2017 , $ 100.0 million of the term loan was funded , and this amount was subsequently repaid in march 2018. the remainder of the term loan is available , at our discretion , in up to two draws prior to june 30 , 2019 . the revolving facility includes a $ 25.0 million sublimit for the issuance of standby letters of credit and a $ 10.0 million sublimit for swing line loans . we may request at any time that the credit facility be increased by an amount not to exceed $ 300.0 million . the credit facility is available to finance working capital , capital expenditures and other corporate purposes . our obligations under the credit agreement are jointly and severally guaranteed by the guarantors . story_separator_special_tag outstanding amounts are due in full on the maturity date of december 5 , 2022 ( with amounts borrowed under the swing line option due in full no later than ten business days after such loan is made ) . we had no outstanding amounts under the credit facility as of march 30 , 2019 . see note 8 of the notes to the consolidated financial statements set forth in part ii , item 8 of this report for further information about the credit agreement , including applicable interest rates and financial covenants . as of march 30 , 2019 , we were in compliance with all the financial covenants under the credit agreement . stock repurchases on may 23 , 2018 , we announced that our board of directors authorized a share repurchase program to repurchase up to $ 1.0 billion of our outstanding stock , which included approximately $ 126.3 million authorized under a prior share repurchase program which was terminated concurrent with the new authorization . under this program , share repurchases will be made in accordance with applicable securities laws on the open market or in privately negotiated transactions . the extent to which we repurchase our shares , the number of shares and the timing of any repurchases will depend on general market conditions , regulatory requirements , alternative investment opportunities and other considerations . the program does not require us to repurchase a minimum number of shares , does not have a fixed term , and may be modified , suspended or terminated at any time without prior notice . we repurchased 9.1 million shares and 2.9 million shares of our common stock during fiscal years 2019 and 2018 , respectively , at an aggregate cost of $ 638.1 million and $ 219.9 million , respectively , in accordance with our share repurchase program described above and its predecessor share repurchase program . as of march 30 , 2019 , $ 397.9 million remains available for future repurchases under our current share repurchase program . cash flows from operating activities operating activities in fiscal 2019 provided cash of $ 810.4 million , compared to $ 852.5 million in fiscal 2018 . this year-over-year decrease was primarily due to unfavorable changes in working capital and increased tax payments , offset by increased net income in fiscal 2019 . cash flows from investing activities net cash used in investing activities in fiscal 2019 was $ 247.6 million , compared to $ 277.4 million in fiscal 2018 . we are controlling capital expenditures through the reuse of tools and reconfiguration of our factories . cash flows from financing activities net cash used in financing activities in fiscal 2019 was $ 776.7 million , compared to $ 196.8 million in fiscal 2018 . this year-over-year increase was primarily due to higher share repurchase activity , the repurchase and redemption of the 2023 notes and the repurchase of a majority of the 2025 notes , partially offset by the issuance of the 2026 notes . 37 our future capital requirements may differ materially from those currently anticipated and will depend on many factors , including market acceptance of and demand for our products , acquisition opportunities , technological advances and our relationships with suppliers and customers . based on current and projected levels of cash flow from operations , coupled with our existing cash and cash equivalents and our credit facility , we believe that we have sufficient liquidity to meet both our short-term and long-term cash requirements . however , if there is a significant decrease in demand for our products , or if our revenue grows faster than we anticipate , operating cash flows may be insufficient to meet our needs . if existing resources and cash from operations are not sufficient to meet our future requirements or if we perceive conditions to be favorable , we may seek additional debt or equity financing . additional equity or debt financing could be dilutive to holders of our common stock . further , we can not be sure that additional equity or debt financing , if required , will be available on favorable terms , if at all . impact of inflation we do not believe that the effects of inflation had a significant impact on our revenue or operating income during fiscal years 2019 and 2018 . off-balance sheet arrangements as of march 30 , 2019 , we had no off-balance sheet arrangements as defined in item 303 ( a ) ( 4 ) ( ii ) of sec regulation s-k. contractual obligations the following table summarizes our significant contractual obligations and commitments ( in thousands ) as of march 30 , 2019 , and the effect such obligations are expected to have on our liquidity and cash flows in future periods . replace_table_token_7_th ( 1 ) capital commitments represent obligations for the purchase of property and equipment . they are not recorded as liabilities on our consolidated balance sheet because we had not received the related goods or services as of march 30 , 2019 . ( 2 ) long-term debt obligations represent future cash payments of principal and interest over the life of the 2025 notes and 2026 notes , including anticipated interest payments not recorded as liabilities on our consolidated balance sheet as of march 30 , 2019 . debt obligations are classified based on their stated maturity date , and any future redemptions would impact our cash payments . see note 8 of the notes to the consolidated financial statements set forth in part ii , item 8 of this report for further information . ( 3 ) the capital lease obligation primarily relates to a lease that was signed in fiscal 2018 for an assembly and test facility in beijing , china . this lease will allow us to consolidate several leased facilities in beijing , china . the lease is not recorded on our consolidated balance sheet as of march 30 , 2019 because the lease term is not expected to commence until fiscal 2021 .
| shipments to asia totaled $ 2,446.3 million in 33 fiscal 2019 ( approximately 79 % of revenue ) compared to $ 2,329.3 million in fiscal 2018 ( approximately 78 % of revenue ) . gross margin gross margin was relatively flat for fiscal 2019 as compared to fiscal 2018 , with average selling price erosion offset by favorable changes in product mix . operating expenses research and development in fiscal 2019 , r & d spending increased $ 5.4 million , compared to fiscal 2018 , primarily due to higher personnel related costs , partially offset by lower product development spend driven by r & d efficiency initiatives . selling , general and administrative in fiscal 2019 , selling , general and administrative expense decreased $ 51.7 million , or 9.8 % , compared to fiscal 2018 , primarily due to lower intangible amortization , partially offset by higher personnel related costs . other operating expense in fiscal 2019 , other operating expense was $ 52.2 million . in fiscal 2019 , we recognized $ 15.9 million of asset impairment charges ( to adjust the carrying value of certain property and equipment to reflect fair value ) and $ 11.6 million of employee termination benefits as a result of restructuring actions ( see note 11 of the notes to the consolidated financial statements set forth in part ii , item 8 of this report for information on restructuring actions ) . in fiscal 2019 , we also recorded $ 18.0 million of start-up costs related to new processes and operations in existing facilities . in fiscal 2018 , other operating expense was $ 103.8 million . in fiscal 2018 , we initiated restructuring actions to improve operating efficiencies , and , as a result of these actions , we recorded approximately $ 18.3 million of employee termination benefits and adjusted the carrying value of certain held for sale assets located in china and the u.s. to fair market value ( resulting in impairment charges totaling approximately $ 46.3 million ) . in fiscal 2018 , we also recorded integration costs
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the chiesi us agreement provided for additional payments to protalix ltd. of up to a maximum of $ 20.0 million to cover development costs for pegunigalsidase alfa , subject to a maximum of $ 7.5 million per year , and to receive additional payments of up to a maximum of $ 760.0 million , in the aggregate , in regulatory and commercial milestone payments . to date , protalix ltd. has received the complete amount of development costs to which it is entitled under the chiesi agreements . under the terms of both of the chiesi agreements , protalix ltd. is required to manufacture all of the pegunigalsidase alfa needed under the agreements , subject to certain exceptions , and chiesi is required to purchase pegunigalsidase alfa from protalix , subject to certain terms and conditions . under the chiesi ex-us agreement , chiesi is required to make tiered payments of 15 % to 35 % of its net sales , depending on the amount of annual sales outside of the united states , as consideration for product supply . under the chiesi us agreement , chiesi is required to make tiered payments of 15 % to 40 % of its net sales , depending on the amount of annual sales in the united states , as consideration for product supply . on may 1 , 2012 , the fda approved for sale our first commercial product , taliglucerase alfa for injection , an ert for the long-term treatment of adult patients with a confirmed diagnosis of type 1 gaucher disease . subsequently , taliglucerase alfa was approved for marketing by the regulatory authorities of other countries . taliglucerase alfa is marketed under the name biomanguinhos alfataliglicerase in brazil and certain other latin american countries , and under the name elelyso in other territories . since its approval by the fda , taliglucerase alfa has been marketed by pfizer , as provided in the pfizer agreement . in october 2015 , we entered into the amended pfizer agreement which amends and restates the pfizer agreement in its entirety . pursuant to the amended pfizer agreement , we sold to pfizer our share in the collaboration created under the initial pfizer agreement for the commercialization of elelyso in exchange for a cash payment equal to $ 36.0 million . under the amended pfizer agreement , pfizer has an exclusive license to commercialize elelyso worldwide other than brazil ; we maintain full rights to biomanguinhos alfataliglicerase in brazil . we will continue to manufacture drug substance for pfizer , subject to certain terms and conditions . under the amended pfizer agreement , pfizer is responsible for 100 % of expenses , and entitled to all revenues globally for elelyso , excluding brazil , where we are responsible for all expenses and retain all revenues . on june 18 , 2013 , we entered into the brazil agreement with fiocruz , an arm of the brazilian moh , for biomanguinhos alfataliglicerase . as fiocruz has not satisfied certain purchase commitments under the agreement , we and fiocruz are currently discussing potential steps to maximize sales of biomanguinhos alfataliglicerase sales to the brazilian moh . we are continuing to supply biomanguinhos alfataliglicerase to fiocruz , and patients continue to be treated with biomanguinhos alfataliglicerase in brazil . we are discussing with fiocruz potential actions that fiocruz may take to comply with its purchase obligations and , based on such discussions , we will determine what we believe to be the course of action that is in our best interest . in addition to prx-102 , our product pipeline currently includes , among other candidates : 1 ) alidornase alfa , or prx-110 , a proprietary plant cell recombinant human deoxyribonuclease 1 , or dnase , which is subject to an exclusive worldwide license agreement with sarcomed for use in the treatment of any human respiratory disease or condition including , but not limited to , sarcoidosis , pulmonary fibrosis , and other related diseases via inhaled delivery ; 2 ) prx-115 , our plant cell-expressed recombinant pegylated uricase ( urate oxidase ) – a chemically modified enzyme to treat refractory gout ; and 3 ) prx-119 , our plant cell-expressed pegylated recombinant human dnase i product candidate being designed to elongate half-life in the circulation for nets-related diseases . we have licensed the rights to commercialize taliglucerase alfa worldwide ( other than brazil ) to pfizer , and the rights to commercialize pegunigalsidase alfa worldwide to chiesi . otherwise , we hold the worldwide commercialization rights to 59 our other proprietary development candidates . in addition , we continuously evaluate potential strategic marketing partnerships as well as collaboration programs with biotechnology and pharmaceutical companies and academic research institutes . critical accounting policies our significant accounting policies are more fully described in note 1 to our consolidated financial statements appearing at the end of this annual report on form 10-k. we believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations . the discussion and analysis of our financial condition and results of operations is based on our financial statements , which we prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate such estimates and judgments , including those described in greater detail 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 . story_separator_special_tag the full extent to which the covid-19 pandemic will directly or indirectly impact our financial condition , liquidity , or results of operations will depend on future developments that are highly uncertain , including as a result of new information that may emerge concerning covid-19 and the actions taken to contain or treat covid-19 , as well as the economic impact on local , regional , national and international customers and markets . functional currency the currency of the primary economic environment in which our operations are conducted is the u.s. dollar . all of our revenues are derived in dollars . in addition , most of our expenses and capital expenditures are incurred in dollars , and the major source of our financing has been provided in dollars . revenues our primary sources of revenues include our sales of biomanguinhos alfataliglicerase in brazil , of drug substance to pfizer under our amended pfizer agreement and of drug product to chiesi under the chiesi agreements . we recognize revenue from the amended pfizer agreement at a point in time when control over the product is transferred to customers ( upon delivery ) . we also generate revenues from the chiesi agreements . according to accounting standards codification 606 , revenue from contracts with customers , and all the related amendments , or asc 606 , a performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services . goods and services that are not distinct are bundled with other goods or services in the contract until a bundle of goods or services that is distinct is created . a good or service promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity 's promise to transfer the good or service to the customer is separately identifiable from other promises in the contract . we have identified two performance obligations in the chiesi agreements as follows : ( 1 ) the license and research and development services and ( 2 ) contingent performance obligation regarding future manufacturing . we determined that the license together with the research and development services should be combined into single performance obligation since chiesi can not benefit from the license without the research and development services . the research and development services are highly specialized and are dependent on the supply of the drug . the future manufacturing is contingent on regulatory approvals of the drug and we deem these services to be separately identifiable from other performance obligations in the contract . manufacturing services post-regulatory approval are not interdependent or interrelated with the license and research and development services . 60 the transaction price was comprised of fixed consideration and variable consideration ( capped research and development reimbursements ) . under asc 606 , the consideration to which we would be entitled upon the achievement of contractual milestones , which are contingent upon the occurrence of future events , are a form of variable consideration . we estimate variable consideration using the most likely method . amounts included in the transaction price are recognized only when it is probable that a significant reversal of cumulative revenues will not occur . prior to recognizing revenue from variable consideration , we use significant judgment to determine the probability of a significant reversal of such revenue . since the customer benefits from the research and development services as the entity performs the service , revenue from granting the license and the research and development services is recognized over time using the cost-to-cost method . we used significant judgment when we determined the costs expected to be incurred upon satisfying the identified performance obligation . revenue from additional research and development services ordered by chiesi is recognized over time using the cost-to-cost method . we accounted for the chiesi us agreement as a modification of the chiesi ex-us agreement . as such , we recorded revenue through a cumulative catch-up adjustment . our revenue recognition accounting policy prior to january 1 , 2019 , was materially the same . research and development expense we expect our research and development expense to remain our primary expense in the near future as we continue to develop our product candidates . research and development expense consists of : ● internal costs associated with research and development activities ; ● payments made to third party contract research organizations , investigative/clinical sites and consultants ; ● manufacturing development costs ; ● personnel-related expenses , including salaries , benefits , travel , and related costs for the personnel involved in research and development ; ● activities relating to the advancement of product candidates through preclinical studies and clinical trials ; and ● facilities and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , as well as laboratory and other supplies . 61 the following table identifies our current major research and development projects : project status expected near term milestones prx-102 – pegunigalsidase alfa bridge and bright studies complete ; balance study fully-enrolled and ongoing pdufa date of prx-102 bla submission is april 27 , 2021 ; interim results from balance study in the first half of 2021 prx-110 – alidornase alfa out-licensed human respiratory indications for inhalation-based delivery to sarcomed prx-115 – uricase preclinical prx-119 – long acting dnase i preclinical we anticipate incurring increasing costs in connection with the continued development of all of the product candidates in our pipeline . our internal resources , employees and infrastructure are not tied to any individual research project and are typically deployed across all of our projects . we currently do not record and maintain research and development costs per project . the costs and expenses of our projects are partially funded by grants we have received from nati . each grant is deducted from the related research and development expenses as the costs are incurred .
| we expect research and development expenses to continue to be our primary expense as we enter into a more advanced stage of preclinical and clinical trials for certain of our product candidates . selling , general and administrative expenses selling , general and administrative expenses were $ 11.1 million for the year ended december 31 , 2020 , an increase of $ 1.2 million , or 12 % , from $ 9.9 million for the year ended december 31 , 2019. the increase resulted primarily from a $ 1.2 million increase in share-based compensation costs related to employees , an increase of $ 0.4 million in costs related to our compensation to members of our board of directors which was partially offset by a $ 0.2 million decrease in travel expenses and a $ 0.1 million decrease in rent and utilities . financial expenses and income , net financial expense , net was $ 9.2 million for the year ended december 31 , 2020 , an increase of $ 1.6 million , or 21 % , compared to financial expenses of $ 7.6 million for the year ended december 31 , 2019. financial expenses are comprised primarily of interest expense on our outstanding convertible notes equal to $ 4.3 million for the years ended december 31 , 2020 and 2019. the increase resulted primarily from expenses related to our outstanding convertible notes equal to $ 1.3 million and an increase of $ 0.5 million in amortization of debt discount . year ended december 31 , 2019 compared to the year ended december 31 , 2018 for a discussion of the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , see management 's discussion and analysis of financial condition and results of operations included in our annual report on form 10-k for the year ended december 31 , 2019 . 64 liquidity and capital resources our sources of liquidity include our cash balances . at december 31 , 2020 , we had $ 38.5 million in cash and cash equivalents and
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151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities . the provisions of sfas no . 151 shall be effective for inventory costs incurred during fiscal years beginning after june 15 , 2005 which will be our fiscal year beginning march 1 , 2006. we do not expect the adoption of sfas no.151 to have a material impact on our consolidated financial statements . critical accounting policies the preparation of financial statements in accordance with accounting principles generally accepted in the united states requires management to make assumptions and estimates that affect reported amounts and related disclosures . actual results , once known , may vary from these estimates . management based its estimates on historical experience , current trends and other factors that are believed to be reasonable under the circumstances . 16 index to financial statements management believes that the following accounting policies require a higher degree of judgment in making its estimates and , therefore , are critical accounting policies . allowance for doubtful accounts the company records an allowance for doubtful accounts for estimated losses resulting from the inability to collect accounts receivable from customers . the company establishes the allowance based on historical experience , credit risk of specific customers and transactions , and other factors . management believes that the lack of customer concentration is a significant factor that mitigates the company 's accounts receivable credit risk . three customers represented 4 % , 2 % and 1 % of consolidated fiscal 2006 sales , respectively , and no other customer comprised as much as 1 % of sales . the number of customers and their distribution across the geographic areas served by the company help to reduce the company 's credit exposure to a single customer or to economic events that affect a particular geographic region . although the company believes that its allowance for doubtful accounts is adequate , any future condition that would impair the ability of a broad section of the company 's customer base to make payments on a timely basis may require the company to record additional allowances . inventories inventories consist of hvac equipment , parts and supplies and are valued at the lower of cost or market value using the moving average cost method . at february 28 , 2006 , all inventories represented finished goods held for sale . when necessary , the carrying value of obsolete or excess inventory is reduced to estimated net realizable value . the process for evaluating the value of obsolete or excess inventory requires estimates by management concerning future sales levels and the quantities and prices at which such inventory can be sold in the ordinary course of business . the company holds a substantial amount of hvac equipment inventory at several branches on consignment from a supplier . the terms of this arrangement provide that the inventory is held for sale in bonded warehouses at the branch premises , with payment due only when products are sold . the supplier retains legal title and substantial management control with respect to the consigned inventory . the company is responsible for damage to and loss of inventory that may occur at its premises . the company has the ability to return consigned inventory , at its sole discretion , to the supplier for a specified period of time after receipt of the inventory . this consignment arrangement allows the company to have inventory available for sale to customers without incurring a payment obligation for the inventory prior to a sale . because of the control retained by the supplier and the uncertain time when a payment obligation will be incurred , the company does not record the consigned inventory as an asset upon receipt with a corresponding liability . rather , the company records a liability to the supplier only upon sale of the inventory to a customer . the amount of the consigned inventory is disclosed in the notes to the company 's financial statements as a contingent obligation . vendor rebates the company receives rebates from certain vendors based on the volume of product purchased from the vendor . the company records rebates when they are earned , ( i.e. , as specified purchase volume levels are reached or are reasonably assured of attainment ) . vendor rebates attributable to unsold inventory are carried as a reduction of the carrying value of inventory until such inventory is sold , at which time the related rebates are used to reduce cost of sales . goodwill goodwill represents the excess of purchase price paid over the fair value of net assets acquired in connection with business acquisitions . the assessment of recoverability of goodwill requires management to 17 index to financial statements project future operating results and other variables to estimate the fair value of business units . future operating results can be affected by changes in market or industry conditions . self-insurance reserves we are self-insured for various levels of general liability , workers ' compensation , vehicle , and employee medical coverage . the level of exposure from catastrophic events is limited by stop-loss and aggregate liability reinsurance coverage . when estimating the self-insurance liabilities and related reserves , the company considers a number of factors , which include historical claims experience , demographic factors and severity factors . if actual claims or adverse development of loss reserves occurs and exceed these estimates , additional reserves may be required that could materially impact the consolidated results of operations . interest rate derivative instruments the company has an interest rate derivative that does not qualify as a hedge , in accordance with sfas no . 133 , accounting for derivative instruments and hedging activities . the fair value of the derivative instrument is reflected on the company 's balance sheets , and changes in the fair value of such derivatives are recorded as unrealized gains story_separator_special_tag 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities . the provisions of sfas no . 151 shall be effective for inventory costs incurred during fiscal years beginning after june 15 , 2005 which will be our fiscal year beginning march 1 , 2006. we do not expect the adoption of sfas no.151 to have a material impact on our consolidated financial statements . critical accounting policies the preparation of financial statements in accordance with accounting principles generally accepted in the united states requires management to make assumptions and estimates that affect reported amounts and related disclosures . actual results , once known , may vary from these estimates . management based its estimates on historical experience , current trends and other factors that are believed to be reasonable under the circumstances . 16 index to financial statements management believes that the following accounting policies require a higher degree of judgment in making its estimates and , therefore , are critical accounting policies . allowance for doubtful accounts the company records an allowance for doubtful accounts for estimated losses resulting from the inability to collect accounts receivable from customers . the company establishes the allowance based on historical experience , credit risk of specific customers and transactions , and other factors . management believes that the lack of customer concentration is a significant factor that mitigates the company 's accounts receivable credit risk . three customers represented 4 % , 2 % and 1 % of consolidated fiscal 2006 sales , respectively , and no other customer comprised as much as 1 % of sales . the number of customers and their distribution across the geographic areas served by the company help to reduce the company 's credit exposure to a single customer or to economic events that affect a particular geographic region . although the company believes that its allowance for doubtful accounts is adequate , any future condition that would impair the ability of a broad section of the company 's customer base to make payments on a timely basis may require the company to record additional allowances . inventories inventories consist of hvac equipment , parts and supplies and are valued at the lower of cost or market value using the moving average cost method . at february 28 , 2006 , all inventories represented finished goods held for sale . when necessary , the carrying value of obsolete or excess inventory is reduced to estimated net realizable value . the process for evaluating the value of obsolete or excess inventory requires estimates by management concerning future sales levels and the quantities and prices at which such inventory can be sold in the ordinary course of business . the company holds a substantial amount of hvac equipment inventory at several branches on consignment from a supplier . the terms of this arrangement provide that the inventory is held for sale in bonded warehouses at the branch premises , with payment due only when products are sold . the supplier retains legal title and substantial management control with respect to the consigned inventory . the company is responsible for damage to and loss of inventory that may occur at its premises . the company has the ability to return consigned inventory , at its sole discretion , to the supplier for a specified period of time after receipt of the inventory . this consignment arrangement allows the company to have inventory available for sale to customers without incurring a payment obligation for the inventory prior to a sale . because of the control retained by the supplier and the uncertain time when a payment obligation will be incurred , the company does not record the consigned inventory as an asset upon receipt with a corresponding liability . rather , the company records a liability to the supplier only upon sale of the inventory to a customer . the amount of the consigned inventory is disclosed in the notes to the company 's financial statements as a contingent obligation . vendor rebates the company receives rebates from certain vendors based on the volume of product purchased from the vendor . the company records rebates when they are earned , ( i.e. , as specified purchase volume levels are reached or are reasonably assured of attainment ) . vendor rebates attributable to unsold inventory are carried as a reduction of the carrying value of inventory until such inventory is sold , at which time the related rebates are used to reduce cost of sales . goodwill goodwill represents the excess of purchase price paid over the fair value of net assets acquired in connection with business acquisitions . the assessment of recoverability of goodwill requires management to 17 index to financial statements project future operating results and other variables to estimate the fair value of business units . future operating results can be affected by changes in market or industry conditions . self-insurance reserves we are self-insured for various levels of general liability , workers ' compensation , vehicle , and employee medical coverage . the level of exposure from catastrophic events is limited by stop-loss and aggregate liability reinsurance coverage . when estimating the self-insurance liabilities and related reserves , the company considers a number of factors , which include historical claims experience , demographic factors and severity factors . if actual claims or adverse development of loss reserves occurs and exceed these estimates , additional reserves may be required that could materially impact the consolidated results of operations . interest rate derivative instruments the company has an interest rate derivative that does not qualify as a hedge , in accordance with sfas no . 133 , accounting for derivative instruments and hedging activities . the fair value of the derivative instrument is reflected on the company 's balance sheets , and changes in the fair value of such derivatives are recorded as unrealized gains
| the fiscal 2006 comparison was significantly affected by the decline in sales of goodman brand equipment described above . at the branch operations that did not sell goodman brand equipment , same-store sales increased 17 % in fiscal 2006 over fiscal 2005. sales growth in fiscal 2006 was strong throughout the year in both florida and nevada , buoyed by robust regional economies and new housing starts . in texas , favorable economic and weather conditions boosted sales during the last two quarters of fiscal 2006. sales in fiscal 2005 increased over fiscal 2004 in all market areas except texas , where unusually high rainfall and relatively mild temperatures through most of the summer reduced demand for the company 's products . sales growth was greatest in florida and california , augmented by new branch operations that opened in fiscal 2004. fiscal 2005 sales rebounded in colorado after economic conditions beginning in the last half of fiscal 2002 slowed new residential construction . by comparison , data compiled by a leading industry trade association indicate that industry-wide product shipments increased 17 % in calendar 2005 , 9 % in calendar 2004 and 1 % in calendar 2003 , from the preceding calendar years . management believes that industry trade data , which tracks shipments to distributors rather than sales by distributors , may be a less reliable indicator of industry growth in 2005 than in previous years because of potential anomalies in procurement patterns by distributors created by the government-mandated conversion to manufacturing of higher efficiency hvac equipment in january 2006. because of perceived future demand for less expensive , lower efficiency hvac equipment , some distributors , including the company , expanded their order volume for such equipment inventory in the latter months of calendar 2005 before manufacturers converted their production to the higher efficiency products . the company 's gross margin percentage was 23.7 % in fiscal 2006 , compared to 23.4 % in fiscal 2005 and 22.1 % in fiscal 2004. the increase in gross margin percentage from fiscal 2004 to fiscal 2005 was
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the increase in operating income was primarily driven by sales volume increases of approximately $ 42 million and favorable foreign exchange rates of approximately $ 6 million , partially offset by increases in selling costs to support new product introductions and higher sales volume of approximately $ 16 million , manufacturing start-up and restructuring costs of approximately $ 9 million and higher input costs of approximately $ 7 million . 21 index to financial statements unilin segment —operating income was $ 126.4 million ( 9.4 % of segment net sales ) for 2012 reflecting a decrease of $ 0.7 million compared to operating income of $ 127.1 million ( 9.5 % of segment net sales ) for 2011 . the decrease in operating income was primarily driven by higher input costs of approximately $ 18 million , increases in costs to support new product introductions and geographic expansion of approximately $ 11 million and unfavorable foreign exchange rates of approximately $ 10 million , partially offset by operations productivity of approximately $ 25 million and sales volume increases of approximately $ 15 million . interest expense interest expense was $ 74.7 million for 2012 , reflecting a decrease of $ 26.9 million compared to interest expense of $ 101.6 million for 2011 . the decrease in interest expense in 2012 was due to lower outstanding debt and lower interest rates on that outstanding debt . the lower interest rates were primarily attributable to the shift from higher interest rate senior notes to the senior credit facility and the rating agency upgrades discussed in `` liquidity and capital resources '' . other expense other expense was $ 0.3 million for 2012 , reflecting a change of $ 13.7 million compared to other expense of $ 14.1 million for 2011 . the change was primarily attributable to net foreign currency losses of approximately $ 16 million . the unrealized foreign currency losses in the prior year were primarily a result of volatility in the mexican peso and canadian dollar that occurred late in the third quarter of 2011. prior to the second quarter of 2012 , operations carried out in mexico used the u.s. dollar as the functional currency . effective april 1 , 2012 , the company changed the functional currency of its mexico operations to the mexican peso . see note 1 ( l ) of the notes to the consolidated financial statements . income tax expense for 2012 , the company recorded income tax expense of $ 53.6 million on earnings before income taxes of $ 304.5 million for an effective tax rate of 17.6 % , as compared to an income tax expense of $ 21.7 million on earnings before income taxes of $ 199.9 million , resulting in an effective tax rate of 10.8 % for 2011 . the difference in the effective tax rate for the comparative period is primarily due to the geographical dispersion of earnings and losses , a favorable irs audit settlement in 2011 , and the expiration of statutes of limitations for both federal and state tax purposes . year ended december 31 , 2011 , as compared with year ended december 31 , 2010 net sales net sales for 2011 were $ 5,642.3 million , reflecting an increase of $ 323.2 million , or 6.1 % , from the $ 5,319.1 million reported for 2010. the increase was primarily due to higher sales volume of approximately $ 143 million , favorable price and product mix of approximately $ 127 million and the impact of favorable foreign exchange rates of approximately $ 53 million . mohawk segment —net sales increased $ 82.8 million , or 2.9 % , to $ 2,927.7 million in 2011 , compared to $ 2,844.9 million in 2010. the increase was primarily driven by favorable price and product mix of approximately $ 64 million , and higher sales volume of approximately $ 19 million . dal-tile segment —net sales increased $ 86.9 million , or 6.4 % , to $ 1,454.3 million in 2011 , compared to $ 1,367.4 million in 2010. the increase was primarily driven by higher sales volume of approximately $ 75 million , favorable price and product mix of approximately $ 9 million and the impact of favorable foreign exchange rates of approximately $ 3 million . unilin segment —net sales increased $ 156.5 million , or 13.2 % , to $ 1,344.8 million in 2011 , compared to $ 1,188.3 million in 2010. the increase was primarily due to favorable price and product mix of approximately $ 55 million , the impact of favorable foreign exchange rates of approximately $ 51 million and higher sales volume of approximately $ 51 million . 22 index to financial statements quarterly net sales and the percentage changes in net sales by quarter for 2011 versus 2010 were as follows ( dollars in millions ) : replace_table_token_6_th gross profit gross profit for 2011 was $ 1,416.9 million ( 25.1 % of net sales ) compared to gross profit of $ 1,402.6 million ( 26.4 % of net sales ) for 2010. gross profit dollars were impacted by favorable price and product mix of approximately $ 124 million , lower manufacturing costs of approximately $ 69 million , higher sales volume of approximately $ 27 million and favorable foreign exchange rates of approximately $ 16 million , substantially offset by higher inflationary costs of approximately $ 206 million , primarily related to raw materials , and approximately $ 7 million of higher restructuring charges . the lower manufacturing costs are primarily a result of cost savings initiatives implemented and various restructuring activities taken by the company , including facility consolidations , workforce reductions and productivity improvements resulting from capital investments . in addition , the gross profit for 2010 included insurance settlement proceeds of approximately $ 9 million related to a flood in the company 's mexican manufacturing facility . story_separator_special_tag selling , general and administrative expenses selling , general and administrative expenses for 2011 were $ 1,101.3 million ( 19.5 % of net sales ) compared to $ 1,088.4 million ( 20.5 % of net sales ) for 2010. as a percentage of sales , selling , general and administrative expenses for 2011 decreased 1.0 % compared to the prior year as a result of the company 's ability to leverage its various cost savings initiatives . the dollar increase in selling , general and administrative expenses is primarily a result of unfavorable foreign exchange rates of approximately $ 9 million , a lease charge ( discussed below ) of approximately $ 6 million and higher restructuring charges of approximately $ 5 million , partially offset by the various cost savings initiatives implemented by the company including facility consolidations and productivity improvements . during the fourth quarter of 2011 , the company corrected an immaterial error in its consolidated financial statements . the error related to accounting for operating leases . the correction of $ 6.0 million resulted in an additional charge ( “ lease charge ” ) to selling , general and administrative expense in the company 's 2011 consolidated statement of operations . the company believes the correction of this error to be both quantitatively and qualitatively immaterial to its quarterly results for 2011 or to any of its previously issued consolidated financial statements . the correction had no impact on the company 's cash flows as previously presented . operating income operating income for 2011 was $ 315.6 million ( 5.6 % of net sales ) , reflecting a $ 1.4 million increase , compared to an operating income of $ 314.2 million ( 5.9 % of net sales ) for 2010. the increase in operating income was primarily a result of favorable price and product mix of approximately $ 124 million , lower manufacturing and selling , general and administrative expenses of approximately $ 77 million , higher sales volume of $ 27 million and the impact of favorable foreign exchange rates of approximately $ 7 million , substantially offset by higher inflationary costs of approximately $ 206 million , primarily related to raw materials , higher restructuring charges of approximately $ 11 million and a lease charge ( discussed in selling , general and administrative expenses ) of approximately $ 6 million . the lower manufacturing costs and selling , general and administrative expenses are primarily a result of cost saving initiatives implemented and various restructuring actions taken by the company , including facility consolidations , workforce reductions and productivity improvements resulting from capital investments . in addition , the operating income for 2010 included insurance settlement proceeds of approximately $ 9 million related to a flood in the company 's mexican manufacturing facility . mohawk segment —operating income was $ 109.9 million ( 3.8 % of segment net sales ) for 2011 , reflecting a decrease of $ 13.0 million , compared to operating income of $ 122.9 million ( 4.3 % of segment net sales ) for 2010. operating income was negatively impacted by higher inflationary costs of approximately $ 138 million , primarily related to raw materials , higher restructuring charges of approximately $ 14 million and a lease charge ( discussed in selling , general and administrative expenses ) of approximately $ 3 million , substantially offset by lower manufacturing costs and selling , general and administrative expenses of approximately $ 76 million and favorable price and product mix of approximately $ 64 million . the 23 index to financial statements lower manufacturing costs and selling , general and administrative expenses were primarily a result of cost savings initiatives implemented and various restructuring actions taken by the company , including facility consolidations , workforce reductions and productivity improvements resulting from capital investments . dal-tile segment —operating income was $ 101.3 million ( 7.0 % of segment net sales ) for 2011 , reflecting an increase of $ 4.0 million , compared to operating income of $ 97.3 million ( 7.1 % of segment net sales ) for 2010. operating income was favorably impacted by higher sales volume of approximately $ 18 million , lower manufacturing costs and selling , general and administrative expenses of approximately $ 10 million and favorable price and product mix of approximately $ 6 million , partially offset by higher inflationary costs of approximately $ 18 million , primarily related to raw materials and a lease charge ( discussed in selling , general and administrative expenses ) of approximately $ 3 million . the lower manufacturing costs and selling , general and administrative expenses are primarily a result of cost savings initiatives implemented and various restructuring actions taken by the company , including workforce reductions and productivity improvements resulting from capital investments . in addition , the operating income for 2010 included insurance settlement proceeds of approximately $ 9 million related to a flood in the company 's mexican manufacturing facility . unilin segment —operating income was $ 127.1 million ( 9.5 % of segment net sales ) for 2011 reflecting an increase of $ 12.8 million compared to operating income of $ 114.3 million ( 9.6 % of segment net sales ) for 2010. the increase was primarily driven by favorable price and product mix of approximately $ 54 million , lower manufacturing costs of approximately $ 10 million , favorable foreign exchange rates of approximately $ 7 million , higher sales volume of approximately $ 7 million and lower restructuring costs of approximately $ 2 million , substantially offset by higher inflationary costs of approximately $ 50 million , primarily related to raw materials , and higher selling , general and administrative costs of approximately $ 17 million . the lower manufacturing costs are primarily a result of cost savings initiatives implemented and various restructuring actions taken by the company , including facility consolidations and productivity improvements resulting from capital investments . interest expense interest expense was $ 101.6 million for 2011 , reflecting a decrease of $ 31.5 million compared to interest expense of $ 133.2 million for 2010.
| million for 2012 , compared to $ 1,344.8 million for 2011 . the increase was primarily driven by volume increases of approximately $ 84 million and the favorable net impact of price and product mix of approximately $ 8 million , partially offset by the impact of unfavorable foreign exchange rates of approximately $ 86 million . the volume increases were primarily attributable to flooring products primarily in russia , australia and north america , as well as increases in wood panel and insulation products . quarterly net sales and the percentage changes in net sales by quarter for 2012 versus 2011 were as follows ( dollars in millions ) : replace_table_token_5_th gross profit gross profit for 2012 was $ 1,490.1 million ( 25.7 % of net sales ) , an increase of $ 73.2 million or 5.2 % , compared to gross profit of $ 1,416.9 million ( 25.1 % of net sales ) for 2011 . the increase in gross profit dollars was primarily attributable to the favorable net impact of price and product mix of approximately $ 62 million , operations productivity of approximately $ 52 million and higher sales volume of approximately $ 22 million , partially offset by higher input costs of approximately $ 42 million and the impact of unfavorable foreign exchange rates of approximately $ 19 million . selling , general and administrative expenses selling , general and administrative expenses for 2012 were $ 1,110.6 million ( 19.2 % of net sales ) , compared to $ 1,101.3 million ( 19.5 % of net sales ) for 2011 . selling , general and administrative expenses decreased as a percentage of net sales compared to the prior year primarily due to increased sales volume . the increase in selling , general and administrative expenses in dollars was primarily driven by increases in costs to support new product introductions and geographic expansion of approximately $ 31
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net sales growth net sales over a five-year period have increased 38.5 % from $ 603,099 for the year ended february 28 , 2009 to $ 835,577 for the year ended february 28 , 2013 . during this period , our sales were impacted by the following items : the introduction of new products and lines such as digital antennas and mobile multi-media devices , mobile ipad and ipod interfaces and the tagg gps tracking device , acquisition of hirschmann 's mobile communications and infotainment business , acquisition of klipsch 's high-end speaker business , acquisition of invision 's mobile entertainment business , acquisition of schwaiger 's accessory business . partially offset by : the discontinuance of various high volume/low margin product lines such as navigation , gmrs radios , flat-panel tv 's , camcorders , clock radios , digital players and digital voice recorders , volatility in core mobile , consumer and accessories sales due to increased competition , lower selling prices and the decline in the national and global economy . critical accounting policies and estimates 21 general our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make certain estimates , judgments and assumptions that we believe are reasonable based upon the information available . these estimates and assumptions can be subjective and complex and may affect the reported amounts of assets and liabilities , revenues and expenses reported in those financial statements . as a result , actual results could differ from such estimates and assumptions . the significant accounting policies and estimates which we believe are the most critical in fully understanding and evaluating the reported consolidated financial results include the following : revenue recognition we recognize revenue from product sales at the time of passage of title and risk of loss to the customer either at fob shipping point or fob destination , based upon terms established with the customer . any customer acceptance provisions , which are related to product testing , are satisfied prior to revenue recognition . we have no further obligations subsequent to revenue recognition except for returns of product from customers . we do accept returns of products , if properly requested , authorized and approved . we continuously monitor and track such product returns and record the provision for the estimated amount of such future returns at point of sale , based on historical experience and any notification we receive of pending returns . sales incentives we offer sales incentives to our customers in the form of ( 1 ) co-operative advertising allowances ; ( 2 ) market development funds ; ( 3 ) volume incentive rebates ; and ( 4 ) other trade allowances . we account for sales incentives in accordance with asc 605-50 `` customer payments and incentives '' ( `` asc 605-50 '' ) . except for other trade allowances , all sales incentives require the customer to purchase our products during a specified period of time . all sales incentives require customers to claim the sales incentive within a certain time period ( referred to as the `` claim period '' ) and claims are settled either by the customer claiming a deduction against an outstanding account receivable or by the customer requesting a check . all costs associated with sales incentives are classified as a reduction of net sales , and the following is a summary of the various sales incentive programs : co-operative advertising allowances are offered to customers as a reimbursement towards their costs for print or media advertising in which our product is featured on its own or in conjunction with other companies ' products . the amount offered is either a fixed amount or is based upon a fixed percentage of sales revenue or fixed amount per unit sold to the customer during a specified time period . market development funds are offered to customers in connection with new product launches or entrance into new markets . the amount offered for new product launches is based upon a fixed amount or fixed percentage of our sales revenue to the customer or a fixed amount per unit sold to the customer during a specified time period . we accrue the cost of co-operative advertising allowances and market development funds at the latter of when the customer purchases our products or when the sales incentive is offered to the customer . volume incentive rebates offered to customers require that minimum quantities of product be purchased during a specified period of time . the amount offered is either based upon a fixed percentage of our sales revenue to the customer or a fixed amount per unit sold to the customer . we make an estimate of the ultimate amount of the rebate customers will earn based upon past history with the customer and other facts and circumstances . we have the ability to estimate these volume incentive rebates , as there does not exist a relatively long period of time for a particular rebate to be claimed . any changes in the estimated amount of volume incentive rebates are recognized immediately using a cumulative catch-up adjustment . other trade allowances are additional sales incentives that we provide to customers subsequent to the related revenue being recognized . in accordance with asc 605-50 , we record the provision for these additional sales incentives at the latter of when the sales incentive is offered or when the related revenue is recognized . such additional sales incentives are based upon a fixed percentage of the selling price to the customer , a fixed amount per unit , or a lump-sum amount . the accrual balance for sales incentives at february 28 , 2013 and february 29 , 2012 was $ 16,821 and $ 18,154 , respectively . the decrease in fiscal 2013 is due to the effects of the european markets , which resulted in decreases in the company 's international sales . story_separator_special_tag although we make our best estimate of sales incentive liabilities , many factors , including significant unanticipated changes in the purchasing volume and the lack of claims from customers could have a significant impact on the liability for sales incentives and reported operating results . 22 we reverse earned but unclaimed sales incentives based upon the expiration of the claim period of each program . unclaimed sales incentives that have no specified claim period are reversed in the quarter following one year from the end of the program . we believe that the reversal of earned but unclaimed sales incentives upon the expiration of the claim period is a disciplined , rational , consistent and systematic method of reversing unclaimed sales incentives . for the years ended february 28 , 2013 , february 29 , 2012 and february 28 , 2011 , reversals of previously established sales incentive liabilities amounted to $ 3,350 , $ 3,662 and $ 1,725 , respectively . these reversals include unearned and unclaimed sales incentives . unearned sales incentives are volume incentive rebates where the customer did not purchase the required minimum quantities of product during the specified time . volume incentive rebates are reversed into income in the period when the customer did not reach the required minimum purchases of product during the specified time . reversals of unearned sales incentives for the years ended february 28 , 2013 , february 29 , 2012 and february 28 , 2011 amounted to $ 2,933 , $ 2,200 and $ 977 , respectively . unclaimed sales incentives are sales incentives earned by the customer but the customer has not claimed payment within the claim period ( period after program has ended ) . reversals of unclaimed sales incentives for the years ended february 28 , 2013 , february 29 , 2012 and february 28 , 2011 amounted to $ 417 , $ 1,462 and $ 748 , respectively . accounts receivable we perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and current credit worthiness , as determined by a review of current credit information . we continuously monitor collections from our customers and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified . we record charges for estimated credit losses against operating expenses and charges for price adjustments against net sales in the consolidated financial statements . the reserve for estimated credit losses at february 28 , 2013 and february 29 , 2012 were $ 7,840 and $ 5,737 , respectively . the increase in the reserve is due to the company 's acquisition of hirschmann and the related increases in sales and accounts receivable . while such credit losses have historically been within management 's expectations and the provisions established , we can not guarantee that we will continue to experience the same credit loss rates that have been experienced in the past . since our accounts receivable are concentrated in a relatively few number of large customers , a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the collectability of accounts receivable and our results of operations . inventories we value our inventory at the lower of the actual cost to purchase ( primarily on a weighted moving average basis , with a portion valued at standard cost ) and or the current estimated market value of the inventory less expected costs to sell the inventory . we regularly review inventory quantities on-hand and record a provision , in cost of sales , for excess and obsolete inventory based primarily from selling price reductions subsequent to the balance sheet date , indications from customers based upon current negotiations , and purchase orders . a significant sudden increase in the demand for our products could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on-hand . in addition , our industry is characterized by rapid technological change and frequent new product introductions that could result in an increase in the amount of obsolete inventory quantities on-hand . during the years ended february 28 , 2013 , february 29 , 2012 and february 28 , 2011 , we recorded inventory write-downs of $ 4,300 , $ 2,942 and $ 3,911 , respectively . estimates of excess and obsolete inventory may prove to be inaccurate , in which case we may have understated or overstated the provision required for excess and obsolete inventory . although we make every effort to ensure the accuracy of our forecasts of future product demand , any significant unanticipated changes in demand or technological developments could have a significant impact on the carrying value of inventory and our results of operations . goodwill and other intangible assets goodwill and other intangible assets , which consists of the excess cost over fair value of assets acquired ( goodwill ) and other intangible assets ( patents , contracts , licenses , trademarks and customer relationships ) amounted to $ 352,078 at february 28 , 2013 and $ 261,418 at february 29 , 2012 . goodwill and other intangible assets are determined in accordance with asc 805 `` business combinations '' ( `` asc 805 '' ) and asc 350 `` intangibles – goodwill and other '' ( `` asc 350 '' ) , ( see goodwill and other intangible assets ( note 1 ( k ) ) . goodwill is calculated as the excess of the cost of purchased businesses over the value of their underlying net assets . the company has used the discounted future cash flow method ( dcf ) as the principle method to determine the fair value ( `` fv '' ) of acquired businesses . the discount rates used for our analysis ranged from 10.4 % to 15.6 % . a five-year period was analyzed using a risk adjusted discount rate .
| in addition , the automotive group experienced increases in its oem manufacturing lines during the year ended february 28 , 2013 due to the launch of new programs with ford and nissan in the second quarter of fiscal 2013 , as well as due to new product introductions , such as the mobile ipad and ipod interfaces . these increases were partially offset by a decline in satellite fulfillment sales and slower mobile audio sales in europe and the united states . 25 premium audio sales increased $ 1,560 during the year ended february 28 , 2013 as compared to the prior year . the increase in premium audio was primarily related to increased sales of on-ear and in-ear headphones and soundbars , offset by declines in our european sales . consumer accessories represented 25.6 % of our net sales for the year ended february 28 , 2013 , compared to 30.5 % in the prior year . the decrease in the consumer accessories group was primarily related to decreased sales in our international markets as a result of european market conditions as well as the decrease in low margin products , such as camcorders , clock radios and digital players that the company has been exiting throughout the year . these decreases were offset by sales of new wireless speaker products and increased sales of portable power lines and power supply systems due to the growing predominance of electronic devices in consumer homes . fiscal 2012 automotive sales decreased $ 981 in fiscal 2012 as a result of a decline in satellite fulfillment sales , as well as the absence of flo-tv products , whose program ended in the third quarter of fiscal 2011. these decreases were offset by increases in the company 's oem manufacturing lines due to increases in domestic automotive sales and the launch of new programs , both domestically and internationally . premium audio sales increased $ 171,356 in fiscal 2012 , due primarily to our acquisition of klipsch . approximately $ 169,500 of our sales in this segment were contributed by klipsch in fiscal 2012. consumer accessories sales decreased $ 24,524 in fiscal 2012 primarily as a result of decreased sales in such products as camcorders , clock radios , digital players , digital voice recorders , rechargeable batteries and surge
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( `` sbic ii gp '' ) , respectively ; new mountain net lease corporation ( `` nmnlc '' ) , which acquires commercial real properties that are subject to ‘ ‘ triple net '' leases has elected to be treated , and intends to comply with the requirements to continue to qualify annually , as a real estate investment trust , or reit , within the meaning of section 856 ( a ) of the code ; nmf ancora holdings inc. ( `` nmf ancora '' ) , nmf qid holdings , inc. ( `` nmf qid '' ) and nmf yp holdings inc. ( `` nmf yp '' ) , which serve as tax blocker corporations by holding equity or equity-like investments in portfolio companies organized as limited liability companies ( or other forms of pass-through entities ) ; we consolidate our tax blocker corporations for accounting purposes but the tax blocker corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of the portfolio companies ; and new mountain finance servicing , l.l.c . ( `` nmf servicing '' ) , which serves as the administrative agent on certain investment transactions . our investment objective is to generate current income and capital appreciation through the sourcing and origination of debt securities at all levels of the capital structure , including first and second lien debt , notes , bonds and mezzanine securities . the first lien debt may include traditional first lien senior secured loans or unitranche loans . unitranche loans combine characteristics of traditional first lien senior secured loans as well as second lien and subordinated loans . unitranche loans will expose us to the risks associated with second lien and subordinated loans to the extent we invest in the “ last out ” tranche . in some cases , our investments may also include equity interests . our primary focus is in the debt of defensive growth companies , which are defined as generally exhibiting the following characteristics : ( i ) sustainable secular growth drivers , ( ii ) high barriers to competitive entry , ( iii ) high free cash flow after capital expenditure and working capital needs , ( iv ) high returns on assets and ( v ) niche market dominance . similar to us , sbic i 's and sbic ii 's investment objectives are to generate current income and capital appreciation under our investment criteria . however , sbic i 's and sbic ii 's investments must be in sba eligible small businesses . our portfolio may be concentrated in a limited number of industries . as of december 31 , 2019 , our top five industry concentrations were software , business services , healthcare services , education and investment funds ( which includes our investments in our joint ventures ) . as of december 31 , 2019 , our net asset value was $ 1,283.5 million and our portfolio had a fair value of approximately $ 3,160.3 million in 114 portfolio companies , with a weighted average yield to maturity at cost for income producing investments ( `` ytm at cost '' ) and a weighted average yield to maturity at cost for all investments ( `` ytm at cost for investments '' ) of approximately 9.5 % and 9.5 % , respectively . this ytm at cost calculation assumes that all investments , including secured collateralized agreements , not on non-accrual are purchased at cost on the quarter end date and held until their respective maturities with no prepayments or losses and exited at par at maturity . the ytm at cost for investments 55 calculation assumes that all investments , including secured collateralized agreements , are purchased at cost on the quarter end date and held until their respective maturities with no prepayments or losses and exited at par at maturity . ytm at cost and ytm at cost for investments calculations exclude the impact of existing leverage . ytm at cost and ytm at cost for investments use the london interbank offered rate ( `` libor '' ) curves at each quarter 's end date . the actual yield to maturity may be higher or lower due to the future selection of the libor contracts by the individual companies in our portfolio or other factors . recent developments on february 19 , 2020 , our board of directors declared a first quarter 2020 distribution of $ 0.34 per share payable on march 27 , 2020 to holders of record as of march 13 , 2020 . critical accounting policies the preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the united states of america ( `` gaap '' ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and revenues and expenses during the periods reported . actual results could materially differ from those estimates . we have identified the following items as critical accounting policies . basis of accounting we consolidate our wholly-owned direct and indirect subsidiaries : nmf holdings , nmf servicing , nmnlc , nmfdb , sbic i , sbic i gp , sbic ii , sbic ii gp , nmf ancora , nmf qid and nmf yp . we are an investment company following accounting and reporting guidance as described in accounting standards codification topic 946 , financial services—investment companies , ( `` asc 946 '' ) . valuation and leveling of portfolio investments at all times consistent with gaap and the 1940 act , we conduct a valuation of assets , which impacts our net asset value . we value our assets on a quarterly basis , or more frequently if required under the 1940 act . story_separator_special_tag in all cases , our board of directors is ultimately and solely responsible for determining the fair value of our portfolio investments on a quarterly basis in good faith , including investments that are not publicly traded , those whose market prices are not readily available and any other situation where our portfolio investments require a fair value determination . security transactions are accounted for on a trade date basis . our quarterly valuation procedures are set forth in more detail below : ( 1 ) investments for which market quotations are readily available on an exchange are valued at such market quotations based on the closing price indicated from independent pricing services . ( 2 ) investments for which indicative prices are obtained from various pricing services and or brokers or dealers are valued through a multi-step valuation process , as described below , to determine whether the quote ( s ) obtained is representative of fair value in accordance with gaap . a. bond quotes are obtained through independent pricing services . internal reviews are performed by the investment professionals of the investment adviser to ensure that the quote obtained is representative of fair value in accordance with gaap and if so , the quote is used . if the investment adviser is unable to sufficiently validate the quote ( s ) internally and if the investment 's par value or its fair value exceeds the materiality threshold , the investment is valued similarly to those assets with no readily available quotes ( see ( 3 ) below ) ; and b. for investments other than bonds , we look at the number of quotes readily available and perform the following procedures : i. investments for which two or more quotes are received from a pricing service are valued using the mean of the mean of the bid and ask of the quotes obtained ; ii . investments for which one quote is received from a pricing service are validated internally . the investment professionals of the investment adviser analyze the market quotes obtained using an array of valuation methods ( further described below ) to validate the fair value . if the investment adviser is unable to sufficiently validate the quote internally and if the investment 's par value or its fair value exceeds the materiality threshold , the investment is valued similarly to those assets with no readily available quotes ( see ( 3 ) below ) . ( 3 ) investments for which quotations are not readily available through exchanges , pricing services , brokers or dealers are valued through a multi-step valuation process : 56 a. each portfolio company or investment is initially valued by the investment professionals of the investment adviser responsible for the credit monitoring ; b. preliminary valuation conclusions will then be documented and discussed with our senior management ; c. if an investment falls into ( 3 ) above for four consecutive quarters and if the investment 's par value or its fair value exceeds the materiality threshold , then at least once each fiscal year , the valuation for each portfolio investment for which we do not have a readily available market quotation will be reviewed by an independent valuation firm engaged by our board of directors ; and d. when deemed appropriate by our management , an independent valuation firm may be engaged to review and value investment ( s ) of a portfolio company , without any preliminary valuation being performed by the investment adviser . the investment professionals of the investment adviser will review and validate the value provided . for investments in revolving credit facilities and delayed draw commitments , the cost basis of the funded investments purchased is offset by any costs/netbacks received for any unfunded portion on the total balance committed . the fair value is also adjusted for the price appreciation or depreciation on the unfunded portion . as a result , the purchase of a commitment not completely funded may result in a negative fair value until it is called and funded . the values assigned to investments are based upon available information and do not necessarily represent amounts which might ultimately be realized , since such amounts depend on future circumstances and can not be reasonably determined until the individual positions are liquidated . due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value , the fair value of our investments may fluctuate from period to period and the fluctuations could be material . gaap fair value measurement guidance classifies the inputs used in measuring fair value into three levels as follows : level i—quoted prices ( unadjusted ) are available in active markets for identical investments and we have the ability to access such quotes as of the reporting date . the type of investments which would generally be included in level i include active exchange-traded equity securities and exchange-traded derivatives . as required by accounting standards codification topic 820 , fair value measurements and disclosures ( `` asc 820 '' ) , we , to the extent that we hold such investments , do not adjust the quoted price for these investments , even in situations where we hold a large position and a sale could reasonably impact the quoted price . level ii—pricing inputs are observable for the investments , either directly or indirectly , as of the reporting date , but are not the same as those used in level i. level ii inputs include the following : quoted prices for similar assets or liabilities in active markets ; quoted prices for identical or similar assets or liabilities in non-active markets ( examples include corporate and municipal bonds , which trade infrequently ) ; pricing models whose inputs are observable for substantially the full term of the asset or liability ( examples include most over-the-counter derivatives , including foreign exchange forward contracts ) ; and pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability .
| dividend income remained flat for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 . the decrease in other income , which represents fees that are generally non-recurring in nature , of approximately $ 1.7 million during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , was primarily attributable to a decrease in upfront , amendment and consent fees received from portfolio companies . operating expenses replace_table_token_25_th our total net operating expenses increased by approximately $ 33.9 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 . our management fee increased by approximately $ 5.3 million , net of a management fee waiver , and our incentive fee increased by approximately $ 2.8 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 . the increase in management and incentive fees was attributable to larger invested balances , driven by the proceeds from our convertible notes issuances , our unsecured notes issuances , our february 74 2019 , july 2019 and october 2019 public offering of common stock and our use of leverage from our revolving credit facilities and sba-guaranteed debentures used to originate new investments . interest and other financing expenses increased by approximately $ 27.2 million during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , primarily due to our issuances of convertible and unsecured notes , higher drawn balances on our sba-guaranteed debentures , holdings credit facility and db credit facility and higher libor rates . our decrease in total professional fees , administrative fees , net of expenses waived and reimbursed , and other general and administrative expenses for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 was mainly attributable to a decrease in professional fees relating to evaluating and making investments , as well as
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these therapies are used clinically for the treatment of many hematologic and solid cancers , including acute myeloid leukemia ( `` aml '' ) , non-hodgkin 's lymphoma ( `` nhl '' ) , metastatic crc , metastatic castration resistant prostate cancer ( `` mcrpc '' ) , adrenocortical carcinoma ( `` acc '' ) , triple negative breast cancer ( `` tnbc '' ) , small cell lung cancer ( `` sclc '' ) , and ovarian cancer . we believe the high-selectivity of onvansertib to plk1 , its 24-hour half-life and oral bioavailability , as well as its demonstrated safety and tolerability , with expected on-target , easy to manage and reversible side effects , may prove beneficial in addressing clinical therapeutic needs across a variety of cancers . clinical program updates we currently have three active clinical trials : trov-054 is a phase 1b/2 open-label clinical trial of onvansertib in combination with folfiri and bevacizumab ( `` avastin ® `` ) for the second line treatment of patients with kras-mutated mcrc , which is being conducted at 6 clinical trial sites across the u.s. - usc norris comprehensive cancer center , the mayo clinic cancer centers ( arizona , minnesota and florida ) , kansas university medical center ( `` kumc '' ) and carti cancer center ; trov-053 is a phase 2 open-label clinical trial of onvansertib in combination with abiraterone acetate ( zytiga ® ) and prednisone in patients with mcrpc , which is being conducted at beth israel deaconess medical center ( `` bidmc '' ) , dana-farber cancer institute ( `` dfci '' ) , and massachusetts general hospital ( `` mgh '' ) ; trov-052 is a phase 2 open-label clinical trial of onvansertib in combination with standard-of-care chemotherapy , decitabine , in patients with relapsed or refractory aml , which is being conducted at nine sites across the u.s. the phase 1b portion of the aml trial was completed in the fourth quarter of 2019 and enrollment in phase 2 was completed in october 2020. kras-mutated mcrc trov-054 is a phase 1b/2 study of onvansertib for the second-line treatment of patients with kras-mutated metastatic colorectal cancer ( `` mcrc '' ) in combination with standard-of-care folfiri and bevacizumab ( avastin ® ) . the primary objective of this study is to evaluate the dose-limiting toxicities ( `` dlts '' ) and maximum tolerated dose ( `` mtd '' ) or recommended phase 2 dose ( `` rp2d '' ) of onvansertib in combination with folfiri and bevacizumab ( phase 1b ) and to continue to assess the safety and preliminary efficacy of onvansertib in combination with folfiri and bevacizumab ( phase 2 ) . the rationale for this clinical trial is based on three key principles including synthetic lethality , synergy and proof-of-concept clinical benefit . synthetic lethality arises when a combination of deficiencies in the expression of two genes leads to cell death , whereas a deficiency in only one of these genes does not . the deficiencies can arise through mutations , epigenetic alterations or inhibitors of the protein encoded by one of the genes . in reference to onvansertib , crc tumor cells harboring kras mutations are more vulnerable to cell death with plk1 inhibition versus kras wild-type isogenic cells . synergy occurs when the combination of two drugs results in an unexpected greater activity than an expected additive effect of the two drugs . onvansertib in combination with irinotecan and 5-fu ( components of folfiri ) demonstrate synergy in colorectal cancer cell lines and the combination has demonstrated significantly greater tumor growth inhibition than either drug alone . proof-of-concept clinical response has been demonstrated in a previously completed phase 1 trial in solid tumors in which 3 of 5 patients showing stable disease had a kras mutation ; 2 in colorectal cancer and 1 in pancreatic cancer . data presented on january 15 , 2021 , at the american society of clinical oncology gastrointestinal cancers symposium ( “ asco-gi ” ) , demonstrated the safety and efficacy of onvansertib . of the 12 patients evaluable for efficacy , 5 43 ( 42 % ) achieved a partial response ( pr ) ; 4 patients had a confirmed pr ; 1 patient went on to curative surgery ; 1 patient with a non-confirmed pr went off study due to an unrelated event prior to their 16-week confirmatory scan . 8 ( 67 % ) patients showed a durable response to treatment of > 6 months with a range from 6.1 to 13.7 months . time to achieving a pr ranges from 2 to 6 months in patients on treatment . 10 of 12 patients had a kras variant detected by ddpcr at baseline ( all had a kras mutation detected by ngs ) . clinical responses were observed across different kras variants , including the 3 most common in crc . the greatest decreases in kras mutant allelic frequency ( maf ) after 1 cycle of treatment were observed in patients achieving a pr ( ranging from -78 % to -100 % ) , while the 2 patients who progressed showed a more modest reduction in kras maf ( -55 % and -26 % ) . patients with pr and stable disease ( sd ) tended to have lower on-treatment kras maf than patients with early progressive disease ( pd ) . onvansertib in combination with folfiri/bevacizumab is safe and well tolerated with only 9 % of all adverse events ( aes ) being grade 3 or 4. grade 4 adverse events were attributed to the 5-fu bolus component of the combination regimen , which was eliminated in subsequent cycles of treatment per protocol and institutional guidelines . story_separator_special_tag the only g3/g4 aes reported in ≥2 patients were neutropenia ( n=8 ) , which were managed by dose delay , growth factor therapy and or discontinuation of the 5-fu bolus ; no patients went off trial due to neutropenia . no major or unexpected toxicities were attributed to onvansertib . key news releases on january 15 , 2021 , we announced an electronic poster presentation of clinical data further demonstrating the clinical benefit of onvansertib in kras-mutate mcrc and initial findings from our expanded access program ( eap ) in mcrc . on september 17 , 2020 , we announced an electronic poster presentation of clinical data further demonstrating the safety , efficacy and durability of response of onvansertib in kras-mutated mcrc patients at the european society of medical oncology ( `` esmo '' ) virtual congress 2020. on june 9 , 2020 , we announced the initiation of our expanded access program ( `` eap '' ) for onvansertib , in combination with standard-of-care folfiri and bevacizumab , for second-line treatment of patients with kras-mutated mcrc . this announcement followed the fda granting fast track designation for onvansertib in kras-mutated mcrc . mcrpc trov-053 is a phase 2 study of onvansertib in combination with zytiga ® ( abiraterone ) and prednisone for the treatment of patients with metastatic castration resistant prostate cancer ( `` mcrpc '' ) . the primary objective of this study is to observe the effects of onvansertib in combination with abiraterone and prednisone on disease control as assessed by prostate specific antigen ( `` psa '' ) decline or stabilization after 12 weeks of study treatment in patients with mcrpc showing early signs of resistance to abiraterone . the rationale for this trial is based on the mechanism of action ( `` moa '' ) of onvansertib and zytiga ® and the synergy of these two drugs when used in combination . onvansertib inhibits tumor cell division ( mitosis ) by inducing g2/m arrest of tumor cells and the combination of onvansertib and zytiga ® significantly increases mitotic arrest and is synergistic when used in combination . additionally , plk1 inhibition appears to enhance the efficacy of androgen signaling blockade in castration-resistant prostate cancer . data presented on february 11 , 2021 , at the american society of clinical oncology genitourinary cancers symposium ( “ asco-gu ” ) demonstrated safety and efficacy of onvansertib in combination with abiraterone . arms a ( n=17 ) and b ( n=12 ) showed similar efficacy with 29 % and 25 % of patients achieving the primary endpoint and 53 % and 42 % of patients with sd at 12 weeks , respectively . the more continuous dosing schedule of arm c ( n=8 ) has shown a higher response rate with 63 % of patients , to-date , achieving the primary endpoint and 75 % with sd at 12 weeks . efficacy was observed in patients harboring ar alterations across all 3 arms . ctdna analysis revealed differences in baseline genomic profiles of patients achieving sd at 12 weeks vs patients progressing before or at 12 weeks . mutations exclusively present in patients with sd were associated with cell cycle and dna repair pathways that may result in increased sensitivity to onvansertib and efficacy of the combination . onvansertib + abiraterone has demonstrated safety across all 3 dosing schedules . key news releases on february 11 , 2021 , we announced an electronic poster presentation of clinical data further demonstrating the safety , efficacy and durability of response in patient with mcrpc at the american society of clinical oncology genitourinary cancers symposium ( “ asco-gu ” ) . 44 aml trov-052 is a phase 2 study of onvansertib in combination with standard-of-care chemotherapy , decitabine , for the treatment of patients with relapsed or refractory acute myeloid leukemia ( `` aml '' ) . the phase 1b portion of this trial was completed in the fourth quarter of 2019. the objective of this trial is to evaluate the dlts and mtd or rp2d of onvansertib ( phase 1b – completed in october 2019 ) . in phase 2 , the objective is to assess the safety , tolerability and preliminary efficacy of the combination of onvansertib at the rp2d and decitabine in patients with relapsed or refractory aml ( phase 2 enrollment completed in october 2020 ) . additionally , as a correlative objective , this trial is evaluating potential pharmacodynamic ( `` pd '' ) and diagnostic biomarkers of onvansertib in patients with aml . we were granted orphan drug designation ( `` odd '' ) for onvansertib for the treatment of aml from the fda and the european commission . data presented on december 6 , 2020 at the 62 nd american society of hematology ( `` ash '' ) conference , demonstrated the safety , tolerability and anti-leukemic activity of onvansertib in combination with decitabine in patients with difficult-to-treat relapsed/refractory aml . nine of 45 ( 20 % ) patients achieved a complete remission with or without hematologic count recovery ( cr/cri – 5 in phase 1b and 4 in phase 2 ) ; 55 % of responders had a mutation in a splicing factor . two patients proceeded to transplant following cr and four patients remain on treatment with duration of response of 9 , 10 , 17 and 20 months , respectively . together with data demonstrating the safety and tolerability of the combination therapy , these findings highlight onvansertib 's potential to address critical unmet needs in hematologic malignancies . key news releases on december 6 , 2020 , we announced an electronic poster presentation of data from the phase 1b/2 trial in aml demonstrating the safety and efficacy of onvansertib in relapsed or refractory patients at the annual american society of hematology ( “ ash ” ) conference .
| selling , general and administrative expenses selling , general and administrative expenses consisted of the following : replace_table_token_2_th selling , general and administrative expenses increased by $ 2,455,581 to $ 8,216,471 for the year ended december 31 , 2020 , from $ 5,760,890 for the year ended december 31 , 2019. the increase of stock-based compensation expense and salaries and staff costs is primarily related to the separation agreement with thomas adams which includes accelerated vesting of 47 stock options of approximately $ 583,000 and a one-time severance payment of $ 300,000. the increase in outside services and professional fees is primarily related to legal and patent fees to analyze our competitive landscape and evergreen patent strategy . the increase in facilities and other cost was due to a decrease in sublease income , an increase in delaware franchise tax and an increase in insurance costs . interest income interest income was $ 89,809 and $ 234,169 for the years ended december 31 , 2020 and 2019 , respectively . the decrease of interest income is due to significantly lower average interest rates during 2020 as compared to 2019. change in fair value of derivative financial instruments—warrants we have issued warrants to purchase shares of our common stock that are accounted for as derivative liabilities . as of december 31 , 2020 , the derivative financial instruments—warrants liabilities related to securities issued were revalued to $ 284,971 , resulting in a increase in fair value of $ 280,844 from december 31 , 2019 based primarily upon the change in our stock price from $ 1.24 at december 31 , 2019 to $ 17.99 at december 31 , 2020 , and the changes in the expected term , volatility and risk-free interest rates for the expected term . the increase in value was recorded as non-operating loss for the year ended december 31 , 2020. net loss net loss and per share amounts were as follows : replace_table_token_3_th the increase of $ 5,890,728 net loss attributable to common stockholders is primarily related to an increase of deemed dividends on preferred stock of $ 2,998,215 , related to the beneficial conversion upon issuance of preferred stock and an increase of net loss of $ 2,892,513. the increase of 14,900,759 basic and diluted weighted-average shares outstanding primarily resulting from the sales of common stock through public and direct offerings and the issuance of common stock upon exercise of warrants . the $ 1.72 decrease in basic and diluted net loss per share was impacted by the increase in net loss attributable
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several factors could positively or negatively impact our comparable sales results : · the general national , regional , and local economic conditions and corresponding impact on customer spending levels ; · the introduction of new products or brands ; · the location of new stores in existing store markets ; · competition ; · our ability to respond on a timely basis to changes in consumer preferences ; · the effectiveness of our various merchandising and marketing activities ; and · the number of new stores opened and the impact on the average age of all of our comparable stores . 29 cost of sales includes : · the cost of merchandise sold , including substantially all vendor allowances , which are treated as a reduction of merchandise costs ; · distribution costs including labor and related benefits , freight , rent , depreciation and amortization , real estate taxes , utilities , and insurance ; · shipping and handling costs ; · retail stores occupancy costs including rent , depreciation and amortization , real estate taxes , utilities , repairs and maintenance , insurance , licenses , and cleaning expenses ; · salon services payroll and benefits ; and · shrink and inventory valuation reserves . our cost of sales may be negatively impacted as we open an increasing number of stores . changes in our merchandise mix may also have an impact on cost of sales . this presentation of items included in cost of sales may not be comparable to the way in which our competitors or other retailers compute their cost of sales . selling , general and administrative expenses include : · payroll , bonus , and benefit costs for retail stores and corporate employees ; · advertising and marketing costs ; · occupancy costs related to our corporate office facilities ; · stock-based compensation expense ; · depreciation and amortization for all assets , except those related to our retail stores and distribution operations , which are included in cost of sales ; and · legal , finance , information systems , and other corporate overhead costs . this presentation of items in selling , general and administrative expenses may not be comparable to the way in which our competitors or other retailers compute their selling , general and administrative expenses . pre-opening expenses include non-capital expenditures during the period prior to store opening for new , remodeled , and relocated stores including rent during the construction period for new and relocated stores , store set-up labor , management and employee training , and grand opening advertising . interest income , net includes both interest income and expense . interest income represents interest from cash equivalents and short-term investments with maturities of twelve months or less from the date of purchase . interest expense includes interest costs and facility fees associated with our credit facility , which is structured as an asset-based lending instrument . our credit facility interest is based on a variable interest rate structure which can result in increased cost in periods of rising interest rates . income tax expense reflects the federal statutory tax rate and the weighted average state statutory tax rate for the states in which we operate stores . 30 story_separator_special_tag 10 basis points deleverage due to the impact of a one-time bonus payment to hourly associates related to tax reform . selling , general and administrative expenses sg & a expenses increased $ 213.4 million , or 19.9 % , to $ 1,287.2 million in fiscal 2017 compared to $ 1,073.8 million in fiscal 2016. as a percentage of net sales , sg & a expenses decreased 20 basis points to 21.9 % in fiscal 2017 compared to 22.1 % in fiscal 2016. the leverage in sg & a expenses was primarily due to : · 70 basis points leverage due to corporate overhead and variable store expenses attributed to cost efficiencies and higher sales volume , partially offset by ; · 30 basis points deleverage due to investments in store labor ; and · 20 basis points deleverage due to the impact of a one-time bonus payment related to tax reform . pre-opening expenses pre-opening expenses increased $ 5.7 million , or 30.8 % , to $ 24.3 million in fiscal 2017 compared to $ 18.6 million in fiscal 2016. during fiscal 2017 , we opened 102 new stores , remodeled 11 stores , and relocated seven stores . during fiscal 2016 , we opened 104 new stores , remodeled 12 stores , and relocated two stores . 33 interest income , net interest income , net was $ 1.6 million in fiscal 2017 compared to $ 0.9 million in fiscal 2016. interest income results from cash equivalents and short-term investments with maturities of twelve months or less from the date of purchase . interest expense represents interest on borrowings and fees related to the credit facility . we did not have any outstanding borrowings on our credit facility as of february 3 , 2018 and january 28 , 2017. income tax expense income tax expense of $ 231.6 million in fiscal 2017 represents an effective tax rate of 29.4 % , compared to fiscal 2016 tax expense of $ 246.0 million and an effective tax rate of 37.5 % . the lower tax rate is primarily due to a reduction of net deferred income tax liabilities and a lower effective tax rate in january 2018 as a result of tax reform and the adoption of a new accounting standard in fiscal 2017 for employee share-based payments . net income net income increased $ 145.5 million , or 35.5 % , to $ 555.2 million in fiscal 2017 compared to $ 409.8 million in fiscal 2016. the increase in net income was primarily due to a $ 349.6 million increase in gross profit and a $ 14.3 million decrease in income tax expense , which was partially offset by a $ 213.4 million increase in sg & a expenses . story_separator_special_tag liquidity and capital resources our primary cash needs are for rent , capital expenditures for new , remodeled , relocated , and refreshed stores ( prestige boutiques and related in-store merchandising upgrades ) , increased merchandise inventories related to store expansion and new brand additions , in-store boutiques ( sets of custom-designed fixtures configured to prominently display certain prestige brands within our stores ) , supply chain improvements , share repurchases , and continued improvement in our information technology systems . our primary sources of liquidity are cash and cash equivalents , short-term investments , cash flows from operations , including changes in working capital , and borrowings under our credit facility . the most significant component of our working capital is merchandise inventories and cash and cash equivalents reduced by related accounts payable and accrued expenses . our working capital needs are greatest from august through november each year as a result of our inventory build-up during this period for the approaching holiday season . this is also the time of year when we are at maximum investment levels in our new store class and may not have collected all of the landlord allowances due to us as part of our lease agreements . based on past performance and current expectations , we believe that cash and cash equivalents , short-term investments , cash generated from operations , and borrowings under the credit facility will satisfy the company 's working capital needs , capital expenditure needs , commitments , and other liquidity requirements through at least the next twelve months . the following table presents a summary of our cash flows for fiscal years 2018 , 2017 and 2016 : replace_table_token_10_th 34 operating activities operating activities consist of net income adjusted for certain non-cash items , including depreciation and amortization , deferred income taxes , non-cash stock-based compensation , realized gains or losses on disposal of property and equipment , and the effect of working capital changes , net of acquisitions . merchandise inventories , net were $ 1,214.3 million at february 2 , 2019 , compared to $ 1,096.4 million at february 3 , 2018 , representing an increase of $ 117.9 million or 10.8 % . average inventory per store increased 1.3 % compared to prior year . the increase in inventory is primarily due to the following : · approximately $ 102 million due to the addition of 100 net new stores opened since february 3 , 2018 ; · approximately $ 64 million due to the opening of the company 's distribution center in fresno , california , partially offset by ; · approximately $ 48 million of productivity benefits from supply chain investments in new systems and merchandise planning tools . deferred rent liabilities were $ 435.0 million at february 2 , 2019 , an increase of $ 27.1 million compared to $ 407.9 million at february 3 , 2018. deferred rent includes deferred construction allowances , future rental increases , free rent , and rent holidays , which are all recognized on a straight-line basis over their respective lease term . the increase is primarily due to the addition of 100 net new stores opened since february 3 , 2018 and corporate and supply chain expansion . investing activities we have historically used cash primarily for new , remodeled , relocated , and refreshed stores , supply chain investments , short-term investments , and investments in information technology systems . investment activities for capital expenditures were $ 319.4 million in fiscal 2018 compared to $ 440.7 million and $ 373.4 million in fiscal 2017 and 2016 , respectively . capital expenditures decreased in fiscal 2018 compared to fiscal 2017 mainly due to lower cost in the new store program , less store refreshes , and total reduction in spend on information technology systems . purchases of short-term investments were $ 386.2 million during fiscal 2018 and consist of certificates of deposit with maturities of twelve months or less from the date of purchase . the following table presents a summary of our store activities in fiscal years 2018 , 2017 , and 2016 : replace_table_token_11_th during fiscal 2018 , the average investment required to open a new ulta beauty store was approximately $ 1.4 million , which includes capital investment net of landlord contributions , pre-opening expenses , and initial inventory net of payables . the average investment required to remodel an ulta beauty store was approximately $ 1.0 million in fiscal 2018. the average investment required to refresh an ulta beauty store was approximately $ 0.5 million in fiscal 2018 . 35 capital expenditures for fiscal 2018 , 2017 , and 2016 by major category are as follows : replace_table_token_12_th our future investments will depend primarily on the number of new , remodeled , and relocated stores , information technology systems , and supply chain investments that we undertake and the timing of these expenditures . based on past performance and current expectations , we expect to self-fund future capital expenditures . we expect to spend approximately $ 390 million for capital expenditures in fiscal 2019. we are continuing our multi-year supply chain project which includes adding capacity and system improvements to support expanded omnichannel capabilities . financing activities financing activities in fiscal 2018 , 2017 and 2016 consist principally of share repurchases and capital stock transactions . purchases of treasury shares represent the fair value of common shares repurchased from plan participants in connection with shares withheld to satisfy minimum statutory tax obligations upon the vesting of restricted stock . we had no borrowings outstanding under our credit facility at the end of fiscal 2018 , 2017 and 2016. the zero outstanding borrowings position is due to a combination of factors including strong sales growth , overall performance of management initiatives including expense control as well as inventory and other working capital reductions . we may require borrowings under the facility from time to time in future periods to support our new store program , share repurchases , and seasonal inventory needs .
| the inclusion of e-commerce resulted in an increase of approximately 300 basis points to the total comparable sales in fiscal 2018 compared to 390 basis points in fiscal 2017. the total comparable sales increase included a 5.3 % increase in transactions and a 2.8 % increase in average ticket . we attribute the increase in comparable sales to our successful marketing and merchandising strategies . gross profit gross profit increased $ 312.5 million , or 14.9 % , to $ 2,409.3 million in fiscal 2018 , compared to $ 2,096.8 million in fiscal 2017. gross profit as a percentage of net sales increased 30 basis points to 35.9 % in fiscal 2018 compared to 35.6 % in fiscal 2017. the impact of new revenue recognition accounting drove 55 basis points of leverage . the remaining 25 basis points of deleverage in gross profit margin was primarily due to : · 55 basis points deleverage attributed to category and channel mix shifts and investments in our salon services and supply chain operation , partially offset by ; · 30 basis points leverage in fixed store costs attributed to the impact of higher sales volume . selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses increased $ 248.2 million , or 19.3 % , to $ 1,535.5 million in fiscal 2018 compared to $ 1,287.2 million in fiscal 2017. as a percentage of net sales , sg & a expenses increased 100 basis points to 22.9 % in fiscal 2018 compared to 21.9 % in fiscal 2017. the impact of new revenue recognition accounting drove 80 basis points of deleverage . the remaining 20 basis points of deleverage in sg & a expenses was primarily due to : · 30 basis points deleverage in investments in store labor to support growth initiatives , partially offset by ; · 10 basis points leverage in corporate overhead due to the impact of higher sales volume . pre-opening expenses pre-opening expenses decreased $ 4.5 million , or 18.6 % , to $ 19.8 million in fiscal 2018 compared to $ 24.3 million in fiscal 2017. during fiscal 2018 , we opened 107 new stores , remodeled 13 stores ,
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we continued to implement this plan during the first half of fiscal 2014 and in connection with the plan , recorded restructuring charges of $ 3.7 million during fiscal 2014 , of which $ 2.9 million was for facility costs in order to integrate pdi by consolidating and eliminating redundant office space around the world and severance costs of $ 0.8 million to consolidate certain overhead functions . the company currently operates in three global business segments : executive recruitment , ltc and futurestep . see note 11 business segments , in the notes to our consolidated financial statements in this annual report on form 10-k , for discussion of the company 's global business segments . the company evaluates performance and allocates resources based on the chief operating decision maker 's review of ( 1 ) fee revenue and ( 2 ) earnings before interest , taxes , depreciation and amortization ( ebitda ) , which is further adjusted to exclude restructuring charges ( net of recoveries ) , and or integration/acquisition and certain separation costs ( adjusted ebitda ) . ebitda and adjusted ebitda are non-gaap financial measures . they have limitations as analytical tools , should not be viewed as substitutes for financial information determined in accordance with u.s. generally accepted accounting principles ( gaap ) , and should not be considered in isolation or as substitutes for analysis of the company 's results as reported under gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . management believes the presentation of these non-gaap financial measures provides meaningful supplemental information regarding korn ferry 's performance by excluding certain charges and other items that may not be indicative of korn ferry 's ongoing operating results . the use of these non-gaap financial measures facilitates comparisons to korn ferry 's historical performance . korn ferry includes these non-gaap financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of korn ferry 's ongoing operations and financial and operational decision-making . the accounting policies for the reportable segments are the same as those described in the summary of significant accounting policies in the accompanying consolidated financial statements , except that the above noted items are excluded from adjusted ebitda . fee revenue increased $ 147.5 million , or 18 % ( 9 % increase in fee revenue when adjusting for the prior year acquisitions ) in fiscal 2014 to $ 960.3 million compared to $ 812.8 million in fiscal 2013 , with increases in fee revenue in ltc , executive recruitment and futurestep . during fiscal 2014 , we recorded operating income of $ 91.6 million with executive recruitment , ltc and futurestep segments contributing $ 116.4 million , $ 23.8 million , and $ 13.3 million , respectively , offset by corporate expenses of $ 61.9 million . net income for fiscal 2014 and 2013 was $ 72.7 million and $ 33.3 million , respectively . adjusted ebitda during fiscal 2014 was $ 138.3 million with executive recruitment , ltc and futurestep segments contributing $ 127.8 million , $ 37.6 million and $ 16.9 million , respectively , offset by corporate expenses of $ 44.0 million . adjusted ebitda increased $ 40.5 million in fiscal 2014 to $ 138.3 million from adjusted ebitda of $ 97.8 million in fiscal 2013. our cash , cash equivalents and marketable securities increased $ 102.3 million , or 28 % , to $ 468.3 million at april 30 , 2014 , compared to $ 366.0 million at april 30 , 2013 , mainly due to cash provided by operations , partially offset by bonuses earned in fiscal 2013 and paid during the first quarter of fiscal 2014 and $ 15.0 million in contingent consideration also paid during the first quarter of fiscal 2014 to the selling stockholders of pdi . as of april 30 , 2014 , we held marketable securities to settle obligations under our executive capital accumulation 29 plan ( ecap ) with a fair value of $ 116.2 million . our vested and unvested obligations for which these assets were held in trust totaled $ 117.6 million as of april 30 , 2014. our working capital increased by $ 96.5 million to $ 275.0 million in fiscal 2014. we believe that cash on hand and funds from operations will be sufficient to meet our anticipated working capital , capital expenditures and general corporate requirements in the next twelve months . we had no long-term debt or any outstanding borrowings under our credit facility at april 30 , 2014 or 2013. as of april 30 , 2013 , under our previous senior secured credit agreement we were required to maintain $ 2.9 million in restricted cash to provide collateral for the standby letters of credit that were outstanding . there is no restricted cash requirement under our current senior unsecured revolving credit agreement and , as a result , the company had no restricted cash balance as of april 30 , 2014. as of april 30 , 2014 and 2013 , there was $ 2.8 million and $ 2.7 million , respectively of standby letters of credit issued under our long-term debt arrangements . we have a total of $ 1.5 million and $ 1.4 million of standby letters of credits with other financial institutions as of april 30 , 2014 and 2013 , respectively . critical accounting policies the following discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements . preparation of our periodic filings requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period . story_separator_special_tag actual results could differ from those estimates and assumptions and changes in the estimates are reported in current operations as new information is learned or upon the amounts becoming fixed and determinable . in preparing our consolidated financial statements and accounting for the underlying transactions and balances , we apply our accounting policies as disclosed in the notes to our consolidated financial statements . we consider the policies discussed below as critical to an understanding of our consolidated financial statements because their application places the most significant demands on management 's judgment and estimates . specific risks for these critical accounting policies are described in the following paragraphs . senior management has discussed the development , selection and key assumptions of the critical accounting estimates with the audit committee of the board of directors . revenue recognition . management is required to establish policies and procedures to ensure that revenue is recorded over the performance period for valid engagements and related costs are matched against such revenue . we provide professional services related to executive recruitment activities and recruitment for non-executive professionals on a retained basis , recruitment process outsourcing and leadership & talent consulting services . fee revenue from executive recruitment activities and recruitment for non-executive professionals are generally one-third of the estimated first year cash compensation of the placed executive plus a percentage of the fee to cover indirect expenses . the company generally recognizes revenue on a straight-line basis over a three month period , commencing upon client acceptance , as this is the period over which the recruitment services are performed . fees earned in excess of the initial contract amount are recognized upon completion of the engagement , which reflect the difference between the final actual compensation of the placed executive and the estimate used for purposes of the previous billings . since the initial fees are typically not contingent upon placement of a candidate , our assumptions primarily relate to establishing the period over which such service is performed . these assumptions determine the timing of revenue recognition and profitability for the reported period . if these assumptions do not accurately reflect the period over which revenue is earned , revenue and profit could differ . any services that are provided on a contingent basis are recognized once the contingency is resolved . in addition to recruitment for non-executive professionals , futurestep provides recruitment process outsourcing services and fee revenue is recognized as services are rendered . fee revenue from ltc services is recognized as services are rendered for consulting engagements and other time based services , measured by total hours incurred to the total estimated hours at completion . it is possible that updated estimates for the consulting engagement may vary from initial estimates with such updates being recognized in the period of determination . depending on the timing of billings and services rendered , the company accrues revenue as appropriate . ltc revenue is also derived from the sale of solution services , which includes revenue from licenses and the sale of products . revenue from licenses is recognized using a straight-line method over the term of the contract 30 ( generally 12 months ) . revenue from perpetual licenses is recognized when the license is sold . products sold by the company mainly consist of books and automated services covering a variety of topics including performance management , team effectiveness and coaching and development . the company recognizes revenue for its products when the product has been sold . furthermore , a provision for doubtful accounts on recognized revenue is established with a charge to general and administrative expenses based on historical loss experience , assessment of the collectability of specific accounts , as well as expectations of future collections based upon trends and the type of work for which services are rendered . annual performance related bonuses . each quarter , management records its best estimate of its annual performance related bonuses , which requires management to , among other things , project annual consultant ( employees who originate business ) productivity ( as measured by engagement fees billed and collected by executive search consultants and revenue for ltc and futurestep consultants ) , company performance including profitability , competitive forces and future economic conditions impact on our results . at the end of each fiscal year , annual performance related bonuses take into account final individual consultant productivity , company results including profitability , the achievement of strategic objectives and the results of individual performance appraisals , and the current economic landscape . because annual performance-based bonuses are communicated and paid only after the company reports its full fiscal year results , actual performance-based bonus payments may differ from the prior year 's estimate , and any changes in the estimate are reported in current operations . such changes in the bonus estimates historically have not been significant and are recorded in current operations in the period in which they are determined . deferred compensation . estimating deferred compensation requires assumptions regarding the timing and probability of payments of benefits to participants and the discount rate . changes in these assumptions would significantly impact the liability and related cost on our consolidated balance sheet and statement of income , respectively . management engages an independent actuary to periodically review these assumptions in order to confirm that they reflect the population and economics of our deferred compensation plans in all material respects and to assist us in estimating our deferred compensation liability and the related cost . the actuarial assumptions we use may differ from actual results due to changing market conditions or changes in the participant population . these differences could have a significant impact on our deferred compensation liability and the related cost . carrying values . valuations are required under gaap to determine the carrying value of various assets . our most significant assets for which management is required to prepare valuations are carrying value of receivables , goodwill , intangible assets , fair value of contingent consideration , and recoverability of deferred income taxes .
| exchange rates unfavorably impacted fee revenue by $ 5.3 million or 1 % in fiscal 2014. north america reported fee revenue of $ 306.8 million , an increase of $ 16.5 million , or 6 % , in fiscal 2014 compared to $ 290.3 million in fiscal 2013. north america 's increase in fee revenue was primarily due to a 3 % increase in the number of engagements billed and a 2 % increase in the weighted-average fees billed per engagement during fiscal 2014 compared to fiscal 2013. the overall increase in fee revenue was primarily driven by increases in fee revenue in the life sciences/healthcare , financial services , technology and education/non-profit sectors , partially offset by a decline in the industrial sector . exchange rates unfavorably impacted fee revenue by $ 1.7 million or 1 % in fiscal 2014. emea reported fee revenue of $ 147.9 million , an increase of $ 19.1 million , or 15 % , in fiscal 2014 compared to $ 128.8 million in fiscal 2013. emea 's increase in fee revenue was primarily driven by an 11 % increase in the number of engagements billed and a 3 % increase in the weighted-average fees billed per engagement in fiscal 2014 compared to fiscal 2013. the increase in performance in the united kingdom , france , netherlands , belgium and germany were the primary contributors to the increase in fee revenue in fiscal 2014 compared to fiscal 2013. in terms of business sectors , industrial , financial services , life sciences/healthcare , consumer goods and technology experienced the largest increases in fee revenue in fiscal 2014 compared to the prior year . exchange rates favorably impacted fee revenue by $ 3.8 million or 3 % in fiscal 2014. asia pacific reported fee revenue of $ 84.8 million , an increase of $ 11.6 million , or 16 % , in fiscal 2014 compared to $ 73.2 million in fiscal 2013. the increase in fee revenue was mainly due to a 15 % increase in the number of engagements billed and a 1 % increase in weighted-average fees billed per engagement in fiscal 2014 compared to fiscal 2013. the increase in performance in australia , singapore and china were the primary contributors to the increase
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we anticipate margins to continually increase in 2013 as we expand our retail and internet channels . these channels give us the ability to focus on visual merchandising of new products . during 2013 , we plan to make significant investments in the operational and technological efficiency of the company as well as consumer marketing . these investments include a new erp system , as discussed above , which we currently expect to reduce our 2013 earnings per share by $ 0.08 $ 0.10 per diluted share and represents a transformational change intended to improve our operational efficiency as we adapt as a global company , retail store metrics including increased size of stores and visual merchandising with a focus on high traffic , outlet locations , and the launching of new web designs in certain regions complimented by suggestive selling tactics and mobile point of sale systems to better assist customers . we intend to focus on organic growth including the launch of new innovative products , attracting new consumers , retail excellence and wholesale channel expansion with key partners . 26 story_separator_special_tag sset impairments . asset impairments increased $ 0.9 million , or 167 % , during the year ended december 31 , 2012 primarily due to the impairment of $ 1.4 million of long-lived assets related to retail stores in the united states and canada . during 2012 , we recorded impairments related to four retail locations as our projected discounted future cash flows of these locations is currently not sufficient to cover our fixed asset investments for these stores . foreign currency transaction ( gains ) /losses . the line item entitled foreign currency transaction ( gains ) /losses , net is comprised of foreign currency gains and losses from the re-measurement and settlement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments . in 2012 , we recognized a loss of $ 2.5 million related to foreign currency transactions , compared to a $ 4.9 million gain in 2011 , primarily due to a $ 4.3 million loss in the first quarter of 2012 as a result of large currency fluctuations and an increase in international business . we implemented a foreign currency hedging strategy in the second quarter of 2012. as a result of this strategy , we have been able to reduce the impacts of foreign currency fluctuations on our financial statements . 29 income tax ( benefit ) expense . during the year ended december 31 , 2012 , income tax expense decreased $ 9.7 million resulting in a 7.7 % decrease in effective tax rate compared to the same period in 2011 , which was primarily due to a reversal of certain tax provisions and the release of certain valuation allowances associated with deferred tax assets . our effective tax rate of 9.8 % for the year ended december 31 , 2012 differs from the federal u.s. statutory rate primarily because of the above releases as well as differences between income tax rates between u.s. and foreign jurisdictions . comparison of the years ended december 31 , 2011 and 2010 replace_table_token_9_th revenues . during the year ended december 31 , 2011 , revenues from our wholesale channel increased $ 118.3 million , or 24.6 % , which was primarily driven by strong demand in all three operating segments , particularly asia . revenues from our retail channel increased $ 72.0 million , or 30.7 % , as we continued to grow our retail presence by opening new retail stores . we also closed certain kiosks as branded stores allow us to better merchandise the full breadth and depth of our product line . revenues from our internet channel increased $ 20.9 million , or 27.9 % , primarily driven by increased internet sales in the americas and europe operating segments . 30 the following table summarizes our total revenue by channel for the years ended december 31 , 2011 and 2010. replace_table_token_10_th ( 1 ) reflects year over year change as if the current period results were in constant currency , which is a non-gaap financial measure . see non-gaap financial measures below for more information . the table below illustrates the overall growth in the number of our company-operated retail locations as of december 31 , 2011 and 2010. replace_table_token_11_th gross profit . during the year ended december 31 , 2011 , gross profit increased $ 112.6 million , or 26.6 % , compared to the same period in 2010 , which was primarily attributable to the 12.0 % increase in sales volume and 13.3 % in footwear average selling price as margin remained relatively flat year over year . impact on gross profit due to foreign exchange rate fluctuations . changes in average foreign currency exchange rates used to translate revenues and costs of sales from our functional currencies to our reporting currency , the u.s. dollar , during the year ended december 31 , 2011 increased our gross profit by $ 22.2 million compared to the same period in 2010 . 31 selling , general and administrative expenses . selling , general and administrative expenses increased $ 61.8 million , or 18.0 % , during the year ended december 31 , 2011 compared to the same period in 2010 primarily due to ( i ) an increase of $ 29.3 million in salaries and related costs resulting from higher global headcount , ( ii ) an increase of $ 20.0 million in rent and building related costs , both of which resulted from continued growth in the number of company-operated retail stores and ( iii ) an increase of $ 6.5 million in contract labor which was primarily attributable to higher internet channel outsourced services , increased costs associated with contracted customer service and sales support , and other costs associated with it support and process improvement . story_separator_special_tag as a percentage of revenues , selling , general and administrative expenses decreased 6.9 % , or 300 basis points , to 40.4 % in 2011 from 43.4 % in 2010. impact on selling , general , and administrative expenses due to foreign exchange rate fluctuations . changes in average foreign currency exchange rates used to translate expenses from our functional currencies to our reporting currency during the year ended december 31 , 2011 increased selling , general and administrative expenses by approximately $ 14.8 million as compared to the same period in 2010. restructuring charges . restructuring charges decreased by $ 3.8 million during the year ended december 31 , 2011 compared to the same period in 2010 as we had no restructurings during 2011. the 2010 restructuring charges consisted of $ 2.0 million in severance costs related to the departure of a former executive and $ 1.8 million related to a change in estimate of our original accrual for lease termination costs for our office facility in canada , which was closed in 2008. foreign currency transaction ( gains ) /losses . foreign currency transaction gains increased $ 2.6 million , or 110.2 % , during the year ended december 31 , 2011 compared to the same period in 2010 , primarily due to a correction related to an error in the classification of certain intercompany receivables and payables balances that should have been deemed permanently invested in certain prior periods . income tax ( benefit ) expense . during the year ended december 31 , 2011 , income tax expense increased $ 10.8 million compared to the same period in 2010 , which was primarily due to an increase in pre-tax income . in addition , the company recognized a one-time $ 3.6 million tax benefit recorded during the second quarter of 2011 as a result of a change in our international structure and a $ 3.0 million tax benefit recognized in the third quarter of 2010 due to a change in an international tax treaty which reduced certain taxes for which accruals had previously been made . our effective tax rate of 17.5 % for the year ended december 31 , 2011 differs from the federal u.s. statutory rate primarily because of differences between income tax rates between us and foreign jurisdictions . presentation of reportable segments we have three reportable operating segments : americas , europe and asia . revenues of each of our reportable operating segments represent sales to external customers . we also have an other businesses category which aggregates insignificant operating segments that do not meet the reportable threshold and represent manufacturing operations located in mexico and italy . the composition of our reportable operating segments is consistent with that used by our chief operating decision maker ( codm ) to evaluate performance and allocate resources . each of our reportable operating segments derives its revenues from the sale of footwear , apparel and accessories to external customers . revenues for the other businesses represent non-footwear product sales to external customers . segment assets consist of cash and cash equivalents , accounts receivable and inventory . segment operating income is the primary measure used by our codm to evaluate segment operating performance and to decide how to allocate resources to segments . segment performance evaluation is based primarily on segment results without allocating corporate expenses , or indirect general , administrative and other expenses . segment profits or losses of our reportable operating segments include adjustments to eliminate intersegment profit or losses on intersegment sales . 32 during the first quarter of 2012 , we changed the internal reports used by our codm to align the definition of our segment operating income with income from operations. previously , segment operating income excluded asset impairment charges and restructuring costs not included in cost of sales . segment operating income also reflects the reclassification of foreign currency transaction ( gains ) losses , net from income from operations on the consolidated statements of income . see note 1organization & summary of significant accounting policies for further discussion . segment information for all periods presented has been reclassified to reflect these changes . comparison of the years ended december 31 , 2012 and 2011 the following tables set forth information related to our reportable operating business segments for the years ended december 31 , 2012 and 2011. replace_table_token_12_th ( 1 ) during the year ended december 31 , 2012 , operating losses of other businesses decreased $ 3.3 million primarily due to a $ 2.5 million increase in gross margin and a $ 0.8 million decrease in selling , general and administrative expenses . ( 2 ) includes a corporate component consisting primarily of corporate support and administrative functions , costs associated with share-based compensation , research and development , brand marketing , legal , depreciation on corporate and other assets not allocated to operating segments and costs of the same nature of certain corporate holding companies . for the year ended december 31 , 2012 , unallocated corporate and other expenses increased $ 4.7 million compared to the same period in 2011 , primarily due to a $ 3.3 million increase in cost of sales and a $ 2.0 million increase in selling , general , and administrative costs due to higher corporate headcount partially offset by a decrease of $ 0.5 million in asset impairments and a decrease of $ 0.1 million in charitable contributions . ( 3 ) please refer to our results of operations to reconcile total consolidated operating income to net income as segment information does not have an effect on values below total consolidated operating income . ( 4 ) reflects year over year change as if the current period results were in constant currency , which is a non-gaap financial measure . see non-gaap financial measures below for more information . americas operating segment . during the year ended december 31 , 2012 , revenues from the americas segment increased $ 47.8 million , or 10.7 % , compared to the same period in 2011 primarily due to a 4.3
| during the year ended december 31 , 2012 , gross profit increased $ 71.6 million , or 13.3 % , compared to the same period in 2011 , which was primarily attributable to the 4.6 % increase in sales volume and a 7.5 % increase in footwear average selling price . higher prices and sales volume are the result of the continued growth and expansion of our retail and internet channels as the growth in combined sales from these channels began to outpace our wholesale channel . these drivers were offset by higher costs primarily from the expansion of our product offerings in 2012 which utilize traditional materials , such as textile fabric and leather , and increased offerings of discounted products and promotional items through our wholesale and direct-to-consumer channels . 28 impact on gross profit due to foreign exchange rate fluctuations . changes in average foreign currency exchange rates used to translate revenues and costs of sales from our functional currencies to our reporting currency during the year ended december 31 , 2012 decreased our gross profit by $ 7.8 million compared to the same period in 2011. selling , general and administrative expenses . selling , general and administrative expenses increased $ 55.6 million , or 13.7 % , during the year ended december 31 , 2012 compared to the same period in 2011 primarily due to : ( i ) an increase of $ 23.7 million in rent and building related costs , both of which resulted from continued growth in the number of company operated retail stores ; ( ii ) an increase of $ 14.4 million in salaries and related costs , including variable compensation , resulting from higher global headcount including those needed for new retail store openings and increased stock compensation ; ( iii ) an increase of $ 9.7 million in other expenses primarily from increases in depreciation and amortization expenses related to additional retail store locations , and capitalized software as well as bad debt and sales tax expense increases ; ( iv ) an increase of $ 9.8 million in professional service expenses
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in the phase 1a portion of this trial , we have completed enrollment in the fourth quarter of 2019 of three cohorts of four to nine patients with increased dosage levels of sbp-101 administered in the second and third cohorts and completed enrollment in february of 2020 in a fourth cohort to explore an alternate dosing schedule . demonstration of adequate safety in phase 1a allowed us to promptly begin enrollment in february 2020 in the phase 1b exploration of efficacy . we plan to enroll up to 36 patients using the recommended dosage level and schedule determined in phase 1a . early results from the phase 1b expansion could become available in the second half of 2020. we estimate that completion of our phase 1b clinical trial in pda will require additional funding of approximately $ 4 to 6 million . additional clinical trials will be required for fda or other country approvals if the results of the front-line clinical trial of our sbp-101 product candidate justify continued development . the cost and timing of additional clinical trials is highly dependent on the nature and size of the trials ; however , it is estimated that the next steps in the approval process could cost between $ 20 and $ 40 million . financial overview we have incurred losses of $ 41.3 million since our inception in 2011. for the year ended december 31 , 2019 , we incurred a net loss of $ 6.2 million , which includes a non-cash charge of $ 2.1 million related to the amortization of the debt discount on $ 2.1 million of convertible notes which converted to common stock during the year . we also incurred negative cash flows from operating activities of $ 2.7 million for this period . we expect to incur substantial losses , which will continue to generate negative net cash flows from operating activities , as we continue to pursue research and development activities and commercialize our sbp-101 product candidate . our $ 1.0 million increase in cash compared to december 31 , 2018 was primarily due to $ 3.8 aggregate proceeds from equity and debt offerings completed during 2019 , offset in part by cash used in operations . in august 2019 , we received a research and development tax incentive payment from the government of australia related to the research activities of our australian subsidiary during 2018. the incentive payment received was approximately $ 376,000. as of december 31 , 2019 , we had cash of $ 2.4 million , working capital of $ 1.3 million and stockholders ' equity of $ 1.4 million . this is not expected to be sufficient to sustain operations through december 31 , 2020. we will need additional funds to continue our operations and execute our business plan , including completing our current phase 1a /1b clinical trial , planning for required future trials and pursuing regulatory approvals in the united states , the european union and other international markets . we historically have financed our operations principally from the sale of convertible debt and equity securities . while we have been successful in the past in obtaining the necessary capital to support our operations and we are likely to seek additional financing through similar means , there is no assurance that we will be able to obtain additional financing under commercially reasonable terms and conditions , or at all . this risk would increase if our clinical data is not positive or if economic or market conditions deteriorate . if we are unable to obtain additional financing when needed , we would need to scale back our operations taking actions which may include , among other things , reducing use of outside professional service providers , reducing staff or staff compensation , significantly modify or delay the development of our sbp-101 product candidate , license to third parties the rights to commercialize our sbp-101 product candidate for pancreatic cancer or other applications that we would otherwise seek to pursue , or cease operations . 39 key components of our results of operations general and administrative expenses our selling , general and administrative expenses consist primarily of salaries , benefits and other costs , including stock-based compensation , for our executive and administrative personnel ; legal and other professional fees ; travel , insurance and other corporate costs . research and development expenses since our inception , we have focused our activities on the development of sbp-101 , our initial product candidate , for the treatment of pancreatic cancer . we expense both internal and external research and development costs as incurred . research and development costs include expenses incurred in the conduct of our human clinical trials , for third-party service providers performing various testing and accumulating data related to our preclinical studies ; sponsored research agreements ; developing and scaling the manufacturing process necessary to produce sufficient amounts of the sbp-101 compound for use in our pre-clinical studies and human clinical trials ; consulting resources with specialized expertise related to execution of our development plan for our sbp-101 product candidate ; personnel costs , including salaries , benefits and stock-based compensation ; and costs to license and maintain our licensed intellectual property . during 2019 and 2018 , research and development expenditures were focused primarily on costs related to the execution our current phase 1a /1b front line clinical trial . we can not determine with certainty the timing of initiation , the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates . at this time , due to the inherently unpredictable nature of preclinical and clinical development , we are unable to estimate with any certainty the costs we will incur and the timelines we will require in the continued development of our initial product candidate for pancreatic cancer and our other potential pipeline programs . clinical and preclinical development timelines , the probability of success and development costs can differ materially from expectations . story_separator_special_tag our future research and development expenses will depend on the preclinical and clinical success of each product candidate that we develop , as well as ongoing assessments of the commercial potential of such product candidates . in addition , we can not forecast whether our current or future product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . completion of clinical trials may take several years or more , and the length of time generally varies according to the type , complexity , novelty and intended use of a product candidate . 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 : ● per patient trial costs ; ● the number of trials required for approval ; ● the number of sites included in the trials ; ● the length of time required to enroll suitable patients ; ● the number of doses that patients receive ; ● the number of patients that participate in the trials ; ● the drop-out or discontinuation rates of patients ; ● the duration of patient follow-up ; ● potential additional safety monitoring or other studies requested by regulatory agencies ; ● the number and complexity of analyses and tests performed during the trial ; ● the phase of development of the product candidate ; and ● the efficacy and safety profile of the product candidate . 40 our expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple clinical trial sites and for contract research organizations , ( “ cro ” ) , which administer clinical trials on our behalf . the financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows . generally , these agreements set forth the scope of work to be performed at a fixed fee or unit price . payments under the contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . expenses related to clinical trials generally are accrued based on contracted amounts and the achievement of milestones , such as number of patients enrolled . if timelines or contracts are modified based upon changes to the clinical trial design or scope of work to be performed , we modify our estimates of accrued expenses accordingly . we expense costs associated with obtaining licenses for patented technologies when it is determined there is no alternative future use of the intellectual property subject to the license . other income ( expense ) other income ( expense ) consists of interest income , cash and non-cash interest expense and transaction gains and losses resulting from transactions denominated in other than our functional currency . grant income grant income is derived from a one-time grant awarded to the company by the national institute of diabetes and digestive and kidney diseases of the national institutes of health ( the “ grant agreement ” ) . the total grant awarded under the grant agreement was $ 225,000 and funded studies of sbp-101 as a potential treatment for pancreatitis . grant income is recognized as a non-operating income when the related research and development expenses are incurred , terms of the grant have been complied with and the company has received reimbursement under the grant agreement . critical accounting policies and estimates our management 's discussion and analysis of 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 of america ( “ gaap ” ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses . on an ongoing basis , we evaluate these estimates and judgments , including those described below . we base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances . these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results and experiences may differ materially from these estimates . while our significant accounting policies are more fully described in note 4 to our consolidated financial statements starting on page f-1 , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements . stock-based compensation in accounting for share-based incentive awards we measure and recognize the cost of employee and non-employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards . calculating share-based compensation expense requires the input of highly subjective assumptions , which represent our best estimates and involve inherent uncertainties and the application of management 's judgment . compensation cost is recognized ratably using the straight-line attribution method over the vesting period , which is considered to be the requisite service period . 41 the fair values of share-based awards are estimated at the date of grant using the black-scholes option pricing model . the determination of the fair value of share-based awards is affected by our stock price , as well as assumptions regarding a number of complex and subjective variables . risk free interest rates are based upon u.s. treasury rates appropriate for the expected term of each award . expected volatility rates are based primarily on the volatility rates of a set of guideline companies , which consist of public and recently public biotechnology companies .
| other expense , net other expense , net , was $ 2.3 million for both years ended december 31 , 2019 and 2018. in 2019 , these expenses were primarily the amortization of the debt discount on the 2018 notes which converted on june 30 , 2019. in 2018 , these expenses were primarily the amortization of the debt discount on the 2017 notes which converted in 2018. income tax benefit income tax benefit increased to $ 415,000 in 2019 , up from $ 254,000 in 2018. our income tax benefit is derived primarily from refundable tax incentives associated with our r & d activities conducted in australia . the current year increase reflects an increase in the costs eligible for the australian r & d tax incentive . liquidity and capital resources the following table summarizes our liquidity and capital resources as of december 31 , 2019 and 2018 and for each of fiscal years ended december 31 , 2019 and 2018 , and is intended to supplement the more detailed discussion that follows ( in thousands ) : liquidity and capital resources december 31 , 2019 2018 cash $ 2,449 $ 1,405 working capital ( deficiency ) $ 1,334 $ 217 * * includes $ 1,289 of debt discount 43 replace_table_token_5_th working capital our total cash resources were $ 2.4 million as of december 31 , 2019 , compared to $ 1.4 million as of december 31 , 2018. as of december 31 , 2019 , we had $ 1.8 million in current liabilities and working capital of $ 1.3 million . as of december 31 , 2018 , we had $ 1.6 million in current liabilities and working capital of $ 0.2 million ( includes $ 1.3 million of debt discount ) . working capital is calculated as current assets less current liabilities . on june 30 , 2019 the principal balance and accrued interest on promissory notes payable by us were converted into common stock per the terms of the underlying promissory notes , resulting in the issuance of 651,758 shares of common stock . cash flows net cash used in operating activities net cash used in operating activities was $ 2.7 million during 2019 , compared to $ 2.4 million during 2018. the net cash used in each of these periods primarily reflects the net loss for these periods and is partially offset by the effects of changes in operating assets
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we anticipate that we would need several millions of dollars to properly market our services and fund the operations for the next 12 months . assuming we are able to raise the funds discussed above , we currently anticipate that by the fourth fiscal quarter of fye february 29 , 2020 , our operations could be self-sustaining and providing the necessary cash flow to enable us to continue to grow the company . although we currently can not predict the full impact of the covid-19 pandemic on our first or second fiscal 2021 financial results , we currently anticipate a significant decrease in year-over-year revenue , which decreases may continue throughout the remainder of fiscal 2021 or beyond . however , the ultimate extent of the covid-19 pandemic and its impact on global travel and overall economic activity is unknown and impossible to predict at this time . separately , our capital requirements may increase in the near term and long-term due to the impact of the covid-19 pandemic , the resulting reduced demand for travel services , the increases in cancellations and re-bookings , and the extent to which such pandemic may further impact the ability of our customers to fulfill their payment obligations . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles ( gaap ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , costs and expenses , and related disclosures . on an ongoing basis , we evaluate our estimates and assumptions . to the extent there are material differences between these estimates and our actual results , our consolidated financial statements will be affected . our significant accounting policies are described in “ item 8. financial statements and supplementary data ” – “ note 2 - summary of significant accounting policies ” to the accompanying consolidated financial statements . the methods , estimates and judgments we use in applying our accounting policies have a significant impact on our results of operations . we believe that the policies listed below involve the greatest degree of complexity and judgment by our management and are critical for understanding and evaluating our financial condition and results of operations . if actual results significantly differ from the company 's estimates , the company 's financial condition and results of operations could be materially impacted . revenue recognition we recognize revenue when the customer has purchased the product , the occurrence of the earlier of date of travel or the date of cancellation has expired , the sales price is fixed or determinable and collectability is reasonably assured . revenues for customer travel packages purchased directly from the company are recorded in gross amounts ( the amount paid to the company by the customer is shown as revenue and the cost of providing the respective travel package is recorded to cost of revenues ) . we generate our revenues from sales directly to customers as well as through other distribution channels of tours and activities at destinations throughout the world . we also generate revenue from commissions on bookings and sales of ancillary products and services . payments for tours or activities received in advance of services being rendered are recorded as deferred revenue and recognized at the earlier of the date of travel or the last date of cancellation ( i.e. , the customer 's refund privileges lapse ) . 50 business combinations the purchase prices of acquired businesses or acquired assets have been allocated to the tangible and intangible assets acquired and liabilities assumed , based upon their estimated fair value at the date control is obtained . the difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill . most of the businesses we have acquired did not have a significant amount of tangible assets . we typically identified the following identifiable intangible assets in each acquisition : trade name , customer relationships and internal software . in making certain assumptions on valuation and useful lives , we considered the unique nature of each acquired asset . determining the estimated fair value of assets involves the use of significant estimates , judgment and assumptions , such as future cash flows and selection of comparable companies . future changes in our assumptions or the interrelationship of those assumptions may negatively impact future valuations and could result in an impairment of goodwill or intangible assets that may have a material effect on our financial condition and operating results . definite-lived intangible assets are recorded at cost and amortized using a method that reflects our best estimate of the pattern in which the economic benefit of the related intangible asset is utilized . goodwill and indefinite-lived intangible assets , such as certain trade names , are not amortized and are subject to annual impairment tests during the fourth quarter , or whenever events or circumstances indicate impairment may have occurred . for goodwill and indefinite lived intangible assets , we complete a quantitative analysis that compares the fair value of our reporting unit or indefinite-lived intangible assets to the carrying amounts , and an impairment loss is recognized equivalent to the excess of the carrying amount over the fair value . accounts receivable we extend credit to our customers in the normal course of business . further , we regularly review outstanding receivables , and provide for estimated losses through an allowance for doubtful accounts . in evaluating the level of established loss reserves , we make judgments regarding our customers ' ability to make required payments , economic events and other factors . as the financial condition of these parties change , circumstances develop or additional information becomes available , and adjustments to the allowance for doubtful accounts may be required . we maintain reserves for potential credit losses , and such losses traditionally have been within our expectations . story_separator_special_tag as of february 29 , 2020 , and february 28 , 2019 , we had $ 0 and $ 0 of accounts receivable , respectively . our allowance for doubtful accounts was $ 0 as of february 29 , 2020. impairment of long-lived assets in accordance with accounting standards codification 360-10 , “ property , plant and equipment , we periodically review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable . we recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset . the amount of impairment is measured as the difference between the asset 's estimated fair value and its book value . as of february 29 , 2020 , we had not impaired any long-lived assets . website development costs we account for website development costs in accordance with accounting standards codification 350-50 “ website development costs . accordingly , all costs incurred in the planning stage are expensed as incurred , costs incurred in the website application and infrastructure development stage that meet specific criteria are capitalized subject to straight-line amortization over a three-year period and costs incurred in the day to day operation of the website are expensed as incurred . 51 goodwill and other intangible assets in accordance with asc 350-30-65 “ goodwill and other intangible assets , we assess the impairment of identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important , which could trigger an impairment review include the following : 1. significant underperformance to historical or projected future operating results ; 2. significant changes in the manner or use of the acquired assets or the strategy for the overall business ; and 3. significant negative industry or economic trends . when we determine that the carrying value of an intangible asset may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset can not be recovered from projected undiscounted cash flow , we record an impairment charge . we measure any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent to the current business model . significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows . we evaluated the remaining useful life of the intangibles and did not record an impairment of intangible assets during the years ended february 29 , 2020 and february 28 , 2019. intellectual properties that have finite useful lives are amortized over their useful lives . we incurred amortization expense of $ 293,804 and $ 293,804 for the years ended february 29 , 2020 and february 28 , 2019 , respectively , which is included in general and administrative expenses . also , $ 1,485,000 of website development costs and $ 600,000 of rights to purchase land were impaired as of february 28 , 2018. the impairment of the website development costs were reversed when the shares of the company 's common stock issued to exponential , inc. ( “ xpo ” ) were cancelled and the impairment of the rights to own such shares was reversed when the bettwork promissory note was converted to shares of bettwork common stock . see “ item 8. financial statements and supplementary data ” – “ note 5 – acquisitions and dispositions ” “ exponential , inc ( xpo ) ” . convertible promissory notes upon issuance of convertible promissory senior notes , we separated the notes into liability and equity components . we record debt net of debt discount for beneficial conversion features and warrants , on a relative fair value basis . beneficial conversion features are recorded pursuant to the beneficial conversion and debt topics of the financial accounting standards board ( fasb ) accounting standards codification ( asc ) . the carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature . the carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the notes as a whole . the excess of the principal amount of the liability component over its carrying amount ( “ debt discount ) is amortized to interest expense over the term of the notes using the effective interest rate method . the equity component is not re-measured as long as it continues to qualify for equity classification . the balance of convertible promissory senior notes , as of february 29 , 2020 and february 28 , 2019 , was $ 0 and $ 0 , respectively . in accounting for the transaction costs related to the note issuance , we allocated the total amount incurred to the liability and equity components based on their relative values . transaction costs attributable to the liability component are being amortized to expense over the term of the notes using the effective interest rate method , and transaction costs attributable to the equity component were netted with the equity component in stockholders ' equity . 52 derivative instruments we enter into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that contain embedded derivative features . we account for these arrangements in accordance with accounting standards codification topic 815 , accounting for derivative instruments and hedging activities ( “ asc 815 ) as well as related interpretation of this standard . in accordance with this standard , derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair values with gains or losses recognized in earnings .
| cost of revenues we had cost of revenues of $ 352,963 for the year ended february 29 , 2020 , compared to $ 400,814 for the year ended february 28 , 2019 , which decrease mainly corresponded to the decrease in revenues over the same period . operating expenses our operating expenses , including technology and development , salaries and benefits , selling and promotion , amortization of intangibles , impairment of intangibles and general and administrative expenses , increased 13.1 % to $ 6,056,421 for the fye february 29 , 2020 , compared to $ 5,332,153 for the fiscal year ended february 28 , 2019 , an increase of $ 724,268 or 13.6 % . the main reasons for the increase in operating expenses were a $ 403,194 or 21.1 % increase in general and administrative expenses , due to increases in investor relations , professional / consulting fees , and asset management expense , a $ 381,440 or 27.2 % increase in salaries and benefits , a $ 376,084 or 35.1 % increase in technology and development expenses , and a $ 135,303 increase in selling and promotions , offset by a $ 482,278 decrease in stock-based compensation . 47 other income ( expenses ) other income ( expense ) includes gain on sale of assets , valuation gain/ ( loss ) , interest expense , loss on legal settlement , contract settlement expenses , and realized loss on sale of marketable securities . total other expenses were $ 3,487,071 for the fye february 29 , 2020 , which were mainly due to the $ 5,267,208 valuation loss offset by the $ 1,984,870 realized gain on investment in unconsolidated affiliates for the fye february 29 , 2020 , compared to total other income of $ 9,526,343 for the fye february 28 , 2019 , which primarily was due to $ 5,250,000 of gain on sales of assets and $ 4,528,596 of valuation gain on investment in unconsolidated affiliates . net income/loss we had net loss of $ 9,454,686 for the fye february 29 , 2020 , compared to net income of $ 4,298,563 for the fye february 28 , 2019 , an increase in
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in december 2020 , argenx initiated a phase 3 study of argx-113 using enhanze technology for patients with immune thrombocytopenia ( itp ) , an immune disorder in which the blood does not clot normally , triggering a $ 15.0 million payment . in october 2020 , we announced that argenx expanded the existing global collaboration and license agreement that was signed in february 2019. under the newly announced expansion , argenx gained the ability to exclusively access our enhanze technology for three additional targets upon nomination , for a total of up to six targets . to date , argenx has nominated two targets including the human neonatal fc receptor fcrn and complement component c2 . roche in december 2020 , roche initiated a phase 3 study in patients with non-small cell lung cancer for tecentriq using enhanze technology , triggering a $ 17.0 million payment . 33 in december 2020 , we announced that the european commission approved roche 's phesgo , a fixed-dose combination of perjeta ( pertuzumab ) and herceptin ( trastuzumab ) with enhanze technology , administered by subcutaneous injection for the treatment of patients with early and metastatic her2-positive breast cancer . this is the first time the european commission has approved a product combining two monoclonal antibodies that can be administered by a single subcutaneous injection utilizing enhanze technology . in june 2020 , we announced that roche received fda approval of phesgo utilizing enhanze technology for the treatment of patients with her2-positive breast cancer . horizon in november 2020 , we announced a global collaboration and license agreement that gives horizon exclusive access to enhanze technology for sc formulation of medicines targeting igf-1r . horizon intends to use enhanze to develop a sc formulation of tepezza ( teprotumumab-trbw ) , indicated for the treatment of thyroid eye disease , a serious , progressive and vision-threatening rare autoimmune disease , potentially shortening drug administration time , reducing healthcare practitioner time and offering additional flexibility and convenience for patients . baxalta in september 2020 , takeda announced that the ema approved a label update for hyqvia broadening its use and making it the first and only facilitated subcutaneous immunoglobulin replacement therapy in adults , adolescents and children with an expanded range of secondary immunodeficiencies ( sid ) . bms in june 2020 , bms selected 3 targets on an exclusive basis and exercised their option to convert a co-exclusive license to an exclusive license , triggering a $ 5.0 million payment . bms has selected eight targets on an exclusive basis to date . corporate in march 2020 , hylenex , which was approved in an nda , was deemed to be an approved biologics license application ( bla ) under section 351 ( a ) of the public health service act ( phs act ) . a portion of our competition comes from compounding pharmacies , which are prohibited from compounding biologic products per the drug quality & security act ( dqsa ) . as hyaluronidase is now considered a biologic , this change may benefit sales of hylenex . during 2020 we repurchased 6.5 million shares of common stock in open market and accelerated share repurchases for $ 150.0 million at an average price per share of $ 23.05. since the inception of our capital return program in november 2019 to repurchase up to $ 550.0 million of outstanding common stock over a three-year period , we have repurchased a total of 17.6 million shares for $ 350.0 million at an average price per share of $ 19.88 as of december 31 , 2020 . 34 story_separator_special_tag decrease in compensation expense , one time restructuring cost in the prior year and discontinuation of commercial expenses related to market research and educational activities as we prepared for a potential commercial launch of pegph20 . the discontinuation of our development activities for pegph20 and closure of our oncology operations resulted in a reduction in commercialization activities and compensation expense . interest expense – interest expense was $ 20.4 million in 2020 compared to $ 11.6 million in 2019. the increase of $ 8.8 million was primarily due to interest expense related to the convertible notes , offset by a discontinuation in interest expense for the royalty-backed loan and the oxford and svb loan following the repayment of those obligations . we expect interest expense related to the convertible notes to decrease by approximately $ 12.0 million in 2021 as the non-cash interest expense associated with the amortization of the equity component of convertible notes will be eliminated upon the adoption of asu 2020-06 . 36 comparison of years ended december 31 , 2019 and 2018 for discussion related to changes in financial condition and the results of operations for fiscal year 2019 compared to fiscal year 2018 , refer to part ii - item 7. management 's discussion and analysis of financial condition and results of operations included in the company 's annual report on form 10-k for the fiscal year ended december 31 , 2019 , which was filed with the sec on february 24 , 2020. liquidity and capital resources our principal sources of liquidity are our existing cash , cash equivalents and available-for-sale marketable securities . as of december 31 , 2020 , we had cash , cash equivalents and marketable securities of $ 368.0 million . we believe that our current cash , cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months . we expect to fund our operations going forward with existing cash resources , anticipated revenues from our existing collaborations and cash that we may raise through future transactions . we may raise cash through any one of the following financing vehicles : ( i ) new collaborative agreements ; ( ii ) expansions or revisions to existing collaborative relationships ; ( iii ) private financings ; ( iv ) other equity or debt financings ; ( v ) monetizing assets ; and or ( vi ) the public offering of securities . story_separator_special_tag we may , in the future , offer and sell additional equity , debt securities and warrants to purchase any of such securities , either individually or in units to raise capital to raise funds for additional working capital , capital expenditures , share repurchases , acquisitions or for other general corporate purposes . cash flows operating activities net cash provided by operations was $ 55.5 million in 2020 compared to cash used in by operation $ 85.4 million in 2019. the $ 140.9 million increase in cash provided by operations was mainly due to an increase in cash received related to collaboration partner license of $ 119.0 million during the current year , offset by $ 55.0 million owed from argenx and roche for license fees in the prior year , and an increase in working capital spend for 2020 compared to the prior year . investing activities net cash provided by investing activities was $ 78.4 million in 2020 compared to net cash used in by investing activities $ 5.5 million in 2019. the increase in net cash provided by investing activities was primarily due to the increase in proceeds from maturities of marketable securities for 2020. financing activities net cash used in financing activities was $ 106.3 million in 2020 , compared to net cash provided by financing activities of $ 153.2 million in 2019 , mainly due to a decrease in cash proceeds from issuance of long-term debt , offset by a decrease of $ 49.9 million in repurchase of common stock , a $ 49.2 million increase in net proceeds from the issuance of common stock under equity incentive plans and a decrease in the amount of repayments of long-term debt of $ 88.5 million in 2020. share repurchases the board of directors approved a share repurchase program , pursuant to which we may repurchase our issued and outstanding shares of common stock from time to time . the company retired the repurchased shares . see note 8. stockholders ' equity , within the notes to the consolidated financial statements for additional information regarding our share repurchases . 37 debt convertible notes in november 2019 , we completed the sale of $ 460.0 million in aggregate principal amount of 1.25 % convertible senior notes due in 2024 ( convertible notes ) in a private placement to qualified institutional buyers . we received net proceeds from the offering of approximately $ 447.4 million . we used $ 200.0 million of the net proceeds from the offering to repurchase shares of our common stock , including approximately $ 143.1 million to repurchase approximately 8.1 million shares of common stock concurrently with the offering in privately negotiated transactions , $ 6.9 million in open market purchases and $ 50.0 million to repurchase approximately 2.6 million shares of common stock through an accelerated share repurchase agreement . we used approximately $ 26.1 million of the net proceeds from the offering to repay all outstanding amounts under our loan agreement with oxford finance and silicon valley bank and intend to use the remainder of the net proceeds for general corporate purposes , including additional share repurchases subsequent to the offering , and working capital . the convertible notes will pay interest semi-annually in arrears on june 1st and december 1st of each year , beginning on june 1 , 2020 , at an annual rate of 1.25 % and will be convertible into cash , shares of common stock or a combination of cash and shares of common stock , at our election , based on the applicable conversion rate at such time . the convertible notes are general unsecured obligations and will rank senior in right of payment to all indebtedness that is expressly subordinated in right of payment to the convertible notes , will rank equally in right of payment with all existing and future liabilities that are not so subordinated , will be effectively junior to any secured indebtedness to the extent of the value of the assets securing such indebtedness and will be structurally subordinated to all indebtedness and other liabilities ( including trade payables ) of our current or future subsidiaries . holders may convert their convertible notes at their option only in the following circumstances : ( 1 ) during any calendar quarter commencing after the calendar quarter ending on march 31 , 2020 , if the last reported sale price per share of common stock exceeds 130 % of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on , and including , the last trading day of the immediately preceding calendar quarter ; ( 2 ) during the five consecutive business days immediately after any five consecutive trading day period ( such five consecutive trading day period , the “ measurement period ” ) in which the trading price per $ 1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of company 's common stock on such trading day and the conversion rate on such trading day ; ( 3 ) upon the occurrence of certain corporate events or distributions on company 's common stock , as described in the offering memorandum ; ( 4 ) if we call such notes for redemption ; and ( 5 ) at any time from , and including , june 1 , 2024 until the close of business on the scheduled trading day immediately before the maturity date of december 1 , 2024. the convertible notes will be convertible , regardless of the foregoing circumstances , at any time from , and including , june 1 , 2024 until the close of business on the scheduled trading day immediately preceding the maturity date . in january 2021 , we notified the note holders that we will settle the principal of the convertible notes in cash .
| hylenex is used in cataract surgery and other ophthalmologic surgeries , and therefore the advisory resulted in a decrease in sales of hylenex in the second quarter of 2020. most states resumed elective surgeries in april and may of 2020 which supported an increase in sales in the second half of 2020. revenues under collaborative agreements – revenues under collaborative agreements were as follows ( in thousands ) : replace_table_token_6_th revenue from license fees increased $ 63.3 million in 2020 , compared to 2019 mainly due to the recognition of $ 121.3 million related to the janssen , horizon , roche , argenx and bms collaborations in the current year , as compared to $ 55.0 million recognized in connection with argenx and roche collaboration in 2019. revenue from upfront licenses fees , license fees for the election of additional targets , license maintenance fees and other license fees and event-based payments vary from period to period based on our enhanze collaboration activity . we expect these revenues to continue to fluctuate in future periods based on our collaborators ' ability to meet various clinical and regulatory milestones set forth in such agreements and 35 our ability to obtain new collaborative agreements . to date , based on current partner communications , we have not identified any covid-19 related delays that will materially impact our enhanze milestone revenue . we will continue to monitor the enhanze development activities of our partners and the impact of their plans on our milestone revenue , as there may be potential for covid-19 related delays . cost of product sales – cost of product sales were $ 43.4 million in 2020 compared to $ 45.5 million in 2019. the decrease of $ 2.1 million in cost of product sales was mainly due to a decrease in sales of bulk rhuph20 to janssen , partially offset by an increase in sales of bulk rhuph20 to baxalta and roche . research and development – research and development expenses consist of external costs , salaries and benefits and allocation of facilities and other overhead expenses related to research manufacturing , clinical trials , preclinical and regulatory activities . research and development expenses incurred were as follows ( in thousands ) : replace_table_token_7_th research and development expenses relating to our pegph20 programs for 2020 decreased by 93 % , compared to the same period in 2019 , primarily due to decreased clinical trial activities . on november 4 , 2019 , we announced that the halo-301 clinical study failed to reach the primary endpoint of overall survival . as a result , we halted development activities for pegph20 , closed our oncology operations and began the close out
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in addition , the factors noted above were considered during management 's annual goodwill impairment test , which is conducted as of november 30 each year . as a result of the test , we recorded goodwill impairment losses of $ 202.7 million during 2014 , of which $ 16.6 million related to our u.s. segment and $ 186.1 million related to our australian segment . we continue to have goodwill related to our canadian segment , which totaled $ 45.3 million at december 31 , 2014. please see note 2 – summary of significant accounting policies – goodwill and other intangible assets to the notes to consolidated financial statements in item 8 of this annual report for further discussion . redomiciling to canada on september 29 , 2014 , we announced our intention to redomicile the company to canada . we expect to execute a “ self-directed redomiciling ” of the company as permitted under the u.s. internal revenue code . u.s. federal income tax laws permit a company to change its domicile to a foreign jurisdiction without corporate-level u.s. federal income taxes provided that such company has “ substantial business activity ” in the relevant jurisdiction . “ substantial business activity ” is defined as foreign operations consisting of over 25 % of a company 's total ( i ) revenues , ( ii ) assets , ( iii ) employees and ( iv ) employee compensation . with approximately 50 % or more of our operations in canada based on these metrics , we believe we will qualify for a self-directed redomiciling . we expect to complete the migration in the second or third quarter of 2015. there is no assurance that we will be able to complete the migration in a timely manner or at all , and if completed , we may not achieve the expected benefits . for further information about the redomicile transaction , please see the registration statement on form s-4 ( registration no . 333-201335 ) filed by civeo canadian holdings ulc on december 31 , 2014. description of the business we are one of north america 's and australia 's largest integrated providers of accommodations services for people working in remote locations . our scalable modular facilities provide long-term and temporary work force accommodations where traditional infrastructure is insufficient , inaccessible or not cost effective . once facilities are deployed in the field , we also provide catering and food services , housekeeping , laundry , facility management , water and wastewater treatment , power generation , communications and redeployment logistics . our accommodations support workforces in the canadian oil sands and in a variety of oil and natural gas drilling , mining and related natural resource applications as well as disaster relief efforts , primarily in canada , australia and the u.s. we operate in three principal reportable business segments – canadian , australian and u.s. basis of presentation prior to the spin-off , our financial position , results of operations and cash flows consisted of the oil states ' accommodations business , which represented a combined reporting entity . the combined financial statements included in this annual report have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of oil states . the combined financial statements reflect our historical financial position , results of operations and cash flows as we were historically managed , in conformity with u.s. gaap . the combined financial statements include certain assets and liabilities that have historically been held at the oil states corporate level , but are specifically identifiable or otherwise attributable to us . 46 all financial information presented after the spin-off represents the consolidated results of operation , financial position and cash flows of civeo . accordingly : ● our consolidated statements of operations , comprehensive income , cash flows and changes in stockholders ' equity / net investment for the year ended december 31 , 2014 consist of ( i ) the combined results of the oil states ' accommodations business for the five months ended may 30 , 2014 and ( ii ) the consolidated results of civeo for the seven months ended december 31 , 2014. our consolidated statements of operations , comprehensive income , cash flows and changes in stockholders ' equity / net investment for the years ended december 31 , 2013 and 2012 consist entirely of the combined results of the oil states ' accommodations business . ● our consolidated balance sheet at december 31 , 2014 consists of the consolidated balances of civeo , while at december 31 , 2013 , it consists entirely of the combined balances of the oil states ' accommodations business . the assets and liabilities in our consolidated financial statements have been reflected on a historical basis , as immediately prior to the spin-off all of the assets and liabilities presented where wholly owned by oil states and were transferred within the oil states consolidated group . all significant intercompany transactions and accounts have been eliminated . all affiliate transactions between civeo and oil states have been included in the consolidated financial statements included in this annual report . the consolidated financial statements for periods prior to the spin-off included expense allocations for : ( 1 ) certain corporate functions historically provided by oil states , including , but not limited to finance , legal , risk management , tax , treasury , information technology , human resources , and certain other shared services ; ( 2 ) certain employee benefits and incentives ; and ( 3 ) equity-based compensation . these expenses were allocated to us on the basis of direct usage when identifiable , with the remainder allocated based on estimated time spent by oil states personnel , a pro-rata basis of headcount or other relevant measures of oil states and its subsidiaries . we consider the basis on which the expenses were allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by us during the periods presented . story_separator_special_tag the allocations may not , however , reflect the expense we would have incurred as an independent , publicly traded company for the periods presented . actual costs that may have been incurred if we had been a stand-alone company would depend on a number of factors , including the chosen organizational structure , which functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure . following the spin-off , we are performing these functions using our own resources or purchased services . for an interim period , however , some of these functions continued to be provided by oil states under a transition services agreement , which extended for a period of up to nine months , depending on the service being provided . see note 18 – related party transactions to the notes to consolidated financial statements in item 8 of this annual report . macroeconomic environment we provide workforce accommodations to the natural resource industry in canada , australia and the united states . demand for our services can be attributed to two phases of our customers ' projects : ( 1 ) the development or construction phase and ( 2 ) the operations or production phase . initial demand for our services is driven by our customers ' capital spending programs related to the construction and development of oil sands and coal mines and associated infrastructure as well as the exploration for oil and natural gas . long-term demand for our services is driven by continued development and expansion of natural resource production and operation of oil sands refining facilities . industry capital spending programs are generally based on the long-term outlook for commodity prices , economic growth and estimates of resource production . as a result , demand for our products and services is largely sensitive to expected commodity prices , principally related to crude oil , metallurgical ( met ) coal and , to a lesser extent , natural gas . in canada , western canadian select ( wcs ) crude is the benchmark price for our oil sands accommodations ' customers . pricing for wcs is driven by several factors . a significant factor affecting wcs pricing is the underlying price for west texas intermediate ( wti ) crude . another significant factor affecting wcs pricing has been the availability of transportation infrastructure . historically , wcs has traded at a discount to wti , creating a “ wcs basis differential , ” due to transportation costs and limited capacity to move canadian heavy oil production to refineries , primarily in the u.s. gulf coast . depending on the extent of pipeline capacity availability , the wcs basis differential has varied . 47 in the fourth quarter 2014 , global oil prices dropped to their lowest level in five years due to concerns over global oil demand , the economic growth rate in china , the overall economic health of europe and price cutting by major oil producing countries , such as saudi arabia . increasing global supply including increased u.s. shale oil production has also negatively impacted pricing . with falling brent crude and wti oil prices , wcs has also fallen . wcs prices in the first quarter of 2015 through march 6 , 2015 averaged $ 35.46 per barrel compared to $ 57.75 and $ 78.69 per barrel in the fourth and third quarters of 2014 , respectively . the wcs basis differential expanded from $ 14.25 per barrel at the end of the third quarter of 2014 to $ 16.00 per barrel by december 31 , 2014. as of march 6 , 2015 , the wti price was $ 49.61 and the wcs price was $ 34.86 , resulting in a wcs basis differential of $ 14.75. there remains a significant risk that prices in the oil sands could continue to deteriorate or remain at current depressed levels going forward . additionally , if the discount between wcs crude prices and wti crude prices widens , our oil sands customers are more likely to delay additional investments in their oil sands assets . a continuation of these depressed price levels is likely to significantly depress levels of exploration , development and production activity by canadian operators and demand for our services , particularly in 2015. our australian villages in the bowen basin primarily serve coal mines in that region . met coal pricing and growth in production in the bowen basin region is influenced by levels of global steel production . growth in worldwide steel demand has decreased from 3.8 % in 2013 to 2.0 % in 2014. furthermore , because chinese steel production has been growing at a slower pace than that experienced in 2011 and 2012 , chinese demand for imported steel inputs such as met coal and iron ore continued to decrease during 2014 compared to 2013. because of this , coupled with the fact that australian met coal output has increased 12 % during 2014 compared to 2013 , met coal prices have decreased materially from over $ 160/metric ton at the beginning of 2013 to approximately $ 119/metric ton as of december 31 , 2014. depressed met coal prices have led to the implementation of cost control measures by our customers , some coal mine closures and delays in the start-up of new coal mining projects in australia . a continued depressed met coal price will impact our customers ' future capital spending programs . however , steel consumption per capita in china is less than one-third of the amount installed in the u.s. economy , leading others to a forecast of a favorable outlook for chinese steel production and met coal demand over a longer time horizon . natural gas and wti crude oil prices , discussed above , have an impact on the demand for our u.s. accommodations . prices for natural gas in the u.s. averaged $ 4.26 per mcf in 2014 , a 14 % increase over the 2013 average price .
| below ; and ● a $ 2.6 million pre-tax loss ( $ 1.7 million after-tax , or $ 0.02 per diluted share ) from costs associated with the proposed migration to canada , included in selling , general and administrative expenses below . 51 these results compare to net income attributable to civeo for the year ended december 31 , 2013 of $ 181.9 million , or $ 1.70 per diluted share , including a pre-tax gain of $ 4.0 million ( $ 2.6 million after-tax ) , or $ 0.02 per diluted share after-tax from a decrease to a liability associated with contingent acquisition consideration . 2013 net income also included $ 1.2 million , or $ 0.01 per diluted share after-tax , of losses incurred on extinguishment of debt . revenues . consolidated revenues decreased $ 98.2 million , or 9 % , in 2014 compared to 2013. this decline was largely driven by the weakening of the canadian and australian dollars and decreased occupancy and room rates in both our canada and australia segments , as further described in the segment discussions below . cost of sales and service s . our consolidated cost of sales decreased $ 4.7 million , or 1 % , in 2014 compared to 2013 primarily due to increases in average available rooms and product costs in canada , offset by decreased occupancy in australia , as further described in the segment discussions below . selling , general and administrative expenses . selling , general and administrative ( sg & a ) expense increased $ 0.8 million , or 1 % , in 2014 compared to 2013 primarily due to increases to sg & a due to an increase of approximately $ 8.1 million related to costs associated with being a publicly traded company , $ 4.1 million in severance costs and $ 2.6 million in redomiciling costs . these items were offset favorably due to foreign exchange rates of approximately $ 3.5 million , a $ 2.0 million refund of surplus medical
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the borrower received the funds on or around may 4 , 2020. the ppp note may be prepaid by flux power at any time prior to maturity with no prepayment penalties . proceeds from the ppp loan are available to flux power to fund designated expenses , including certain payroll costs , group health care benefits and other permitted expenses , in accordance with the ppp . under the terms of the ppp , up to the entire amount of principal and accrued interest may be forgiven to the extent ppp loan proceeds are used for qualifying expenses as described in the cares act and applicable implementing guidance issued by the u.s. small business administration under the ppp . flux power intends to use the entire ppp loan amount for designated qualifying expenses and to apply for forgiveness of the ppp loan in accordance with the terms of the ppp . no assurance can be given that flux power will obtain forgiveness of the ppp loan in whole or in part . with respect to any portion of the ppp loan that is not forgiven , the ppp loan will be subject to customary provisions for a loan of this type , including customary events of default relating to , among other things , payment defaults , and breaches of the provisions of the ppp note . as of september 25 , 2020 , the outstanding balance was approximately $ 1,297,000. critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses , and the related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates based on its historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies and estimates affect the preparation of our financial statements : accounts receivable accounts receivable are carried at their estimated collectible amounts . the company has not experienced collections issues related to its accounts receivable and has not recorded an allowance for doubtful accounts during the fiscal years ended june 30 , 2020 and 2019 . 30 inventories inventories consist primarily of battery management systems and the related subcomponents , and are stated at the lower of cost ( first-in , first-out ) or net realizable value . the company evaluates inventories to determine if write-downs are necessary due to obsolescence or if the inventory levels are in excess of anticipated demand at market value based on consideration of historical sales and product development plans . the company recorded an adjustment related to obsolete inventory in the amount of approximately $ 15,000 and $ 90,000 during the years ended june 30 , 2020 and 2019 , respectively . revenue recognition on july 1 , 2018 , the company adopted the new accounting standard fasb accounting standards codification ( “ asc ” ) topic 606 , revenue from contracts with customers ( “ asc 606 ” ) for all contracts using the modified retrospective method . based on the company 's analysis of contracts with customers in prior periods , there was no cumulative effect adjustment to the opening balance of the company 's accumulated deficit as a result of the adoption of this new standard . the company derives its revenue from the sale of products to customers . the company sells its products primarily through a distribution network of equipment dealers , oems and battery distributors in north america . the company recognizes revenue for products when all the significant risks and rewards have been transferred to the customer , no continuing managerial involvement usually associated with ownership of the goods is retained , no effective control over the goods sold is retained , the amount of revenue can be measured reliably , it is probable that the economic benefits associated with the transactions will flow to the company and the costs incurred or to be incurred in respect of the transaction can be measured reliably . product revenue is recognized as a distinct single performance obligation which represents the point in time that our customer receives delivery of the products . our customers do have a right to return product but our returns have historically been insignificant . product warranties the company evaluates its exposure to product warranty obligations based on historical experience . our products , primarily lift equipment packs , are warrantied for five years unless modified by a separate agreement . as of june 30 , 2020 and 2019 , the company carried warranty liability of approximately $ 726,000 and $ 361,000 , respectively , which is included in accrued expenses on the company 's consolidated balance sheets . stock-based compensation pursuant to the provisions of the financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic no . 718-10 , compensation-stock compensation , which establishes accounting for equity instruments exchanged for employee service , we utilize the black-scholes option pricing model to estimate the fair value of employee stock option awards at the date of grant , which requires the input of highly subjective assumptions , including expected volatility and expected life . changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation . story_separator_special_tag these assumptions are subjective and generally require significant analysis and judgment to develop . when estimating fair value , some of the assumptions will be based on , or determined from , external data and other assumptions may be derived from our historical experience with stock-based payment arrangements . the appropriate weight to place on historical experience is a matter of judgment , based on relevant facts and circumstances . common stock or equity instruments such as warrants issued for services to non-employees are valued at their estimated fair value at the measurement date ( the date when a firm commitment for performance of the services is reached , typically the date of issuance , or when performance is complete ) . if the total value exceeds the par value of the stock issued , the value in excess of the par value is added to the additional paid-in-capital . segment and related information we operate as a single reportable segment . comparison of results of operations of the years ended june 30 , 2020 and 2019 the following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annual report . 31 the following table represents our statement of operations for the years ended june 30 , 2020 ( “ fiscal 2020 ” ) and june 30 , 2019 ( “ fiscal 2019 ” ) . replace_table_token_1_th revenues our product focus is primarily on lift equipment , reflecting our current products for walkie pallet jacks , and higher capacity packs for class 1 , 2 , and 3 forklifts . we are also expanding on an opportunistic basis to adjacent applications , including airport ground support equipment ( “ gse ” ) . we feel that we are well positioned to address these markets , which would utilize our modular and scalable battery pack design and technology . we currently sell most of our products through a distribution network of equipment dealers , oems and battery distributors in north america . this distribution network mostly sells to large company , national accounts . however , we do sell certain battery packs directly to other accounts including industrial equipment manufacturers and the ultimate end-user . revenues for fiscal 2020 increased $ 7,525,000 or 81 % , to $ 16,842,000 , compared to $ 9,317,000 for fiscal 2019. this increase in revenues during fiscal 2020 was primarily attributable to expansion into larger equipment that is part of the fleets of existing customers . revenue increases also came from selling packs for narrow aisle forklifts and natural business extensions like stationary energy storage . the increase in revenue was also attributable to the increase in battery pack sales across several of the different series of batteries as we continue to add new product lines . cost of sales cost of sales for fiscal 2020 increased $ 5,888,000 or 67 % , to $ 14,656,000 compared to $ 8,768,000 for fiscal 2019. the increase in cost of sales was directly attributable to the substantial increase in sales as discussed above . cost of sales as a percentage of revenue for fiscal 2020 was 87 % , a decrease of 7 % , compared to 94 % for fiscal 2019. the material cost per lift pack in fiscal 2020 decreased compared to fiscal 2019 as new design innovation and volume discounts resulted in lower costs of materials per pack . the improvement in lower costs per pack and the higher mix of larger pack sales provided a gross profit during fiscal 2020 as compared to fiscal 2019. warranty expense for fiscal 2020 increased as a result of the higher sales volume . as of june 30 , 2020 , we had approximately $ 726,000 accrued for product warranty liability . the decrease in cost of sales as a percent of revenue is directly related the company 's gross margin improvement initiative that has resulted in reductions in material costs , simplified component design , decrease in labor expense , and decreased warranty expense per pack . we expect continued improvements to the gross margin as a result of the initiative . 32 selling and administrative expenses selling and administrative expenses for fiscal 2020 increased $ 2,049,000 or 27 % , to $ 9,761,000 compared to $ 7,712,000 for fiscal 2019. such expenses consist primarily of salaries and personnel related expenses , stock-based compensation expense , public company costs , consulting costs , professional fees and other expenses . the increase is primarily attributable to increases in stock-based compensation , payroll costs related to additional new hires , and rent expenses associated with our new facility . research and development research and development expenses for fiscal 2020 increased $ 885,000 or 22 % , to $ 4,973,000 compared to $ 4,088,000 for fiscal 2019. such expenses consist primarily of materials , supplies , salaries and personnel related expenses , testing costs , consulting costs , and other expenses associated with the continued development of our packs , as well as , research into new product opportunities . the increase in expenses was primarily due to the ul listing expenses and additional headcount . we anticipate research and development expenses will remain a significant portion of our expenses as we continue to develop , expand and add new and improved products to our product line-up . other income other income during fiscal 2019 was $ 84,000 and was related to the liability release of a related party customer deposit . interest expense interest expense for fiscal 2020 increased $ 541,000 or 43 % , to $ 1,788,000 compared to $ 1,247,000 for fiscal 2019. interest expense consist primarily of interest expense related to our outstanding lines of credit and promissory notes .
| the 2019 reverse split resulted in a reduction of our outstanding shares of common stock from 51,000,868 to 5,101,580. in addition , it resulted in a reduction of our authorized shares of common stock from 300,000,000 to 30,000,000 , and a reduction of our authorized shares of preferred stock from 5,000,000 to 500,000. the par value of our stock remained unchanged at $ 0.001. in addition , by reducing the number of our outstanding shares , our loss per share in all periods presented was increased by a factor of ten . recent financing activities 2020 private placement . from april 2020 to july 2020 , pursuant to private placement offerings , we sold and issued an aggregate of 1,141,250 shares of common stock , at $ 4.00 per share , for an aggregate purchase price of $ 4,565,000 in cash to twenty-seven ( 27 ) accredited investors . esenjay and mr. dutt , our president and chief executive officer , participated in the initial closing in the amount of $ 300,000 and $ 50,000 , respectively . mr. cosentino , our director , also participated in the offering in the amount of $ 250,000. loc conversion . on june 30 , 2020 , there was a partial conversion of the debt underlying the secured promissory notes issued to lenders under the loc at a conversion price of $ 4.00 per share ( the “ conversion ” ) . immediately prior to the conversion , there was an aggregate of approximately $ 11,791,000 in principal and accrued interest outstanding under all the secured promissory notes evidencing the advance under the loc . at the option of the lenders , on june 30 , 2020 , an aggregate of approximately $ 7,383,000 in principal and accrued interest outstanding under the loc was converted into 1,845,830 shares of common stock , which consisted of ( a ) partial conversion of principal plus interest under the esenjay loc note in the amount of $ 4,400,000 into 1,100,000 shares of common stock at $ 4.00 per share , and ( b ) conversion of approximately $ 2,983,000 of the secured promissory notes issued in connection with the loc , principal plus accrued interest , by other lenders , including certain assignees of the esenjay loc note , into 745,830 shares of common stock . immediately after the conversion , there was approximately $ 5,289,709 , principal , of which approximately $ 984,000
| 15,541 |
taxact generates revenue primarily through its online service at www.taxact.com . we had four product offerings for consumers for tax year 2014 : a free federal edition that handled simple and complex returns ; the free federal edition plus a paid state edition ; a `` deluxe '' product offering that contained all of the features of the free federal edition plus taxpayer phone support , import capabilities , return preparation assistance tools , and enhanced reporting ; and an `` ultimate '' product offering that contained all of the deluxe offering features plus the ability to file a state return . we also had a small business product offering for small business owners . taxact offers its products with a price lock guarantee , whereby the price at the start of the tax return filing process holds until the return is filed , rather than pricing the product at the time that the tax return is filed . in addition to these core offerings , taxact also offers ancillary services such as refund payment transfer , data archive services , audit defense , stored value cards , and other add-on services . taxact 's professional tax preparer software allows professional tax preparers to file individual and business returns for their clients . taxact offers flexible pricing and packaging options that help tax professionals save money by paying only for what they need . acquisitions on december 31 , 2015 , we acquired hd vest , as described further under `` strategic transformation '' above . on july 2 , 2015 , taxact acquired simpletax , a provider of online tax preparation services for individuals in canada through its website www.simpletax.ca , for c $ 2.4 million ( with c $ indicating canadian dollars and amounting to approximately $ 1.9 million based on the acquisition-date exchange rate ) in cash and additional consideration of up to c $ 4.6 million ( $ 3.7 million ) that is contingent upon product availability and revenue performance over a three-year period . simpletax is included in our financial results beginning on july 2 , 2015 . in addition , on october 4 , 2013 , taxact acquired balance financial , a provider of web and mobile-based financial management software through its website www.balancefinancial.com . seasonality 31 our tax preparation segment is highly seasonal , with a significant portion of its annual revenue earned in the first four months of our fiscal year . during the third and fourth quarters , the tax preparation segment typically reports losses because revenue from the segment is minimal while core operating expenses continue at relatively consistent levels . comparability we reclassified certain amounts related to discontinued operations for all periods presented , including quarterly periods within the years ended december 31 , 2015 and 2014 , from the amounts previously reported in the annual reports on form 10-k and quarterly reports on form 10-q for those periods . see `` note 4 : discontinued operations `` of the notes to consolidated financial statements in part ii item 8 of this report for additional information . story_separator_special_tag revenue over the related contractual term . revenue derived from professional tax preparers also contributed to the increase , with a 12 % increase in preparer e-files coupled with an increase in the number of professional preparer units sold . tax preparation operating income increase d approximately $ 9.1 million , consisting of the $ 12.5 million increase in revenue and offset by an increase of $ 3.4 million in operating expenses . the increase in tax preparation segment operating expenses primarily was due to an increase in personnel expenses resulting from higher average headcount supporting all functions and , to a lesser extent , increased spending on marketing campaigns for the related tax season . corporate-level activity replace_table_token_7_th certain corporate-level activity is not allocated to our segments , including certain general and administrative costs ( including personnel and overhead costs ) , stock-based compensation , depreciation , and amortization of acquired intangible assets . for further detail , refer to segment information appearing in `` note 12 : segment information `` of the notes to consolidated financial statements in part ii item 8 of this report . year ended december 31 , 2015 compared with year ended december 31 , 2014 operating expenses included in corporate-level activity increase d primarily due to $ 11.0 million of transaction costs related to the hd vest acquisition and a $ 4.2 million increase in personnel expenses , mainly from higher average headcount to support operations and $ 1.8 million of separation-related costs in connection with the upcoming departure of our chief executive officer . stock-based compensation was unchanged but consisted of the following -- a net increase in stock award grants , offset by stock-based compensation on stock options that vested upon the completion of the hsw acquisition in the second quarter of 2014. the company granted stock options to certain blucora employees who performed acquisition-related services . the vesting of such options were predicated on completing “ qualified acquisitions ” under the terms of the options . the completion of the hsw acquisition constituted a qualified acquisition . depreciation increased primarily due to depreciation expense on fixed assets attributable to taxact . amortization of acquired intangible assets was comparable to the prior period . year ended december 31 , 2014 compared with year ended december 31 , 2013 operating expenses included in corporate-level activity increase d primarily due to a $ 0.5 million increase in corporate business insurance expenses mainly related to the timing of policy premiums in connection with our acquisitions , offset by a $ 0.1 million net decrease in personnel expenses . the net decrease in personnel expenses consisted of lower bonus amounts consistent with company performance in 2014 , offset by higher average headcount to support operations and higher employee separation costs mainly related to leadership changes . 34 stock-based compensation , depreciation , and amortization of acquired intangible assets were comparable to the prior period . story_separator_special_tag operating expenses cost of revenue replace_table_token_8_th we record the cost of revenue for sales of services when the related revenue is recognized . services cost of revenue consists of costs related to our tax preparation business , which include royalties , bank product services fees , and costs associated with the operation of its data centers . data center costs include personnel expenses ( salaries , stock-based compensation , benefits , and other employee-related costs ) , software support and maintenance , bandwidth and hosting costs , and depreciation . cost of revenue also includes the amortization of acquired technology . year ended december 31 , 2015 compared with year ended december 31 , 2014 services cost of revenue increased primarily due to higher data center costs related to software support and maintenance fees . amortization of acquired technology was comparable to the prior period . year ended december 31 , 2014 compared with year ended december 31 , 2013 services cost of revenue decreased primarily due to lower data center operating costs and lower bank product service fees . amortization of acquired technology was comparable to the prior period . engineering and technology replace_table_token_9_th engineering and technology expenses are associated with the research , development , support , and ongoing enhancements of our offerings , which include personnel expenses ( salaries , stock-based compensation , benefits , and other employee-related costs ) , the cost of temporary help and contractors to augment our staffing , software support and maintenance , and professional services fees . year ended december 31 , 2015 compared with year ended december 31 , 2014 engineering and technology expenses increased primarily due to a $ 1.0 million increase in personnel expenses , primarily due to higher average headcount in our tax preparation business . year ended december 31 , 2014 compared with year ended december 31 , 2013 engineering and technology expenses increased primarily due to a $ 0.4 million increase in personnel expenses , primarily due to higher average headcount in our tax preparation business . 35 sales and marketing replace_table_token_10_th sales and marketing expenses consist principally of marketing expenses associated with our taxact business ( which include television , radio , online , text , email , and sponsorship channels ) and personnel expenses ( salaries , stock-based compensation , benefits , and other employee-related costs ) for personnel engaged in marketing and selling activities . year ended december 31 , 2015 compared with year ended december 31 , 2014 sales and marketing expenses increased primarily due to a $ 2.0 million increase in marketing expenses and a $ 0.8 million increase in personnel expenses . the increase in marketing expenses was driven by increased marketing campaign activity for the current tax season in our tax preparation business . personnel expenses increased primarily due to higher average headcount in our tax preparation business . year ended december 31 , 2014 compared with year ended december 31 , 2013 sales and marketing expenses increased primarily due to a $ 1.4 million increase in personnel expenses and a $ 0.5 million increase in marketing expenses . personnel expenses increased primarily due to higher average headcount in our tax preparation business . the increase in marketing expenses was driven by increased marketing campaign activity for the related tax season in our tax preparation business . general and administrative replace_table_token_11_th general and administrative ( “ g & a ” ) expenses consist primarily of personnel expenses ( salaries , stock-based compensation , benefits , and other employee-related costs ) , the cost of temporary help and contractors to augment our staffing , professional services fees ( which include legal , audit , and tax fees ) , general business development and management expenses , occupancy and general office expenses , business taxes , and insurance expenses . year ended december 31 , 2015 compared with year ended december 31 , 2014 g & a expenses increased primarily due to $ 11.0 million in transaction costs related to the hd vest acquisition and a $ 6.0 million increase in personnel expenses , resulting from higher average headcount to support operations and $ 1.8 million of separation-related costs in connection with the upcoming departure of our chief executive officer . year ended december 31 , 2014 compared with year ended december 31 , 2013 g & a expenses increased primarily due to a $ 1.0 million net increase in personnel expenses , resulting from higher average headcount to support operations and higher employee separation costs mainly related to leadership changes , offset by lower bonus amounts consistent with company performance in 2014. the remaining increase in g & a expenses primarily related to a $ 0.5 million increase in corporate business insurance expenses mainly related to the timing of policy premiums in connection with our acquisitions . 36 depreciation and amortization of acquired intangible assets replace_table_token_12_th depreciation of property and equipment includes depreciation of computer equipment and software , office equipment and furniture , and leasehold improvements not recognized in cost of revenue . amortization of acquired intangible assets primarily includes the amortization of customer relationships , which are amortized over their estimated lives . year ended december 31 , 2015 compared with year ended december 31 , 2014 depreciation and amortization of acquired intangible assets were comparable to the prior period . year ended december 31 , 2014 compared with year ended december 31 , 2013 depreciation and amortization of acquired intangible assets were comparable to the prior period . other loss , net replace_table_token_13_th year ended december 31 , 2015 compared with year ended december 31 , 2014 the decrease in interest expense primarily related to a lower balance on the taxact 2013 credit facility . the increase in loss on debt extinguishment and modification expense related to the closure of the taxact 2013 credit facility in december 2015 , at which point the remaining related unamortized debt issuance costs were written off .
| key changes in operating expenses were : $ 3.4 million increase in the tax preparation segment 's operating expenses , primarily due to higher personnel expenses resulting from increased average headcount and , to a lesser extent , higher spending on marketing campaigns for the related tax season . $ 1.0 million increase in corporate-level expense activity , primarily due to higher corporate business insurance expenses mainly related to the timing of policy premiums in connection with our acquisitions , offset by lower net personnel expenses . personnel expenses were impacted by decreased bonus amounts consistent with company performance in 2014 , offset by increased average headcount to support operations and increased employee separation costs mainly related to leadership changes . segment results are discussed in the next section . 32 segment revenue/operating income the revenue and operating income amounts in this section are presented on a basis consistent with accounting principles generally accepted in the u.s. ( “ gaap ” ) and include certain reconciling items attributable to the segments . segment information appearing in `` note 12 : segment information `` of the notes to consolidated financial statements in part ii item 8 of this report is presented on a basis consistent with our current internal management financial reporting . we do not allocate certain general and administrative costs ( including personnel and overhead costs ) , stock-based compensation , depreciation , amortization of acquired intangible assets , other loss , net , and income taxes to segment operating results . we analyzed these separately . following the acquisition of hd vest and the discontinued operations treatment of search and content and e-commerce , we determined that we have two reportable segments : wealth management and tax preparation . since the acquisition of hd vest closed on december 31 , 2015 , it has no operating activities in blucora 's 2015 results of operations . tax preparation replace_table_token_5_th our ability to generate tax preparation revenue largely is driven by our ability to effectively market our tax preparation software and online services ( thereby acquiring new users and retaining existing users ) and our ability to sell other offerings and ancillary services to consumers and small business owners . we also generate revenue
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seamap 's primary products include the ( i ) gunlink and digishot seismic source acquisition and control systems , which provide marine operators more precise control of exploration tools ; and ( ii ) the buoylink rgps tracking system used to provide precise positioning of seismic sources and streamers ( marine recording channels that are towed behind a vessel ) . klein designs , manufactures and sells side scan sonar and water-side security systems to commercial , governmental and military customers throughout the world . sap sells equipment , consumable supplies , systems integration , engineering hardware and software maintenance support services to the seismic , hydrographic , oceanographic , environmental and defense industries throughout southeast asia and australia . in our equipment leasing segment , we lease seismic data acquisition equipment primarily to seismic data acquisition companies conducting land , transition zone and marine seismic surveys worldwide . we provide short-term leasing of seismic equipment to meet a customer 's requirements . all active leases at january 31 , 2017 were for a term of less than one year . seismic equipment held for lease is carried at cost , net of accumulated depreciation . we acquire some marine lease pool equipment from our equipment manufacturing and sales segment . these amounts are carried in our lease pool at the cost to our equipment manufacturing and sales segment , less accumulated depreciation . from time to time , we sell lease pool equipment to our customers . these sales are usually transacted when we have equipment for which we do not have near term needs in our leasing business . additionally , when equipment that has been leased to a customer is lost or destroyed , the customer is charged for such equipment at amounts specified in the underlying lease agreement . these charges are included in lease pool equipment sales in the accompanying financial statements . we occasionally sell new seismic equipment that we acquire from other manufacturers and provide repair and support services to our rental customers . seismic equipment leasing is susceptible to weather patterns in certain geographic regions . in canada and russia , a significant percentage of the seismic survey activity normally occurs in the winter months , from december through march or april . during the months in which the weather is warmer , certain areas are not accessible to trucks , earth vibrators and other heavy equipment because of the unstable terrain . accordingly , our first and fourth quarters have historically produced higher leasing revenues than the second and third quarters . however , in recent periods the effect of this historical seasonality has been less pronounced due to the general decline in seismic exploration activity in canada and russia . in other areas of the world , periods of heavy rain can impair seismic operations . these periods of inclement weather can impact our results of operations ; however , there is no historical trend as to the timing of such impact . we are able , in many cases , to transfer our equipment from one region to another in order to deal with seasonal demand and to increase our equipment utilization . our results of operations , particularly those of our equipment leasing segment , can also experience fluctuations in activity levels due to matters unrelated to seasonal or weather factors . these factors include the periodic shift of seismic exploration activity from one geographic region to another and difficulties encountered by our customers due to permitting and other logistical challenges . see item 1a risk factors. 32 index to financial statements business outlook during fiscal 2017 and fiscal 2016 , we experienced a dramatic decline in our equipment leasing segment and in that portion of our equipment manufacturing and sales segment related to oil and gas exploration activities . the revenues of our equipment leasing segment and to a lesser degree our equipment manufacturing and sales segment are related to the level of worldwide oil and gas exploration activities and the profitability and cash flows of oil and gas companies and seismic contractors , which , in turn , are affected by expectations regarding supply and demand for oil and natural gas , energy prices and finding and development costs . the significant decline in global oil prices that occurred during fiscal 2016 , we believe , resulted in a corresponding decline in oil and gas exploration activities , particularly seismic exploration programs . although oil prices have recovered somewhat from their historical lows , prices remain well below historical highs and much uncertainty remains regarding future pricing . the seismic industry in general , and our business in particular , have been negatively affected by the decline in activity noted above . accordingly , we believe a number of factors have negatively affected , and will continue to affect , our business , particularly our equipment leasing segment . these factors include reduced demand for seismic services and related equipment , an excess of supply of seismic exploration equipment , increased competition among suppliers of seismic exploration equipment and a reduction in pricing for the sale or rental of both new and used seismic exploration equipment . in recent months we have experienced increased activity in our seismic business in the form of inquiries , bids and proposals . based on this , we believe this market is improving . however , we believe the improvement will be gradual with only marginal improvement in fiscal 2018 over fiscal 2017 and that it is unlikely that our the financial results of our equipment leasing segment return to levels seen in fiscal 2015 in the foreseeable future . we have implemented a strategy in order to address the changes in circumstances discussed above . this strategy includes the following : increased emphasis on our equipment manufacturing and sales segment . we intend to expand our product offerings with an emphasis on products and services that are not exclusively dependent upon oil and gas exploration activity . story_separator_special_tag we expect new products and services to come from a combination of internally developed products and those acquired from third parties , such as the acquisition of klein in december 2015. redeploy capital from lease pool . we expect our equipment leasing segment to remain an important component of our business . however , we believe there are opportunities to selectively sell certain lease pool assets and redeploy that capital in order to reduce debt , acquire other lease pool assets or invest in other opportunities . selectively invest in new lease pool assets . due to the increased competition and challenging economic conditions in the seismic equipment industry , we intend to limit future acquisitions of lease pool assets to situations that enhance the value of our existing assets or in which we enjoy a competitive advantage due to pricing , operational considerations or exclusivity arrangements . utilize our broad geographical footprint . we believe our nine world-wide locations and exposure to a number of different geographical markets provides an advantage over many competitors . maintain a capital structure with limited leverage . historically , we have utilized short-term commercial banking facilities to temporarily finance capital expenditures and business acquisitions . due to conditions within the oil and gas industry , including our own recent financial results , and associated regulatory pressures , access to such capital has become more limited and may not be available to us in amounts historically available . accordingly , we intend to reduce our exposure to short-term credit facilities and rely on other sources of expansion capital , and in march 2017 , we repaid all outstanding obligations under our credit agreement and terminated that agreement . also , on april 5 , 2017 , we repaid all outstanding obligations under our seamap credit facility ( as defined below ) and cancelled that facility . such sources could include cash flow provided by operations , proceeds from the sale of lease pool assets , the issuance of debt securities and the issuance of equity securities . 33 index to financial statements the market for products sold by seamap is primarily dependent upon activity within the offshore , or marine , seismic industry , including the re-fitting of existing seismic vessels and the equipping of new vessels . however , these products are also utilized by hydrographic and geotechnical survey vessels whose activities are not limited to oil and gas related operations . our seamap business has benefited from equipping new-build vessels and from re-equipping older vessels with newer , more efficient technology . in addition , as seamap has expanded its installed base of products , including the product lines purchased in fiscal 2015 , our business for replacements , spare parts , repair and support services has expanded . the overall decline in seismic exploration activity has had , and can be expected to continue to have , an impact on the demand for seamap 's products and services . however , we believe the expansion of our product offerings and the desire for customers to upgrade to newer , more efficient technology will mitigate this impact to some extent . we also believe that seamap has been successful in penetrating new markets recently , partially due to the product lines purchased from ion in fiscal 2015 , as evidenced by deliveries to new customers in china during fiscal 2016 and 2017. we continue to have discussions with existing and potential customers regarding new products and enhancement to existing products in order to better meet the needs of the marine seismic , hydrographic and oceanographic industries . in june 2013 , we entered into a manufacturing arrangement with petroleum geo-services asa ( pgs ) , one of the largest marine seismic contractors in the world . under this arrangement , we manufacture and sell to pgs a customized and proprietary marine energy source controller that is based on our gunlink 4000 product ( the pgs sourcelink ) . we have previously collaborated with pgs to develop pgs sourcelink . we expect pgs sourcelink will be deployed on the majority of pgs ' fleet of seismic vessels ; however , current industry conditions will likely result in a delay in the complete deployment of the new products . the deployment of new products is expected take place over a period of several years . we expect to make additional deliveries to pgs in fiscal 2018 related to the re-equipping of existing vessels . we are also pursuing a number of opportunities in asia for the equipping of hydrographic and geotechnical survey vessels . some of these opportunities include products from both seamap and klein . demand for klein 's products is generally not dependent upon activity within the oil and gas industry . customers for these products primarily consist of domestic and foreign governmental and military organizations and commercial entities involved in the hydrographic and oceanographic industries . revenue from the sale of klein products in fiscal 2017 was below our expectations as more fully discussed below . however , we believe we are well positioned with recently introduced products and product enhancements and therefore expect revenues from these products to increase in fiscal 2018 as compared to fiscal 2017. the decline in oil and gas exploration activity in recent years has resulted in a significant decline in the demand for seismic exploration equipment and our equipment rental services . this has also resulted in a material decline in prices for such equipment and services , as much as 50 % or more in some cases . while there are indications of improving conditions , we expect such improvement to be marginal and for conditions in the seismic industry to remain challenging through fiscal 2018. demand for the rental of land seismic exploration equipment varies by geographic region .
| during fiscal 2017 and 2016 , seamap did experience a decline in demand for its products and a delay in certain projects as marine contractors revised spending plans in response to the decline in oil prices . many contractors have retired or cold stacked vessels and therefore an excess of equipment has developed . accordingly , the demand for spare parts and repairs has declined over the past two years . however , based on our backlog of orders as of january 31 , 2017 and inquiries from customers , we expect revenue from the sale of seamap products to increase in fiscal 2018 as compared to fiscal 2017. the gross profit generated by sales of seamap equipment in fiscal 2017 , 2016 and 2015 was approximately $ 8.0 million , $ 10.9 million and $ 12.1 million , respectively . the gross profit margin from the sales of seamap equipment in fiscal 2017 , 2016 and 2015 was approximately 57 % , 49 % and 51 % , respectively . the fluctuations in gross profit margin among the periods were due primarily to changes in product mix . we acquired klein effective december 31 , 2015 , accordingly the operating results related to these operations are not material to fiscal 2016 and the comparison between fiscal 2017 and fiscal 2016 is not meaningful . revenue from the sale of klein products in fiscal 2017 was below our expectations . delays in the completion of engineering and manufacturing activities related to revisions and enhancements to certain products resulted in delays in the availability of these products . accordingly , expected shipments of these products were delayed . we believe that the aforementioned engineering and manufacturing activities have been essentially completed and that shipment of these products will return to anticipated levels . therefore , we expect revenue from the sale of klein products in fiscal 2018 to exceed that in fiscal 2017. the gross profit from sale of klein products was approximately $ 2.5 million , a gross profit margin of 30 % . this margin is less than
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common shares of beneficial interest underwritten equity offerings during 2019 , we completed the following underwritten offerings of our common shares : year ended december 31 , 2019 ( in thousands ) number of common shares issued 33,527 gross proceeds $ 719,777 net proceeds $ 710,752 “ at-the-market ” ( atm ) equity offering program on march 14 , 2019 , we entered into equity distribution agreements to sell from time to time , through an atm equity offering program under which the agents will act as sales agent and /or principal , our common shares having an aggregate offering price of up to $ 200 million . following is a summary of the activities under the atm equity offering program : replace_table_token_11_th taxation we believe that we qualify to be taxed as a reit and as such will not be subject to federal income tax on that portion of our income that is distributed to shareholders as long as we meet applicable reit asset , income and share ownership tests . if we fail to qualify as a reit , and do not qualify for certain statutory relief provisions , our profits will be subject to income taxes and we may be precluded from qualifying as a reit for the four tax years following the year we lose our reit qualification . a portion of our activities , including our correspondent production business , is conducted in our taxable reit subsidiary ( “ trs ” ) , which is subject to 52 corporate federal and state income taxes . accordingly , we have made a provision for income taxes with respect to the operations of our trs . we expect that the effective rate for the provision for income taxes may be volatile in future periods . our goal is to manage the business to take full advantage of the tax benefits afforded to us as a reit . we evaluate our deferred tax assets quarterly to determine if valuation allowances are required based on the consideration of all available positive and negative evidence using a “ more-likely-than-not ” standard with respect to whether deferred tax assets will be realized . our evaluation considers , among other factors , taxable loss carryback availability , expectations of sufficient future taxable income , trends in earnings , existence of taxable income in recent years , the future reversal of temporary differences , and available tax planning strategies that could be implemented , if required . the ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related deferred tax assets become deductible . critical accounting policies preparation of financial statements in compliance with accounting principles generally accepted in the united states ( “ gaap ” ) requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , and revenues and expenses during the reporting period . certain of these estimates significantly influence the portrayal of our financial condition and results , and they require us to make difficult , subjective or complex judgments . our critical accounting policies primarily relate to our fair value estimates . fair value our consolidated balance sheet is substantially comprised of assets that are measured at or based on their fair values . measurement at fair value may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether we have elected to carry them at fair value . we group financial statement items measured at or based on fair value in three levels based on the markets in which the assets are traded and the observability of the inputs used to determine fair value . the fair value level assigned to an asset or liability is identified based on the lowest level of inputs that are significant to determining the respective asset or liability 's fair value . these levels are : december 31 , 2020 percentage of level description carrying value of assets measured ( 1 ) total assets total shareholders ' equity ( in thousands ) level 1 : prices determined using quoted prices in active markets for identical assets or liabilities . $ 135,107 1 % 6 % level 2 : prices determined using other significant observable inputs . observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the company . 5,959,987 51 % 259 % level 3 : prices determined using significant unobservable inputs . unobservable inputs reflect our judgments about the factors that market participants use in pricing an asset or liability , and are based on the best information available in the circumstances . ( 2 ) 4,888,353 43 % 214 % total assets measured at or based on fair value $ 10,983,447 96 % 478 % total assets $ 11,492,011 total shareholders ' equity $ 2,296,859 ( 1 ) includes assets measured on both a recurring and nonrecurring basis based on the accounting principles applicable to the specific asset or liability and whether we have elected to carry the item at its fair value . ( 2 ) for purposes of this discussion , includes deposits securing credit risk transfer arrangements which are carried at amortized cost . these deposits along with the related crt derivatives and crt strips are held in the form of securities which are the basis for valuation of the crt derivatives and strips . 53 at december 31 , 2020 , $ 11.0 billion , or 95 % , of our total assets were carried at fair value on a recurring basis and $ 28.7 mil lion , or less than 1 % ( consisti ng of reo ) , were carried based on fair value on a non-recurring basis when fair value indicates evidence of impairment . story_separator_special_tag of these assets , $ 4.9 billion , or 42 % , of total assets are measured usi ng “ level 3 ” fair value inputs , which are difficult to observe and require significant management judgment . changes in inputs to measurement of “ level 3 ” fair value financial statement items have a significant effect on the amounts reported for these items including their reported balances and their effects on our net income as summarized below : replace_table_token_12_th ( 1 ) includes loans held for sale and loans at fair value . ( 2 ) excluding changes in fair value attributable to realization of cash flows . as a result of the difficulty in observing certain significant valuation inputs affecting “ level 3 ” fair value assets and liabilities , we are required to make judgments regarding these items ' fair values . different persons in possession of the same facts may reasonably arrive at different conclusions as to the inputs to be applied in estimating the fair value of these fair value assets and liabilities and their fair values . such differences may result in significantly different fair value measurements . likewise , due to the general illiquidity of some of these fair value assets and liabilities , subsequent transactions may be at values significantly different from those reported . because the fair value of “ level 3 ” fair value assets and liabilities is difficult to estimate , our valuation process is conducted by specialized staff and receives significant executive management oversight . we have assigned the responsibility for estimating the fair values of our “ level 3 ” fair value assets and liabilities , except for interest rate lock commitments ( “ irlcs ” ) , to pfsi 's financial analysis and valuation group ( the “ fav group ” ) . with respect to those valuations , pfsi 's fav group reports to pfsi 's valuation committee , which oversees the valuations . pfsi 's valuation committee includes the company 's chief financial , chief investment and risk officers as well as other senior members of the company 's finance , capital markets and risk management staffs . the fair value of our irlcs is developed by our manager 's capital markets risk management staff and is reviewed by our manager 's capital markets operations group in the exercise of their internal control activities . following is a discussion relating to our approach to measuring the assets and liabilities that are most affected by “ level 3 ” fair value estimates . loans we carry loans at their fair values . we recognize changes in the fair value of loans in current period income as a component of either net gain on loans acquired for sale or net ( loss ) gain on investments . we estimate fair value of loans based on whether the loans are saleable into active markets with observable pricing . we categorize loans that are saleable into active markets as “ level 2 ” fair value assets . such loans include substantially all of our loans acquired for sale and our loans held in a vie . we estimate such loans ' fair values using their quoted market price or market price equivalent . we held $ 3.5 billion of such loans at fair value at december 31 , 2020. we categorize loans that are not saleable into active markets as “ level 3 ” fair value assets . such loans include substantially all of our investments in distressed loans , home equity and commercial loans held for sale and certain of the loans acquired for sale which we subsequently repurchased pursuant to representations and warranties or that we identified as non-salable to the agencies . we held $ 33.9 million of such loans at fair value at december 31 , 2020. we estimate the fair value of our “ level 3 ” fair value loans using a discounted cash flow valuation model . inputs to the model include current interest rates , loan amount , payment status and property type , and forecasts of future interest rates , home prices , prepayment speeds , defaults and loss severities . 54 excess servicing spread we acquire the right to receive the ess cash flows relating to certain msrs over the life of the underlying loans . we carry our investment in ess at fair value . we record changes in the fair value of ess in net ( loss ) gain on investments . because ess is a claim to a portion of the cash flows from msrs , its valuation process is similar to that of msrs discussed below . we use the same discounted cash flow approach to measuring the ess as we use to value the related msrs except that certain inputs relating to the cost to service the loans underlying the msrs and certain ancillary income are not included as these cash flows do not accrue to the holder of the ess . a shift in the market for ess or a change in our assessment of an input to the valuation of ess can have a significant effect on the fair value of ess and in our income for the period . we believe that the most significant “ level 3 ” fair value inputs to the valuation of ess are the pricing spread ( discount rate ) and prepayment speed . we held $ 131.8 million of ess at december 31 , 2020. following is a summary of the effect on fair value of various changes to these inputs on our fair value estimates as of december 31 , 2020 : replace_table_token_13_th derivative assets interest rate lock commitments our net gain on loans acquired for sale includes our estimates of gains or losses we expect to realize upon the sale of loans we have committed to purchase but have not yet purchased or sold . therefore , we recognize a substantial portion of our net gain on loans acquired for sale at fair value before we purchase the loan .
| during the year ended december 31 , 2020 , we recognized $ 267.0 million in fair value losses on our crt arrangements and $ 38.2 million of losses on the initial recognition of firm commitments to purchase crt securities in our credit sensitive strategies segment . we believe these fair value losses reflect increases both in expectations of future credit losses to be incurred as well as the return demanded by market participants due to the uncertainty surrounding such expectations . while the credit markets have recovered somewhat since the beginning of the covid-19 pandemic , the recovery has not been complete as the economy remains weak and uncertainty about future mortgage loan credit performance persists . before the onset of the covid-19 pandemic , the mortgage origination market was experiencing healthy demand owing to historically low interest rates in the united states . the government 's response to the onset of the covid-19 pandemic , including fiscal stimulus and infusions of additional liquidity by the federal reserve into financial markets , acted to further lower market 60 mortgage interest rates . these developments have acted to sustain demand for new mortgage loans despite the slowdown in overall economic activity . the mortgage origination market for 2019 was estimated at $ 2.3 trillion . c urrent forecasts estimate the origination market to approximate $ 4.0 trillion for 2020 and $ 3.3 trillion for 2021 . the uncertainties and strains on many mortgage lenders induced by the covid-19 pandemic and resulting disruptions in the financial markets caused some market participants to scale back or exit mortgage loan production activities early in the course of the covid-19 pandemic , which , combined with constraints on mortgage industry origination capacity that existed before the covid-19 pandemic , allowed us to realize higher gain-on sale margins in our correspondent production activities . with the return of other market participants , our gain-on-sale margins in our correspondent production activities have moderated . we expect the covid-19 pandemic to have a negative effect on
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32 index we extend credit for tuition and fees to many of our students that attend our campuses . our credit risk is mitigated through the students ' participation in federally funded financial aid programs unless students withdraw prior to the receipt by us of title iv program funds for those students . under title iv programs , the government funds a certain portion of a student 's tuition , with the remainder , referred to as “ the gap , ” financed by the students themselves under private party loans , including credit extended by us . the gap amount has continued to increase over the last several years as we have raised tuition on average for the last several years by 2-3 % per year and restructured certain programs to reduce the amount of financial aid available to students , while funds received from title iv programs increased at lower rates . the additional financing that we are providing to students may expose us to greater credit risk and can impact our liquidity . however , we believe that these risks are somewhat mitigated due to the following : our internal financing is provided to students only after all other funding resources have been exhausted ; thus , by the time this funding is available , students have completed approximately two-thirds of their curriculum and are more likely to graduate ; funding for students who interrupt their education is typically covered by title iv program funds as long as they have been properly packaged for financial aid ; and creditworthy criteria to demonstrate a student 's ability to pay . the operating expenses associated with an existing school do not increase or decrease proportionally as the number of students enrolled at the school increases or decreases . we categorize our operating expenses as : educational services and facilities . major components of educational services and facilities expenses include faculty compensation and benefits , expenses of books and tools , facility rent , maintenance , utilities , depreciation and amortization of property and equipment used in the provision of education services and other costs directly associated with teaching our programs excluding student services which is included in selling , general and administrative expenses . selling , general and administrative . selling , general and administrative expenses include compensation and benefits of employees who are not directly associated with the provision of educational services ( such as executive management and school management , finance and central accounting , legal , human resources and business development ) , marketing and student enrollment expenses ( including compensation and benefits of personnel employed in sales and marketing and student admissions ) , costs to develop curriculum , costs of professional services , bad debt expense , rent for our corporate headquarters , depreciation and amortization of property and equipment that is not used in the provision of educational services and other costs that are incidental to our operations . selling , general and administrative expenses also includes the cost of all student services including financial aid and career services . all marketing and student enrollment expenses are recognized in the period incurred . recent transactions on november 14 , 2019 , we entered into a securities purchase agreement with juniper investment company , inc. ( “ juniper purchasers ” ) and talanta investment group , inc. ( “ talanta ” ) with their affiliates , to sell an aggregate of 12,700 shares of series a 9.6 % convertible preferred stock , no par value per share ( the “ series a preferred stock ” ) for a total purchase price of $ 12.7 million . each share of series a preferred stock is initially convertible into approximately 424 shares of the company 's common stock , representing a conversion premium of 39 % based upon lincoln 's closing stock price of $ 1.70 per share on the nasdaq on november 14 , 2019. beginning november 14 , 2024 , the company can redeem outstanding series a preferred stock under certain circumstances at a price determined pursuant to the terms of the agreement . the series a preferred stock may be voted on an as-converted basis with the common stock , however both the voting rights and conversion rights are subject to a 19.99 % ownership cap for each investor . the proceeds from the offering are intended to be used to provide flexibility to execute long-term growth initiatives such as expansion of existing high demand programs , the addition of new programs with strong employer demand and the expansion of the existing call center which reaches prospective students throughout the country . in addition , the company plans to explore strategic acquisitions consistent with the company 's core business , upgrade training equipment to enhance the student experience , and increase marketing investments that will cost-effectively expand our reach to potential new students in key markets while raising overall brand awareness . see note 10 of the notes to our consolidated financial statements contained elsewhere in this annual report on form 10-k for further discussion . additionally , on november 14 , 2019 , the company executed a new credit agreement with sterling national bank ( the “ lender ” ) replacing our prior facility . the credit facility is comprised of four separate facilities providing in the aggregate $ 60 million comprised of : ( 1 ) a $ 20 million term loan funded at closing to refinance the existing facility , ( 2 ) a $ 10 million delayed draw term loan , ( 3 ) a $ 15 million committed revolving line of credit , with a sublimit of up to $ 10 million for standby letters of credit , and ( 4 ) a $ 15 million cash collateralized line of credit . story_separator_special_tag all of the facilities are senior secured with the term loans maturing in five years , the revolving line of credit maturing in three years , and the cash collateralized line of credit maturing on january 31 , 2021. the credit facility increases the company 's available liquidity by approximately $ 25.0 million supporting working capital and growth initiatives . the company further anticipates realizing annualized interest savings of approximately $ 1.0 million as a result of a reduction in the interest rate by an anticipated 30 % . the company 's prior credit facility as of the closing had an outstanding balance of $ 21.8 million . see note 9 of the notes to our consolidated financial statements contained elsewhere in this annual report on form 10-k for further discussion . 33 index critical accounting policies and estimates our discussions of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america , or gaap . the preparation of financial statements in conformity with 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 consolidated financial statements and the reported amounts of revenues and expenses during the period . on an ongoing basis , we evaluate our estimates and assumptions , including those related to revenue recognition , bad debts , fixed assets , goodwill and other intangible assets , income taxes and certain accruals . actual results could differ from those estimates . the critical accounting policies discussed herein are not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap and does not result in significant management judgment in the application of such principles . we believe that the following accounting policies are most critical to us in that they represent the primary areas where financial information is subject to the application of management 's estimates , assumptions and judgment in the preparation of our consolidated financial statements . revenue recognition . prior to adoption of asu 2014-09 revenues are derived primarily from programs taught at our schools . tuition revenues , textbook sales and one-time fees , such as nonrefundable application fees and course material fees , are recognized on a straight-line basis over the length of the applicable program as the student proceeds through the program , which is the period of time from a student 's start date through his or her graduation date ( including internships or externships , if any , occurring prior to graduation ) , and we complete the performance of teaching the student entitling us to the revenue . other revenues , such as tool sales and contract training revenues , are recognized as goods are delivered or training completed . on an individual student basis , tuition earned in excess of cash received is recorded as accounts receivable , and cash received in excess of tuition earned is recorded as unearned tuition . we evaluate whether collectability of revenue is reasonably assured prior to the student commencing a program by attending class and reassess collectability of tuition and fees when a student withdraws from a course . we calculate the amount to be returned under title iv programs and its stated refund policy to determine eligible charges and , if there is a balance due from the student after this calculation , we expect payment from the student . we have a process to pursue uncollected accounts whereby , based upon the student 's financial means and ability to pay , a payment plan is established with the student to ensure that collectability is reasonable . we continuously monitor our historical collections to identify potential trends that may impact our determination that collectability of receivables for withdrawn students is realizable . if a student withdraws from a program prior to a specified date , any paid but unearned tuition is refunded . refunds are calculated and paid in accordance with federal , state and accrediting agency standards . generally , the amount to be refunded to a student is calculated based upon the period of time the student has attended classes and the amount of tuition and fees paid by the student as of his or her withdrawal date . these refunds typically reduce deferred tuition revenue and cash on our consolidated balance sheets as we generally do not recognize tuition revenue in our consolidated statements of income ( loss ) until the related refund provisions have lapsed . based on the application of our refund policies , we may be entitled to incremental revenue on the day the student withdraws from one of our schools . we record revenue for students who withdraw from one of our schools when payment is received because collectability on an individual student basis is not reasonably assured . after adoption of asu 2014-09 on january 1 , 2018 , we adopted the new standard on revenue recognition promulgated by the federal accounting standards board ( the “ fasb ” ) , accounting standards update ( “ asu ” ) 2014-09 , using the modified retrospective approach of asu 2016-10. the adoption of the guidance in asu 2014-09 as amended by asu 2016-10 did not have a material impact on the company 's measurement or recognition of revenue in any prior or current reporting periods and there was no adjustment to retained earnings . the core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to students in an amount that reflects the consideration to which the company expects to be entitled in exchange for such goods or services . substantially all of our revenues are considered to be revenues from contracts with students . the related accounts receivable balances are recorded in our balance sheets as student accounts receivable .
| the increase was primarily the result of increases in instructional salaries and benefits expense and books and tools expense resulting from a larger student population year over year . partially offsetting the increases in expense were cost savings in facilities expense resulting from the successful negotiation of more favorable lease terms at two of our campuses . educational services and facilities expense , as a percentage of revenue , decreased to 45.2 % from 47.6 % for the years ended december 31 , 2019 and 2018 , respectively . selling , general and administrative expense . our selling general and administrative expense increased $ 4.0 million , or 2.8 % to $ 145.2 million for the fiscal year ended december 31 , 2019 from $ 141.2 million in the prior fiscal year . excluding the transitional segment , which had expense of zero and $ 6.5 million in the current and prior year , respectively , selling general and administrative expense increased $ 10.4 million . increases in expense were due in part to several factors including additional bad debt expense ; investments made in sales expense and marketing expense ; increases in salaries and benefits expense resulting from a larger student population and costs incurred in connections with strategic initiatives intended to increase shareholder value . no additional costs pertaining to these strategic initiatives will be incurred going forward . bad debt expense increased due to certain factors including tuition increases along with a slight increase in reserve rates due to lower historical repayment rates . in addition , modifications were made to our institutional loan program to address student affordability barriers both at the time of enrollment and while in school . although these student friendly changes have positively impacted student starts and retention , it may have resulted in lower repayment rates . as of december 31 , 2019 , less than one third of the student population relied on the institutional loan program to help subsidize their education . marketing investments were up
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stock based compensation compensation expense for equity grants is estimated on the grant date , net of projected forfeitures and is recognized over the vesting period ( generally in equal installments over three years ) . restricted stock is valued based on the market price of the company 's shares on the date of grant . stock options are valued using a black-scholes option pricing model . our specific assumptions for estimating the fair value of options include the following : replace_table_token_9_th the risk-free interest rate for the periods within the contractual life of an option is based on the u.s. treasury yield curve in effect at the time of grant . the expected dividend yield was estimated as the annual dividend divided by the market price of the company 's shares on the date of grant . expected volatility was estimated by using the company 's historical share price volatility for a period similar to the expected life of the option . see note 18 of notes to consolidated financial statements for additional information . intangible assets goodwill we evaluate goodwill annually in the fourth quarter or whenever we identify certain triggering events or circumstances that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount . such tests are completed separately with respect to the goodwill of each of our reporting units , which includes our domestic company-owned restaurants , china and the united kingdom ( pjuk ) . we may perform a qualitative assessment or move directly to the quantitative assessment for any reporting unit in any period if we believe that it is more efficient or if impairment indicators exist . we elected to perform a qualitative assessment for our domestic company-owned restaurants and pjuk reporting units in 2015. as a result of our qualitative analyses , we determined that it was more-likely-than-not that the fair values of our reporting units were greater than their carrying amounts . we performed a quantitative analysis for the goodwill of our china reporting unit using a market approach . the market approach considered earnings before interest , taxes , depreciation and amortization ( ebitda ) multiples that a potential buyer would pay based on third-party transactions in similar markets . the results of our quantitative assessment indicated the fair value significantly exceeded the carrying amount . subsequent to completing our goodwill impairment tests , no indications of impairment were identified . see note 8 of notes to consolidated financial statements for additional information . 29 insurance reserves our insurance programs for workers ' compensation , owned and non-owned automobiles , general liability , property , and health insurance coverage provided to our employees are funded by the company up to certain retention levels . retention limits generally range from $ 100,000 to $ 500,000 per occurrence . losses are accrued based upon undiscounted estimates of the aggregate retained liability for claims incurred using certain third-party actuarial projections and our claims loss experience . the estimated insurance claims losses could be significantly affected should the frequency or ultimate cost of claims differ significantly from historical trends used to estimate the insurance reserves recorded by the company . see note 12 of notes to consolidated financial statements for additional information . deferred income tax accounts and tax reserves papa john 's is subject to income taxes in the united states and several foreign jurisdictions . significant judgment is required in determining papa john 's provision for income taxes and the related assets and liabilities . the provision for income taxes includes income taxes paid , currently payable or receivable and those deferred . deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities , and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse . deferred tax assets are also recognized for the estimated future effects of tax loss carryforwards . the effect on deferred taxes of changes in tax rates is recognized in the period in which the new tax rate is enacted . valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize . as of december 27 , 2015 , we had a net deferred income tax liability of approximately $ 2.2 million . tax authorities periodically audit the company . we record reserves and related interest and penalties for identified exposures as income tax expense . we evaluate these issues and adjust for events , such as statute of limitations expirations , court rulings or audit settlements , which may impact our ultimate payment for such exposures . we recognized increases in income tax expense of $ 731,000 in 2015 and $ 117,000 in 2014 and a decrease in income tax expense of $ 909,000 in 2013 associated with the finalization of certain income tax matters . see note 15 of notes to consolidated financial statements for additional information . fiscal year our fiscal year ends on the last sunday in december of each year . all fiscal years presented in the accompanying consolidated financial statements consist of 52 weeks . two-for-one stock split the company completed a two-for-one stock split of the company 's outstanding shares of stock in december 2013 effected in the form of a stock dividend . shareholders of record on december 12 , 2013 received one additional share for each outstanding share of stock held on the record date . the stock dividend was distributed effective december 27 , 2013. all share and per-share amounts have been adjusted to reflect the stock split . 30 focus system as of december 27 , 2015 , we have implemented focus , our new , proprietary point-of-sale system in our domestic company-owned and franchised restaurants . focus had the following impact on our consolidated statements of income for the years ended december 27 , 2015 and december 28 , 2014 ( in thousands ) : replace_table_token_10_th ( a ) royalty incentive program tied to franchise rollout of focus . story_separator_special_tag ( b ) represents revenues for equipment installed at domestic franchised restaurants . ( c ) includes cost of sales associated with equipment installed at franchised restaurants and other costs to support the rollout of the program . ( d ) includes depreciation expense for both the capitalized software and for equipment installed at company-owned restaurants , which are being depreciated over five and seven years , respectively . 31 items impacting comparability ; non-gaap measures the following table reconciles our gaap financial results to the adjusted ( non-gaap ) financial results , excluding the 2015 legal settlement expense for perrin v. papa john 's international , inc. and papa john 's usa , inc. , a conditionally certified collective and class action that was settled in 2016. we present these non-gaap measures because we believe the legal settlement impacts the comparability of our results of operations . for additional information about the legal settlement , see note17 of notes to consolidated financial statements. replace_table_token_11_th the non-gaap results shown above and within this document , which exclude the legal settlement , should not be construed as a substitute for or a better indicator of the company 's performance than the company 's gaap results . management believes presenting certain financial information without the legal settlement is important for purposes of comparison to prior year results . in addition , management uses this metric to evaluate the company 's underlying operating performance and to analyze trends . see results of operations for further analysis regarding the impact of the legal settlement . in addition , we present free cash flow in this report , which is a non-gaap measure . we define free cash flow as net cash provided by operating activities ( from the consolidated statements of cash flows ) less the purchases of property and equipment . we view free cash flow as an important measure because it is one factor that management uses in determining the amount of cash available for discretionary investment . free cash flow is not a term defined by gaap , and as a result , our measure of free cash flow might not be comparable to similarly titled measures used by other companies . free cash flow should not be construed as a substitute for or a better indicator of our performance than the company 's gaap measures . see liquidity and capital resources for a reconciliation of free cash flow to the most directly comparable gaap measure . the presentation of the non-gaap measures in this report is made alongside the most directly comparable gaap measures . 32 percentage relationships and restaurant data and unit progression the following tables set forth the percentage relationship to total revenues , unless otherwise indicated , of certain income statement data , and certain restaurant data for the years indicated : replace_table_token_12_th 33 replace_table_token_13_th ( 1 ) we operate on a fiscal year ending on the last sunday of december of each year . ( 2 ) as a percentage of domestic company-owned restaurant sales . ( 3 ) as a percentage of domestic commissary sales . ( 4 ) as a percentage of other sales . ( 5 ) as a percentage of international restaurant and commissary sales . ( 6 ) represents the change in year-over-year sales for company-owned restaurants open throughout the periods being compared . 34 results of operations 2015 compared to 2014 discussion of revenues . consolidated revenues increased $ 39.2 million , or 2.5 % , to $ 1.64 billion in 2015 , compared to $ 1.60 billion in 2014. revenues are summarized in the following table on a reporting segment basis . replace_table_token_14_th the increase in revenues in 2015 compared to 2014 was primarily due to the following : · domestic company-owned restaurant sales increased $ 54.5 million , or 7.8 % primarily due to an increase of 5.9 % in comparable sales and a 2.7 % increase in equivalent units . equivalent units represents the number of restaurants open at the beginning of a given period , adjusted for restaurants opened , closed , acquired or sold during the period on a weighted average basis . · north america franchise royalty revenue increased approximately $ 5.6 million , or 6.3 % , primarily due to a 3.6 % increase in comparable sales , an increase of 1.0 % in equivalent units and lower royalty incentives . · domestic commissary sales decreased $ 13.9 million , or 2.2 % , as lower revenues associated with lower cheese prices were somewhat offset by increases in restaurant sales volume . pricing for cheese is based on a fixed dollar markup ; when cheese prices decrease , revenues decrease with no overall impact on the related dollar margin . · other sales decreased approximately $ 9.5 million , or 12.8 % , primarily due to lower focus equipment sales in 2015 , as anticipated . the higher levels of focus equipment sales in 2014 had no significant impact on operating results . see the focus system section above for additional information . · international royalties and franchise and development fees increased approximately $ 1.6 million , or 6.1 % , primarily due to higher royalties from an increase in the number of franchised restaurants and a 7.3 % increase in franchised comparable sales , calculated on a constant dollar basis . the negative impact of foreign currency exchange rates reduced our revenues by approximately $ 2.7 million in 2015 . · international restaurant and commissary sales increased approximately $ 700,000 , or 0.9 % , primarily due to an increase in commissary and other revenues , particularly in the united kingdom , with increases in units and higher comparable sales . this increase was somewhat offset by lower sales at china company-owned restaurants due to the disposition of eleven restaurants in 2014 and negative comparable sales . additionally , sales were negatively impacted $ 4.8 million by foreign currency exchange rates .
| north america franchising income before income taxes increased $ 6.3 million primarily due to higher royalties from increases of 3.6 % and 1.0 % in comparable sales and equivalent units , respectively , and lower royalty incentives . · international segment . the international segment reported income before income taxes of approximately $ 10.9 million in 2015 compared to $ 7.3 million in 2014. the increase of $ 3.6 million was primarily due to an increase in units and comparable sales of 6.9 % , which resulted in both higher royalties and an increase of approximately $ 2.4 million in united kingdom results . additionally , our company-owned china results improved approximately $ 2.2 million ( losses of approximately $ 1.2 million in 2015 and $ 3.4 million in 2014 ) . the improvement in china company-owned results was primarily due to lower non-operating costs of $ 1.5 million for impairment , disposition and depreciation . the international segment improvement was somewhat offset by the negative impact of foreign currency exchange rates of approximately $ 2.8 million . · all others segment . the all others reporting segment , which primarily includes our online and mobile ordering business and our wholly-owned print and promotions subsidiary , preferred 36 marketing solutions , increased approximately $ 900,000 primarily due to lower infrastructure costs to support our digital ordering business . · unallocated corporate expenses . unallocated corporate expenses increased approximately $ 14.2 million , excluding the legal settlement expense , primarily due to higher salaries and benefits , including an increase in health insurance claims costs , as well as increased interest costs associated with higher levels of debt and a higher effective interest rate . in addition , management incentive compensation costs increased in 2015 due to higher annual operating results . diluted earnings per common share were $ 1.89 in 2015 compared to $ 1.75 in 2014 , or an increase of $ 0.14 , or 8.0 % . diluted earnings per common share were $ 2.09 in 2015 , excluding the $ 0.20 legal settlement , or an increase of $ 0.34 , or 19.4 % . diluted earnings per common share increased $
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pursuant to the terms and subject to the conditions set forth in the merger agreement , at the effective time of the mergers ( the “ effective time ” ) , each outstanding share of common stock of rca , $ 0.01 par value per share ( “ rca common stock ” ) ( including any restricted shares of rca common stock and fractional shares ) , was converted into the right to receive ( x ) a number of shares of our common stock , $ 0.01 par value per share ( the “ company common stock ” ) equal to 0.385 shares of company common stock ( the “ stock consideration ” ) and ( y ) cash from us , in an amount equal to $ 0.95 per share ( the “ cash consideration , ” and together with the stock consideration , the “ merger consideration ” ) . 80 in addition , at the effective time , ( i ) each unit of partnership interest of the rca op designated as an op unit issued and outstanding immediately prior to the effective time ( other than those held by rca as described in clause ( ii ) below ) was automatically converted into 0.424 validly issued units of limited partnership interest of the op ( the “ partnership merger consideration ” ) ; ( ii ) each unit of partnership interest of the rca op designated as either an op unit or a gp unit held by rca and issued and outstanding immediately prior to the effective time was automatically converted into 0.385 validly issued units of limited partnership interest of the op ; ( iii ) each unit of partnership interest of the rca op designated as a class b unit held by rca 's advisor and a sub-advisor issued and outstanding immediately prior to the effective time was converted into the partnership merger consideration ( the “ class b consideration , ” and together with the partnership merger consideration and the merger consideration , the “ total merger consideration ” ) and ( iv ) the interest of american realty capital retail advisor , llc , the special limited partner of the rca op ( the “ rca advisor ” ) , in the rca op was redeemed for a cash payment , determined in accordance with the existing terms of the rca op 's agreement of limited partnership . in addition , as provided in the merger agreement , all outstanding restricted stock of rca became fully vested and entitled to receive the merger consideration . in 2017 , we issued approximately 38.2 million shares of company common stock as consideration in the merger and paid approximately $ 94.3 million as cash consideration . in connection with the execution of the merger agreement , the op entered into a binding commitment , pursuant to which ubs securities llc , ubs ag , stamford branch and citizens bank , n.a . have committed to provide a $ 360.0 million bridge loan facility , subject to customary conditions . we did not borrow any funds under the bridge loan facility . prior to the mergers , the company and rca each were sponsored , directly or indirectly , by ar global . ar global and its affiliates provide investment and advisory services to us , and previously provided such services to rca , pursuant to written advisory agreements . in 2017 , in connection with , and subject to the terms and conditions of the merger agreement , rca op units held by ar global and its affiliates were exchanged for op units of the company and certain special limited partner interests in the rca op held by ar global and its affiliates were , consistent with the terms of the rca op partnership agreement , redeemed for a cash payment of approximately $ 2.8 million . the rca advisor was previously party to a service agreement , a property management and a leasing agreement with an independent third party , lincoln retail reit services , llc , a delaware limited liability company ( `` lincoln '' ) , pursuant to which lincoln provided , subject to the rca advisor 's oversight , real estate-related services , including acquisition , disposition , asset management and property management services , and leasing and construction oversight , as needed . the rca advisor passed through to lincoln a portion of the fees and or other expense reimbursements payable to the rca advisor for the performance of certain real estate-related services . in connection with the mergers , the advisor engaged in discussions with lincoln for the engagement of lincoln as the service provider for certain of rca 's retail properties that are now owned by us , such that lincoln would provide acquisition , property management and leasing services related to such retail properties . however , the advisor and lincoln were unable to enter into a satisfactory definitive agreement prior to the closing of the mergers , and , on february 16 , 2017 , rca provided lincoln with notice of termination of the service agreement , the property management agreement and the leasing agreement . the advisor and lincoln continue to engage in discussions related to lincoln providing such retail properties certain services . accounting treatment for the mergers the mergers will be accounted for under the acquisition method of accounting under u.s. gaap . under the acquisition method of accounting , the assets acquired and liabilities assumed from rca will be recorded as of the acquisition date at their respective fair values . any excess of purchase price over the fair values will be recorded as goodwill . alternatively , if fair value of net assets acquired exceeds fair value of the total merger consideration , the transaction could result in a bargain purchase gain that we would recognize immediately in earnings . results of operations for rca will be included in our consolidated financial statements subsequent to the effective date . story_separator_special_tag merrill lynch disposition we entered into a purchase and sale agreement dated as of october 11 , 2016 , as amended on november 10 , 2016 , november 18 , 2016 , november 23 , 2016 and december 1 , 2016 , for the sale of three properties leased to merrill lynch , pierce , fenner & smith ( the `` merrill lynch properties '' ) owned by us for a purchase price of $ 148.0 million , exclusive of closing costs . we consummated the disposition of the merrill lynch properties on january 31 , 2017 . the disposal of the merrill lynch properties does not represent a strategic shift . 81 significant accounting estimates and critical accounting policies set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our consolidated financial statements . certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management . as a result , these estimates are subject to a degree of uncertainty . these significant accounting estimates and critical accounting policies include : revenue recognition our revenues , which are derived primarily from rental income , include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease . because many of our leases provide for rental increases at specified intervals , straight-line basis accounting requires us to record a receivable , and include in revenues , unbilled rents receivable that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease . when we acquire a property , the acquisition date is considered to be the commencement date for purposes of this calculation . for new leases after acquisition , the commencement date is considered to be the date the tenant takes control of the space . for lease modifications , the commencement date is considered to be the date the lease is executed . we defer the revenue related to lease payments received from tenants in advance of their due dates . we own certain properties with leases that include provisions for the tenant to pay contingent rental income based on a percent of the tenant 's sales upon the achievement of certain sales thresholds or other targets which may be monthly , quarterly or annual targets . as the lessor to the aforementioned leases , we defer the recognition of contingent rental income , until the specified target that triggered the contingent rental income is achieved , or until such sales upon which percentage rent is based are known . contingent rental income is included in rental income on the consolidated statements of operations and comprehensive ( loss ) income . we continually review receivables related to rent and unbilled rents receivable and determine collectability by taking into consideration the tenant 's payment history , the financial condition of the tenant , business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located . in the event that the collectability of a receivable is in doubt , we record an increase in our allowance for uncollectible accounts or record a direct write-off of the receivable in our consolidated statements of operations and comprehensive ( loss ) income . cost recoveries from tenants are included in operating expense reimbursements in our consolidated statements of operations and comprehensive ( loss ) income in the period the related costs are incurred , as applicable . real estate investments investments in real estate are recorded at cost . improvements and replacements are capitalized when they extend the useful life of the asset . costs of repairs and maintenance are expensed as incurred . we evaluate the inputs , processes and outputs of each asset acquired to determine if the transaction is a business combination or asset acquisition . if an acquisition qualifies as a business combination , the related transaction costs are recorded as an expense in the consolidated statements of operations and comprehensive ( loss ) income . if an acquisition qualifies as an asset acquisition , the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets . in business combinations , we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities based on their respective fair values . tangible assets may include land , land improvements , buildings , fixtures and tenant improvements . intangible assets may include the value of in-place leases and above- and below- market leases . in addition , any assumed mortgages receivable or payable and any assumed or issued noncontrolling interests are recorded at their estimated fair values . the fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant , and the `` as-if-vacant '' value is then allocated to the tangible assets based on the fair value of the tangible assets . the fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods , current market conditions , as well as costs to execute similar leases . the fair value of above- or below-market leases is recorded based on the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and our estimate of the fair market lease rate for the corresponding in-place lease , measured over the remaining term of the lease , including any below-market fixed rate renewal options for below-market leases . in allocating the fair value to assumed mortgages , amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows , which is calculated to account for either above or below-market interest rates .
| this increase in rental income was primarily due to $ 2.2 million of incremental income from our 2016 acquisitions , as well as an increase in our 2015-2016 same store rental income of $ 2.5 million as a result of our 2016 leasing activity . these increases were partially offset by a decrease in rental income of $ 1.2 million due to our 2016 disposals . operating expense reimbursements operating expense reimbursement revenue increased $ 0.7 million to $ 12.2 million for the year ended december 31 , 2016 , compared to $ 11.5 million for the year ended december 31 , 2015 . this increase was primarily driven by $ 0.3 million of operating expense reimbursements on our 2016 acquisitions . additionally , we received $ 0.3 million of contractual payments in connection with the sale of our 2016 dispositions . pursuant to certain of our lease agreements , tenants are required to reimburse us for certain property operating expenses , in addition to base rent , whereas under certain other lease agreements , the tenants are directly responsible for all operating costs of the respective properties . interest income from debt investments interest income from debt investments decreased $ 1.0 million to $ 1.1 million for the year ended december 31 , 2016 compared to $ 2.1 million for the year ended december 31 , 2015 . this decrease resulted from our sale of two of our commercial mortgage loans in the first quarter of 2016 , as well as the sale of our commercial mortgage-backed securities during 2015. for the year ended december 31 , 2016 , the average carrying value of our commercial mortgage loans was $ 21.5 million , with a weighted-average yield of 4.57 % . for the year ended december 31 , 2015 , we had commercial mortgage loans with a weighted-average balance of $ 26.7 million and a weighted-average yield of 5.16 % , as well as commercial mortgage-backed securities with a weighted-average balance of $ 9.2 million and a weighted-average yield of 7.09 % .
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we are a holding company for a diagnostic medical device company and a clinical trial company specializing in discovering , developing and commercializing diagnostic medical devices with initial applications in the area of diabetes . the company was organized on december 24 , 2013 under the laws of the state of nevada . due to the corporate tax laws of the united kingdom we have re-organized our corporate structure to provide the continuity of ownership of the common stock for our original incorporator and subsequent investors and protect their tax incentives for long term capital gain . the additional companies which were incorporated were the following : · dermal diagnostics limited , incorporated on january 20 , 2009 was registered to hold the technology relating to the continuous glucose monitoring device and to raise funds for its development . · ndm technologies limited ( `` ndm '' ) , incorporated february 19 , 2010 was created to hold any new intellectual property developed by pharma . all intellectual property that was registered to ndm was assigned to ddl . · trial clinic limited , incorporated january 12 , 2011 was created to manage clinical trials . tcl is 100 % owned by ddhl however , tcl does not have a common shareholder base with nemaura pharma limited . dr. d. f. chowdhury was not a shareholder of trial clinic limited , prior to the acquisition of tcl by ddhl , but is a member of the board of directors of trial clinic limited . affiliated company relationships nemaura pharma ltd. ( `` pharma '' ) was incorporated in november 2005. through october 2013 , all technology development and related transactions were incurred by pharma . as new technology platforms were invented and developed , additional companies were set up to contain these new technology platforms to aid in the process of raising further investments to progress the development of these subsequent technologies . however , due to the small size of the operations , low number of employees and laboratory and office space required , only one payroll was maintained initially . invoices were posted in pharma and recharges were made as required . recharges have included a proportion of the overhead allocated based on management 's assessment . management believes that the allocation methodologies are reasonable and that the costs allocated are not materially different from what they would have been had pharma not been an affiliated entity . dr. d. f chowdhury and mr. bashir timol are officers of pharma . however , pharma is undergoing a management restructuring and a new management team will be in place by the end of 2015. the current management at ddl , including dr. d. f. chowdhury will allocate 15 % of their time to oversee the current operations at pharma and the implementation of the new management team and to provide ongoing support in an advisory role . the current laboratory facility will be split between pharma and ddl , so each will have its own lease agreement and its own independent operating space and facility and equipment . this activity will not lead to any significant expenditure as the facility and equipment already exist and will be merely physically partitioned . pharma is a drug delivery company , which means that its activities are entirely related to the delivery of drugs to the body of a human or animal subject . ddl is a diagnostic company , which means it is entirely focused on extracting molecules from the human or animal subject and analyzing it to make a diagnosis or to monitor the level of a particular molecule such as glucose . these are two independent businesses engaged in different activities , therefore there is no conflict of interest between the two and management does not see any conflicts arising from the allocations of 15 % of ddl management time to overseeing the operations of pharma . for the years ended march 31 , 2015 and 2014 , nemaura pharma paid dr. chowdhury $ 98,320 and $ 48,310 respectively . these payments were solely for work that dr. chowdhury performed for nemaura pharma in his capacity as manager . these amounts have not been recharged to nemaura medical inc. and are not included in our financial statements . 28 results of operations management 's plans and basis of presentation the company has experienced recurring losses and negative cash flows from operations . at march 31 , 2015 , the company had approximate cash balances of $ 355,000 , working capital of $ 644,000 , total stockholders ' deficit of $ 917,000 and an accumulated deficit of $ 4,062,000. to date , the company has in large part relied on equity financing to fund its operations . additional funding has come from grants and related party contributions . the company expects to continue to incur losses from operations for the near-term and these losses could be significant as product development , regulatory activities , clinical trials and other commercial and product development related expenses are incurred . whilst the company believes that its current working capital position will be sufficient to meet its estimated cash needs for the remainder of 2015 and through march 31 , 2016 , nemaura pharma limited , a related company , has agreed to provide a loan facility should this be required to fund our operations through june 30 , 2016. the company continues to explore obtaining additional financing . the company is closely monitoring its cash balances , cash needs and expense levels . story_separator_special_tag management 's strategic assessment includes the following potential options : ● obtaining regulatory approval for the sugarbeat device ; ● pursuing additional capital raising opportunities ; ● exploring licensing opportunities ; and ● developing the sugarbeat device for commercialization . story_separator_special_tag 2015 and through march 31 , 2016 , nemaura pharma limited , a related company , has agreed to provide a loan facility should this be required to fund our operations through june 30 , 2016. in march 2014 we received proceeds of approximately $ 400,000 in connection with the private placement of 20 million shares of our common stock . operating activities net cash consumed by our operating activities for the year ended march 31 , 2015 was $ 1,432,863 which reflected our net loss of $ 1,319,840 and an increase in prepayments and other receivables of $ 407,805 and offset by an increase in accounts payable and accrued expenses of $ 117,226 and $ 170,000 respectively . net cash provided by our operating activities for the year ended march 31 , 2014 was $ 1,504,830 which reflected our net loss of $ 586,233 which was offset by an increase in deferred revenue of $ 1,677,200 and contributed services by a related party of $ 420,401 . 30 net cash used in investing activities was $ 6,740 for the year ended march 31 , 2015 , which reflected the decrease in restricted cash of $ 85,462 and the purchase of intellectual property of $ 76,745 and property and equipment of $ 15,457. net cash used in investing activities was $ 97,889 for the year ended march 31 , 2014 , which reflected the increase in restricted cash of $ 85,462 and the purchase of intellectual property of $ 12,427. for the year to march 31 , 2015 , there were no financing activities . net cash provided by financing activities was $ 265,482 for the year ended march 31 , 2014. net cash provided by financing activities represents proceeds from the issuance of common stock for cash . off-balance sheet arrangements we have no off-balance sheet arrangements , including unrecorded derivative instruments that have or are reasonably likely to have a current or future material effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . future events and their effects can not be determined with absolute certainty . therefore , the determination of estimates requires the exercise of judgment . actual results inevitably will differ from those estimates , and such differences may be material to the financial statements . the most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with research and development , income taxes and intangible assets . the company 's financial position , results of operations and cash flows are impacted by the accounting policies the company has adopted . in order to get a full understanding of the company 's financial statements , one must have a clear understanding of the accounting policies employed . a summary of the company 's critical accounting policies follows : research and development expenses : the company charges research development expenses to operations as incurred . research and development expenses primarily consist of salaries and related expenses for personnel and outside contractor and consulting services . other research and development expenses include the costs of materials and supplies used in research and development , prototype manufacturing , clinical studies , related information technology and an allocation of facilities costs . 31 income taxes : income taxes are accounted for under the asset and liability method . deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases , and operating loss carry forwards . deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled . the effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . a valuation allowance is provided to reduce the carrying amount of deferred income tax assets if it is considered more likely than not that some portion , or all , of the deferred income tax assets will not be realized . the company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained . recognized income tax positions are measured at the largest amount that is greater than 50 % likely of being realized . changes in recognition or measurement are reflected in the period in which the change in judgment occurs . the company has elected to classify interest and penalties related to unrecognized tax benefits as part of income tax expense in the consolidated statements of comprehensive income ( loss ) . intangible assets : intangible assets primarily represent legal costs and filings associated with obtaining patents on the company 's new discoveries . the company amortizes these costs over the shorter of the legal life of the patent or its estimated economic life using the straightline method . the company tests intangible assets with finite lives upon significant changes in the company 's business environment and any resulting impairment charges are recorded at that time . revenue recognition : revenue is recognized when the four basic criteria of revenue recognition are met : ( 1 ) a contractual agreement exists ; ( 2 ) transfer of rights has
| general and administrative expenses increased by $ 292,961 , or 145 % due to consultancy costs associated with our listing on the otcbb and increased salary costs in the company . we expect general and administrative expenses to remain at similar levels going forward in the long term , as there will continue to be professional , consultancy and legal fees associated with planned fundraising . 29 other comprehensive income for the years ended march 31 , 2015 and 2014 other comprehensive income was $ 28,529 and $ 16,122 respectively , arising from foreign currency translation adjustments . liquidity and capital resources we have experienced net losses and negative cash flows from operations since our inception . we have sustained cumulative losses of $ 4,061,730 through march 31 , 2015. we have historically financed our operations through the issuances of equity , uk government grants and contributions of services from related entities . at march 31 , 2015 , the company had net working capital of $ 644,130 which included cash of $ 354,749. the company reported a net loss of $ 1,319,840 for the year ended march 31 , 2015. while our current cash level is sufficient for the completion of the clinical studies and the initial scale up of our manufacturing , our long term business plan is contingent upon our ability to raise additional funds . this may include a combination of debt , equity and licensing fees . if we are not successful in raising the funds needed in the specified timelines , the target dates for the achievement of the milestones will be extended . we believe the cash position as of march 31 , 2015 is adequate for our current level of operations through fiscal year 2016 , and for the achievement of certain of our product development milestones . as discussed below , nemaura pharma has agreed to provide a loan facility should this be required to achieve these goals . our plan is to utilize the cash
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if we were to determine that we will be able to realize deferred tax assets in the future in excess of the net recorded amount , an adjustment to the valuation allowance would increase income in the period such determination was made . likewise , should we determine that we will not be able to realize all or part of our net deferred tax assets in the future , an adjustment to the valuation allowance would decrease income in the period such determination was made . see note 6 of the combined and consolidated financial statements . change in tax laws and tax rates could also affect recorded deferred tax assets and liabilities in the future . we are not aware of any such changes that would have a material effect on our results of operations , cash flows or financial position . - 39 - in addition , the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations . we record tax liabilities for the anticipated settlement of tax audits in the u.s. and other tax jurisdictions based on our estimate of whether , and the extent to which , additional taxes will be due . our income tax expense includes amounts intended to satisfy income tax assessments that result from these audits . determining the income tax expense for these potential assessments and recording the related assets and liabilities requires management judgment and estimates . due to the complexity of some of these uncertainties , the ultimate resolution may result in a payment that is different from our estimate of tax liabilities . if amounts actually paid ultimately prove to be greater or less than the recorded amounts , the change would result in tax expense or benefit being recognized in the period . we have evaluated our uncertain tax positions and believe that our reserve , including related interest and penalties , is adequate . earnings generated by our non-u.s. subsidiaries are deemed to be reinvested outside of the united states indefinitely . accordingly , no provision has been made for u.s. federal and state income taxes on these foreign earnings . upon distribution of those earnings in the form of dividends or otherwise , we would be subject to u.s. income taxes ( subject to an adjustment for foreign tax credits ) , state income taxes , incremental foreign income taxes , and withholding taxes payable to various foreign countries . withholding taxes of approximately $ 19.5 million would be payable upon remittance of all previously unremitted earnings at december 31 , 2011. on july 6 , 2010 , we entered into a tax matters agreement with vishay intertechnology under which vishay intertechnology will be responsible for all income taxes for periods before the date of the spin-off other than those taxes for which a liability was recorded on our books at the time of the spin-off . vishay intertechnology is also principally responsible for managing any income tax audits by the various tax jurisdictions for pre-spin-off periods . we have joint and several liability with vishay intertechnology to multiple tax authorities . however , under the terms of the tax matters agreement , vishay intertechnology has agreed to assume this liability and any similar liability for u.s. federal , state or local and foreign income taxes that are determined on a separate company , consolidated , combined , unitary or similar basis for each taxable period in which vpg was a part of vishay intertechnology 's affiliated group prior to july 6 , 2010 . - 40 - results of operations years ended december 31 , 2011 , 2010 , and 2009 statement of operations ' captions as a percentage of net revenues and the effective tax rates were as follows : replace_table_token_6_th net revenues net revenues were as follows ( dollars in thousands ) : replace_table_token_7_th during the year ended december 31 , 2011 , the increase in revenues when compared to the prior year period was the result of volume increases from all three reporting segments . the fluctuation in foreign currencies also aided the improvement in revenues . during the year ended december 31 , 2010 , our sales volume increased with improving economic conditions . - 41 - gross profit and margins gross profit as a percentage of net revenues was as follows : replace_table_token_8_th for the year ended december 31 , 2011 , the decrease in gross margin percentage when compared to the prior year period was due to increases in variable costs , such as material usage , wage increases and freight and duty costs , product mix , as well as higher fixed manufacturing costs , depreciation and inventory obsolescence . for the year ended december 31 , 2010 , the increase in gross margin percentage when compared to the prior year period reflects manufacturing efficiencies resulting from higher production volume and our fixed cost reduction programs . segments analysis of revenues and gross profit margins for our reportable segments is provided below . foil technology products net revenues of the foil technology products segment were as follows ( dollars in thousands ) : replace_table_token_9_th the volume increase from 2009 to 2010 was largely due to emergence from the global economic recession and represented particularly strong demand from oem and distributor customers . - 42 - gross profit as a percentage of net revenues for the foil technology products segment was as follows : replace_table_token_10_th for the year ended december 31 , 2011 , the decrease in gross margin percentage when compared to the prior year period , was due to increases in variable costs , such as material usage , wages , repairs and maintenance and supplies , as well as higher fixed manufacturing costs , depreciation and inventory obsolescence . included in these higher variable and fixed costs are the costs associated with the start-up of a new pilot story_separator_special_tag if we were to determine that we will be able to realize deferred tax assets in the future in excess of the net recorded amount , an adjustment to the valuation allowance would increase income in the period such determination was made . likewise , should we determine that we will not be able to realize all or part of our net deferred tax assets in the future , an adjustment to the valuation allowance would decrease income in the period such determination was made . see note 6 of the combined and consolidated financial statements . change in tax laws and tax rates could also affect recorded deferred tax assets and liabilities in the future . we are not aware of any such changes that would have a material effect on our results of operations , cash flows or financial position . - 39 - in addition , the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations . we record tax liabilities for the anticipated settlement of tax audits in the u.s. and other tax jurisdictions based on our estimate of whether , and the extent to which , additional taxes will be due . our income tax expense includes amounts intended to satisfy income tax assessments that result from these audits . determining the income tax expense for these potential assessments and recording the related assets and liabilities requires management judgment and estimates . due to the complexity of some of these uncertainties , the ultimate resolution may result in a payment that is different from our estimate of tax liabilities . if amounts actually paid ultimately prove to be greater or less than the recorded amounts , the change would result in tax expense or benefit being recognized in the period . we have evaluated our uncertain tax positions and believe that our reserve , including related interest and penalties , is adequate . earnings generated by our non-u.s. subsidiaries are deemed to be reinvested outside of the united states indefinitely . accordingly , no provision has been made for u.s. federal and state income taxes on these foreign earnings . upon distribution of those earnings in the form of dividends or otherwise , we would be subject to u.s. income taxes ( subject to an adjustment for foreign tax credits ) , state income taxes , incremental foreign income taxes , and withholding taxes payable to various foreign countries . withholding taxes of approximately $ 19.5 million would be payable upon remittance of all previously unremitted earnings at december 31 , 2011. on july 6 , 2010 , we entered into a tax matters agreement with vishay intertechnology under which vishay intertechnology will be responsible for all income taxes for periods before the date of the spin-off other than those taxes for which a liability was recorded on our books at the time of the spin-off . vishay intertechnology is also principally responsible for managing any income tax audits by the various tax jurisdictions for pre-spin-off periods . we have joint and several liability with vishay intertechnology to multiple tax authorities . however , under the terms of the tax matters agreement , vishay intertechnology has agreed to assume this liability and any similar liability for u.s. federal , state or local and foreign income taxes that are determined on a separate company , consolidated , combined , unitary or similar basis for each taxable period in which vpg was a part of vishay intertechnology 's affiliated group prior to july 6 , 2010 . - 40 - results of operations years ended december 31 , 2011 , 2010 , and 2009 statement of operations ' captions as a percentage of net revenues and the effective tax rates were as follows : replace_table_token_6_th net revenues net revenues were as follows ( dollars in thousands ) : replace_table_token_7_th during the year ended december 31 , 2011 , the increase in revenues when compared to the prior year period was the result of volume increases from all three reporting segments . the fluctuation in foreign currencies also aided the improvement in revenues . during the year ended december 31 , 2010 , our sales volume increased with improving economic conditions . - 41 - gross profit and margins gross profit as a percentage of net revenues was as follows : replace_table_token_8_th for the year ended december 31 , 2011 , the decrease in gross margin percentage when compared to the prior year period was due to increases in variable costs , such as material usage , wage increases and freight and duty costs , product mix , as well as higher fixed manufacturing costs , depreciation and inventory obsolescence . for the year ended december 31 , 2010 , the increase in gross margin percentage when compared to the prior year period reflects manufacturing efficiencies resulting from higher production volume and our fixed cost reduction programs . segments analysis of revenues and gross profit margins for our reportable segments is provided below . foil technology products net revenues of the foil technology products segment were as follows ( dollars in thousands ) : replace_table_token_9_th the volume increase from 2009 to 2010 was largely due to emergence from the global economic recession and represented particularly strong demand from oem and distributor customers . - 42 - gross profit as a percentage of net revenues for the foil technology products segment was as follows : replace_table_token_10_th for the year ended december 31 , 2011 , the decrease in gross margin percentage when compared to the prior year period , was due to increases in variable costs , such as material usage , wages , repairs and maintenance and supplies , as well as higher fixed manufacturing costs , depreciation and inventory obsolescence . included in these higher variable and fixed costs are the costs associated with the start-up of a new pilot
| since the spin-off on july 6 , 2010 , we have operated as an independent , publicly traded company , and vishay intertechnology does not retain any ownership interest in us . prior to the fourth quarter of 2011 , vpg had two reporting segments : foil technology products ( the aggregation of our foil resistors and strain gage operating segments ) ; and weighing modules and control systems ( the aggregation of our transducers/load cells and weighing systems operating segments ) . based on our current expectations and in order to improve the reporting transparency of our financial information , we will disclose the results of our operations based on three reporting segments : foil technology products ; force sensors ( operating segment formerly referred to as transducers/load cells ) ; and weighing and control systems ( operating segment formerly referred to as weighing systems ) . this presentation is consistent with management 's approach to reviewing the company 's financial performance and making operating decisions . the foil technology products reporting segment includes precision foil resistors and strain gages . the force sensors reporting segment is comprised of transducers , load cells and modules . the weighing and control systems reporting segment is comprised of instruments , complete systems for process control and on-board weighing applications . net revenues for the year ended december 31 , 2011 were $ 238.1 million versus $ 207.5 million for the prior year period . net earnings for the year ended december 31 , 2011 were $ 10.8 million , or $ 0.78 per diluted share , versus $ 11.7 million , or $ 0.85 per diluted share , for the prior year period . financial metrics we utilize several financial measures and metrics to evaluate the performance and assess the future direction of our business . these key financial measures and metrics include net revenues , gross profit margin , end-of-period backlog , book-to-bill ratio , and inventory turnover . - 32 - gross profit margin is computed as gross profit as a percentage of net revenues . gross profit is generally net revenues less costs of products sold , but could also include certain other period costs . gross profit margin is clearly
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regarding mace , while more events occurred with nbs10 overall versus placebo , a non-significant trend toward fewer events was observed in patients who received higher doses of cells , with mace occurring in 14 % of placebo patients , 17 % of patients who received less than 14 million cells , 10 % of patients who received greater than 14 million cells and 7 % of patients who received greater than 20 million cells . finally , our hypothesis that spect used to measure perfusion could be used as a surrogate marker for the current medically relevant and regulatory endpoints was disproven , giving us valuable direction regarding endpoints and analyses for future clinical trials . we expect to complete the preserve ami study as defined through the final three-year follow-up and , in the meantime , plan to meet with the fda to discuss our results and our proposal for the next step ( s ) in development . finalization of the decision for next steps for nbs10 are expected in the second half of 2015. we also are evaluating other clinical indications that involve 59 index ischemia into which we may advance this program , including critical limb ischemia ( cli ) and congestive heart failure ( chf ) . another platform technology we are developing is designed to utilize regulatory t cells ( tregs ) to treat diseases caused by imbalances in an individual 's immune system . this novel approach seeks to restore immune balance by enhancing treg cell number and function . tregs are a natural part of the human immune system and regulate the activity of t effector cells , the cells that are responsible for protecting the body from viruses and other foreign antigens . when tregs function properly , only harmful foreign materials are attacked by t effector cells . in autoimmune disease , it is thought that deficient treg activity permits the t effector cells to attack the body 's own tissues . we have received a letter from the fda stating that we may proceed on a phase 2 study of nbs03d , a treg based therapeutic being developed to treat type 1 diabetes mellitus ( t1dm ) in adolescents , and we plan to initiate the trial in late 2015 or 2016 depending on resource availability . we are evaluating other clinical indications into which we may advance this program , including graft versus host disease , chronic obstructive pulmonary disease ( copd ) , multiple sclerosis ( ms ) , inflammatory bowel disease ( ibd ) and steroid resistant asthma . finally , we are actively exploring means by which we can take advantage of new regulations in japan that permit conditional approval for regenerative medicine products that show sufficient safety evidence and signals of efficacy . potential indications for this unique opportunity include our targeted cancer immunotherapy program in liver cancer and our ischemic repair program in cli . we believe that cell-based therapies have the potential to create a paradigm change in the treatment for a variety of diseases and conditions and we are evaluating other programs that we view as holding particular promise , including an aesthetics program for a topical skin application and a very small embryonic like ( vsel tm ) stem cell program for the treatment of retinal degeneration , bone restoration and wound healing . through our wholly owned subsidiary , progenitor cell therapy , llc ( pct ) , we are recognized as a world industry leader in providing high quality innovative and reliable manufacturing capabilities and engineering solutions ( e.g . process development ) in the development of cell-based therapies . we operate three current good manufacturing practice ( ccgmp ) facilities in allendale , nj , mountain view , ca and irvine , ca , respectively , and are poised to expand our facilities internationally . in addition to leveraging this core expertise in the development of our own products , we partner opportunistically with other industry leaders who recognize our unique ability to significantly improve their manufacturing processes and supply clinical and commercial material . we look forward to further advancement of our cell based therapies to the market and to helping patients suffering from life-threatening medical conditions . coupling our development expertise with our strong process development and manufacturing capability , we believe the stage is set for us to realize meaningful clinical development or our own proprietary platform technologies and manufacturing advancements , further positioning neostem to lead the cell therapy industry . story_separator_special_tag roman ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > 21 % . the increase is primarily due to increased clinical services costs to support our customer 's process development and clinical manufacturing efforts , as well as additional investment in our internal facilities and capabilities . overall , gross profit for the year ended december 31 , 2014 was $ 2.3 million or 13 % of 2014 revenues , compared to gross profit for the year ended december 31 , 2013 of $ 1.7 million or 12 % of 2013 revenues . gross profit percentages generally will increase as clinical service revenue increases . however , gross profit percentages will also fluctuate from period to period due to the mix of service and reimbursable revenues and costs . research and development expenses were approximately $ 29.2 million for the year ended december 31 , 2014 compared to $ 16.9 million for the year ended december 31 , 2013 , representing an increase of approximately $ 12.4 million , or 73 % . research and development expenses associated with our targeted cancer immunotherapy program , including the initiation of the intus phase 3 clinical trial for our lead immunotherapy product candidate nbs20 , were $ 6.9 million for the year ended december 31 , 2014 . the targeted cancer immunotherapy program was acquired in the csc merger on may 8 , 2014 . story_separator_special_tag research and development expenses related to our ischemic repair program , including expenses associated with the preserve ami phase 2 clinical trial for our product candidate nbs10 , increased by approximately $ 0.2 million for the year ended december 31 , 2014 compared to the prior year period . the increase reflects costs related to evaluating additional potential therapeutic indications in the ischemic repair program , which were partially offset by lower expenses 61 index in the preserve ami phase 2 clinical trial which completed patient enrollment in the fourth quarter of 2013. research and development expenses associated with our immune modulation program increased by approximately $ 4.3 million , and was primarily due to our efforts to develop tregs . we continue to focus efforts on initiating a phase 2 study of nbs03d in type 1 diabetes expected to be initiated in 2015. other research and development expenses associated with engineering and innovation initiatives at pct to improve scale up , automation , and integration capabilities increased during year ended december 31 , 2014 compared to the prior year . equity-based compensation included in research and development expenses for the year ended december 31 , 2014 and december 31 , 2013 were approximately $ 2.1 million and $ 0.8 million , respectively . selling , general and administrative expenses were approximately $ 30.8 million for the year ended december 31 , 2014 compared to $ 21.6 million for the year ended december 31 , 2013 , representing an increase of approximately $ 9.2 million , or 43 % . equity-based compensation included in selling , general and administrative expenses for the year ended december 31 , 2014 was approximately $ 8.7 million , compared to approximately $ 5.7 million for the year ended december 31 , 2013 , representing an increase of $ 3.0 million . the increase in equity-based compensation was due to its broader use during the year ended december 31 , 2014 , and in particular , equity awards issued as a bonus for the successful completion of the csc acquisition . equity-based compensation expense will continue to fluctuate in future years as equity-linked instruments are used to compensate employees , consultants and other service providers . non-equity-based general and administrative expenses for the year ended december 31 , 2014 were approximately 22.1 million , compared to approximately 15.9 million for the year ended december 31 , 2013 . the increase was related to higher corporate development activities , expenses associated with the additional csc operating activities since the acquisition date on may 8 , 2014 , and increased corporate infrastructure to support our expanded clinical activities . historically , to minimize our use of cash , we have used a variety of equity and equity-linked instruments as compensation to employees , consultants , directors and other service providers . the use of these instruments has resulted in charges to the results of operations , which has been significant in the past . other income ( expense ) other income , net for the year ended december 31 , 2014 totaled approximately $ 2.9 million , and primarily represented the decrease in the estimated fair value of our contingent consideration liability associated with potential earn out payments on the net sales of our lead product candidate nbs10 ( in the event of and following the date of first commercial sale of nbs10 ) , which was partially offset by an increase in the fair value of our contingent consideration for potential future milestone payments related to the csc acquisition . other expense , net for the year ended december 31 , 2013 totaled approximately $ 1.6 million , and primarily represented an increase in the estimated fair value of our contingent consideration liability associated with potential earn out payments on the net sales of nbs10 . for the year ended december 31 , 2014 interest expense was $ 0.8 million compared with $ 0.3 million for the year ended december 31 , 2013 . the increase is primarily due to the $ 15.0 million loan from oxford finance llc in september 2014 , which bears an annual interest rate of 8.5 % , amortization of related debt issuance costs , and accretion of the 8 % final payment fee due in september 2018. interest expense in each period also relates to mortgage payables , which were fully repaid in september 2014. provision for income taxes the provision for income taxes for the years ended december 31 , 2014 and december 31 , 2013 primarily relate to the taxable temporary differences on the goodwill recognized in the pct acquisition in 2011 , which is being amortized over 15 years for tax purposes . a tax provision will continue to be recognized each period over the amortization period , and will only reverse when the goodwill is eliminated through a sale , impairment , or reclassification from an indefinite-lived asset to a finite-lived asset . noncontrolling interests in march 2011 , we acquired rights to use patents under licenses from becton , dickinson and company ( `` bd '' ) in exchange for a 19.9 % interest in our athelos subsidiary . pursuant to the stock purchase agreement signed in march 2011 , bd 's ownership will be diluted based on new investment in athelos ( subject to certain anti-dilution provisions ) . as of december 31 , 2014 , bd 's ownership interest in athelos was decreased to 3.8 % . for the years ended december 31 , 2014 and 2013 , bd 's minority shareholder 's share of athelos ' net loss totaled approximately $ 0.6 million and $ 0.5 million , respectively . 62 index year ended december 31 , 2013 compared to year ended december 31 , 2012 net loss for the year ended december 31 , 2013 was approximately $ 39.5 million compared to $ 66.4 million for the year ended december 31 , 2012 . our net losses from continuing operations for the year ended december 31 , 2013 and 2012 were approximately $ 39.5 million and $ 36.1 million , respectively .
| as of december 31 , 2014 , approximately $ 3.9 million process development revenue has been deferred to future periods for contracts that have been initiated but not yet completed . this revenue will be recognized in future periods upon completion of those contracts . process development revenue will continue to fluctuate from period to period as a result of this revenue recognition policy . ◦ clinical manufacturing revenue - clinical manufacturing revenues were approximately $ 6.4 million for the year ended december 31 , 2014 , compared to $ 7.0 million for the year ended december 31 , 2013 . the decrease is primarily due to lower enrollment of patients being treated in our customers ' clinical trials . clinical services reimbursables , representing reimbursement of expenses for certain consumables incurred on behalf of our clinical service revenue clients , were approximately $ 3.7 million for the year ended december 31 , 2014 compared to $ 2.1 million for the year ended december 31 , 2013 , representing an increase of approximately $ 1.6 million or 79 % . generally , clinical services reimbursables correlate with clinical services revenues . however , differences in the cost of supplies to be reimbursed can vary greatly from contract to contract based on the cost of supplies needed for each client 's manufacturing and development process , and may impact this correlation . in addition , our terms for billing reimbursable expenses do not include a significant mark up in the acquisition cost of such consumables , and as a result , changes in this revenue category have little impact on our gross profit and net loss . processing and storage services , primarily representing revenues from our oncology stem cell processing , were approximately $ 3.8 million for the year ended december 31 , 2014 compared to $ 3.4 million for the year ended december 31 , 2013 , representing an increase of approximately $ 0.3 million or 10 % . the increase is primarily due to increased volume
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such statements are based on current expectations subject to uncertainties and other factors which may involve known and unknown risks that could cause actual results of operations to differ materially from those projected or implied . further , certain forward-looking statements are based upon assumptions about future events which may not prove to be accurate . risks and uncertainties inherent in forward looking statements include , but are not limited to , the partnership 's future cash flows and ability to obtain sufficient financing , level of operating expenses , conditions in the low income housing tax credits property market and the economy in general , as well as legal proceedings . historical results are not necessarily indicative of the operating results for any future period . subsequent written and oral forward looking statements attributable to the partnership or persons acting on its behalf are expressly qualified in their entirety by cautionary statements in this form 10-k and in other reports filed with the sec . the following discussion should be read in conjunction with the financial statements and the notes thereto included elsewhere in this filing . critical accounting policies and certain risks and uncertainties the partnership believes that the following discussion addresses the partnership 's most significant accounting policies , which are the most critical to aid in fully understanding and evaluating the partnership 's reported financial results , and certain of the partnership 's risks and uncertainties . use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america 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 materially differ from those estimates . method of accounting for investments in local limited partnerships the partnership accounts for its investments in local limited partnerships using the equity method of accounting , whereby the partnership adjusts its investment balance for its share of the local limited partnerships ' results of operations and for any contributions made and distributions received . the partnership reviews the carrying amount of an individual investment in a local limited partnership for possible impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of such investment may not be recoverable . recoverability of such investment is measured by the estimated value derived by management , generally consisting of the product of the remaining future low income housing tax credits estimated to be allocable to the partnership and the estimated residual value to the partnership . if an investment is considered to be impaired , the partnership reduces the carrying value of its investment in any such local limited partnership . the accounting policies of the local limited partnerships , generally , are expected to be consistent with those of the partnership . costs incurred by the partnership in acquiring the investments are capitalized as part of the investment account and were being amortized over 30 years ( see notes 2 and 3 to the financial statements ) . “ equity in losses of local limited partnerships ” for each year ended march 31 has been recorded by the partnership based on the twelve months of reported results provided by the local limited partnerships for each year ended december 31. equity in losses of local limited partnerships allocated to the partnership is not recognized to the extent that the investment balance would be adjusted below zero . if the local limited partnerships reported net income in future years , the partnership will resume applying the equity method only after its share of such net income equals the share of net losses not recognized during the period ( s ) the equity method was suspended ( see note 2 ) . distributions received from the local limited partnerships are accounted for as a reduction of the investment balance . distributions received after the investment has reached zero are recognized as distribution income . 20 in accordance with the accounting guidance for the consolidation of variable interest entities , the partnership determines when it should include the assets , liabilities , and activities of a variable interest entity ( vie ) in its financial statements , and when it should disclose information about its relationship with a vie . the analysis that must be performed to determine which entity should consolidate a vie focuses on control and economic factors . a vie is a legal structure used to conduct activities or hold assets , which must be consolidated by a company if it is the primary beneficiary because it has ( 1 ) the power to direct the activities of the vie that most significantly impact the vie 's economic performance and ( 2 ) the obligation to absorb losses or receive benefits that could potentially be significant to the vie . if multiple unrelated parties share such power , as defined , no party will be required to consolidate the vie . further , the guidance requires continual reconsideration of the primary beneficiary of a vie . based on this guidance , the local limited partnerships in which the partnership invests meet the definition of a vie because the owners of the equity at risk in these entities do not have the power to direct their operations . story_separator_special_tag however , management does not consolidate the partnership 's interests in these vies , as it is not considered to be the primary beneficiary since it does not have the power to direct the activities that are considered most significant to the economic performance of these entities . the partnership currently records the amount of its investment in these local limited partnerships as an asset on its balance sheets , recognizes its share of partnership income or losses in the statements of operations , and discloses how it accounts for material types of these investments in its financial statements . the partnership 's balance in investment in local limited partnerships , plus the risk of recapture of tax credits previously recognized on these investments , represents its maximum exposure to loss . the partnership 's exposure to loss on these local limited partnerships is mitigated by the condition and financial performance of the underlying housing complexes as well as the strength of the local general partners and their guarantee against credit recapture to the investors in the partnership . income taxes the partnership has elected to be treated as a pass-through entity for income tax purposes and , as such , is not subject to income taxes . rather , all items of taxable income , deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns . the partnership 's federal tax status as a pass-through entity is based on its legal status as a partnership . accordingly , the partnership is not required to take any tax positions in order to qualify as a pass-through entity . the partnership is required to file and does file tax returns with the internal revenue service and other taxing authorities . accordingly , these financial statements do not reflect a provision for income taxes and the partnerships has no other tax positions which must be considered for disclosure . income tax returns filed by the partnership are subject to examination by the internal revenue service for a period of three years . while no income tax returns are currently being examined by the internal revenue service , tax years since 2014 remain open . impact of recent accounting pronouncements in january 2014 , the fasb issued an amendment to the accounting and disclosure requirements for investments in qualified affordable housing projects . the amendments provide guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit . the amendments permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met . under the proportional amortization method , an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received , and recognize the net investment performance in the income statement as a component of income tax expense ( benefit ) . the amendments are effective for interim and annual periods beginning after december 15 , 2014 and should be applied retrospectively to all periods presented . early adoption is permitted . the adoption of this update did not materially affect the partnership 's financial statements . in february 2015 , the fasb issued asu no . 2015-02 , “ consolidation ( topic 810 ) : amendments to the consolidation analysis ” . in addition , in october 2016 , the fasb issued asu no . 2016-17 , “ consolidation ( topic 810 ) : interests held through related parties that are under common control ” , to provide further clarification guidance to asu no . 2015-02. this will improve certain areas of consolidation guidance for reporting organizations that are required to evaluate whether to consolidate certain legal entities such as limited partnerships , limited liability corporations and securitization structures . asu 2015-02 and asu 2016-17 simplifies and improves gaap by : eliminating the presumption that a general partner should consolidate a limited partnership , eliminating the indefinite deferral of fasb statement no . 167 , thereby reducing the number of variable interest entity ( vie ) consolidation models from four to two ( including the limited partnership consolidation model ) and clarifying when fees paid to a decision maker should be a factor to include in the consolidation of vies . asu 2015-02 is effective for periods beginning after december 15 , 2015. asu 2016-17 is effective for periods beginning after december 15 , 2016. the adoption of these updates did not materially affect the partnership 's financial statements . 21 certain risks and uncertainties see item 1a for a discussion of risks regarding the partnership . to date , certain local limited partnerships have incurred significant operating losses and have working capital deficiencies . in the event these local limited partnerships continue to incur significant operating losses , additional capital contributions by the partnership and or the local general partners may be required to sustain the operations of such local limited partnerships . if additional capital contributions are not made when they are required , the partnership 's investment in certain of such local limited partnerships could be lost , and the loss and recapture of the related low income housing tax credits could occur . anticipated future and existing cash resources of the partnership are not sufficient to pay existing liabilities of the partnership . however , substantially all of the existing liabilities of the partnership are payable to the general partner and or its affiliates . though the amounts payable to the general partner and or its affiliates are contractually currently payable , the partnership anticipates that the general partner and or its affiliates will not require the payment of these contractual obligations until capital reserves are in excess of the aggregate of then existing contractual obligations and then anticipated future foreseeable obligations of
| the partnership received $ 6,000 as payment for principal and interest previously reserved on the note due from an affiliate from one local limited partnership during the year ended march 31 , 2017 compared to no payment received during the year ended march 31 , 2018. other expenses increased by $ 5,000 during the year ended march 31 , 2018 , due mainly to professional expenses incurred during the year ended march 31 , 2018. year ended march 31 , 2017 compared to year ended march 31 , 2016 the partnership 's net income for the year ended march 31 , 2017 was $ 110,000 , reflecting a decrease of $ 13,000 from the net income of $ 123,000 experienced for the year ended march 31 , 2016. the change was partially due to a gain on sale of local limited partnerships of $ 99,000 for the year ended march 31 , 2017 compared to $ 50,000 recorded during the year ended march 31 , 2016. the gain recorded by the partnership can vary depending on the sales prices and values of the housing complexes that are sold . legal and accounting fees increased by $ 31,000 for the year ended march 31 , 2017 due to the timing of the work performed . asset management fees decreased by $ 7,000 during the year ended march 31 , 2017. the fees are calculated based on the value of invested assets , which decreased due to the sales of local limited partnerships . the partnership received $ 107,000 in distribution income and reporting fees from local limited partnerships during the year ended march 31 , 2017 compared to $ 144,000 received during the year ended march 31 , 2016. distributions and reporting fees vary depending on when the local limited partnerships ' cash flows will allow for the payment . the partnership received $ 6,000 as payment for principal and interest previously reserved on the note due from an affiliate from one local limited partnership during the year ended march 31 , 2017 compared to $ 17,000 received during the year ended march 31 , 2016. write off of other expenses increased by $ 2,000 during the year ended march 31 , 2017 compared to the year ended march 31 , 2016. capitalized costs from potential disposition of local limited partnerships were
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- 42 - on february 22 , 2016 , hfc obtained a 50 % membership interest in osage pipe line company , llc ( “ osage ” ) in a non-monetary exchange for a 20-year terminalling services agreement , whereby , a subsidiary of magellan midstream partners ( “ magellan ” ) will provide terminalling services for all hfc products originating in artesia , new mexico that require terminalling in or through el paso , texas . osage is the owner of the osage pipeline , a 135-mile pipeline that transports crude oil from cushing , oklahoma to hfc 's el dorado refinery in kansas and also has a connection to the jayhawk pipeline that services the chs refinery in mcpherson , kansas . the osage pipeline is the primary pipeline that supplies hfc 's el dorado refinery with crude oil . concurrent with this transaction , we entered into a non-monetary exchange with hfc , whereby we received hfc 's interest in osage in exchange for our el paso terminal . under this exchange , we have also agreed to build two connections on our south products pipeline system that will permit hfc access to magellan 's el paso terminal . effective upon the closing of this exchange , we are the named operator of the osage pipeline and are working to transition into that role . we are a consolidated variable interest entity of hfc . therefore , this transaction will be recorded as a transfer between entities under common control and reflect hfc 's carrying basis of its 50 % membership interest in osage as well as our carrying basis in the el paso terminal . agreements with hfc and alon we serve hfc 's refineries under long-term pipeline , terminal , tankage and refinery processing unit throughput agreements expiring from 2019 to 2030. under these agreements , hfc agrees to transport , store , and process throughput volumes of refined product , crude oil and feedstocks on our pipelines , terminal , tankage , loading rack facilities and refinery processing units that result in minimum annual payments to us . these minimum annual payments or revenues are subject to annual rate adjustments on july 1st each year based on the ppi or ferc index . as of december 31 , 2015 , these agreements with hfc require minimum annualized payments to us of $ 257.6 million . if hfc fails to meet its minimum volume commitments under the agreements in any quarter , it will be required to pay us the amount of any shortfall in cash by the last day of the month following the end of the quarter . under certain of the agreements , a shortfall payment may be applied as a credit in the following four quarters after minimum obligations are met . we have a pipelines and terminals agreement with alon expiring in 2020 under which alon has agreed to transport on our pipelines and throughput through our terminals volumes of refined products that result in a minimum level of annual revenue that is also subject to annual tariff rate adjustments . we also have a capacity lease agreement under which we lease alon space on our orla to el paso pipeline for the shipment of refined product . the terms under this lease agreement expire beginning in 2018 through 2022. as of december 31 , 2015 , these agreements with alon will require minimum annualized payments to us of $ 33.3 million . a significant reduction in revenues under these agreements could have a material adverse effect on our results of operations . under certain provisions of an omnibus agreement that we have with hfc ( “ omnibus agreement ” ) , we pay hfc an annual administrative fee ( $ 2.4 million in 2015 and currently $ 2.5 million ) , for the provision by hfc or its affiliates of various general and administrative services to us . this fee does not include the salaries of personnel employed by hfc who perform services for us on behalf of holly logistic services , l.l.c . ( “ hls ” ) or the cost of their employee benefits , which are separately charged to us by hfc . we also reimburse hfc and its affiliates for direct expenses they incur on our behalf . under hls 's secondment agreement with hfc , certain employees of hfc are seconded to hls to provide operational and maintenance services for certain of our processing , refining , pipeline and tankage assets at the el dorado and cheyenne refineries , and hls reimburses hfc for its prorated portion of the wages , benefits , and other costs of these employees for our benefit . we have a long-term strategic relationship with hfc . our current growth plan is to continue to pursue purchases of logistic and other assets at hfc 's existing refining locations in new mexico , utah , oklahoma , kansas and wyoming . we also expect to work with hfc on logistic asset acquisitions in conjunction with hfc 's refinery acquisition strategies . furthermore , we plan to continue to pursue third-party logistic asset acquisitions that are accretive to our unitholders and increase the diversity of our revenues . - 43 - results of operations income , distributable cash flow and volumes the following tables present income , distributable cash flow and volume information for the years ended december 31 , 2015 , 2014 and 2013 . replace_table_token_12_th - 44 - replace_table_token_13_th - 45 - ( 1 ) net income attributable to hep is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement . hep net income allocated to the general partner includes incentive distributions that are declared subsequent to quarter end . after the amount of incentive distributions is allocated to the general partner , the remaining net income attributable to hep is allocated to the partners based on their weighted average ownership percentage during the period . story_separator_special_tag ( 2 ) earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) is calculated as net income attributable to holly energy partners plus ( i ) interest expense , net of interest income and loss on early extinguishment of debt , ( ii ) state income tax and ( iii ) depreciation and amortization . ebitda is not a calculation based upon generally accepted accounting principles ( “ gaap ” ) . however , the amounts included in the ebitda calculation are derived from amounts included in our consolidated financial statements . ebitda should not be considered as an alternative to net income attributable to holly energy partners or operating income , as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity . ebitda is not necessarily comparable to similarly titled measures of other companies . ebitda is presented here because it is a widely used financial indicator used by investors and analysts to measure performance . ebitda is also used by our management for internal analysis and as a basis for compliance with financial covenants . see our calculation of ebitda under item 6 , “ selected financial data. ” ( 3 ) distributable cash flow is not a calculation based upon gaap . however , the amounts included in the calculation are derived from amounts presented in our consolidated financial statements , with the general exceptions of a billed crude revenue settlement and maintenance capital expenditures . distributable cash flow should not be considered in isolation or as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity . distributable cash flow is not necessarily comparable to similarly titled measures of other companies . distributable cash flow is presented here because it is a widely accepted financial indicator used by investors to compare partnership performance . it is also used by management for internal analysis and for our performance units . we believe that this measure provides investors an enhanced perspective of the operating performance of our assets and the cash our business is generating . see our calculation of distributable cash flow under item 6 , “ selected financial data. ” results of operations — year ended december 31 , 2015 compared with year ended december 31 , 2014 story_separator_special_tag increase in earnings is due principally to higher pipeline and terminal volumes and annual tariff increases , as well as decreased interest expense due to the early retirement of our 8.25 % senior notes in march 2014. revenues for the year ended december 31 , 2014 , include the recognition of $ 12.0 million of prior shortfalls billed to shippers in 2013. as of december 31 , 2014 , deferred revenue on our consolidated balance sheet related to shortfalls billed was $ 9.3 million . such deferred revenue will be recognized in earnings either as ( a ) payment for shipments in excess of guaranteed levels , if and to the extent the pipeline system will have the necessary capacity to provide for shipments in excess of guaranteed levels , or ( b ) when shipping rights expire unused over the contractual make-up period . - 47 - revenues total revenues for the year ended december 31 , 2014 , were $ 332.5 million , a $ 27.4 million increase compared to the year ended december 31 , 2013. the revenue increase was due to the effect of annual tariff increases , increased pipeline shipments and a $ 4.2 million increase in previously deferred revenue realized . overall pipeline volumes were up 13 % compared to the year ended december 31 , 2013 , largely due to low volumes in 2013 resulting from a major maintenance turnaround at hfc 's navajo refinery in the first quarter of 2013 as well as the reduced crude throughput at hfc 's navajo refinery during the fourth quarter of 2013. revenues from our refined product pipelines were $ 121.2 million , an increase of $ 13.0 million compared to the year ended december 31 , 2013 , primarily due to increased volumes and the effect of a $ 2.1 million increase in deferred revenue realized . shipments averaged 183.2 thousand barrels per day ( “ mbpd ” ) compared to 170.8 mbpd for 2013. revenues from our intermediate pipelines were $ 29.8 million , an increase of $ 4.4 million on shipments averaging 138.3 mbpd compared to 128.5 mbpd for the year ended december 31 , 2013. the increase in revenue is due to the effects of a $ 2.2 million increase in deferred revenue realized and increased volumes on intermediate pipeline segments . revenues from our crude pipelines were $ 56.8 million , an increase of $ 8.1 million on shipments averaging 199.6 mbpd compared to 161.4 mbpd for the year ended december 31 , 2013. revenues increased due to the annual tariff increases and higher volumes resulting from the new mexico gathering system expansion . in addition , volumes were lower in 2013 due to the turnaround at hfc 's navajo refinery and the fourth quarter 2013 processing constraints at hfc 's navajo refinery . revenues from terminal , tankage and loading rack fees were $ 124.7 million , an increase of $ 1.9 million compared to the year ended december 31 , 2013. the increase in revenues is due principally to increased volumes . refined products terminalled in our facilities increased to an average of 331.0 mbpd compared to 318.9 mbpd for 2013. operations expense operations expense for the year ended december 31 , 2014 , increased by $ 5.4 million compared to the year ended december 31 , 2013. this increase is due to higher maintenance costs and environmental accruals . depreciation and amortization depreciation and amortization for the year ended december 31 , 2014 , decreased by $ 3.3 million compared to the year ended december 31 , 2013 , due principally to lower asset abandonment charges related to tankage permanently removed from service .
| revenues from our refined product pipelines were $ 132.3 million , an increase of $ 11.1 million compared to the year ended december 31 , 2014 , primarily due to increased volumes and annual tariff increases . shipments averaged 197.6 thousand barrels per day ( “ mbpd ” ) compared to 183.2 mbpd for 2014 , largely due to higher spot volumes on our unev pipeline and increased volumes from hfc 's navajo refinery as well as lower volumes in the second quarter of 2014 resulting from major maintenance at alon 's big spring refinery . revenues from our intermediate pipelines were $ 28.9 million , a decrease of $ 0.9 million on shipments averaging 142.5 mbpd compared to 138.3 mbpd for the year ended december 31 , 2014 . the decrease in revenue is due to the effects of a $ 1.9 million decrease in deferred revenue realized offset by increased volumes and annual tariff increases . - 46 - revenues from our crude pipelines were $ 67.1 million , an increase of $ 10.3 million on shipments averaging 291.5 mbpd compared to 199.6 mbpd for the year ended december 31 , 2014 . revenues increased due to the annual tariff increases and $ 5.8 million in increased revenue from the new mexico gathering system expansion completed in 2014. revenues from terminal , tankage and loading rack fees were $ 127.6 million , an increase of $ 2.9 million compared to the year ended december 31 , 2014 . the increase in revenues is due to annual fee increases and increased volumes . refined products terminalled in our facilities increased to an average of 357.5 mbpd compared to 331.0 mbpd for 2014 , largely due to higher volumes at our unev and el paso terminals as well as our cheyenne and tulsa loading racks . operations expense operations expense for the year ended december 31 , 2015 , decreased by $ 1.5 million compared to the year ended december 31 , 2014 . this decrease is primarily due to lower
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variations from estimated contract costs along with other risks inherent in fixed price contracts ( including but not limited to contract performance ) may result in actual revenue and gross profits differing from those we estimated and could result in losses on projects . if a current estimate of total contract cost indicates a loss on a contract , the projected loss is recognized in full when determined , without regard to the percentage of completion . we consider unapproved change orders to be contract variations on which we have customer approval for scope change , but not for price associated with that scope change . these costs are included in the estimated cost to complete the contracts and are expensed as incurred . we recognize revenue equal to cost incurred on unapproved change orders when realization of price approval is probable and the estimated amount is equal to or greater than our cost related to the unapproved change order and the related margin when the change order is formally approved by the customer . revenue recognized on unapproved change orders is included in contract costs and estimated earnings in excess of billings on uncompleted contracts on the balance sheet . we consider claims to be amounts that we seek or will seek to collect from customers or others for customer-caused changes in contract specifications or design , or other customer-related causes of unanticipated additional contract costs on which there is no agreement with customers on both scope and price changes . revenue from claims is recognized when agreement is reached with customers as to the value of the claims , which in some instances may not occur until after completion of work under the contract . costs associated with claims are included in the estimated costs to complete the contracts and are expensed when incurred . depending on the size of a particular project , variations from estimated project costs could have a significant impact on our operating results for any fiscal quarter or year . we believe our exposure to losses on fixed price contracts is limited by the relatively short duration of the contracts we undertake and our management 's experience in estimating contract costs . long-lived assets our long-lived assets consist primarily of equipment used in our operations . fixed assets are carried at cost and are depreciated over their estimated useful lives , ranging from one to thirty years , using the straight-line method for financial reporting purposes and accelerated methods for tax reporting purposes . the carrying value of our long-lived assets is evaluated periodically based on utilization of the asset and physical condition of the asset , as well as the useful life of the asset to determine if adjustment to the depreciation period or the carrying value is warranted . if events and circumstances such as poor utilization or deteriorated physical condition indicate that the asset ( s ) should be reviewed for possible impairment , we use projections to assess whether future cash flows , including disposition , on a non-discounted basis related to the tested assets are likely to exceed the recorded carrying amount of those assets to determine if an impairment exists . if we identify a potential impairment , we will estimate the fair value of the asset through known market transactions of similar equipment and other valuation techniques , which could include the use of similar projections on a discounted basis . we will report a loss to the extent that the carrying value of the impaired assets exceeds their fair values . goodwill we have acquired businesses and assets in purchase transactions that resulted in the recognition of goodwill . in accordance with us gaap , acquired goodwill is not amortized , but is subject to impairment testing at least annually or more frequently if events or circumstances indicate that the asset more likely than not may be impaired . goodwill recorded on our consolidated balance sheets is subject to impairment testing at least annually or more frequently if events or circumstances indicate that the asset more likely than not may be impaired . in 2013 , based on our continuing consolidation efforts and changes in our internal management structure , we re-evaluated our operating segments and allocation of goodwill , and determined that we have one operating segment and reporting unit , based on our heavy civil marine construction business . therefore , in 2013 , goodwill was tested based on a single reporting unit as of the testing date . we believe this matches the way our business is managed , which is discussed further in item 1. business , above . at december 31 , 2013 , goodwill totaled $ 33.8 million . 28 we assess the fair value of our reporting unit based on a weighted average of valuations based on market multiples , discounted cash flows , and consideration of our market capitalization . the key assumptions used in the discounted cash flow valuations are discount rates and perpetual growth rates applied to cash flow projections . also inherent in the discounted cash flow valuation models are past performance , projections and assumptions in current operating plans , and revenue growth rates over the next five years . these assumptions contemplate business , market and overall economic conditions . we also consider assumptions that market participants may use . as required by the company 's policy , annual impairment assessments and testing of goodwill are performed during the fourth quarter of each year or when circumstances arise that indicate a possible impairment might exist . based on this testing , we determined that the estimated fair value of our reporting unit exceeded its respective carrying values as of october 31 , 2013 , goodwill was not impaired , and no events have occurred since that date that would require an interim impairment test . story_separator_special_tag in the future , our estimated fair value could be negatively impacted by extended declines in our stock price , changes in macroeconomic indicators , sustained operating losses , and other factors which may affect our assessment of fair value . income taxes we account for income taxes using the liability method prescribed by us gaap . we evaluate valuation allowances for deferred tax assets for which future realization is uncertain . the estimation of required valuation allowance includes estimates of future taxable income . in our assessment of our deferred tax assets at december 31 , 2013 , we considered that it was more likely than not that all of the deferred tax assets would be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . we consider the scheduled reversal of deferred tax liabilities , projected future taxable income and tax planning strategies in making this assessment . the company accounts for uncertain tax positions in accordance with the provisions asc 740-10 , which prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken , or expected to be taken , on our consolidated tax return . we evaluate and record any uncertain tax positions based on the amount that management deems is more likely than not to be sustained upon ultimate settlement with the tax authorities in the tax jurisdictions in which we operate . insurance coverage , litigation , claims and contingencies we maintain insurance coverage for our business and operations . insurance related to property , equipment , automobile , general liability and a portion of workers ' compensation is provided through traditional policies , subject to a deductible . a portion of our workers ' compensation exposure is covered through a mutual association , which is subject to supplemental calls . the company maintains two levels of excess loss insurance coverage , totaling $ 100 million in excess of primary coverage , which excess loss coverage responds to most of the company 's liability policies . the company 's excess loss coverage responds to most of its policies when a primary limit of $ 1 million has been exhausted ; provided that the primary limit for maritime employer 's liability is $ 10 million and the watercraft pollution policy primary limit is $ 5 million . we have elected to retain a portion of losses that may occur through the use of various deductibles , limits and retentions under our insurance programs . losses on these policies up to the deductible amounts are accrued in our consolidated financial statements based on known claims incurred and an estimate of claims incurred but not yet reported . we derive our accruals from known facts , historical trends and industry averages to determine the best estimate of the ultimate expected loss . actual claims may vary from our estimate . we include any adjustments to such reserves in our consolidated results of operations in the period in which they become known . accounting for stock issued to employees and others we measure the cost of equity compensation to our employees based on the estimated grant-date fair value of the award and recognize the expense over the vesting period . we use the black-scholes option pricing model to compute the fair value of the awards of options . the black-scholes model requires the use of highly subjective assumptions in the computation . changes in these assumptions can cause significant fluctuations in the fair value of the option award . our independent directors receive annual grants of stock , which are measured by the mean price of our stock on the day of grant . story_separator_special_tag on hand of $ 40.9 million . availability under our revolving credit facility is subject to a borrowing base , which did not affect our ability to fully utilize our facility . our borrowing availability at december 31 , 2013 was approximately $ 34.3 million . we expect to meet our future internal liquidity and working capital needs , and maintain our equipment fleet through capital expenditure purchases and major repairs , from funds generated by our operating activities for at least the next 12 months . we believe our cash position is adequate for our general business requirements discussed above and to service our debt . the following table provides information regarding our cash flows and our capital expenditures for the years ending december 31 2013 , 2012 and 2011 : replace_table_token_8_th operating activities . during 2013 , our operations provided approximately $ 13.0 million in net cash inflows , as compared with cash provided by operations in the prior year period of $ 24.4 million . the decrease in cash inflows from operations of $ 11.5 million between periods was related to : net outflow of cash of $ 13.8 million between periods related to : ◦ an increase in billings to and payments from customers for costs that can not be billed , or ◦ receipt of payments for items such as mobilization at project commencement ; receipt of $ 14.1 million in cash in 2012 related to the carryback of current operating losses to prior year tax returns ; in 2013 the company received $ 2.7 million related to federal tax carrybacks , and $ 0.4 million related to state refunds . changes in other working capital components , including trade payables , which are related to the composition of projects in process , and which resulted in a net outflow of cash between 2013 and 2012 of $ 30.3 million changes in non-cash components of approximately $ 1.0 million , primarily related to the disposal of assets in the prior year .
| revenues generated from private customers grew from 51 % of our total revenues in 2012 to 57 % in 2013. this totaled approximately $ 203.5 million generated from private customers , or an increase of 27.6 % from the prior year . gradual improvement in the economy resulted in additional capital spending by private customers , including those in the petrochemical industry . contract revenue generated from public sector customers represented 43 % of total revenue in the year , or approximately $ 151 million , as compared with 49 % during 2012. continued budget uncertainties by the us army corps of engineers have resulted in uneven project lettings . gross profit . gross profit was $ 32.0 million in the twelve month period ended december 31 , 2013 , an increase of $ 17.5 million compared with 2012 , primarily related to better utilization of our resources , including equipment , as well to pockets of pricing improvement and the realization of certain costs savings on jobs in progress or nearing completion . gross margin in 2013 was 9.0 % as compared to 5.0 % in the prior year period . as measured by cost , our self-performance rate was 84 % during 2013 , as compared with 83 % in the prior year period . the increase in self-performance is reflective of the scope and requirements of jobs in progress , and reflected a slight decrease in our reliance on third party subcontractors during the year . selling , general and administrative expense . selling , general and administrative ( `` sg & a '' ) expenses were $ 32.1 million , an increase of $ 3.5 million , or 12.6 % , as compared with the prior year period . the increase is due to staffing and overhead resulting from expansion into alaska in 2012 , to the recording of bonuses payable to non-executives , to an increase in our estimates for group health insurance , and to an increase in bad debt related to a single job
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further , because most of our revenues are from a single type of technology , our product concentration may make us especially vulnerable to market demand and competition from other technologies , which could reduce our revenues . the implementation cycles for our software and services by our channel partners and customers can be lengthy , often a minimum of three to six months and sometimes longer for larger customers , and require significant investments . for example , as of september 30 , 2014 , we executed agreements indirectly through channel partners or directly with customers covering 3,026 mobile deposit ® customers , 2,521 of whom have completed implementation and launched mobile deposit ® to their customers . if implementation of our products by our channel partners and customers is delayed or otherwise not completed , our business , financial condition and results of operations may be adversely affected . we derive revenue predominately from the sale of licenses to use the products covered by our patented technologies , such as our mobile deposit ® product , and to a lesser extent by providing maintenance and professional services for the products we offer . the revenue we derive from the sale of such licenses is primarily derived from the sale to our channel partners of licenses to sell the applications we offer . revenues related to most of our licenses for mobile products are required to be recognized up front upon satisfaction of all applicable revenue recognition criteria . the recognition of future revenues from these licenses is dependent upon a number of factors , including , but not limited to , the term of our license agreements , the timing of implementation of our products by our channel partners and customers and the timing of any re-orders of additional licenses and or license renewals by our channel partners and customers . during each of the last few years , sales of licenses to one or more channel partners have comprised a significant part of our revenue each year . this is attributable to the timing of renewals or purchases of licenses and does not represent a dependence on any single channel partner . if we were to lose a channel partner relationship , we do not believe such a loss would adversely affect our operations because either we or another channel partner could sell our products to the end-user that had purchased products from the channel partner we lost . however , in that case , we or another channel partner must establish a relationship with the end-users , which could take time to develop , if it develops at all . we have a growing number of competitors in the mobile imaging industry , many of which have greater financial , technical , marketing and other resources . however , we believe our patented imaging and analytics technology , our growing portfolio of products for the financial services industry and our market leadership give us a distinct competitive advantage . to remain competitive , we must continue to offer products that are attractive to the consumer as well as being secure , accurate and convenient . to help us remain competitive , we intend to continue to strengthen our portfolio of products through research and development as well as partnering with other technology providers . 23 results of operations comparison of the year ended september 30 , 2014 and 2013 the following table summarizes certain aspects of our results of operations for the year ended september 30 , 2014 compared to the year ended september 30 , 2013 ( in thousands , except percentages ) : replace_table_token_4_th revenue total revenue increased $ 4,347,160 , or 29 % , to $ 19,150,345 in 2014 compared to $ 14,803,185 in 2013. the increase was primarily due to an increase in sales of software licenses of $ 2,596,024 , or 24 % , to $ 13,312,529 in 2014 compared to $ 10,716,505 in 2013. the increase in software license revenue primarily relates to increases in sales of our mobile deposit ® product due to an increase in the number of large software licenses purchased by partners and customers and the timing of license renewals in 2014 compared to 2013. maintenance and professional services revenue increased $ 1,751,136 , or 43 % , to $ 5,837,816 in 2014 compared to $ 4,086,680 in 2013 primarily due to the sale of additional software license arrangements , which typically include recurring maintenance contracts as well as additional professional services engagements related to implementation assistance for our products . cost of revenue cost of revenue includes the costs of royalties for third party products embedded in our products , the cost of reproduction of compact discs and other media devices and shipping costs , and personnel costs and overhead related to software support and billable professional services engagements . cost of revenue increased $ 544,326 , or 34 % , to $ 2,147,925 in 2014 compared to $ 1,603,599 in 2013. the increase in cost of revenue is primarily due to the increase in revenue and increased professional services activity on billable engagements . as a percentage of revenue , cost of revenue remained consistent at 11 % in 2014 compared to 2013. selling and marketing expenses selling and marketing expenses include payroll , employee benefits and other headcount-related costs associated with sales and marketing personnel , non-billable costs of professional services personnel and advertising , promotions , trade shows , seminars and other programs . story_separator_special_tag selling and marketing expenses increased $ 983,844 , or 17 % , to $ 6,836,292 in 2014 compared to $ 5,852,448 in 2013. as a percentage of revenue , selling 24 and marketing expenses decreased to 36 % in 2014 compared to 40 % in 2013. the increase in selling and marketing expenses is primarily due to increased personnel-related costs , including stock-based and other incentive compensation expense , totaling $ 1,183,990 , and the decrease in selling and marketing expenses as a percentage of revenues is primarily attributable to improved operating efficiencies resulting from our revenue growth . research and development expenses research and development expenses include payroll , employee benefits , consultant expenses and other headcount-related costs associated with software engineering and mobile imaging science . these costs are incurred to develop new software products and to maintain and enhance existing products . we retain what we believe to be sufficient staff to sustain our existing product lines and develop new , feature-rich products . we also employ research personnel , whose efforts are instrumental in ensuring product development from current technologies to anticipated future generations of products within our markets . research and development expenses decreased $ 773,839 , or 11 % , to $ 6,019,573 in 2014 compared to $ 6,793,412 in 2013. the decrease is primarily due to lower outside contract services expense of $ 650,267 and recruiting costs of $ 220,760. as a percentage of revenue , research and development expenses decreased to 31 % in 2014 , compared to 46 % in 2013 , primarily due to the increase in revenue . general and administrative expenses general and administrative expenses include payroll , employee benefits , and other headcount-related costs associated with finance , administration and information technology , as well as legal , accounting , and other administrative fees . general and administrative expenses increased $ 1,701,117 , or 22 % , to $ 9,554,381 in 2014 compared to $ 7,853,264 in 2013. the increase is primarily due to an increase in legal fees of $ 1,248,913 related to intellectual property litigation and patent prosecution activity , as well as increased stock-based compensation of $ 204,216. as a percentage of revenue , general and administrative expenses decreased to 50 % in 2014 compared to 53 % in 2013 , primarily due to the increase in revenue . other income ( expense ) , net interest and other income , net was $ 124,628 in 2014 compared to $ 31,770 in 2013 , an increase of $ 92,858 , or 292 % , due to higher cash balances after the offering . interest and other expense , net was $ 6,445 in 2014 compared to $ 6,862 in 2013 , a decrease of $ 417 , or 6 % , primarily related to capital lease interest . story_separator_special_tag conditions of the loan agreement . the loan agreement expired on january 31 , 2013 , at which time there were no borrowings outstanding . net cash used in operating activities net cash used in operating activities during fiscal 2014 was $ 2,468,671 and resulted primarily from increased personnel costs and other investments in the business . these changes in cash used in operating activities were partially offset by an increase in accounts receivable of $ 1,454,823 associated with the timing of customer billings and receipt of payments and a decrease in deferred revenue of $ 291,238. the primary non-cash adjustments to operating activities were stock-based compensation expense , depreciation and amortization , and accretion and amortization on debt securities totaling $ 3,444,480 , $ 470,697 , and $ 401,319 , respectively . 27 during fiscal 2013 , net cash used in operating activities was $ 615,061 , which resulted primarily from hiring additional personnel and other investments in the business . the net loss was partially offset by increased cash provided by working capital of $ 2,110,612 , and increases in the non-current portion of deferred revenue of $ 511,125 and other long-term liabilities of $ 731,457. the primary non-cash adjustments to operating activities were stock-based compensation expense , depreciation and amortization , and accretion and amortization on debt securities totaling $ 2,791,862 , $ 323,383 and $ 182,162 , respectively . net cash ( used in ) provided by investing activities net cash used in investing activities was $ 13,110,631 during fiscal 2014 , which consisted of $ 11,666,624 related to the sale and maturity of investments , offset by purchases of investments of $ 24,642,603 , and $ 134,652 related to the purchase and sale of property and equipment . during fiscal 2013 , net cash provided by investing activities was $ 570,888 , which consisted of $ 6,090,734 related to the sale and maturity of investments , partially offset by purchases of investments of $ 4,058,975 , and $ 1,460,871 related to the purchase of property and equipment . net cash provided by financing activities net cash provided by financing activities was $ 51,436 during fiscal 2014 , which included net proceeds of $ 70,328 from the exercise of stock options partially offset by principal payments on capital lease obligations of $ 18,892. during fiscal 2013 , net cash provided by financing activities was $ 16,636,539 , which included net proceeds of $ 16,004,797 from the offering and net proceeds of $ 648,656 from the exercise of stock options , partially offset by principal payments on capital lease obligations of $ 16,914. other liquidity matters on september 30 , 2014 , we had investments of $ 18,341,188 , designated as available-for-sale marketable securities , which consisted of commercial paper and corporate issuances , carried at fair value as determined by quoted market prices for identical or similar assets , with unrealized gains and losses , net of tax , and reported as a separate component of stockholders ' equity . all securities for which maturity or sale is expected within one year are classified as current on the balance sheet .
| selling and marketing expenses selling and marketing expenses include payroll , employee benefits and other headcount-related costs associated with sales and marketing personnel , non-billable time for professional services personnel and advertising , promotions , trade shows , seminars and other programs . selling and marketing expenses increased $ 2,402,394 , or 70 % , to $ 5,852,448 in 2013 compared to $ 3,450,054 in 2012. as a percentage of revenue , selling and marketing expenses increased to 40 % in 2013 compared to 38 % in 2012. the increase is primarily due to increased personnel-related costs , including stock-based and other incentive compensation expense and recruiting costs , totaling $ 2,026,832 related to an increase in headcount associated with the growth of our business , as well as increased travel expenses of $ 199,085 and depreciation of $ 69,349. research and development expenses research and development expenses include payroll , employee benefits , consultant expenses and other headcount-related costs associated with software engineering and mobile imaging science . these costs are incurred to develop new software products and to maintain and enhance existing products . we retain what we believe to be sufficient staff to sustain our existing product lines and develop new , feature-rich products . we also employ research personnel , whose efforts are instrumental in ensuring product development from current technologies to anticipated future generations of products within our markets . research and development expenses increased $ 129,382 , or 2 % , to $ 6,793,412 in 2013 compared to $ 6,664,030 in 2012. the increase is primarily due to higher personnel-related costs , including stock-based and 26 other incentive compensation expense and recruiting costs , totaling $ 378,201 related to an increase in headcount associated with the growth of our business , partially offset by a decrease in outside contract services of $ 278,350. as a percentage of revenue , research and development expenses decreased to 46 % in 2013 , compared to 73 % in 2012 , primarily due to the increase in revenue . general
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overall market conditions are a product of many factors , which are beyond our control and mostly unpredictable . these factors may affect the financial decisions made by investors , including their level of participation in the financial markets . in turn , these decisions may affect our business results . with respect to financial market activity , our profitability is sensitive to a variety of factors , including the demand for investment banking services as reflected by the number and size of equity and debt financings and merger and acquisition transactions , the volatility of the equity and fixed income markets , the level and shape of various yield curves , the volume and value of trading in securities , and the value of our customers ' assets under management . the municipal underwriting market is challenging as state and local governments reduce their debt levels . investors are showing a lack of demand for longer-dated municipals and are reluctant to take on credit or liquidity risks . investor confidence has been dampened by continued uncertainty surrounding the u.s. fiscal and debt ceiling , debt concerns in europe , and sluggish employment growth . our overall financial results continue to be highly and directly correlated to the direction and activity levels of the united states equity and fixed income markets . at december 31 , 2017 , the key indicators of the markets ' performance , the nasdaq , the s & p 500 , and dow jones industrial average closed 28.2 % , 19.4 % , and 25.1 % higher than their december 31 , 2016 , closing prices , respectively . as a participant in the financial services industry , we are subject to complicated and extensive regulation of our business . the recent economic and political environment has led to legislative and regulatory initiatives , both enacted and proposed , that could substantially intensify the regulation of the financial services industry and may significantly impact us . 32 story_separator_special_tag on january 4 , 2016 , and ism on may 3 , 2016 , as well as the retained businesses from the sterne agee acquisition in 2015 ( certain businesses were disposed of in july 2016 ) . the results of operations of the acquired companies are included in our results prospectively from the date of their respective acquisition . commissions – for the year ended december 31 , 2016 , commission revenues decreased 2.6 % to $ 730.0 million from $ 749.5 million in 2015. the decrease is primarily attributable to a decrease in mutual fund and equity transactions . principal transactions – for the year ended december 31 , 2016 , principal transactions revenues increased 22.1 % to $ 475.4 million from $ 389.3 million in 2015. the increase from 2015 is primarily attributable to higher institutional fixed income brokerage revenues as a result of increased volumes . investment banking – for the year ended december 31 , 2016 , investment banking revenues increased 2.0 % , to $ 513.0 million from $ 503.1 million in 2015. the increase is primarily attributable to an increase in advisory fees , which was positively impacted by the eaton partners acquisition , partially offset by a decrease in capital-raising revenues . capital-raising revenues decreased 16.6 % to $ 256.4 million for the year ended december 31 , 2016 , from $ 307.6 million in 2015. for the year ended december 31 , 2016 , equity capital-raising revenues decreased 18.8 % to $ 144.1 million from $ 177.5 million in 2015. for the year ended december 31 , 2016 , fixed income capital-raising revenues decreased 13.7 % to $ 112.3 million from $ 130.1 million in 2015. advisory fees increased 31.3 % to $ 256.6 million for the year ended december 31 , 2016 , from $ 195.5 million in 2015. the increase is primarily attributable to an increase in the number of completed advisory transactions during 2016. asset management and service fees – for the year ended december 31 , 2016 , asset management and service fee revenues increased 18.0 % to $ 582.8 million from $ 493.8 million in 2015. the increase is primarily a result of an increase in the number and value of fee-based accounts . the growth of asset management and service fee revenues from the prior year were also attributable to the acquisition of barclays in december 2015. see “ asset management and service fees ” in the global wealth management segment discussion for information on the changes in asset management and service fees revenues . other income – for the year ended december 31 , 2016 , other income decreased 24.8 % to $ 46.8 million from $ 62.2 million in 2015. other income primarily includes investment gains and losses and mortgage loan originations fees from stifel bank . the decrease in other income from 2015 is attributable to a gain recognized on the sale on a portion of an investment in 2015 that was not recurring . this was offset by a gain recognized on the extinguishment of $ 15.0 million of debentures during the third quarter of 2016 . 35 net interest income the following tables present average balance data and operating interest revenue and expense data , as well as related interest yields for the periods indicated ( in thousands , except rates ) : replace_table_token_6_th * see distribution of assets , liabilities , and shareholders ' equity ; interest rates and interest rate differential table included in “ results of operations – global wealth management ” for additional information on stifel bank 's average balances and interest income and expense . year ended december 31 , 2017 , compared with year ended december 31 , 2016 net interest income – net interest income is the difference between interest earned on interest-earning assets and interest paid on funding sources . net interest income is affected by changes in the volume and mix of these assets and liabilities , as well as by fluctuations in interest rates and portfolio management strategies . story_separator_special_tag for the year ended december 31 , 2017 , net interest income increased 69.0 % to $ 384.4 million from $ 227.5 million in 2016 . 36 for the year ended december 31 , 2017 , interest revenue increased 54.4 % to $ 454.4 million from $ 294.3 million in 2016 , principally as a result of a $ 157.8 million increase in interest revenue generated from the growth in interest-earning assets of stifel bank . the average interest-earning assets of stifel bank increased to $ 13.6 billion during the year ended december 31 , 2017 , compared to $ 9.6 billion during 2016 at average interest rates of 2.93 % and 2.50 % , respectively . for the year ended december 31 , 2017 , interest expense increased 4.7 % to $ 70.0 million from $ 66.9 million in 2016. the increase in interest expense is primarily attributable to an increase in interest expense paid on the interest-bearing liabilities of stifel bank . year ended december 31 , 2016 , compared with year ended december 31 , 2015 net interest income – for the year ended december 31 , 2016 , net interest income increased 70.1 % to $ 227.5 million from $ 133.7 million in 2015. for the year ended december 31 , 2016 , interest revenue increased 64.3 % to $ 294.3 million from $ 179.1 million in 2015 , principally as a result of a $ 105.5 million increase in interest revenue generated from the growth in interest-earning assets of stifel bank . the average interest-earning assets of stifel bank increased to $ 9.6 billion during the year ended december 31 , 2016 , compared to $ 5.1 billion in 2015 at average interest rates of 2.50 % and 2.66 % , respectively . for the year ended december 31 , 2016 , interest expense increased 47.3 % to $ 66.9 million from $ 45.4 million in 2015. the increase is primarily attributable to our july 2016 issuance of $ 200.0 million senior notes , the write-off of debt issuance costs as a result of the redemption of our company 's $ 150.0 million 5.375 % senior notes in july 2016 , and the december 2015 issuance of $ 300.0 million of 3.50 % senior notes . the increase in interest expense is also attributable to an increase in interest expense paid on the interest-bearing liabilities of stifel bank . non-interest expenses the following table presents consolidated non-interest expenses for the periods indicated ( in thousands , except percentages ) : replace_table_token_7_th year ended december 31 , 2017 , compared with year ended december 31 , 2016 except as noted in the following discussion of variances , the underlying reasons for the increase in non-interest expenses can be attributed principally to our continued expansion , both organically and through our acquisitions , and increased administrative overhead to support the growth in our segments . compensation and benefits – compensation and benefits expenses , which are the largest component of our expenses , include salaries , bonuses , transition pay , benefits , amortization of stock-based compensation , employment taxes , and other employee-related costs . a significant portion of compensation expense is comprised of production-based variable compensation , including discretionary bonuses , which fluctuates in proportion to the level of business activity , increasing with higher revenues and operating profits . other compensation costs , including base salaries , stock-based compensation amortization , and benefits , are more fixed in nature . for the year ended december 31 , 2017 , compensation and benefits expense increased 13.5 % to $ 2.0 billion from $ 1.7 billion in 2016. the increase is principally due to the following : 1 ) increased variable compensation as a result of increased revenue production , 2 ) an increase in fixed compensation for additional administrative support staff , and 3 ) an increase in deferred compensation expense as a result of the acceleration of the vesting of certain outstanding debenture awards and the modification of certain outstanding restricted stock units . these , and other actions described below , were taken by the company in response to the tax cuts and jobs act ( “ tax legislation ” ) that was enacted in the fourth quarter of 2017 to maximize tax savings . compensation and benefits expense as a percentage of net revenues was 66.9 % for the year ended december 31 , 2017 , compared to 67.0 % for the year ended december 31 , 2016. occupancy and equipment rental – for the year ended december 31 , 2017 , occupancy and equipment rental expense decreased 3.7 % to $ 222.7 million from $ 231.3 million in 2016. the decrease is primarily due to lower equipment costs and rent expense . communications and office supplies – communications expense includes costs for telecommunication and data transmission , primarily for obtaining third-party market data information . for the year ended december 31 , 2017 , communications and office 37 supplies expense decreased 4.4 % to $ 133.5 million from $ 139.6 million in 2016. the decrease is primarily attributable to a decrease in quote equipment , telecommunication costs , and office supplies as a result of cost saving initiatives . commissions and floor brokerage – for the year ended december 31 , 2017 , commissions and floor brokerage expense decreased 0.4 % to $ 44.1 million from $ 44.3 million in 2016. the decrease is primarily attributable to a decrease in trading volumes . other operating expenses – other operating expenses primarily include license and registration fees , litigation-related expenses , which consist of amounts we reserve and or payout for legal and regulatory matters , travel and entertainment , promotional , and professional service expenses .
| investment banking – investment banking revenues include : ( i ) capital-raising revenues representing fees earned from the underwriting of debt and equity securities , and ( ii ) advisory fees related to corporate debt and equity offerings , municipal debt offerings , merger and acquisitions , private placements , and other investment banking advisory fees . for the year ended december 31 , 2017 , investment banking revenues increased 41.7 % , to $ 726.8 million from $ 513.0 million in 2016. the increase is primarily attributable to an increase in capital raising revenues and advisory fees . capital-raising revenues increased 42.8 % to $ 366.1 million for the year ended december 31 , 2017 , from $ 256.4 million in 2016. for the year ended december 31 , 2017 , equity capital-raising revenues increased 41.2 % to $ 203.4 million from $ 144.1 million in 2016. for the year ended december 31 , 2017 , fixed income capital-raising revenues increased 44.9 % to $ 162.7 million from $ 112.3 million in 2016. advisory fees increased 40.5 % to $ 360.6 million for the year ended december 31 , 2017 , from $ 256.6 million in 2016. the increase is primarily attributable to an increase in the number of completed advisory transactions during 2017 , as well as contributions made from eaton fund placement franchise . asset management and service fees – asset management and service fees include fees for asset-based financial services provided to individuals and institutional clients . investment advisory fees are charged based on the value of assets in fee-based accounts . asset management and service fees are affected by changes in the balances of client assets due to market fluctuations and levels of net new client assets . for the year ended december 31 , 2017 , asset management and service fee revenues increased 20.5 % to $ 702.1 million from $ 582.8 million in 2016. the increase is primarily a result of an increase in the number and value of fee-based accounts and an increase of interest rates on fees earned on client cash . see “ asset management and service fees ” in the global wealth management segment
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as a result of this adoption , only the operations of hotels meeting the criteria to be considered held for sale prior to october 1 , 2014 are included in discontinued operations for all periods presented as no individual hotel disposition has a major effect on our operation s or financial results . operating performance metrics the following table presents our revpar , adr , and o ccupancy for our same store operations . the comparisons fo r same store operations include all of our hotels owned as of december 31 , 2015 with the exception of the three hotels we acquired in october 2015 ( 39 hotels included in same store results , 23 of which are considered held for use ( “ hfu ” ) and 16 of which are considered held for sale ( “ hfs ” ) ) . all hotels included in same store operations were owned throughout each of the periods presented . the performance metrics for three hotels acquired in 2015 represent post-acquisition operations only and are separately presented . 31 replace_table_token_8_th in the same store hfu portfolio of hotels , 2015 revp ar increased 3.3 % from 2014 , driven by an increase in adr of 6.3 % partially offset by a decrease of 2.8 % in occupancy . in 2015 , the company focused on increasing adr in light of an improving economy and increasing leisure and transient travel . this focus on improving adr drove our slight decline in occupancy , which was also a result of significant ongoing renovations in our hotels in indiana and west virginia as well as changes in contract business at certain properties . results of operations comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 ( in thousands , except per share amounts ) replace_table_token_9_th revenue during 2015 , revenue from continuing operations re mained stable , decreasing by $ 68 between the periods . revenue from newly acquired properties in 2015 totaled $ 2,611 and revenue from our other held for use assets increased $ 1,127 , largely driven by an improving economy and a mild winter in early 2015 which increased construction and special projects business at our properties . revenue from held for sale and sol d properties decreased by $ 3,806 driven by property sales during the periods presented . 32 expenses hotel and property operations expen se from continuing operations de creased by $ 1,070 , driven by declines resulting from sold hotels . the decrease in these expenses outpaced the decrease in revenue because of increases in adr and because the legacy hotels that remain in our portfolio and our 2015 acquisition s have higher operating margins than the hotels that were sold during the period . interest expense from continuing operations and depreciation expense from continui ng operations decreased by $ 1,574 and $ 1,037 , respectively , between the periods as a result of a net decrease in the size of the company 's hotel portfolio . additionally , interest expense was favorably impacted by a decrease in the weighted average interest rate on total debt outstanding between the periods , from 6.48 % at december 31 , 2014 to 5.31 % at december 31 , 2015 , as a result of debt repaid upon the sale of properties and debt refinancing s during 2015. the $ 1,301 increase in general and administrative expense was driven by increased compensation expense resulting from compensation arrangements put into place with the new management team in 2015 and severance accrued for management who left the company during the year , as well as recruiting expenses incurred in relation to those transitions . increased director and officer insurance premiums , increased travel , legal , and professional fees expense story_separator_special_tag inline ; '' > unrealized derivative g ain ( loss ) the change in unrealized derivative gain ( loss ) was a result of the change in fair value of the derivative liabilities for the current year compared to the year ended december 31 , 2013. the fair value of the derivative liabilities increased by an aggregate of $ 14,430 during 2014 and decreased by $ 10,028 during the year 2013 . the increase in fair value in 2014 was primarily due to the change in exercise price of the related warrants adjust ed downward from $ 9.60 to $ 1.92 and to a change in the conversion price of the series c preferred s tock from $ 8.00 to $ 1.60 , the public offering price of the common stock in the company 's subscription rights offering concluded on june 6 , 2014. income tax expense as of december 31 , 2014 and 2013 , a full valuation allowance was recorded against the net deferred tax asset due to the uncertainty of realization because of historical operating losses . due to the full deferred tax valuation allowance , no income tax expense or benefit was recorded for the years ended december 31 , 2014 and 2013. management believes the federal and state income tax rate for the trs will be approximately 38 % . the income tax benefit or expense will vary based on the taxable earnings or loss of the trs . non-gaap financial measures non-gaap financial measures are measures of our historical financial performance that are different from measures calculated and presented in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . we report funds from operations ( “ ffo ” ) , adjusted ffo ( “ affo ” ) , earnings before interest , taxes , depreciation , and amortization ( “ ebitda ” ) , adjusted ebitda , and property operating income ( “ poi ” ) as non-gaap measures that we believe are useful to investors as key measures of our operating results and which management uses to facilitate a periodic evaluation of our operating results relative to those of our peers . story_separator_special_tag our non-gaap measures should not be considered as an alternative to u.s. gaap net income ( loss ) or operating income ( loss ) as an indication of financial performance or to u.s. gaap cash flows from operating activities as a measure of liquidity . additionally , these measures are not indicative of fund s available to fund cash needs or our ability to make cash distributions as they have not been adjusted to consider cash requirements for capital expenditures , property acquisitions , debt service obligations , or other commitments . funds from operations ( “ ffo ” ) & adjusted ffo ( “ affo ” ) we calculate ffo in accordance with the standards established by the national association of real estate investment trusts ( “ nareit ” ) , which defines ffo as net earnings computed in accordance with gaap , excluding gains or losses from sales of real estate assets , impairment , and the depreciation and amortization of real estate assets . ffo is calculated both for the company in total and as ffo available to common shareholders , which is ffo excluding earnings attributable to noncontrolling interests and preferred stock dividends . affo is ffo available to common shareholders adjusted to exclude items we do not believe are representative of the results from our core operations , such as non-cash unrealized gains or l osses on derivative liabilities , gains on debt conversion , and cash charges for acquisition costs and terminated equity offering expense . all reits do not calculate ffo and affo in the same manner ; therefore , our calculation may not be the same as the calculation of ffo and affo for similar reits . 35 we consider ffo and affo to be useful additional measures of performance for an equity reit because they facilitate an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization , which assume s that the value of real estate assets diminishes predictably over time . since real estate values have historically risen or fallen with market conditions , we believe that ffo and affo provide a meaningful indication of our performance . the following table reconciles net earnings ( loss ) to ffo and affo for the years ended december 31 ( in thousands ) . all amounts presented include both continuing and discontinued operations . replace_table_token_11_th earnings before interest , taxes , depreciation , and amortization ( “ ebitda ” ) and adjusted ebitda we calculate ebitda and adjusted ebitda by adding back to net earnings ( loss ) certain non-operating expenses and certain non-cash charges which are based on historical cost accounting that we believe may be of limited significance in evaluating current performance . we believe these adjustments can help eliminate the accounting effects of depreciation and amortization and financing decisions and facilitate comparisons of core operating profitability between periods . in calculating ebitda , we add back to net earnings ( loss ) interest expense , loss on debt extinguishment , income tax expense , and depreciation and amortization expense . in calculating adjusted ebitda , we adjust ebitda to add back net ( gain ) loss on disposition of assets , acquisition and terminated transactions expense , and terminated equity transactions expense , which are cash charges . we also add back impairment , gain on debt conversion , and unrealized derivative gain or loss , which are non-cash charges . our current calculation of ebitda varies from that presented in previous filings as ebitda was historically calculated based on net earnings ( loss ) available to common shareholders with preferred dividends and noncontrolling interest added back only to adjusted ebitda . ebitda and adjusted ebitda , as presented , may not be comparable to similarly titled measures of other companies . we believe ebitda and adjusted ebitda to be useful additional measures of our operating performance , excluding the impact of our capital structure ( primarily interest expense ) , our asset base ( primarily depreciation and amortization expense ) , and other items we do not believe are representative of the results from our core operations . the following table reconciles net earnings ( loss ) to ebitda and adjusted ebitda for the years ended december 31 ( in thousands ) . all amounts presented include both continuing and discontinued operations . 36 replace_table_token_12_th property operating income ( “ poi ” ) we calculate poi as r oom rentals and other hotel services revenue less hotel and property operating expenses . we believe poi is helpful to investors as it better communicates the comparability of our hotels ' operating results for all of the company 's hotel properties . poi as presented below includes both continuing and discontinued operations . the following table reconciles operating income ( loss ) to poi for the years ended december 31 ( in thousands ) . all amounts presented include only continuing operations only unless otherwise noted . replace_table_token_13_th 37 liquidity and capital resources liquidity requirements our short-term liquidity requirements consist primarily of operating expenses and other expenditures directly associated with our hotel properties , recurring maintenance and capital expenditures necessary to maintain our hotels in accordance with brand standards , interest expense and scheduled principal payments on outstanding indebtedness , and restricted cash funding obligations . our longer-term liquidity requirements consist primarily of the costs of acquiring additional hotel properties , renovations and other one-time capital expenditures that periodically are made with respect to our hotel properties , and scheduled debt payments , including maturing loans . additionally , the company has an obligation to res to use $ 25 million of the proceeds from its capital infusion in 2012 to pursue hotel acquisitions . there are no contractual restrictions or penalties related to the use of these funds for purposes other than acquisitions , but the company is obligated to replace these funds promptly as it has the ability to do so .
| unrealized derivative gain ( l oss ) the change in unrealized derivative gain ( loss ) was driven by the change in fair value of the derivative liabilities for the current year compared to the year ended december 31 , 2014. the fair value of the derivative liabilities decreased by an aggregate of $ 11,578 during 2015 and increased by $ 14,430 during 2014. the decrease in fair value in 2015 was primarily a result of a decrease in the company 's stock price in 2015 , which in turn decreases the value assigned to the conv ersion feature of the series c preferred s tock and the outstanding common stock warrants . income tax expense as of december 31 , 2015 , a full valuation allowance continued to be recorded against the net deferred tax asset due to the uncertainty of realization because of historical operating losses . as such , no income tax expense or benefit was recorded for the year ended december 31 , 2015. management believes the combined federal and state income 33 tax rate for the trs will be approximately 38 % and income tax benefit or expense will vary based on the taxable earnings or loss of the trs . comparison of the year ended december 31 , 2014 to the year ended december 31 , 2013 ( in thousands , except per share amounts ) replace_table_token_10_th revenue during 2014 , revenue from cont inuing operations increased $ 3,627 or 6.7 % , compared to 2013. two of our hotels that had suffered in the washington dc market 's downturn recovered , due to both the improving washington d.c. market and increased capital investment . revenue improvements at properties in the midwest are largely driven by increased business from construction and special projects . renovations and capital improvements to selected properties in the portfolio are also creating increased revenue . expenses hotel and property operations expense from continuing operations increased $ 1 ,212 . payroll , utilities , franchise related expenses , and management fees rose as expected with increased occupancy . this increase was partially offset by a decrease in the cost of room supplies , due to the
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68 upon all farnesene- or farnesane-based diesel fuel rights reverting back to us , we granted to total , pursuant to the eu diesel fuel agreement , ( a ) an exclusive , royalty-free license to offer for sale and sell farnesene- or farnesane-based diesel fuel in the eu , ( b ) the right to make farnesene or farnesane anywhere in the world , provided total must ( i ) use such farnesene or farnesane to produce diesel fuel to offer for sale or sell in the eu and ( ii ) pay us a to-be-negotiated , commercially reasonable , “ most-favored ” basis royalty and ( c ) the right to purchase farnesene or farnesane for its eu diesel fuel business from us on a “ most-favored ” pricing basis . in addition , as part of the closing of the restructuring and pursuant the jvco letter agreement , on march 21 , 2016 , we sold to total one half of our ownership stake in tab ( giving total an aggregate ownership stake of 75 % of tab and giving us an aggregate ownership stake of 25 % of tab ) in exchange for total cancelling ( i ) approximately $ 1.3 million of r & d notes , plus all paid-in-kind and accrued interest under all outstanding r & d notes ( including all such interest that was outstanding as of july 29 , 2015 ) and ( ii ) a note in the principal amount of euro 50,000 , plus accrued interest , issued to total in connection with the original tab capitalization . to satisfy its purchase obligation above , total surrendered to us the remaining r & d note of approximately $ 5 million in principal amount , and we executed and delivered to total a new , senior convertible note , containing substantially similar terms and conditions other than it is unsecured and its payment terms are severed from tab 's business performance , in the principal amount of $ 3.7 million . as a result of , and in order to reflect , the changes to the ownership structure of tab described above , on march 21 , 2016 , ( a ) we , total and tab entered into an amended and restated shareholders ' agreement and filed a deed of amendment of articles of association of tab and ( b ) we and total terminated the amended and restated master framework agreement , dated december 2 , 2013 and amended on april 1 , 2015 , between us and total . sales and revenues to commercialize our initial biofene-derived product , squalane , in the cosmetics sector for use as an emollient , we have entered into certain marketing and distribution agreements in europe , asia , and north america . as an initial step towards commercialization of biofene-based diesel , we have entered into agreements with municipal fleet operators in brazil . our diesel fuel is supplied to a brazilian fuel distributor which blends our product with petroleum diesel and sells to a number of bus fleet operators . pursuant to our agreements with total , future commercialization of our jet fuel products outside of brazil would generally occur exclusively through certain agreements entered into by and among amyris , total and tab . for the industrial lubricants market , we established a joint venture with cosan combustíveis e lubrificantes s.a. and cosan s.a. industria e comércio ( such cosan entities and their affiliates , collectively or individually referred to as cosan ) for the worldwide development , production and commercialization of renewable base oils in the lubricant sector . financing in 2015 and 2014 , we completed multiple financings involving loans , convertible debt and equity offerings . in january 2014 , we sold and issued , for face value , approximately $ 34.0 million of convertible promissory notes in tranche ii notes as described in more detail in note 5 , `` debt '' . in march 2014 , we entered into a securities purchase agreement with kuraray under which we agreed to sell shares of our common stock at a price equal to the greater of $ 2.88 per share or the average daily closing prices per share on the nasdaq stock market for the three month period ending march 27 , 2014 , for an aggregate purchase price of $ 4.0 million . in april 2014 , we completed the sale of common stock to kuraray and issued 943,396 shares of our common stock at a price per share of $ 4.24 for aggregate proceeds of approximately $ 4.0 million . in march 2014 , we entered into an export financing agreement with banco abc brasil s.a. ( or abc ) for approximately $ 2.2 million to fund exports through march 2015. this loan is collateralized by future exports from the company 's subsidiary in brazil . 69 in march 2014 we entered into a loan and security agreement ( or , as amended , the hercules loan facility ) with hercules technology growth capital , inc. ( or hercules ) under which we issued to hercules , secured debt in the aggregate amount of $ 25.0 million . the hercules loan facility , which was subsequently amended in june 2014 , march 2015 and november 2015 , is described in more detail below under `` liquidity and capital resources . '' in may 2014 , we issued $ 75.0 million aggregate principal amount of 6.50 % convertible senior notes due 2019 ( the “ 2014 144a notes ” ) to morgan stanley & co. llc as the initial purchaser in a private placement , and for initial resale by the initial purchaser to qualified institutional buyers in the 144a offering ( as described in more detail below under `` liquidity and capital resources '' ) . these notes were issued at a discount of $ 3.0 million . story_separator_special_tag in july 2014 , we closed on the initial installment of the $ 21.7 million in convertible notes from total under the total fuel agreements as described in more detail in note 5 , `` debt '' , in the amount of $ 10.85 million and in january 2015 , we closed on the second installment in the amount of $ 10.85 million . in july 2015 , we sold to certain purchasers 16,025,642 shares of our common stock at a price per share of $ 1.56 , with aggregate proceeds to the company of $ 25 million ( the `` private offering '' ) . we also granted to the purchasers warrants exercisable at an exercise price of $ 0.01 per share for the purchase of an aggregate of 1,602,562 shares of our common stock . the exercisability of these warrants was subject to stockholder approval , which was obtained on september 17 , 2015. in october 2015 , we issued $ 57.6 million aggregate principal amount of 9.50 % convertible senior notes due 2019 to certain qualified institutional buyers , as described in more detail in note 5 , “ debt. ” exchange ( debt conversion ) on july 29 , 2015 , we closed the `` exchange '' pursuant to that certain exchange agreement , dated as of july 26 , 2015 ( the “ exchange agreement ” ) , among us , temasek and total . under the exchange agreement , at the closing , temasek exchanged approximately $ 71.0 million of outstanding convertible promissory notes ( including paid-in-kind and accrued interest through july 29 , 2015 ) and total exchanged $ 70.0 million in principal amount of outstanding convertible promissory notes for shares of the company 's common stock . the exchange price was $ 2.30 per share ( the “ exchange price ” ) and was paid by the exchange and cancellation of such outstanding convertible promissory notes , and temasek and total received 30,860,633 and 30,434,782 shares of the company 's common stock , respectively , in the exchange . under the exchange agreement , total also received the following warrants , each with a five-year term , at the closing : a warrant to purchase 18,924,191 shares of our common stock ( the “ total funding warrant ” ) . a warrant to purchase 2,000,000 shares of our common stock that will only be exercisable if we fail , as of march 1 , 2017 , to achieve a target cost per liter to manufacture farnesene ( the “ total r & d warrant ” ) . the total funding warrant and the total r & d warrant are collectively referred to as the “ total warrants. ” 70 additionally , under the exchange agreement , temasek received the following warrants : a warrant to purchase 14,677,861 shares of our common stock ( the “ temasek exchange warrant ” ) . a warrant exercisable for that number of shares of our common stock equal to ( 1 ) ( a ) the number of shares for which total exercises the total funding warrant plus ( b ) the number of additional shares for which the certain convertible notes remaining outstanding following the completion of the exchange may become exercisable as a result of a reduction in the conversion price of such remaining notes as a result of and or subsequent to the date of the exchange plus ( c ) that number of additional shares in excess of 2,000,000 , if any , for which the total r & d warrant becomes exercisable multiplied by a fraction equal to 30.6 % divided by 69.4 % plus ( 2 ) ( a ) the number of any additional shares for which certain other outstanding convertible promissory notes may become exercisable as a result of a reduction to the conversion price of such notes multiplied by ( b ) a fraction equal to 13.3 % divided by 86.7 % ( the “ temasek funding warrant ” ) . a warrant exercisable for that number of shares of our common stock equal to 880,339 multiplied by a fraction equal to the number of shares for which total exercises the total r & d warrant divided by 2,000,000. if total is entitled to , and does , exercise the total r & d warrant in full , this warrant would be exercisable for 880,339 shares ( the “ temasek r & d warrant ” ) . the temasek exchange warrant , the temasek funding warrant and the temassek r & d warrant each have ten-year terms and are referred to herein as the “ temasek warrants ” and , the temasek warrants and total warrants are hereinafter collectively referred to as the “ exchange warrants ” . all of the exchange warrants have an exercise price of $ 0.01 per share . in addition to the grant of the exchange warrants , a warrant issued by the company to temasek in october 2013 in conjunction with a prior convertible debt financing ( the “ 2013 warrant ” ) became exercisable in full upon the completion of the exchange . there were 1,000,000 shares underlying the 2013 warrant , which was exercised in full at the exercise price of $ 0.01 per share . the exercisability of all of the exchange warrants was subject to stockholder approval , which was obtained on september 17 , 2015. as of december 31 , 2015 , the total funding warrant , the temasek exchange warrant , and the 2013 warrant had been fully exercised , and temasek had exercised the temasek funding warrant with respect to 12,700,244 shares of our common stock .
| 77 cost and operating expenses replace_table_token_6_th nm= not meaningful cost of products sold our cost of products sold includes cost of raw materials , labor and overhead , amounts paid to contract manufacturers , period costs related to inventory write-downs resulting from applying lower of cost or market inventory valuations , and costs related to scale-up in production of such products . our cost of products sold increased by $ 4.2 million to $ 37.4 million in 2015 as compared to the prior year , primarily driven by an unfavorable product mix in 2015 , with declining fuel average selling prices generating losses . this increase was partly offset by lower sales . loss on purchase commitments and impairment of property , plant and equipment and other asset allowances the loss on purchase commitments and impairment of property , plant and equipment and other asset allowances increased by $ 32.4 million to $ 34.2 million in 2015 as compared to the prior year . the increase was mainly due to an impairment charge associated with the termination of a production joint venture and indirect tax allowances . see note 4 “ balance sheet components ” to the financial statements for further details . impairment of intangible assets the loss on impairment of intangible assets of $ 5.5 million was a result of the impairment of in-process research and development assets related to the 2011 acquisition of draths corporation ( or draths ) . 78 research and development expenses our research and development expenses decreased by $ 5.0 million to $ 44.6 million in 2015 as compared to the prior year , primarily as a result of decreases of $ 1.2 million in stock-based compensation , $ 1.2 million in salaries and benefits expense , $ 0.7 million from our overall cost reduction efforts and lower spending to manage our operating costs , $ 0.7 million from other expenses , $ 0.6 million in facilities and rent costs , and $ 0.6 million in consulting and outside services . research and development expenses included stock-based compensation expense of $ 2.3 million and $ 3.5 million during the years 2015 and 2014 , respectively . sales , general and administrative expenses our sales , general and administrative expenses increased by $ 0.8 million to $
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the related shipping and handling costs are recognized in cost of sales . support services include warranty and non-warranty repair services , upgrades , and refurbishments on the products we sell . repairs that are covered under our standard warranty do not generate revenue . we maintain a credit approval process and we make significant judgments in connection with assessing our customers ' ability to pay . despite this assessment , from time to time , our customers are unable to meet their payment obligations . we continuously monitor our customers ' credit worthiness and use our judgment in establishing a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified . while such credit losses have historically been within our expectations and the provisions established , a significant change in the liquidity or financial position of our customers could have a material adverse impact on the collectability of accounts receivable and our future operating results . additionally , if our credit loss rates prove to be greater than we currently estimate , we record additional reserves for doubtful accounts . business combinations we record the assets acquired and liabilities assumed in a business combination at their acquisition date fair values . fair values of assets acquired , and liabilities assumed are based upon available information and may involve engaging an independent third party to perform an appraisal . estimating fair values can be complex and subject to significant business judgment . we must also identify and include in the allocation all acquired tangible and intangible assets that meet certain criteria , including assets that were not previously recorded by the acquired entity . the estimates most commonly involve property , plant and equipment and intangible assets , including those with indefinite lives . the estimates also include the fair value of contracts including commodity purchase and sale agreements , storage contracts , and transportation contracts . the excess of the purchase price over the net fair value of acquired assets and assumed liabilities is recorded as goodwill , which is not amortized but instead is evaluated for impairment at least annually . pursuant to gaap , an entity is allowed a reasonable period of time ( not to exceed one year ) to obtain the information necessary to identify and measure the fair value of the assets acquired and liabilities assumed in a business combination . inventory we value our inventory at the lower of cost ( first-in , first-out method ) or net realizable value . we regularly review inventory quantities on hand and record a provision to write-down excess and obsolete inventory to its estimated net realizable value , if less than cost , based primarily on our estimated forecast of product demand . our industry is subject to technological change , new product developments , and changes in end-user demand for our products which can fluctuate significantly . any significant changes in end-user demand , technology or new product developments could have a significant impact on the value of our inventory and our reported operating results . 37 warranty costs we offer warranty coverage for a majority of our products for periods typically ranging from 12 to 24 months after shipment . we provided warranties on our inverter products for five to ten years and also provided the option to purchase additional warranty coverage up to 20 years . our standard inverter product warranty expense is reported within discontinued operations . we estimate the anticipated costs of repairing our products under such warranties based on the historical costs of the repairs . the assumptions we use to estimate warranty accruals are reevaluated periodically , in light of actual experience , and when appropriate , the accruals are adjusted . should product failure rates differ from our estimates , actual costs could vary significantly from our expectations . see note 4. disposed and discontinued operations in part ii , item 8 `` financial statements and supplementary data '' for more information on our discontinued operations and note 15. warranties in part ii , item 8 `` financial statements and supplementary data '' for more information . contingencies and legal reserves contingencies and legal reserves are recorded , when probable , using our best estimate of loss . estimates of loss , when required , are made based on an evaluation of the range of loss related to such matters and where the amount and range can be reasonably estimated . any such matters are generally resolved over future periods and only when one or more future events occur or fail to occur . following our initial determination , we regularly reassess and revise the potential liability related to any pending matters as new information becomes available . we disclose pending loss contingencies when the loss is deemed reasonably possible , which requires significant judgment . as a result of the inherent uncertainty of these matters , the ultimate conclusion and actual cost of settlement may materially differ from our estimates . we did not record any significant contingencies or legal reserves during the years ended december 31 , 2019 or 2018. see note 18. commitments and contingencies in part ii , item 8 `` financial statements and supplementary data '' for further information . goodwill , intangible and other long-lived assets we evaluate the carrying value of our goodwill for impairment at least annually or when an interim triggering event occurs that would indicate that impairment may have taken place . our annual impairment test was performed as of december 31st , the last day of our last fiscal quarter . we evaluate our other definite-lived intangible assets for impairment when evidence exists that certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable . significant judgments and assumptions are required in such impairment evaluations . the annual impairment test of goodwill may be performed using an assessment of qualitative factors if it is considered more likely than not that goodwill is not impaired . story_separator_special_tag if this qualitative assessment indicates that it is more likely than not that goodwill is impaired , then the next step of impairment testing compares the fair value of a reporting unit to its carrying value . if fair value exceeds carrying value , the we conclude that no goodwill impairment has occurred . conversely , if carrying value exceeds fair value , we recognize am impairment loss . we evaluate definite-lived intangible assets and other long-lived assets whenever there is an indicator of impairment . when we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment , we use the projected undiscounted cash flow method to determine whether an impairment exists , and then measure the impairment using discounted cash flows . if our expectations of future results and cash flows are significantly diminished , intangible assets , long-lived assets , and goodwill may be impaired and the resulting charge to operations may be material . changes in these estimates could result in significant revisions to the carrying value of these assets and may result in material charges to our results of operations . income taxes we are subject to income taxes in the united states and numerous foreign jurisdictions . significant judgment is required in determining our provision for income taxes and income tax assets and liabilities , including evaluating uncertainties in the application of accounting principles and complex tax laws . we record a provision for income taxes 38 for the anticipated tax consequences of the reported results of operations using the asset and liability method . under this method , we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , as well as for operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled . we calculate tax expense consistent with intraperiod tax allocation methodology resulting in an allocation of current year tax expense/benefit between continuing operations and discontinued operations . we record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized . we recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position . although we believe that we have adequately reserved for our uncertain tax positions , we can provide no assurance that the final tax outcome of these matters will not be materially different . we adjust these reserves when facts and circumstances change , such as the closing of a tax audit or the refinement of an estimate . to the extent that the final tax outcome of these matters is different than the amounts recorded , such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results . the provision for income taxes includes the effects of any reserves that we believe are appropriate , as well as the related net interest and penalties . for more details see note . 5 income taxes in part ii , item 8 `` financial statements and supplementary data . '' on december 22 , 2017 , the u.s. enacted the tax act into law . due to the complexity and scope of the tax act , the sec issued sab 118 , which provided for a one-year measurement period from the date of enactment in which to complete the associated tax analysis . this analysis included finalization of the transition tax , re-measuring our u.s. deferred tax assets and liabilities based on the reduction of the corporate income tax rate to 21 % , as well as reassessing our indefinite reinvestment position . the analysis of the impact of the tax act was completed within the sab 118 measurement period and are included in the results of operations as of december 31 , 2019. business environment and trends advanced energy operates in a single segment structure for power electronics conversion products . the acquisition of artesyn 's embedded power business added additional products and market verticals to our business . following the acquisition , we have continued to be organized on a global , functional basis in order to achieve the anticipated synergies associated with the acquisition . we operate in four vertical markets or applications and provide revenue information to enable tracking of market trends . we also provide information on an organic basis , which is comprised of the company without artesyn and lumasense , and on an inorganic basis , which consists of artesyn and lumasense , to improve comparability during the interim periods . the demand environment in each of our markets is impacted by various market trends , customer buying patterns , design wins , macro-economic and other factors . in the fourth quarter of 2019 we saw strengthening demand in semiconductor and datacenter computing markets and weakening demand in our telecom networking market . see below for a further discussion of our market trends . in the beginning of the first quarter of 2020 , we began to see an impact of covid-19 on our operations particularly in china , which has affected both our own workforce and supply chain . this situation is developing rapidly and may continue to affect our operations . see further discussion in risk factors above .
| % to $ 403.0 million from $ 533.8 million in 2018 , and decreased to 51.1 % of total sales compared to 74.2 % of total sales in 2018. the decrease in sales during 2019 is primarily due to an overall decrease in production and demand for semiconductor equipment used in deposition and etch applications , related to advanced memory , and the timing of new technology investment . this was partially offset by strengthening demand for foundry logic equipment late in the fiscal year . sales to the industrial & medical markets increased 32.9 % to $ 246.0 million in 2019 from $ 185.1 million in 2018. our customers in these markets are primarily global and regional original equipment and device manufacturers . inorganic growth contributed $ 111.7 million in 2019 , while organic sales in the industrial and medical markets decreased $ 35.8 million , or 21.1 % . the decrease in organic sales was primarily due to slowing macro-economic conditions and lower demand in the consumer hard coating and flat panel display markets impacting our thin film deposition markets partially offset by growth in medical and other embedded power products . sales in the data center computing market were $ 91.4 million in fiscal 2019 and $ 0.0 million in fiscal 2018. the increase in data center computing sales is due to the addition of new product verticals through inorganic growth . sales in the telecom and networking market were $ 48.5 million in fiscal 2019 and $ 0.0 million in fiscal 2018. the increase in telecom and networking sales is due to the addition of new product verticals through inorganic growth . sales to applied materials inc. and lam research corp. , our two largest customers , decreased $ 114.1 million to $ 253.0 million , and 31.9 % of sales , in 2019 from $ 367.0 million , and 51.1 % of sales in 2018. our sales to applied materials inc. and lam
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therefore , in connection with this amendment , we recorded a supply commitment charge of $ 55.0 million in the first quarter of 2019 to accelerate these purchase shortfalls . after recording the $ 55.0 million supply commitment charge in the first quarter of 2019 , the amount of accrued supply commitment charges for future periods that was recognized on our consolidated balance sheet at march 31 , 2019 was $ 66.0 million . we paid $ 11.0 million of this amount in the second quarter of 2019 and we expect to pay the remaining $ 55.0 million in annual installments of $ 11.0 million from january 2020 through january 2024. these payments may be accelerated under limited circumstances . the remaining amount of the 2019 charges represent revised estimates of our purchase shortfalls under this contract for 2019. after recording the $ 55.0 million supply commitment charge , the remaining annual purchase commitment that we must satisfy to avoid additional charges is $ 10.0 million . we will satisfy this annual purchase commitment if we purchase at least 1.0 million tons of sand per year , which we believe better matches our current and forecasted sand needs . if we purchase more than 1.0 million tons of sand in a year , then we could recover a portion of the supply commitment charge . we entered into this contract in 2013 in connection with selling our sand mines , which was at a time when our then current and expected needs for sand were significantly higher than they are today . as our sand needs have declined over the years due to industry cycles and due to our customers choosing to procure their own sand , we and our supplier have continuously worked together to accommodate changing market conditions by amending the contract . estimated losses related to these supply contracts contain uncertainties , such as future customer demand and sand preferences . these uncertainties require us to use judgment to quantify these estimates . actual results could materially differ from our estimates . fleet capacity reduction : in the fourth quarter of 2019 , we decided to dispose of certain idle equipment where we believed there was no expectation of future use . the equipment we selected for disposal was comprised primarily of hydraulic fracturing pumps that were substantially depreciated . certain hydraulic fracturing components , such as engines and transmissions that we believe to have remaining useful lives , will be removed prior to disposing of the equipment and used in our maintenance and repair activities for our remaining fleets . these disposals reduce our capacity of equipment from 34 total fleets to 28 total fleets . the amount of proceeds we anticipate receiving from these disposals is not significant . we recorded an asset impairment of $ 4.2 million in the third quarter of 2019 in connection with these anticipated disposals . discontinued wireline operations : in may 2019 , we discontinued our wireline operations due to financial underperformance resulting from market conditions . as a result of this decision , we recorded an asset impairment of $ 2.8 million and an inventory write-down of $ 1.4 million in the first quarter of 2019 to adjust these assets to their estimated fair market values and net realizable values , respectively . we sold substantially all of these assets in 2019 and received net proceeds of approximately $ 3.7 million . other impairments : in the second quarter of 2019 , we recorded $ 2.7 million of impairments for certain land and buildings that we no longer use . we are closely monitoring current industry conditions and future expectations . if industry conditions decline , we may be subject to impairments of long-lived assets or intangible assets in future periods . lease abandonment charges : during 2016 , we vacated certain leased facilities to consolidate our operations . in 2017 , we recognized expense of $ 0.6 million in connection with these actions . loss on disposal of assets , net during 2017 , we sold a number of surplus pieces of property and equipment . we received $ 4.1 million of proceeds and recognized a $ 1.4 million net gain on the sale of these assets . 39 gain on insurance recoveries in january 2017 , a fire destroyed certain equipment in one of our fleets . these assets were insured at values greater than their carrying values . we received $ 4.2 million of insurance recovery proceeds for these assets , which exceeded their carrying values by $ 2.9 million . interest expense , net interest expense , net of interest income , in 2019 decreased by $ 18.6 million from 2018. this decrease was due to a lower average debt balance and higher interest income in 2019. interest expense , net of interest income , in 2018 decreased by $ 37.4 million from 2017. this decrease was primarily due to a lower average debt balance in 2018 , after the repayment of $ 622.1 million of aggregate principal amount of long-term debt . gain ( loss ) on extinguishment of debt , net in 2019 , we repaid $ 31.0 million of aggregate principal amount of term loan . we recognized a loss on debt extinguishment of $ 0.2 million . in 2019 , we repurchased $ 17.0 million of aggregate principal amount of 2022 senior notes in the qualified institutional market . we recognized a gain on debt extinguishment of $ 1.4 million . in 2018 , we repaid $ 310.0 million of aggregate principal amount of term loan . we recognized a loss on debt extinguishment of $ 2.7 million . in 2018 , we repaid all $ 290.0 million remaining principal amount of our floating rate senior notes due in 2020 using cash on hand and proceeds received from our ipo . we recognized a loss on this debt extinguishment of $ 8.3 million . in 2018 , we repurchased $ 22.1 million of aggregate principal amount of 2022 senior notes in the qualified institutional market . story_separator_special_tag we recognized a gain on debt extinguishment of $ 1.2 million . in 2017 , we repaid $ 60.0 million of aggregate principal amount of our senior floating rate notes due june 2020. we recognized a loss on debt extinguishment of $ 1.8 million . in 2017 , we also repurchased $ 17.3 million of aggregate principal amount of senior notes due may 2022 in the qualified institutional market . we recognized a gain on debt extinguishment of $ 0.4 million income tax expense income tax expense was $ 1.4 million , $ 2.0 million , and $ 1.6 million in 2019 , 2018 , and 2017 , respectively . these amounts consisted of state margin taxes accounted for as income taxes , income taxes for states that limit the deduction of net operating loss carryforwards , and foreign income taxes . in 2012 , we recorded a valuation allowance to reduce our net deferred tax assets to zero . we continue to provide a valuation allowance against all deferred tax assets in excess of our deferred tax liabilities . as a result , we did not record any u.s. federal or other state income tax expense or benefit related to our income or losses in 2019 , 2018 or 2017. see note 12 — “ income taxes ” in notes to our consolidated financial statements included elsewhere in this annual report on form 10-k for more information regarding our income taxes and valuation allowance . liquidity and capital resources sources of liquidity at december 31 , 2019 , we had $ 223.0 million of cash and cash equivalents and $ 55.9 million available for borrowings under our revolving credit facility which resulted in a total liquidity position of $ 278.9 million . we believe that our cash and cash equivalents , cash provided by operations , and the availability under our revolving credit facility will be sufficient to fund our operations and capital expenditures for at least the next 12 months . in february 2018 , we entered into a $ 250 million asset-based revolving credit facility . the maximum availability of credit under the credit facility is limited at any time to the lesser of $ 250 million or the borrowing base . 40 the borrowing base is based on percentages of eligible accounts receivable and eligible inventory and is subject to certain reserves . as of december 31 , 2019 , our borrowing base was $ 60.2 million and therefore our maximum availability under the credit facility was $ 60.2 million . as of december 31 , 2019 , there were no borrowings outstanding under the credit facility , and letters of credit totaling $ 4.3 million were issued , resulting in $ 55.9 million of availability under the credit facility . in an event of default or if the amount available under our credit facility is less than either 10 % of our maximum availability or $ 12.5 million , we will be required to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0. if at any time borrowings and letters of credit issued under the credit facility exceed the borrowing base , we will be required to repay an amount equal to such excess . see note 4 — “ indebtedness and borrowing facility ” in notes to our consolidated financial statements included elsewhere in this annual report on form 10-k for more information on our credit facility . we continually assess alternatives to our capital structure and evaluate strategic capital initiatives which may include , but are not limited to , equity and debt financings and the modification of existing debt , including the amount of debt outstanding , the types of debt issued and the maturity dates of the debt . these alternatives , if implemented , could materially affect our capitalization , debt ratios and cash balances . cash flows the following table summarizes our cash flows : replace_table_token_10_th cash flows from operating activities have historically been a significant source of liquidity we use to fund capital expenditures and repay our debt . changes in cash flows from operating activities are primarily affected by the same factors that affect our net income , excluding non-cash items such as depreciation and amortization , stock-based compensation , and impairments of assets . cash flows from operating activities : net cash provided by operating activities was $ 123.9 million and $ 384.8 million in 2019 and 2018 , respectively . cash flows from operating activities consists of net income or loss adjusted for non-cash items , changes in operating assets and liabilities and cash paid to settle supply commitment charges . net income or loss adjusted for non-cash items resulted in cash increases of $ 99.0 million and $ 388.1 million in 2019 and 2018 , respectively . this change was primarily due to lower earnings in 2019. the net change in operating assets and liabilities resulted in a cash increase of $ 42.5 million and a cash increase of $ 2.0 million in 2019 and 2018 , respectively . the net change in operating assets and liabilities for 2019 was primarily due to a release of working capital resulting from our decreased activity levels and pricing levels in 2019 when compared to the same period in 2018. net cash provided by operating activities was $ 384.8 million and $ 180.0 million in 2018 and 2017 , respectively . net income or loss adjusted for non-cash items resulted in cash increases of $ 388.1 million and $ 290.0 million in 2018 and 2017 , respectively . this change was primarily due to higher earnings in 2018. the net change in operating assets and liabilities resulted in a cash increase of $ 2.0 million and a cash decrease of $ 108.2 million in 2018 41 and 2017 , respectively .
| since the middle of 2018 , the supply of hydraulic fracturing equipment has exceeded the demand for equipment , and as a result , the pricing for our services declined during this period . in 2020 , we believe competitors will be more disciplined with respect to the amount of equipment they offer into the market and the price at which they offer that equipment . in response to this competitive market environment , we remain disciplined with respect to our number of active fleets and we remain focused on optimizing our utilization and cash flow . we reduced our active fleet count between the second quarter of 2018 and the end of 2019 because certain fleets did not meet our utilization and profitability targets . additionally , in the fourth quarter of 2019 , we decided to dispose of certain idle equipment that reduced our total capacity to 1.4 million total hydraulic horsepower across 28 fleets . 35 in 2020 , we plan to focus on expanding our commercial strategy , further advancing our technology initiatives , and maintaining our industry leading safety performance . with this strategy , we strive to provide the best service quality for our customers while maintaining a low-cost structure . we believe that these efforts will generate free cash flow in 2020 and position us for a longer-term recovery . results of operations revenue the company contracts with its customers to perform hydraulic fracturing services and , prior to may 2019 , wireline services , on one or more oil or natural gas wells . under these arrangements , we satisfy our performance obligations as services are rendered , which is generally upon the completion of a fracturing stage . we typically complete one or more stages per day . the price for our services typically includes an equipment charge and , if applicable , product charges for proppant , chemicals and other products actually consumed during the course of providing our services . the following table includes certain operating statistics that affect our revenue : replace_table_token_6_th ( 1 ) active fleets is
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fpl group 's management uses earnings excluding certain items ( adjusted earnings ) internally for financial planning , for analysis of performance , for reporting of results to the board of directors and as inputs in determining whether performance targets are met for performance-based compensation under fpl group 's employee incentive compensation plans . fpl group also uses adjusted earnings when communicating its earnings outlook to investors . adjusted earnings exclude the unrealized mark-to-market effect of non-qualifying hedges and other than temporary impairment ( otti ) losses on securities held in nextera energy resources ' nuclear decommissioning funds , net of the reversal of previously recognized otti losses on securities sold and losses on securities where price recovery was deemed unlikely ( collectively , otti reversals ) and , in 2006 also excluded merger-related costs . fpl group 's management believes adjusted earnings provide a more meaningful representation of the company 's fundamental earnings power . although the excluded amounts are properly included in the determination of net income in accordance with generally accepted accounting principles , management believes that the amount and or nature of such items make period to period comparisons of operations difficult and potentially confusing . 28 in february 2009 , the recovery act was signed into law . it includes approximately $ 787 billion in tax incentives and new spending , a portion of which relates to renewable energy , energy efficiency and energy reliability . the recovery act includes , among other things , provisions that allow companies building wind facilities the option to choose between three investment cost recovery mechanisms : ( i ) ptcs which were extended for wind facilities through 2012 , ( ii ) investment tax credits of 30 % of the cost for qualifying wind facilities placed in service prior to 2013 , or ( iii ) an election to receive a cash grant of 30 % of the cost of qualifying wind facilities placed in service in 2009 or 2010 , or if construction began prior to december 31 , 2010 and the wind facility is placed in service prior to 2013. an election to receive a cash grant of 30 % , in lieu of the 30 % investment tax credit allowable under present law , also applies to the cost of qualifying solar facilities placed in service in either 2009 or 2010 , or if construction began prior to december 31 , 2010 and the solar facility is placed in service prior to 2017. in addition , 50 % bonus depreciation was extended on most types of property placed in service in 2009 , and certain property placed in service in 2010. fpl group and fpl are in the process of evaluating the effect of the recovery act on their businesses . results of operations story_separator_special_tag the results of a detailed depreciation study that fpl is currently finalizing . further , fpl expects to request that the fpsc continue to allow fpl to use the mechanism for recovery of the revenue requirements of any new power plant approved pursuant to the siting act that was established in fpl 's 2005 rate agreement . hearings on the base rate proceeding are expected during the third quarter of 2009 and a final decision is expected by the end of 2009. the final decision may approve rates that are different from those that fpl will request . fpl 's operating revenues consisted of the following : replace_table_token_15_th for the year ended december 31 , 2008 , an increase in the average number of customers of 0.3 % increased retail base revenues by approximately $ 9 million while a 2.7 % decrease in usage per retail customer , reflecting weather conditions and other factors , decreased retail base revenues by approximately $ 95 million . partly offsetting the usage decrease was an extra day of sales in 2008 , as it was a leap year . in addition , a base rate increase resulting from turkey point unit no . 5 commencing commercial operation on may 1 , 2007 increased retail base revenues by approximately $ 28 million . fpl experienced a decline in retail customer growth in the latter half of 2007 and throughout 2008 as well as a decline in non-weather related retail customer usage , which fpl believes is reflective of the economic slowdown and housing crisis that has affected the country and the state of florida . fpl is unable to predict if growth in customers and non-weather related customer usage will return to previous trends . for the year ended december 31 , 2007 , an increase in the average number of customers of 2.0 % increased retail base revenues by approximately $ 71 million . during this period , usage per retail customer decreased 0.4 % . this usage decrease , as well as other factors , decreased retail base revenues by approximately $ 18 million . in addition , the base rate increase resulting from turkey point unit no . 5 commencing commercial operation on may 1 , 2007 increased 2007 retail base revenues by approximately $ 86 million . 30 revenues from fuel and other cost recovery clauses and pass-through costs , such as franchise fees , revenue taxes and storm-related surcharges do not significantly affect net income ; however , underrecovery or overrecovery of such costs can significantly affect fpl group 's and fpl 's operating cash flows . fluctuations in fuel cost recovery revenues are primarily driven by changes in fuel and energy charges which are included in fuel , purchased power and interchange expense in the consolidated statements of income , as well as by changes in energy sales . fluctuations in revenues from other cost recovery clauses and pass-through costs are primarily driven by changes in storm-related surcharges , capacity charges , franchise fee costs , the impact of changes in o & m and depreciation expenses on the underlying cost recovery clause , as well as changes in energy sales . story_separator_special_tag capacity charges and franchise fee costs are included in fuel , purchased power and interchange and taxes other than income taxes , respectively , in the consolidated statements of income . fpl uses a risk management fuel procurement program which was approved by the fpsc at the program 's inception . the fpsc reviews the program activities and results for prudence on an annual basis as part of its annual review of fuel costs . the program is intended to manage fuel price volatility by locking in fuel prices for a portion of fpl 's fuel requirements . the current regulatory asset for the change in fair value of derivative instruments used in the fuel procurement program amounted to approximately $ 1,109 million and $ 117 million at december 31 , 2008 and 2007 , respectively . the increase in fuel revenues in 2008 reflects approximately $ 230 million related to a higher average fuel factor partly offset by approximately $ 190 million attributable to lower energy sales . the decrease in fuel revenues in 2007 reflects approximately $ 484 million related to a lower average fuel factor partly offset by approximately $ 73 million attributable to higher energy sales . in may 2007 , a wholly owned subsidiary of fpl issued $ 652 million aggregate principal amount of storm-recovery bonds primarily for the after-tax equivalent of the total of fpl 's unrecovered balance of 2004 storm restoration costs , the 2005 storm restoration costs and approximately $ 200 million to reestablish fpl 's storm and property insurance reserve . the storm-recovery bonds , including interest and bond issuance costs , are being repaid through a surcharge to retail customers . prior to the issuance of these storm-recovery bonds , fpl had been recovering from retail customers , since february 2005 , the 2004 storm restoration costs through a storm damage surcharge . both the revenues from the 2004 storm damage surcharge and the storm-recovery bonds surcharge are included in other cost recovery clauses and pass-through costs and amounted to approximately $ 97 million , $ 94 million and $ 151 million for the years ended december 31 , 2008 , 2007 and 2006 , respectively . see note 9 – fpl . revenues from other cost recovery clauses and pass-through costs also declined in 2007 due to the absence in 2007 of the recovery of a portion of litigation costs that fpl had been recovering since 2002 through the capacity clause . see discussion below of depreciation and amortization expense . beginning in 2009 , revenues from the nuclear cost recovery rule will be included in revenues from other cost recovery clauses and pass-through costs . the major components of fpl 's fuel , purchased power and interchange expense are as follows : replace_table_token_16_th the increase in fuel and energy charges in 2008 reflects higher fuel and energy prices of approximately $ 224 million partly offset by approximately $ 194 million attributable to lower energy sales . the increase in fuel and energy charges in 2007 reflects higher fuel and energy prices of approximately $ 532 million and approximately $ 65 million attributable to higher energy sales . at december 31 , 2008 , approximately $ 256 million of retail fuel costs were deferred pending collection from retail customers in a subsequent period . the increase from december 31 , 2007 to december 31 , 2008 in deferred clause and franchise expenses and the decrease in deferred clause and franchise revenues ( current and noncurrent , collectively ) on fpl group 's and fpl 's consolidated balance sheets totaled approximately $ 110 million and negatively affected fpl group 's and fpl 's cash flows from operating activities for the year ended december 31 , 2008 . 31 fpl 's o & m expenses decreased $ 16 million in 2008 reflecting lower insurance , employee benefit and distribution costs of approximately $ 47 million , $ 11 million and $ 10 million , respectively . these decreases were partly offset by higher nuclear generation , fossil generation , transmission and customer service costs of approximately $ 21 million , $ 4 million , $ 3 million and $ 20 million , respectively , as well as a reserve for ongoing regulatory matters . the decline in insurance costs was primarily due to the termination by mutual agreement of an environmental insurance policy . the decline in employee benefit costs reflects a higher pension credit as well as lower benefits due to declining market conditions , partly offset by higher medical costs . the decline in distribution costs reflects cost reduction efforts and efficiencies as well as reduced work load due to the decline in customer growth partly offset by severance costs incurred in 2008. the increase in nuclear generation costs reflects plant improvement initiatives to ensure long-term reliable operations . the fossil generation increase reflects costs associated with plant maintenance , while the transmission increase reflects additional improvement activities . the customer service cost increase is primarily due to higher uncollectible accounts . other changes in o & m expenses were primarily driven by pass-through costs which did not significantly affect net income . management expects o & m expenses in 2009 to exceed the 2008 level primarily due to the absence of the environmental insurance policy termination as well as higher expected nuclear , fossil generation , transmission , customer service and employee benefit costs . fpl 's o & m expenses increased $ 80 million in 2007 reflecting higher nuclear , fossil generation , distribution , customer service and employee benefits costs of approximately $ 23 million , $ 11 million , $ 11 million , $ 7 million and $ 17 million , respectively . the increase in nuclear costs reflects plant improvement initiatives to ensure long-term reliable operations while the fossil generation increase reflects costs associated with placing turkey point unit no . 5 in service as well as costs associated with plant repair and a performance payment made to an owner of a jointly-owned plant .
| the change in unrealized mark-to-market activity is primarily attributable to changes in forward power and natural gas prices , as well as the reversal of previously recognized unrealized mark-to-market gains/losses as the underlying transactions are realized . as a general rule , a gain ( loss ) in the non-qualifying hedge category is offset by decreases ( increases ) in the fair value of related physical asset positions in the portfolio or contracts , which are not marked to market under generally accepted accounting principles . in 2008 , 2007 and 2006 , nextera energy resources recorded $ 82 million , $ 6 million and $ 1 million , respectively , of after-tax otti losses on securities held in nextera energy resources ' nuclear decommissioning funds . in 2008 , nextera energy resources had approximately $ 6 million after-tax of otti reversals ; there were no such otti reversals in 2007 or 2006. results for corporate and other in 2008 reflect higher interest expense offset by additional consolidating income tax adjustments . results for corporate and other in 2007 reflect lower interest costs and higher interest income , partly offset by lower federal and state tax benefits . results for corporate and other in 2006 reflect a $ 98 million ( $ 60 million after-tax ) impairment charge related to fpl fibernet 's metro market assets as a result of significant changes in the business climate in which fpl fibernet operates and $ 14 million of after-tax merger costs associated with the proposed merger between fpl group and constellation energy group , inc. ( constellation energy ) , which was terminated in october 2006. see note 5 – corporate and other for fpl fibernet impairment charges and note 16 for segment information . fpl group 's effective income tax rate for all periods presented reflects ptcs for wind projects at nextera energy resources . ptcs can significantly affect fpl group 's effective income tax rate depending on the amount of pretax income and wind generation . see note 1 – income taxes , note 6 and note 11 – sale of differential membership interests . 29 fpl – fpl 's net income for 2008 , 2007 and
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u.s. income taxes have not been provided on the undistributed earnings of non-u.s. subsidiaries since it is the company 's intention to continue to reinvest these earnings in those foreign subsidiaries for working capital needs and growth initiatives . the amount of such undistributed earnings at december 31 , 2013 was approximately $ 188.0 million . u.s. and foreign income taxes that would be payable if such earnings were distributed may be lower than the amount computed at the u.s. statutory rate due to the availability of foreign tax credits . 15 5. goodwill and other intangible assets — during 2013 , certain internal shifts in the company 's management and changes to the structure of internally reported information occurred . the company currently believes its structure , its resource allocation and its performance assessment are now more closely aligned with its four geographical regions : north america , emea , asia/pacific and south america . therefore , the company changed its reportable operating segments from those categorized by product nature to those organized by geography . see note 3 of notes to consolidated financial statements in item 8 of this report for further information . similarly , the company reassessed and changed its reporting units for goodwill testing purposes during the third quarter of 2013 to adhere to its geographical orientation . the company records goodwill and intangible assets at fair value as of the acquisition date and amortizes definite-lived intangible assets on a straight-line basis over the useful lives of the intangible assets based on third-party valuations of the assets . goodwill and intangible assets , which have indefinite lives , are not amortized and are required to be assessed at least annually for impairment . the company compares the assets ' fair value to their carrying value , primarily based on future discounted cash flows , in order to determine if an impairment charge is warranted . the estimates of future cash flows involve considerable management judgment and are based upon assumptions about expected future operating performance . assumptions used in these forecasts are consistent with internal planning , but the actual cash flows could differ from management 's estimates due to changes in business conditions , operating performance , and economic conditions . the company 's assumption of weighted average cost of capital ( “ wacc ” ) and estimated future net operating profit after tax ( “ nopat ” ) are particularly important in determining estimated future cash flows . in addition , the company revised its calculation for its step one impairment model during 2013 , which now includes an estimate of future growth and cash flows in perpetuity , among other , less significant , changes . based on its revised reporting units , the company completed its annual impairment assessment as of the end of the third quarter of 2013 , and no impairment charge was warranted . furthermore , the estimated fair value of each of the company 's reporting units substantially exceeded its carrying value , with none of the company 's reporting units at risk for failing step one of the goodwill impairment test . the company 's consolidated goodwill and indefinite-lived intangible assets at december 31 , 2013 and december 31 , 2012 were $ 59.3 million and $ 60.3 million , respectively . the company currently uses a wacc of 12 % and , at september 30 , 2013 , this assumption would have had to increase by more than 73.2 percentage points before any of the company 's reporting units would fail step one of the impairment analysis . further , at september 30 , 2013 , the company 's estimate of future nopat would have had to decrease by more than 70.3 % before any of the company 's reporting units would be considered potentially impaired . 6. postretirement benefits—the company provides certain pension and other postretirement benefits to employees and retirees . independent actuaries , in accordance with accounting principles generally accepted in the united states , perform the required valuations to determine benefit expense and , if necessary , non-cash charges to equity for additional minimum pension liabilities . critical assumptions used in the actuarial valuation include the weighted average discount rate , rates of increase in compensation levels , and expected long-term rates of return on assets . if different assumptions were used , additional pension expense or charges to equity might be required . the company 's u.s. pension plan year-end is november 30 , and the measurement date is december 31. the following table highlights the potential impact on the company 's pre-tax earnings , due to changes in assumptions with respect to the company 's pension plans , based on assets and liabilities at december 31 , 2013 : replace_table_token_4_th liquidity and capital resources quaker 's cash and cash equivalents increased to $ 68.5 million at december 31 , 2013 from $ 32.5 million at december 31 , 2012. the $ 36.0 million increase was primarily the result of a strong amount of cash provided by operating activities of $ 73.8 million , net of cash used in investing activities of $ 12.4 million , cash used in financing activities of $ 26.2 million and an increase due to foreign exchange rate translation of $ 0.8 million . at december 31 , 2013 , the company held approximately $ 48.6 million of its total cash and cash equivalents among its foreign subsidiaries , which is subject to possible limitations on repatriation to the united states . net cash flows provided by operating activities were $ 73.8 million in 2013 , compared with $ 62.9 million provided by operating activities in 2012. the $ 10.9 million increase in net operating cash flow was led by the company 's higher net income and improved working capital management . story_separator_special_tag affecting the working capital comparison from 2012 to 2013 were higher cash inflows in 2013 related to accounts payable and accrued liabilities due to increased business activity and timing of such expenses and lower cash outflows in 2013 for payments on estimated taxes , which were partially offset by significant cash outflows in 2013 from accounts receivable due to the timing of sales in the final months of the year compared to lower sales in the comparable months of 2012. in addition , the company 's first dividend distribution from its captive insurance equity affiliate of $ 2.0 million , the mineral oil excise tax refund , discussed below and lower pension plan contributions during 2013 , partially offset by fees related to the company 's 2013 revision to its credit facility discussed below , also affected the net operating cash flow comparisons . 16 net cash flows used in investing activities decreased from $ 16.7 million in 2012 to $ 12.4 million in 2013. the $ 4.3 million decrease of cash used in investing activities was primarily caused by lower payments for acquisitions and lower investments in property , plant and equipment . in 2013 , the company acquired a business that primarily related to tin plating and a chemical milling maskant distribution network for its north american segment for net consideration of approximately $ 2.5 million . whereas , the company acquired np coil dexter industries , s.r.l . for approximately $ 2.7 million for its emea segment and , also , paid hold-backs of consideration that were assumed in the past acquisitions of tecniquimia mexicana , s.a. de c.v. and g.w . smith and sons , inc. for approximately $ 3.0 million during 2012. as it relates to the company 's lower investments in property , plant and equipment , the primary changes were higher payments for the company 's technology infrastructure during 2012 , which were partially offset by an increased investment in its asia/pacific facilities during 2013. net cash flows used by financing activities were $ 26.2 million in 2013 , compared with $ 30.6 million used by financing activities during 2012. in both years , the company was able to leverage strong operating cash flow to fund its investing and financing activities , while also making payments on its revolving credit line . however , there were lower repayments of debt in 2013 compared to 2012 , as the company had repaid all outstanding borrowings on its credit line as of the third quarter of 2013. in addition , higher dividend payments and changes in stock option exercise activity in 2013 also affected the financing cash flow comparisons . the company completed its annual goodwill impairment assessment as of the end of the third quarter of 2013 and the estimated fair value of each of the company 's reporting units substantially exceeded their carrying value , so no impairment charge was warranted . as discussed in the current report on form 8-k filed on june 17 , 2013 , the company entered into a revised syndicated multicurrency credit facility on june 14 , 2013 , which amended and replaced the company 's previous credit facility with bank of america , n.a . and certain other major financial institutions . the revised facility increased the maximum principal amount available for revolving credit borrowings under this facility from $ 175.0 million to $ 300.0 million , which can be increased to $ 400.0 million at the company 's option if the lenders agree and the company satisfies certain conditions . this facility matures in june 2018. in addition , the revised facility amended certain financial , acquisition and other covenants , but the consolidated leverage ratio calculation , on which access to credit under the former facility largely depended , remains relatively consistent and can not exceed 3.50 to 1. at december 31 , 2013 and december 31 , 2012 , the consolidated leverage ratio was below 1.0 to 1 and the company was also in compliance with all of the current and former facilities ' other covenants , respectively . at december 31 , 2013 , the company had no outstanding borrowings under this revised facility . at december 31 , 2012 , the company had approximately $ 12.2 million outstanding under its former facility . during 2002 and 2003 , the company 's netherlands and italian subsidiaries paid excise taxes on mineral oil sales in italy in the total amount of approximately $ 2.0 million . alleging that the mineral oil excise tax was contrary to european union directives , the subsidiaries filed with the customs ' authority of milan ( “ customs office ” or “ office ” ) requests to obtain a refund of the above-mentioned amount . the parties appealed rulings to various levels of tax courts up through the supreme court of italy . in march 2012 , the supreme court rejected the appeal of the customs office , ruling in favor of the subsidiaries and granting a refund for the amounts requested . after filing an enforcement action , the company ultimately collected the $ 2.0 million , along with approximately $ 0.5 million of interest , in the second quarter of 2013. this amount was recorded as other income on the company 's 2013 consolidated statement of income . at december 31 , 2013 , the company 's gross liability for uncertain tax positions , including interest and penalties , was $ 16.8 million . the company can not determine a reliable estimate of the timing of cash flows by period related to its uncertain tax position liability . however , should the entire liability be paid , the amount of the payment may be reduced by up to $ 11.4 million as a result of offsetting benefits in other tax jurisdictions .
| the net result was earnings per diluted share of $ 4.27 in 2013 compared to earnings per diluted share of $ 3.63 for 2012 , with non-gaap earnings per diluted share increasing approximately 10 % to $ 3.84 in 2013 compared to $ 3.49 in 2012 and adjusted ebitda increasing 11 % to $ 89.6 million for 2013 from $ 80.9 million for 2012. see the non-gaap measures section in this item , below . net cash flows provided by operating activities were $ 73.8 million in 2013 , increasing by $ 10.9 million , or 17 % , from 2012 on higher net income and improved working capital management . in addition , the company 's balance sheet remains very strong with no borrowings on its credit facility and its cash position exceeding its debt at december 31 , 2013 , which will provide opportunities for the company to pursue strategic growth opportunities , including acquisitions , in the future . in addition , the company enhanced its financial flexibility during 2013 by revising its credit facility , expanding the amount available for borrowing under this facility from $ 175.0 million to $ 300.0 million . as the company looks to 2014 , it expects to see modest market growth in all regions of the world . in addition , the company expects market share gains from its strategic initiatives and its recent acquisitions , which will build upon anticipated end market growth . however , the company continues to operate in a highly competitive market with challenging economic conditions over various parts of the world . also , the company could experience increases in raw material costs from their current levels in the near term . on balance , the company remains confident in its future and expects 2014 to be another good year for quaker as we strive to increase revenue and earnings for the fifth consecutive year . critical accounting policies and estimates quaker 's discussion and analysis of its financial condition and results of operations are based upon quaker 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states .
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currently awld is developing lots for sale to third party builders and is not engaged in any construction activity . the first three private homes at algodon wine estates have been delivered to their owners while two remain under construction . two additional homes are slated to begin construction . eighteen lots have been either sold , or are currently in advanced negotiations . the company expects to close on the sale of twelve lots and anticipates recording the deeds as early as the third quarter 2015. to date , no deeds have yet to be issued . as of december 31 , 2014 , the company has $ 1,229,029 of lot deposits for pending sales . as reflected in our consolidated financial statements we have generated significant losses of $ 9,063,427 and $ 8,792,830 for the years ended december 31 , 2014 and 2013 , respectively , consisting primarily of general and administrative expenses , raising substantial doubt that we will be able to continue operations as a going concern . our independent registered public accounting firm included an explanatory paragraph in their report for these years stating that we have not achieved a sufficient level of revenues to support our business and have suffered recurring losses from operations . our ability to execute our business plan is dependent upon our generating cash flow and obtaining additional debt or equity capital sufficient to fund operations . our business strategy may not be successful in addressing these issues and there can be no assurance that we will be able to obtain any additional capital . if we can not execute our business plan ( including acquiring additional capital ) , our stockholders may lose their entire investment in us . if we are able to obtain additional debt or equity capital ( of which there can be no assurance ) , we hope to acquire additional management as well as increasing marketing our products and continuing the development of our real estate holdings . 39 the chairman and ceo of awld , scott mathis , is currently subject to a regulatory matter which could result in him becoming statutorily disqualified from participating in the securities industry . see risks associated with dpec capital 's business . were that to occur , mr. mathis would be required to resign all positions that he has with dpec capital , inc. he will cease being a registered representative and principal of the firm , he will resign as an officer and director of dpec capital , inc. , and he will not in any way be involved in the business or operations of the firm . while mr. mathis 's duties and responsibilities with dpec capital could be transferred to other current ( and possibly future ) employees , the ability of dpec capital to raise investment capital for the company may be diminished , and in turn could have an adverse effect on the company 's ability to conduct operations or expand and develop its business . further , in the event the continued ownership of dpec capital by the company adversely affected the company 's other business segments or operations , or mr. mathis 's role at the company would otherwise interfere with dpec capital 's ability to function as a registered broker-dealer , the company would likely seek to divest dpec capital , for example , through a spin-off or sale . management has not yet determined whether it could sell or spin off dpec capital , and if it could , whether it could do so on acceptable terms . the company currently has no plans to divest itself of dpec capital . the company has not developed an alternative operational plan in the event that mr. mathis is disqualified by finra , as we do not know the disposition of mr. mathis 's application to finra , which is subject to final approval by finra 's national adjudicatory council and the sec . see item 3 - legal proceedings for more information . financings in 2013 , we raised , net of repayments , approximately $ 4,359,000 of new capital through the issuance of debt and equity . we used the net proceeds from the closings of these private placement offerings for general working capital and capital expenditures . in 2014 , we raised , net of repayments , approximately $ 7,295,000 of new capital through the issuance of debt and equity . we used the net proceeds from the closings of these private placement offerings for general working capital and capital expenditures . initiatives we have implemented a number of initiatives designed to expand revenues and control costs . revenue enhancement initiatives include expanding marketing , investment in additional winery capacity and developing new real estate development revenue sources . cost reduction initiatives include investment in equipment that will decrease our reliance on subcontractors , plus outsourcing and restructuring of certain functions . our goal is to become more self-sufficient and less dependent on outside financing . 40 story_separator_special_tag sequence : 44 ; value : 1 -- > 42 liquidity and capital resources we measure our liquidity a variety of ways , including the following : for the years ended december 31 , 2014 2013 cash $ 442,725 $ 207,418 working capital deficiency $ ( 1,897,344 ) $ ( 3,474,474 ) based upon our working capital situation as of december 31 , 2014 , we require additional equity and or debt financing in order to sustain operations . these conditions raise substantial doubt about our ability to continue as a going concern . during the years ended december 31 , 2014 and 2013 , we have relied primarily on debt and equity private placement offerings to third party independent , accredited investors to sustain operations . these offerings were conducted by our wholly-owned subsidiary dpec capital , inc. additionally , from time to time , we secured individual , direct loans from our ceo and other shareholders . story_separator_special_tag we issued 2,748,995 and , 1,561,534 shares of series a preferred at $ 2.30 per share to accredited investors in private placement transactions during the years ended december 31 , 2014 and 2013 , respectively . cash proceeds of $ 5,532,877 and $ 4,083,275 during the years ended december 31 , 2014 and 2013 , respectively , were attributable to the preferred stock offering . the difference between these amounts and the cited shares times $ 2.30 per share is due to ( a ) conversions of notes with no new cash proceeds , and ( b ) cash deposits received prior to the closing of the subscription . in addition , we issued 1,223,349 shares of common stock at $ 2.00 per share to accredited investors in a private placement offering , for gross proceeds of $ 2,446,697. the proceeds from these financing activities were used to fund our existing operating deficits , legal and accounting expenses in preparation of becoming and being a public company , capital expenditures associated with our real estate development projects , enhanced marketing efforts to increase revenues and the general working capital needs of the business . we will need to raise additional capital in order to meet our future liquidity needs for operating expenses , capital expenditures for the winery expansion and to further invest in our real estate development . if we are unable to obtain adequate funds on reasonable terms , we may be required to significantly curtail or discontinue operations . sources and uses of cash for the years ended december 31 , 2014 and 2013 net cash used in operating activities net cash used in operating activities for the years ended december 31 , 2014 and 2013 , amounted to approximately $ 7,052,000 and $ 4,544,000 , respectively . during the year ended december 31 , 2014 the net cash used in operating activities was primarily attributable to the net loss of approximately $ 9,063,000 , adjusted for approximately $ 1,666,000 of non-cash expenses and partially offset by approximately $ 345,000 cash provided by changes in the levels of operating assets and liabilities . during the year ended december 31 , 2013 , the net cash used in operating activities was primarily attributable to the net loss of approximately $ 8,793,000 , adjusted for $ 3,132,000 of net non-cash expenses , partially offset by $ 1,117,000 provided by changes in the levels of operating assets and liabilities . 43 net cash used in investing activities net cash used in investing activities for the years ended december 31 , 2014 and 2013 amounted to approximately $ 654,000 and $ 202,000 , respectively , and was primarily related to the purchase of property and equipment . net cash provided by financing activities net cash provided by financing activities for the years ended december 31 , 2014 and 2013 amounted to approximately $ 7,294,000 and $ 4,359,000 , respectively . for the year ended december 31 , 2014 , the net cash provided by financing activities resulted primarily from the issuance of equity for net proceeds of approximately $ 8,030,000 , partially offset by net repayments of debt of approximately $ 736,000. for the year ended december 31 , 2013 , the net cash provided by financing activities resulted primarily from the issuance of equity for net proceeds of $ 4,083,000 , plus new borrowings , net of repayments , of $ 276,000. going concern and management 's liquidity plans the accompanying financial statements have been prepared assuming that we will continue as a going concern , which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business . as discussed in note 2 to the accompanying consolidated financial statements , we have not achieved a sufficient level of revenues to support our business and development activities and have suffered substantial recurring losses from operations since our inception , which conditions raise substantial doubt that we will be able to continue operations as a going concern . the accompanying consolidated financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern . based on current cash on hand and subsequent activity as described herein , our cash-on-hand only allows us to operate our business operations on a month-to-month basis . because of our limited cash availability , we have scaled back our operations to the extent possible . while we are exploring opportunities with third parties and related parties to provide some or all of the capital we need , we have not entered into any agreement to provide us with the necessary capital . historically , the company has been successful in raising funds to support our capital needs . if we are unable to obtain additional financing on a timely basis , we may have to delay vendor payments and or initiate cost reductions , which would have a material adverse effect on our business , financial condition and results of operations , and ultimately we could be forced to discontinue our operations , liquidate and or seek reorganization under the u.s. bankruptcy code . as a result , our auditors have issued a going concern opinion in conjunction with their audit of our december 31 , 2014 and 2013 consolidated financial statements . off-balance sheet arrangements none . contractual obligations as a smaller reporting company , we are not required to provide the information required by paragraph ( a ) ( 5 ) of this item . 44 critical accounting policies and estimates use of estimates to prepare financial statements in conformity with accounting principles generally accepted in the united states of america , we must make estimates and assumptions . these estimates and assumptions affect the reported amounts in the financial statements , and the 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 .
| restaurant revenues were approximately ars 4.8 million and 3.6 million during the years ended december 31 , 2014 and 2013 , respectively , representing an increase of ars 1.2 million , or 33 % . winemaking revenues were approximately ars 3.5 million and 2.5 million during the years ended december 31 , 2014 and 2013 , respectively , representing an increase of ars 1.0 million or 40 % , resulting from an expansion of distribution channels and additional investments in marketing and sales staff . the devaluation of the argentine peso resulted in a loss of approximately $ 1,055,000 , obtained by multiplying the change in average dollar equivalent of the argentine peso with the total sales figure for the year ended december 31 , 2013. the loss on currency translation was offset by a gain of approximately $ 140,000 from the increase in sales . 41 gross profit we generated a gross loss of approximately $ 12,000 for the year ended december 31 , 2014 as compared to a gross profit of approximately $ 230,000 for the year ended december 31 , 2013 , primarily related to the devaluation of the peso during 2014. further , the restaurant and golf and tennis business units at awe realized negative margins in 2014 , due to significant fixed costs ( i.e . depreciation on golf courses and tennis courts ) related to these business units . the restaurant and golf and tennis are kept open every day at a loss , in order to support the image of the winery . selling and marketing expenses selling and marketing expenses were approximately $ 336,000 and $ 284,000 , for the years ended december 31 , 2014 and 2013 , respectively , representing an increase of approximately $ 52,000 or 18 % . the increase is primarily due to expenses related to promoting our international wine sales , including meeting with potential importers and distributors , as well as potential wine clients and investors in china , the middle east and europe . general and administrative expenses
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although we report our actual results in u.s. dollars , we conduct a significant number of transactions in currencies other than u.s. dollars . therefore , we present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effects of foreign currency rate fluctuations . an overview of our three businesses and related operating segments follows . cloud and on-premise software business our cloud and on-premise software business , which represented 78 % , 77 % and 76 % of our total revenues in fiscal 2016 , 2015 and 2014 , respectively , is comprised of three operating segments : ( 1 ) cloud software and on-premise software , ( 2 ) cloud iaas and ( 3 ) software license updates and product support . on a constant currency basis , we expect that our cloud and on-premise software business ' total revenues generally will continue to increase due to continued demand for our software products , expected growth in our cloud and software license updates and product support offerings , including the high percentage of customers that renew their software license updates and product support contracts , and contributions from our acquisitions , which should allow us to grow and continue to make investments in research and development . cloud software and on-premise software : our cloud software and on-premise software line of business markets , sells and delivers a broad spectrum of application and platform technologies through our saas and paas offerings , which are certain of our software applications and platforms that are delivered via a cloud-based it environment that we host , manage and support , and through the licensing of our software products including oracle applications , oracle database , oracle fusion middleware and java , among others . we believe the comprehensiveness and breadth of our saas , paas and on-premise software offerings provides greater benefit to our customers and differentiates us from many of our competitors that offer more limited or specialized software offerings . our saas and paas offerings are designed to be interoperable with one another , thereby limiting the integration and tuning of multiple cloud applications from multiple vendors . our saas and paas offerings are designed to deliver secure data isolation and flexible upgrades , self-service access controls for users , a service-oriented architecture ( soa ) for integration with on-premise systems , and a high performance , high availability infrastructure based on our infrastructure technologies including oracle engineered systems . our on-premise software offerings are substantially designed to operate on both single server and clustered server configurations for cloud or on-premise it environments , and to support a choice of operating systems including oracle solaris , oracle linux , microsoft windows and third-party unix products , among others . our commitment to industry standards results in software offerings that work in customer environments with oracle or non-oracle hardware or software components and that can be adapted to meet specific industry or business needs . we focus the engineering of our products and services to best connect cloud and on-premise deployment models to enable flexibility , ease , agility , compatibility , extensibility and seamlessness . all of these approaches are designed to support customer choice and reduce customer risk . our customers include businesses of many sizes , government agencies , educational institutions and resellers . we market and sell our software offerings to these customers with a sales force positioned to offer the combinations that best fit customer needs . we enable customers to evolve and transform to substantially any it environment at whatever pace is most appropriate for them . our saas and paas revenues and new software licenses revenues are affected by the strength of general economic and business conditions , governmental budgetary constraints , the strategy for and competitive position of our software offerings , our acquisitions , our ability to deliver and renew our saas and paas contracts with our existing customers and foreign currency rate fluctuations . in recent periods , we have placed significant strategic emphasis on growing our cloud saas and paas revenues , which has affected the growth of our cloud saas and 41 paas revenues and our new software licenses revenues and the related expenses . we expect these trends will continue . our saas and paas arrangements are generally one to three years in duration and we strive to renew these contracts when they are eligible for renewal . the substantial majority of our new software license transactions are characterized by long sales cycles and the timing of a few large software license transactions can substantially affect our quarterly new software licenses revenues . cloud software and on-premise software revenues represented 25 % , 26 % and 28 % of our total revenues in fiscal 2016 , 2015 and 2014 , respectively . our cloud software and on-premise software segment 's margin has historically trended upward over the course of the four quarters within a particular fiscal year due to the historical upward trend of our new software licenses revenues over those quarterly periods and because the majority of our costs for this segment are predominantly fixed in the short term . as discussed further below under supplemental disclosure related to certain charges , our cloud software and on-premise software segment 's margin has been and will continue to be affected by the fair value adjustments relating to the cloud saas and paas obligations that we assumed in our business combinations and by the amortization of intangible assets associated with companies and technologies that we have acquired . cloud infrastructure as a service : our cloud iaas segment , which represented 2 % of our total revenues in each of fiscal 2016 and 2015 , and 1 % of our total revenues in fiscal 2014 , provides infrastructure cloud services that are enterprise-grade , hosted and supported within the oracle cloud to perform elastic compute , storage and networking services on a subscription basis . story_separator_special_tag our cloud iaas segment also offers oracle managed cloud services , which are comprehensive software and hardware management and maintenance services for customer it infrastructure for a fee for a stated term that are hosted at our oracle data center facilities , select partner data centers or physically on-premise at customer facilities . software license updates and product support : software license updates and product support revenues are generated through the sale of software support contracts relating to on-premise new software licenses purchased by our customers . customers that purchase software license updates and product support are granted rights to unspecified product upgrades and maintenance releases and patches released during the term of the support period , as well as technical support assistance . our software license updates and product support contracts are generally one year in duration . substantially all of our on-premise software license customers renew their software license updates and product support contracts annually . the growth of software license updates and product support revenues is primarily influenced by three factors : ( 1 ) the percentage of our software support contract customer base that renews its software support contracts , ( 2 ) the amount of new software support contracts sold in connection with the sale of new software licenses and ( 3 ) the amount of software support contracts assumed from companies we have acquired . software license updates and product support revenues , which represented 51 % , 49 % and 47 % of our total revenues in fiscal 2016 , 2015 and 2014 , respectively , is our highest margin business unit . our software support margins during fiscal 2016 were 91 % and accounted for 86 % of our total margins over the same period . our software license updates and product support margins have been affected by fair value adjustments relating to software support obligations assumed in business combinations and by the amortization of intangible assets , both of which are discussed further below under supplemental disclosure related to certain charges. over the longer term , we believe that software license updates and product support revenues and margins will grow for the following reasons : substantially all of our on-premise new software license customers , including customers from acquired companies , renew their software support contracts when eligible for renewal ; substantially all of our customers purchase software license updates and product support contracts when they buy new software licenses , resulting in a further increase in our software support contract base . even if new software licenses revenues growth was flat , software license updates and product support revenues would continue to grow in comparison to the corresponding prior year periods assuming contract renewal and cancellation rates and foreign currency rates remained relatively constant , since substantially all new software licenses transactions result in the sale of software license updates and product support contracts , which add to our software support contract base ; and 42 our acquisitions have increased our software support contract base , as well as the portfolio of products available to be licensed and supported . hardware business our hardware business is comprised of two operating segments : ( 1 ) hardware products and ( 2 ) hardware support . our hardware business represented 13 % of our total revenues in fiscal 2016 , and 14 % of our total revenues in each of fiscal 2015 and 2014. we expect our hardware business to have lower operating margins as a percentage of revenues than our cloud and on-premise software business due to the incremental costs we incur to produce and distribute these products and to provide support services , including direct materials and labor costs . we expect to make investments in research and development to improve existing hardware products and services and to develop new hardware products and services . hardware products : we provide a broad selection of hardware and related services , including oracle engineered systems , servers , storage , networking , workstations and related devices , industry-specific hardware , virtualization software , operating systems , and management software to support diverse it environments , including cloud computing environments . we engineer our hardware products with virtualization and management capabilities to enable the rapid deployment and efficient management of cloud and on-premise it infrastructures . our hardware products support many of the world 's largest cloud infrastructures , including the oracle cloud . our hardware products are designed to be easier to deploy , manage and maintain for our customers and to improve computing performance relative to our competitors ' offerings . we design our hardware products to seamlessly connect cloud and on-premise it environments to further enable interoperability , interchangeability and extendibility and to work in customer environments that may include other oracle or non-oracle hardware or software components . our flexible and open approach provides oracle customers with a broad range of choices in how they deploy our hardware products , which we believe is a priority for our customers . oracle engineered systems are core to our hardware offerings and are important elements of our data center and cloud computing offerings including the oracle cloud . these pre-integrated products are designed to integrate multiple oracle technology components to work together to deliver improved performance , availability , security and operational efficiency relative to our competitors ' products ; to be upgraded effectively and efficiently ; and to simplify maintenance cycles by providing a single solution for software patching . oracle engineered systems are tested before they are shipped to customers and delivered ready-to-run , enabling customers to shorten deployment time to production . we offer certain of our oracle engineered systems technologies through flexible deployment options including as a cloud service and for on-premise it environments . we offer a wide range of server products using our sparc microprocessor . our sparc servers run the oracle solaris operating system and are designed to be differentiated by their reliability , security , and scalability .
| we believe that if our acquired companies had operated independently and sales forces had not been integrated , the relative mix of products and services sold would have been different ; and although substantially all of our on-premise software license customers , including customers from acquired companies , renew their software license updates and product support contracts when the contracts are eligible for renewal , and we strive to renew cloud saas and paas contracts and hardware support contracts , the amounts shown as cloud saas and paas deferred revenues , software license updates and product support deferred revenues , and hardware support deferred revenues in our supplemental disclosure related to certain charges ( presented below ) are not necessarily indicative of revenue improvements we will achieve upon contract renewals to the extent customers do not renew . constant currency presentation our international operations have provided and are expected to continue to provide a significant portion of each of our segments ' revenues and expenses . as a result , each segment 's revenues and expenses and our total revenues and expenses will continue to be affected by changes in the u.s. dollar against major international currencies . in order to provide a framework for assessing how our underlying businesses performed excluding the effects of foreign currency fluctuations , we compare the percent change in the results from one period to another period in this annual report using constant currency disclosure . to present this information , current and comparative prior period results for entities reporting in currencies other than u.s. dollars are converted into u.s. dollars at constant exchange rates ( i.e. , the rates in effect on may 31 , 2015 , which was the last day of our prior fiscal year ) rather than the actual exchange rates in effect during the respective periods . for example , if an entity reporting in euros had revenues of 1.0 million euros from products sold on may 31 , 2016 and 2015 , our financial statements would reflect reported revenues of $ 1.12 million in fiscal 2016 ( using 1.12 as the month-end average exchange rate for the period ) and $ 1.08 million in fiscal 2015 ( using 1.08 as the month-end average exchange rate for the period ) . the constant currency presentation , however , would translate the fiscal 2016 results using the fiscal 2015 exchange rate and indicate , in this example , no change in revenues
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in addition , there are certain real estate leases which are denominated in a currency other than the functional currency of the respective entity that entered into the agreement ( primarily swiss francs , russian roubles and polish zloty ) . as a result , the company may be exposed to volatility related to unrealized gains or losses on the translation of present value of future lease payment obligations when translated at the exchange rate as of a reporting period-end . when these foreign exchange rates weaken versus the u.s. dollar at the time the respective u.s. dollar denominated payment is made relative to the payments made in the comparable period , our product margins could be unfavorably impacted . during fiscal 2020 , the average u.s. dollar rate was stronger against the british pound , canadian dollar , chinese yuan , euro , korean won , polish zloty , russian rouble and turkish lira and weaker against the japanese yen and mexican peso compared to the average rate in fiscal 2019 . this had an overall unfavorable impact on the translation of our international revenues and earnings from operations during fiscal 2020 compared to the prior year . if the u.s. dollar strengthens relative to the respective fiscal 2020 foreign exchange rates , foreign exchange could negatively impact our revenues and operating results , as well as our international cash and other balance sheet items during fiscal 2021 , particularly in canada , europe ( primarily the euro , british pound , turkish lira and russian rouble ) and mexico . alternatively , if the u.s. dollar weakens relative to the respective fiscal 2020 foreign exchange rates , our revenues and operating results , as well as our other cash balance sheet items , could be positively impacted by foreign currency fluctuations during fiscal 2021 , particularly in these regions . the company enters into derivative financial instruments to offset some but not all of the exchange risk on foreign currency transactions . for additional discussion regarding our exposure to foreign currency risk , forward contracts designated as hedging instruments and forward contracts not designated as hedging instruments , refer to “ part ii , item 7a . quantitative and qualitative disclosures about market risk. ” strategy in december 2019 , carlos alberini shared his strategic vision and implementation plan for execution which includes the identification of several key priorities to drive revenue and operating profit growth over the next five years . these priorities are : ( i ) brand relevancy ; ( ii ) customer centricity ; ( iii ) global footprint ; ( iv ) product excellence ; and ( v ) functional capabilities ; each as further described below : brand relevancy . we plan to optimize our brand architecture to be relevant with our three target consumer groups : heritage , millennials , and generation z. we will continue to execute celebrity and influencer partnerships and collaborations , as we believe that they are critical to engage more effectively with a younger and broader audience . customer centricity . we intend to place the customer at the center of everything we do . we plan to implement processes and platforms to provide our customers with a seamless omni-channel experience . 34 global footprint . we will continue to expand the reach of our brands by optimizing the productivity and profitability of our current footprint and expanding our distribution channels . product excellence . we will extend our product offering to provide our customers with products for the different occasions of their lifestyles . we will seek to better address local product needs . functional capabilities . we expect to drive material operational improvements in the next five years to leverage and support our global business more effectively , primarily in the areas of logistics , sourcing , product development and production , inventory management , and overall infrastructure . capital allocation we plan to continue to prioritize capital allocation toward investments that support growth and infrastructure , while remaining highly disciplined in the way we allocate capital across projects , including new store development , store remodels , technology investments and others . when we prioritize investments , we will focus on their strategic significance and their return on invested capital expectations . we also plan to manage product buys and inventory ownership rigorously and optimize overall working capital management consistently . during the first quarter of fiscal 2020 , the company announced that its board of directors reduced the future quarterly cash dividends that may be paid to holders of the company 's common stock , when , as and if any such dividend is declared by the company 's board of directors , from $ 0.225 per share to $ 0.1125 per share to redeploy capital and return incremental value to shareholders through share repurchases . in april 2019 , the company issued $ 300 million aggregate principal amount of 2.00 % convertible senior notes due 2024 in a private offering . during the first quarter of fiscal 2020 , the company used $ 170 million of proceeds from its convertible senior notes to enter into an accelerated share repurchase program ( “ asr contract ” ) . the company also repurchased shares of its common stock in open market and privately negotiated transactions totaling $ 118.1 million during fiscal 2020. comparable store sales the company reports national retail federation calendar comparable store sales on a quarterly basis for our retail businesses which include the combined results from our brick-and-mortar retail stores and our e-commerce sites . we also separately report the impact of e-commerce sales on our comparable store sales metric . as a result of our omni-channel strategy , our e-commerce business has become strongly intertwined with our brick-and-mortar retail store business . therefore , we believe that the inclusion of e-commerce sales in our comparable store sales metric provides a more meaningful representation of our retail results . story_separator_special_tag sales from our brick-and-mortar retail stores include purchases that are initiated , paid for and fulfilled at our retail stores and directly operated concessions as well as merchandise that is reserved online but paid for and picked-up at our retail stores . sales from our e-commerce sites include purchases that are initiated and paid for online and shipped from either our distribution centers or our retail stores as well as purchases that are initiated in a retail store , but due to inventory availability at the retail store , are ordered and paid for online and shipped from our distribution centers or picked-up from a different retail store . store sales are considered comparable after the store has been open for 13 full fiscal months . if a store remodel results in a square footage change of more than 15 % , or involves a relocation or a change in store concept , the store sales are removed from the comparable store base until the store has been opened at its new size , in its new location or under its new concept for 13 full fiscal months . stores that are permanently closed or temporarily closed for more than seven days in any fiscal month are excluded from the calculation in the fiscal month that they are closed . e-commerce sales are considered comparable after the online site has been operational in a country for 13 full fiscal months and exclude any related revenue from shipping fees . these criteria are consistent with the metric used by management for internal reporting and analysis to measure performance of the store or online sites . definitions and calculations of comparable store sales used by the company may differ from similarly titled measures reported by other companies . 35 story_separator_special_tag 36 the effective income tax rate de creased to 18.2 % for fiscal 2020 , compared to 63.2 % in the prior year . during fiscal 2019 , the company revised the provisional amounts previously recorded related to the impact of the tax reform and recorded income tax charges totaling $ 6.3 million . key balance sheet accounts the company had $ 284.6 million in cash and cash equivalents and $ 0.2 million in restricted cash as of february 1 , 2020 , compared to $ 210.5 million in cash and cash equivalents and $ 0.5 million in restricted cash at february 2 , 2019 . ◦ during fiscal 2019 , the company recognized charges of 39.8 million ( $ 45.6 million ) for a fine imposed by the european commission related to alleged violations of european union competition rules by the company . the company paid the full amount of the fine during the first quarter of fiscal 2020 . ◦ in april 2019 , the company issued $ 300 million aggregate principal amount of 2.00 % convertible senior notes due 2024 in a private offering , for which it received total cash proceeds of $ 296.2 million , net of initial purchasers ' discounts and commissions and offering costs of $ 3.8 million . in connection with the issuance of these notes , the company ( i ) entered into convertible note hedge transactions for which it paid an aggregate $ 61.0 million and ( ii ) sold warrants for which it received aggregate proceeds of $ 28.1 million . these transactions are intended to reduce the potential dilution with respect to the company 's common stock upon conversion of the notes and or offset any cash payments the company may be required to make in excess of the principal amount of the converted notes . ◦ during fiscal 2020 , the company used $ 170 million of proceeds from its convertible senior notes to enter into an asr contract , pursuant to which it received a total of approximately 10.6 million shares . during fiscal 2020 , the company also repurchased approximately 6.1 million shares of its common stock in open market and privately negotiated transactions totaling $ 118.1 million ( including commissions ) . when combined , these transactions resulted in the company investing $ 288.1 million to repurchase approximately 16.7 million of its common shares in fiscal 2020. during fiscal 2019 , the company invested $ 17.6 million to repurchase approximately 1.1 million of its common shares . the company also paid an additional $ 6.0 million for shares that were repurchased during the fourth quarter of fiscal 2018 but were settled during the first quarter of fiscal 2019 . ◦ the company , through its subsidiaries in europe and china , maintains short-term committed and uncommitted borrowing agreements primarily for working capital purposes . the company had $ 4.0 million in outstanding borrowings as of february 1 , 2020 and no outstanding borrowings under these agreements at february 2 , 2019 . accounts receivable consists of trade receivables relating primarily to the company 's wholesale business in europe and , to a lesser extent , to its wholesale businesses in asia and the americas , royalty receivables relating to its licensing operations , credit card and retail concession receivables related to its retail businesses and certain other receivables . accounts receivable in creased by $ 5.3 million , or 1.6 % , to $ 327.3 million as of february 1 , 2020 , compared to $ 322.0 million at february 2 , 2019 . on a constant currency basis , accounts receivable in creased by $ 14.7 million , or 4.6 % . inventory de creased by $ 75.8 million , or 16.2 % , to $ 393.1 million as of february 1 , 2020 , from $ 468.9 million at february 2 , 2019 . on a constant currency basis , inventory decreased by $ 67.2 million , or 14.3 % .
| were $ 80.4 million and adjusted diluted earnings were $ 0.98 per common share for fiscal 2019 . references to financial results excluding the impact of these items are non-gaap measures and are addressed below under “ non-gaap measures. ” highlights of the company 's performance for fiscal 2020 compared to the prior year are presented below , followed by a more comprehensive discussion under “ results of operations ” : operations total net revenue in creased 2.6 % to $ 2.68 billion for fiscal 2020 , compared to $ 2.61 billion in the prior year . in constant currency , net revenue in creased by 5.4 % . gross margin ( gross profit as a percentage of total net revenue ) in creased 190 basis points to 37.9 % for fiscal 2020 , compared to 36.0 % in the prior year . selling , general and administrative ( “ sg & a ” ) expenses as a percentage of total net revenue ( “ sg & a rate ” ) in creased 20 basis points to 32.2 % for fiscal 2020 , compared to 32.0 % in the prior year . sg & a expenses in creased 3.6 % to $ 865.1 million for fiscal 2020 , compared to $ 835.3 million in the prior year . during fiscal 2019 , the company recognized charges of 39.8 million ( $ 45.6 million ) for a fine imposed by the european commission related to alleged violations of european union competition rules by the company . the company paid the full amount of the fine during the first quarter of fiscal 2020. during fiscal 2020 , the company recognized asset impairment charges of $ 10.0 million , compared to $ 6.9 million in the prior year . during fiscal 2019 , the company recognized net gains on lease terminations of $ 0.5 million . operating margin in creased 330 basis points to 5.3 % for fiscal 2020 , compared to 2.0 % in the
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because there are no approved bevacizumab products for the treatment of retinal diseases in such major markets , we are developing ons-5010 as a standard biologics license application , or bla , and not using the biosimilar drug development pathway 66 that would be required if avastin were an approved drug for the targeted diseases . if approved , we believe ons-5010 has potential to mitigate risks associated with off-label use of unapproved bevacizumab . off-label use of unapproved bevacizumab is currently estimated to account for at least 50 % of all wet amd prescriptions in the united states . going concern through september 30 , 2020 , we have funded substantially all of our operations with $ 278.3 million in proceeds from the sale and issuance of our equity and debt securities . we have also received $ 29.0 million pursuant to our collaboration and licensing agreements through such date . on may 6 , 2020 , we terminated our lease for office space in cranbury , new jersey and relocated our headquarters to monmouth junction , new jersey , a site previously used by us as our warehouse location . we expect that the termination of the cranbury office lease will reduce our cash needs by approximately $ 14.0 million over the remaining life of the original lease , through february 2028. on november 5 , 2020 , we received $ 10.0 million in net proceeds from issuance of an unsecured promissory note with face amount of $ 10.2 million . the note bears interest at a rate of 7.5 % per annum , matures january 1 , 2022 , and includes an original issue discount of $ 0.2 million . we may prepay all or a portion of the note at any time by paying 105 % of the outstanding balance elected for pre-payment . in november 2020 , we repaid $ 3.6 million of unsecured stockholder notes that were due on demand as of september 30 , 2020. as described in their audit report included elsewhere in this annual report on form 10-k , our auditors have included an explanatory paragraph that states that we have incurred recurring losses and negative cash flows from operations and have an accumulated deficit at september 30 , 2020 of $ 289.7 million , which raises substantial doubt about our ability to continue as a going concern.we will need to raise substantial additional capital to fund our planned future operations , commence clinical trials , receive approval for and commercialize ons-5010 , or to develop other product candidates . we plan to finance our future operations with a combination of proceeds from potential licensing and or marketing arrangements with pharmaceutical companies , the issuance of equity securities , and the issuance of additional debt , potential collaborations and revenues from potential future product sales , if any . there are no assurances that we will be successful in obtaining an adequate level of financing for the development and commercialization of ons-5010 or any other current or future product candidates . if we are unable to secure adequate additional funding , our business , operating results , financial condition and cash flows may be materially and adversely affected . our consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . our current cash resources of $ 12.5 million as of september 30 , 2020 together with the $ 10.0 million in proceeds from an unsecured promissory note we issued in november 2020 , after taking into account repayment of $ 3.6 million of debt , are expected to fund our operations into march 2021. to provide additional working capital , we are in active late-stage discussions for the licensing and or co-development rights to ons-5010 . if we are not successful in raising additional capital or entering into one or more licensing and or co-development rights agreements , we may be required to , among other things , modify our clinical trial plans for ons-5010 in additional indications , make reductions in our workforce , discontinue our development programs , liquidate all or a portion of our assets , and or seek protection under the provisions of the u.s. bankruptcy code . we do not have any products approved for sale and we have only generated revenue from our collaboration agreements . we have incurred operating losses and negative operating cash flows since inception and there is no assurance that we will ever achieve profitable operations , and if achieved , that profitable operations will be sustained . our net loss for the year ended september 30 , 2020 was $ 35.2 million . we also had a net loss of $ 34.5 million for the year ended september 30 , 2019. in addition , development activities , clinical and preclinical testing and commercialization of our product candidates will require significant additional financing . impacts of the covid-19 pandemic we continue to monitor the ongoing covid-19 global pandemic , which has resulted in travel and other restrictions to reduce the spread of the disease . to date , we have experienced only minor disruptions from the ongoing covid-19 67 pandemic , including a brief delay in patient enrollment and recruitment in norse two due to local clinical trial site protocols designed to protect staff and patients . given our current infrastructure needs and current strategy , we were able to transition to remote working with limited impact on productivity , as shelter-in-place and other types of local and state orders were imposed . we have confirmed with the ophthalmic division of the fda that it considers both approved and investigational treatments for sight-threatening conditions such as wet amd not to be elective , and that as such they should continue during the covid-19 restrictions . all clinical and chemistry , manufacturing and control , or cmc , activities are currently active . all three of our clinical trials have completed enrollment and norse one has also completed patient follow-up activities . story_separator_special_tag norse two and three patients continue to require monthly follow-up visits , which will continue over the next 12 and 3 months , respectively . to date , we have not experienced any significant covid-19 disruptions to patient follow-up but the clinical trial protocol accounts for potential delayed or missed visits for any reason , including covid-19 type interruptions . the fda has provided guidance in the event of covid-19 disruptions and we intend to confer with the fda and follow the appropriate guidance in the event that norse two experiences an unusually high number of delayed or missed patient visits due to covid-19 . the safety , health and well-being of all patients , medical staff and our internal and external teams is paramount and is our primary focus . as shelter-in-place rules evolve in jurisdictions across the country , we are aware that the potential exists for further disruptions to our projected timelines . we are in close communication with our clinical teams and key vendors and are prepared to take action should the pandemic worsen and impact our business in the future . the ultimate impact of the covid-19 pandemic is highly uncertain and subject to change . we do not yet know the full extent of any impacts the evolving covid-19 pandemic may have on our business , operations , financial position and our clinical and regulatory activities . see also the section titled “ risk factors ” herein for additional information on risks and uncertainties related to the ongoing covid-19 pandemic . collaboration and license agreements from time to time , we enter into collaboration and license agreements for the research and development , manufacture and or commercialization of our products and or product candidates . these agreements generally provide for non-refundable upfront license fees , development and commercial performance milestone payments , cost sharing , royalty payments and or profit sharing . we have also licensed rights to our inactive biosimilar product candidates ( ons-3010 , ons-1045 and ons-1050 ) in other markets and are in active late-stage discussions for the licensing and or co-development rights to ons-5010 . mttr , llc – ons 5010 in january 2020 , we agreed to terminate our february 2018 arrangement with mttr llc , or mttr , for ons-5010 . following receipt of necessary stockholder approval , in march 2020 , we issued an aggregate of 7,244,739 shares of our common stock to the four principals of mttr ( who include two of our named executive officers , mr. dagnon and mr. evanson ) pursuant to individual consulting agreements we entered into with each of them , and paid mttr a one-time settlement fee of $ 110,000. the consulting agreements also include terms setting for the respective compensation arrangements of each of the principals , including for mr. dagnon and mr. evanson , who have been serving as executive officers since november 2018. see also item 1 “ business—collaboration and license agreements—mttr-strategic parternship agreement ( ons-5010 ) . ” mttr and its four principals under the strategic partnership agreement and the subsequent individual consulting agreements earned an aggregate $ 1,294,089 and $ 1,744,933 during the years ended september 30 , 2020 and 2019 , respectively , which includes monthly consulting fees and expense reimbursement , but excludes stock-based compensation related to restricted stock . 68 syntone – private placement and prc joint venture in may 2020 , we entered into a stock purchase agreement with syntone , pursuant to which we sold and issued in june 2020 , in a private placement , 16,000,000 shares of our common stock at a purchase price of $ 1.00 per share , for aggregate gross proceeds of $ 16.0 million . in connection with the entry into the stock purchase agreement , we entered into a joint venture agreement with syntone 's people 's republic of china , or prc , based-affiliate , pursuant to which we agreed to form a prc joint venture that will be 80 % owned by syntone 's prc-affiliate and 20 % owned by us . once formed , we intend to enter into a royalty-free license with the prc joint venture for the development , commercialization and manufacture of ons-5010 in the greater china market , which includes hong kong , taiwan and macau . selexis sa in october 2011 , we entered into a research license agreement with selexis whereby we acquired a non-exclusive license to conduct research internally or in collaboration with third parties to develop recombinant proteins from cell lines created in mammalian cells using the selexis expression technology , or the selexis technology . the research license expired on october 9 , 2018 and accordingly , we are no longer using the selexis technology in our research . selexis also granted us a non-transferrable option to obtain a perpetual , non-exclusive , worldwide commercial license under the selexis technology to manufacture , or have manufactured , a recombinant protein produced by a cell line developed using the selexis technology for clinical testing and commercial sale . we exercised this option in april 2013 and entered into three commercial license agreements with selexis for our ons-3010 , ons-1045 ( which covers ons-5010 ) and ons-1050 product candidates . we paid an upfront licensing fee to selexis for each commercial license and also agreed to pay a fixed milestone payment for each licensed product . in addition , we are required to pay a single-digit royalty on a final product-by-final product and country-by-country basis , based on worldwide net sales of such final products by us or any of our affiliates or sub-licensees during the royalty term . at any time during the term , we have the right to terminate our royalty payment obligation by providing written notice to selexis and paying selexis a royalty termination fee .
| million compared to the year ended september 30 , 2019. we saw a significant increase in ons-5010 development costs of $ 10.5 million as we advanced and fully enrolled our norse two phase 3 clinical trial during the year and initiated the necessary process characterization and manufacturing scale up activities with external partners to support our planned bla filing in 2021. these increased costs were offset by decreased other research and development costs of $ 5.0 million and lower compensation costs including stock-based compensation of $ 3.0 million due to the discontinuation of in house development and manufacturing related activities . 73 general and administrative expenses the following table summarizes our general and administrative expenses by type for the years ended september 30 , 2020 and 2019 : replace_table_token_4_th general and administrative expenses for the year ended september 30 , 2020 increased by $ 0.6 million compared to the year ended september 30 , 2019. the increase was primarily due to a $ 0.7 million lease termination loss recognized upon termination of our lease at our former corporate headquarters in cranbury , new jersey . impairment of property and equipment during the year ended september 30 , 2020 , we recorded an impairment charge of $ 0.5 million primarily due to the write-off of assets held for sale after we determined that the carrying amount of these assets was not recoverable as result of the may 2020 termination of our remaining lease for office , manufacturing and laboratory space at our former corporate headquarters in cranbury , new jersey and relocation of our corporate headquarters to our warehouse space in monmouth junction , new jersey . during the year ended september 30 , 2019 , we recognized a loss on impairment of property and equipment of $ 11.3 million . the impairment was recognized due to the substantial completion of our efforts to outsource the commercial manufacturing and remaining development
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under the terms of the midwest agreement , shareholders of midwest will receive $ 65.50 per share , or $ 12.6 million total value , with between 50 % and 75 % of the total consideration to be paid in peoples ' common stock and the remainder to be paid in cash , with the actual mix to be based on the elections of the shareholders of midwest and subject to proration . the exchange ratio for the stock component of the transaction will be determined based on the peoples ' average closing stock price during the 20 consecutive trading days immediately preceding the closing of the transaction . ◦ at the close of business on october 11 , 2013 , peoples bank completed the acquisition of ohio commerce bank ( `` ohio commerce '' ) and its single full-service office in beachwood , ohio . under the terms of the agreement , peoples bank paid $ 13.75 in cash for each share of ohio commerce common stock for a total cash consideration of $ 16.5 million . the acquisition added $ 96.6 million of loans and $ 110.9 million of deposits . management expects this transaction to be accretive to peoples ' earnings starting in 2014 as one-time acquisition costs more than offset the incremental 2013 earnings . this transaction is more fully described in note 18 of the notes to the consolidated financial statements . ◦ on january 2 , 2013 , peoples insurance acquired a commercial insurance agency office and related customer accounts in the pikeville , kentucky area ( the `` pikeville acquisition '' ) . on april 5 , 2013 , peoples insurance acquired mcnelly insurance and consulting agency , llc and related customer accounts in jackson , ohio . on may 15 , 2013 , peoples insurance acquired two additional insurance agency offices and related customer accounts in jackson , ohio . these acquisitions are expected to help peoples maintain revenue diversity by continuing to grow the fee-based businesses . these transactions are more fully described in note 18 of the notes to the consolidated financial statements . ◦ in 2013 , peoples incurred $ 1.5 million of acquisition-related expenses , compared to $ 641,000 in 2012 , which were primarily fees for legal costs , other professional services , deconversion costs and write-offs associated with assets acquired . there were no acquisition-related expenses incurred in 2011 . ◦ during 2013 , peoples took steps to reduce its investment in bank-owned life insurance ( `` boli '' ) contracts and redeploy the funds in order to enhance long-term shareholder return . the first action was a $ 5.2 million partial withdrawal of the original premium paid , which was completed in may 2013. the next action was a request for a 29 full surrender of certain boli policies , which had a cash surrender value of $ 42.8 million and cost basis of $ 36.5 million at june 30 , 2013. in late july 2013 , peoples bank received $ 36.2 million from the liquidation of the underlying investments in connection with the surrender request . the remaining cash surrender value of approximately $ 6.6 million was recorded as a receivable at december 31 , 2013 , of which $ 3.1 million was received january 23 , 2014 , with the remaining expected to be paid out by the end of first quarter of 2014 in accordance with the terms of the boli policies ( collectively the `` boli surrender '' ) . ◦ the boli surrender proceeds initially were redeployed into peoples bank 's investment portfolio , while the long-term goal is to ultimately use the proceeds to fund future loan growth . this redeployment is expected to increase peoples ' annual net interest income by at least $ 1 million . the boli surrender caused peoples to incur a $ 2.2 million federal income tax liability in 2013 for the gain associated with the policies surrendered . ◦ peoples periodically has taken actions to reduce interest rate exposure within the investment portfolio and the entire balance sheet , such as the sale of low yielding investment securities and repayment of high-cost borrowings . during the first quarter of 2013 , peoples sold $ 68.8 million of investment securities , primarily low yielding or volatile residential mortgage-backed securities . the proceeds from these sales were reinvested in investment securities during 2013. peoples intends to use the cash flow generated from the investment portfolio to fund loan growth . ◦ during 2013 , peoples increased the quarterly dividend declared to common shareholders by 17 % . the dividend declared in the first quarter of 2013 and fourth quarter of 2012 was $ 0.12 per common share , and the dividend declared in the second and third quarters of 2013 was $ 0.14 per common share . on january 23 , 2014 , peoples declared a quarterly dividend to common shareholders of $ 0.15 per common share , representing a 7 % increase over the fourth quarter 2013 dividend of $ 0.14 per common share . ◦ as described in note 12 of the notes to the consolidated financial statements , peoples incurred settlement charges of $ 270,000 during 2013 due to the aggregate amount of lump-sum distributions to participants in peoples ' defined benefit pension plan exceeding the threshold for recognizing such charges during the third quarter . settlement charges of $ 835,000 and $ 815,000 were recognized during 2012 and 2011 , respectively . ◦ on december 19 , 2012 , peoples repaid the entire $ 30.9 million aggregate outstanding principal amount of its series a and series b junior subordinated debentures and the proceeds were used by pebo capital trust i to redeem 22,975 series b 8.62 % capital securities having an aggregate liquidation amount of $ 23.0 million , held by institutional investors , as well as 928 outstanding common securities and 7,025 series b 8.62 % capital securities , having an aggregate liquidation amount of $ 8.0 million , held by peoples ( the `` trust preferred redemption '' ) . story_separator_special_tag this transaction resulted in peoples incurring a pre-tax loss of $ 1.0 million for the redemption premium and unamortized issuance costs . peoples funded $ 24.0 million of the repayment with a term note from an unaffiliated financial institution at a significantly lower interest rate , and the balance with cash on hand . as a result of the trust preferred redemption , peoples realized interest expense savings of approximately $ 1.1 million in 2013 . ◦ on september 17 , 2012 , peoples introduced its new brand as part of a company-wide brand revitalization . the brand is peoples ' promise , which is a guarantee of satisfaction and quality . peoples incurred costs throughout 2013 associated with the brand revitalization , including marketing due to advertisements , and depreciation expense for new assets related to the $ 5 million branch renovation project . ◦ since the second quarter of 2011 , peoples has experienced generally improving trends in several asset quality metrics , after a three-year trend of higher credit losses and nonperforming assets than peoples ' long-term historical levels . additionally , the amount of criticized loans has decreased due in part to peoples upgrading the loan quality ratings of various commercial loans . these conditions have resulted in recoveries of loan losses of $ 4.4 million in 2013 and $ 4.7 million in 2012 . ◦ peoples ' net interest income and margin are impacted by changes in market interest rates based upon actions taken by the federal reserve board either directly or through its open market committee . these actions include changing its target federal funds rate ( the interest rate at which banks lend money to each other ) , discount rate ( the interest rate charged to banks for money borrowed from a federal reserve bank ) and longer-term market interest rates ( primarily u.s. treasury securities ) . longer-term market interest rates also are affected by the demand for u.s. treasury securities . the resulting changes in the yield curve slope have a direct impact on reinvestment rates for peoples ' earning assets . ◦ the federal reserve board has maintained its target federal funds rate at a historically low level of 0 % to 0.25 % since december 2008 and has maintained the discount rate at 0.75 % since december 2010. the federal reserve 30 board continues to indicate there is the potential for these short-term rates to remain unchanged until certain inflation and unemployment rates are achieved . ◦ since late 2008 , the federal reserve board has taken various actions to lower longer-term market interest rates as a means of stimulating the economy – a policy commonly referred to as “ quantitative easing ” . these actions have included the buying and selling of mortgage-backed and other debt securities through its open market operations . in december 2013 , the federal reserve board announced plans to taper its quantitative easing efforts . as a result , the slope of the u.s. treasury yield curve has fluctuated significantly . substantial flattening occurred in late 2008 , in mid-2010 and late 2011 through 2012 , while moderate steepening occurred in the second half of 2009 , late 2010 and mid 2013. the impact of these transactions , where material , is discussed in the applicable sections of this management 's discussion and analysis of financial condition and results of operations . critical accounting policies the accounting and reporting policies of peoples conform to us gaap and to general practices within the financial services industry . a summary of significant accounting policies is contained in note 1 of the notes to the consolidated financial statements . while all of these policies are important to understanding the consolidated financial statements , certain accounting policies require management to exercise judgment and make estimates or assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . these estimates and assumptions are based on information available as of the date of the consolidated financial statements ; accordingly , as this information changes , the consolidated financial statements could reflect different estimates or assumptions . management has identified the accounting policies described below as those that , due to the judgments , estimates and assumptions inherent in the policies , are critical to an understanding of peoples ' consolidated financial statements and management 's discussion and analysis of financial condition and results of operations . income recognition interest income on loans and investment securities is recognized by methods that result in level rates of return on principal amounts outstanding , including yield adjustments resulting from the amortization of loan costs and premiums on investment securities and accretion of loan fees and discounts on investment securities . since mortgage-backed securities comprise a sizable portion of peoples ' investment portfolio , a significant increase in principal payments on those securities could impact interest income due to the corresponding acceleration of premium amortization or discount accretion . management 's analysis at december 31 , 2013 showed changes in the rate of prepayments could cause an approximately 10 basis point change in peoples ' net interest margin from quarter-to-quarter . peoples discontinues the accrual of interest on a loan when conditions cause management to believe collection of all or any portion of the loan 's contractual interest is doubtful . such conditions may include the borrower being 90 days or more past due on any contractual payments or current information regarding the borrower 's financial condition and repayment ability . all unpaid accrued interest deemed uncollectible is reversed , which would reduce peoples ' net interest income . interest received on nonaccrual loans is included in income only if principal recovery is reasonably assured . allowance for loan losses in general , determining the amount of the allowance for loan losses requires significant judgment and the use of estimates by management . peoples maintains an allowance for loan losses based on a quarterly analysis of the loan portfolio and estimation of the losses that are probable of occurrence within the loan portfolio .
| the following table provides an analysis of the changes in fully tax-equivalent ( “ fte ” ) net interest income : replace_table_token_7_th ( 1 ) the change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the dollar amounts of the changes in each . ( 2 ) presented on a fully tax-equivalent basis . as part of the analysis of net interest income , management converts tax-exempt income earned on obligations of states and political subdivisions to the pre-tax equivalent of taxable income using an effective tax rate of 35 % . management believes the resulting fte net interest income allows for a more meaningful comparison of tax-exempt income and yields to their taxable equivalents . net interest margin , which is calculated by dividing fte net interest income by average interest-earning assets , serves as an important measurement of the net revenue stream generated by the volume , mix and pricing of earning assets and interest-bearing liabilities . 38 the following table details the calculation of fte net interest income for the years ended december 31 : replace_table_token_8_th the yield curve remained relatively flat and interest rates remained low during 2013 , which placed greater downward pressure on peoples ' net interest income and margin . in 2013 , peoples recognized $ 270,000 of normal accretion income from the ohio commerce acquisition , and $ 976,000 of additional interest income from prepayment fees and interest recovered on nonaccrual loans , which when combined added approximately 6 basis points to net interest margin . in comparison , additional interest income from prepayment fees and interest recovered on nonaccrual loans was $ 467,000 in 2012 and $ 348,000 in 2011 , adding approximately 3 basis points and 2 basis points , respectively , to net interest margin . the yield on investment securities declined further in 2013 , as the impact of lower reinvestment rates was magnified by higher levels of principal prepayments within mortgage-backed securities . this intensified during
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we believe that our cash and cash equivalents , along with anticipated revenue that we expect to earn during the first half of 2009 , will fund our operations only through the end of august 2009. in addition , on february 4 , 2009 , we received notice from the listing qualifications panel of the nasdaq stock market llc , or nasdaq , that it has determined to continue the listing of our common stock on the nasdaq global market subject to our compliance with marketplace rule 4450 ( b ) ( 1 ) ( a ) , which requires us to maintain a market value of our common stock of at least $ 50,000,000 for at least 10 consecutive days on or prior to may 11 , 2009. as of march 10 , 2009 , we were not in compliance with the requirement for continued inclusion on nasdaq . if we do not regain compliance with the rules for continued listing on nasdaq , our common stock will be delisted from nasdaq . if our common stock is delisted from nasdaq , the holders of our $ 100 million aggregate principal amount of 3 % convertible senior notes could redeem their notes at face value , plus accrued and unpaid interest . we currently do not have sufficient funds to repurchase more than a nominal amount of the notes if tendered by the holders . accordingly , we will need to raise significant additional capital to fund our operations beyond august 2009 or if we are required to redeem the notes . if we are unable to obtain such additional capital , we will not be able to sustain our operations and would be required to cease our operations and or seek bankruptcy protection . given the difficult current economic environment , we believe that it will be difficult for companies such as ours to raise additional funds and there can be no assurance as to the availability of additional financing or the terms upon which additional financing may be available . as a result of our recurring operating losses and need for additional financing , the audit report relating to our consolidated financial statements as of and for the year ended december 31 , 2008 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern . critical accounting policies and estimates the 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 judgments that affect our reported assets and liabilities , revenues and expenses , and other financial information . these items are monitored and analyzed by management for changes in facts and circumstances , and material changes in these estimates could occur in the future . changes in estimates are reflected in reported results for the period in which they become known . we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances . actual results may differ significantly from the estimates under different assumptions and conditions . we believe that our accounting policies related to revenue recognition , research and development and employee stock compensation , as described below , require significant estimates and judgments on the part of management . our significant accounting policies , including the ones described below , are more fully described in note 2 of our consolidated financial statements for the year ended december 31 , 2008. revenue recognition we recognize revenue relating to collaborations in accordance with the securities and exchange commission 's , or sec 's , staff accounting bulletin ( sab ) no . 104 , revenue recognition , or sab 104. revenue under collaborations may include the receipt of non-refundable license fees , milestone payments , reimbursement of research and development costs and royalties . we recognize nonrefundable upfront license fees and guaranteed , time-based payments that require continuing involvement in the form of research and development as license fee revenue ratably over the development period . when the period of deferral can not be specifically identified from the contract , we estimate the period based upon other critical factors contained within the contract . we continually review such 45 estimates which could result in a change in the deferral period and might impact the timing and amount of revenue recognized . milestone payments which represent a significant performance risk are recognized as product development revenue when the performance obligations , as defined in the contract , are achieved . performance obligations typically consist of significant milestones in the development life cycle of the product candidate , such as the filing of investigational new drug applications , initiation of clinical trials , filing for approval with regulatory agencies and approvals by regulatory agencies . milestone payments that do not represent a significant performance risk are recognized ratably over the development period . reimbursements of research and development costs are recognized as product development revenue as the related costs are incurred . royalties are recognized as revenue when earned , reasonably estimable and collection is probable , which is typically upon receipt of royalty reports from the licensee or cash . product development revenue we recognize as revenue from glaxosmithkline and cfft certain third-party costs incurred by us and internal development efforts in the performance of research activities under the related contracts . internal development efforts are billed at standard rates under the contracts . this revenue is recognized in the same period in which the costs are incurred . we recognize as revenue from bayer schering costs incurred by us in excess of our obligation under the agreement to expend 50 % of the costs to develop vasovist . this revenue is recognized in the same period in which the costs are incurred . story_separator_special_tag with respect to payments due to bayer schering , if any , in connection with the vasovist development program , we recognize such amounts as a reduction in revenue at the time bayer schering performs the research and development activities for which we are obligated to pay bayer schering . costs to develop vasovist were essentially completed in december 2008 upon the approval of vasovist by the food and drug administration , or fda , for marketing in the united states . royalty revenue we are entitled to receive a royalty on worldwide sales of primovist and on sales of vasovist outside of the united states ( through march 1 , 2009 ) by bayer schering . royalty revenue is recognized in the period in which royalty reports are received and are based on actual revenues or gross profits as reported to us by bayer schering . license fee revenue we recognize revenue from non-refundable license fees and milestone payments , not specifically tied to a separate earnings process , ratably over the period during which we have a substantial continuing obligation to perform services under the contract . certain contracts require judgment to determine the period of continuing involvement by us and these estimates are subject to change based upon changes in facts and circumstances . when milestone payments are specifically tied to a separate earnings process , revenue is recognized when the specific performance obligations associated with the payment are completed . research and development we account for research and development costs in accordance with statement of financial accounting standards ( sfas ) no . 2 , accounting for research and development cost , which requires that expenditures be expensed to operations as incurred . research and development expenses primarily include employee salaries and related costs , third-party service costs , the cost of preclinical and clinical trials , supplies , consulting expenses , facility costs and certain overhead costs . 46 in order to conduct research and development activities and compile regulatory submissions , we enter into contracts with vendors who render services over extended periods of time . typically , we enter into three types of vendor contracts : time-based , patient-based or a combination thereof . under a time-based contract , using critical factors contained within the contract , usually the stated duration of the contract and the timing of services provided , we record the contractual expense for each service provided under the contract ratably over the period during which we estimate the service will be performed . under a patient-based contract , we first determine an appropriate per patient cost using critical factors contained within the contract , which include the estimated number of patients and the total dollar value of the contract . we then record expense based upon the total number of patients enrolled in the clinical study ratably during the treatment period . on a quarterly basis , we review the assumptions for each contract in order to reflect our most current estimate of the costs incurred under each contract . adjustments are recorded in the period in which the revisions are estimable . these adjustments could have a material effect on our results of operations . employee stock compensation we apply the provisions of sfas no . 123 ( r ) , share-based payment an amendment of fasb statements no . 123 and 95 , or sfas 123 ( r ) , to our share-based payments . determining the appropriate fair value model and calculating the fair value of share-based awards requires us to make various judgments , including estimating the expected life of the share-based award , the expected stock price volatility over the expected life of the share-based award and forfeiture rates . in order to determine the fair value of share-based awards on the date of grant , we use the black-scholes option-pricing model . inherent in this model are assumptions related to stock price volatility , option life , risk-free interest rate and dividend yield . the risk-free interest rate is a less subjective assumption as it is based on treasury instruments whose term is consistent with the expected life of options . we use a dividend yield of zero as we have never paid cash dividends and have no intention to pay cash dividends in the foreseeable future . the stock price volatility and option life assumptions require a greater level of judgment . estimating forfeitures also requires significant judgment . our stock-price volatility assumption is based on trends in both our current and historical volatilities of our stock . we estimate the expected term of options primarily based upon our historical experience of the holding period prior to the exercise or expiration of a vested option . we estimate forfeitures based on our historical experience of cancellations of share-based compensation prior to vesting . we believe that our estimates are based on outcomes that are reasonably likely to occur . to the extent actual forfeitures differ from our estimates , we will record an adjustment in the period the estimates are revised . story_separator_special_tag > estimated clinical completion phase objective period phase 1 establish safety in healthy volunteers and occasionally in patients ; study how the drug works , is metabolized and interacts with other drugs 1-2 years phase 2 evaluate efficacy , optimal dosages and expanded evidence of safety 2-3 years phase 3 further evaluate efficacy and safety of the drug candidate in a larger patient population 2-3 years if we successfully complete phase 3 clinical trials of a drug candidate , we intend to submit the results of all of the clinical trials for such drug candidate to the fda to support regulatory approval . even if any of our drug candidates receive regulatory approval , we may still be required to perform lengthy and costly post-marketing studies . in addition , we currently have no commercial manufacturing , marketing , sales or distribution capabilities .
| in connection with our acquisition of predix pharmaceuticals holdings , inc. in august 2006 , we incurred a non-recurring charge of $ 123.5 million for in-process research and development . the in-process research and development charge represents the fair value of purchased in-process technology of predix for research projects that , as of the closing date of the merger , had not reached technological feasibility and had no alternative future use . the in-process research and development primarily represented the fair value of the following drug candidates : prx-00023 ( $ 70.9 million ) that , as of the date of the merger , was in phase 3 clinical trials for the treatment of generalized anxiety disorder ; prx-03140 ( $ 23.5 million ) that , as of the date of the merger had completed phase 1 clinical trials for the treatment of alzheimer 's disease ; prx-08066 ( $ 20.2 million ) that , as of the date of the merger , had entered phase 2 clinical trials for the treatment of pulmonary hypertension in association with chronic obstructive pulmonary disease , or copd ; and prx-07034 ( $ 8.9 million ) that , as of the date of the merger , had entered phase 1 clinical trials . in march 2008 , we discontinued the development of prx-00023 due to a lack of efficacy shown in a phase 2b trial in patients with major depressive disorder . the following summarizes the applicable disease indication and the current clinical status of our therapeutic drug candidates : drug candidate disease indication clinical trial status prx-03140 ( 1 ) alzheimer 's disease phase 2b prx-08066 ( 2 ) pulmonary hypertension/copd phase 2b prx-07034 ( 3 ) cognitive impairment in association with schizophrenia phase 1b ( 1 ) in may 2008 , we initiated a phase 2b trial in alzheimer 's disease of prx-03140 in combination with aricept ( donepezil ) . this randomized , double-blind , placebo-controlled trial is designed to evaluate the efficacy of prx-03140 on cognitive function as measured by the change from baseline in the cognitive component of the alzheimer 's disease assessment scale ( adas-cog ) score . patients will be randomized to one
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and , as a result , we expect our conversion rate to continue to improve . looking ahead , we are keeping a watchful eye on demand levels in the u.s. labor market while anticipating an increasing demand for skilled workers . despite uncertainties , we know that companies are relying more heavily on the use of flexible staffing models ; there is growing acceptance of free agents and contractual employment by companies and talent alike ; and companies are seeking more comprehensive workforce management solutions that lend themselves to kelly 's talent supply chain management approach . this shift in demand for contingent labor and strategic solutions plays to our strengths and experience — particularly serving large companies whose needs span the globe and cross multiple labor categories . 21 financial measures the constant currency ( “ cc ” ) change amounts in the following tables refer to the year-over-year percentage changes resulting from translating 2016 financial data into u.s. dollars using the same foreign currency exchange rates used to translate financial data for 2015. we believe that cc measurements are a useful measure , indicating the actual trends of our operations without distortion due to currency fluctuations . we use cc results when analyzing the performance of our segments and measuring our results against that of our competitors . additionally , substantially all of our foreign subsidiaries derive revenues and incur cost of services and selling , general and administrative expenses ( “ sg & a ” ) within a single country and currency which , as a result , provide a natural hedge against currency risks in connection with their normal business operations . cc measures are non-gaap ( generally accepted accounting principles ) measures and are used to supplement measures in accordance with gaap . our non-gaap measures may be calculated differently from those provided by other companies , limiting their usefulness for comparison purposes . non-gaap measures should not be considered a substitute for , or superior to , measures of financial performance prepared in accordance with gaap . return on sales ( earnings from operations divided by revenue from services ) and conversion rate ( earnings from operations divided by gross profit ) in the following tables are ratios used to measure the company 's operating efficiency . days sales outstanding ( “ dso ” ) represents the numbers days that sales remain unpaid for the period being reported . dso is calculated by dividing average net sales per day ( net sales excluding secondary supplier expense for a rolling three-month period ) into trade accounts receivable , net at the period end . free cash flow measures the company 's ability to generate the cash flow in excess of that used to maintain operations . free cash flow is calculated by subtracting capital expenditures from cash flows from operating activities . staffing fee-based income staffing fee-based income , which is included in revenue from services in the following tables , has a significant impact on gross profit rates . there are very low direct costs of services associated with staffing fee-based income . therefore , increases or decreases in staffing fee-based income can have a disproportionate impact on gross profit rates . 22 story_separator_special_tag 1 % to 2015 revenue in emea . the emea gross profit rate decrease was mainly driven by unfavorable customer mix in switzerland . staffing fee-based income increased primarily in western europe , partially offset by a decrease in the u.k. total sg & a expenses decreased 3.3 % on a reported basis and 0.7 % on a cc basis , primarily due to effective cost control in headquarters expenses across the region . included in sg & a expenses are restructuring charges of $ 1.2 million , which reflect a repositioning of the operating model to pursue growth in staffing fee-based income and specialized temporary staffing business in italy . 25 ocg ( dollars in millions ) replace_table_token_6_th revenue from services in the ocg segment increased during 2016 due primarily to growth in the bpo and rpo practice areas . revenue in bpo grew by 9 % year over year and rpo grew 4 % year over year . this revenue growth was due primarily to the expansion of programs with existing customers and , to a lesser extent , new customers . ocg revenue represented 13 % of total company revenue in 2016 and 12 % in 2015. the 53rd week in 2015 added approximately 1 % to 2015 revenue in ocg . the ocg gross profit rate increased primarily due to an increased gross profit rates in bpo , rpo and cwo as a result of customer and practice area mix . the increase in sg & a expenses was primarily a result of costs related to additional sales resources , costs associated with increased volume with existing customers and implementation of new business , including salaries and performance-based compensation , and bad debt expense . the bad debt expense was primarily related to certain aged accounts receivable at a subsidiary in germany . 26 results of operations 2015 versus 2014 total company ( dollars in millions ) replace_table_token_7_th total company revenue from services for 2015 was down 0.8 % in comparison to 2014 , primarily as a result of currency fluctuations . during 2015 , the u.s. dollar strengthened against certain currencies , primarily the euro , russian ruble and the australian dollar , compared to 2014. on a cc basis , total company revenue increased 4.7 % year over year , as more fully described in the following discussions . the 2015 fiscal year included a 53rd week . this fiscal leap year occurs every five or six years and is necessary to align the fiscal and calendar periods . the 53rd week added approximately 1 % to 2015 reported and cc revenue . the gross profit rate increased 40 basis points on a year-over-year basis . story_separator_special_tag as more fully described in the following discussions , an increase in the americas region gross profit rate was partially offset by declines in the gross profit rate in emea , apac and ocg . sg & a expenses excluding restructuring costs decreased 2.4 % year over year , reflecting the impact of changes in foreign currency exchange rates . on a cc basis , sg & a expenses increased 2.2 % due to higher expenses in our u.s. branch-based and ocg businesses and higher corporate litigation-related expenses . these increases were partially offset by the cost savings of our management simplification restructuring plan ( “ plan ” ) , and continued cost management efforts in emea and apac . restructuring charges in 2014 include $ 9.9 million related to the plan , $ 0.8 million of costs incurred for exiting the staffing business in sweden and $ 1.3 million related to closing branches in australia and consolidating back office functions in australia and new zealand . income tax expense for 2015 was $ 8.7 million , compared to a benefit of $ 7.1 million for 2014. our tax expense is affected by recurring items , such as the amount of pretax income and its mix by jurisdiction , u.s. work opportunity credits , and the change in cash surrender value of non-taxable investments in life insurance policies . it is also affected by discrete items that may occur in any given year but are not consistent from year to year , such as tax law changes , or changes in judgment regarding the realizability of deferred tax assets . the 2015 year-over-year increase in income tax expense is primarily due to increased pretax income . the work opportunity credit program was extended through 2019 in the fourth quarter of 2015 and retroactively applied to 2015 , providing stability for this item . diluted earnings per share for 2015 were $ 1.39 , as compared to $ 0.61 for 2014 . 27 total americas ( dollars in millions ) replace_table_token_8_th the increase in reported americas revenue from services was due to a 2 % increase in hours worked , offset by a 2 % decrease in average bill rates . average bill rates were flat on a constant currency basis . the increase in hours worked was due to increases in our local branch network customer activity . americas represented 65 % of total company revenue in 2015 and 64 % in 2014. the 53rd week added approximately 1 % to 2015 reported and cc revenue in americas . revenue in our commercial segment was flat and up 2 % on a cc basis in comparison to the prior year . the increase in cc revenue in commercial was primarily due to increases in our educational staffing business , as a result of new customer wins , and in our light industrial product , due to increased demand at existing customer locations , coupled with additional new customer wins . light industrial business is up primarily in accounts serviced through our branch-based delivery model . volume in our large accounts using our centralized delivery model is down as a result of our exit from certain large accounts due to pricing discipline and the reduced revenue from our natural resources customers related to lower oil prices . in the pt segment , reported and cc revenue was up 2 % in comparison to the prior year . increases in accounts serviced through our branch delivery model more than offset the decreases in accounts for customers services through the centralized delivery model . revenue has increased in our science and finance products , while revenue in our engineering product decreased primarily due to the completion of certain projects . it revenue , specifically in the centralized delivery model , is down mainly due to customers moving from a traditional staffing model to an outsourced model delivered by our ocg business . on an overall basis , we have seen a shift in the buying behavior of our large centrally delivered customers from single-sourced arrangements to a more competitively sourced model , which puts pressure on revenue in accounts serviced in our centralized delivery model . the increase in the gross profit rate was primarily due to improved management of our payroll taxes and employee benefit costs , coupled with improved pricing in our u.s. branch network and overall customer mix . the increase in sg & a expenses is attributable to the increased incentive costs and compensation in our local branch network , partially offset by the impact of the plan we implemented in the fourth quarter of last year . 28 total emea ( dollars in millions ) replace_table_token_9_th the decrease in reported emea revenue from services was primarily due to the impact of changes in foreign currency exchange rates . the increase in cc revenue from services was due to a 7 % increase in hours , partially offset by a 3 % decrease in average bill rates on a cc basis , combined with a decrease in staffing fee-based income . the increase in hours was due primarily to higher hours volume in portugal and france , partially offset by a reduction of hours volume with larger customers in switzerland . the decrease in average bill rates was due primarily to increasing revenue in portugal , a country with lower average bill rates . emea represented 17 % of total company revenue in 2015 and 20 % in 2014. the 53rd week added approximately 1 % to 2015 reported and cc revenue in emea . the emea gross profit rate decreased primarily due to a decline in the temporary gross profit rate and a decline in staffing fee-based income . staffing fee-based income declined in both commercial and pt , primarily in russia , partially offset by increases in staffing fee-based income in some other countries . economic conditions in russia continue to be challenging , resulting in the decline in staffing fee-based income .
| the year-over-year decrease in sg & a expenses reflects the transfer of apac operations to the joint venture , decreases in expense in our staffing operations and savings from reductions in performance-based compensation expenses . these decreases were partially offset by an increase in ocg sg & a expenses due to current and expected growth in that segment . income tax expense for 2016 was $ 30.0 million , compared to $ 8.7 million for 2015. our tax expense is affected by recurring items , such as the amount of pretax income and its mix by jurisdiction , u.s. work opportunity credits and the change in cash surrender value of non-taxable investments in life insurance policies . it is also affected by discrete items that may occur in any given period but are not consistent from period to period , such as tax law changes , or changes in judgment regarding the realizability of deferred tax assets . the increase in income tax expense from the prior year is primarily due to tax expense of $ 23.5 million from the gain on the investment in ts kelly asia pacific , the impact of which is partially offset by a $ 2.1 million benefit from the release of valuation allowances in italy . diluted earnings per share for 2016 were $ 3.08 , as compared to $ 1.39 for 2015 . 23 total americas ( dollars in millions ) replace_table_token_4_th the decrease in reported americas revenue from services was due to a 3 % decrease in hours volume , partially offset by a 1 % increase in average bill rates ( a 2 % increase on a cc basis ) . the decrease in hours volume is due , in part , to the 53rd week in 2015 , which added approximately 1 % to 2015 revenue in americas . the remainder of the decrease reflected decreased volume in accounts in our centrally delivered service model . the increase in average bill rates was primarily due to wage inflation and the
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the company generally does not expend a significant amount of capital on lease renewals . year in review—2015 financial results for the year ended december 31 , 2015 , net income attributable to common shareholders decreased compared to 2014 primarily due to a greater amount of impairment charges recorded in 2015 , partially offset by the impact of transaction activity as well as organic growth and continued lease up within the portfolio . the following provides an overview of the key financial metrics ( see non-gaap financial measures , ffo described later in this section ) ( in thousands except per share amounts ) : replace_table_token_30_th in 2015 , the company continued to pursue opportunities to position itself for long-term growth while lowering the company 's risk profile and cost of capital . the company initiatives are focused on positioning its balance sheet to perform in all market cycles . in the first quarter of 2015 , a new senior leadership team was put in place as the company named a new chief executive officer as well as a new chief financial officer . although the general company strategy has not changed , as a result of a combination of continual recycling of assets and the overall favorable asset disposition environment , the new senior management team determined to accelerate the portfolio quality improvement initiative and potentially achieve lower leverage more quickly . management expects to achieve these goals through the acceleration of asset sales not considered to have long-term growth potential that the company 's seeks , as well as the re-evaluation of the targeted risk/return criteria for investing in development/redevelopments and new acquisitions of prime assets . as a result , the company recorded $ 279.0 million in impairment charges in the first quarter related to 25 operating 44 shopping centers and five parcels of land previously held for development . the impairments were triggered by the acceleration of the disposition plans for the operating assets as well as the decision to no longer pursue any potential development related to the land parcels . the following discussion of the company 's financial condition and results of operations provides information that will assist in the understanding of the company 's financial statements , the changes in certain key items and the factors that accounted for changes in the financial statements , as well as critical accounting policies that affected these financial statements . critical accounting policies the consolidated financial statements of the company include the accounts of the company and all subsidiaries where the company has financial or operating control . the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes . in preparing these financial statements , management has used available information , including the company 's history , industry standards and the current economic environment , among other factors , in forming its estimates and judgments of certain amounts included in the company 's consolidated financial statements , giving due consideration to materiality . it is possible that the ultimate outcome as anticipated by management in formulating its estimates inherent in these financial statements might not materialize . application of the critical accounting policies described below involves the exercise of judgment and the use of assumptions as to future uncertainties . accordingly , actual results could differ from these estimates . in addition , other companies may use different estimates that may affect the comparability of the company 's results of operations to those of companies in similar businesses . revenue recognition and accounts receivable rental revenue is recognized on a straight-line basis that averages minimum rents over the current term of the leases . certain of these leases provide for percentage and overage rents based upon the level of sales achieved by the tenant . percentage and overage rents are recognized after a tenant 's reported sales have exceeded the applicable sales breakpoint set forth in the applicable lease . the leases also typically provide for tenant reimbursements of common area maintenance and other operating expenses and real estate taxes . accordingly , revenues associated with tenant reimbursements are recognized in the period in which the expenses are incurred based upon the tenant lease provision . ancillary and other property-related income , which includes the leasing of vacant space to temporary tenants , is recognized in the period earned . lease termination fees are included in other revenue and recognized and earned upon termination of a tenant 's lease and relinquishment of space in which the company has no further obligation to the tenant . management fees are recorded in the period earned . fee income derived from the company 's unconsolidated joint venture investments is recognized to the extent attributable to the unaffiliated ownership interest . in 2014 , the financial accounting standards board ( the “ fasb ” ) issued revenue from contracts with customers , which will be effective for the company in 2018. most significantly for the real estate industry , leasing transactions are not within the scope of the new standard . a majority of the company 's tenant-related revenue is recognized pursuant to lease agreements . the company makes estimates of the collectability of its accounts receivable related to base rents , including straight-line rentals , expense reimbursements and other revenue or income . the company analyzes accounts receivable , tenant credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts . in addition , with respect to tenants in bankruptcy , the company makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable . the time to resolve these claims may exceed one year . these estimates have a direct impact on the company 's earnings because a higher bad debt reserve and or a subsequent write-off in excess of an estimated reserve results in reduced earnings . story_separator_special_tag consolidation all significant inter-company balances and transactions have been eliminated in consolidation . investments in real estate joint ventures in which the company has the ability to exercise significant influence , but does not have financial or operating control , are accounted for using the equity method of accounting . accordingly , the company 's share of the earnings ( or loss ) of these joint ventures is included in consolidated net income . the company has a number of joint venture arrangements with varying structures . the company consolidates entities in which it owns less than a 100 % equity interest if it is determined that it is a variable interest entity ( “ vie ” ) , and the company has a controlling interest in that vie or is the controlling general partner . the analysis to identify whether the company is the primary beneficiary of a vie is based upon which party has ( a ) the power to direct activities of the vie that most significantly affect the vie 's economic performance and ( b ) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the vie . in determining whether it has the power to direct the activities of the vie that most significantly affect the vie 's performance , 45 the company is required to assess whether it has an implicit financial responsibility to ensure that a vie operates as designed . this qualitative assessment has a direct impact on the company 's financial statements , as the detailed activit y of off-balance sheet joint ventures is not presented within the company 's consolidated financial statements . real estate and long-lived assets properties are depreciated using the straight-line method over the estimated useful lives of the assets . the company is required to make subjective assessments as to the useful lives of its properties to determine the amount of depreciation to reflect on an annual basis with respect to those properties . these assessments have a direct impact on the company 's net income . if the company were to extend the expected useful life of a particular asset , it would be depreciated over more years and result in less depreciation expense and higher annual net income . on a periodic basis , management assesses whether there are any indicators that the value of real estate assets , including undeveloped land and construction in progress , and intangibles may be impaired . a property 's value is impaired only if management 's estimate of the aggregate future cash flows ( undiscounted and without interest charges ) to be generated by the property are less than the carrying value of the property . the determination of undiscounted cash flows requires significant estimates by management . in management 's estimate of cash flows , it considers factors such as expected future operating income ( loss ) , trends and prospects , the effects of demand , competition and other factors . if the company is evaluating the potential sale of an asset or development alternatives , the undiscounted future cash flows analysis is probability-weighted based upon management 's best estimate of the likelihood of the alternative courses of action . subsequent changes in estimated undiscounted cash flows arising from changes in anticipated actions could affect the determination of whether an impairment exists and whether the effects could have a material impact on the company 's net income . to the extent an impairment has occurred , the loss will be measured as the excess of the carrying amount of the property over the fair value of the property . the company is required to make subjective assessments as to whether there are impairments in the value of its real estate properties and other investments . these assessments have a direct impact on the company 's net income because recording an impairment charge results in an immediate negative adjustment to net income . if the company 's estimates of the projected future cash flows , anticipated holding periods or market conditions change , its evaluation of the impairment charges may be different , and such differences could be material to the company 's consolidated financial statements . plans to hold properties over longer periods decrease the likelihood of recording impairment losses . the company allocates the purchase price to assets acquired and liabilities assumed at the date of acquisition . in estimating the fair value of the tangible and intangible assets and liabilities acquired , the company considers information obtained about each property as a result of its due diligence , marketing and leasing activities . it applies various valuation methods , such as estimated cash flow projections using appropriate discount and capitalization rates , estimates of replacement costs net of depreciation and available market information . if the company determines that an event has occurred after the initial allocation of the asset or liability that would change the estimated useful life of the asset , the company will reassess the depreciation and amortization of the asset . the company is required to make subjective estimates in connection with these valuations and allocations . the company generally considers assets to be held for sale when the transaction has been approved by the appropriate level of management and there are no known significant contingencies relating to the sale such that the sale of the property within one year is considered probable . this generally occurs when a sales contract is executed with no contingencies and the prospective buyer has significant funds at risk to ensure performance . notes receivable notes receivable include certain loans that are held for investment and are generally collateralized by real estate-related investments and that may be subordinate to other senior loans . loan receivables are recorded at stated principal amounts or at initial investment plus accretable yield for loans purchased at a discount . the related discounts on mortgages and other loans purchased are accreted over the life of the related loan receivable .
| the company 's largest tenants , including tjx companies , bed bath & beyond , walmart/sam 's club , petsmart , kohl 's , dick 's sporting goods and ross stores have increased sales and remained well-capitalized while outperforming other retail categories on a relative basis . the company is also focused on increasing its exposure to specialty grocers , which are expanding . ( over 60 % of the company 's properties have a grocery component . ) 42 company fundamentals the following table lists the company 's 10 largest tenants based on total annualized rental revenues of the wholly-owned properties and the company 's proportionate share of unconsolidated joint venture properties combined as of december 31 , 2015 ( footnotes apply to all further references to noted tenants ) : replace_table_token_28_th ( a ) includes t.j. maxx , marshalls , homegoods and sierra trading ( b ) includes bed bath & beyond , cost plus world market , buybuy baby and christmas tree shops ( c ) includes walmart , sam 's club and neighborhood market ( d ) includes dick 's sporting goods , golf galaxy and field & stream ( e ) includes ross dress for less and dd 's discounts ( f ) subject to ground leases the following table lists the company 's 10 largest tenants based on total annualized rental revenues of the wholly-owned properties and of the unconsolidated joint venture properties as of december 31 , 2015 : replace_table_token_29_th ( g ) includes kroger , harris teeter , king soopers and pick ‘ n save ( h ) includes stop & shop and martin 's 43 the company leased approximately 11 million square feet , including 515 new leases and 815 renewals , for a total of 1,330 leases executed in 2015 . the company continued to execute both new leases and renewals at positive rental spreads . leasing spreads are a key metric in real estate , representing the percentage increase over rental rates on existing leases versus rental r ates on new and renewal leases . at december 31 , 2015 , the
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power tool accessories manual paint applicators , window hardware , convenience hardware and propane torches market and performance overview the company operates in the consumer and commercial products markets , which are generally impacted by overall economic conditions in the regions in which the company operates . the company 's results in 2010 improved compared to 2009 due to an increase in net sales and the expansion of gross margins , despite continuing challenging macroeconomic conditions . the company 's results for 2010 were impacted by the following factors : improvement in economic conditions and increased product penetration internationally , particularly in emerging markets , which contributed to a year-over-year net sales increase of 7.9 % in the company 's international businesses , excluding the impact of currency . productivity gains and favorable product mix , which more than offset the adverse impact of input cost inflation , resulting in a 100-basis-point expansion in gross margins . ongoing improvements in the cost structure of the business , including the completion of projection acceleration , the company 's multi-year restructuring plan designed to achieve best total cost , and reductions in structural selling , general and administrative ( sg & a ) costs resulting from streamlining sg & a activities . selective spend for strategic sg & a activities to drive sales , enhance the new product pipeline and develop growth platforms . during 2010 , the company 's selective spend for strategic brand building and consumer demand creation activities included spend for the following : rubbermaid reveal microfiber spray mop that helps consumers clean floors better , while reducing waste and saving money ; goody 's simple styles collection of hair accessories that make it easy to achieve salon-quality hair styles with only a few simple steps ; mimioclassroom system , an integrated suite of interactive teaching tools and services for educators ; sharpie ® liquid pencil with cutting-edge liquid graphite technology that writes smooth like a pen but erases like a pencil ; expo washable markers formulated to easily wash off of skin and most washable fabrics ; advertising for paper mate ® earthwrite ® , design ® metallic and gel pen lines ; dedicated parker shop-in-shops in key retail locations , primarily located in china , to enhance in-store merchandising ; rubbermaid commercial products ' new line of ergonomically designed material handling carts and trucks , which includes a broad range of solutions that provide enhanced maneuverability and durability ; irwin ® vise-grip ® curved jaw locking pliers feature a unique self-energizing lower jaw that delivers three times more gripping power than traditional locking pliers ; and lenox 's ® q88 bimetal bandsaw blade with a design that maximizes blade life while delivering superior cutting performance . 21 implemented a capital structure optimization plan to simplify the company 's capital structure , lower interest costs and substantially reduce potential future earnings dilution from the convertible notes resulting in a pretax debt extinguishment charge of $ 218.6 million during 2010. began implementation of the european transformation plan , which includes projects designed to improve the financial performance of the european business . projects initiated to date include an evaluation of the pricing architecture and gross-to-net sales optimization and centralization of the leadership of the company 's european operations . settled a multi-year tax return examination resulting in a tax benefit of $ 63.6 million . key initiatives european transformation plan in june 2010 , the company announced a program to simplify and centralize its european business ( the european transformation plan ) . the european transformation plan includes initiatives designed to transform the european organizational structure and processes to centralize certain operating activities , improve performance , leverage the benefits of scale and to contribute to a more efficient and cost-effective implementation of an enterprise resource planning system in europe , all with the aim of increasing operating margin in the european region to at least ten percent . the european transformation plan is expected to result in aggregate restructuring and other plan-related costs of $ 110 to $ 115 million , to be substantially incurred by the end of 2011. the european transformation plan is expected to be completed in 2012 and is expected to result in cumulative restructuring charges totaling between $ 40 and $ 45 million , substantially all of which are employee-related cash costs , including severance , retirement , and other termination benefits and relocation costs . the company also expects to incur an additional $ 70 to $ 75 million of selling , general and administrative expenses to implement the european transformation plan , of which $ 15 million has been incurred through december 31 , 2010. the company expects to realize annualized after-tax savings of $ 55 to $ 65 million upon completion of the implementation of the european transformation plan . as part of its european transformation plan , the company expects to start relocating key personnel to geneva , switzerland , early in 2011 , with all affected employees operational at the new site by the end of 2011. in addition , the company has undertaken various projects to maximize gross margins and centralize operations in the region . project acceleration the company completed the implementation of its project acceleration restructuring initiative in 2010. project acceleration was designed to reduce manufacturing overhead , better align the company 's distribution and transportation processes , and reorganize the overall business structure to align with the company 's core organizing concept , the gbu , to achieve best total cost . through the project acceleration restructuring program and other initiatives , the company improved capacity utilization rates to deliver productivity savings and increased the use of strategic sourcing partners . in 2010 , the company began implementing a number of restructuring programs as part of project acceleration to reduce and realign its manufacturing footprint , including two programs in its home & family segment in north america , one program in its home & family segment internationally , and one program in its office products segment internationally . story_separator_special_tag since the inception of project acceleration , the company has reduced its manufacturing footprint by more than 60 % , including the closure or disposition of 27 manufacturing facilities and the transfer of 19 manufacturing facilities to purchasers in connection with divestitures of businesses . as part of project acceleration , the company also evaluated its supply chain to identify opportunities to realize efficiencies in purchasing , distribution and transportation . in 2010 , the company began implementing projects to reduce and realign its distribution footprint , including one multi-segment project in north america , one multi-segment project internationally , and one project in the tools , hardware & commercial products segment 's international operations . project acceleration also included initiatives to exit and rationalize certain product categories to create a more focused and more profitable platform for growth by eliminating selected low-margin , commodity-like , mostly resin-intensive product categories and reduce the company 's exposure to volatile commodity markets , particularly resin . the product line exits and rationalizations were substantially completed in 2009 and primarily impacted products in the company 's rubbermaid consumer and markers , highlighters , art & office organization gbus . because these product line exits and rationalizations took place throughout 2009 , the carryover impact of the product line exits and rationalizations resulted in a 1.4 % decline in net sales in 2010 compared to 2009. restructuring costs incurred over the life of the initiative totaled $ 498 million , including $ 241 million of employee-related costs , $ 178 million in non-cash asset-related costs , and $ 79 million in other associated restructuring costs . approximately 64 % of the total project 22 acceleration restructuring costs were cash charges . cumulative annualized savings realized from the implementation of project acceleration are expected to exceed $ 220 million by the end of 2011 , after the savings for the projects implemented in 2010 are fully realized . one newell rubbermaid the company strives to leverage the common business activities and best practices of its gbus , and to build one common culture of shared values with a focus on collaboration and teamwork . through this initiative , the company has established regional shared service centers to leverage nonmarket-facing functional capabilities to reduce costs . in addition , the company has consolidated the leadership and strategic operations of five of the company 's gbus into the company 's headquarters facilities to facilitate the sharing of knowledge and better leverage best practices . the company is also migrating multiple legacy systems and users to a common sap global information platform in a phased , multi-year rollout . sap is expected to enable the company to integrate and manage its worldwide business and reporting processes more efficiently . through december 31 , 2010 , the north american operations of 12 of the company 's 13 gbus have successfully gone live with their sap implementation efforts , including the north american operations of the rubbermaid consumer and rubbermaid commercial products gbus in april 2010. additional sap go-lives for certain of the company 's north american operations are scheduled for 2011 , and the company 's european operations are expected to go-live on sap in the first half of 2012. consolidated results of operations the company believes the selected data and the percentage relationship between net sales and major categories in the consolidated statements of operations are important in evaluating the company 's operations . the following table sets forth items from the consolidated statements of operations as reported and as a percentage of net sales for the year ended december 31 , ( in millions , except percentages ) : replace_table_token_6_th 23 results of operations 2010 vs. 2009 net sales for 2010 were $ 5,759.2 million , representing an increase of $ 181.6 million , or 3.3 % , from $ 5,577.6 million for 2009. the following table sets forth an analysis of changes in consolidated net sales for 2010 as compared to 2009 ( in millions , except percentages ) : replace_table_token_7_th core sales increased 4.7 % compared to the prior year resulting from higher volumes primarily due to increases in demand , particularly internationally , and restocking by customers in anticipation of future increases in consumer demand , particularly in the geographic regions and channels where inventories were reduced in late 2008 and early 2009. the higher volumes were also attributable to new products launched during 2010 , distribution gains and geographic expansion . core sales at the company 's north american and international businesses increased approximately 3.6 % and 7.9 % , respectively , versus the prior year . last year 's product line exits reduced year-over-year sales by 1.4 % while foreign currency had a negligible impact . gross margin , as a percentage of net sales , for 2010 was 37.7 % , or $ 2,170.8 million , versus 36.7 % of net sales , or $ 2,049.5 million , for 2009. the primary drivers of the 100 basis point gross margin improvement were productivity gains from several initiatives , including project acceleration , and improved product mix , partially offset by input cost inflation . sg & a expenses for 2010 were 25.4 % of net sales , or $ 1,463.4 million , versus 24.6 % of net sales , or $ 1,374.6 million for 2009 , with currency having a negligible impact on the year-over-year increase . approximately 30 basis points of the 80 basis point increase in sg & a expenses as a percentage of sales is attributable to restructuring related charges incurred in connection with the european transformation plan in 2010. the remaining increase was mainly due to the company 's increased spend for brand building and other strategic sg & a activities , such as marketing initiatives , advertising and promotions , sales force increases and the implementation of sap . the company recorded restructuring costs of $ 77.5 million and $ 100.0 million for 2010 and 2009 , respectively .
| product line exits and rationalizations and foreign currency reduced net sales 3.0 % and 2.4 % , respectively . operating income for 2010 was $ 269.4 million , or 15.8 % of net sales , an increase of $ 34.2 million , or 14.5 % , from $ 235.2 million , or 14.0 % of net sales for 2009. the 180 basis point improvement in operating margin is attributable to productivity gains , improved product mix partially offset by the impacts of input cost inflation and a 100 basis point increase in constant currency sg & a costs as a percentage of net sales due to increased spend for strategic brand , volume building and other strategic sg & a activities . 26 tools , hardware & commercial products net sales for 2010 were $ 1,671.9 million , an increase of $ 146.2 million , or 9.6 % , from $ 1,525.7 million for 2009. core sales increases accounted for 8.2 % of the year-over-year increase , as geographic expansion and international core sales growth were significant contributors to the core sales increase . from a gbu perspective , the industrial products & services and construction tools & accessories gbus generated mid to high single-digit core sales growth . favorable foreign currency accounted for 1.4 % of the net sales increase . operating income for 2010 was $ 253.1 million , or 15.1 % of net sales , an increase of $ 7.5 million , or 3.1 % , from $ 245.6 million , or 16.1 % of net sales , for 2009. the 100 basis point decline in operating margin is primarily attributable to input cost inflation combined with a 50 basis point increase in constant currency sg & a costs as a percentage of sales , as the segment 's businesses continue to increase spend for brand building and other strategic sg & a activities . 2009 vs. 2008 business segment operating results net sales by segment were as follows for the year ended december 31 , ( in millions , except percentages ) : replace_table_token_12_th the following table sets forth an analysis of changes
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our career development and succession planning processes help to maintain stability in management . 22 fiscal year 2017 results of operations replace_table_token_7_th * items indicated represent non-gaap measurements . see the “ non-gaap financial measures ” section below . † net income is equivalent to income from continuing operations in fiscal years 2017 and 2016. replace_table_token_8_th fiscal year 2017 consolidated net sales were $ 669.9 million compared to fiscal year 2016 net sales of $ 635.1 million , a 5 % increase . increased volume across all verticals was the primary driver while the positive impact of price increases contributed to a lesser extent . our education vertical market sales grew as we continued our focus on education products and distribution . our finance vertical market sales increase was driven by focus on strategic accounts and assisting financial institutions with refreshing their image and adding collaborative spaces . our sales in the government vertical market increased as we experienced improved order activity on awarded blanket purchase agreements and had success with larger projects relative to fiscal year 2016. the hospitality vertical market sales increase was primarily driven by increased non-custom business . during fiscal year 2017 , our new products specific to healthcare settings drove increased sales which were partially offset due to uncertainty surrounding the potential replacement of the affordable care act . each of our vertical market sales levels can fluctuate depending on the mix of projects in a given period . at the beginning of fiscal year 2017 we redefined our vertical market reporting to better reflect the end markets that we serve . the largest shifts among vertical markets were sales to certain government-affiliated customers such as state universities , which were previously classified in the government vertical market and are now classified in the education vertical market . prior period information was estimated to reflect the new vertical market definitions on a comparable basis . 23 open orders at june 30 , 2017 increased 1 % when compared to the open order level as of june 30 , 2016 as demand for office furniture increased and hospitality furniture open orders declined slightly . open orders at a point in time may not be indicative of future sales trends . in fiscal year 2017 we recorded net income of $ 37.5 million , or $ 0.99 per diluted share , inclusive of a $ 1.1 million after-tax restructuring gain , or $ 0.03 per diluted share , from the sale of the idaho facility . in fiscal year 2016 we recorded net income of $ 21.2 million , or $ 0.56 per diluted share , inclusive of $ 4.5 million , or $ 0.12 per diluted share , of after-tax restructuring expense . excluding these non-recurring gains or expenses , our adjusted net income for fiscal year 2017 improved to $ 36.4 million , or $ 0.96 per diluted share , compared to adjusted net income for fiscal year 2016 of $ 25.7 million , or $ 0.68 per diluted share . see the “ non-gaap financial measures ” section below . gross profit as a percent of net sales increased 120 basis points in fiscal year 2017 compared to fiscal year 2016 . the improvement was driven by the favorable impact of price increases , the benefit of leverage gained on higher sales volumes , and the benefits from our restructuring plan involving the transfer of metal fabrication production from idaho into facilities in indiana . higher employee benefit costs in fiscal year 2017 , retirement expense in particular , partially offset the aforementioned improvements . as a percent of net sales , selling and administrative expenses in fiscal year 2017 compared to fiscal year 2016 decreased 50 basis points due to the increased sales volumes . in absolute dollars selling and administrative spending increased 3 % primarily due to higher incentive compensation costs as a result of higher earnings levels and higher salary expense . we also had an unfavorable variance within selling and administrative expenses of $ 1.2 million for fiscal year 2017 compared to fiscal year 2016 related to the normal revaluation to fair value of our supplemental employee retirement plan ( “ serp ” ) liability . the impact from the change in the serp liability that was recognized in selling and administrative expenses was offset with the change in fair value of the serp investments which was recorded in other income ( expense ) , and thus there was no effect on net income . during fiscal year 2017 we also recognized $ 1.2 million of gains on the sale of land . in november 2014 , we announced a capacity utilization restructuring plan which included the consolidation of our metal fabrication production from an operation located in post falls , idaho , into existing production facilities in indiana , and the reduction of our company plane fleet from two jets to one . the jet was sold in the third quarter of fiscal year 2015 , and as a result of the aircraft fleet reduction , we began realizing the expected pre-tax annual savings of $ 0.8 million . the remaining jet is primarily used for transporting customers to visit our showrooms , offices , research and development center , and manufacturing locations . the consolidation of our metal fabrication production was substantially complete as of june 30 , 2016. the facility and land were sold during our first quarter of fiscal year 2017 ; therefore , fiscal year 2017 includes a pre-tax restructuring gain of $ 1.8 million which included a gain on the sale of the facility and land of $ 2.1 million partially offset by restructuring expense of $ 0.3 million . we recognized pre-tax restructuring expense of $ 7.3 million in fiscal year 2016 . story_separator_special_tag the improvement of customer delivery , supply chain dynamics , and reduction of transportation costs were expected to generate annual pre-tax savings of approximately $ 5 million per year , and we achieved savings of approximately $ 4.7 million in fiscal year 2017 as savings began to ramp up during our first quarter . see note 18 - restructuring expense of notes to consolidated financial statements for further information on restructuring . other income ( expense ) consisted of the following : replace_table_token_9_th our fiscal year 2017 effective tax rate was 35.4 % as higher taxable income generated a $ 1.2 million higher domestic manufacturing deduction than fiscal year 2016. our fiscal year 2016 effective tax rate was 36.6 % , and did not include any material unusual items . comparing the balance sheet as of june 30 , 2017 to june 30 , 2016 , our short-term investments line increased during fiscal year 2017 as we began investing in available-for-sale securities , including municipal bonds , certificates of deposit purchased in the secondary market , and government agency securities . the assets held for sale line declined as of june 30 , 2017 as we 24 completed the sale of our idaho facility during fiscal year 2017 and the decline was partially offset by the classification of our fleet of over-the-road tractors and trailers as assets held for sale near the end of fiscal year 2017. upon the sale of our fleet , that function will be outsourced beginning in september 2017. spin-off of kimball electronics reported as discontinued operations on october 31 , 2014 ( “ distribution date ” ) , we completed the spin-off of our electronic manufacturing services ( “ ems ” ) segment by distributing the related shares of kimball electronics , inc. ( “ kimball electronics ” ) , on a pro rata basis , to the company 's share owners of record as of october 22 , 2014. after the distribution date , the company no longer beneficially owns any kimball electronics shares and kimball electronics is an independent publicly traded company . the ems business was reclassified to discontinued operations . discontinued operations did not have an impact on the financial results of fiscal year 2017 or 2016. financial results of the discontinued operations through the spin-off date for fiscal year 2015 were as follows : year ended june 30 ( amounts in thousands , except per share data ) 2015 net sales of discontinued operations $ 275,551 income from discontinued operations , net of tax $ 9,157 income from discontinued operations per class b diluted share $ 0.23 as a result of the october 30 , 2014 stock unification as described in note 10 - common stock of notes to consolidated financial statements , all distinctions between class a common stock and class b common stock were eliminated so that all shares of class b common stock are equivalent to shares of class a common stock with respect to all matters , including without limitation , dividend payments and voting rights . therefore , beginning in fiscal year 2016 the earnings per share calculation includes all common stock in a single calculation . unless the context otherwise indicates , reference to earnings per share for periods prior to fiscal year 2016 reflects the earnings per class b diluted share as has historically been reported . story_separator_special_tag style= '' line-height:120 % ; padding-bottom:10px ; padding-top:10px ; text-align : left ; font-size:10pt ; '' > our short-term liquidity available , represented as cash , cash equivalents , and short-term investments plus the unused amount of our credit facility , totaled $ 127.4 million at june 30 , 2017 . at june 30 , 2017 , we had $ 1.2 million in letters of credit outstanding , which reduced our borrowing capacity on the credit facility . we had no credit facility borrowings outstanding as of june 30 , 2017 or june 30 , 2016 . during fiscal year 2017 we sold a facility in indiana which housed an education center for dealer and employee training , a research and development center , and a product showroom for proceeds of $ 3.8 million . we are leasing a portion of the facility back to facilitate the short-term transition of those functions to other existing indiana locations . the sale of the facility does not qualify for sale-leaseback accounting thus the book value of the building remains on the property and equipment line of our consolidated balance sheet as of june 30 , 2017 and the related sale-leaseback financing obligation is a current liability on our consolidated balance sheet as of june 30 , 2017. cash flows cash management was centralized prior to the spin-off , thus cash flows prior to the october 31 , 2014 spin-off date include kimball electronics cash flows . cash flows from discontinued operations are combined with cash flows from continuing operations within each cash flow statement category on our consolidated statements of cash flows for fiscal year 2015. the following table reflects the major categories of cash flows for fiscal years 2017 , 2016 , and 2015 . coinciding with the implementation of a new accounting standard regarding employee share-based payment transactions , fiscal year 2016 and 2015 cash flows have been restated to present excess tax benefits in cash flows from operations rather than cash flows from financing . replace_table_token_12_th cash flows from operating activities for fiscal years 2017 and 2016 , net cash provided by operating activities was $ 64.8 million and $ 49.4 million , respectively , fueled by net income of $ 37.5 million and $ 21.2 million , respectively . changes in working capital balances provided $ 10.1 million and $ 4.6 million of cash in fiscal years 2017 and 2016 , respectively .
| excluding these non-core costs , our adjusted income from continuing operations for fiscal year 2016 improved to $ 25.7 million , or $ 0.68 per diluted share , compared to adjusted income from continuing operations for fiscal year 2015 of $ 17.6 million , or $ 0.45 per diluted share . see the “ non-gaap financial measures ” section below . gross profit as a percent of net sales increased 70 basis points in fiscal year 2016 compared to fiscal year 2015. the favorable impact of price increases and lower discounting , the benefit of leverage gained on higher sales volumes , and lower outbound freight costs were partially offset by labor inefficiencies related to the transfer of production from our idaho manufacturing facility to our other manufacturing facilities and higher employee healthcare expenses . as a percent of net sales , selling and administrative expenses in fiscal year 2016 compared to fiscal year 2015 decreased 200 basis points , due to the increased sales volumes coupled with a 2.0 % decrease in selling and administrative spending in absolute dollars . the decline in selling and administrative expenses in absolute dollars was primarily due to spin-off expenses of $ 3.2 million incurred in the prior year and due to the retirement of key executives as of the spin-off date which were partially offset by higher fiscal year 2016 commission expenses related to the increased sales volumes and increased healthcare expense . we recognized pre-tax restructuring expense related to continuing operations of $ 7.3 million in fiscal year 2016 and $ 5.3 million in fiscal year 2015. see note 18 - restructuring expense of notes to consolidated financial statements for further information on restructuring . other income ( expense ) consisted of the following : replace_table_token_11_th our fiscal year 2016 effective tax rate was 36.6 % and did not include any material unusual items . our fiscal year 2015 effective tax rate was 37.0 % , as the favorable impact of a $ 0.9 million net
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the increase was primarily due to an increase in comp store sales , excluding the associated comparable online sales , for north america and incremental sales for new international stores ; partially offset by the unfavorable impact of foreign exchange of $ 43 million . the foreign exchange impact is the translation impact if net sales for fiscal 2011 were translated at fiscal 2012 exchange rates . for the direct reportable segment , our net sales for fiscal 2012 increased $ 367 million compared with fiscal 2011 . the increase was due to growth in our online business across all brands and the incremental sales related to new athleta stores . in fiscal 2012 , our net sales ( including direct ) for the u.s. and canada were $ 13.3 billion , an increase of $ 914 million compared with $ 12.4 billion for fiscal 2011 . in fiscal 2012 , our net sales ( including direct and franchise ) , outside of the u.s. and canada were $ 2.4 billion , an increase of $ 188 million compared with $ 2.2 billion for fiscal 2011 . our net sales for fiscal 2011 decreased $ 115 million , or 1 percent , compared with fiscal 2010 due to a decrease in net sales of $ 376 million related to our stores reportable segment , partially offset by an increase in net sales of $ 261 million related to our direct reportable segment . for the stores reportable segment , our net sales for fiscal 2011 decreased $ 376 million , or 3 percent , compared with fiscal 2010. the decrease was primarily due to a decrease in comp store sales , excluding the associated comparable online sales , of 6 percent for fiscal 2011 compared with fiscal 2010 , partially offset by the favorable impact of foreign exchange of $ 156 million and an increase in franchise sales . the foreign exchange impact is the translation impact if net sales for fiscal 2010 were translated at fiscal 2011 exchange rates . for the direct reportable segment , our net sales for fiscal 2011 increased $ 261 million , or 20 percent , compared with fiscal 2010 . the increase was due to the growth in our online business across all brands and the incremental sales related to the introduction of international online sales in fiscal 2010 . in fiscal 2011 , our net sales ( including direct ) for the u.s. and canada were $ 12.4 billion , a decrease of $ 353 million , or 3 percent , compared with $ 12.7 billion for fiscal 2010 . in fiscal 2011 , our net sales ( including direct and franchise ) outside of the u.s. and canada were $ 2.2 billion , an increase of $ 238 million , or 12 percent , compared with $ 1.9 billion for fiscal 2010 . in fiscal 2013 , we will return to a 52-week fiscal year which could potentially impact the seasonality of net sales throughout the year as a result of the calendar shift of our fiscal quarters in fiscal 2013 compared with fiscal 2012 . in addition , we expect foreign exchange rate fluctuations to have a meaningful impact on our net sales generated internationally . for example , if the japanese yen continues to weaken against the u.s. dollar , our yen-based sales translated into u.s. dollars will vary significantly from prior years and could negatively impact our total company net sales growth . cost of goods sold and occupancy expenses replace_table_token_9_th cost of goods sold and occupancy expenses decreased 3.2 percentage points in fiscal 2012 compared with fiscal 2011 . cost of goods sold decreased 2.0 percentage points in fiscal 2012 compared with fiscal 2011 . the decrease in cost of goods sold as a percentage of net sales was primarily driven by decreased cost of merchandise as well as improved product acceptance resulting in improved regular price margins . 20 occupancy expenses decreased 1.2 percentage points in fiscal 2012 compared with fiscal 2011 . the decrease in occupancy expenses as a percentage of net sales was primarily driven by higher net sales without a corresponding increase in occupancy expenses . cost of goods sold and occupancy expenses increased 4.0 percentage points in fiscal 2011 compared with fiscal 2010 . cost of goods sold increased 3.7 percentage points in fiscal 2011 compared with fiscal 2010 . the increase in cost of goods sold as a percentage of net sales was primarily driven by increased cost of merchandise primarily due to higher cotton prices . occupancy expenses increased 0.3 percentage points in fiscal 2011 compared with fiscal 2010 . the increase in occupancy expenses as a percentage of net sales was primarily driven by lower net sales for the stores reportable segment without a corresponding decrease in occupancy expenses , partially offset by higher net sales for the direct reportable segment without a corresponding increase in occupancy expenses . operating expenses and operating margin replace_table_token_10_th operating expenses increased $ 393 million , or 0.6 percentage points , in fiscal 2012 compared with fiscal 2011 . the increase in operating expenses was primarily due to higher marketing expenses driven largely by investments in gap brand marketing and customer relationship marketing , store payroll and other store-related expenses , and higher bonus expense . operating expenses decreased $ 85 million , or 0.3 percentage points , in fiscal 2011 compared with fiscal 2010 . the decrease in operating expenses was primarily due to higher income from fees earned under the private label and co-branded credit card agreements , partially offset by an increase in marketing expenses . in fiscal 2013 , we expect operating margin to be about 13 % . interest expense ( reversal ) replace_table_token_11_th interest expense for fiscal 2012 and 2011 primarily consists of interest expense related to our $ 1.25 billion long-term debt , which was issued in april 2011 , and $ 400 million term loan , which was funded in may 2011 and repaid in full in august 2012 . story_separator_special_tag interest expense for fiscal 2010 includes an interest expense reversal of $ 15 million from the reduction of interest expense accruals resulting primarily from the filing of a u.s. federal income tax accounting method change application and the resolution of the internal revenue service 's review of the company 's federal income tax returns and refund claims for fiscal 2001 through 2006. income taxes replace_table_token_12_th the decrease in the effective tax rate for fiscal 2012 compared with fiscal 2011 was the result of slight changes in the individual components of the effective tax rate . the changes were primarily due to the impact of higher federal tax credits , which were partially offset by an increase in our state taxes as a result of changes in the mix of state earnings in fiscal 2012 . 21 while the effective tax rate for fiscal 2011 decreased slightly compared with fiscal 2010 , there were changes in individual components of the effective tax rate . state and other income taxes decreased primarily due to changes in state tax laws and increases in state and federal tax credits . the decreases in these components were offset by the tax impact of foreign operations , which increased primarily due to operating losses in china and hong kong for fiscal 2011 ( for which no tax benefit has been provided ) , and their greater impact due to lower gap inc. pre-tax income for fiscal 2011 , as well as the unfavorable impact of a change in the mix of income between domestic and foreign operations . we currently expect the fiscal 2013 effective tax rate to be about 39 percent . the actual rate will ultimately depend on several variables , including the mix of income between domestic and international operations , the overall level of income , the potential resolution of outstanding tax contingencies , and changes in tax laws and rates . liquidity and capital resources our largest source of operating cash flows is cash collections from the sale of our merchandise . our primary uses of cash include merchandise inventory purchases , occupancy costs , personnel-related expenses , purchases of property and equipment , payment of taxes , and share repurchases . in addition to share repurchases , we also continue to return excess cash to our shareholders in the form of dividends . in the first quarter of fiscal 2011 , we made the strategic decision to issue debt in the aggregate amount of $ 1.65 billion . given favorable market conditions and our history of generating consistent and strong operating cash flow , we took this step to provide a more optimal capital structure . we remain committed to maintaining a strong financial profile with ample liquidity . proceeds from the debt issuance were available for general corporate purposes , including share repurchases . during fiscal 2012 , we repaid our $ 400 million , five-year , unsecured term loan in full . we consider the following to be measures of our liquidity and capital resources : replace_table_token_13_th as of february 2 , 2013 , about half of our cash and cash equivalents were held in the u.s. and are generally accessible without any limitations . we believe that current cash balances and cash flows from our operations will be sufficient to support our business operations , including growth initiatives and planned capital expenditures , for the next 12 months and beyond . we are also able to supplement near-term liquidity , if necessary , with our $ 500 million revolving credit facility . cash flows from operating activities net cash provided by operating activities during fiscal 2012 increased $ 573 million compared with fiscal 2011 , primarily due to the following : an increase in net income in fiscal 2012 compared with fiscal 2011 ; an increase related to income taxes payable , net of prepaid income taxes and other tax-related items , in fiscal 2012 compared with fiscal 2011 primarily due to the timing of tax payments ; an increase related to accrued expenses and other current liabilities in fiscal 2012 compared with fiscal 2011 primarily due to a higher bonus accrual in fiscal 2012 compared with fiscal 2011 ; and an increase related to accounts payable in fiscal 2012 compared with fiscal 2011 primarily due to the volume and timing of payments ; partially offset by an increase in merchandise inventory in fiscal 2012 compared with fiscal 2011 primarily due to the timing of inventory receipts . net cash provided by operating activities during fiscal 2011 decreased $ 381 million compared with fiscal 2010 , primarily due to the following : a decrease in net income in fiscal 2011 compared with fiscal 2010 . 22 we fund inventory expenditures during normal and peak periods through cash flows from operating activities and available cash . our business follows a seasonal pattern , with sales peaking over a total of about eight weeks during the end-of-year holiday period . the seasonality of our operations , combined with the calendar shift of weeks in fiscal 2013 compared with fiscal 2012 as a result of the 53rd week in fiscal 2012 , may lead to significant fluctuations in certain asset and liability accounts between fiscal year-end and subsequent interim periods . in fiscal 2013 , we expect depreciation and amortization , net of amortization of lease incentives , to be about $ 475 million . cash flows from investing activities our cash outflows for investing activities are primarily for capital expenditures and purchases of investments , while cash inflows are primarily proceeds from maturities of investments .
| a store is considered “ closed ” if it is temporarily closed for three or more full consecutive days or is permanently closed . when a temporarily closed store reopens , the store will be placed in the comp/non-comp status it was in prior to its closure . if a store was in closed status for three or more days in the prior year , the store will be in non-comp status for the same days the following year . online comp sales are defined as sales through online channels in all countries where we have existing comp store sales . 18 current year foreign exchange rates are applied to both current year and prior year comp sales to achieve a consistent basis for comparison . store count and square footage information net sales per average square foot is as follows : replace_table_token_7_th ( 1 ) excludes net sales associated with our online , catalog , and franchise businesses . store count , openings , closings , and square footage for our stores are as follows : replace_table_token_8_th ( 1 ) on december 31 , 2012 , we acquired all of the outstanding capital stock of intermix . the 31 stores acquired were not included as store openings for fiscal 2012 ; however , they are included in the ending number of store locations as of february 2 , 2013. gap and banana republic outlet stores are reflected in each of the respective brands . in addition , we have franchise agreements with unaffiliated franchisees to operate gap and banana republic stores throughout asia , australia , eastern europe , latin america , the middle east , and africa . 19 in fiscal 2013 , we expect to open about 190 company-operated store locations ( about 160 net of repositions ) and close about 110 company-operated store locations ( about 80 net of repositions ) . we expect square footage for company-operated stores to increase about 1 percent for fiscal 2013 . we expect our franchisees to open about 75 franchise stores in fiscal 2013 . < font
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tax positions taken are not offset or aggregated with other positions . tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority . the portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination . the following discussion is designed to provide a better understanding of significant trends related to the company 's financial condition , results of operations , liquidity and capital . it pertains to the company 's financial condition , changes in financial condition and results of operations as of december 31 , 2012 and 2011 and for each of the three years in the period ended december 31 , 2012. the discussion should be read in conjunction with the company 's audited consolidated financial statements and notes thereto and the other financial information appearing elsewhere herein . overview the company recorded net income of $ 1.95 million for the year ended december 31 , 2012 , a 107 % increase over net income of $ 941 thousand during the year ended december 31 , 2011. net interest income increased by $ 331 thousand from $ 16.8 million during 2011 to $ 17.2 million for the year ended december 31 , 2012. this increase in net interest income resulted from a decrease in interest expense of $ 574 thousand partially offset by a decrease in interest income of $ 243 thousand . the provision for loan losses declined by $ 1.1 million from $ 3.5 million during 2011 to $ 2.4 million during 2012 resulting in an increase in net interest income after provision for loan losses of $ 1.5 million . during the year ended december 31 , 2012 non-interest income decreased by $ 566 thousand to $ 6.6 million , from $ 7.2 million during the year ended december 31 , 2011. this decrease was related to declines of $ 615 thousand in gain on sale of loans and $ 263 thousand in gain on sale of securities partially offset by an increase of $ 140 thousand in service charge income and a net increase in all other categories of non-interest income totaling $ 172 thousand . we continue to achieve savings in many categories of non-interest expense resulting in a reduction in non-interest expense of $ 869 thousand from $ 19.2 million during the twelve months ended december 31 , 2011 to $ 18.4 million during 2012. reductions of $ 227 thousand in salary and benefits expense , $ 486 thousand in fdic insurance , $ 590 thousand in loss on sale of oreo , $ 235 thousand in oreo expense , and $ 86 thousand in postage were partially offset by an increase in the provision for changes in valuation of oreo of $ 328 thousand , an increase in outside service fees of $ 233 thousand , an increase in professional fees of $ 145 thousand and an increase in insurance expense of $ 78 thousand . the provision for income taxes increased from $ 295 thousand in 2011 to $ 1.1 million during the year ended december 31 , 2012 . 26 net income allocable to common shareholders increased by $ 1 million from $ 257 thousand during the year ended december 31 , 2011 to $ 1.3 million during 2012. income allocable to common shareholders is calculated by subtracting dividends and discount amortized on preferred stock from net income . total assets at december 31 , 2012 were $ 478 million , an increase of $ 22.5 million from $ 455 million at december 31 , 2011. increases included $ 23.0 million in investments and $ 22.8 million in net loans . these were partially offset by declines of $ 18.4 million in cash , $ 3.3 million in oreo and $ 1.6 million in other assets . core deposit growth has been strong in 2012 as evidenced by increases of $ 17.7 million in demand deposits and $ 11.1 million in savings and money market accounts . time deposits declined by $ 9.8 million , much of which we attribute to migration into other types of deposits given the low rates and lack of liquidity associated with time deposits . shareholders ' equity increased by $ 2.2 million from $ 39.6 million at december 31 , 2011 to $ 41.8 million at december 31 , 2012. this increase includes the $ 1.95 million earned in 2012 , a $ 171 thousand increase in unrealized gain on investment securities and a $ 95 thousand increase in common stock related to stock-based compensation expense . the return on average assets was 0.42 % for 2012 , up from 0.20 % for 2011. the return on average common equity was 4.3 % for 2012 , up from 0.9 % for 2011 . 27 story_separator_special_tag during 2011 was 2 % . in addition , the bank has held down the rate paid on time deposits in 2012 as it has excess liquidity and does not need to pay for deposits at above market rates . the average rate paid on time deposits decreased from 1.09 % during 2011 to 0.67 % during the current twelve month period . this decrease primarily relates to a decline in market rates paid in the company 's service area and the maturity of the higher rate promotional deposits . interest expense on now accounts declined by $ 76 thousand . rates paid on now accounts declined by 7 basis points from 0.20 % during 2011 to 0.13 % during 2012 , mostly related to a decline in market rates in the company 's service area . story_separator_special_tag average balances declined by $ 11.3 million from 2011. during 2011 we significantly lowered the rate paid on local public agencies now accounts as we determined that the previous rate did not meet our profitability targets , as a result some of these deposits moved out of the bank . during 2012 average public now accounts declined by $ 7.4 million from $ 24.3 million during 2011 to $ 16.9 million during the year ended december 21 , 2012. at december 31 , 2012 balances in this account type were $ 11.8 million . we do not expect significant additional declines in public now balances during 2013. interest expense on money market accounts decreased by $ 24 thousand related to a decrease in rate paid on these accounts of 8 basis points from 0.29 % during 2011 to 0.21 % during 2012. this was primarily related to a money market sweep product we offered in 2011. we no longer offer the money market sweep account having replaced it with a product that utilizes repurchase agreements during the third quarter of 2011. average money market balances increased by $ 2.9 million from $ 40.0 million during 2011 to $ 42.9 million in 2012. interest expense on junior subordinated debentures , which increased by $ 18 thousand from 2011 , fluctuates with changes in the 3-month london interbank offered rate ( libor ) rate . interest on other borrowings primarily relates to interest paid on repurchase agreements . net interest margin is net interest income expressed as a percentage of average interest-earning assets . as a result of the changes noted above , the net interest margin for 2012 increased 10 basis points to 4.18 % , from 4.08 % for 2011 . 2011 compared to 2010. net interest income , on a nontax-equivalent basis , was $ 16.8 million for the year ended december 31 , 2011 , a decline of $ 0.7 million , or 4.1 % , from $ 17.5 million for 2010. the overall change in net interest income was primarily a result of a decrease of $ 1.5 million in loan interest income and a decline of $ 628 thousand in interest income on investment securities . the decline in interest on loans was mostly related to a decline in average loans outstanding . interest on investment securities declined related to a decrease in both yield and average balance . partially offsetting these decreases in interest income was a decline in rates paid on the company 's deposits and a decline in the average balance of time deposits , interest bearing demand deposits and long-term borrowings . interest income decreased $ 2.0 million , or 9.7 % , to $ 18.7 million for the year ended december 31 , 2011. interest and fees on loans decreased by $ 1.5 million from $ 18.9 million for the year ended december 31 , 2010 to $ 17.4 million for 2011. the average loan balances were $ 302.8 million for 2011 , down $ 21.1 million from the $ 323.9 million for 2010. this decline in loans was mostly related to normal pay downs and prepayments , loan charge-offs , real estate acquired through foreclosure and our efforts to reduce the level of construction and land development loan balances . the average yields on loans were 5.75 % for 2011 down from the 5.82 % for 2010 . 30 interest on investment securities decreased by $ 628 thousand resulting from a decrease in yield of 63 basis points and a decline in average investment securities of $ 9.9 million . the decline in yield is primarily related to the replacement of matured and sold investment securities with new investments with market yields below those which they replaced . interest income on other interest-earning assets , which totaled $ 124 thousand in 2011 and $ 48 thousand in 2010 , relates to interest on cash balances held at the federal reserve . interest expense on deposits decreased by $ 1.2 million , or 46 % , to $ 1.5 million for the twelve months ended december 31 , 2011 , down from $ 2.7 million in 2010. this decrease primarily relates to decreases in the average balance and rate paid on time deposits and a decline in the rate paid on demand deposit ( now ) and money market accounts . interest on time deposits declined by $ 946 thousand . average time deposits declined by $ 27.8 million from $ 124.8 million during 2010 to $ 97.0 million for the year ended december 31 , 2011. the decrease in time deposits is mostly related to promotional time deposits as previously discussed . the average rate paid on these promotional deposits during 2011 was 2 % . the average rate paid on time deposits decreased from 1.61 % during 2010 to 1.09 % during 2011. this decrease primarily relates to a decline in market rates paid in the company 's service area and the maturity of the higher rate promotional deposits . interest expense on now accounts declined by $ 195 thousand . rates paid on now accounts declined by 18 basis points from 0.38 % during 2010 to 0.20 % during 2011 , as we significantly lowered the rate paid on local public agencies now accounts . although we lost deposits by lowering this rate ; we continue to focus on the profitability of the public sweep accounts rather than growing public sweep balances . interest expense on money market accounts decreased by $ 106 thousand related primarily to a decrease in rate paid on these accounts of 23 basis points from 0.52 % during 2010 to 0.29 % during 2011. this was primarily related to a significant drop in the rates paid on our money market sweep product .
| 28 the following table sets forth changes in interest income and interest expense , for the years indicated and the amount of change attributable to variances in volume , rates and the combination of volume and rates based on the relative changes of volume and rates : replace_table_token_8_th ( 1 ) the volume change in net interest income represents the change in average balance multiplied by the previous year 's rate . ( 2 ) the rate change in net interest income represents the change in rate multiplied by the previous year 's average balance . ( 3 ) the mix change in net interest income represents the change in average balance multiplied by the change in rate . 2012 compared to 2011. net interest income is the difference between interest income and interest expense . net interest income , on a nontax-equivalent basis , was $ 17.2 million for the year ended december 31 , 2012 , up $ 331 thousand , or 2 % , from $ 16.8 million for 2011. a decrease of $ 243 thousand , or 1.3 % in interest income , from $ 18.7 million during 2011 to $ 18.4 million during the current year , was offset by a decline in interest expense of $ 574 thousand . interest and fees on loans increased by $ 27 thousand ; however , this was offset by a $ 252 thousand decline in interest on investment securities and an $ 18 thousand decline in interest on deposits . the increase in interest and fees on loans was related to an increase in yield partially offset by a decrease in average loan balances . interest on investments securities declined related to a decrease in yield partially offset by an increase in average balance . interest and fees on loans was $ 17.4 million for the years ended december 31 , 2012 and 2011. the average loan balances were $ 301.8 million for 2012 , down $ 1.0 million from the $ 302.8 million for 2011. this decline in loans was mostly related to normal pay downs and prepayments , loan charge-offs and real estate acquired through foreclosure mostly offset by growth in our auto loan and commercial real estate loan portfolios . the average yields on loans were 5.77 % for 2012 up from 5.75 % for 2011. as a result of a decrease in yield of 64 basis points from 1.92 %
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for the years ended december 31 , 2019 and 2018 , our revenue derived from customers located outside north america was 47 % and 46 % , respectively . we expect the percentage of total net revenue derived from outside north america to increase in future periods as we continue to expand our international operations . key metrics we regularly review a number of metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . number of customers . we define our number of customers at the end of a particular quarter as the number of customers generating subscription revenue at the end of the quarter . we believe the number of customers is a key indicator of our market penetration , the productivity of our sales organization and the value that our products bring to our customers . we classify our customers by including them in either premium or volume offerings . our premium offerings include our premium video cloud customers ( enterprise and pro editions ) , our zencoder customers ( other than zencoder customers on month-to-month contracts and pay-as-you-go contracts ) , our ssai customers , our player customers , our ott flow customers , our video marketing suite customers , our enterprise video suite customers , our brightcove beacon customers and our brightcove campaign customers . our volume offerings include our video cloud express customers and our zencoder customers on month-to-month contracts and pay-as-you-go contracts . as of december 31 , 2019 , we had 3,595 customers , of which and 2,338 used our premium offerings and 1,257 used our volume offerings . as of december 31 , 2018 , we had 3,783 customers , of which 2,226 used our premium offerings and 1,557 used our volume offerings . our go-to-market focus and growth strategy is to expand our premium customer base , as we believe our premium customers represent a greater opportunity for our solutions . volume customers decreased in recent periods primarily due to our discontinuation of the promotional video cloud express offering . as a result , we have experienced attrition of this base level offering without a corresponding addition of customers . we expect customers using our volume offerings to continue to decrease in 2020 and beyond as we continue to focus on the market for our premium solutions . recurring dollar retention rate . we assess our ability to retain customers using a metric we refer to as our recurring dollar retention rate . we calculate the recurring dollar retention rate by dividing the 38 retained recurring value of subscription revenue for a period by the previous recurring value of subscription revenue for the same period . we define retained recurring value of subscription revenue as the committed subscription fees for all contracts that renew in a given period , including any increase or decrease in contract value . we define previous recurring value of subscription revenue as the recurring value from committed subscription fees for all contracts that expire in that same period . we typically calculate our recurring dollar retention rate on a monthly basis . recurring dollar retention rate provides visibility into our ongoing revenue . during the years ended december 31 , 2019 and 2018 , the recurring dollar retention rate was 89 % and 99 % , respectively . average annual subscription revenue per premium customer . we define average annual subscription revenue per premium customer as the total subscription revenue from premium customers for an annual period , excluding professional services revenue , divided by the average number of premium customers for that period . we believe that this metric is important in understanding subscription revenue for our premium offerings in addition to the relative size of premium customer arrangements . as our starter edition has a price point of $ 199 or $ 499 per month , we disclose the average annual subscription revenue per premium customer separately for starter edition customers and all other premium customers . backlog . we define backlog as the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied , excluding professional service engagements . we believe that this metric is important in understanding future business performance . as of december 31 , 2019 , the total backlog for subscription and support contracts was approximately $ 128.9 million , of which approximately $ 100.6 million is expected to be recognized over the next 12 months . as of december 31 , 2018 , the total backlog for subscription and support contracts was approximately $ 109.4 million , of which approximately $ 90.7 million was expected to be recognized over the next 12 months . the following table includes our key metrics for the periods presented : replace_table_token_4_th components of consolidated statements of operations revenue subscription and support revenue we generate subscription and support revenue from the sale of our products . video cloud is offered in two product lines . the first product line is comprised of our premium product editions . all premium editions include functionality to publish and distribute video to internet-connected devices , 39 with higher levels of premium editions providing additional features and functionality . customer arrangements are typically one year contracts , which include a subscription to video cloud , basic support and a pre-determined amount of video streams , bandwidth , transcoding and storage . we also offer gold support or platinum support to our premium customers for an additional fee , which includes extended phone support . the pricing for our premium editions is based on the value of our software , as well as the number of users , accounts and usage , which is comprised of video streams , bandwidth , transcoding and storage . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . story_separator_special_tag the second product line is comprised of our volume product edition . our volume editions target small and medium-sized businesses , or smbs . the volume editions provide customers with the same basic functionality that is offered in our premium product editions but have been designed for customers who have lower usage requirements and do not typically require advanced features and functionality . we discontinued the lower level pricing options for the express edition of our volume offering and expect the total number of customers using the express edition to continue to decrease . customers who purchase the volume editions generally enter into month-to-month agreements . volume customers are generally billed on a monthly basis and pay via a credit card . zencoder is offered to customers on a subscription basis , with either committed contracts or pay-as-you-go contracts . the pricing is based on usage , which is comprised of minutes of video processed . the committed contracts include a fixed number of minutes of video processed . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . zencoder customers are considered premium customers other than zencoder customers on month-to-month contracts or pay-as-you-go contracts , which are considered volume customers . ssai is offered to customers on a subscription basis , with varying levels of functionality , usage entitlements and support based on the size and complexity of a customer 's needs . player is offered to customers on a subscription basis . customer arrangements are typically one-year contracts , which include a subscription to player , basic support and a pre-determined amount of video streams . we also offer gold support or platinum support to our player customers for an additional fee , which includes extended phone support . the pricing for player is based on the number of users , accounts and usage , which is comprised of video streams . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . ott flow , brightcove beacon and brightcove campaign are each offered to customers on a subscription basis , with varying levels of functionality , usage entitlements and support based on the size and complexity of a customer 's needs . customer arrangements are typically one-year contracts . video marketing suite and enterprise video suite are offered to customers on a subscription basis in starter , pro and enterprise editions . the pro and enterprise customer arrangements are typically one-year contracts , which typically include a subscription to video cloud , gallery , brightcove social ( for video marketing suite customers ) or brightcove live ( for enterprise video suite customers ) , basic support and a pre-determined amount of video streams or plays ( for video marketing suite customers ) , viewers ( for enterprise video suite customers ) , bandwidth and storage or videos . we also generally offer gold support or platinum support to these customers for an additional fee , which includes extended phone support . the pricing for our pro and enterprise editions is based on the number of users , accounts and usage , which is comprised of video streams or plays , viewers , bandwidth and storage or videos . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements , or will require the customer to upgrade its package upon renewal . the starter edition provides customers with the same basic functionality that is offered in our pro and enterprise editions but has been designed for customers who have lower usage requirements and do not typically seek advanced features and functionality . customers who purchase the starter edition may enter into one-year agreements or month-to-month agreements . starter customers with month-to-month agreements are generally billed on a monthly basis and pay via a credit card . 40 all brightcove beacon , brightcove campaign , ssai , player , ott flow , video marketing suite and enterprise video suite customers are considered premium customers . professional services and other revenue professional services and other revenue consists of services such as implementation , software customizations and project management for customers who subscribe to our premium editions . these arrangements are priced either on a fixed fee basis with a portion due upon contract signing and the remainder due when the related services have been completed , or on a time and materials basis . cost of revenue cost of subscription , support and professional services revenue primarily consists of costs related to supporting and hosting our product offerings and delivering our professional services . these costs include salaries , benefits , incentive compensation and stock-based compensation expense related to the management of our data centers , our customer support team and our professional services staff . in addition to these expenses , we incur third-party service provider costs such as data center and content delivery network , or cdn , expenses , allocated overhead , depreciation expense and amortization of capitalized internal-use software development costs and acquired intangible assets . we allocate overhead costs such as rent , utilities and supplies to all departments based on relative headcount . as such , general overhead expenses are reflected in cost of revenue in addition to each operating expense category . the costs associated with providing professional services are significantly higher as a percentage of related revenue than the costs associated with delivering our subscription and support services due to the labor costs of providing professional services . cost of revenue increased in absolute dollars from 2018 to 2019. in future periods we expect our cost of revenue will increase in absolute dollars as our revenue increases .
| as of december 31 , 2019 , we had $ 22.8 million of unrestricted cash and cash equivalents , a decrease of $ 6.5 million from $ 29.3 million at december 31 , 2018 , due primarily to $ 6.2 million in capitalized internal-use software costs , $ 5.3 million paid as consideration in the ooyala acquisition and august acquisition , $ 1.0 million in capital expenditures and $ 296,000 in other financing activities . these decreases were offset by proceeds from exercises of stock options of $ 3.5 million and $ 2.7 million of cash provided by operating activities . revenue replace_table_token_6_th during 2019 , revenue increased by $ 19.6 million , or 12 % , compared to 2018 , primarily due to an increase in revenue from our premium offerings , which consist of subscription and support revenue , as well as professional services and other revenue . the increase in premium revenue of $ 20.3 million , or 13 % , is primarily the result of a 5 % increase in the number of premium customers , some of which were acquired in the ooyala acquisition . premium customers increased from 2,226 at december 31 , 2018 to 2,338 at december 31 , 2019. during 2019 , volume revenue decreased by $ 717,000 , or 16 % , compared to 2018 , driven by a decrease in customers as we continue to focus on the market for our premium solutions . replace_table_token_7_th during 2019 , subscription and support revenue increased by $ 22.9 million , or 15 % , compared to 2018. the increase was primarily related to a 5 % increase in the number of premium customers , some of which were acquired in the ooyala acquisition . premium customers increased from 2,226 at december 31 , 2018 to 2,338 at december 31 , 2019 and the average annual subscription revenue per premium customer increased 10 % during the year ended december 31 , 2019. in addition , professional services and other revenue decreased by 47 $ 3.3 million , or 23 % , compared to the prior year . professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process . replace_table_token_8_th for purposes of this section , we designate revenue by geographic regions based upon
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this increase was primarily due to increased amortization and consulting costs totaling approximately $ 180 related to the 2010 aberco acquisition , a modest increase of employee headcount and additional compensation-related expenses totaling approximately $ 758 , increased consultancy fees of approximately $ 111 , primarily incurred to study acquisition opportunities , and increased outside contract research expense of $ 237 , partially offset by a reduction in recruiting and relocation fees of $ 201 and patent expense of $ 51. operating expenses were 10.2 % of sales or 0.9 percentage points less than the operating expenses as a percent of sales in last year 's comparable period . during 2011 and 2010 , the company spent $ 2,890 and $ 3,190 respectively , on research and development programs , substantially all of which pertained to the company 's food , pharma & nutrition and animal nutrition & health segments . business segment earnings from operations earnings from operations for 2011 increased to $ 56,225 as compared to $ 49,770 for 2010 , an increase of $ 6,455 or 13.0 % . this increase was principally driven by increased sales volumes over the prior year comparable period , partially offset by higher raw material costs , increased operating expenses , and temporary operating inefficiencies at certain of the company 's choline plants . earnings from operations as a percentage of sales ( “ operating margin ” ) for 2011 decreased to 19.3 % from 19.5 % for 2010. the company is continuing to focus on leveraging its plant capabilities , driving efficiencies from core volume growth , broadening product applications of human and animal health specialty products into both the domestic and international markets , as well as capitalizing logistically on the company 's varied choline production capabilities . earnings from operations for the specialty products segment were $ 18,636 , an increase of $ 2,692 or 16.9 % , primarily due to the above-noted higher sales of ethylene oxide and propylene oxide , operating efficiencies from increased volumes and a favorable product mix , partially offset by the aforementioned higher raw material costs and certain costs related to the aberco acquisition . earnings from operations for food , pharma & nutrition were $ 11,113 , an increase of $ 1,365 or 14.0 % , due largely to the above-noted increased sales of human choline products and the sale of the non-core calcium carbonate product line in the fourth quarter of 2010 , partially offset by lower sales volumes in the domestic food market . earnings from operations for animal nutrition & health increased by $ 2,398 to $ 26,476 , a 10.0 % increase from the prior year comparable period , principally due to the aforementioned increased sales volumes . this was partially offset by increases in the cost of certain petro-chemical raw materials used to manufacture choline , and temporary operating inefficiencies at certain of the company 's choline plants . 15 other expenses ( income ) interest income totaled $ 184 for 2011 as compared to $ 289 for 2010. interest expense was $ 84 for 2011 as compared to $ 90 for 2010. other income of $ 413 for 2011 is primarily the result of a net gain of $ 243 related to the sale of a non-core calcium carbonate product line and favorable fluctuations in foreign currency exchange rates between the u.s. dollar ( the reporting currency ) and functional foreign currencies . income tax expense the company 's effective tax rate for 2011 and 2010 was 31.7 % and 33.6 % , respectively . this decrease in the effective tax rate is primarily attributable to a change in apportionment relating to state income taxes . net earnings principally as a result of the above-noted increase in sales volume and a lower effective tax rate , partially offset by higher costs of certain raw materials , increased operating expenses , and temporary operating inefficiencies at certain of the company 's choline plants , net earnings were $ 38,765 for 2011 , as compared with $ 33,277 for 2010 , an increase of 16.5 % . fiscal year 2010 compared to fiscal year 2009 ( all amounts in thousands , except share and per share data ) net sales net sales for 2010 were $ 255,071 , as compared with $ 219,438 for 2009 , an increase of $ 35,633 or 16.2 % . net sales for the specialty products segment were $ 42,239 for 2010 , as compared with $ 36,368 for 2009 , an increase of $ 5,871 or 16.1 % . approximately 65 % of this increase in sales was derived from an increase in volumes sold of propylene oxide products , a result of our recent acquisition of a marketer and distributor of propylene oxide for use in the fumigation of certain nut meats and spice fumigation . the balance of the increased sales is principally a result of modest price increases , to partially offset rising raw material costs , and volume improvements for our ethylene oxide products for medical device sterilization . net sales for the food , pharma & nutrition segment were $ 41,994 for 2010 compared with $ 35,407 for 2009 , an increase of $ 6,587 or 18.6 % . this result was driven by a 23 % sales increase in the food and nutrition sector . increased volumes sold were responsible for 76 % of this improvement while higher average selling prices , a result of favorable product mix along with some increased selling prices , made up the balance of this improvement . these increases were partially offset by lower sales of calcium products , which were down approximately 25 % . net sales of $ 170,838 were realized for 2010 for the animal nutrition & health segment , as compared with $ 147,663 for the prior year comparable period , an increase of $ 23,175 or 15.7 % . global feed grade choline product sales improved by approximately 1 % . story_separator_special_tag sales within north america improved approximately 3 % over the prior year ; however , overall north american produced feed grade choline declined slightly in conjunction with lower poultry production levels in the year . exports of liquid and dry choline from our north american plants declined largely due to currency issues and , in combination with global competition , resulted in our declining to bid on certain international business . the anh specialty ingredients , largely targeted to the ruminant and companion animal markets , realized 16.0 % sales growth from the prior year comparable period , as some regional improvement in dairy economics supported greater demand for these products , particularly with strong sales of reashure® , chelated minerals and aminoshure ® -l , our rumen protected lysine . sales of industrial grade products being sold for various industrial applications , predominantly in north america , but also in europe realized significant growth as volumes grew approximately 73 % over the prior year and comprise approximately 26 % of the sales in this segment for the year . 16 gross margin gross margin for 2010 increased to $ 78,037 compared to $ 66,958 for 2009 , an increase of 16.5 % . gross margin percentage for 2010 was 30.6 % , as compared to 30.5 % for the prior year comparable period , as the benefits of increased sales volumes were offset primarily by higher petro-chemical based raw material costs . gross margin percentage for the specialty products segment decreased by 1.7 % primarily due to the aforementioned higher petro-chemical based raw material costs . gross margin percentage in the food , pharma & nutrition segment increased by 7.7 % , as margins were favorably affected by increased sales volumes , improved product mix and plant efficiencies . gross margin percentage in the animal nutrition and health segment decreased by 1.4 % principally from increases in the cost of certain petro-chemical raw materials used to manufacture choline . operating expenses operating expenses for 2010 were $ 28,267 , as compared to $ 26,299 for 2009 , an increase of $ 1,968 or 7.5 % . this increase was primarily due to increased amortization and consulting costs totaling approximately $ 411 related to the aberco acquisition , increased recruiting and relocation fees of approximately $ 258 , a modest increase of employee headcount and additional compensation-related expenses totaling approximately $ 1,078 , and increased consultancy fees of approximately $ 239 primarily incurred to study acquisition opportunities , partially offset by a reduction in outside contract research expense of approximately $ 81 , principally due to the timing of these activities , and accounts receivable reserves for international accounts that were an expense/reserve item in the prior year comparable period totaling approximately $ 425. operating expenses were 11.1 % of sales or 0.9 percentage points less than the operating expenses as a percent of sales in last year 's comparable period . during 2010 and 2009 , the company spent $ 3,190 and $ 3,298 respectively , on research and development programs , substantially all of which pertained to the company 's food , pharma & nutrition and animal nutrition & health segments . business segment earnings from operations earnings from operations for 2010 increased to $ 49,770 compared to $ 40,659 for 2009 , an increase of $ 9,111 or 22.4 % . this increase was principally driven by increased sales volumes over the prior year comparable period , partially offset primarily by higher petro-chemical based raw material costs . earnings from operations as a percentage of sales ( “ operating margin ” ) for 2010 increased to 19.5 % compared to 18.5 % for 2009 , principally a result of the aforementioned higher sales volumes being partially offset by higher petro-chemical based raw material costs . the company is continuing to focus on volume growth with new product launches into both domestic and international markets , as well as capitalizing on its varied choline production capabilities . earnings from operations for the specialty products segment were $ 15,944 , an increase of $ 1,694 or 11.9 % , primarily due to increased sales volumes being offset by higher petro-chemical based raw material costs and increased expenses related to development work on our erc technology for repackaging , distribution and delivery of a product for the fruit ripening industry . earnings from operations for food , pharma & nutrition were $ 9,748 , an increase of $ 4,719 or 93.8 % , due largely to the aforementioned increased sales volumes , favorable product mix and plant efficiencies . earnings from operations for animal nutrition & health increased by $ 2,698 to $ 24,078 , a 12.6 % increase from the prior year comparable period , principally from favorable operating variances due to the volume improvement in both sales and production . also contributing to the improvement was the aforementioned reduction in outside contract research expense and accounts receivable reserves for international accounts that were an expense/reserve item in last year 's comparable period . these improvements were partially offset by increases in the cost of certain petro-chemical raw materials used to manufacture choline . 17 other expenses ( income ) interest income for 2010 totaled $ 289 as compared to $ 107 for 2009 , a result of higher average cash balances in 2010. interest expense was $ 90 for 2010 compared to $ 209 for 2009. this decrease is primarily attributable to the decrease in average current and long-term debt resulting from normal recurring principal payments . other income of $ 162 includes a non-recurring net gain of approximately $ 73 related to the sale of a non-core calcium carbonate product line and favorable fluctuations in foreign currency exchange rates between the u.s. dollar ( the reporting currency ) and functional foreign currencies . income tax expense the company 's effective tax rate for 2010 and 2009 was 33.6 % and 34.0 % respectively . this decrease in the effective tax rate is primarily attributable to increased tax credits and deductions .
| as a fumigant , ethylene oxide blends are highly effective in killing bacteria , fungi , and insects in spices and other seasoning materials . in 2010 , the company acquired aberco , inc. , a marketer and distributor of propylene oxide . we sell propylene oxide as a fumigant : to aid in the control of insects and microbiological spoilage ; and to reduce bacterial and mold contamination in shell and processed nut meats ( except peanuts ) , processed spices , cacao beans , cocoa powder , raisins , figs and prunes . we also sell propylene oxide to customers seeking smaller ( as opposed to bulk ) quantities and whose requirements include utilization in various chemical synthesis applications , to make paints more durable and for manufacturing specialty starches and textile coatings . management believes that future success in this segment is highly dependent on the company 's ability to maintain its strong reputation for excellent quality , safety and customer service . food , pharma & nutrition the food , pharma & nutrition ( “ fpn ” ) segment provides microencapsulation solutions to a variety of applications in food , pharmaceutical and nutritional ingredients to enhance performance of nutritional fortification , processing , mixing , and packaging applications and shelf-life . major product applications are baked goods , refrigerated and frozen dough systems , processed meats , seasoning blends , confections , and nutritional supplements . we also market human grade choline nutrient products through this segment for wellness applications . choline is recognized to play a key role in the development and structural integrity of brain cell membranes in infants , processing dietary fat , reproductive development and neural functions , such as memory and muscle function . the fpn portfolio also includes a novel smooth dissolve excipient technology , primarily used in chewable tablets or stick-pack dosage forms for nutritional and pharmaceutical products . management believes this segment 's key strengths are its proprietary technology and end-product application capabilities . the success of the company 's efforts to increase revenue in this segment is highly dependent on the timing of marketing launches of new products in the u.s. and international food
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furthermore , we now incur additional costs associated with operating as a public company that we did not previously incur or had previously incurred at lower rates as a private company , including significant legal , accounting , investor relations and other expenses . initial public offering on october 23 , 2018 , we completed our ipo , in which we issued and sold 8,050,000 shares of common stock , including 1,050,000 shares sold pursuant to the full exercise of the underwriters ' option to purchase additional shares , at a public offering price of $ 10.00 per share . the aggregate net proceeds to us from the ipo 110 were approximately $ 72.3 million after deducting underwriting discounts and commissions and offering expenses . the shares began trading on the nasdaq global market on october 19 , 2018. upon completion of the ipo , all of our outstanding shares of convertible preferred stock , converted into 11,789,775 shares of our common stock . story_separator_special_tag valign= '' top '' > initiate clinical trials for lb-001 and any other product candidates we identify and develop ; seek to identify , assess , acquire and or develop additional research programs and additional product candidates ; seek marketing approvals for any product candidate that successfully complete clinical trials ; develop , optimize , scale and validate a manufacturing process and analytical methods for any product candidates we may develop ; establish and build out internal process and analytical development capabilities and research and preclinical grade production ; obtain market acceptance of any product candidates we may develop as viable treatment options ; address competing technological and market developments ; 114 maintain , expand and protect our intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio ; further develop our generide technology platform ; hire additional technical , quality , regulatory , clinical , scientific and commercial personnel ; add operational , financial and management information systems and personnel , including personnel to support our process and product development , manufacturing and planned future commercialization efforts ; make royalty , milestone or other payments under current and any future in-license agreements ; establish and maintain supply chain and manufacturing relationships with third parties that can provide adequate products and services , in both amount , timing and quality , to support clinical development and the market demand for any product candidate for which we obtain regulatory and marketing approval ; leasing and building new facilities , including offices and labs , to support organizational growth ; validate and build-out a commercial-scale current good manufacturing practices , or cgmp , manufacturing facility ; and establish a sales , marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval . because of the numerous risks and uncertainties associated with the development of lb-001 and other product candidates and programs , and because the extent to which we may enter into collaborations with third parties for development of our product candidates is unknown , we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates . our future funding requirements , both near and long-term , will depend on many factors , including : the initiation , scope , progress , timing , costs and results of drug discovery , preclinical development , laboratory testing , and planned clinical trials for lb-001 and any other product candidates ; the outcome , timing and cost of meeting regulatory requirements established by the u.s. food and drug administration , or fda , and other comparable foreign regulatory authorities , including resolving any potential clinical holds that may be imposed on us ; the cost of filing , prosecuting , defending and enforcing our patent claims and other intellectual property rights ; the cost of defending potential intellectual property disputes , including patent infringement actions ; the achievement of milestones or occurrence of other developments that trigger payments under any of our current agreements or other agreements we may enter into ; the extent to which we are obligated to reimburse , or entitled to reimbursement of , clinical trial costs under future collaboration agreements , if any ; the effect of competing technological and market developments ; the cost and timing of completion of clinical or commercial-scale manufacturing activities ; the extent to which we in-license or acquire other products and technologies ; our ability to establish and maintain collaborations on favorable terms , if at all ; the cost of establishing sales , marketing and distribution capabilities for lb-001 and any other product candidates in regions where we choose to commercialize our product candidates , if approved ; and 115 the initiation , progress , timing and results of our commercialization of lb-001 and any other product candidates , if approved , for commercial sale . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant trial delays due to patient enrollment or other reasons , we would be required to expend significant additional financial resources and time on the completion of clinical development . we may never succeed in obtaining regulatory approval for any of our product candidates . until such time , if ever , that we can generate product revenue sufficient to achieve profitability , we expect to finance our cash needs through offerings of securities , private equity financing , debt financings , collaborations , government contracts or other strategic transactions . story_separator_special_tag the terms of financing may adversely affect the holdings or the rights of our stockholders . if we are unable to obtain funding , we may be required to delay , limit , reduce or terminate some or all of our research and product development , product portfolio expansion or future commercialization efforts . we will also continue to incur costs as a public company that we did not previously incur or have previously incurred at lower rates , including increased fees payable to the non-employee members of our board of directors , increased personnel costs , increased director and officer insurance premiums , audit and legal fees , investor relations fees and expenses for compliance with public company reporting requirements under the securities exchange act of 1934 , as amended , or the exchange act , and rules implemented by the sec and nasdaq . contractual obligations and commitments the following table summarizes our contractual obligations as of december 31 , 2018 : replace_table_token_6_th ( 1 ) represents license and research fees under our collaboration and research agreements . these amounts do not include any potential contingent payments , including those due upon the achievement by us of specified clinical , regulatory and commercial events , as applicable , or patent prosecution , royalty payments or license and research fees we may be required to make under license agreements we have entered into with various entities , including stanford , the university of texas and other research institutions . we have excluded these potential payments in the contractual obligations table because the timing and likelihood of these contingent payments are not currently known and would be difficult to predict or estimate . we enter into contracts in the normal course of business with cros , cmos and other third parties for clinical trials and preclinical research studies and testing . manufacturing commitments in the preceding table include agreements that are enforceable and legally binding on us and that specify all significant terms , including fixed or minimum quantities to be purchased ; fixed , minimum or variable price provisions ; and the approximate timing of the transaction . for obligations with cancellation provisions , the amounts included in the preceding table are limited to the non-cancelable portion of the agreement terms or the minimum cancellation fee . we may incur potential contingent payments upon our achievement of clinical , regulatory and commercial milestones , as applicable , or royalty payments that we may be required to make under license agreements we 116 have entered into with various entities pursuant to which we have in-licensed certain intellectual property . due to the uncertainty of the achievement and timing of the events requiring payment under these agreements , the amounts to be paid by us are not fixed or determinable at this time and are excluded from the table above . 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 generally accepted accounting principles in the united states . 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 , costs and expenses and the disclosure of contingent assets and liabilities in our financial statements . we base our estimates on historical experience , known trends and events and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in greater detail in note 2 to our consolidated financial statements appearing at the end of this annual report on form 10-k , we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses . we make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from the estimate , we adjust the accrual or the amount of prepaid expenses accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period . to date , there have not been any material adjustments to our prior estimates of accrued research and development expenses . stock-based compensation we account for stock-based compensation transactions using a grant-date fair-value-based method under fasb codification topic 718 , compensationstock compensation . we account for all stock-based awards granted to employees and non-employees based on their fair value on the date of the grant and recognize compensation expense of those awards , over the requisite service period , which is generally the vesting period of the respective award . we apply the straight-line method of expense recognition
| 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 financial statements as prepaid or accrued research and development expenses . research and development activities are central to our business model . we expect that our research and development expenses will continue to increase for the foreseeable future as we initiate clinical trials for our product candidate lb-001 and continue to discover and develop additional product candidates . if any of our product candidates enter into later stages of clinical development , they will 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 . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in our executive , finance , corporate and business development and 111 administrative functions . general and administrative expenses also include professional fees for legal , patent , accounting , auditing , tax and consulting services , travel expenses , and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of 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 headcount to support our continued research and development and potential commercialization of our product candidates . we also expect to incur increased expenses associated with being a public company , including costs of accounting , audit , legal , regulatory and tax compliance services , director and officer insurance costs ; and investor and public relations costs . other income ( expense ) , net interest income ( expense ) , net consists primarily of interest on our cash and cash equivalents . other ( expense ) income , net consists primarily of foreign exchange gains and losses . results of operations year ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the year ended december 31 , 2018 and 2017 : replace_table_token_3_th research and
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since the management clients are also finance clients , the bad debt reserve is a result of the overall decrease in the collections rate from the arbitrations that have been closed in the last half of 2004. the company increased the bad debt reserve based on the information that it currently has , because it now believes receivables available to pay management fees will be lower . the final bad debt expense will ultimately be determined after all receivables are litigated . the impairment loss of $ 229,000 in 2004 is a result of management 's estimate as to the excess of the carrying value of the net assets of the medical management service subsidiaries over the estimated proceeds from their ultimate sale . the increase in depreciation expense of $ 44,000 in 2004 and $ 22,000 are both a result of the opening of an additional mri facility in november 2002 and the continuing upgrades of the mri machines that the company owns and utilizes in providing its management services . for the reasons described above , the company recorded a net loss of $ 1,433,000 in 2004 , a decrease of $ 2,398,000 from the net income of $ 965,000 in 2003. for the same reasons , net income increased by $ 157,000 in 2003 from $ 808,000 in 2002. liquidity and capital resources the company 's two business activities during the year ended february 29 , 2004 resulted in a decrease of cash in the amount of $ 230,000. the changes in regulations that caused the increase in the length of the collection cycle of insurance claims resulted in an increase in the amount of cash needed to purchase medical insurance claims receivable . as a result of the increase in the collection cycle , the finance clients that are also management clients had less funds available to pay for management service fees , which then increased the management fee receivable collection cycle . on february 4 , 2004 , as a result of the increased collection cycle and the related use of cash , the company decided to restructure the medical division . as part of the restructuring , the company decided to offer for sale the two mri facilities that the company owns and operates , discontinuing the medical management service business . for new prospective clients , the emphasis will be on less cash-intensive services , such as billing , collections and other management services . the company is not seeking any new accounts receivable finance clients and is in the process of eliminating the purchase of additional medical insurance claims . the funds for its needs are expected to be provided from existing cash and proceeds from the collection of outstanding receivables . if those sources are insufficient , additional funds may be provided from asset-based borrowing facilities , refinancing of assets under capital leases , issuance of preferred stock , and the sale of real estate assets . the real estate division is not expected to be a significant user of cash flow from operations due to the elimination of carrying costs on the real estate that was sold during prior periods . the company 's real estate assets in hunter , new york are owned free and clear of mortgages , except for the construction loan that was used to finance the current property renovation , which is now complete . further development of this property , at any significant cost , is expected to be funded by the issuance of series b bonds , other asset-based financing , the sale of the renovated property or the sale of other property in hunter . the company believes that its present cash resources and the cash available from financing activities will be sufficient on a short-term basis and over the next 12 months to fund its existing medical financing business , its company-wide working capital needs , and its expected investments in property and equipment . the company expects that the reduction in both its client base and the advances it makes to its existing customers in the medical division will enable funds to be provided internally and from its financing activities . the company 's significant sources of financing are from series a and series b bonds and construction loan financing . both series a and series b bonds are issued for 18 month terms and may be redeemed with 60 days written notice in maximum increments of $ 50,000. due to this redemption option , these bonds have been classified as current debt . as provided for in the debt instruments of the series a and b bonds , the company has extended maturity dates as evidenced by formal commitments . the company may also refinance amounts that may be requested by bondholders for early redemptions through the issuance of new bonds . the company also intends to use proceeds from the projected sale of real estate to repay or prepay debts . the construction loan is secured by the two remaining townhouses at the hunter , new york property . both such townhouse are under contract for sale and a portion of the proceeds of the first one those sales , if and when the sale closes , will be used to pay the remaining balance of the construction loan . cash used by operations in 2004 was $ 1,150,000 , as compared to $ 39,000 being provided in 2003. the $ 1,189,000 increase in cash used by operations in 2004 was due to ( i ) a change in net income to loss , after adjustments for non-cash items of depreciation , real estate gains , provision for bad debts and deferred tax benefits , the net of these items totaling $ 1,414,000 , and ( ii ) fluctuations in operating assets and liabilities of $ 30,000 , primarily caused by timing differences . these increases in the use of cash were offset by ( i ) an story_separator_special_tag since the management clients are also finance clients , the bad debt reserve is a result of the overall decrease in the collections rate from the arbitrations that have been closed in the last half of 2004. the company increased the bad debt reserve based on the information that it currently has , because it now believes receivables available to pay management fees will be lower . the final bad debt expense will ultimately be determined after all receivables are litigated . the impairment loss of $ 229,000 in 2004 is a result of management 's estimate as to the excess of the carrying value of the net assets of the medical management service subsidiaries over the estimated proceeds from their ultimate sale . the increase in depreciation expense of $ 44,000 in 2004 and $ 22,000 are both a result of the opening of an additional mri facility in november 2002 and the continuing upgrades of the mri machines that the company owns and utilizes in providing its management services . for the reasons described above , the company recorded a net loss of $ 1,433,000 in 2004 , a decrease of $ 2,398,000 from the net income of $ 965,000 in 2003. for the same reasons , net income increased by $ 157,000 in 2003 from $ 808,000 in 2002. liquidity and capital resources the company 's two business activities during the year ended february 29 , 2004 resulted in a decrease of cash in the amount of $ 230,000. the changes in regulations that caused the increase in the length of the collection cycle of insurance claims resulted in an increase in the amount of cash needed to purchase medical insurance claims receivable . as a result of the increase in the collection cycle , the finance clients that are also management clients had less funds available to pay for management service fees , which then increased the management fee receivable collection cycle . on february 4 , 2004 , as a result of the increased collection cycle and the related use of cash , the company decided to restructure the medical division . as part of the restructuring , the company decided to offer for sale the two mri facilities that the company owns and operates , discontinuing the medical management service business . for new prospective clients , the emphasis will be on less cash-intensive services , such as billing , collections and other management services . the company is not seeking any new accounts receivable finance clients and is in the process of eliminating the purchase of additional medical insurance claims . the funds for its needs are expected to be provided from existing cash and proceeds from the collection of outstanding receivables . if those sources are insufficient , additional funds may be provided from asset-based borrowing facilities , refinancing of assets under capital leases , issuance of preferred stock , and the sale of real estate assets . the real estate division is not expected to be a significant user of cash flow from operations due to the elimination of carrying costs on the real estate that was sold during prior periods . the company 's real estate assets in hunter , new york are owned free and clear of mortgages , except for the construction loan that was used to finance the current property renovation , which is now complete . further development of this property , at any significant cost , is expected to be funded by the issuance of series b bonds , other asset-based financing , the sale of the renovated property or the sale of other property in hunter . the company believes that its present cash resources and the cash available from financing activities will be sufficient on a short-term basis and over the next 12 months to fund its existing medical financing business , its company-wide working capital needs , and its expected investments in property and equipment . the company expects that the reduction in both its client base and the advances it makes to its existing customers in the medical division will enable funds to be provided internally and from its financing activities . the company 's significant sources of financing are from series a and series b bonds and construction loan financing . both series a and series b bonds are issued for 18 month terms and may be redeemed with 60 days written notice in maximum increments of $ 50,000. due to this redemption option , these bonds have been classified as current debt . as provided for in the debt instruments of the series a and b bonds , the company has extended maturity dates as evidenced by formal commitments . the company may also refinance amounts that may be requested by bondholders for early redemptions through the issuance of new bonds . the company also intends to use proceeds from the projected sale of real estate to repay or prepay debts . the construction loan is secured by the two remaining townhouses at the hunter , new york property . both such townhouse are under contract for sale and a portion of the proceeds of the first one those sales , if and when the sale closes , will be used to pay the remaining balance of the construction loan . cash used by operations in 2004 was $ 1,150,000 , as compared to $ 39,000 being provided in 2003. the $ 1,189,000 increase in cash used by operations in 2004 was due to ( i ) a change in net income to loss , after adjustments for non-cash items of depreciation , real estate gains , provision for bad debts and deferred tax benefits , the net of these items totaling $ 1,414,000 , and ( ii ) fluctuations in operating assets and liabilities of $ 30,000 , primarily caused by timing differences . these increases in the use of cash were offset by ( i ) an
| the increase in other real estate revenue in 2004 was due an increase of $ 450,000 , as a result of ( i ) adjustments to amounts due to co-investors of $ 275,000 , offset by $ 25,000 paid in settlement of a dispute with a prior co-investor , and ( ii ) the sale of a townhouse for $ 200,000 at the hunter property in february 2004. revenue in the real estate division decreased in 2003 by $ 79,000 , to $ 1,037,000. the decrease was due to ( i ) a $ 68,000 decrease in interest income from the goshen mortgage , ( ii ) lack of real estate sales in 2003 as compared to 2002 , when the company sold the land for eight un-built condominium units for $ 50,000 , offset by ( iii ) an increase of gain on sale of real estate of $ 35,000 in 2003. the increase reflects the 2003 recognition of $ 850,000 of deferred income attributable to the termination of a contingent obligation related to a sale leaseback , as compared to the 2002 realization of $ 745,000 of deferred income related to the settlement of an outstanding mortgage . revenue in the medical division decreased by $ 498,000 , to $ 1,443,000 , in 2004. the decrease in 2004 was due to decreases in the amount of insurance claims purchased , resulting in a $ 509,000 decrease in fees , offset by an increase of $ 11,000 in income from additional collection services . the decrease in earned fees is a result of the company 's restructuring in february 2004 and the elimination throughout the year of poorly collecting clients , which was used as a way to be more selective in the bill purchasing process due to new state insurance department regulations that make collections more difficult . the increase in the additional collection services in 2004 was due to more successful collections during the first two quarters of the fiscal year , offset by reductions during the remainder of 2004. the reductions in the later part of 2004 were due to the company being less successful in its collection efforts as a result of increased efforts by insurance companies to delay and deny medical bills . these additional services also generate interest income received from insurance
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expedia and ctrip also reached agreement on cooperation for certain travel products in specified geographic markets . the transaction closed on may 22 , 2015. unless otherwise noted , all discussion in the trends and growth strategy sections refers to results for expedia , inc. excluding elong . lodging we generate the majority of our revenue through the facilitation of hotel reservations ( stand-alone and package bookings ) . although our relationships with our hotel supply partners have remained broadly stable in the past few years , as part of the global rollout of etp , we reduced negotiated economics in certain instances to compensate for hotel supply partners absorbing expenses such as credit card fees and customer service costs , which has negatively impacted the margin of revenue we earn per booking . in addition , as we continue to expand the breadth and depth of our global hotel offering , in some cases we have reduced and expect to continue to reduce our economics in various geographies based on local market conditions . these impacts are due to specific initiatives intended to drive greater global size and scale through faster overall room night growth . lastly , currency exchange rate fluctuations have had a negative effect on unit economics due to unfavorable book-to-stay as well as translation impacts . based on these dynamics , our average revenue per room night declined in each quarter of 2013 , 2014 and 2015 and we expect it to remain under pressure in the future . since our hotel supplier agreements are generally negotiated on a percentage basis , any increase or decrease in adrs has an impact on the revenue we earn per room night . over the course of the last several years , occupancies and adrs in the lodging industry have generally increased on a currency-neutral basis in a gradually improving overall travel environment . however , u.s. dollar-denominated adrs declined in 2015 due to the currency translation impact . current occupancy rates are at record highs and there is very little new , net hotel supply being added in the u.s. lodging market with large chains focusing their development opportunities in international markets . this may help u.s. hoteliers with their objective of continuing to grow adrs and tends to lead to pressure in our negotiations and terms with hoteliers . in international markets , hotel supply is being added at a much faster rate as hotel owners and operators try to take advantage of opportunities in faster growing regions such as china and india , among others . many hotel chains have been focusing on driving direct bookings on their own websites and mobile applications by offering incentives such as loyalty points , increased or exclusive product availability and complimentary wi-fi . companies like airbnb have also added incremental global supply in the alternative accommodations space . we have had success adding supply to our marketplace with approximately 269,000 properties and 1.2 million live vacation rental listings on our global websites as of december 31 , 2015. in addition , our room night growth has been healthy , with room nights excluding elong growing 16 % in 2013 , 24 % in 2014 , and 36 % in 2015. adrs for rooms booked on expedia sites excluding elong increased 4 % in 2013 , 3 % in 2014 , and declined 5 % in 2015. air the airline sector in particular has historically experienced significant turmoil , including significant air carrier consolidation in the united states , which has generally resulted in lower overall capacity and higher fares . 46 as the demand for travel continued to increase in 2014 and 2015 , air carriers kept capacity growth relatively low . the significant decline in fuel prices that started in the second half of 2014 did not immediately translate into reduced air fares , resulting in record levels of profitability for the u.s. air carriers , further strengthening their position . however , in 2015 , there has been evidence of discounting by the u.s. carriers while currency headwinds and weaker macroeconomic trends put pressure on international results . ticket prices on expedia sites excluding elong increased 2 % in 2013 , declined 1 % in 2014 and declined 11 % in 2015 as short-haul traffic and low cost carriers grew alongside increasingly competitive airline pricing . we continue to encounter pressure on air remuneration as air carriers combine and as certain supply agreements renew . air ticket volumes excluding elong increased 35 % in 2015 primarily due to strong growth on brand expedia sites and the acquisition of orbitz . air volumes improved 30 % in 2014 primarily due to volume driven by brand expedia 's marketing agreement with travelocity along with ongoing improvements for the brand expedia sites themselves . from a product perspective in 2015 , 69 % of our revenue came from the booking of hotel reservations , with 8 % of our revenue derived from the sale of airline tickets . we believe that the hotel product is the most profitable of the travel products we distribute and represents our best overall growth opportunity . advertising & media our advertising and media business is principally driven by revenue generated by trivago , a leading hotel metasearch site , in addition to expedia media solutions , which is responsible for generating advertising revenue on our global online travel brands . in 2015 , we generated a total of $ 564 million of advertising and media revenue ( excluding elong ) representing 9 % of total revenue in 2015 , up from $ 469 million in 2014. growth strategy product innovation . each of our leading brands was a pioneer in online travel and has been responsible for driving key innovations in the space over the past two decades . each expedia technology platform is operated by a dedicated technology team , which drives innovations that make researching and shopping for travel increasingly easier and help customers find and book the best possible travel options . story_separator_special_tag in the past several years , we made key investments in technology , including significant development of our technical platforms that makes it possible for us to deliver innovations at a faster pace . for example , we launched new global platforms for hotels.com and brand expedia , enabling us to significantly increase the innovation cycle , thereby improving conversion and driving faster growth rates for those brands . in 2013 , expedia signed an agreement to power the technology , supply and customer service platforms for travelocity-branded sites in the united states and canada , enabling expedia to leverage its investments in each of these key areas . the shift of travelocity-branded sites to the expedia technology platform was successfully completed over the course of 2014. in november 2014 , expedia completed the acquisition of wotif group and subsequently converted the wotif.com site to the expedia platform . in january 2015 , we acquired the travelocity brand and other associated assets from sabre . the strategic marketing and other related agreements previously entered into were terminated . in september 2015 , expedia completed the acquisition of orbitz worldwide , including all of its brands . in december 2015 , expedia completed the acquisition of homeaway , inc. , including all of its brands . we intend to continue leveraging these investments when launching additional points of sale in new countries , introducing new website features , adding supplier products and services including new business model offerings , as well as proprietary and user-generated content for travelers . global expansion . our expedia , hotels.com , egencia , ean , and hotwire brands operate both domestically and through international points of sale , including in europe , asia pacific , canada and latin america . we own venere , a european brand , which focuses on marketing hotel rooms in southern europe ; wotif group , which has sites in australia and new zealand ; and ebookers , which operates in a number of international countries . 47 egencia , our corporate travel business , operates in 65 countries around the world and continues to expand , including its 2012 acquisition of via travel . the homeaway portfolio has vacation rental sites all around the world . we own a majority share of trivago , a leading hotel metasearch company . officially launched in 2005 , trivago is one of the best known travel brands in europe and north america . trivago continues to operate independently and rapidly grow revenue through global expansion , including aggressive expansion in new countries . in addition , we have commercial agreements in place with ctrip and elong in china , as well as decolar.com , inc. in latin america . in 2015 , approximately 37 % of our worldwide gross bookings excluding elong and 44 % of worldwide revenue were through international points of sale compared to just 21 % for both worldwide gross bookings and revenue in 2005. we have a goal of generating at least 65 % of our revenue through businesses and points of sale outside of the united states . in july 2014 , we completed the acquisition of auto escape group , one of europe 's leading online car rental reservation companies . auto escape group has joined with the carrentals.com brand , allowing it to expand internationally to provide our customers more choices across the globe and help our supply partners expand their marketing reach . in november 2014 , we completed the acquisition of wotif group , an australian online travel company . wotif group adds to our collection of travel 's most trusted brands and enhances our supply in the asia-pacific region , while allowing expedia to expose the wotif group to our world-class technology and its customers to our extensive global supply . in january 2015 , we acquired the travelocity brand and other associated assets from sabre . as a result of the acquisition , the strategic marketing agreement previously entered into during 2013 , which joined travelocity 's strong brand with our best-in-class booking platform , supply base and customer service , was terminated . evolving this relationship strengthens expedia , inc. 's ability to continue to innovate and deliver the best travel experiences to the widest set of travelers , all over the world . in march 2015 , we completed the acquisition of an additional 25 % equity interest of aae travel pte . ltd. , the joint venture formed between expedia and airasia berhad in 2011. this investment increases our total ownership in the venture to 75 % and we consider this business to be a key part of our asia pacific strategy . following the close of the transaction in march 2015 , the financial results of the airasia-expedia venture are included in expedia 's consolidated financial statements . in march 2015 , expedia and decolar.com , inc. , the latin american online travel company that operates the decolar.com and despegar.com branded websites , announced that the two companies have expanded their partnership to include deeper cooperation on hotel supply and a minority equity investment by expedia . building on the commercial relationship the two companies have had since 2002 , the expanded agreement broadens expedia 's powering of decolar 's hotel supply and introduces the opportunity for decolar to provide expedia access to its hotel supply in latin america . the customers of both companies will benefit from the broad , shared selection of hotels , and hotel partners will gain increased access to travelers in latin america and around the world . in september 2015 , we completed the acquisition of orbitz worldwide , a leading global portfolio of travel brands and business-to-business offerings . the addition of orbitz worldwide brings expedia an attractive set of well-recognized brands built by a talented team that is passionate about travel .
| acquisitions added approximately 8 % and 1 % to the year-over-year growth rates in total revenue for 2015 and 2014. worldwide hotel revenue increased 14 % ( 17 % excluding elong ) in 2015 primarily due to a 19 % ( 36 % excluding elong ) increase in room nights stayed driven by the inorganic impact of acquisitions as well as the healthy growth in hotels.com and brand expedia , partially offset by a 4 % decrease ( 14 % excluding elong ) in revenue per room night in 2015. absent elong , revenue per room night decreased primarily due to strategic margin reductions aimed at expanding the size and availability of our global hotel supply portfolio , an unfavorable foreign exchange impact , both in translation and in book-to-stay , as well as increased promotional activities such as growing loyalty programs . revenue per room night is expected to continue to decrease year-over-year in 2016. absent impacts due to the sale of elong , adrs decreased by 5 % primarily due to an unfavorable foreign exchange translation impact . acquisitions added approximately 6 % of inorganic hotel revenue growth in 2015 and 7 % of room night growth . worldwide hotel revenue increased 18 % in 2014 primarily due to a 26 % increase in room nights stayed driven by brand expedia and hotels.com , partially offset by a 6 % decrease in revenue per room night . revenue per room night decreased primarily due to efforts to expand the size and availability of the global hotel supply portfolio as well as promotional activities such as growing loyalty programs . this decline was partially offset by a 2 % increase in adrs in 2014 compared to 2013. worldwide air revenue increased 21 % ( 25 % excluding elong ) in 2015 due to a 28 % ( 35 % excluding elong ) increase in air tickets sold , partially offset by a 6 % ( 7 % excluding elong ) decrease in revenue per air ticket . acquisitions added approximately 18 % of inorganic air revenue growth in 2015 and 15 % of air ticket growth . worldwide air revenue increased 22 % in 2014 primarily due to a 28 % increase in air tickets sold , partially offset by a 5 % decrease in revenue per air ticket . air tickets sold growth was primarily driven by brand expedia , including the travelocity-branded websites . the remaining worldwide revenue , other than hotel and air discussed above , which includes advertising
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we recognized revenue of approximately $ 52 million and $ 78 million related to this business in our americas segment for the years ended december 31 , 2013 and 2012. the change is not expected to have a material impact on operating income or on cash flows in future periods . venezuela devaluation venezuela is a highly inflationary economy under u.s. gaap . as a result , the u.s. dollar is the functional currency for our consolidated joint venture in venezuela . any currency remeasurement adjustments for non-u.s. dollar denominated monetary assets and liabilities and other transactional foreign exchange gains and losses are reflected in earnings . in february 2013 , the venezuelan government devalued its currency and the official exchange rate changed from 4.3 to 6.3 venezuelan bolivares fuertes ( vef ) to 1 u.s. dollar . we recognized a $ 6.2 million realized foreign currency loss related to the devaluation in the first quarter of 2013. when the government devalued the vef in february , 2013 , it established a new auction-based exchange rate market program , referred to as sicad . the amount of transactions that have run through the sicad and restrictions around participation have limited our access to any foreign exchange rate other than the official rate to pay for imported goods and manage our local monetary asset balances . accordingly , all of our net monetary assets are measured at the official 6.3 exchange rate at december 31 , 2013. in late january 2014 , the venezuelan government made several announcements affecting currency exchange and other controls . although the official exchange rate remains at 6.3 , the government announced that the exchange rate for certain foreign investments will move to the rate available on the sicad currency market , which in the last auction was 11.7 vef to 1 u.s. dollar . the impact to us of a devaluation from the official exchange rate to the sicad market exchange rate would approximate $ 10 million based on net financial asset balances as of december 31 , 2013.there is considerable uncertainty as to the nature of transactions that will flow through sicad and how sicad will operate in the future , however we believe there is considerable risk that the official rate will be devalued further . further devaluation could have a material impact on our financial condition , results of operations or cash flow . 31 results of operations - for the years ended december 31 replace_table_token_4_th net revenues net revenues for the year ended december 31 , 2013 increased by 2.3 % , or $ 46.9 million , compared to the same period in 2012 due to the following : pricing 1.7 % volume/product mix 2.3 % impact of consolidated asia joint venture order flow change ( 1.3 ) % currency exchange rates / other ( 0.4 ) % total 2.3 % the increase in net revenues was primarily driven by improved pricing across all segments as well as increased volumes in the americas segment due to stronger demand in both the commercial and residential markets as well as new products , particularly from our electronics portfolio . these increases were partially offset by unfavorable currency impacts , lower volume in emeia due to weak markets and the impact of the change in order flow through our consolidated joint venture in asia discussed above . 32 net revenues for the year ended december 31 , 2012 increased by 1.3 % , or $ 25.4 million , compared to the same period in 2011 , due to the following : volume/product mix 0.3 % pricing 2.3 % currency exchange rates ( 1.3 ) % total 1.3 % the increase in revenues was primarily driven by improved pricing across all segments and increased volumes in the americas segment due to stronger demand in residential markets . these increases were partially offset by decreased volume/product mix in emeia due to weak markets and unfavorable foreign currency impacts . cost of goods sold for the year ended december 31 , 2013 , cost of goods sold as a percentage of revenue decreased to 58.9 % from 59.7 % . costs of goods sold as a percentage of revenue for the year ended december 31 , 2013 was favorably impacted by a $ 21.5 million gain on a property sale in china ( 1.0 % ) and negatively impacted by $ 3.8 million of restructuring charges and non-recurring separation costs incurred in connection with the spin-off ( 0.2 % ) . cost of goods sold as a percentage of revenue for the year ended december 31 , 2012 was negatively impacted by $ 3.7 million of restructuring charges and other costs ( 0.2 % ) . excluding the impact of these items , cost of goods sold as a percentage for the year ended december 31 , 2013 increased to 59.8 % from 59.5 % primarily due to inflation ( 1.9 % ) and unfavorable channel/region mix ( 0.5 % ) , partially offset by productivity benefits and other items ( 2.1 % ) . for the year ended december 31 , 2012 , cost of goods sold as a percentage of revenue decreased to 59.7 % ( 59.4 % excluding restructuring charges ) from 59.9 % . the improvement is the result of productivity actions and favorable currency impacts partially offset by material inflation . selling and administrative expenses for the year ended december 31 , 2013 , selling and administrative expenses as a percentage of revenue increased to 23.2 % from 22.3 % . selling and administrative expenses as a percentage of revenue for the year ended december 31 , 2013 was negatively impacted by $ 2.7 million of restructuring charges ( 0.1 % ) and $ 5.0 of non-recurring separation costs incurred in connection with the spin-off ( 0.2 % ) . selling and administrative expenses as a percentage of revenue for the year ended december 31 , 2012 was negatively impacted by $ 4.5 million of restructuring charges and other costs ( 0.2 % ) . story_separator_special_tag excluding the impact of these items , selling and administrative expenses as a percentage of revenue increased to 22.9 % from 22.1 % , primarily due to non-material inflation ( 1.2 % ) and increased investment spending ( 0.5 % ) partially offset by productivity benefits ( 0.5 % ) and other items ( 0.4 % ) . for the year ended december 31 , 2012 , selling and administrative expenses as a percentage of revenue remained at 22.3 % compared to the prior year . restructuring charges and non-material inflation were partially offset by productivity benefits and favorable currency impacts . operating income/margin operating margin for the year ended december 31 , 2013 decreased to 11.3 % from 18.0 % for the same period in 2012 . operating margin for the year ended december 31 , 2103 was negatively impacted by the non-cash goodwill impairment charge ( 6.6 % ) and favorably impacted by the gain on a property sale in china ( 1.1 % ) . excluding the impact of these items , operating margin for the year ended december 31 , 2013 was 16.9 % . the decrease was primarily due incremental investment spending associated with new product development ( 0.6 % ) , unfavorable product mix ( 0.5 % ) and restructuring charges and non-recurring separation costs ( 0.2 % ) , partially offset by favorable volume leverage ( 0.2 % ) . price increases ( 1.4 % ) and productivity benefits ( 2.4 % ) offset inflation , higher corporate expense allocations and other items ( 3.8 % , collectively ) for the year ended december 31 , 2013. operating margin for the year ended december 31 , 2012 increased to 18.0 % from 17.8 % for the same period in 2011 . the increase was primarily due to improved pricing in excess of material inflation ( 1.7 % ) and the realization of productivity benefits in excess of other inflation ( 0.6 % ) . these increases were partially offset by unfavorable volume/product mix ( 1.3 % ) and increased investment spending ( 0.8 % ) . interest expense interest expense for the year ended december 31 , 2013 increased $ 8.7 million compared to the same period in 2012 as a result of entering into the $ 1,000 million total senior secured credit facilities and issuing $ 300 million of senior notes in the fourth quarter of 2013 in conjunction with the spin-off from ingersoll rand . had this debt been outstanding as of the beginning of 2013 , our interest expense would have been approximately $ 53 million for the year ended december 31 , 2013 . 33 interest expense for the year ended december 31 , 2012 increased $ 0.1 million compared with the same period of 2011 . our interest-bearing debt balances were $ 5.0 million and $ 4.9 million as of december 31 , 2012 and 2011 , respectively . the amount of interest expense incurred is consistent with the fluctuation in the balance of interest-bearing debt for all periods . other , net the components of other , net , for the year ended december 31 are as follows : replace_table_token_5_th for the year ended december 31 , 2013 , other , net decreased by $ 3.9 million compared to the same period in 2012 primarily due to unfavorable foreign currency impacts . included within exchange gain ( loss ) for the year ended december 31 , 2013 is a $ 6.2 million realized foreign currency loss related to the devaluation of the venezuelan bolivar ( vef ) from the pre-existing exchange rate of 4.3 vef to 1 u.s. dollar to 6.3 vef to 1 u.s. dollar . for the year ended december 31 , 2012 , other , net decreased by $ 7.8 million compared with the same period in 2011 primarily from unfavorable foreign currency impacts . provision for income taxes for the year ended december 31 , 2013 , our effective tax rate of 79.7 % compared to 37.3 % for the year ended december 31 , 2012 . the effective tax rate for the year ended december 31 , 2013 included the impact of a non-cash pre-tax goodwill impairment charge of $ 137.6 million ( $ 131.2 million after-tax ) . additionally , the effective tax rate included $ 44.8 million of discrete tax adjustments consisting of $ 31.5 million of expense related to valuation allowances on deferred tax assets that are no longer expected to be utilized and $ 13.3 million of net tax expense resulting primarily from transactions occurring to effect the spin-off . excluding these items , the effective tax rate was 36.4 % . our tax rate was above the u.s. statutory rate of 35.0 % primarily due to u.s. state and local taxes and net increases in our liability for unrecognized tax benefits partially offset by earnings in non-u.s. jurisdictions , which , in aggregate , had a lower effective rate . for periods prior to the spin-off , income tax expense has been recorded as if we filed tax returns on a stand-alone basis . this separate return methodology applies the accounting guidance for income taxes to the stand-alone financial statements as if we were a stand-alone enterprise for the periods prior to the spin-off using statutory rates . these rates did not contemplate certain tax strategies that could lower the effective tax rate in future periods , if executed . for the year ended december 31 , 2012 , our effective tax rate of 37.3 % compared to 36.0 % for the year ended december 31 , 2011 . our tax rate was above the u.s. statutory rate of 35.0 % primarily due to u.s. state and local taxes and net increases in our liability for unrecognized tax benefits partially offset by earnings in non-u.s. jurisdictions , which , in aggregate , had a lower effective rate . discontinued operations discontinued operations recognized a loss for the year ended december 31 , 2013 primarily due to lease expense and other miscellaneous expenses from previously sold businesses .
| on december 30 , 2011 , we completed the divestiture of our security installation and service business , which was sold under the integrated systems and services brand in the united states and canada , to kratos public safety & security solutions , inc. as a result of the sale , we have reported this business as a discontinued operation for all periods presented . segment information excludes the results of this business for all periods presented . segment results for the years ended december 31 were as follows : replace_table_token_6_th 2013 vs 2012 net revenues for the year ended december 31 , 2013 increased by 2.9 % , or $ 42.8 million , compared to the same period in 2012 due to the following : pricing 2.1 % volume/product mix 3.9 % impact of consolidated joint venture order flow change ( 1.8 ) % currency exchange rates/other ( 1.3 ) % total 2.9 % the increase in revenues was primarily due to increased volume due to stronger demand in both the commercial and residential markets as well as new products , particularly from our electronics portfolio , and price increases in venezuela . these increases were partially offset by unfavorable currency impacts and the impact of the change in order flow through our consolidated joint venture discussed above . segment operating margin for the year ended december 31 , 2013 improved to 25.7 % from 25.6 % compared to the same period of 2012 . the increase was primarily due to favorable volume leverage ( 0.6 % ) , pricing movements in excess of material inflation ( 0.8 % ) partially offset by unfavorable product/channel mix ( 0.4 % ) , incremental investment spending ( 0.5 % ) , other inflation in excess of productivity ( 0.2 % ) and unfavorable currency impacts ( 0.2 % ) . 2012 vs 2011 net revenues for the year ended december 31 , 2012 increased by 5.0 % or $ 69.7 million , compared to the same period in 2011 due to the following :
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