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we compete for business with several national distributors as well as a large number of regional and local distributors . the mro business is significantly influenced by the overall strength of the manufacturing sector of the u.s. economy . one measure used to evaluate the strength of the industrial products market is the pmi index published by the institute for supply management . the pmi index is a composite index of economic activity in the united states manufacturing sector . it is published by the institute for supply management and is available at http : //www.ism.ws/ . a measure of that index above 50 generally indicates expansion of the manufacturing sector while a measure below 50 generally represents contraction . the average monthly pmi was 55.8 for the year ended december 31 , 2014 compared to 53.9 for the year ended december 31 , 2013 , indicating an increase in the u.s. manufacturing growth rate from a year ago . our sales are also affected by the number of sales representatives and the amount of sales each representative can generate , which we measure as average sales per day per sales representative . in 2014 , we focused on increasing the number of sales representatives , adding 110 net new sales representatives , to a total of 916 at december 31 , 2014. we plan to continue to expand our sales representative count to approximately 1,000 by the end of the 2015. while we anticipate future sales growth from our expanded sales force , we also anticipate a short-term decrease in average sales per day per sales representative , as new representatives build up customer relationships in their territories . average daily sales in 2014 rose above the average daily sales in 2013 by 6.0 % as the number of average sales representatives increased by 92 over the prior year . 2014 results were negatively impacted by the non-cash impairment on the sale-leaseback of our reno , nevada distribution center in the amount of $ 3.0 million and total stock-based compensation expense of $ 6.4 million primarily as a result of our increased stock price . results of operations are examined in detail following a recap of our major activities in 2014 . 2014 activities increased sales team - we increased the number of net active sales representatives from 806 on december 31 , 2013 to 916 on december 31 , 2014. roll out of new sales ordering tool - during 2014 , we completed the development of a new sales ordering tool allowing our sales team to access real time product pricing and availability in the field . roll out of this tool to our sales team began in 2014 and will be implemented during 2015. sale of asmp - we finalized the sale of our non-core automatic screw machine products company , inc. ( `` asmp '' ) subsidiary . sale-leaseback of the reno , nevada facility - we sold our reno , nevada distribution center and entered into a 10-year lease for approximately one-half of the facility that we had been utilizing . lean six sigma - we expanded our lean six sigma process of continuous improvement into varying aspects of our business . improved operational performance - we continued to improve the fundamentals of our business , measured as improved order completeness and line service levels to our customers as well as reduced customer backorders . we believe we have created a scalable infrastructure that will allow us to take full advantage of future growth opportunities . we will continue to strive to be our customers ' first choice for maintenance , repair and operational solutions . 14 story_separator_special_tag results of continuing operations for 2013 as compared to 2012 replace_table_token_7_th net sales net sales decreased 1.5 % in 2013 to $ 269.5 million from $ 273.6 million in 2012 . excluding the negative canadian exchange rate impact , net sales decreased 1.2 % for the year . the majority of the $ 4.1 million decrease in sales was due primarily to a decrease in sales coverage as we had fewer average sales representatives in the first half 2013 compared to the first half of 2012. government sales decreased $ 5.2 million compared to 2012. national accounts represented 14 % of total sales in 2013. average daily sales were $ 1.069 million in 2013 compared to $ 1.086 million in 2012 . although daily sales decreased on a year over year basis , as shown in the following graph , sales during the second half of 2013 improved compared to the second half of 2012 as we increased the average number of active sales representatives . sales in the fourth quarter of 2013 were 2.0 % higher than the fourth quarter of 2012 as we had an average of 25 more sales representatives in the field than in the fourth quarter of 2012 . 18 gross profit gross profit increased 2.5 % in 2013 to $ 161.3 million from $ 157.4 million in 2012 . as a percent of net sales , gross profit margin increased to 59.8 % in 2013 from 57.5 % in 2012 . the improved gross margin was primarily driven by lower outbound freight costs of $ 1.1 million and lower reserves for excess and obsolete inventory , as 2012 included a non-cash expense of $ 3.9 million related to discontinuing certain products . selling expenses selling expenses increased $ 4.0 million to $ 84.3 million in 2013 from $ 80.3 million in 2012. the increase was primarily due to $ 2.2 million in increased health insurance costs and $ 1.2 million of expenses related to our 2013 national sales meeting . story_separator_special_tag selling expenses as a percent of net sales were 31.3 % in 2013 compared to 29.4 % in 2012. general and administrative expenses general and administrative expenses decreased $ 17.4 million to $ 80.4 million in 2013 from $ 97.8 million in 2012. the decrease was driven by actions taken in the first half of 2012 to reduce costs , primarily through a reduction in employee headcount and outside services . employee compensation , excluding stock-based compensation , decreased $ 7.3 million , severance charges decreased $ 7.2 million and legal , consulting and other outside service expenses decreased $ 7.2 million in 2013 compared to the prior year . this was partially offset by a $ 2.6 million increase in stock-based compensation and $ 1.1 million increase in temporary labor in 2013. gain on sale of assets in 2012 , in conjunction with the opening of the new mccook facility and the relocation of our headquarters to chicago , illinois , we sold four properties : our former des plaines , illinois headquarters and packaging facility , our addison , illinois distribution center ; our vernon hills , illinois distribution center ; and a des plaines , illinois administrative building . we received cash proceeds of $ 12.3 million from the sale of the four facilities , which resulted in a gain of $ 3.7 million . 19 goodwill impairment during 2012 , we determined that continuing operating losses and the reduction in our market capitalization below book value were indicators of potential goodwill impairment . when we performed an impairment analysis of our goodwill balance we determined that the full amount of the goodwill was impaired and we recorded a non-cash charge of $ 28.3 million . other operating expenses , net in 2013 we entered into an agreement to sub-lease a portion of our leased headquarters . under lease accounting rules we recorded a $ 2.9 million charge , primarily representing the net difference between the company 's future scheduled lease payments and the expected proceeds from the sub-lease , as well as related asset write-downs . in 2013 , we also recorded a benefit of $ 0.4 million related to the settlement of an employment tax matter with the irs for $ 0.8 million , as we had originally established a reserve of $ 1.2 million in 2011 as our best estimate of the outcome . interest and other expenses , net interest and other expenses , net increased to $ 1.3 million in 2013 from $ 0.8 million in 2012 primarily due to a higher average debt balance which led to an increase in interest expense . income tax ( benefit ) expense primarily due to historical cumulative losses , substantially all of our deferred tax assets are subject to a tax valuation allowance . in 2012 , we recorded an income tax expense of $ 17.9 million on a pre-tax loss of $ 46.1 million which included a $ 33.3 million increase in the valuation allowance on our deferred tax assets . the increase in the valuation allowance was primarily due to cumulative losses we had incurred over several reporting periods . we determined that it was more likely than not that we would not be able to utilize our deferred tax assets to offset future taxable income and , therefore , increased our deferred tax valuation allowance . in 2013 we continued to be in a full tax valuation allowance position and the $ 0.1 million of income tax benefit was related to reserves for uncertain tax positions , offset by the allocation of income taxes between continuing and discontinued operations . liquidity and capital resources cash provided by operating activities was $ 2.4 million in 2014 compared to $ 0.6 million in 2013 and cash used in operating activities of $ 8.3 million in 2012 . the increase in cash from operations in 2014 and 2013 was due primarily to improved operating results . in 2012 , cash used from operations was primarily due to operating losses . capital expenditures were $ 2.8 million in 2014 compared to $ 2.9 million in 2013 and $ 18.3 million in 2012 . capital expenditures in 2014 were primarily for reconfiguration of our reno , nevada , distribution center , facility improvements and upgrades to our information technology capabilities . capital expenditures in 2013 were primarily for warehouse equipment to support operations in our mccook facility , and for improvements to our sales order entry system and our redesigned website . capital expenditures in 2012 were primarily for warehouse equipment for the opening of the mccook facility , the build-out of the leased headquarters and expenditures related to our website redevelopment . we have the ability to borrow funds through the loan agreement which consists of a $ 40.0 million revolving credit facility , which includes a $ 10.0 million sub-facility for letters of credit . the terms of the loan agreement as amended are more fully detailed in note 8 – loan agreement of the consolidated financial statements included in item 8 of this form 10-k. net proceeds from the sale of asmp and the sale-leaseback of our reno , nevada , distribution center were used to pay down outstanding borrowings . at december 31 , 2014 , we had no borrowings on our revolving line of credit and had additional borrowing availability of $ 31.9 million . 20 in addition to other customary representations , warranties and covenants , we are required to meet a minimum trailing twelve month ebitda to fixed charges ratio and a minimum quarterly tangible net worth level as defined in the second amendment of the loan agreement .
| selling expenses increased $ 6.5 million to $ 90.8 million in 2014 from $ 84.3 million in 2013 and increased as a percent of net sales to 31.8 % from 31.3 % in 2013. increased costs associated with new sales representatives including compensation , hiring and onboarding expenses were offset partially by expenses incurred in 2013 related to a national sales meeting which were not incurred in 2014. we plan to conduct a national sales meeting in the first quarter of 2015. general and administrative expenses general and administrative expenses consist of expenses to operate our distribution network and overhead expenses to manage the business . general and administrative expenses increased $ 2.8 million to $ 83.2 million in 2014 from $ 80.4 million in 2013. an increase in stock-based compensation of $ 4.1 million in 2014 was offset partially by the additional costs associated with opening the mccook distribution facility in 2013 which were not present in 2014 . 16 other operating expenses , net in 2014 , we completed the sale of our reno , nevada , distribution center . as part of the review of the impact of a sale , we determined that the full carrying amount of the asset was not recoverable . therefore , we recorded a $ 3.0 million non-cash impairment charge prior to the sale . in conjunction with the sale , we entered into an agreement to leaseback approximately one-half of the building that we were previously using for a 10-year term . also , in 2014 we recorded a reserve of $ 0.3 million related to estimated future remediation of an environmental matter involving land owned in decatur , alabama and recorded a $ 0.1 million loss on disposal of assets . in 2013 we entered into an agreement to sub-lease a portion of our leased headquarters . under lease accounting rules we recorded a $ 2.9 million charge , primarily representing the net difference between the company 's future scheduled lease payments and the expected proceeds from the sub-lease , as well as related asset write-downs . also in 2013 , we recorded a benefit of $
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we have completed the phase i dose escalation portion of a phase i/ii clinical trial in ifabotuzumab in multiple hematologic malignancies for which the preliminary results were published in the journal leukemia research in 2016. an investigator-sponsored phase i radio-labeled imaging trial of ifabotuzumab in glioblastoma multiforme , a particularly aggressive and deadly form of brain cancer , has begun at the olivia-newton john cancer institute ( onjci ) in melbourne , australia . collaborators at the onjci , are also evaluating an adc comprising ifabotuzumab . the current trial has enrolled five patients to date , with more expected . we are also in discussions with a leading center in the u.s. to make a series of car constructs based on ifabotuzumab and may take these , if developed , into pre-clinical testing for a range of cancer types . we continue to explore partnering opportunities to enable further/faster development of ifabotuzumab . hgen005 is a pre-clinical stage anti-human epidermal growth factor-like module containing mucin-like hormone receptor 1 ( emr1 ) mab . emr1 is a therapeutic target for eosinophilic disorders . eosinophils are a type of white blood cell . if too many are produced in the body , chronic inflammation and tissue and organ damage may result . analysis of blood and bone marrow shows that surface expression of emr1 is restricted to mature eosinophils and correlated with eosinophilia . tissue eosinophils also express emr1 . in pre-clinical work , we have demonstrated that eosinophil killing is enhanced in the presence of hgen005 and immune effector cells . a major limitation of current eosinophil targeted therapies is incomplete depletion of tissue eosinophils and or lack of cell selectivity , which may mean that hgen005 could offer promise in a range of eosinophil-driven diseases , such as eosinophilic asthma , eosinophilic esophagitis and eosinophilic granulomatosis with polyangiitis . we are considering developing a series of car constructs based on hgen005 and may take or partner these constructs , if developed , into pre-clinical testing . lenzilumab , ifabotuzumab and hgen005 were each developed with our proprietary , patent-protected humaneered technology , which consists of methods for converting antibodies ( typically murine ) into engineered , high-affinity antibodies designed for human therapeutic use , typically for chronic conditions . we have incurred significant losses and had an accumulated deficit of $ 274.6 million as of december 31 , 2018. we expect to continue to incur net losses for the foreseeable future as we develop our drug candidates , expand clinical trials for our drug candidates currently in clinical development , expand our development activities and seek regulatory approvals . significant capital is required to continue to develop and to launch a product and many expenses are incurred before revenue is received , if any . we are unable to predict the extent of any future losses or when we will receive revenue or become profitable , if at all . 56 we will require substantial additional capital to continue as a going concern and to support our business efforts , including obtaining regulatory approvals for our product candidates , clinical trials and other studies , and , if approved , the commercialization of our product candidates . we anticipate that we will seek additional financing from a number of sources , including , but not limited to , the sale of equity or debt securities , strategic collaborations , and licensing of our product candidates . additional funding may not be available to us on a timely basis or at acceptable terms , if at all . our ability to access capital when needed is not assured and , if not achieved on a timely basis , would materially harm our business , financial condition and results of operations . if adequate funds are not available , we may be required to delay , reduce the scope of , or eliminate one or more of our development programs . we may also be required to sell or license to others our technologies , product candidates , or development programs that we would have preferred to develop and commercialize ourselves and on less than favorable terms , if at all . if in the best interests of our stockholders , we may also find it appropriate to enter into a strategic transaction that could result in , among other things , a sale , merger , consolidation or business combination . if management is unsuccessful in efforts to raise additional capital , based on our current levels of operating expenses , our current capital is not expected to be sufficient to fund our operations for the next twelve months . these conditions raise substantial doubt about our ability to continue as a going concern . the report of independent registered public accounting firm at the beginning of the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k includes an explanatory paragraph about our ability to continue as a going concern . the consolidated financial statements for the year ended december 31 , 2018 were prepared on the basis of a going concern , which contemplates that we will be able to realize our assets and discharge liabilities in the normal course of business . our ability to meet our liabilities and to continue as a going concern is dependent upon the availability of future funding . the financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . critical accounting policies and use of 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 , or gaap . the preparation of our financial statements in conformity with gaap requires our management to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes . story_separator_special_tag actual results could differ materially from those estimates . our management believes judgment is involved in determining revenue recognition , valuation of financing derivative , the fair value-based measurement of stock-based compensation , accruals and warrant valuations . our management evaluates estimates and assumptions as facts and circumstances dictate . as future events and their effects can not be determined with precision , actual results could differ from these estimates and assumptions , and those differences could be material to the consolidated financial statements . if our assumptions change , we may need to revise our estimates , or take other corrective actions , either of which may also have a material adverse effect on our statements of operations , liquidity and financial condition . until december 31 , 2018 , we qualified as an emerging growth company ( “ egc ” ) under the jobs act . emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies . we elected to avail ourselves of this exemption from new or revised accounting standards and , therefore , we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . a registrant with egc status loses its eligibility as an egc five years after its common equity initial public offering , december 31 , 2018 for our company . accordingly , we are required to adopt new accounting standards on the same timeline as other public companies effective january 1 , 2018. see note 3 to the consolidated financial statements for a description of the impact of new accounting standards adopted in 2018 . 57 while our significant accounting policies are described in more detail in note 3 to our consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k , we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing contracts and purchase orders , reviewing the terms of our license agreements , communicating with our applicable personnel to identify services that have been performed on our behalf , and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost . some of our service providers invoice us monthly in arrears for services performed . we make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time . examples of estimated accrued research and development expenses include fees to : · contract research organizations and other service providers in connection with clinical studies ; · contract manufacturers in connection with the production of clinical trial materials ; and · vendors in connection with preclinical development activities . we base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical studies on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract , and may result in uneven payment flows and expense recognition . payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in accruing these costs , we estimate the time period over which services will be performed for which we have not been invoiced and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual accordingly . our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period . stock-based compensation our stock-based compensation expense for stock options is estimated at the grant date based on the award 's fair value as calculated by the black-scholes option pricing model and is recognized as expense over the requisite service period . the black-scholes option pricing model requires various highly judgmental assumptions including expected volatility and expected term . the expected volatility is based on the historical stock volatilities of several of our publicly listed peers over a period equal to the expected terms of the options as we do not have a sufficient trading history to use the volatility of our own common stock . to estimate the expected term , we have opted to use the simplified method , which is the use of the midpoint of the vesting term and the contractual term . if any of the assumptions used in the black-scholes option pricing model changes significantly , stock-based compensation expense may differ materially in the future from that recorded in the current period . in addition , we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest . we estimate the forfeiture rate based on historical experience and our expectations regarding future pre-vesting termination behavior of employees . to the extent our actual forfeiture rate is different from our estimate , stock-based compensation expense is adjusted accordingly . revenue recognition our revenue to date has been generated primarily through license agreements and research and development collaboration agreements .
| other research and development costs consist primarily of internal research and development costs such as salaries and related fringe benefit costs for our employees ( such as workers compensation and health insurance premiums ) , stock-based compensation charges , travel costs , lab supplies , overhead expenses such as rent and utilities , and external costs not allocated to one of our clinical programs . internal research and development costs generally benefit multiple projects and are not separately tracked per project . the following table shows our total research and development expenses for the years ended december 31 , 2018 and 2017 ( $ 000 's ) : replace_table_token_1_th we expect to continue to incur substantial expenses related to our research and development activities for the foreseeable future as we continue product development including our development efforts for lenzilumab to reduce the serious and potentially life-threatening side effects associated with car-t therapy and potentially improve efficacy . depending on the results of our development efforts we expect to incur substantial costs to prepare for potential clinical trials and activities for lenzilumab . 60 general and administrative expenses general and administrative expenses consist principally of personnel-related costs , professional fees for legal , consulting , audit and tax services , rent and other general operating expenses not otherwise included in research and development . for the years ended december 31 , 2018 and 2017 , general and administrative expenses were $ 9.1 million and $ 7.9 million , respectively . comparison of years ended december 31 , 2018 and 2017 ( $ 000 's ) replace_table_token_2_th research and development expenses decreased $ 8.9 million in 2018 from $ 11.2 million for the year ended december 31 , 2017 to $ 2.2 million for the year ended december 31 , 2018. the decrease is primarily due to the discontinuation of the development of benznidazole in august 2017 , lower internal costs , and lower spending on the development of lenzilumab , primarily in connection with the cmml trial . we expect our research and development expenses will increase substantially in 2019 compared to 2018 , due to the anticipated start of the phase ib/ii trials of lenzilumab in the car-t setting . general and
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41 ethane opportunity - ethane rejection levels across our system averaged more than 150 mbbl/d in 2017 , which is slightly lower than 2016 despite an increase in overall ngl supply volumes . we expect ethane rejection on our system to decrease to approximately 70 mbbl/d by the end of 2018 , initially in regions closest to market centers such as the permian basin and mid-continent region , as ethylene producers complete their expansion projects and ngl exporters increase their export volumes . we expect this increase in ethane recovery to have a favorable impact on our financial results . income taxes - the tax cuts and jobs act makes extensive changes to the u.s. tax laws and includes provisions that , beginning in 2018 , reduce the u.s. corporate tax rate to 21 percent from 35 percent , increase expensing for capital investment , limit the interest deduction , and limit the use of net operating losses to offset future taxable income . we consider the aggregate of these changes as positive to our business and continue to expect that we will not pay federal cash income taxes through at least 2021. as a result of the enactment of the tax cuts and jobs act , we recorded a one-time noncash charge to net income through income tax expense of $ 141.3 million in the fourth quarter 2017 , related to revaluation of our deferred tax balances and a valuation allowance on certain state net operating loss and tax credit carryforwards . the tax cuts and jobs act may also impact future tariff rates charged on our regulated pipelines . the tariff rates charged on substantially all of our regulated pipelines have been established through shipper specific negotiation , discounts and negotiated settlements with rate moratoriums , which do not ascribe any specific cost of service elements , including income taxes . as such , we expect future tariff rate changes , if any , related to the change in u.s. corporate tax rate to be established prospectively over time on a similar negotiated basis . if in the future the ferc or other regulatory bodies were to require a refund of previously collected amounts on our regulated pipelines , then we may record a regulatory liability through a one-time charge to expense . for more information , see note m in the notes to the consolidated financial statements . equity issuances - in january 2018 , we completed an underwritten public offering of 21.9 million shares of our common stock at a public offering price of $ 54.50 per share , generating net proceeds of $ 1.2 billion . we used the net proceeds from this offering to fund capital expenditures and for general corporate purposes , which included repaying a portion of our outstanding indebtedness . we have satisfied our expected equity financing needs through 2018 and well into 2019. in july 2017 , we established an “ at-the-market ” equity program for the offer and sale from time to time of our common stock up to an aggregate amount of $ 1 billion . the program allows us to offer and sell our common stock at prices we deem appropriate through a sales agent . sales of our common stock may be made by means of ordinary brokers ' transactions on the nyse , in block transactions , or as otherwise agreed to between us and the sales agent . we are under no obligation to offer and sell common stock under the program . during the year ended december 31 , 2017 , we sold 8.4 million shares of common stock through our “ at-the-market ” equity program that resulted in net proceeds of $ 448.3 million . dividends - during 2017 , we paid dividends totaling $ 2.72 per share , an increase of 11 percent from the $ 2.46 per share paid in 2016 . in february 2018 , we paid a quarterly dividend of $ 0.77 per share ( $ 3.08 per share on an annualized basis ) , an increase of 25 percent compared with the same period in the prior year . we expect 85 to 95 percent of our 2018 dividend payments to investors to be a return of capital . our dividend growth is due to the increase in cash flows resulting from the merger transaction and the continued growth of our operations . 42 financial results and operating information consolidated operations story_separator_special_tag february 2018 , we announced plans to construct the 200 mmcf/d demicks lake natural gas processing plant and related infrastructure in the core of the williston basin . this project is expected to be complete in the fourth quarter 2019 at a cost of $ 400 million , excluding capitalized interest , and is supported by long-term primarily fee-based contracts and acreage dedications . in 2015 , 2016 and 2017 we completed the following projects : replace_table_token_6_th ( a ) excludes capitalized interest . for a discussion of our capital expenditure financing , see “ capital expenditures ” in the “ liquidity and capital resources ” section . selected financial results and operating information - the following tables set forth certain selected financial results and operating information for our natural gas gathering and processing segment for the periods indicated . replace_table_token_7_th * percentage change is greater than 100 percent or is not meaningful . see reconciliation of income from continuing operations to adjusted ebitda in the “ adjusted ebitda ” section . due to the nature of our contracts , changes in commodity prices and sales volumes affect commodity sales and cost of sales and fuel and , therefore , the impact is largely offset between these line items . story_separator_special_tag 45 2017 vs. 2016 - adjusted ebitda increased $ 71.7 million , primarily as a result of the following : an increase of $ 66.0 million due primarily to natural gas volume growth in the williston basin and the stack and scoop areas , offset partially by natural production declines and the impact of severe winter weather in the first quarter 2017 ; and an increase of $ 44.0 million due primarily to restructured contracts resulting in higher fee revenues from increased average fee rates , offset partially by a lower percentage of proceeds retained from the sale of commodities under our pop with fee contracts ; offset partially by an increase of $ 23.9 million in operating costs due primarily to increased labor and employee-related costs associated with our benefit plans and the growth of our operations ; a decrease of $ 11.9 million due primarily to lower realized natural gas and condensate prices ; and a decrease of $ 8.0 million due to contract settlements in 2016. capital expenditures decreased due to growth projects placed in service in 2016. see “ capital expenditures ” in “ liquidity and capital resources ” for additional detail of our projected capital expenditures . 2016 vs. 2015 - adjusted ebitda increased $ 128.2 million , primarily as a result of the following : an increase of $ 144.3 million due primarily to restructured contracts resulting in higher fee revenues from increased average fee rates , offset partially by a lower percentage of proceeds retained from the sale of commodities under our pop with fee contracts ; an increase of $ 92.2 million due primarily to natural gas volume growth in the rocky mountain region , offset partially by volume declines in the mid-continent region and the impact of weather in the williston basin in december 2016 ; and an increase of $ 8.0 million due to contract settlements ; offset partially by a decrease of $ 91.9 million due primarily to lower net realized ngl and natural gas prices ; an increase of $ 13.2 million in operating costs due primarily to increased labor related to the growth of our operations resulting from completed capital-growth projects and higher employee-related costs associated with incentive and medical benefit plans ; a decrease of $ 7.2 million due to lower equity earnings primarily related to our powder river basin equity investments ; and a decrease of $ 4.0 million due primarily to increased ethane recovery to maintain downstream ngl product specifications . capital expenditures decreased due to projects placed in service , spending reductions to align with customer needs and lower well connect activities due to a reduction in drilling and completion activity . replace_table_token_8_th ( a ) - includes volumes for consolidated entities only . ( b ) - includes volumes at company-owned and third-party facilities . ( c ) - includes the impact of hedging activities on our equity volumes . ( d ) - net of transportation and fractionation costs . ( e ) - net of transportation costs . natural gas gathered , natural gas processed , ngl sales and residue natural gas sales increased in 2017 , compared with 2016 , due to the completion of growth projects and new supply in the williston basin and the stack and scoop areas , offset partially by natural production declines on existing wells and the impact of severe winter weather in the first quarter 2017 . 46 natural gas gathered , natural gas processed , ngl sales and residue natural gas sales increased in 2016 , compared with 2015 , due to the completion of capital-growth projects in the williston basin , offset partially by natural gas volume declines in the mid-continent region . the quantity and composition of ngls and natural gas are expected to continue to change with anticipated production increases across our supply basins , new processing plants placed in service and increased ethane recovery . commodity price risk - see discussion regarding our commodity price risk under “ commodity price risk ” in item 7a , quantitative and qualitative disclosures about market risk . impairment charges - in the third quarter 2017 , following a review of nonstrategic assets for potential divestiture , we recorded $ 16.0 million of noncash impairment charges related to certain nonstrategic gathering and processing assets located in north dakota and $ 4.3 million of noncash impairment charges related to a nonstrategic equity investment located in oklahoma . in 2015 , due to the continued and greater than expected decline in volumes gathered in the dry natural gas area of the powder river basin , we evaluated our investments in this area . we recorded a $ 63.5 million noncash impairment charge to long-lived assets for our coal-bed methane natural gas gathering system , which we shut down in 2016. we reviewed our bighorn gas gathering , fort union gas gathering and lost creek gathering company equity investments and recorded noncash impairment charges of $ 180.6 million in 2015. in 2015 , we also recorded a noncash impairment charge of $ 10.2 million related to a previously idled asset , as our expectation for future use of the asset changed . natural gas liquids growth projects - our growth strategy in our natural gas liquids segment is focused around the crude oil and ngl-rich natural gas drilling activity in shale and other nonconventional resource areas from the rocky mountain region through the mid-continent region into the permian basin . crude oil , natural gas and ngl production from this activity ; higher petrochemical industry demand for ngl products ; and increased exports have resulted in our making additional capital investments to expand our infrastructure to bring these commodities from supply basins to market .
| operating income was also impacted in 2017 by $ 16.0 million of noncash impairment charges related to nonstrategic long-lived assets in our natural gas gathering and processing segment . 43 net income was further impacted by a one-time noncash charge through income tax expense of $ 141.3 million , related to revaluation of our deferred tax balances and a valuation allowance on certain state net operating loss and tax credit carryforwards resulting from the enactment of the tax cuts and jobs act and $ 20.0 million of noncash expenses related to our series e preferred stock contribution to the foundation . equity in net earnings from investments increased due primarily to higher firm transportation revenues related to roadrunner 's phase ii capacity , which was placed in service in october 2016. roadrunner is fully subscribed under long-term firm demand charge contracts . in 2017 , we recorded $ 4.3 million of noncash impairment charges related to a nonstrategic equity investment in our natural gas gathering and processing segment . net income attributable to noncontrolling interests decreased as a result of the merger transaction . prior to june 30 , 2017 , we and our subsidiaries owned all of the general partner interest , which included incentive distribution rights , and a portion of the limited partner interest , which together represented a 41.2 percent ownership interest in oneok partners . the earnings of oneok partners that are attributed to its units held by the public prior to the merger transaction are reported as “ net income attributable to noncontrolling interest ” in our accompanying consolidated statements of income until june 30 , 2017. capital expenditures decreased due primarily to growth projects placed in service in 2016 in our natural gas gathering and processing segment . 2016 vs. 2015 - operating income and adjusted ebitda increased due primarily as a result of the following : higher natural gas and ngl volumes from our completed capital-growth projects in our natural gas gathering
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esp is the price at which the company would transact a sale if the product or service were sold on a stand-alone basis . the company establishes its best estimate of esp considering internal factors relevant to is pricing practices such as costs and margin objectives , standalone sales prices of similar products , percentage of the fee charged for a primary product or service relative to a related product or service , and customer segment and geography . additional consideration is also given to market conditions such as competitor pricing strategies and market trend . the company reviews its determination of vsoe , tpe and esp on an annual basis or more frequently as needed . in the mis segment , revenue attributed to initial ratings of issued securities is recognized when the rating is delivered to the issuer . revenue attributed to monitoring of issuers or issued securities is recognized ratably over the period in which the monitoring is performed , generally one year . in the case of commercial mortgage-backed securities , structured credit , international residential mortgage-backed and asset-backed securities , issuers can elect to pay the monitoring fees upfront . these fees are deferred and recognized over the future monitoring periods based on the expected lives of the rated securities , which was approximately 24 years on a weighted average basis at december 31 , 2017. at december 31 , 2017 , 2016 and 2015 , deferred revenue related to these securities was approximately $ 140.1 million , $ 133.0 million , and $ 121.0 million . multiple element revenue arrangements in the mis segment are generally comprised of an initial rating and the related monitoring service . in instances where monitoring fees are not charged for the first year monitoring effort , fees are allocated to the initial rating and monitoring services based on the relative selling price of each service to the total arrangement fees . the company generally uses esp in determining the selling price for its initial ratings as the company rarely provides initial ratings separately without providing related monitoring services and thus is unable to establish vsoe or tpe for initial ratings . mis estimates revenue for ratings of commercial paper for which , in addition to a fixed annual monitoring fee , issuers are billed quarterly based on amounts outstanding . revenue is accrued each quarter based on estimated amounts outstanding and is billed when actual data is available . the estimate is determined based on the issuers ' most recent reported quarterly data . at december 31 , 2017 , 2016 and 2015 , accounts receivable included approximately $ 27.0 million , $ 25.0 million , and $ 24.0 million , respectively , related to accrued commercial paper revenue . historically , mis has not had material differences between the estimated revenue and the actual billings . furthermore , for certain annual monitoring services , fees are not invoiced until the end of the annual monitoring period and revenue is accrued ratably over the monitoring period . at december 31 , 2017 , 2016 and 2015 , accounts receivable included approximately $ 185.0 million , $ 159.1 million , and $ 146.4 million , respectively , relating to accrued annual monitoring service revenue . in the ma segment , products and services offered by the company include software licenses and related maintenance , subscriptions , and professional services . revenue from subscription based products , such as research and data subscriptions and certain software-based credit risk management subscription products , is recognized ratably over the related subscription period , which is principally one year . revenue from sale of perpetual licenses of credit processing software is generally recognized at the time the product master or first copy is delivered or transferred to and accepted by the customer . if uncertainty exists regarding customer acceptance of the product or service , revenue is not recognized until acceptance occurs . software maintenance revenue is recognized ratably over the annual maintenance period . revenue from professional services rendered is generally recognized as the services are performed . a large portion of annual research and data subscriptions and annual software maintenance are invoiced in the months of november , december and january . products and services offered within the ma segment are sold either stand-alone or together in various combinations . in instances where a multiple element arrangement includes software and non-software deliverables , revenue is allocated to the non-software deliverables and to the software deliverables , as a group , using the relative selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy . revenue is recognized for each element based upon the conditions for revenue recognition noted above . if the arrangement contains more than one software deliverable , the arrangement consideration allocated to the software deliverables as a group is allocated to each software deliverable using vsoe . in the instances where the company is not able to determine vsoe for all of the deliverables of an arrangement , the company allocates the revenue to the undelivered elements equal to its vsoe and the 32 moody 's 2017 10-k residual revenue to the delivered elements . if the company is unable to determine vsoe for an undelivered element , the company defers all revenue allocated to the software deliverables until the company has delivered all of the elements or when vsoe has been determined for the undelivered elements . in cases where software implementation services are considered essential and vsoe of fair value exists for post-contract customer support ( pcs ) , once the delivery criteria has been met on the standard software , license and service revenue is recognized on a percentage-of-completion basis as implementation services are performed , while pcs is recognized over the coverage period . story_separator_special_tag if vsoe of fair value does not exist for pcs , once the delivery criteria has been met on the standard software , service revenue is recognized on a zero profit margin basis until essential services are complete , at which point total remaining arrangement revenue is then spread ratably over the remaining pcs coverage period . if vsoe does not exist for pcs at the beginning of an arrangement but is established during implementation , revenue not recognized due to the absence of vsoe will be recognized on a cumulative basis . accounts receivable allowance moody 's records an allowance for estimated future adjustments to customer billings as a reduction of revenue , based on historical experience and current conditions . such amounts are reflected as additions to the accounts receivable allowance . additionally , estimates of uncollectible accounts are recorded as bad debt expense and are reflected as additions to the accounts receivable allowance . actual billing adjustments and uncollectible account write-offs are charged against the allowance . moody 's evaluates its accounts receivable allowance by reviewing and assessing historical collection and invoice adjustment experience as well as the current aging status of customer accounts . moody 's also considers the economic environment of the customers , both from an industry and geographic perspective , in evaluating the need for allowances . based on its analysis , moody 's adjusts its allowance as considered appropriate in the circumstances . this process involves a high degree of judgment and estimation and could involve significant dollar amounts . accordingly , moody 's results of operations can be affected by adjustments to the allowance . management believes that the allowance for uncollectible accounts receivable is adequate to cover anticipated adjustments and write-offs under current conditions . however , significant changes in any of the above factors , or actual write-offs or adjustments that differ from the estimated amounts could impact the company 's consolidated results of operations . contingencies accounting for contingencies , including those matters described in note 19 to the consolidated financial statements , is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome . in many cases , the outcomes of such matters will be determined by third parties , including governmental or judicial bodies . the provisions made in the consolidated financial statements , as well as the related disclosures , represent management 's best estimates of the current status of such matters and their potential outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate . the company regularly reviews contingencies and as new information becomes available may , in the future , adjust its associated liabilities . for claims , litigation and proceedings and governmental investigations and inquiries not related to income taxes , where it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated , the company records liabilities in the consolidated financial statements and periodically adjusts these as appropriate . when the reasonable estimate of the loss is within a range of amounts , the minimum amount of the range is accrued unless some higher amount within the range is a better estimate than another amount within the range . in other instances , where a loss is reasonably possible , management does not record a liability because of uncertainties related to the probable outcome and or the amount or range of loss , but discloses the contingency if material . as additional information becomes available , the company adjusts its assessments and estimates of such matters accordingly . in view of the inherent difficulty of predicting the outcome of litigation , regulatory , governmental investigations and inquiries , enforcement and similar matters and contingencies , particularly where the claimants seek large or indeterminate damages or where the parties assert novel legal theories or the matters involve a large number of parties , the company can not predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters . the company also can not predict the impact ( if any ) that any such matters may have on how its business is conducted , on its competitive position or on its financial position , results of operations or cash flows . as the process to resolve any pending matters progresses , management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects , if any , on its operations and financial condition . however , in light of the large or indeterminate damages sought in some of them , the absence of similar court rulings on the theories of law asserted and uncertainties regarding apportionment of any potential damages , an estimate of the range of possible losses can not be made at this time . the company 's wholly-owned insurance subsidiary insures the company against certain risks including but not limited to deductibles for worker 's compensation , employment practices litigation , employee medical claims and terrorism , for which the claims are not material to the company . in addition , for claim years 2008 and 2009 , the insurance subsidiary insured the company for defense costs moody 's 2017 10-k 33 related to professional liability claims . for matters insured by the company 's insurance subsidiary , moody 's records liabilities based on the estimated total claims expected to be paid and total projected costs to defend a claim through its anticipated conclusion . the company determines liabilities based on an assessment of management 's best estimate of claims to be paid and legal defense costs as well as actuarially determined estimates . defense costs for matters not self-insured by the company 's wholly-owned insurance subsidiary are expensed as services are provided .
| » 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 $ 1,809.1 million in 2017 increased $ 1,170.4 million compared to 2016 and resulted in an operating margin of 43.0 % , compared to 17.7 % in the prior year . operating income and operating margin in 2016 were suppressed by the $ 863.8 million settlement charge . adjusted operating income of $ 1,989.9 million in 2017 increased $ 348.7 million compared to 2016 , resulting in an adjusted operating margin of 47.3 % compared to 45.5 % 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 $ 50.6 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 . » 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 . 38 moody 's 2017 10-k » diluted eps of $ 5.15 increased $ 3.79 compared to 2016. diluted eps in 2017 and 2016 included the following items , detailed in the table below ,
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historically , such differences have not been material . at june 25 , 2011 and june 26 , 2010 , the company had $ 16.0 million and $ 15.0 million accrued for returns and allowances against accounts receivable , respectively . during fiscal years 2011 and 2010 , the company recorded $ 74.5 million and $ 67.5 million for estimated returns and allowances against revenues , respectively . these amounts were offset by $ 73.5 million and $ 62.8 million actual returns and allowances given during fiscal years 2011 and 2010 , respectively . inventories inventories are stated at the lower of ( i ) standard cost , which approximates actual cost on a first-in-first-out basis , or ( ii ) market value . our standard cost revision policy is to continuously monitor manufacturing variances and periodically revise standard costs . because of the cyclical nature of the market , inventory levels , obsolescence of technology , and product life cycles , we generally write-down inventories to net realizable value based on 12 months forecasted product demand . actual demand and market conditions may be lower than those projected by us . this difference could have a material adverse effect on our gross margin should inventory write-downs beyond those initially recorded become necessary . alternatively , should actual demand and market conditions be more favorable than those estimated by us , gross margin could be favorably impacted . historically , such differences have not been material . during fiscal years 2011 , 2010 and 2009 , we had inventory write-downs of $ 13.8 million , $ 3.7 million and $ 38.6 million , respectively . 22 long-lived assets we evaluate the recoverability of property , plant and equipment in accordance with asc ( `` accounting standards codification '' ) no . 360 , accounting for the property , plant , and equipment ( `` asc no . 360 '' ) . we perform periodic reviews to determine whether facts and circumstances exist that would indicate that the carrying amounts of property , plant and equipment might not be fully recoverable . if facts and circumstances indicate that the carrying amount of property , plant and equipment might not be fully recoverable , we compare projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful lives against their respective carrying amounts . in the event that the projected undiscounted cash flows are not sufficient to recover the carrying value of the assets , the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets . evaluation of impairment of property , plant and equipment requires estimates in the forecast of future operating results that are used in the preparation of the expected future undiscounted cash flows . actual future operating results and the remaining economic lives of our property , plant and equipment could differ from our estimates used in assessing the recoverability of these assets . these differences could result in impairment charges , which could have a material adverse impact on our results of operations . we recorded impairment charges of $ 0.0 million , $ 8.3 million and $ 51.1 million during fiscal years 2011 , 2010 and 2009 , respectively . intangible assets and goodwill we account for intangible assets in accordance with asc no . 360. we review goodwill and purchased intangible assets with indefinite lives for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable , such as when reductions in demand or significant economic slowdowns in the semiconductor industry are present . reviews are performed to determine whether the carrying value of an asset is impaired , based on comparisons to undiscounted expected future cash flows . if this comparison indicates that there is impairment , the impaired asset is written down to fair value , which is typically calculated using : ( i ) quoted market prices or ( ii ) discounted expected future cash flows utilizing a discount rate consistent with the guidance provided in fasb concepts statement no . 7 , using cash flow information and present value in accounting measurements . impairment is based on the excess of the carrying amount over the fair value of those assets . goodwill is recorded as the difference , if any , between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired . in accordance with asc no . 350 , intangibles-goodwill and other ( `` asc 350 '' ) , we test goodwill for impairment at the reporting unit level ( operating segment or one level below an operating segment ) on an annual basis in the first quarter or more frequently if we believe indicators of impairment exist . the performance of the test involves a two-step process . the first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values , including goodwill . we generally determine the fair value of our reporting units using the income approach methodology of valuation that includes the discounted cash flow method as well as other generally accepted valuation methodologies . if the carrying amount of a reporting unit exceeds the reporting unit 's fair value , we perform the second step of the goodwill impairment test to determine the amount of impairment loss . the second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit 's goodwill with the carrying value of that goodwill . no impairment charges were recorded associated with our goodwill and intangible assets during fiscal years 2011 , 2010 , and 2009 , respectively . stock-based compensation we account for stock-based compensation in accordance with asc 718 , compensation in stock compensation , ( `` asc 718 '' ) . story_separator_special_tag asc 718 requires the recognition of the fair value of stock-based compensation for all stock-based payment awards , including grants of stock options and other awards made to our employees and directors in exchange for services , in the income statement . it also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity 's equity instruments or that may be settled by the issuance of those equity instruments . accordingly , stock-based compensation cost is measured at the grant date , based on the fair value of the awards ultimately expected to vest and is recognized as an expense , on a straight-line basis , over the requisite service period . we use the black-scholes valuation model to measure the fair value of our stock-based awards utilizing various assumptions with respect to expected holding period , risk-free interest rates , stock price volatility and dividend yield . asc 718 also requires forfeitures to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures or vesting differ from those estimates . such revisions could have a material effect on our operating results . the assumptions we use in the valuation model are based on subjective future expectations combined with management judgment . if any of the assumptions used in the black-scholes model changes significantly , stock-based compensation for future awards may differ materially compared to the awards granted previously . accounting for income taxes we must make certain estimates and judgments in the calculation of income tax expense , determination of uncertain tax positions , 23 and in the determination of whether deferred tax assets are more likely than not to be realized . the calculation of our income tax expense and income tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations . asc 740-10 , income taxes , prescribes a recognition threshold and measurement framework for financial statement reporting and disclosure of tax positions taken or expected to be taken on a tax return . under asc 740-10 , a tax position is recognized in the financial statements when it is more-likely-than not , based on the technical merits , that the position will be sustained upon examination , including resolution of any related appeals or litigation processes . a tax position that meets the recognition threshold is then measured to determine the largest amount of the benefit that has a greater than 50 % likelihood of being realized upon settlement . although we believe that the company 's computation of tax benefits to be recognized and realized are reasonable , no assurance can be given that the final outcome will not be different from what was reflected in our income tax provisions and accruals . such differences could have a material impact on our net income and operating results in the period in which such determination is made . see note 16 to the consolidated financial statements accompanying this annual report on form 10-k for further information related to asc 740-10. we evaluate our deferred tax asset balance and record a valuation allowance to reduce the net deferred tax assets to the amount that is more likely than not to be realized . in the event it is determined that the deferred tax assets to be realized in the future would be in excess of the net recorded amount , an adjustment to the deferred tax asset valuation allowance would be recorded . this adjustment would increase income , or additional paid in capital , as appropriate , in the period such determination was made . likewise , should it be determined that all or part of the net deferred tax asset would not be realized in the future , an adjustment to increase the deferred tax asset valuation allowance would be charged to income in the period such determination is made . in assessing the need for a valuation allowance , historical levels of income , expectations and risks associated with estimates of future taxable income and ongoing prudent and practicable tax planning strategies are considered . realization of our deferred tax asset is dependent primarily upon future u.s. taxable income . our judgments regarding future profitability may change due to future market conditions , changes in u.s. or international tax laws and other factors . these changes , if any , may require possible material adjustments to the net deferred tax asset and an accompanying reduction or increase in net income in the period in which such determinations are made . litigation and contingencies from time to time , we receive notices that our products or manufacturing processes may be infringing the patent or intellectual property rights of others , notices of stockholder litigation or other lawsuits or claims against us . we periodically assess each matter in order to determine if a contingent liability in accordance with asc no . 450 , accounting for contingencies ( `` asc 450 '' ) , should be recorded . in making this determination , management may , depending on the nature of the matter , consult with internal and external legal counsel and technical experts . we expense legal fees associated with consultations and defense of lawsuits as incurred . based on the information obtained combined with management 's judgment regarding all the facts and circumstances of each matter , we determine whether a contingent loss is probable and whether the amount of such loss can be estimated . should a loss be probable and estimable , we record a contingent loss in accordance with asc 450. in determining the amount of a contingent loss , we take into consideration advice received from experts in the specific matter , current status of legal proceedings , settlement negotiations which may be ongoing , prior case history and other factors . should the judgments and estimates made by management be incorrect , we may need to record additional contingent losses that could materially adversely impact our results of operations .
| approximately 85 % , 85 % and 82 % of the company 's net revenues in fiscal years 2011 , 2010 and 2009 , respectively , were derived from customers located outside the united states , primarily in the pacific rim , europe , and japan . while the majority of these sales are denominated in u.s. dollars , the company enters into foreign currency forward contracts to mitigate its risks on firm commitments and net monetary assets denominated in foreign currencies . the impact of changes in foreign exchange rates on net revenues and the company 's results of operations for fiscal years 2011 , 2010 and 2009 were immaterial . gross margin our gross margin as a percentage of net revenue was 61.9 % in fiscal year 2011 compared to 59.7 % in fiscal year 2010 . the year over year improvements in gross margin is primarily due to improved factory utilization , product mix and decreased stock-based 25 compensation as a percentage of revenue . our gross margin as a percentage of net revenue was 59.7 % in fiscal year 2010 compared to 51.6 % in fiscal year 2009 . the gross margin percentage increased in fiscal year 2010 from fiscal year 2009 primarily due to improved overall factory utilization , a decrease of $ 52.9 million or 3.2 % of revenues in accelerated depreciation expense attributable to the closure of our dallas wafer fabrication facility at the end of fiscal year 2009 , decreased inventory write-downs of $ 34.9 million or 2.2 % of revenues primarily due to improved inventory turnover and better management of our inventory levels , and decreased stock-based compensation expenses of $ 41.9 million or 2.7 % of revenues , as described below under stock-based compensation . these gross margin improvements were partially offset by an increase in sales of lower margin products . research and development research and development expenses were $ 525.3 million and $ 474.7 million for fiscal years 2011 and 2010 , respectively , which represented 21.2 % and 23.8 % of net revenues , respectively . the increase in research and development expenses was largely attributable to
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fees charged to customers by our full service international freight forwarding and customs house brokerage are based on the specific means of forwarding or delivering freight on a shipment-by-shipment basis . our transportation revenues are primarily influenced by fluctuations in freight volumes and shipping rates . the main factors that affect these are competition , available truck capacity , and economic market conditions . our value-added contract business is substantially driven by the level of demand for outsourced logistics services . major factors that affect our revenues include changes in manufacturing supply chain requirements , production levels in specific industries , pricing trends due to levels of competition and resource costs in logistics and transportation , and economic market conditions . we recognize revenue on a gross basis at the time that persuasive evidence of an arrangement with our customer exists , sales price is fixed and determinable , and collectability is reasonably assured . our revenue is recognized at the time of delivery to the receiver 's location , or for service arrangements , after the related services have been rendered . factors affecting our expenses purchased transportation and equipment rent . purchased transportation and equipment rent represents the amounts we pay to our owner-operators or other third party equipment providers to haul freight and , to the extent required to deliver certain logistics services , the cost of equipment leased under short-term contracts from third parties . the amount of the purchased transportation we pay to our owner-operators is primarily based on a contractually agreed-upon percentage of our revenue for each load hauled . the expense also includes the amount of fuel surcharges , where separately identifiable , that we receive from our customers and pass through to our owner-operators . our strategy is to maintain a highly flexible business model that employs a cost structure that is mostly variable in nature . as a result , purchased transportation and equipment rent is the largest component of our costs and increases or decreases proportionately with changes in the amount of revenue generated by our owner-operators and other third party providers and with the production volumes of our customers . we recognize purchased transportation and equipment rent as the services are provided . direct personnel and related benefits . direct personnel and related benefits include the salaries , wages and fringe benefits of our employees , as well as costs related to contract labor utilized in operating activities . these costs are a significant component of our cost structure and increase or decrease proportionately with the expansion , addition or closing of operating facilities . as of december 31 , 2013 , approximately 40.9 % of our employees were subject to collective bargaining agreements . any changes in union agreements will affect our personnel and 39 related benefits cost . the operations in the united states , mexico and canada that are subject to collective bargaining agreements have separate , individualized agreements with several different unions that represent employees in these operations . while there are some facilities with multiple unions , each collective bargaining agreement with each union covers a single facility for that union . such agreements have expiration dates that are generally independent of other collective bargaining agreements and include economics and operating terms tailored to the specific operational requirements of a customer . our operation in mexico provides competitive compensation within the mexican statutory framework for managerial and supervisory personnel . commission expense . commission expense represents the amount we pay our agents for generating shipments on our behalf . the commissions we pay to our agents are generally established through informal oral agreements and are based on a percentage of revenue or gross profit generated by each load hauled . traditionally , commission expense increase or decrease in proportion to the revenues generated through our agents . we recognize commission expenses at the time we recognize the associated revenue . operating expense ( exclusive of items shown separately ) . these expenses include items such as fuel , tires and parts repair items primarily related to the maintenance of company owned/leased tractors , trailers and lift equipment , as well as licenses , dock supplies , communication , utilities , operating taxes and other general operating expenses . we also receive rental income by leasing our trailers to owner-operators . these expenses are presented net of rental income . because we maintain a flexible business model , our operating expenses ( exclusive of items shown separately ) generally relate to equipment utilization , fluctuations in customer demand and the related impact on our operating capacity . our transportation services provided by company owned equipment depend on the availability and pricing of diesel fuel . although we often include fuel surcharges in our billing to customers to offset increases in fuel costs , other operating costs have been , and may continue to be , impacted by fluctuating fuel prices . we recognize these expenses as they are incurred and the rental income as it is earned . occupancy expense . occupancy expense includes all costs related to the lease and tenancy of terminals and operating facilities , except utilities , unless such costs are otherwise covered by our customers . although occupancy expense is generally related to fluctuations in overall customer demand , our contracting and pricing strategies help mitigate the cost impact of changing production volumes . to minimize potential exposure to inactive or underutilized facilities that are dedicated to a single customer , we strive where possible to enter into lease agreements that are coterminous with individual customer contracts , and we seek contract pricing terms that recover fixed occupancy costs , regardless of production volume . occupancy expense may also includes certain lease termination and related occupancy costs that are accelerated for accounting purposes into the fiscal year in which such a decision was implemented . selling , general and administrative expense . story_separator_special_tag selling , general and administrative expense includes the salaries , wages and benefits of sales and administrative personnel , related support costs , taxes ( other than income and property taxes ) , adjustments due to foreign currency transactions , bad debt expense , and other general expenses , including gains or losses on the sale or disposal of assets . these expenses are generally not directly related to levels of operating activity and may contain non-recurring or one-time expenses related to general business operations . we recognize selling , general and administrative expense when it is incurred . insurance and claims . insurance and claims expense represents our insurance premiums and the accruals we make for claims within our self-insured retention amounts . our insurance premiums are generally calculated based on a mixture of a percentage of line-haul revenue and the size of our fleet . our accruals have primarily related to cargo and property damage claims . we may also make accruals for personal injuries and property damage to third parties , physical damage to our equipment , general liability and workers ' compensation claims if we experience a claim in excess of our insurance coverage . to reduce our exposure to non-trucking use liability claims ( claims incurred while the vehicle is being operated without a trailer attached or is being operated with an attached trailer which does not contain or carry any cargo ) , we require our owner-operators to maintain non-trucking use liability coverage , which we refer to as deadhead bobtail coverage , of $ 2.0 million per occurrence . 40 our exposure to liability associated with accidents incurred by other third party providers who haul freight on our behalf is reduced by various factors including the extent to which they maintain their own insurance coverage . our insurance expense varies primarily based upon the frequency and severity of our accident experience , insurance rates , our coverage limits and our self-insured retention amounts . depreciation and amortization . depreciation and amortization expense relates primarily to the depreciation of owned tractors , trailers , computer and operating equipment , and buildings as well as the amortization of the intangible assets recorded for our acquired customer contracts and customer and agent relationships . we estimate the salvage value and useful lives of depreciable assets based on current market conditions and experience with past dispositions . operating revenues we broadly group our services into the following categories : transportation services , value-added services and intermodal services . our intermodal services and transportation services associated with individual freight shipments coordinated by our agents and company-managed terminals are aggregated into our reportable transportation segment , while our value-added services and transportation services to specific customers on a dedicated basis make up our logistics segment . the following table sets forth operating revenues resulting from each of these service categories for the years ended december 31 , 2013 , 2012 and 2011 , presented as a percentage of total operating revenues : replace_table_token_7_th story_separator_special_tag as a percentage of operating revenue , occupancy expense remained consistent at 1.9 % for both 2013 and 2012. included in the increase was additional rental expense related to new operating locations , including our recently acquired westport operations , as well as added space at existing facilities . these increases were partially offset by rental rate reductions and sub-letting of space at various existing facilities . selling , general and administrative . selling , general and administrative expense decreased by $ 8.2 million , or 19.9 % , to $ 33.0 million from $ 41.2 million for 2012. included in selling , general and administrative expense during 2012 were $ 8.4 million of transaction fees and other costs that were directly related to the acquisition of linc and $ 1.9 million of linc 's ipo costs that were taken as a charge to income when the efforts were abandoned in may 2012. excluding acquisition and ipo-related charges , as a percentage of operating revenues , selling , general and administrative expense increased to 3.2 % for 2013 compared to 3.0 % for 2012. the largest component of selling , general and administrative expense , salaries and wages , increased by $ 0.5 million compared to the prior year , and there were also increases in professional fees of $ 1.5 million , bad debts and uncollectible agent loans of $ 0.4 million and other selling , general and administrative expense of $ 0.2 million . included in legal and professional fees are costs incurred in connection with it and sales support initiatives , a suspended private placement note offering , westport acquisition costs and increased corporate development activity . insurance and claims . insurance and claims expense for 2013 decreased by $ 1.1 million , or 5.4 % , to $ 19.2 million from $ 20.3 million for 2012. as a percentage of operating revenues , insurance and claims decreased slightly to 1.9 % for 2013 from 2.0 % for 2012. the absolute decrease was primarily the result of decreases in auto liability insurance premiums and claims expense of $ 1.9 million , which was partially offset by an increase in our cargo and service claims expense of $ 0.9 million . 43 depreciation and amortization . depreciation and amortization expense for 2013 increased by $ 1.5 million , or 8.2 % , to $ 19.7 million from $ 18.2 million for 2012. the absolute increase is primarily the result of additional depreciation totaling $ 2.4 million on our capital expenditures made throughout 2012 , particularly related to enhancements to our mexican assembly line placed in service in december 2012. this increase was partially offset by a decrease in amortization of $ 0.9 million due to certain intangible assets becoming fully amortized . interest expense , net .
| the number of loads from our transportation operations decreased to approximately 619,000 for 2013 compared to approximately 678,000 for 2012. our operating revenue per loaded mile , excluding fuel surcharges decreased slightly to $ 2.78 for 2013 from $ 2.79 for 2012. overall , demand for our value-added services increased during 2013 with the launch of several new operations for our existing automotive and industrial customers , as well as improving volumes with our existing programs . the pace of growth throughout the year however was dampened during the fourth quarter of 2013 resulting from the phasing out of an aerospace operation due to reductions in military spending , additional scheduled holiday downtime and in-sourcing at an industrial customer 's value-added service operation . at december 31 , 2013 , we provided value-added services at 43 locations compared to 41 at december 31 , 2012. our average headcount , which is significantly impacted by growth in services delivered , grew by 12 % compared to the same period last year . our intermodal services increased by $ 11.0 million , or 9.1 % , to $ 131.4 million for 2013 from $ 120.4 million for 2012. the increase was primarily driven by an increase in our operating revenues per loaded mile , which was partially offset by decreases in the number of loads hauled and in our domestic container-related operations with an affiliate . our operating revenue per loaded mile , excluding fuel surcharges , increased to $ 3.74 for 2013 from $ 3.40 for 2012. the total number of intermodal loads hauled decreased during 2013 to approximately 307,000 compared to approximately 318,000 for 2012. purchased transportation and equipment rent . purchased transportation and equipment rental costs for 2013 decreased by $ 32.5 million , or 5.5 % , to $ 560.0 million from $ 592.5 million for 2012. purchased transportation and equipment rent generally increases or decreases in proportion to the revenues generated through owner-operators and other third party providers , and is generally correlated with changes in demand for transportation and intermodal services . combined , transportation and intermodal service
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under the credit facility , the subsidiary may borrow up to an aggregate principal amount of $ 95.2 million in revolving loans subject to compliance with a borrowing base . the aggregate commitments may be increased up to $ 137.6 million , subject to lender consent and certain other conditions . see `` — liquidity and capital resource s— financing arrangements — tepinv financing `` below . in february 2020 , one of our subsidiaries issued $ 337.1 million in aggregate principal amount of series 2020-1 class a solar asset-backed notes and $ 75.4 million in aggregate principal amount of series 2020-1 class b solar asset-backed notes with a maturity date of january 2055 . the notes bear interest at an annual rate of 3.35 % and 5.54 % for the class a and class b notes , respectively . see `` — liquidity and capital resource s— financing arrangements — rule 144a securitization financing `` below and note 18 , subsequent events , to our consolidated financial statements included elsewhere in this annual report on form 10-k . initial public offering and recapitalization transactions on july 29 , 2019 , we completed our ipo in which we sold 14,000,000 shares of our common stock at a public offering price of $ 12.00 per share . on august 19 , 2019 , we issued and sold an additional 865,267 shares of our common stock at a public offering price of $ 12.00 per share pursuant to the underwriters ' exercise of their option to purchase additional shares . we received aggregate net proceeds from our ipo of approximately $ 162.3 million , after deducting underwriting discounts and commissions of approximately $ 10.7 million and offering expenses of approximately $ 5.4 million . in connection with our ipo , we completed a series of recapitalization transactions as follows : we decreased the total number of outstanding shares with a 1 for 2.333 reverse stock split effective july 29 , 2019 ( the `` reverse stock split '' ) . all current and past period amounts stated herein have given effect to the reverse stock split ; we converted 108,138,971 shares ( or 46,351,877 shares as adjusted for the reverse stock split ) of our series a convertible preferred stock and 32,958,645 shares ( or 14,127,140 shares as adjusted for the reverse stock split ) of our series c convertible preferred stock , which represented all the outstanding shares of our series a convertible preferred stock and series c convertible preferred stock , into 60,479,017 shares of our common stock ; we converted 23,870 shares of our non-voting series b common stock , which represented all the outstanding shares of our series b common stock , into 23,870 shares of our voting series a common stock . our series a common stock was redesignated as common stock ; we exercised our right to redeem all the senior secured notes for an aggregate principal plus unpaid cash and paid-in-kind interest amount of $ 57.1 million for cash ; holders of the convertible note issued in march 2018 for $ 15.0 million ( the `` 2018 note '' ) converted the principal amount plus any accrued and unpaid interest as of the date of conversion into 3,319,312 shares ( or 1,422,767 shares as adjusted for the reverse stock split ) of series a convertible preferred stock , which in turn converted into 1,422,767 shares of common stock . in addition , holders of the convertible note issued in june 2019 for $ 15.0 million ( the `` 2019 note '' ) converted the principal amount plus any accrued and unpaid interest as of the date of conversion into 2,613,818 shares ( or 1,120,360 shares as adjusted for the reverse stock split ) of series c convertible preferred stock , which in turn converted into 1,120,360 shares of common stock ; we implemented an internal reorganization that resulted in sei owning all the outstanding capital stock of sunnova energy corporation ( the `` reorganization '' ) . in connection with the reorganization , a direct , wholly-owned subsidiary of sei merged with and into sunnova energy corporation , with sunnova energy corporation surviving as a direct , wholly owned subsidiary of sei . each share of each class of sunnova energy corporation stock issued 57 and outstanding immediately prior to the reorganization , by virtue of the reorganization and without any action on the part of the holders thereof , automatically converted into an equivalent corresponding share of stock of sei , having the same designations , rights , powers and preferences and the qualifications , limitations and restrictions with respect to sei as each such corresponding share of sunnova energy corporation stock being converted with respect to sunnova energy corporation . accordingly , upon consummation of the reorganization , each of sunnova energy corporation 's stockholders immediately prior to the consummation of the reorganization became a stockholder of sei ; approximately 50 % of the non-vested stock options outstanding at that time , or 995,517 stock options , became exercisable and the vesting terms for all remaining stock options were amended so all stock options will be fully vested on the first anniversary of the closing date of our ipo . we recorded an additional $ 3.2 million of expense in july 2019 related to the accelerated vesting periods ; and our board adopted the 2019 long-term incentive plan ( the `` ltip '' ) to incentivize employees , officers , directors and other service providers of sei and its affiliates . the ltip provides for the grant , from time to time , at the discretion of our board or a committee thereof , of stock options , stock appreciation rights , stock awards , including restricted stock and restricted stock units , performance awards and cash awards . the ltip provides the aggregate number of shares of common stock that may be issued pursuant to awards shall not exceed 5,229,318 shares . the awards vest over a period of either one year , three years or seven years . story_separator_special_tag securitizations as a source of long-term financing , we securitize qualifying solar energy systems and related solar service agreements into special purpose entities who issue solar asset-backed and solar loan-backed notes to institutional investors . we also securitize the cash flows generated by the membership interests in certain of our indirect , wholly-owned subsidiaries that are the managing member of a tax equity fund that owns a pool of solar energy systems and related solar service agreements that were originated by one of our wholly-owned subsidiaries . we do not securitize the section 48 ( a ) itc incentives associated with the solar energy systems as part of these arrangements . we use the cash flows these solar energy systems generate to service the quarterly or semi-annual principal and interest payments on the notes and satisfy the expenses and reserve requirements of the special purpose entities , with any remaining cash distributed to their sole members , who are typically our indirect wholly-owned subsidiaries . in connection with these securitizations , certain of our affiliates receive a fee for managing and servicing the solar energy systems pursuant to management , servicing , facility administration and asset management agreements . the special purpose entities are also typically required to maintain a liquidity reserve account and a reserve account for inverter replacements and , in certain cases , reserve accounts for financing fund purchase option/withdrawal right exercises or storage system replacement for the benefit of the lenders under the applicable series of notes , each of which are funded from initial deposits or cash flows to the levels specified therein . the creditors of these special purpose entities have no recourse to our other assets except as expressly set forth in the terms of the notes . from our inception through december 31 , 2019 , we have issued $ 824.6 million in solar asset-backed and solar loan-backed notes . tax equity funds our ability to offer long-term solar service agreements depends in part on our ability to finance the installation of the solar energy systems by co-investing with tax equity investors such as large banks who value the resulting customer receivables and section 48 ( a ) itcs , accelerated tax depreciation and other incentives related to the solar energy systems primarily through structured investments known as `` tax equity '' . tax equity investments are generally structured as non-recourse project financings known as `` tax equity funds '' . in the context of distributed generation solar energy , tax equity investors make contributions upfront or in stages based on milestones in exchange for a share of the tax attributes and cash flows emanating from an underlying portfolio of solar energy systems . in these tax equity funds , the u.s. federal tax attributes offset taxes that otherwise would have been payable on the investors ' other operations . the terms and conditions of each tax equity fund vary significantly by investor and by fund . we continue to negotiate with potential investors to create additional tax equity funds . in general , our tax equity funds are structured using the `` partnership flip '' structure . under partnership flip structures , we and our tax equity investors contribute cash into a partnership . the partnership uses this cash to acquire long-term solar service agreements and solar energy systems developed by us and sells energy from such solar energy systems to customers or directly leases the solar energy systems to customers . we assign these solar service agreements , solar energy systems and related incentives to our tax equity funds in accordance with the criteria of the specific funds . upon such assignment and the satisfaction of certain conditions precedent , we are able to draw down on the tax equity fund commitments . the conditions precedent to funding vary across our tax equity funds but generally require that we have entered into a solar service agreement with the customer , the customer meets certain credit criteria , the solar energy system is expected to be eligible for the section 58 48 ( a ) itc , we have a recent appraisal from an independent appraiser establishing the fair market value of the solar energy system and the property is in an approved state or territory . all the capital contributed by our tax equity investors into the tax equity funds is , depending on the tax equity fund structure , either paid to us to acquire solar energy systems or distributed to us following our contribution of solar energy systems to the tax equity fund . some tax equity investors have additional criteria that are specific to those tax equity funds . once received by us , these proceeds are generally used for working capital or capital expenditures to develop and deliver solar energy systems . each tax equity investor agrees to receive a minimum target rate of return , typically on an after-tax basis , which varies by tax equity fund . prior to receiving a contractual rate of return or a date specified in the contractual arrangements , the tax equity investor receives substantially all of the non-cash value attributable to the solar energy systems , which includes accelerated depreciation and section 48 ( a ) itcs , and a significant portion of the value attributable to customer payments ; however , we receive a majority of the cash distributions , which are typically paid quarterly . after the tax equity investor receives its contractual rate of return or after the specified date , we receive substantially all of the cash . under the partnership flip structure , in part owing to the allocation of depreciation benefits to the investor , the investor 's pre-tax return is much lower than the investor 's after-tax return . we have determined we are the primary beneficiary in these partnership flip structures for accounting purposes . accordingly , we consolidate the assets and liabilities and operating results of these partnerships in our consolidated financial statements .
| srec revenue increased by $ 5.8 million in the year ended december 31 , 2018 compared to the year ended december 31 , 2017 primarily as a result of an increase in the number of solar energy systems in service , which resulted in additional srec production . the fluctuations in srec revenue from period to period are affected by the total number of solar energy systems , weather seasonality and hedge and spot prices associated with the timing of the sale of srecs . on a weighted average number of customers basis , revenues under our loan agreements decreased from $ 266 per customer for the year ended december 31 , 2017 to $ 222 per customer for the same period in 2018 ( 17 % decrease ) primarily due to market changes . cost of revenue—d epreciation year ended december 31 , 2018 2017 change ( in thousands ) cost of revenue—depreciation $ 34,710 $ 25,896 $ 8,814 cost o f revenue—depreciation increased by $ 8.8 million in the year ended december 31 , 2018 compared to the year ended december 31 , 2017 . this increase was primarily driven by an increase in the weighted average number of customers ( excluding customers with loan agreements ) from approximately 37,000 for the year ended december 31 , 2017 to approximately 49,200 for the year ended december 31 , 2018 . on a weighted average number of customers basis , cost of revenue—depreciation remained relatively flat at $ 700 per customer for the year ended december 31 , 2017 compared to $ 705 per customer for the same period in 2018 . cost of revenue—other year ended december 31 , 2018 2017 change ( in thousands ) cost of revenue—other $ 2,007 $ 1,444 $ 563 cost of revenue — other increased by $ 0.6 million in the year ended december 31 , 2018 compared to the year ended december 31 , 2017 . this increase was primarily driven by an increase in costs related to repairs and maintenance , production guarantees and parts and supplies as
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operating expenses operating expenses overall increased from the prior year by $ 6,464. the increase was significantly driven by the $ 8,475 impairment charge related to jetboil intangible assets as well as higher health care costs , offset in part by a $ 1,600 cash recovery from the jetboil indemnity escrow , lower restructuring charges in the watercraft segment and lower incentive compensation expense . operating expenses for the marine electronics segment increased by $ 1,188 from 2013 levels . the increase was due mainly to higher sales volume related costs and higher professional services expense in the current year . outdoor equipment operating expenses increased by $ 7,371 from the prior year due primarily to $ 8,475 of impairment charges recognized on jetboil intangible assets , which was partially offset by a $ 1,600 cash recovery from the jetboil indemnity claim . see further discussion of the valuation of the jetboil intangible assets at note 18 to our accompanying consolidated financial statements included elsewhere herein . in the watercraft segment , operating expenses decreased $ 2,427 from fiscal 2013 due primarily to lower restructuring costs related to our decision to exit international markets and lower infrastructure costs resulting from those efforts . operating expenses for the diving business decreased by $ 1,494 , or 4 % , year over year due primarily to cost containment efforts in light of lower sales volumes . operating results the company 's operating profit was $ 16,691 in 2014 compared to an operating profit of $ 25,591 in fiscal 2013. marine electronics operating profit decreased by $ 1,450 to $ 30,722 from $ 32,172 in the prior year . the operating loss for outdoor equipment was $ 3,726 compared to operating profit of $ 2,180 in the prior year due primarily to $ 6,875 of impairment charges on certain jetboil intangible assets , net of indemnity escrow recoveries related to the acquisition , which were recognized in the third quarter . excluding the effect of these charges , operating profit for this segment would have been $ 969 higher than in the prior year . despite a slight decline in net sales year over year , operating results for the watercraft business increased by $ 2,326 to a profit of $ 210 in fiscal 2014. operating profit for the diving business declined $ 2,098 from fiscal 2013 to $ 3,596 in 2014. other income and expenses interest expense of $ 788 decreased from the prior year by $ 497 , due largely to lower interest rates and lower principal balances . interest income was approximately $ 100 in both years . net other income of $ 1,434 in fiscal 2014 increased from fiscal 2013 by $ 1,171. the current year other income included currency gains of $ 427 and market gains and dividends of $ 965 on deferred compensation plan assets . in the prior year , this line item included $ 929 of currency losses which were more than offset by market gains and dividends of $ 1,265 on the deferred compensation plan assets . the dividends and market gains and losses on deferred compensation plan assets recognized in the consolidated statement of operations in other ( income ) expense , net are offset as deferred compensation expense in our operating expenses . pretax income and income taxes the company realized pretax income of $ 17,422 in fiscal 2014 compared to $ 24,660 in fiscal 2013. the company recorded income tax expense of $ 8,299 in 2014 , which equated to an effective tax rate of 47.6 % , compared to $ 5,333 in 2013 , which equated to an effective tax rate of 21.6 % . the 2013 tax expense reflects the net reduction of the company 's deferred tax asset valuation allowance . see further discussion of the deferred tax asset valuation allowance in note 6 to the consolidated financial statements found elsewhere in this report . net income the company recognized net income of $ 9,123 , or $ 0.90 per diluted common share in fiscal 2014 compared to $ 19,327 in fiscal 2013 , or $ 1.95 per diluted common share , based on the factors discussed above . 22 fiscal 2013 vs. fiscal 2012 net sales net sales in fiscal 2013 increased 3.4 % to $ 426,461 compared to $ 412,292 in fiscal 2012. the increase was driven primarily by the success of the marine electronics business and incremental sales from the acquisition of jetboil , which more than offset declining sales in diving and watercraft . net sales for the marine electronics business increased by $ 16,510 , or 7.1 % during fiscal 2013. innovative products such as minn kota 's i-pilot wireless gps trolling system and i-pilot link automatic boat control helped fuel the growth year-over-year . outdoor equipment net sales increased $ 8,895 , or 25.2 % , in 2013 as a result of the acquisition of jetboil , which was offset in part by declines in the consumer camping market and in u.s. military spending . the watercraft business experienced a decrease in net sales of 12.6 % , or $ 7,343 , due primarily to a de-emphasis on low-margin products and our decision to exit international markets . net sales for the diving business declined $ 3,459 , or 3.9 % , year-over-year , due primarily to continued economic turmoil in the southern european and middle eastern markets . cost of sales cost of sales was $ 255,412 , or 59.9 % of net sales on a consolidated basis for the year ended september 27 , 2013 compared to $ 247,970 or 60.1 % of net sales in fiscal 2012 costs of raw materials and components increased only slightly over 2012 while modest increases in labor rates were more than offset by process improvements in each of the business segments . story_separator_special_tag gross profit gross profit of $ 171,049 was 40.1 % of net sales on a consolidated basis for the year ended september 27 , 2013 compared to $ 164,322 or 39.9 % of net sales for fiscal 2012. gross profit in the marine electronics business increased by $ 6,658 from fiscal 2012 due primarily to the 7.1 % increase in sales volume . outdoor equipment gross profit increased by $ 2,704 from fiscal 2012 due to the acquisition of jetboil which was offset in part by reductions in gross profit in the consumer and military tent businesses driven by decreased sales volume . gross profit in the watercraft segment was $ 1,537 lower than fiscal 2012 levels due primarily to the 12.6 % decline in sales volume offset in part by favorable mix resulting from the de-emphasis on low-margin products during the year . the $ 1,062 decrease in gross profit of the diving segment was driven primarily by the 3.9 % reduction in sales volume noted above offset in part by the effect of price increases . operating expenses operating expenses overall increased from the prior year by $ 2,549. the increase was driven by a $ 3,500 favorable settlement with an insurance carrier that was recognized as an expense reduction in fiscal 2012 and the addition of jetboil operating expenses in fiscal 2013 , which increases were offset in part by decreases in bad debt expense , health care costs and legal expense in fiscal 2013 . 23 operating expenses for the marine electronics segment decreased by $ 285 from 2012 levels . the decrease was due mainly to the closure of the italian sales office at the end of fiscal 2012 and lower legal costs in fiscal 2013 , offset in part by higher volume driven expenses . outdoor equipment operating expenses increased by $ 3,355 from fiscal 2012 due to the jetboil acquisition which increase was partially offset by the additional recovery of flood related losses from 2011 in fiscal 2013. the watercraft business saw an increase in operating expenses of $ 171 from fiscal 2012 , due primarily to the favorable insurance settlement of $ 3,500 recognized as a reduction to operating expense in fiscal 2012 and higher restructuring costs in fiscal 2013 , which were nearly offset by lower infrastructure costs in fiscal 2013 due to european and u.s. restructuring efforts . see further discussion of the impact of the insurance settlement at note 13 to the consolidated financial statements included elsewhere in this report . operating expenses for the diving business decreased by $ 348 year over year due primarily to the favorable impact of currency translation . story_separator_special_tag 2012 , respectively . the company had current maturities of its long-term debt of $ 360 and $ 539 as of october 3 , 2014 and september 27 , 2013 , respectively , and no outstanding borrowings on its revolving credit facilities as of the end of either fiscal year . the company had outstanding borrowings on long-term debt ( net of current maturities ) of $ 7,431 and $ 7,794 as of october 3 , 2014 and september 27 , 2013 , respectively . 25 the company 's term loans have a maturity date of september 29 , 2029. each term loan requires monthly payments of principal and interest . interest on the aggregate outstanding amount of the term loans is based on the prime rate plus an applicable margin . the interest rate in effect on the term loans was 5.25 % at october 3 , 2014 and september 27 , 2013. the term loans are guaranteed in part under the united states department of agriculture rural development program and are secured with a first priority lien on land , buildings , machinery and equipment of the company 's domestic subsidiaries and a second lien on working capital and certain patents and trademarks of the company and its subsidiaries . any proceeds from the sale of secured property are first applied against the related term loans and then against the revolvers ( as defined below ) . the aggregate term loan borrowings are subject to a pre-payment penalty . the penalty is currently 5 % of the pre-payment amount , and the penalty will decrease by 1 % annually on the anniversary date of the effective date of the loan agreement . on september 16 , 2013 , the company and certain of its subsidiaries entered into a new credit facility with pnc bank national association and certain other lenders which terminated the amended revolving credit and security agreement with pnc bank national association and the other lenders named therein , dated as of november 16 , 2010. the new credit facility consists of a revolving credit agreement dated september 16 , 2013 among the company , certain of the company 's subsidiaries , pnc bank , national association , as lender and as administrative agent and the other lenders named therein ( the “ revolving credit agreement ” or “ revolver ” ) . the revolver has a 60 month term and provides for borrowing of up to an aggregate principal amount not to exceed $ 90,000 with an accordion feature that gives the company the option to increase the maximum seasonal financing availability subject to the conditions of the revolving credit agreement and subject to the approval of the lenders . the revolver imposes a seasonal borrowing limit such that borrowing may not exceed $ 60,000 from the period june 30 th through october 31 st of each year under the agreement . the interest rate on the revolver resets each quarter and is based on libor plus an applicable margin . the applicable margin ranges from 1.25 percent to 2.00 percent and is dependent on the company 's leverage ratio for the trailing twelve month period . the interest rate on the revolver at october 3 , 2014 and september 27 , 2013 was approximately 1.4 % .
| the fiscal 2013 tax expense reflects the net reduction of the company 's deferred tax asset valuation allowance . see further discussion of the deferred tax asset valuation allowance in note 6 to the consolidated financial statements found elsewhere in this report . net income the company recognized net income of $ 19,327 , or $ 1.95 per diluted common share in fiscal 2013 compared to $ 10,134 in fiscal 2012 , or $ 1.03 per diluted common share , based on the factors discussed above . financial condition , liquidity and capital resources the company 's cash flows from operating , investing and financing activities , as reflected in the accompanying consolidated statements of cash flows , are summarized in the following table : replace_table_token_8_th 24 operating activities the following table sets forth the company 's working capital position at the end of each of the years shown : replace_table_token_9_th cash flows provided by operations totaled $ 33,218 , $ 30,003 and $ 31,764 in fiscal 2014 , 2013 and 2012 , respectively . the increase in operating cash flow over the prior year was driven largely by net changes in operating assets . although net income declined versus the prior year , that change was significantly impacted by non-cash impairment charges recognized in the current year on certain jetboil intangible assets of $ 8,475. depreciation and amortization charges were $ 10,863 , $ 10,070 and $ 11,882 in fiscal 2014 , 2013 and 2012 , respectively . investing activities cash flows used for investing activities were $ 11,887 , $ 31,753 and $ 10,789 in fiscal 2014 , 2013 and 2012 , respectively . the purchase of jetboil in fiscal 2013 used cash of $ 15,420. expenditures for property , plant and equipment were $ 13,263 , $ 16,333 and $ 12,032 in fiscal 2014 , 2013 and 2012 , respectively . in general , the company 's ongoing capital expenditures are primarily related
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total cash costs and all-in sustaining costs total cash costs , cash costs per ounce , and aisc per ounce are non-u.s. gaap metrics developed by the world gold council to provide transparency into the costs associated with producing gold and provide a comparable standard . the company reports cash costs and aisc per ounce because it believes that these metrics more completely reflect mining costs over the life of a mine . these metrics are widely used in the gold mining industry as a benchmark for performance . total cash costs consist of operating costs net of power sales , refining costs , and non-government royalties , and exclude depreciation and amortization . the sum of these costs is divided by the corresponding gold ounces estimated to be sold 56 to determine a cash cost per ounce amount . the company 's total cash costs exclude the allocation of corporate general and administrative costs . aisc consist of total cash costs ( as described above ) , plus sustaining capital costs . the sum of aisc is divided by the corresponding gold ounces estimated to be sold to determine aisc per ounce . costs excluded from total cash costs and all-in sustaining costs are income taxes , government royalties , financing charges , costs related to business combinations , asset acquisitions other than sustaining capital , and asset dispositions . the following table reconciles the mt todd total cash costs , cash costs per ounce and aisc per ounce amounts with the project costs described in the 2019 pfs . replace_table_token_11_th item 8. financial statements and supplementary data . management 's report on internal control over financial reporting the management of vista gold corp. and its subsidiaries ( collectively , “ vista , ” the “ company , ” “ we , ” “ our , ” or “ us ” ) is responsible for establishing and maintaining adequate internal control over financial reporting . internal control over financial reporting is a process designed by , or under the supervision of , the company 's principal executive and principal financial officers and effected by the company 's board of directors ( the “ board ” ) , management and other personnel , to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . also , projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . the company 's management assessed the effectiveness of the company 's internal control over financial reporting at december 31 , 2019. in making this assessment , the company 's management used the criteria set forth by the committee of sponsoring organizations of the treadway commission internal control-integrated framework in 2013. based upon its assessment , management concluded that , at december 31 , 2019 , the company 's internal control over financial reporting was effective . the effectiveness of the company 's assessment of internal control over financial reporting at december 31 , 2019 has been audited by plante & moran , pllc , an independent registered public accounting firm , as stated in their report titled report of independent registered public accounting firm which appears herein . 57 report of independent registered public accounting firm to the stockholders and board of directors of vista gold corp. opinions on the financial statements and internal control over financial reporting we have audited the accompanying consolidated balance sheets of vista gold corp. ( the “ company ” ) as of december 31 , 2019 and 2018 , the related consolidated statements of income/ ( loss ) and comprehensive income/ ( loss ) , stockholders ' equity , and cash flows for each of the years in the two-year period ended december 31 , 2019 , and the related notes ( collectively referred to as the “ financial statements ” ) . we also have audited the company 's internal control over financial reporting as of december 2019 , based on criteria established in internal control-integrated framework ( 2013 ) issued by the committee of sponsoring organizations of the treadway commission ( the “ coso framework ” ) . in our opinion , the financial statements referred to above present fairly , in all material respects , the financial position of the company as of december 31 , 2019 and 2018 , and the results of its operations and its cash flows for each of the years in the two-year period ended december 31 , 2019 , in conformity with accounting principles generally accepted in the united states of america . also , in our opinion , the company maintained , in all material respects , effective internal control over financial reporting as of december 31 , 2019 , based on criteria established in the coso framework . basis for opinion the company 's management is responsible for these financial statements , for maintaining effective internal control over financial reporting , and for its assessment of the effectiveness of internal control over financial reporting , included in the accompanying management 's report on internal control over financial reporting . our responsibility is to express an opinion on the company 's financial statements and an opinion on the company 's internal control over financial reporting based on our audits . we are a public accounting firm registered with the public company accounting oversight board ( united states ) ( “ pcaob ” ) and are required to be independent with respect to the company in accordance with the u.s. federal securities laws and the applicable rules and regulations of the securities and exchange commission and the pcaob . we conducted our audits in accordance with the story_separator_special_tag total cash costs and all-in sustaining costs total cash costs , cash costs per ounce , and aisc per ounce are non-u.s. gaap metrics developed by the world gold council to provide transparency into the costs associated with producing gold and provide a comparable standard . the company reports cash costs and aisc per ounce because it believes that these metrics more completely reflect mining costs over the life of a mine . these metrics are widely used in the gold mining industry as a benchmark for performance . total cash costs consist of operating costs net of power sales , refining costs , and non-government royalties , and exclude depreciation and amortization . the sum of these costs is divided by the corresponding gold ounces estimated to be sold 56 to determine a cash cost per ounce amount . the company 's total cash costs exclude the allocation of corporate general and administrative costs . aisc consist of total cash costs ( as described above ) , plus sustaining capital costs . the sum of aisc is divided by the corresponding gold ounces estimated to be sold to determine aisc per ounce . costs excluded from total cash costs and all-in sustaining costs are income taxes , government royalties , financing charges , costs related to business combinations , asset acquisitions other than sustaining capital , and asset dispositions . the following table reconciles the mt todd total cash costs , cash costs per ounce and aisc per ounce amounts with the project costs described in the 2019 pfs . replace_table_token_11_th item 8. financial statements and supplementary data . management 's report on internal control over financial reporting the management of vista gold corp. and its subsidiaries ( collectively , “ vista , ” the “ company , ” “ we , ” “ our , ” or “ us ” ) is responsible for establishing and maintaining adequate internal control over financial reporting . internal control over financial reporting is a process designed by , or under the supervision of , the company 's principal executive and principal financial officers and effected by the company 's board of directors ( the “ board ” ) , management and other personnel , to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . also , projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . the company 's management assessed the effectiveness of the company 's internal control over financial reporting at december 31 , 2019. in making this assessment , the company 's management used the criteria set forth by the committee of sponsoring organizations of the treadway commission internal control-integrated framework in 2013. based upon its assessment , management concluded that , at december 31 , 2019 , the company 's internal control over financial reporting was effective . the effectiveness of the company 's assessment of internal control over financial reporting at december 31 , 2019 has been audited by plante & moran , pllc , an independent registered public accounting firm , as stated in their report titled report of independent registered public accounting firm which appears herein . 57 report of independent registered public accounting firm to the stockholders and board of directors of vista gold corp. opinions on the financial statements and internal control over financial reporting we have audited the accompanying consolidated balance sheets of vista gold corp. ( the “ company ” ) as of december 31 , 2019 and 2018 , the related consolidated statements of income/ ( loss ) and comprehensive income/ ( loss ) , stockholders ' equity , and cash flows for each of the years in the two-year period ended december 31 , 2019 , and the related notes ( collectively referred to as the “ financial statements ” ) . we also have audited the company 's internal control over financial reporting as of december 2019 , based on criteria established in internal control-integrated framework ( 2013 ) issued by the committee of sponsoring organizations of the treadway commission ( the “ coso framework ” ) . in our opinion , the financial statements referred to above present fairly , in all material respects , the financial position of the company as of december 31 , 2019 and 2018 , and the results of its operations and its cash flows for each of the years in the two-year period ended december 31 , 2019 , in conformity with accounting principles generally accepted in the united states of america . also , in our opinion , the company maintained , in all material respects , effective internal control over financial reporting as of december 31 , 2019 , based on criteria established in the coso framework . basis for opinion the company 's management is responsible for these financial statements , for maintaining effective internal control over financial reporting , and for its assessment of the effectiveness of internal control over financial reporting , included in the accompanying management 's report on internal control over financial reporting . our responsibility is to express an opinion on the company 's financial statements and an opinion on the company 's internal control over financial reporting based on our audits . we are a public accounting firm registered with the public company accounting oversight board ( united states ) ( “ pcaob ” ) and are required to be independent with respect to the company in accordance with the u.s. federal securities laws and the applicable rules and regulations of the securities and exchange commission and the pcaob . we conducted our audits in accordance with the
| included in the 2019 and 2018 exploration , property evaluation and holding costs were non-cash stock-based compensation of $ 172 and $ 249 , respectively . corporate administration corporate administration costs were $ 3,940 and $ 4,072 during the years ended december 31 , 2019 and 2018 , respectively . included in the 2019 and 2018 corporate administration costs is non-cash stock-based compensation of $ 593 and $ 733 respectively . other corporate administration costs were generally consistent during 2019 and 2018. depreciation depreciation costs were $ 52 and $ 983 during the years ended december 31 , 2019 and 2018 , respectively . depreciation in 2018 includes $ 695 to adjust the net book value of plant and equipment to account for the cumulative effect of immaterial calculation differences in prior years . impairment of used mill equipment in 2018 , the company evaluated the value of the mill equipment for recoverability . based on an independent valuation by a qualified third party , and allowing for selling commissions and costs , the company recorded a level 3 impairment charge of $ 1,000 for the year ended december 31 , 2018. another valuation was conducted as of december 31 , 2019 , and no further impairment charge was required . non-operating income and expenses gain/ ( loss ) on other investments gain/ ( loss ) on other investments was $ ( 1,643 ) and $ 1,716 for the years ended december 31 , 2019 and 2018 , respectively . these amounts are the result of changes in fair value of our marketable securities , mainly midas gold shares . the company sold approximately 900,000 shares of midas gold and received net proceeds of $ 413 with a realized loss of $ 2 during the year ended december 31 , 2019. there were no midas gold share sales during the year ended december 31 , 2018. financial position , liquidity and capital resources operating activities net cash used in operating activities was $ 7,053 and $ 8,567 for the years ended december 31 , 2019 and 2018 , respectively . this decline of $ 1,514
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our current development plans focus on two product candidates : rxdx-101 , a tyrosine kinase inhibitor directed to the trk family tyrosine kinase receptors ( trka , trkb and trkc ) , ros1 and alk proteins , which is in a phase i/ii clinical study in molecularly defined patient populations for the treatment of solid tumors ; and rxdx-102 , a tyrosine kinase inhibitor directed to the trk family tyrosine kinase receptors . as a result of the preliminary phase i results relating to rxdx-101 that we have seen to date , we have decided to designate rxdx-102 as a back-up compound to rxdx-101 . accordingly , we will not devote further development resources to rxdx-102 unless the development program for rxdx-101 is unsuccessful . we have entered into a license agreement with nms granting us exclusive global development and marketing rights to rxdx-101 and rxdx-102 , which became 53 effective on november 6 , 2013. we also have three discovery stage programs , spark-1 , spark-2 and spark-3 , directed to emerging oncology targets identified through mining of our database of information from proprietary and publicly available tumor samples , called oncolome . our strategy is to leverage the biomarker insights that we gain through our genetic and epigenetic mining of our oncolome database and the knowledge of cancer biology of our management and drug discovery team , with the goal of discovering or acquiring , validating , developing and commercializing a pipeline of novel product candidates for the treatment of cancer . since inception , our operations have focused on organizing and staffing our company , business planning , raising capital , assembling our core capabilities in genetic and epigenetic based biomarker and drug target discovery , identifying potential product candidates and developing such candidates . our product candidate development operations include preparing , managing and conducting preclinical and clinical studies and trials , preparing regulatory submissions relating to those product candidates and establishing and managing relationships with third parties in connection with all of those activities . we expect that in the future our operations may also , if regulatory approval is obtained , include pursuing the commercialization of our product candidates . to date , we have financed our operations primarily through funding received from private placement offerings of our capital stock and under a loan agreement . we have had no revenue to date . since our inception and through december 31 , 2013 , we have raised an aggregate of approximately $ 70 million to fund our operations , of which approximately $ 60 million has been received from our issuance and sale of our equity securities and $ 10.0 million has been received under our loan and security agreement with svb . since inception , we have incurred significant operating losses . our net losses were $ 14.2 million , $ 1.3 million and $ 15.6 million for the periods ended december 31 , 2013 and 2012 and for the period from august 29 , 2011 ( inception ) through december 31 , 2013 , respectively . as of december 31 , 2013 , we had an accumulated deficit of $ 15.6 million . we expect to continue to incur significant expenses and operating losses over the next several years . our net losses may fluctuate significantly from quarter to quarter and from year to year . we anticipate that our expenses will increase significantly now that we have assumed financial responsibility for the ongoing and any future studies and trials of rxdx-101 as we : plan for the commencement of potential phase ii clinical development activities for rxdx-101 ; pursue the initial stages of development of our spark-1 , spark-2 and spark-3 programs ; continue to discover , validate and develop additional novel product candidates ; expand and protect our intellectual property portfolio ; and hire additional scientific , business , accounting and financial personnel . in addition , we expect to incur additional costs associated with operating as a public company . financial operations overview revenue to date , we have not generated any revenue from product sales or otherwise , and do not expect to generate any revenue from the sale of products in the near future . in the future , we expect that we will seek to generate revenue primarily from product sales , but may also seek to generate revenue from research funding , milestone payments and royalties on future product sales in connection with any out-license or other strategic relationships we may establish . research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our drug and biomarker discovery efforts and the development of our product candidates , which include : license fees ; employee-related expenses , including salaries , benefits and stock-based compensation expense ; expenses incurred under agreements with third parties , including consultants and advisors we engage for research-related services and any cros that we may engage in connection with conducting preclinical and clinical activities on our behalf ; the cost of laboratory supplies ; and facilities , depreciation , and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other operating costs . research and development costs are expensed as incurred . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are performed . 54 we have not yet begun tracking our internal and external research and development costs on a program-by-program basis . as such , we do not have historical research and development expenditures by program and we use our employee and infrastructure resources across multiple research and development programs . the following table sets forth our research and development expenses for the periods presented : replace_table_token_2_th research and development activities are central to our business model . story_separator_special_tag our research and development programs that we expect will be our focus in the immediate future consist of the development of rxdx-101 , for which we acquired exclusive development rights upon the effectiveness of our license agreement with nms on november 6 , 2013 , and drug discovery activities for the development of our spark-1 , spark-2 and spark-3 programs . all of those research and development programs are in the early stage , and since product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials , we expect research and development costs relating to each of those programs to increase significantly for the foreseeable future . however , the successful development of any of those product candidates , or any others we may seek to pursue , is highly uncertain . as such , at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of these product candidates , or whether any of these product candidates will reach successful commercialization . we are also unable to predict when , if ever , any net cash inflows will commence from any of the product candidates we currently or may in the future pursue . this lack of predictability is due to the numerous risks and uncertainties associated with developing medicines , many of which , such as our ability to obtain approvals to market and sell those medicines from the fda and other applicable regulatory authorities , are beyond our control , including the uncertainty of : establishing an appropriate safety profile with toxicology studies adequate to submit to the fda in an ind or comparable applications to foreign regulatory authorities ; successful enrollment in and adequate design and completion of clinical trials ; receipt of marketing approvals from applicable regulatory authorities , including the fda and comparable foreign authorities ; establishing commercial manufacturing capabilities or , more likely , seeking to establish arrangements with third-party manufacturers ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates ; launching commercial sales of the products , if and when approved , including establishing an internal sales and marketing force or establishing relationships with third parties for such purpose ; developing and commercializing , individually or with third-party collaborators , companion diagnostics ; and a continued acceptable safety profile of the products following approval , if any . a change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs , timing and likelihood of success associated with the development of that product candidate . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in executive , finance , accounting , business development , legal and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , legal fees relating to patent and corporate matters and fees for accounting and consulting services . we anticipate that our general and administrative expenses will increase in the future to support continued research and development activities , potential commercialization of our product candidates and increased costs of operating as a public company . these increases will likely include increased costs related to the hiring of additional personnel and increased fees to outside consultants , lawyers and accountants , among other expenses . additionally , we anticipate increased costs associated with operating as a public company , including expenses related to services associated with maintaining compliance with requirements of the sec , insurance and investor relations costs . 55 critical accounting policies and estimates this discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which we have prepared in accordance with united states generally accepted accounting principles . the preparation of these consolidated financial statements requires us to make estimates , judgments 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 amounts of expenses during the reporting periods . we base our estimates on historical experience and on various other factors and assumptions that we believe are reasonable under the circumstances at the time the estimates are made , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we periodically evaluate our estimates and judgments , including those described in greater detail below , in light of changes in circumstances , facts and experience . our critical accounting policies are those accounting principles generally accepted in the united states that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations , as well as the specific manner in which we apply those principles . our significant accounting policies are described in more detail in the notes to our financial statements included in this annual report on form 10-k. we believe the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments are as follows : revenue recognition to date , we have not generated any revenue . income taxes deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income .
| other expense increased by approximately $ 287,000 to approximately $ 310,000 for the year ended december 31 , 2013 , from approximately $ 23,000 for the year ended december 31 , 2012. the increase in other expense was attributable to increased interest owed under our loan agreement with svb and various loan fees attributable to this debt that were paid off in 2013 , as well as the change in the fair value of the warrant liability associated with the svb warrants . liquidity and capital resources sources of liquidity since our inception , and through december 31 , 2013 , we raised an aggregate of approximately $ 70 million to fund our operations , of which approximately $ 54 million was received from our issuance and sale of our common stock in two private placements in november 2013 , $ 6 million was received from our issuance and sale of our preferred stock and $ 10.0 million was received from the incurrence of indebtedness under our loan agreement with svb . as of december 31 , 2013 , we had also received a small amount of funding from our issuance of common stock upon the exercise from time to time of stock options , and from our issuance of common stock to our founders in august and september 2011. as of december 31 , 2013 , we had approximately $ 52 million in cash and cash equivalents . new loan agreement with svb . on december 31 , 2013 , we entered into our new loan agreement with svb and received the funding of the full $ 10.0 million principal amount thereunder . the loan agreement replaced our prior loan agreement with svb , which had a principal amount of $ 1.5 million that was replaced by the advance of the principal amount under the new loan agreement . the amount loaned to us under the new loan agreement bears interest at a rate of 6.92 % , and
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prices for oil , natural gas and natural gas liquids will affect the cash flows available to us for capital expenditures and our ability to borrow and raise additional capital . declines in oil , natural gas or natural gas liquids prices would not only reduce our revenues , but could also reduce the amount of oil , natural gas and or natural gas liquids that we can produce economically , and as a result , could have an adverse effect on our financial condition , results of operations , cash flows and reserves . during 2014 , we experienced sharp declines in oil and natural gas prices . for the year ended december 31 , 2014 , west texas intermediate oil prices declined from a high of approximately $ 107.26 per bbl in mid-june to a low of $ 53.27 per bbl in late december . natural gas prices declined from a high of approximately $ 6.15 per mmbtu in mid-february to a low of approximately $ 2.89 per mmbtu in late december . as a result of this decline in commodity prices , we expect to reduce our drilling activities and capital expenditures by about 43 % to $ 350.0 million ( excluding capital expenditures associated with the heyco merger ) in 2015 , as compared to the year ended december 31 , 2014 . during the year ended december 31 , 2014 , we completed and began producing oil and natural gas from 36 gross ( 34.5 net ) operated and eight gross ( 2.2 net ) non-operated eagle ford shale wells . we also completed and began producing oil and natural gas from ten gross ( 9.5 net ) operated and one gross ( 0.1 net ) non-operated wells in the permian basin . we did not conduct any operated drilling and completion activities on our leasehold properties in northwest louisiana and east texas during 2014 , although we did participate in the drilling and completion of 46 gross ( 4.2 net ) non-operated haynesville shale wells , the most impactful of which were 14 gross ( 3.3 net ) haynesville wells completed and placed on production by chesapeake on our elm grove properties in southern caddo parish , louisiana . in 2014 , approximately 56 % of our total capital expenditures of $ 610.4 million were directed to our operations in south texas , primarily in the eagle ford shale , as we continued to increase our oil production and oil reserves . we also continued the evaluation and delineation of our acreage position in the permian basin during 2014 . we increased our leasehold position significantly in the permian basin in southeast new mexico and west texas during 2014 . at december 31 , 2014 , we held approximately 92,700 gross ( 66,100 net ) acres in the permian basin , as compared to approximately 70,800 gross ( 44,800 net ) acres at december 31 , 2013 , and with the closing of the heyco merger on february 27 , 2015 , our permian basin acreage position increased to 154,200 gross ( 85,400 net ) acres . approximately 37 % of our 2014 capital expenditures were directed to our exploration and delineation program testing portions of our leasehold position in the permian basin and to the acquisition of additional leasehold interests prospective for the wolfcamp , bone spring and other oil and liquids-rich plays in the permian basin . in the first half of 2014 , chesapeake began the process of drilling up to an anticipated 45 gross ( 8.7 net ) haynesville shale wells on our elm grove acreage in southern caddo parrish , louisiana , which we expect to continue through early 2017. we retain the right to participate for up to a 25 % working interest in all wells drilled on this property with our working interest proportionately reduced to our leasehold position in any individual drilling unit . after notifying us of its intent to conduct this drilling program , chesapeake began actively drilling these properties during the second quarter of 2014 , and had up to five rigs operating on these properties at any one time during 2014. approximately 7 % of our total capital expenditures of $ 610.4 million were associated with non-operated haynesville shale wells in 2014 , including those wells drilled by chesapeake . our average daily oil equivalent production for the year ended december 31 , 2014 was 16,082 boe per day , including 9,095 bbl of oil per day and 41.9 mmcf of natural gas per day , an increase of 37 % as compared to 11,740 boe per day , including 5,843 bbl of oil per day and 35.4 mmcf of natural gas per day , for the year ended december 31 , 2013 . our average daily oil production in 2014 of 9,095 bbl of oil per day was an increase of 56 % , as compared to an average daily oil production 56 of 5,843 bbl of oil per day in 2013. this increase in oil production is primarily attributable to our ongoing development operations in the eagle ford shale as well as better-than-expected initial production contributions from wells drilled in the permian basin during 2014. our average daily natural gas production of 41.9 bcf per day for the year ended december 31 , 2014 was an increase of 18 % from 35.4 bcf per day for the year ended december 31 , 2013 . this increase in natural gas production is primarily attributable to initial production contributions from wells drilled in the permian basin and to the increased natural gas production resulting from new , non-operated haynesville shale wells completed and placed on production by chesapeake on our elm grove properties in northwest louisiana during the second half of 2014. our oil production , natural gas production and average daily oil equivalent production during 2014 were the best in matador 's history . story_separator_special_tag oil production comprised 57 % of our total production ( using a conversion ratio of one bbl of oil per six mcf of natural gas ) for the year ended december 31 , 2014 , as compared to 50 % for the year ended december 31 , 2013 and only 37 % for the year ended december 31 , 2012 . our oil and natural gas revenues and adjusted ebitda for the year ended december 31 , 2014 were also the highest achieved for any year in our history . for the year ended december 31 , 2014 , our oil and natural gas revenues were $ 367.7 million , an increase of 37 % from oil and natural gas revenues of $ 269.0 million for the year ended december 31 , 2013 . our oil revenues and natural gas revenues increased 36 % and 38 % to approximately $ 290.0 million and $ 77.7 million , respectively , for the year ended december 31 , 2014 , as compared to $ 212.8 million and $ 56.2 million , respectively , for the year ended december 31 , 2013 . adjusted ebitda for the year ended december 31 , 2014 was $ 262.9 million , an increase of 37 % from an adjusted ebitda of $ 191.8 million reported for the year ended december 31 , 2013 . adjusted ebitda is a non-gaap financial measure . for a definition of adjusted ebitda and a reconciliation of adjusted ebitda to our net income ( loss ) and net cash provided by operating activities , see “ selected financial data — non-gaap financial measures. ” at december 31 , 2014 , our estimated total proved oil and natural gas reserves were 68.7 million boe , including 24.2 million bbl of oil and 267.1 bcf of natural gas , with a pv-10 of $ 1.04 billion and a standardized measure of $ 913.3 million . at december 31 , 2013 , our estimated proved oil and natural gas reserves were 51.7 million boe , including 16.4 million bbl of oil and 212.2 bcf of natural gas , with a pv-10 of $ 655.2 million and a standardized measure of $ 578.7 million . our estimated proved oil reserves of 24.2 million bbl at december 31 , 2014 increased 48 % , as compared to 16.4 million bbl at december 31 , 2013 . these reserves estimates were based on evaluations prepared by our engineering staff and have been audited for their reasonableness and conformance with sec guidelines by netherland , sewell & associates , inc. , independent reservoir engineers . standardized measure represents the present value of estimated future net cash flows from proved reserves , less estimated future development , production , plugging and abandonment costs and income tax expenses , discounted at 10 % per annum to reflect the timing of future cash flows . standardized measure is not an estimate of the fair market value of our properties . pv-10 is a non-gaap financial measure . for a reconciliation of pv-10 to standardized measure , see “ business — estimated proved reserves. ” our estimated capital expenditure budget for 2015 is $ 350 million ( excluding capital expenditures associated with the heyco merger ) , and 96 % is expected to be directed towards oil and liquids-rich opportunities . we expect to reduce our operated drilling program from five rigs , three in the permian basin and two in the eagle ford in january 2015 , to two rigs early in the second quarter . we then plan to operate two rigs in the permian basin , one rig in loving county , texas and the other rig in lea and eddy counties , new mexico , for the remainder of 2015. as approximately 96 % of our eagle ford acreage is either held by production or not burdened by leasehold expiration until 2016 or later , we plan to temporarily suspend our drilling activities in south texas in 2015 until commodity prices improve sufficiently . development of our permian basin assets will be the primary driver of our growth in 2015 and approximately $ 245 million , or 70 % , of our 2015 estimated capital expenditures will be allocated to further delineation and development of our growing leasehold position in the permian basin . our 2015 permian basin drilling program will focus on the development of the wolf prospect area , the further delineation of the ranger and rustler breaks prospect areas and the integration of the heyco acreage . we still plan to direct approximately $ 90 million , or 26 % , of our estimated 2015 capital expenditures to drilling and completion operations in the eagle ford shale in south texas . although we do not plan to drill any operated haynesville shale natural gas wells during 2015 , approximately $ 15 million , or 4 % , of our 2015 estimated capital expenditures will be allocated to participation in non-operated haynesville shale wells in northwest louisiana . we believe that we should be able to fund our 2015 drilling program through a combination of operating cash flows , borrowings under our credit agreement ( assuming availability under our borrowing base ) or additional credit arrangements , potential joint ventures , the sale of assets or acreage and the potential issuance of equity and debt securities . while we have budgeted approximately $ 350.0 million of capital expenditures ( excluding capital expenditures associated with the heyco merger ) for 2015 , the aggregate amount of capital we expend may fluctuate materially based on market conditions , the actual costs to drill scheduled wells , wells drilled on properties we do not operate , our drilling results , other opportunities that may become available to us and our ability to obtain capital . 57 revenues our revenues are derived primarily from the sale of oil , natural gas and natural gas liquids production .
| this loss was partially offset by gains of approximately $ 0.8 million and $ 0.7 million on our natural gas and ngl derivative contracts , respectively , due to the respective commodity prices being below the floor prices of our natural gas costless collar contracts and the fixed prices of our ngl swap contracts . we realized an average gain of approximately $ 2.00 per bbl hedged on all of our oil costless collar contracts during the year ended december 31 , 2014 , as compared to an average loss of $ 1.42 per bbl hedged for the year ended december 31 , 2013 . our oil volumes hedged for the year ended december 31 , 2014 were also 53 % higher as compared to the year ended december 31 , 2013 . we realized an average loss of approximately $ 0.06 per mmbtu hedged on all of our open natural gas costless collar contracts during the year ended december 31 , 2014 , as compared to an average gain of approximately $ 0.10 per mmbtu hedged on all of our open natural gas costless collar contracts during the year ended december 31 , 2013 . our total natural gas volumes hedged for the year ended december 31 , 2014 were also 46 % higher than the total natural gas volumes hedged for the year ended december 31 , 2013 . unrealized gain ( loss ) on derivatives . our unrealized gain on derivatives was approximately $ 58.3 million for the year ended december 31 , 2014 , as compared to an unrealized loss of approximately $ 7.2 million for the year ended december 31 , 2013 . during the year ended december 31 , 2014 , the net fair value of our open oil , natural gas and natural gas liquids derivatives contracts increase d to approximately $ 55.5 million , from $ ( 2.8 ) million for the year ended december 31 , 2013 , resulting in an unrealized gain on derivatives of approximately $ 58.3 million
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the company expects gross margin as a percent of revenue for the full-year to be approximately in line with 2016. the company expects that full-year 2017 gross margin percent will benefit from pricing of its model-year 2017 motorcycles and innovative new products that the company will launch throughout 2017. the company expects its pricing actions to be largely offset by unfavorable currency exchange rates , higher raw material costs and increased manufacturing expense . year-over-year manufacturing expense will benefit from the absence of the 2016 costs associated with its erp implementation at its kansas city facility and the retooling and start-up costs associated with the launch of the milwaukee-eight tm engine at its pilgrim road facility . however , the company expects this favorability to be offset by higher depreciation expense from its recent capital investments and significant start-up costs associated with its model-year 2018 motorcycles . to dimensionalize the foreign currency exchange risk , if foreign currency exchange rates experienced in january 2017 remained constant throughout 2017 , which is a hypothetical expectation in what is a very volatile foreign currency exchange environment , the company estimates the adverse impact to its expected motorcycles segment revenue from currency exchange in 2017 would be approximately 1.25 % . under this scenario , the company would also expect an unfavorable impact to 2017 gross margin of approximately $ 20 million to $ 25 million . the lower shipments in the first quarter will have a substantial impact on the timing of gross margin in 2017. the company expects gross margin as a percent of revenue in the first quarter to be down approximately 2.5 percentage points compared to the first quarter of 2016. the company expects the timing of gross margin , as compared to 2016 , will be impacted by ( 1 ) a higher fixed cost per unit in the first quarter offset by a lower fixed cost per unit in the second half of 2017 and ( 2 ) mix unfavorability in the first quarter due to shipping a lower percentage of touring motorcycles offset by mix favorability in the second quarter of 2017. the company expects its full-year selling , administrative and engineering expenses to be approximately in line with its 2016 expenses . the company also expects its selling , administrative and engineering expense as a percent of revenue to be approximately in line with 2016. the company believes the 2017 benefits from savings associated with its reorganization in the fourth quarter of 2016 and the absence of related employee separation expenses will be offset by spending to drive demand . the company expects the 2017 operating margin percent for the motorcycles segment to be approximately in line with the 2016 operating margin percent . the company expects operating income for the financial services segment to be down in 2017 as compared to 2016 primarily due to the $ 9.3 million gain on its off-balance sheet asset-backed securitization in 2016 that it does not expect to recur 24 in 2017. the company expects higher interest costs and higher credit losses in 2017 to be partially offset by the benefits of a slight lending rate increase that the company implemented in january 2017. the company estimates that its capital expenditure for 2017 will be between $ 200 million and $ 220 million . the company anticipates it will have the ability to fund all capital expenditures in 2017 with cash flows generated by operations . the company also announced on january 31 , 2017 that it expects the full-year 2017 effective income tax rate to be approximately 34.5 % . this guidance excludes the effect of any potential future adjustments such as new tax legislation or audit settlements which are recorded as discrete items in the period in which they are settled . long-term strategy ( 1 ) the company believes it made great progress with its demand driving efforts in 2016 ; however , these efforts only partially offset the impact of the down u.s. market . the u.s. is uniquely important to the company 's business and its long-term plans reflect what it believes will continue to be a challenging u.s. market . as the company looks forward to 2017 and beyond , it will continue its demand driving focus , but will also focus on doing more , in particular in the u.s. , to drive industry growth and assure the vitality of the sport of motorcycling long-term . its long-term strategy will focus on growing ridership in the u.s. and growing its reach and impact internationally , while growing market share and profitability globally . the company 's ten-year objectives are as follows : build two million new harley-davidson riders in the u.s. launch 100 new , high-impact harley-davidson motorcycles grow the harley-davidson international business to 50 percent of its total annual volume deliver superior return on invested capital for hdmc grow the business without growing its environmental impact the company will continue to invest in its business and return value to its shareholders . through disciplined investments , it is committed to driving return on invested capital at hdmc that falls within the top quartile of the s & p 500 and continued strong return on equity for hdfs . the company expects to return all excess cash to its shareholders in the form of increasing dividends and continuing share repurchases . the company will continue to look for opportunities to maximize shareholder value by returning excess cash to its shareholders without damaging the long-term value of the company or its brand . results of operations 2016 compared to 2015 consolidated results replace_table_token_9_th consolidated operating income was down 9.2 % in 2016 driven by a decrease in operating income from the motorcycles segment which was down $ 102.1 million compared to 2015 . operating income for the financial services segment decreased by $ 4.7 million during 2016 as compared to 2015 . story_separator_special_tag please refer to the “ motorcycles and related products segment ” and “ financial services segment ” discussions following for a more detailed discussion of the factors affecting operating income . corporate interest expense was higher in 2016 compared to 2015 due to the issuance of corporate debt in 2015. the company issued $ 750.0 million of senior unsecured notes in the third quarter of 2015 and utilized the proceeds to fund the repurchase of common stock in the third and fourth quarters of 2015. the effective income tax rate for 2016 was 32.4 % compared to 34.6 % for 2015 . the lower effective income tax rate was primarily driven by the successful closure of various tax audits in 2016 . 25 diluted earnings per share were $ 3.83 in 2016 , up 3.8 % compared to 2015 . diluted earnings per share were adversely impacted by the 8.0 % decrease in net income , but benefited from lower diluted weighted average shares outstanding . diluted weighted average shares outstanding decreased from 203.7 million in 2015 to 180.5 million in 2016 driven by the company 's repurchases of common stock . please refer to `` liquidity and capital resources '' for additional information concerning the company 's share repurchase activity . motorcycle retail sales and registration data harley-davidson motorcycle retail sales ( a ) the following table includes retail unit sales of harley-davidson motorcycles : replace_table_token_10_th ( a ) data source for retail sales figures shown above is new sales warranty and registration information provided by harley-davidson dealers and compiled by the company . the company must rely on information that its dealers supply concerning retail sales and this information is subject to revision . ( b ) includes austria , belgium , denmark , finland , france , germany , greece , italy , luxembourg , netherlands , norway , portugal , spain , sweden , switzerland and the united kingdom . worldwide independent dealer retail sales of harley-davidson motorcycles decreased 1.6 % during 2016 compared to 2015 . retail sales of harley-davidson motorcycles decreased 3.9 % in the united states and increased 2.3 % internationally in 2016 . the company believes its spending to drive demand mitigated the effects of the intense global competitive environment , including the expanded price gaps to the competition in the u.s. and the impact of new product introductions . for example , the positive response to its milwaukee-eight tm engine drove significantly improved touring motorcycle sales and u.s. harley-davidson market share gains in the fourth quarter of 2016. the company believes 2016 u.s. retail sales of its motorcycles were negatively impacted by intense competitive activity behind discounting and new competitor products . the company continues to believe the u.s. industry is also adversely affected by weakness in oil-dependent areas and soft used motorcycle values , compounded by economic uncertainty . the company also believes 2016 retail sales in the u.s. were negatively impacted by lower wholesale shipments of harley-davidson motorcycles in the fourth quarter . the company 's shipments of its model-year 2017 motorcycles were limited during the fourth quarter as u.s. dealers focused on selling model-year 2016 motorcycles . the company remains committed to aggressively managing supply in line with demand . the company 's u.s. market share of 601+cc motorcycles for 2016 was 51.2 % , up 1.0 percentage point compared to 2015 ( source : motorcycle industry council ) . the company believes its u.s. market share growth was driven by its demand driving spending focused on growing product awareness and ridership and the favorable response to its model-year 2016 s-model cruisers and its new model-year 2017 motorcycles featuring the milwaukee-eight tm engine . 26 in emea , retail sales of harley-davidson motorcycles for 2016 increased 5.9 % compared to the prior year due in part to a positive reception to its model-year 2016 s-model cruisers and its new model-year 2017 motorcycles featuring the milwaukee-eight tm engine . in the asia pacific region , retail sales of harley-davidson motorcycles for 2016 increased 2.0 % compared to the prior year . overall growth in the asia pacific region was partially offset by lower sales in india and indonesia . in india , the company believes retail sales of harley-davidson motorcycles were negatively impacted by india 's currency demonetization in the fourth quarter of 2016. in indonesia , retail sales of harley-davidson motorcycles were lower as the company is reestablishing its dealer network in that market . three independent dealerships were opened in indonesia in the fourth quarter of 2016 and the company expects to be back at previous levels by the end of 2017 . ( 1 ) retail sales of harley-davidson motorcycles in latin america for 2016 decreased 13.2 % compared to the prior year . the company believes retail sales in brazil continued to be negatively impacted by a price increase on its motorcycles initiated in the first quarter of 2016 and by a slowing economy , consumer uncertainty and aggressive price competition . retail sales of harley-davidson motorcycles in canada increased 5.5 % in 2016 compared to 2015. the company believes the market responded favorably to the change to a direct distribution model implemented in july 2015 and pricing adjustments that were implemented with the model-year 2016 motorcycles . international retail sales as a percent of total retail sales in 2016 were 37.9 % compared to 36.4 % in 2015 . the company believes it can continue to realize strong international growth opportunities by expanding its dealer network and increasing its brand relevance by delivering exceptional products that inspire riders . in 2016 , the company added 40 new international dealerships , and it plans to add a total of 150 to 200 from 2016 through 2020 . ( 1 ) motorcycle registration data - 601+cc ( a ) the following table includes industry retail motorcycle registration data : replace_table_token_11_th ( a ) data includes on-road 601+cc models . on-road 601+cc models include dual purpose models , three-wheeled motorcycles and autocycles .
| 34 other matters new accounting standards not yet adopted in may 2014 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) no . 2014-09 revenue from contracts with customers ( asu 2014-09 ) . asu 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services . in august 2015 , the fasb issued asu no . 2015-14 revenue from contracts with customers : deferral of effective date ( asu 2015-14 ) to defer the effective date of the new revenue recognition standard by one year to fiscal years beginning after december 15 , 2017 and interim periods therein . the guidance may be adopted using either a full retrospective or a modified retrospective approach . the company expects to adopt the new revenue recognition guidance using the modified retrospective method . the company 's efforts to evaluate the impact and to prepare for its adoption on january 1 , 2018 are well underway . based on the work completed to date ( which includes the review of significant domestic revenue sources ) , the company expects that the recognition of revenue for domestic sales of motorcycles , parts and accessories and general merchandise products under the new revenue recognition guidance will occur at a point in time , which is consistent with current practice . the company is continuing to evaluate its international revenue sources for potential impact , but based on the work completed to date , expects its conclusions will be consistent with those reached for domestic revenue sources . interest income , which makes up the vast majority of revenue in the financial services segment , is not within the scope of the new standard . in july 2015 , the fasb issued asu no . 2015-11 inventory
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interest expense is primarily comprised of amounts due on outstanding debt . critical accounting estimates and policies the company 's consolidated financial statements are prepared in conformity with gaap , which require it to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . see note 3 of the notes to consolidated financial statements contained in item 8 of part ii of this report . actual results could differ from those estimates and assumptions . the company believes that of the company 's significant accounting policies , the following may involve a higher degree of judgment and estimation . liability for unpaid losses and loss adjustment expenses although variability is inherent in estimates , the company believes that the liability for unpaid losses and loss adjustment expenses reflects management 's best estimate for future amounts needed to pay losses and related loss adjustment expenses and the impact of its reinsurance coverage with respect to insured events . in developing losses and loss adjustment expense ( `` loss '' or `` losses '' ) reserve estimates for the u.s. insurance operations , the company 's actuaries perform detailed reserve analyses each quarter . to perform the analysis , the data is organized at a `` reserve category '' level . a reserve category can be a line of business such as commercial automobile liability , or it can be a particular type of claim such as construction defect . the reserves within a reserve category level are characterized as long-tail or short-tail . for long-tail business , it will generally be several years between the time the business is written and the time when all claims are settled . the company 's long-tail exposures include general liability , professional liability , products liability , commercial automobile liability , and excess and umbrella . short-tail exposures include property , commercial automobile physical damage , and equine mortality . to manage its insurance operations , the company differentiates by product classifications , which are penn-america , united national , diamond state , american reliable , and vacant express . for further discussion about the company 's product classifications , see “ general – business segments – insurance operations ” in item 1 of part i of this report . each of the company 's product classifications contain both long-tail and short-tail exposures . every reserve category is analyzed by the company 's actuaries each quarter . management is responsible for the final determination of loss reserve selections . loss reserve estimates for the company 's reinsurance operations are developed by independent , external actuaries ; at least annually ; however , management is responsible for the final determination of loss reserve selections . the data for this analysis is organized by treaty and treaty year . as with the company 's reserves for its insurance operations , reserves for its reinsurance operations are characterized as long-tail or short-tail . long-tail exposures include workers compensation , professional liability , and excess and umbrella liability . short-tail exposures are primarily catastrophe exposed property and marine accounts . in addition to the company 's internal reserve analysis , independent external actuaries perform a full , detailed review of the insurance and reinsurance operations ' reserves annually . the company reviews both the internal and external actuarial analyses in determining its reserve position . 49 the actuarial methods used to project ultimate losses for both long-tail and short-tail reserve categories include , but are not limited to , the following : paid development method ; incurred development method ; expected loss ratio method ; bornhuetter-ferguson method using premiums and paid loss ; bornhuetter-ferguson method using premiums and incurred loss ; and average loss method . the paid development method estimates ultimate losses by reviewing paid loss patterns and applying them to accident years with further expected changes in paid loss . selection of the paid loss pattern requires analysis of several factors including the impact of inflation on claims costs , the rate at which claims professionals make claim payments and close claims , the impact of judicial decisions , the impact of underwriting changes , the impact of large claim payments and other factors . claim cost inflation itself requires evaluation of changes in the cost of repairing or replacing property , changes in the cost of medical care , changes in the cost of wage replacement , judicial decisions , legislative changes and other factors . because this method assumes that losses are paid at a consistent rate , changes in any of these factors can impact the results . since the method does not rely on case reserves , it is not directly influenced by changes in the adequacy of case reserves . for many reserve categories , paid loss data for recent periods may be too immature or erratic for reliable loss projections . this situation often exists for long-tail exposures . in addition , changes in the factors described above may result in inconsistent payment patterns . finally , estimating the paid loss pattern subsequent to the most mature point available in the data analyzed often involves considerable uncertainty for long-tail reserve categories . the incurred development method is similar to the paid development method , but it uses case incurred losses instead of paid losses . since this method uses more data ( case reserves in addition to paid losses ) than the paid development method , the incurred development patterns may be less variable than paid development patterns . however , selection of the incurred loss pattern requires analysis of all of the factors listed in the description of the paid development method . in addition , the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place and the use of case incurred losses may not eliminate the issues associated with estimating the incurred loss pattern subsequent to the most mature point available . story_separator_special_tag the expected loss ratio method multiplies premiums by an expected loss ratio to produce ultimate loss estimates for each accident year . this method may be useful if loss development patterns are inconsistent , losses emerge very slowly , or there is relatively little loss history from which to estimate future losses . the selection of the expected loss ratio requires analysis of loss ratios from earlier accident years or pricing studies and analysis of inflationary trends , frequency trends , rate changes , underwriting changes , and other applicable factors . the bornhuetter-ferguson method using premiums and paid losses is a combination of the paid development method and the expected loss ratio method . this method normally determines expected loss ratios similar to the method used for the expected loss ratio method and requires analysis of the same factors described above . the method assumes that only future losses will develop at the expected loss ratio level . the percent of paid loss to ultimate loss implied from the paid development method is used to determine what percentage of ultimate loss is yet to be paid . the use of the pattern from the paid development method requires consideration of all factors listed in the description of the paid development method . the estimate of losses yet to be paid is added to current paid losses to estimate the ultimate loss for each accident year . this method will react very slowly if actual ultimate loss ratios are different from expectations due to changes not accounted for by the expected loss ratio calculation . the bornhuetter-ferguson method using premiums and incurred losses is similar to the bornhuetter-ferguson method using premiums and paid losses except that it uses case incurred losses . the use of case incurred losses instead of paid losses can result in development patterns that are less variable than paid development patterns . however , the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place . the method requires analysis of all the factors that need to be reviewed for the expected loss ratio and incurred development methods . 50 the average loss method multiplies a projected number of ultimate incurred claims by an estimated ultimate average loss for each accident year to produce ultimate loss estimates . since projections of the ultimate number of claims are often less variable than projections of ultimate loss , this method can provide more reliable results for reserve categories where loss development patterns are inconsistent or too variable to be relied on exclusively . in addition , this method can more directly account for changes in coverage that impact the number and size of claims . however , this method can be difficult to apply to situations where very large claims or a substantial number of unusual claims result in volatile average claim sizes . projecting the ultimate number of claims requires analysis of several factors including the rate at which policyholders report claims to the company , the impact of judicial decisions , the impact of underwriting changes and other factors . estimating the ultimate average loss requires analysis of the impact of large losses and claim cost trends based on changes in the cost of repairing or replacing property , changes in the cost of medical care , changes in the cost of wage replacement , judicial decisions , legislative changes and other factors . for many reserve categories , especially those that can be considered long-tail , a particular accident year may not have a sufficient volume of paid losses to produce a statistically reliable estimate of ultimate losses . in such a case , the company 's actuaries typically assign more weight to the incurred development method than to the paid development method . as claims continue to settle and the volume of paid losses increases , the actuaries may assign additional weight to the paid development method . for most of the company 's reserve categories , even the case incurred losses for accident years that are early in the claim settlement process will not be of sufficient volume to produce a reliable estimate of ultimate losses . in these cases , the company will not assign any weight to the paid and incurred development methods and will use the bornhuetter-ferguson and expected loss ratio methods . for short-tail exposures , the paid and incurred development methods can often be relied on sooner primarily because the company 's history includes a sufficient number of accident years to cover the entire period over which paid and incurred losses are expected to change . however , the company may also assign weights to the expected loss ratio , bornhuetter-ferguson and average loss methods for short-tail exposures when developing estimates of ultimate losses . generally , reserves for long-tail lines give more weight to the expected loss ratio method in the more recent immature years . as the accident years mature , weight shifts to the bornhuetter-ferguson methods and eventually to the incurred and or paid development method . claims related to umbrella business are usually reported later than claims for other long-tail lines . for umbrella business , the shift from the expected loss ratio method to the bornhuetter-ferguson methods to the loss development method may be more protracted than for most long-tailed lines . reserves for short-tail lines tend to make the shift across methods more quickly than the long-tail lines . for other more complex reserve categories where the above methods may not produce reliable indications , the company uses additional methods tailored to the characteristics of the specific situation . such reserve categories include losses from construction defect and a & e claims . for construction defect losses , the company 's actuaries organize losses by the year in which they were reported to develop an ibnr provision for development on known cases .
| ( 4 ) includes business ceded to the company 's reinsurance operations under a quota share agreement . this quota share agreement was cancelled effective january 1 , 2018 . ( 5 ) external business only , excluding business assumed from affiliates . gross premiums written increased by 6.1 % for year ended december 31 , 2018 as compared to 2017. gross premiums written include business written by american reliable that is ceded to insurance entities owned by assurant under a 100 % quota share reinsurance agreement in the amount of ( $ 2.1 ) million and ( $ 1.3 ) million for the years ended december 31 , 2018 and 2017 , respectively . excluding the business that is ceded 100 % to insurance entities owned by assurant , gross premiums written increased by 6.2 % for the year ended december 31 , 2018 as compared to 2017. the increase is mainly due to the premium growth within the company 's commercial lines partially offset by a reduction in premiums written within the company 's reinsurance operations . the growth experienced in commercial lines is primarily being driven by rate increases mainly due to catastrophes experienced in the prior year , new programs , and increased interactions with agents . the reduction in gross premiums written within the company 's reinsurance operations is primarily due to the non-renewal of a treaty partially offset by growth in the property catastrophe treaties and professional liability portfolio . gross premiums written within the company 's personal lines , excluding the business that is ceded 100 % to insurance entities owned by assurant , increased 0.3 % . this increase was the result of growth in agriculture writings offset by reduced writings within specialty property in an effort to reduce catastrophe exposure . gross premiums written decreased by 8.7 % for year ended december 31 , 2017 as compared to 2016. gross premiums written include business written by american reliable that is ceded to insurance entities owned by assurant under a 100 % quota share reinsurance agreement in the amount of ( $ 1.3 ) million and $
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in celiac disease , larazotide is the only drug which has successfully met its primary clinical efficacy endpoint with statistical significance in a phase 2b efficacy trial , which was comprised of 342 patients . we completed the end of phase 2 meeting with the fda for the treatment of celiac disease with larazotide and received fast track designation . larazotide has been shown to be safe and effective after being tested in several clinical trials involving nearly 600 patients . we have approximately 110 active clinical trial sites in our phase 3 trial with three treatment groups , 0.25 mg of larazotide , 0.5 mg of larazotide and a placebo arm . in addition , after consultation with the fda , the analytical approach to the primary endpoint was modified to perform a continuous variable analysis instead of a responder analysis of the primary efficacy outcome . the new methodology enables a more capital-efficient study , with reduction in participants from 630 to 525. site activation and patient enrollment have been impacted by the covid-19 pandemic . we continue to monitor the evolving situation with covid-19 , which is likely to directly or indirectly impact the pace of enrollment over the next several months . given challenges in enrollment related to the covid-19 pandemic , interim results and topline data readouts are now anticipated in 2022. nm-003 long-acting glp-2 nm-003 is a proprietary long-acting glucagon-like-peptide ( “ glp-2 ” ) receptor agonist that utilizes proprietary xten® technology to extend circulating half-life . on december 9 , 2020 , we announced that the fda has granted orphan drug designation to nm-003 for prevention of acute graft versus host disease . nm-003 is currently undergoing an indication selection process through an ongoing probability of technical and regulatory success analysis . 53 nm-004 immunomodulator nm-004 is a double-cleaved mesalamine with an immunomodulator . these two assets are being evaluated for development in rare and or orphan indications via an ongoing probability of technical and regulatory success analysis . nm-004 is currently undergoing an indication selection process through an ongoing probability of technical and regulatory success analysis . nm-102 tight junction microbiome modulator nm-102 , a small molecule peptide , is being developed as a potential microbiome modulator and undergoing an indication selection process . nm-102 is expected to enter an ind-enabling pathway in 2021 and is a long-acting , degradation-resistant peptide , believed to be gut-restricted , and presumed to prevent gut microbial metabolites and antigens from trafficking into systemic circulation . nm-102 is currently being evaluated for development in rare and or orphan indication through an ongoing probability of technical and regulatory success analysis . corporate development during 2019 and 2020 agreement and plan of merger and reorganization with rdd pharma , ltd. on october 6 , 2019 , we entered into an agreement and plan of merger and reorganization pursuant to which we agreed to acquire all of the outstanding capital stock of privately-held rdd pharma , ltd. , an israel corporation ( “ rdd ” ) , in exchange for common stock issued by us to the existing rdd shareholders ( the “ rdd merger ” ) . the rdd merger closed on april 30 , 2020. in connection with the rdd merger , we changed our name from innovate biopharmaceuticals , inc. to 9 meters biopharma , inc. rdd merger financing on april 29 , 2020 , we entered into a securities purchase agreement with various accredited investors , pursuant to which we agreed to issue and sell to the investors units ( “ units ” ) consisting of ( i ) one share of series a convertible preferred stock ( the `` series a preferred stock '' ) and ( ii ) one five-year warrant ( the `` preferred warrants '' ) to purchase one share of series a preferred stock ( the “ rdd merger financing ” ) . on may 4 , 2020 , we closed the rdd merger financing and sold an aggregate of ( i ) 382,779 shares of series a preferred stock , which converted into 38,277,900 shares of common stock on june 30 , 2020 , upon receipt of approval by our stockholders ( the “ automatic conversion ” ) , and ( ii ) preferred warrants to purchase up to 382,779 shares of series a preferred stock , which , following the automatic conversion , became exercisable for 38,277,900 shares of common stock . the exercise price of the preferred warrants was $ 58.94 per share of series a preferred stock , and following the automatic conversion , became $ 0.5894 per share of common stock , subject to adjustments as provided under the terms of the preferred warrants . in addition , broker warrants covering 8,112 units and broker warrants covering 10,899 shares of series a preferred stock , which , following the automatic conversion , became exercisable for 2,712,300 shares of common stock , were issued in connection with the rdd merger financing . gross proceeds from the rdd merger financing were approximately $ 22.6 million with net proceeds of approximately $ 19.2 million after deducting commissions and estimated offering costs . naia acquisition on may 6 , 2020 , we entered into and consummated a two-step merger with naia rare diseases , inc. in accordance with the terms of an agreement and plan of merger ( the “ naia acquisition ” ) . the consideration for the naia acquisition at closing consisted of $ 2.1 million in cash and 4,835,438 shares of common stock valued at $ 2.2 million , plus the pre-payment of certain operating costs on behalf of naia totaling $ 0.1 million . consideration for the naia acquisition also included potential future development and sales milestone payments worth up to $ 80.4 million and royalties on net sales of certain products to which naia has exclusive rights by license . no contingent consideration for the naia acquisition was recorded at the time of acquisition because the potential development and sales milestones were not deemed probable . story_separator_special_tag warrant exchange pursuant to a purchase agreement dated april 29 , 2019 , we issued warrants to purchase up to 4,318,272 shares of our common stock ( the “ april warrants ” ) and granted the placement agent warrants to purchase up to 215,914 shares of common 54 stock ( the “ placement agent warrants ” ) . on december 19 , 2019 , we entered into separate exchange agreements with each of the purchasers of the april warrants and the placement agent warrants ( the “ exchange agreements ” ) . pursuant to the exchange agreements , we agreed to issue to the purchasers an aggregate of 5,441,023 shares of our common stock ( the “ exchange shares ” ) at a ratio of 1.2 exchange shares for each purchaser warrant in exchange for the cancellation and termination of all of the outstanding april warrants and placement agent warrants . on december 26 , 2019 , we issued 3,593,714 exchange shares in exchange for the cancellation and termination of exchange warrants to purchase 2,994,762 shares of common stock . during the year ended december 31 , 2020 , we issued 1,847,309 exchange shares in exchange for the cancellation and termination of the remaining outstanding exchange warrants . additional note on january 10 , 2020 , we entered into an additional securities purchase agreement and unsecured convertible promissory note with the convertible noteholder in the principal amount of $ 2,750,000 ( the “ additional note ” ) . the convertible noteholder could elect to convert all or a portion of the additional note , at any time from time to time into our common stock at a conversion price of $ 3.25 per share , subject to adjustment for stock splits , dividends , combinations and similar events . the purchase price of the additional note was $ 2.5 million and carried an original issuance discount of $ 250,000 , which was included in the principal amount of the additional note . the additional note bore interest at the rate of 10 % ( which would increase to 18 % upon and during the continuance of an event of default ) per annum , compounding on a daily basis . all principal and accrued interest on the additional note was originally due on the second anniversary of the date of the additional note 's issuance . during the year ended december 31 , 2020 , we made principal payments of $ 2.7 million on the additional note , consisting of $ 1.0 million in cash payments and $ 1.7 million in stock conversions . in january 2021 , we paid the remaining balance of principal and accrued interest of approximately $ 59,000 , which was paid in cash . warrant extension and offer to amend and exercise effective february 6 , 2020 , we entered into amendments with the holders of our outstanding short-term warrants originally issued march 18 , 2019 ( the “ short-term warrants ” ) to extend the exercise period of each short-term warrant by six months . the short-term warrants , as amended , are exercisable for up to an aggregate of 4,181,068 shares of our common stock , par value $ 0.0001 per share , until september 18 , 2020. except as specifically amended , the terms and conditions of each short-term warrant remained in full force and effect and were not affected by this amendment . see “ note 1—summary of significant accounting policies ” to the accompanying financial statements included in this quarterly report on form 10-q for additional terms of the short-term warrants . on february 12 , 2020 , we offered to amend outstanding warrants to purchase an aggregate of 12,346,631 shares of common stock ( the “ original warrants ” ) held by holders of certain outstanding warrants ( the “ offer to amend and exercise ” ) . the original warrants of eligible holders who elected to participate in the offer to amend and exercise were amended to ( i ) shorten the exercise period so that they expired concurrently with the closing of the rdd merger on april 30 , 2020 and ( ii ) reduced the exercise price to $ 0.10 per share . the amended warrants were required to be exercised for cash , and any cashless exercise provisions in the original warrants were omitted . on april 29 , 2020 , warrants to purchase 12,230,418 shares of common stock were exercised in the offer to amend and exercise for aggregate gross proceeds of approximately $ 1.2 million . december 2020 offering on december 11 , 2020 , we entered into an underwriting agreement ( the “ underwriting agreement ” ) with william blair & company , l.l.c . and truist securities , inc. , as representatives of the several underwriters named therein ( the “ underwriters ” ) , in connection with the public offering of 46,153,847 shares of our common stock , par value $ 0.0001 per share , at a price of $ 0.65 per share , less underwriting discounts and commissions ( the “ december 2020 offering ” ) . pursuant to the terms of the underwriting agreement , we granted the underwriters a 30-day option to purchase up to an additional 6,923,077 shares of common stock at the same price , which the underwriters exercised in full on december 14 , 2020. on december 15 , 2020 , upon closing of the december 2020 offering , we received net proceeds of approximately $ 32.0 million after deducting underwriting discounts and commissions and offering expenses . we plan to use the proceeds from the december 2020 offering to progress the development of our product pipeline , including initiating a phase 2 trial for sbs in 2021 . 55 financial overview since our inception , we have focused our efforts and resources on identifying and developing our research and development programs . we have not had any products approved for commercial sale and have incurred operating losses in each year since inception .
| replace_table_token_5_th 58 acquired in-process research and development acquired in-process research and development expense was approximately $ 32.3 million during the year ended december 31 , 2020 and represents expenses associated with the rdd merger and naia acquisition that closed during the year ended december 31 , 2020. approximately $ 28.8 million represents non-cash acquired in-process research and development expense paid in equity ownership . there was no acquired in-process research and development expense during the year ended december 31 , 2019. general and administrative expense general and administrative expense for the year ended december 31 , 2020 decreased by less than $ 0.1 million , as compared to the year ended december 31 , 2019. the decrease was primarily due to decreases in ( i ) other general corporate fees including patent protection of our intellectual property of approximately $ 0.6 million , ( ii ) professional fees of $ 1.1 million due to legal fees associated with the rdd merger and rdd merger financing that were accounted for as offering fees and ( iii ) costs associated with operating as a public company of approximately $ 0.3 million . these decreases were offset by an increase in personnel costs and benefits of approximately $ 1.0 million . the increase in personnel costs and benefits includes an increase in severance costs of $ 0.6 million upon termination of former innovate employees and additional general and administrative personnel hired upon closing of the rdd merger . in addition , non-cash stock compensation expense increased by approximately $ 0.9 million due to accelerated vesting of certain outstanding options upon closing of the rdd merger and additional options awarded as a non-cash merger bonus , some of which were fully vested upon grant . warrant inducement expense during the years ended december 31 , 2020 and 2019 , we recognized warrant inducement expense of approximately $ 7.2 million and $ 1.3 million , respectively . the warrant inducement expense represents the accounting fair value of consideration issued to induce conversion of the april warrants and placement agent warrants exchanged for 1.2 shares of our common stock per warrant and to induce the exercise of certain warrants in the offer to amend and exercise , further described
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additionally , increasing regulatory requirements related to capital and liquidity have led to more emphasis on products and services that do not require balance sheet resources . the company has expanded its wholesale lending and deposit practices to provide more product and balance sheet flexibility . berkshire continued to extend , deepen , and diversify its banking footprint in 2017 , with total assets of $ 11.6 billion at year-end . total assets increased by $ 2.4 billion , or 26 % , including $ 1.8 billion acquired with commerce . most categories of assets and liabilities increased due to this merger . excluding acquired commerce balances , organic loan growth from business activities was $ 0.5 billion , or 8 % , and organic deposit growth was $ 0.4 billion , or 6 % . shareholders ' equity increased by $ 0.4 billion , or 37 % , mostly due to the stock issued in the stock offering and as merger consideration . berkshire also benefited from strong internal capital generated from operations . there was improvement in most primary metrics related to capital , liquidity , and asset quality . investment securities . berkshire 's goal is to maintain a high quality portfolio consisting primarily of liquid investment securities with managed durations , supported primarily by wholesale funds . the portfolio generates interest income and provides additional liquidity and interest rate risk management flexibility . the portfolio is managed to contribute to earnings per share and return on equity , taking into account regulatory risk classifications . the company continuously evaluates the portfolio 's size , yield , diversification , risk , and duration . in 2017 , the portfolio average yield increased despite ongoing interest rate pressures in medium term instruments . due to its size , berkshire created earnings synergy by restructuring the mix of acquired commerce short and long term investments - contributing to the targeted earnings accretion of that acquisition . portfolio growth was also targeted to leverage the excess capital from the may common stock offering , reducing the near-term eps dilution from the new shares while the commerce acquisition was pending , and to supplement loan growth as a use of this capital . total investment securities increased by $ 270 million , or 17 % , to $ 1.9 billion in 2017 , including a $ 114 million balance contributed by the commerce acquisition . the portfolio increase included a $ 199 million increase in available for sale agency collateralized mortgage obligations and a $ 74 million increase in held to maturity municipal bonds , as these remain the primary components of the portfolio , balancing interest rate sensitivity and yield . the company also increased its investment in available for sale corporate bonds by $ 55 million , with the growth concentrated in financial institution subordinated debt securities . 46 the company sold equity securities , producing a $ 20 million net reduction in these securities and realizing $ 13 million in total net securities gains . these gains were already included as a component of shareholders ' equity in accumulated other comprehensive income . this sale took advantage of strong market conditions for bank stocks and the realized capital gains contributed to the company 's tax management objectives . the company 's available for sale equities portfolio totaled $ 45 million at year-end 2017 , consisting mostly of northeast bank stocks and high yield equities . the adoption of asu 2016-01 requires that current period unrealized gains and losses on these securities be recognized in income beginning in 2018. the company is assessing its strategies in light of these requirements . the fourth quarter portfolio yield decreased slightly to 3.55 % from 3.58 % from year-to-year , while the full year yield increased to 3.43 % from 3.28 % . due to the federal tax reform , the company estimated that the fully taxable equivalent yield of the securities portfolio would decrease by approximately 0.15 % in future periods . this is primarily due to the municipal bond portfolio , which continues to meet the company 's profitability objectives despite the lower taxable equivalent yield . the year-end weighted average life of the bond portfolio decreased slightly to 5.5 years from 5.9 years . the company estimates that the average life of the portfolio would increase to 8.7 years in the event of a 300 basis point increase in interest rates . debt securities not meeting investment grade criteria totaled $ 70 million at year-end 2017 and consisted primarily of unrated bank debt securities acquired in the commerce merger , as well as certain high yield corporate bonds . there were no impairments recorded during the year or at year-end , and all securities were performing during the year and at year-end . for securities available for sale and held to maturity , the fair value of securities with unrealized losses exceeding one year was 13 % of total securities at year-end 2017 , compared to 2 % at the prior year-end . the total unrealized loss on these securities was 3 % of fair value at year-end 2017. this generally reflected lower market prices resulting from higher market rates rather than credit changes in the portfolio . the net unrealized gain on investment securities decreased to $ 11 million , or 0.6 % of cost , at year-end 2017 , compared to $ 20 million , or 1.3 % of cost , at year-end 2016. this change primarily reflected the equity securities gains recognized on sale , as well as lower bond prices related to higher medium term interest rates at the end of 2017. loans . berkshire is expanding and deepening retail and commercial lending activities through organic growth and acquisitions , including a focus on specialized lending . the company uses secondary markets and a growing network of financial institution partners in managing and diversifying its portfolio , as well as supporting its fee income objectives and managing its capital and liquidity . story_separator_special_tag total loans increased by $ 1.75 billion , or 27 % , to $ 8.3 billion in 2017. the commerce acquisition added $ 1.24 billion in balances , including $ 1.09 billion in commercial loans split between commercial real estate and commercial and industrial loans . most of the commerce loan portfolio is located in the eastern massachusetts markets . the commerce loans were preliminarily valued at a $ 102 million , or 7.6 % , discount , which was primarily due to the commerce portfolio of taxi medallion loans located in boston and cambridge and reflects the adverse conditions in this business due to ride-sharing competition . commerce also engaged in other specialty and non-conforming commercial lending activities which contributed to the discount . excluding the commerce acquisition , loans increased by $ 509 million , or 8 % in 2017. this growth included $ 223 million in commercial and industrial loans , $ 72 million in commercial real estate , and $ 162 million in net growth in residential mortgages . total commercial loans increased organically by 8 % and , including the commerce balances , commercial loans increased to 61 % of total loans from 56 % at the start of the year . the company views its commercial and industrial loans and its owner occupied commercial real estate loans as an important element of its commercial relationship strategies . these loans increased by 44 % to $ 2.35 billion in 2017 and advanced to 46 % of total commercial loans at year-end 2017. berkshire also engages in commercial loan participations and other wholesale activities as part of its balance sheet management objectives . berkshire recruited commercial banking leadership for its expanding greater boston region and in its new mid-atlantic markets . the company 's goal is to gain market share based on its expansion into these large and growing markets , including its positioning as the largest regional bank with corporate headquarters in boston . 47 due to its asset management strategies in recent years , berkshire has been positioned to support its markets while also managing well within regulatory guidelines for commercial real estate lending . berkshire 's total non-owner occupied commercial real estate exposure measured 270 % of regulatory capital at period-end , compared to 265 % at the start of the year and compared to the 300 % regulatory monitoring guidelines ( based on regulatory definitions ) . construction loan exposure was 40 % of bank regulatory capital at year-end both in 2017 and 2016 , compared to the 100 % regulatory guideline . berkshire monitors its commercial real estate lending risk using the enhanced processes required for banks exceeding the monitoring thresholds even though it is well margined below those thresholds . berkshire 's commercial specialty lending includes asset based lending , business equipment lending , and sba lending . abl outstandings totaled $ 306 million at year-end 2017. business equipment loans , through berkshire 's firestone division , totaled $ 227 million at that date . the bank originates sba 7 ( a ) loans for sale through its 44 business capital division ( primarily in the mid-atlantic area ) , as well as direct loans by its business banking teams throughout its regions . based on the annual sba national originations rankings as of september 30 , berkshire placed 17 th nationally by sba loan count and it placed 32 nd nationally for total amount loaned . most earnings related to sba lending are included in loan fee income , from the sale of guaranteed portions of sba loans . residential mortgages increased by $ 210 million , or 11 % , in 2017 including $ 48 million contributed by the commerce acquisition . organic growth measured 9 % . conforming mortgage originations are produced by berkshire 's national mortgage banking operation and are generally held for sale to the secondary market . mortgage banking income and activity are addressed in the later fee income section of this discussion . loans held for investment are primarily jumbo loans for which there is a more limited secondary market . residential mortgage balances were also affected by opportunistic wholesale activity of seasoned loans , with purchases totaling $ 125 million and sales totaling $ 294 million . consumer loan growth in 2017 totaled $ 150 million , or 15 % , including $ 100 million in acquired commerce consumer loans . berkshire produced $ 59 million , or 10 % , growth in auto and other loans , which was concentrated in prime indirect auto loans originated by the company 's team in its regional markets . the average fourth quarter loan yield increased to 4.47 % in 2017 from 4.00 % in 2016 , reflecting the benefit of short term rate increases as well as the contributions from the fair value marked first choice and commerce loans and the favorable shift in mix towards higher yielding commercial loans . the fourth quarter yield increased in all major loan categories . the contribution to the net interest margin from purchased loan accretion was 0.21 % and 0.10 % in the above two periods respectively . the repricing terms of the total loan portfolio shortened modestly in 2017 , with 42 % repricing in one year , 22 % in one to five years , and 36 % over five years . this reflects the shift in mix towards shorter duration commercial loans . as of year-end 2016 , 40 % of the portfolio was scheduled to reprice within one year , 20 % in one to five years , and 40 % over five years . asset quality . berkshire 's chief risk officer and a risk management and capital committee of the board oversee risk management and asset quality . this includes setting loan portfolio objectives , maintaining sound underwriting , close portfolio oversight , and careful management of problem assets and potential problem assets . additionally , merger due diligence is an integral component of maintaining asset quality .
| revenue growth included a 9 % increase in net interest income and a 19 % increase in fee income . fourth quarter fee income increased to 26 % of total revenue including first choice mortgage banking revenues . total revenue per share increased by 2 % to $ 9.57 for the year 2016. net interest income . annual net interest income increased by $ 18 million , or 9 % , in 2016. this included the benefit of a 10 % increase in average earnings asset from business expansion and was partially offset by a 1 % decrease in the net interest margin to 3.31 % from 3.34 % . the decrease in margin during 2016 primarily reflected an increase in the cost of funds during the year to 0.73 % in the final quarter of 2016 from 0.56 % in the fourth quarter of 2015. this included the fixed rate interest rate swaps that became active in the first half of the year , the impact of higher short term interest rates on wholesale funding , the lengthening of time deposit maturities , and the higher cost of acquired first choice deposits . the fourth quarter yield on earning assets was unchanged in 2016 compared to 2015. loan yield compression was offset by higher securities yields and the benefit of the first choice mortgage loans held for sale . the contribution of purchased loan accretion to net interest income was $ 8 million in both 2016 and 2015. non-interest income . fee income increased by $ 11 million , or 19 % , in 2016 and totaled $ 69 million . loan related income grew by $ 8 million , or 101 % , and mortgage banking income by $ 3 million , or 83 % . these revenues benefited from the ongoing low interest rate environment through much of the year . loan related income included sba loan sale gains of $ 3 million , interest rate swap fee income of $ 5 million , and portfolio loan sale gains of $ 5 million . sba
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fiscal 2015 includes a charge to write-off all remaining insurance receivables related to superstorm sandy of $ 1,340 ( net of tax ) , a $ 316 ( net of tax ) impairment charge related to the property of a closed store and a tax benefit of $ 6,452 related to settlement of the new jersey tax dispute , net of interest and penalties accrued prior to settlement . excluding these items from both periods , net income decreased 6 % in fiscal 2016 compared to the prior year primarily due to a lower gross profit percentage and higher operating and administrative expense . critical accounting policies critical accounting policies are those accounting policies that management believes are important to the portrayal of the company 's financial condition and results of operations . these policies require management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . the preparation of financial statements in conformity with u.s. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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 . impairment the company reviews the carrying values of its long-lived assets , such as property , equipment and fixtures for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable . such review analyzes the undiscounted estimated future net cash flows from asset groups at the store level to determine if the carrying value of such assets are recoverable from their respective cash flows . if impairment is indicated , it is measured by comparing the fair value of the long-lived asset groups , which include long-term leases , to their carrying value . goodwill is tested for impairment at the end of each fiscal year , or more frequently if circumstances dictate . the company utilizes valuation techniques , such as earnings multiples , in addition to the company 's market capitalization , to assess goodwill for impairment . calculating the fair value of a reporting unit requires the use of estimates . management believes the fair value of village 's one reporting unit exceeds its carrying value at july 29 , 2017 . should the company 's carrying value of its one reporting unit exceed its fair value , the amount of any resulting goodwill impairment may be material to the company 's financial position and results of operations . patronage dividends as a stockholder of wakefern , village earns a share of wakefern 's earnings , which are distributed as a “ patronage dividend. ” this dividend is based on a distribution of substantially all of wakefern 's operating profits for its fiscal year ( which ends on or about september 30 ) in proportion to the dollar volume of purchases by each member from wakefern during that fiscal year . patronage dividends are recorded as a reduction of cost of sales as merchandise is sold . village accrues estimated patronage dividends due from wakefern quarterly based on an estimate of the annual wakefern patronage dividend and an estimate of village 's share of this annual dividend based on village 's estimated proportional share of the dollar volume of business transacted with wakefern that year . the patronage dividend receivable based on these estimates was $ 12,655 and $ 13,185 at july 29 , 2017 and july 30 , 2016 , respectively . 15 pension plans the determination of the company 's obligation and expense for company-sponsored pension plans is dependent , in part , on village 's selection of assumptions used by actuaries in calculating those amounts . these assumptions are described in note 8 to the consolidated financial statements and include , among others , the discount rate , the expected long-term rate of return on plan assets and the rate of increase in compensation costs . actual results that differ from the company 's assumptions are accumulated and amortized over future periods and , therefore , generally affect recognized expense in future periods . while management believes that its assumptions are appropriate , significant differences in actual experience or significant changes in the company 's assumptions may materially affect cash flows , pension obligations and future expense . the objective of the discount rate assumption is to reflect the rate at which the company 's pension obligations could be effectively settled based on the expected timing and amounts of benefits payable to participants under the plans . our methodology for selecting the discount rate as of july 29 , 2017 was to match the plans ' cash flows to that of a yield curve on high-quality fixed-income investments . based on this method , we utilized a weighted-average discount rate of 3.60 % at july 29 , 2017 compared to 3.08 % at july 30 , 2016 . changes in the discount rate and the mortality table utilized decreased the projected benefit obligation by approximately $ 7,567 at july 29 , 2017 . village evaluated the expected long-term rate of return on plan assets of 7.5 % and the expected increase in compensation costs of 4 to 4.5 % and concluded no changes in these assumptions were necessary in estimating pension plan obligations and expense . sensitivity to changes in the major assumptions used in the calculation of the company 's pension plans is as follows : replace_table_token_7_th village contributed $ 3,000 and $ 3,524 in fiscal 2017 and 2016 , respectively , to these company-sponsored pension plans . village expects to contribute $ 3,500 in fiscal 2018 to these plans . substantially all contributions in 2017 and 2016 are voluntary contributions . uncertain tax positions the company is subject to periodic audits by various taxing authorities . story_separator_special_tag these audits may challenge certain of the company 's tax positions such as the timing and amount of deductions and the allocation of income to various tax jurisdictions . accounting for these uncertain tax positions requires significant management judgment . actual results could materially differ from these estimates and could significantly affect the effective tax rate and cash flows in future years . on february 27 , 2015 , the company reached an agreement with the new jersey division of taxation to settle the disputes related to nexus and the deductibility of certain payments between subsidiaries for fiscal years 2000 through 2014. see note 5 to the consolidated financial statements for further information . recently issued accounting standards for the disclosure related to recently issued accounting standards , see note 1 to the consolidated financial statements . liquidity and capital resources cash flows net cash provided by operating activities was $ 46,153 in fiscal 2017 compared to $ 64,101 in fiscal 2016 and $ 17,468 in fiscal 2015. net cash provided by operating activities was generated primarily by changes in working capital and net income adjusted for non-cash items including depreciation and amortization , share-based compensation , deferred taxes and the provision to value inventories at lifo . 16 the decrease in non-cash items in fiscal 2017 and 2016 , compared to fiscal 2015 , was primarily due to the impact on deferred taxes in fiscal 2015 resulting from the $ 33,000 settlement with the new jersey division of taxation . working capital changes increased ( decreased ) net cash provided by operating activities by $ ( 6,551 ) , $ 12,002 and $ ( 54,616 ) in fiscal 2017 , 2016 and 2015 , respectively . working capital changes in income taxes receivable/payable , merchandise inventories , accounts payable to wakefern and other assets and liabilities decreased cash provided by operating activities in fiscal 2017 compared to fiscal 2016 . working capital changes in income taxes receivable/payable , merchandise inventories , accounts payable to wakefern and accrued wages and benefits increased cash provided by operating activities in fiscal 2016 compared to fiscal 2015 . the decrease in income taxes receivable/payable in fiscal 2015 was due primarily to the $ 33,000 settlement with the new jersey division of taxation . during fiscal 2017 , village used cash to fund capital expenditures of $ 27,726 , dividends of $ 12,788 , treasury stock purchases of $ 4,081 and invested an additional $ 1,945 in notes receivable from wakefern . capital expenditures primarily includes costs associated with the completion of the remodel of the chester , new jersey store , several smaller remodels of other existing stores and certain energy efficient lighting projects . during fiscal 2016 , village used cash to fund capital expenditures of $ 19,971 , dividends of $ 12,634 , treasury stock purchases of $ 978 and invested an additional $ 1,314 in notes receivable from wakefern . capital expenditures primarily includes costs associated with the completion of the remodel and expansion of the stirling , new jersey store , one major remodel and several smaller remodels of other existing stores . in october 2015 , village sold the land and building of a closed store in washington , new jersey for $ 900. during fiscal 2015 , village used cash to fund capital expenditures of $ 23,517 , dividends of $ 12,577 and invested an additional $ 823 in notes receivable from wakefern . capital expenditures primarily include costs associated with the major remodel and expansion of the stirling , new jersey store and smaller remodels of other existing stores . liquidity and debt working capital was $ 85,279 , $ 60,538 , and $ 41,760 at july 29 , 2017 , july 30 , 2016 and july 25 , 2015 , respectively . working capital ratios at the same dates were 1.89 , 1.61 , and 1.44 to one , respectively . the increase in working capital in fiscal 2017 compared to fiscal 2016 is due primarily to $ 22,118 in notes receivable from wakefern that have been reclassified to current assets as they are due on august 15 , 2017. the increase in working capital in fiscal 2016 compared to fiscal 2015 is due primarily to operating cash flows in excess of capital expenditures and dividends . the company 's working capital needs are reduced , since inventories are generally sold by the time payments to wakefern and other suppliers are due . village has budgeted approximately $ 50,000 for capital expenditures in fiscal 2018 . planned expenditures include construction of a new store in the bronx , new york , a replacement store , two major remodels , several smaller remodels and various technology upgrade projects . the company 's primary sources of liquidity in fiscal 2018 are expected to be cash and cash equivalents on hand at july 29 , 2017 and operating cash flow generated in fiscal 2018 . at july 29 , 2017 , the company had $ 44,680 in notes receivable due from wakefern . half of these notes earned interest at the prime rate plus .25 % and matured on august 15 , 2017 and half earn interest at the prime rate plus 1.25 % and mature on february 15 , 2019 . the company invested $ 22,000 of the proceeds received from the notes that matured on august 15 , 2017 in variable rate notes receivable from wakefern that earn interest at the prime rate plus 1.25 % and mature on august 15 , 2022. wakefern has the right to prepay these notes at any time . under certain conditions , the company can require wakefern to prepay the notes , although interest earned since inception would be reduced as if it was earned based on overnight money market rates as paid by wakefern on demand deposits . at july 29 , 2017 , village had demand deposits invested at wakefern in the amount of $ 60,037 . these deposits earn overnight money market rates .
| gross profit as a percentage of sales decreased .13 % in fiscal 2016 compared to fiscal 2015 primarily due to decreased departmental gross margin percentages ( .21 % ) and increased warehouse assessment charges from wakefern ( .04 % ) . these decreases were partially offset by lower promotional spending ( .07 % ) , improved mix ( .02 % ) and higher patronage dividends ( .02 % ) . operating and administrative expense operating and administrative expense as a percentage of sales increased .11 % in fiscal 2017 compared to fiscal 2016. fiscal 2017 includes a non-recurring credit received related to multi-employer health and welfare benefits ( .05 % ) and fiscal 2016 includes a gain for superstorm sandy insurance proceeds received ( .06 % ) . excluding these items from both periods , operating and administrative expense as a percentage of sales increased .10 % compared to fiscal 2016 primarily due to higher payroll ( .30 % ) partially offset by decreased fringe benefit costs ( .11 % ) . payroll costs increased due primarily to reduced operating leverage as a result of flat same store sales and investments in service departments , including the newly remodeled chester store . fringe benefit costs decreased due primarily to lower non-union pension expense ( .15 % ) and lower healthcare costs ( .08 % ) . operating and administrative expense as a percentage of sales decreased .09 % in fiscal 2016 compared to fiscal 2015. as described in note 9 to the consolidated financial statements , fiscal 2015 includes a charge to write-off all remaining superstorm sandy insurance receivables ( .14 % ) and fiscal 2016 includes a gain related to recovery of a portion of those receivables ( .06 % ) . excluding these items from both periods , operating and administrative expense as a percentage of sales increased .11 % due primarily to higher claim costs in our self-insured medical plan ( .11 % ) and legal and consulting fees ( .13 % ) . these increases were partially offset by lower workers compensation costs ( .14 % ) . depreciation and amortization depreciation and amortization expense was $ 24,482 , $ 24,101 and $ 23,330 in fiscal 2017 , 2016 and 2015 , respectively . depreciation and
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intense competition has also historically led to aggressive marketing spend by the travel suppliers and intermediaries , and a meaningful reduction in our overall marketing efficiencies and operating margins . we manage our selling and marketing spending on a brand basis at the local or regional level , making decisions in each market that we think are appropriate based on the relative growth opportunity , the expected returns and the competitive environment . in certain cases , particularly in emerging markets , we are pursuing and expect to continue to pursue long-term growth opportunities for which our marketing efficiency is lower than that for our consolidated business but for which we still believe the opportunity to be attractive . hotel we generate the majority of our revenue through the marketing and distribution of hotel rooms ( stand-alone and package bookings ) . our relationships and negotiated total economics with our hotel supply partners have remained broadly stable in the past few years . we have , however , implemented new customer loyalty and discount programs and have eliminated or reduced some fees in that timeframe and , as such , the margin of revenue we earn per booking has declined . in addition , the introduction of etp could negatively impact the margin of revenue we earn per booking in the future . since our hotel supplier agreements are generally negotiated on a percentage basis , any increase or decrease in average daily rates has an impact on the revenue we earn per room night . over the course of the last two years , occupancies and adrs in the lodging industry have generally improved in a gradually improving overall travel environment . currently occupancy rates are near 2007 peaks 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 hoteliers with their objective of continuing to grow their adrs and could lead to pressure in negotiations with hoteliers and may ultimately lead to pressure on terms for us and our ota competitors . 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 . we have had success adding supply to our marketplace with almost 200,000 hotels on our global websites , including elong , as of the end of 2012. in addition , our room night growth has been healthy , with room nights growing 18 % in 2011 and 27 % in 2012. adrs for rooms booked on expedia sites grew 5 % in 2011 , while they declined 2 % in 2012 . 47 air the airline sector in particular has historically experienced significant turmoil . in recent years , there has been increased air carrier consolidation , generally resulting in lower overall capacity and higher fares . in addition , air carriers have made significant efforts to keep seat capacity relatively low in order to ensure that demand for seats remains high and that flights are as full as possible . reduced seating capacities are generally negative for expedia as there is less air supply available on our websites , and in turn less opportunity to facilitate hotel rooms , car rental and other services on behalf of air travelers . ticket prices on expedia sites grew 4 % and 11 % in 2012 and 2011. we are encountering pressure on air remuneration as certain supply agreements renew , and as air carriers and gds intermediaries re-negotiate their long-term agreements . in addition , some u.s. air carriers introduced various incentives for customers to book directly with the carrier versus via online travel agencies . examples of these incentives include lower fees , advance seat assignments and greater earning potential for frequent flier miles . in part as a result of sharply rising average ticket prices , our ticket volumes decreased by 8 % in 2011 after having grown by 11 % in 2010. air ticket volumes grew 7 % in 2012 , largely due to the acquisition of via travel and air ticket sales of a major u.s. carrier , which were absent in the first quarter of 2011 due to a commercial disagreement . from a product perspective , over 74 % of our revenue comes from transactions involving the booking of hotel reservations , with approximately 8 % of our revenue derived from the sale of airline tickets . we believe that the hotel product is the most profitable of the products we distribute and represents our best overall growth opportunity . 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 . they each operate a dedicated technology team , which drives innovations that make researching and shopping for travel increasingly easier and helps customers find and book the best possible travel options . in the past several years , we made key investments in technology , including significant development of our technological platforms that makes it possible for us to deliver innovations at a faster pace . for example , we launched our new hotels.com global platform in the first quarter of 2010 , enabling us to significantly increase the innovation cycle for that brand . since then , we have been successful in improving conversion and driving much faster growth rates for the hotels.com brand . we are in the midst of a similar transformation for brand expedia , having rolled out its new hotel platform in the second half of 2011 , followed by the air platform rollout during the first half of 2012 , with expectations that the new package platform will be completed in 2013. global expansion . story_separator_special_tag 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 a majority share of elong , which is the second largest online travel company in china . we also own venere , a european brand , which focuses on marketing hotel rooms in europe . egencia , our corporate travel business , operates in 54 countries around the world and continues to expand , including its recent acquisition of via travel . we also partner in a 50/50 joint venture with airasia a low cost carrier serving the asia - pacific region to jointly grow an online travel agency business . although the results for the joint venture are not consolidated in our financial statements , we consider this business to be a key part of our asia pacific strategy . in 2012 , approximately 41 % of our worldwide gross bookings and 45 % of worldwide revenue were international up from 22 % for both worldwide gross bookings and revenue in 2005. we have a stated goal of driving more than half of our revenue through international points of sale . in expanding our global reach , we leverage significant investments in technology , operations , brand building , supplier relationships and other initiatives that we have made since the launch of expedia.com in 1996 . 48 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 . our scale of operations enhances the value of technology innovations we introduce on behalf of our travelers and suppliers . we believe that our size and scale affords the company the ability to negotiate competitive rates with our supply partners , provide breadth of choice and travel deals to our traveling customers through an increasingly larger supply portfolio and creates opportunities for new value added offers for our customers such as our loyalty programs . the size of expedia 's worldwide traveler base makes our sites an increasingly appealing channel for travel suppliers to reach customers . in addition , the sheer size of our user base and search query volume allows us to test new technology very quickly in order to determine which innovations are most likely to improve the travel research and booking process , and then roll those features out to our worldwide audience in order to drive improvements to conversion . new channel penetration . today , the vast majority of online travel bookings are generated through typical desktop and laptop computers . however , technological innovations and developments are creating new opportunities including travel bookings made through mobile devices . in the past few years , each of our brands made significant progress creating new mobile websites and mobile/tablet applications that are receiving strong reviews and solid download trends . in 2010 , we bought a leading travel application company called mobiata ® which is responsible for several top travel applications , such as flighttrack tm , flighttrack pro tm and flightboard tm , and is now integrated into brand expedia . we believe mobile bookings present an opportunity for incremental growth as they are typically completed within one day of the travel or stay which is a much shorter booking window than we have historically experienced via more traditional online booking methods . during the last year , customers ' behaviors and preferences on tablet devices began to show differences from trends seen on smartphones . for example , the booking window on a smartphone typically is much shorter than the emerging trend on the tablet device and historical average on a desktop or laptop . we have a stated goal of booking 20 % of our transactions through mobile devices before the end of 2014. virtually all of our leisure brands continue to conduct experiments with daily deals ' and social media as part of our efforts to drive business through new distribution channels . we believe daily deals may represent incremental travel bookings as it typically represents an impulse purchase compared to historical travel purchasing activity which tends to be a highly considered and deliberate transaction . in addition , we anticipate the importance of social media channels to consumers and to our industry to increase over time . it is our intention to grow our social ' efforts alongside this trend . seasonality we generally experience seasonal fluctuations in the demand for our travel products and services . for example , traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan and book their spring , summer and holiday travel . the number of bookings typically decreases in the fourth quarter . because revenue in the merchant business is generally recognized when the travel takes place rather than when it is booked , revenue typically lags bookings by several weeks or longer . the seasonal revenue impact is exacerbated with respect to income by the more stable nature of our fixed costs . as a result , revenue and income are typically the lowest in the first quarter and highest in the third quarter . the continued growth of our international operations or a change in our product mix may influence the typical trend of the seasonality in the future . critical accounting policies and estimates critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statements because they require that we use judgment and estimates in applying those policies . we prepare our consolidated financial statements and accompanying notes in accordance with generally accepted accounting principles in the united states ( gaap ) .
| the remaining worldwide revenue , other than hotel and air discussed above , which includes car rental , advertising and media , destination services and fees related to our corporate travel business , increased by 20 % in 2012 as compared to 2011 , primarily through strong growth in corporate travel fees primarily due to the via travel acquisition as well as an increase in advertising and media and insurance revenue . the remaining worldwide revenue increased by 8 % in 2011 compared to 2010. in addition to the above segment and product revenue discussion , our revenue by business model is as follows : replace_table_token_8_th the increase in merchant revenue in 2012 and 2011 was due to an increase in hotel revenue primarily driven by an increase in room nights stayed . 56 the increase in agency revenue in 2012 and 2011 was primarily due to growth in our corporate travel business and agency hotel business , partially offset by a decline in agency air revenue . cost of revenue replace_table_token_9_th cost of revenue primarily consists of ( 1 ) customer operations , including our customer support and telesales as well as fees to air ticket fulfillment vendors , ( 2 ) credit card processing , including merchant fees , charge backs and fraud , and ( 3 ) other costs , primarily including data center costs to support our websites , destination supply , and stock-based compensation . in 2012 , the primary drivers of the increase in cost of revenue expense were higher credit card processing costs related to our merchant bookings growth and higher headcount costs related to our via travel acquisition as well as our global customer and supply operations , partially offset by an increase in credit card rebates . in 2011 , the primary drivers of the increase in cost of revenue expense were higher call and data center costs as well as higher credit card processing costs related to our merchant transaction growth , partially offset by credit card rebates . selling and marketing replace_table_token_10_th selling and marketing expense primarily relates to direct costs , including traffic generation costs from search engines and internet portals , television , radio and print spending , private label and affiliate program commissions , public relations
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we are continuing to analyze the full data from patients with bbs or alström syndrome , which we plan to present at a medical meeting in the first half of 2021. we plan to complete regulatory submissions to both the fda and the ema for bbs in the second half of 2021 , and we expect to determine next steps for alström syndrome upon completing a full analysis of the final data from the phase 3 trial . the u.s. food and drug administration , or the fda , has acknowledged the importance of these results by giving setmelanotide breakthrough therapy designation for the treatment of obesity associated with genetic defects upstream of the mc4r in the leptin melanocortin pathways . the breakthrough therapy designation currently covers indications for pomc deficiency obesity , lepr deficiency obesity , bbs and alström syndrome . we have ongoing phase 2 clinical trials , referred to as our basket study , in mc4r pathway heterozygous deficiency obesity and pomc epigenetic disorders , which we expanded in the second half of 2019 to include the following additional indications : src1 deficiency obesity , sh2b1 deficiency obesity , mc4r deficiency obesity and smith-magenis syndrome . we reported preliminary results in mc4r pathway heterozygous deficiency obesity in march 2019. on january 26 , 2021 , we announced new proof-of-concept interim data from our ongoing phase 2 basket study across individuals with one of three distinct rare genetic diseases of obesity : het obesity due to a genetic variant in one of the two alleles of the pomc , pcsk1 or lepr gene , or hets ; obesity due to src1 deficiency ; and obesity due to sh2b1 deficiency . the primary endpoint of the study is the percent of patients in each subgroup showing at least a 5 percent loss of body weight over three months . consistent with prior clinical experience , setmelanotide was generally well tolerated in each of these rare genetic diseases of obesity . we are in discussions with the fda to define a potential path for setmelanotide towards 107 registration for these indications . pending the outcome of these discussions , we plan to initiate a pivotal phase 3 trial evaluating setmelanotide in patients with het obesity and src1 and sh2b1 deficiency obesities in the second half of 2021. we recently presented new data generated from our proprietary gene curation and selection strategy , which is designed to evaluate a gene 's relevance to the mc4r pathway with the goal of identifying genetic patient populations with the potential to benefit from setmelanotide therapy . using this proprietary approach , we identified an additional 31 mc4r pathway genes with strong or very strong pathway relevance . pending discussions with the fda , we plan to initiate a new exploratory mc4r pathway basket trial in patients with these 31 new genes in the second half of 2021. in the first half of 2021 , we plan to initiate a phase 2 clinical trial in hypothalamic obesity , initiate a potentially registration-enabling clinical trial of the weekly formulation of setmelanotide , and announce data from a phase 2 basket study in mc4r-recusable patients . in the second half of 2021 , we plan to initiate a clinical trial of setmelanotide in pediatric patients aged two to six . also in the second half of 2021 , we expect to obtain regulatory approval from the european commission and make imcivree commercially available in europe in obesities due to pomc , pcsk1 and lepr deficiencies . on january 5 , 2021 , we entered into an asset purchase agreement with alexion pharmaceuticals , inc. , or alexion , pursuant to which we agreed to sell our rare pediatric disease priority review voucher , prv , to alexion , or the prv transfer . we were awarded the voucher under a fda program intended to encourage the development of certain rare pediatric disease product applications . we received the prv when imcivree was approved by the fda . pursuant to the transfer agreement , alexion agreed to pay us $ 100 million in cash upon the closing of the sale . the prv transfer closed on february 17 , 2021. on february 9 , 2021 , we completed an underwritten public offering in which we sold 5,750,000 shares of our common stock at a public offering price of $ 30.00 per share , which included the exercise in full by the underwriters of their option to purchase up to 750,000 additional shares of common stock . we received aggregate net proceeds from the offering of approximately $ 161.6 million after deducting underwriting discounts and commissions and offering expenses payable by us . our operations to date have been limited primarily to conducting research and development activities for setmelanotide . to date , we have not generated any product revenue and have financed our operations primarily through the proceeds received from the sales of common and preferred stock , asset sales , as well as capital contributions from the former parent company , rhythm holdings llc . from august 2015 through august 2017 , we raised aggregate net proceeds of $ 80.8 million through our issuance of series a preferred stock . since our initial public offering , or ipo , on october 10 , 2017 and our underwritten follow-on offerings through february 2021 , we have raised aggregate net proceeds of approximately $ 611.4 million through the issuance of our common stock after deducting underwriting discounts , commissions and offering related transaction costs . since inception , we have received a further $ 100.0 million from asset sales , specifically in connection with the prv transfer . we will not generate revenue from product sales until we are able to successfully establish a marketing and commercialization infrastructure for imcivree . story_separator_special_tag we expect to make imcivree commercially available to patients 6 years of age and older with obesity due to pomc , pcsk1 or lepr deficiency in the u.s. in the first quarter of 2021. we expect to continue to fund our operations through the sale of equity , debt financings or other sources . we intend to build our own marketing and commercial sales infrastructure and we may enter into collaborations with other parties for certain markets outside the united states . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms , or at all . if we fail to raise capital or enter into such other arrangements as , and when , needed , we may have to significantly delay , scale back or discontinue the development or commercialization of setmelanotide . as of december 31 , 2020 we had an accumulated deficit of $ 459.3 million . our net losses were $ 134.0 million and $ 140.7 million , for the years ended december 31 , 2020 and 2019 , respectively . we expect to continue to incur significant expenses and increasing operating losses over the foreseeable future . we expect our expenses will increase substantially in connection with our ongoing activities , as we : ● continue to conduct clinical trials for setmelanotide ; 108 ● engage contract manufacturing organizations , or cmos , for the manufacture of clinical and commercial-grade setmelanotide ; ● seek regulatory approval for setmelanotide for future indications ; ● expand our clinical and financial operations and build a marketing and commercialization infrastructure ; and ● continue to operate as a public company . as of december 31 , 2020 , our cash and cash equivalents and short-term investments were approximately $ 172.8 million . we expect that our cash and cash equivalents and short-term investments as of december 31 , 2020 , together with the aggregate net proceeds from the february 2021 public offering and the proceeds from the prv transfer of approximately $ 260.1 million , will enable us to fund our operating expenses through at least the second half of 2023. corporate background we are a delaware corporation organized in february 2013 under the name rhythm metabolic , inc. , and as of october 2015 , under the name rhythm pharmaceuticals , inc. impact of novel coronavirus we are closely monitoring how the spread of covid-19 is affecting our employees , business , preclinical studies and clinical trials . in response to the covid-19 pandemic , we have limited access to our executive offices with most employees continuing their work outside of our offices and travel has been restricted . we have recently updated our timelines on the basket study but the changes were unrelated to covid-19 . we are continuing our regular interactions with the fda and ema and based on current information . we do not currently anticipate any disruption in the clinical supply of setmelanotide and our cmos have indicated that they have appropriate plans and procedures in place to ensure uninterrupted future supply of clinical and commercial-grade setmelanotide , subject to potential limitations on their operations due to covid-19 . as a result , we do not currently expect that the covid-19 pandemic will have a material impact on our business , results of operations and financial condition . at this time , however , there is still uncertainty relating to the trajectory of the pandemic and the impact of related responses , and disruptions caused by the covid-19 pandemic have resulted and may in the future result in difficulties or delays in initiating , enrolling , conducting or completing our planned and ongoing clinical trials and the incurrence of unforeseen costs as a result of disruptions in clinical supply or preclinical study or clinical trial delays . for example , we experienced interruption of key clinical trial activities , such as patient attendance and clinical trial site monitoring , in our phase 3 clinical trial evaluating setmelanotide for the treatment of insatiable hunger and severe obesity in individuals with bbs or alström syndrome . the impact of covid-19 on our future results will largely depend on future developments , which are highly uncertain and can not be predicted with confidence , such as the ultimate geographic spread of the disease , the duration of the pandemic , travel restrictions and social distancing in the united states and other countries , business closures or business disruptions , the ultimate impact on financial markets and the global economy , the effectiveness of vaccines and vaccine distribution efforts and the effectiveness of other actions taken in the united states and other countries to contain and treat the disease . see “ risk factors—the covid-19 pandemic has and may continue to adversely impact our business , including our preclinical studies , clinical trials and our commercialization prospects. ” in part i , item 1a of this annual report . financial operations overview revenue to date , we have not generated any revenue from product sales . our lead product candidate , imcivree , was recently approved by the fda for chronic weight management in adult and pediatric patients six years of age and older with obesity due to pomc , pcsk1 or lepr deficiency confirmed by genetic testing . we expect imcivree to be commercially available in the first quarter of 2021. we can not predict if , when , or to what extent we will generate revenues from the commercialization and sale of imcivree .
| expenses associated with the license agreement with ipsen on filing the nda and mma for setmelanotide for the treatment of pomc and lepr deficiency obesities . selling , general and administrative expense . selling , general and administrative expense increased by $ 9.6 million to $ 46.1 million in 2020 from $ 36.6 million in 2019 , an increase of 26 % . the increase was primarily due to the following : ● an increase of approximately $ 0.9 million in cash related charges incurred with the separation agreements with our former ceo and cco , and $ 4.9 million in non-cash related stock compensation expenses related with those separation agreements as well as the hiring of our current ceo in july 2020 ; and an increase of 114 approximately $ 0.5 million for employee related costs in connection with the hiring of additional full-time employees to support planned commercial and operating activities ; ● an increase of $ 1.7 million related to efforts to drive patient engagement and disease awareness about rare genetic causes of obesity and prepare for the potential commercialization of setmelanotide in the u.s. ; and ● an increase of $ 1.2 million related to consulting activity for market access development , legal services and other costs associated with activities and implementation of certain processes relating to our compliance with the sarbanes oxley act . liquidity and capital resources as of december 31 , 2020 , our cash and cash equivalents and short-term investments were approximately $ 172.8 million . cash flows the following table provides information regarding our cash flows for the years ended december 31 , 2020 and 2019 : replace_table_token_2_th net cash used in operating activities the use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital . net cash used in operating activities was $ 122.0 million
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cares act grant recognition includes the portion of government payroll support that represents a direct grant and is recognized as a credit to operating expense on the statement of income . special charges include non-cash impairment charges taken in 2020 on the long-lived assets of our subsidiaries including sunseeker resort , allegiant nonstop , teesnap and on an investment in a third party as well as other charges specifically related to covid-19 including the non-operating special charges related to the termination of the loan agreement with sixth street partners ( formerly tssp ) intended to finance the development of sunseeker resort charlotte harbor . results of operations 2020 compared to 2019 operating revenue passenger revenue . passenger revenue for 2020 decreased 46.4 percent compared with 2019. the decrease was driven by a 42.3 percent decrease in scheduled service passengers . this decline was due to a dramatic decline in passenger demand , government travel restrictions , and quarantine requirements related to covid-19 . we reduced our scheduled service capacity by 17.6 percent during 2020 , in response to passenger demand trends . average total passenger fare ( includes scheduled service and air ancillary ) decreased 6.2 percent year over year , driven by a 14.8 percent decrease in scheduled service average base fare also due to lower passenger demand . third party products revenue . third party products revenue decreased 33.6 percent in 2020 from 2019. this is primarily due to decreased net revenue from both rental cars and hotels , as a result of substantially fewer passengers and with respect to hotel room revenue , particularly reductions in those traveling to las vegas . fixed fee contract revenue . fixed fee contract revenue for 2020 decreased 58.7 percent year over year due to a decrease in demand . departures decreased 45.7 percent resulting from a significant drop in ad hoc charter opportunities in 2020. the decrease in fixed fee revenue is attributable to covid-19 . other revenue . other revenue decreased $ 8.4 million year over year . the decrease was due to decreased activity in the non-airline segments . operating expenses the following table presents operating unit costs on a per asm basis , defined as operating casm , for the indicated periods . excluding fuel on a per asm basis provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility . both the cost and availability of fuel are subject to many economic and political factors beyond our control . 34 replace_table_token_10_th salary and benefits expense . salary and benefits expense for 2020 decreased $ 72.6 million , or 16.1 percent , compared with 2019. although the average number of full-time equivalent employees was relatively flat year over year , overall expense decreased due to temporary voluntary leave programs offered to employees , voluntary pay reductions , suspension of the bonus accrual during the year , and recognition of the $ 13.0 million cares act employee retention tax credit .the number of full-time equivalent employees as of december 31 , 2020 was down 11.5 percent from december 31 , 2019 as a result of staff reductions in the fourth quarter . aircraft fuel expense . aircraft fuel expense decreased $ 206.0 million , or 48.2 percent in 2020 compared to 2019 , largely due to a decrease in system average fuel cost per gallon of 32.1 percent year over year as fuel prices declined due to lower worldwide demand caused by the pandemic . system fuel gallons consumed decreased by 23.9 percent on a 18.8 percent decrease in asms as we reduced capacity in light of the pandemic . fuel efficiency ( measured as asms per gallon ) increased 6.6 percent year over year due to reduced load factor of 24.4 percentage points and less air traffic congestion at airports . station operations expense . station operations expense for 2020 decreased $ 26.6 million , or 15.5 percent , on a 19.3 percent decrease in scheduled service departures as we reduced the number of flights offered due to reduced demand . depreciation and amortization expense . depreciation and amortization expense for 2020 increased $ 20.4 million , or 13.1 percent , as the average number of aircraft in service increased 13.8 percent year over year . accounting for a large portion of this increase , amortization of major maintenance costs was $ 37.6 million for 2020 compared to $ 26.0 million for 2019 , due to an increase in the number of aircraft and related deferred maintenance costs associated with them . we expect these costs will continue to increase as our fleet ages . maintenance and repairs expense . maintenance and repairs expense for 2020 decreased $ 27.8 million , or 30.3 percent , compared with 2019. routine maintenance costs decreased as aircraft utilization was down 26.3 percent during the year . sales and marketing expense . sales and marketing expense for 2020 decreased $ 35.4 million , or 44.9 percent , compared to 2019 , due to a decrease in net credit card fees paid as a result of a 46.4 percent decrease in passenger revenue year over year . other operating expense . other expense decreased $ 21.6 million in 2020 compared to 2019 , mostly due to decreased activity in our non-airline subsidiaries . cares act grant recognition . we received a total of $ 176.9 million in funds during 2020 through the payroll support program agreement ( the “ pspa ” ) under the cares act . of the total , $ 152.4 million of these funds relate to direct grants , and were recognized as a credit to operating expense on our statement of income during 2020. operating special charges . special charges of $ 306.3 million were recorded within operating expenses in 2020. we did not have any special charges in 2019. the special charges relate to expenses that were unique and specific to covid-19 . story_separator_special_tag these charges include impairment charges , accelerated depreciation on airframes and engines resulting from an accelerated retirement plan , losses on the sale-leaseback transactions , a portion of salary and benefits expense in relation to the elimination of positions as well as the acceleration of certain existing stock awards , and impairments within our non-airline subsidiaries . see note 2 of notes to consolidated financial statements for further information . non-operating special charges 35 special charges of $ 26.6 million were recorded within non-operating expenses for 2020. we did not have any special charges in 2019. the non-operating special charges include payments to terminate the loan agreement with sixth street partners ( formerly tssp ) intended to finance the development of sunseeker resort charlotte harbor . the termination resulted from the suspension of construction due to the pandemic . income tax expense we recorded a $ 176.9 million tax benefit ( 49.0 percent effective tax rate ) compared to a $ 69.1 million tax provision ( 22.9 percent effective tax rate ) for 2020 and 2019 , respectively . the 49.0 percent effective tax rate for 2020 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax accounting impact of the cares act which includes a $ 98.0 million federal income tax benefit related to the full utilization of 2018 and 2019 net operating losses as well as the ability to carryback a majority of the 2020 net operating loss at the 35.0 percent tax rate applicable in earlier years . the effective tax rate was also impacted by the remeasurement of deferred taxes and state taxes . we expect our effective tax rate to be between 23 percent and 24 percent in the near term . 2019 compared to 2018 the comparison of our 2019 results to 2018 results is included in our annual report on form 10-k for the year ended december 31 , 2019 , under part ii item 7 , management 's discussion and analysis of financial condition and results of operations . liquidity and capital resources cash , cash equivalents and investment securities ( short-term and long-term ) increased at december 31 , 2020 to $ 685.2 million from $ 473.4 million at december 31 , 2019. investment securities represent highly liquid marketable securities which are available-for-sale . restricted cash represents escrowed funds under fixed fee contracts and cash collateral against letters of credit required by hotel properties for guaranteed room availability , airports and certain other parties . under our fixed fee flying contracts , we require our customers to prepay for flights to be provided by us . the prepayments are escrowed until the flight is completed and are recorded as restricted cash with a corresponding amount reflected as air traffic liability . we have suspended share repurchases and our quarterly cash dividend , as part of cash conservation efforts in response to the effects of covid-19 on our business . in connection with our receipt of financial support under the payroll support programs with the treasury , we agreed not to repurchase shares or pay cash dividends through march 31 , 2022. we also suspended all non-airline capital expenditures and reduced airline capital expenditures in 2020 . we received $ 94 million in tax refunds in 2020 related to net operating loss carrybacks and expect to receive in 2021 $ 147 million in federal income tax refunds related to 2019 and 2020 net operating losses and $ 29 million in various other tax refunds . we believe we have more than adequate liquidity resources through our operating cash flows , borrowings , cash balances , treasury payroll support programs and tax refunds to meet our future contractual obligations and availability of credit which could be secured by unencumbered aircraft . we will continue to consider raising funds through debt financing on an opportunistic basis . debt our total long-term debt and finance lease obligations balance , without reduction for related issuance costs , increased from $ 1.45 billion as of december 31 , 2019 to $ 1.68 billion as of december 31 , 2020. during 2020 , we borrowed $ 428.0 million , including a $ 100.0 million up-size under the credit and guaranty agreement ( the “ term loan ” ) , $ 150.0 million 8.5 % senior secured notes due 2024 , senior unsecured term promissory note to the us treasury ( the `` psp note '' ) of $ 23.0 million , and additional debt secured by aircraft and engines of $ 115.0 million . during 2020 , we made $ 181.9 million in net principal and finance lease repayments . in october 2020 , we closed on the private offering of $ 150.0 million principal amount of 8.5 % senior secured notes due 2024. the senior secured notes and related guarantees are secured by first priority security interests in substantially all of our property and assets and the guarantors of the notes ( excluding aircraft , aircraft engines and certain other assets ) .the guarantors of the senior secured notes include all significant subsidiaries other than sunseeker resorts , inc. and its subsidiaries in february 2020 , we entered into an amendment to our term loan under which the interest rate was reduced by 150 basis points , the principal amount of the debt was increased by $ 100.0 million to $ 545.5 million , and the quarterly payments of principal were increased to $ 1.4 million . the remaining provisions of the term loan remain substantially unchanged , including the maturity date of february 2024 . 36 in september 2020 , we borrowed $ 84.0 million under a loan agreement secured by aircraft and spare engines . the notes bear interest at a fixed rate , payable in monthly installments maturing in september 2025 and september 2026 for the spare engines and aircraft , respectively .
| $ 58.46 ; – cost cutting measures in response to the pandemic generated a decrease in operating expenses ( excluding special charges and the effect of payroll support ) of 24.4 percent ; – asms per gallon of 87.8 , up 7 percent in 2020 versus 2019 due to reduced load factor of 24.4 percentage points and less airport and air traffic congestion ; – named # 1 airline co-branded credit card for second year in a row by the usa today ; – made forbes ' best mid-size employers 2021 list 31 health and safety amid various uncertainties and public concern during the covid-19 pandemic , we have implemented the below measures to ensure health and safety for all traveling on our flights . due to our focus on these health and safety measures , we were ranked by safe travel barometer in august 2020 as the # 1 airline among north american carriers and among the top five worldwide for best covid-19 traveler safety measures , with results based on an independent audit of more than 150 airlines . – maintain a comprehensive cleaning program for all aircraft that includes a regular schedule of standard and deep-clean procedures in line with both cdc and airbus guidance – aircraft receive regular treatment with an advanced antimicrobial protectant that kills viruses , germs and bacteria on contact for 14 days – utilize voc ( volatile organic compound ) filters on board every aircraft , which remove additional organic compounds and ensure that cabin air is changed , on average , every three minutes , exceeding hepa standards – require customers to wear face coverings through all phases of travel , including at the ticket counter , in the gate area and during flight – complimentary health and safety kits , which include a single-use face mask and cleaning wipes , provided to all of our customers – crew members required to wear face masks on
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our financial strategies are designed to enable us to expand and contract in response to member credit needs . by investing capital in high-quality , short- and medium-term financial instruments , we maintain sufficient liquidity to satisfy member demand for short- and long-term funds , repay maturing consolidated obligations ( co bonds and co discount notes ) , and meet other obligations . the dividends we pay are largely the result of earnings on invested member capital , net earnings on advances to members , mortgage loans and investments , offset in part by operating expenses and assessments . our board of directors and management determine the pricing of member credit and dividend policies based on the needs of our members and the cooperative as well as current and forecasted conditions in the marketplace . business segment . we manage our operations as a single business segment . advances to members are our primary focus and the principal factor that impacts our operating results . our business continuity program ( bcp ) has been fully deployed and operational throughout the covid-19 pandemic and the market uncertainties without any significant operational problems through the date of this report . the bcp is intended to help ensure the safety and welfare of our employees , to safeguard the bank 's assets , including physical property and information , and to permit the continued operations of the bank in the event of a short-term disruption or long-term catastrophic event . the bcp contains operating procedures for critical processes and identifies resources and staff necessary to continue operations based on business defined recovery time objectives and communication requirements for internal and external stakeholders . we continue to operate our business and serve our members remotely covid-19 and business continuity in response to the covid-19 pandemic , we activated and successfully executed on our business continuity protocols and continue to monitor the covid-19 pandemic under such protocols . we have endeavored to protect our employees and customers and to safeguard the bank 's assets , including physical property and information , and to permit the continued operations of the bank . substantially all our employees continue to work remotely . we continue to monitor conditions and are developing a phased approach to reopening our offices based on regional indicators of infection positivity rates and will continue to operate in compliance with all applicable laws and regulations . the bank continued to meet its funding needs throughout recent events . the disruptions in the funding markets during march has largely subsided , as spreads between the bank 's consolidated debt obligations and u.s. treasury securities returned to more normalized levels , and market access for required funding stabilized . the fhlbanks continued to coordinate and cooperate to ensure orderly access for the fhlbanks to the funding markets in the issuance of system consolidated debt obligations . as a consequence of the federal reserve 's open market operations in response to market disruptions , the unusual relationships among interest rate curves seen at the height of the disruption has now largely normalized and funding market stability began to improve as early as in the second quarter of 2020. however , as the future path of the pandemic is unpredictable , so is its potential impact on the capital markets and the fhlbanks ' funding conditions . the impact of the covid-19 pandemic on the bank 's future earnings and dividends continues to be difficult to forecast given the uncertainties about the health crisis , the actions of national and local policymakers , the impact on the economy , markets , and the business climate , and the potential impact of changes in consumer and business behavior on our members ' business . these and other factors may reduce the volume of assets on our balance sheet and the spreads we earn on those assets . continued low market interest rates will reduce the income we earn from deploying capital . changes in market conditions affecting co issuance spreads may once again become volatile . uncertainty about future investor appetite for increased treasury and gse issuance may indicate higher future debt costs and reduce our margins as issuance amounts rise . we also note that the market disruption caused by the pandemic negatively affected mortgage collateral valuations . we responded by applying updated mortgage valuations to pledged mortgage collateral . where necessary , members have pledged 33 additional qualifying collateral to reflect current market conditions and or to address increased advance demand to comply with their collateral maintenance requirements . we remain adequately collateralized and will continue to monitor credit and collateral conditions and endeavor to make adjustments as needed . in addition , we have implemented certain relief measures to help members serve their customers affected by the covid-19 pandemic . these accommodations include forbearance and deferrals for mpf program loans , forbearance , and modifications for pledged loan collateral , and allowing electronic signatures on loan documentation in certain circumstances . in may 2020 , we began offering a variety of loan and grant programs to help assist members in responding to the challenges brought about by the covid-19 pandemic . the finance agency took certain actions to allow the federal home loans banks to provide various forms of relief in response to the effects of the pandemic . we have established a small business relief program and has disbursed cash grants of $ 8.0 million through december 31 , 2020. credit losses under asu 2016-13 ( cecl ) effective january 1 , 2020 , we adopted the new accounting standard on current expected credit losses ( cecl ) under which the allowance is measured based on management 's best estimate of lifetime expected credit losses . story_separator_special_tag an adjustment to opening retained earnings of $ 3.8 million for credit loss allowance was recorded with the adoption of cecl at january 1 , 2020. in the four quarters of 2020 , we charged $ 3.4 million to earnings as the provision for credit losses under the new framework on mortgage loans , and $ 0.3 million as the provision for credit losses on certain held-to-maturity securities . no provision was deemed necessary on advances . story_separator_special_tag 10pt times new roman , times , serif ; margin : 0pt 0 0pt 0.5in '' > other expenses were $ 206.9 million in 2020 , compared to $ 176.0 million in 2019. other expenses are primarily operating expenses , compensation and benefits , and our share of expenses of the office of finance and the federal housing finance agency . · operating expenses were $ 69.8 million in 2020 , up from $ 62.8 million in 2019. increase was primarily due to software and technology system contracts , including payments to professional staff . · compensation and benefits expenses were $ 100.2 million in 2020 , up from $ 88.2 million in 2019. increase was primarily due to addition of staff to design and execute on our long-term technology enhancement plans . · the expenses allocated for our share of the costs to operate the office of finance and the federal housing finance agency were $ 19.4 million in 2020 , compared to $ 16.8 million in 2019 . · other expenses were $ 17.5 million in 2020 , compared to $ 8.3 million in 2019. in 2020 , other expenses included $ 8.0 million in cash grants to assist small business impacted by the covid-19 pandemic . affordable housing program assessments ( ahp ) allocated from net income were $ 49.2 million in 2020 , compared to $ 52.6 million in 2019. assessments are calculated as a percentage of net income , and changes in allocations were in parallel with changes in net income . dividend payments — four quarterly cash dividends were paid in 2020 for a total of $ 5.74 per share of capital , compared to $ 6.49 per share of capital paid in 2019 . 35 financial condition — december 31 , 2020 compared to december 31 , 2019 our financial condition is characterized by a solid balance sheet and ample liquidity readily available for our member institutions . total assets declined to $ 137.0 billion at december 31 , 2020 from $ 162.1 billion at december 31 , 2019 , a decrease of $ 25.1 billion , or 15.5 % . cash at banks was $ 1.9 billion at december 31 , 2020 , compared to $ 603.2 million at december 31 , 2019. liquidity investments money market investments at december 31 , 2020 were $ 6.3 billion in federal funds sold and $ 4.7 billion in overnight resale agreements . at december 31 , 2019 , money market investments were $ 8.6 billion in federal funds sold and $ 15.0 billion in overnight resale agreements . federal funds sold averaged $ 8.8 billion and $ 9.0 billion in the fourth quarter of 2020 and 2019 , respectively . resale agreements averaged $ 4.1 billion and $ 9.9 billion in the fourth quarter of 2020 and 2019 , respectively . in 2020 , we also established a program to invest in interest-earning deposits at highly rated financial institutions that are readily available as liquid funds ; at december 31 , 2020 , the balance outstanding was $ 685.0 million . for liquidity , we maintain a portfolio of u.s. treasury securities designated as trading to meet short-term contingency liquidity needs . trading investments are carried at fair value , with changes recorded through earnings . trading investments were primarily u.s. treasury securities of $ 11.7 billion and $ 15.3 billion at december 31 , 2020 and 2019. our liquidity position remains strong , and in compliance with all regulatory requirements , and we do not foresee any changes to that position . in addition to the liquidity trading portfolio and assets discussed above , liquid assets at december 31 , 2020 included $ 3.5 billion of high credit quality gse-issued available-for-sale securities that are investment quality and readily marketable . the finance agency 's liquidity advisory bulletin 2018-07 has specific initial liquidity levels to be maintained within certain ranges defined in an accompanying supervisory letter . we also have other liquidity measures in place , deposit liquidity and operational liquidity , and other liquidity buffers . we remain in compliance with the advisory bulletin and all liquidity regulations . for more information about the advisory bulletin and our liquidity measures , see section liquidity , cash flows , short-term borrowings and short-term debt , and tables 9.1 through table 9.3 in this md & a . advances — the pre-pandemic par balance of $ 93.0 billion at february 2020 , surged to $ 134.4 billion at march 31 , 2020 , a 44.5 % increase within a few weeks . however , soon after , advance balances began to decline , gradually at first , when members did not roll over maturing short-term funds and prepaid advances ahead of maturities , followed by significant prepayments late in the fourth quarter . we ended the year with par advances at $ 90.7 billion , compared to $ 100.4 billion at the beginning of the year . advance transaction volume , as measured by average balance , was $ 109.1 billion in 2020 , compared to $ 95.8 billion in the prior year . short-term fixed-rate advances decreased by 47.2 % to $ 12.9 billion at december 31 , 2020 , down from $ 24.4 billion at december 31 , 2019. arc advances , which are adjustable-rate borrowings , increased by 4.2 % to $ 17.1 billion at december 31 , 2020 , compared to $ 16.4 billion at december 31 , 2019. given that advances are always well collateralized , a provision for credit loss was not necessary . we have no history of credit losses on advances .
| spreads remained very low on our investments in u.s. treasury securities , overnight federal funds markets and repurchase programs , the principal investment vehicles for our balance sheet liquidity programs . net interest income during the quarters in 2020 were strong , despite the volatility in the financial markets : $ 152.8 million in the first quarter ; $ 229.7 million in the second quarter ; $ 180.8 million in the third quarter and $ 189.7 million in the fourth quarter . fourth quarter 2020 net interest benefitted from $ 30.2 million in prepayment fees , although lower average earning assets , specifically lower advance balances in the fourth quarter of 2020 negatively impacted net interest income and margin ( before prepayment fees ) . net interest income grew in the middle two quarters largely driven by spreads earned from the surge in demand for advances at the onset of covid-19 pandemic , and by favorable consolidated obligation debt expense . co debt costing yields/expenses declined in part due to a shift to greater use of discount notes to fund short-maturity assets , and in part due to advantageous pricing of co discount notes . in 2020 , co discount notes funded 47.3 % of our earning assets , up from 40.3 % in the prior year ( calculations are based on average balances ) . discount note costing yield was 57 basis points in 2020 , down from 221 basis points in the prior year . in the current volatile market , investor demand for fhlbank issued high-quality co discount notes pushed yields down , resulting in favorable spreads and favorable funding through most of 2020 . 34 in summary , volume related increases in earning assets and changes in funding mix together made a favorable impact of $ 91.6 million to margin , partly offset by decline of $ 5.8 million due to yield-related changes . we funded average interest-earning assets of $ 157.9 billion in 2020 , compared to $ 144.6 billion
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for the year ended december 31 , 2014 , we recorded a provision for loan losses of $ 3.6 million compared to $ 7.2 million in 2013 and $ 32.1 million in 2012. this decrease was primarily due to a broad improvement in the portfolio credit quality as indicated through significantly improved credit metrics . the significant reduction in 2013 from 2012 levels was bolstered by the successful efforts of our asset strategies during the second quarter of 2012. this strategy included a bulk loan sale which resulted in the sale of $ 42.7 million of problem loans , including $ 22.5 million of nonperforming loans . noninterest income noninterest income decreased $ 1.9 million to $ 78.3 million in 2014 from $ 80.2 million in 2013. excluding the non-routine and other one-time items listed in the table below , noninterest income increased $ 4.4 million , or 6 % , to $ 77.2 million in 2014 from $ 72.8 million in 2013. this was partially offset by an internal system change , which was rectified by the end of the year . replace_table_token_16_th ( 1 ) during the third quarter of 2013 , we obtained the right to execute a clean-up call on the underlying collateral for our pool of reverse mortgages . a non-routine gain resulted from this transaction . wealth management income grew $ 1.8 million , or 11.8 % , in 2014 compared to 2013 , reflecting the continued expansion of the corporate and personal trust business lines as well as an increase in private banking jumbo mortgage products provided by the array/arrow asset purchase . mortgage banking activities , deposit service charges and credit/debit card and atm fees remained essentially flat in 2014 compared to 2013. deposit service charges ended the year down slightly compared to the prior year due to ongoing changes in customer behavior combined with the impact of several data breaches merchants had with card activation and uses . wealth management income grew $ 2.2 million , or 17 % , in 2013 compared to 2012 , reflecting the continued expansion of the corporate and personal trust business lines as well as an increase in private banking jumbo mortgage products provided by the array/arrow acquisition in 2013. credit/debit card and atm fees increased by $ 1.4 million , or 6 % , in 2013 compared to 2012 , mostly due to additional product and service offerings and atm income from cash connect ® our atm division , which grew fees by 17 % . mortgage banking revenues increased $ 1.1 million , or 40 % , in 2013 partially due to the purchase of array / arrow during the third quarter of 2013 , refinance activity , and growth in our retail lending division . deposit service charges were nearly flat in 2013 , as growth was offset by changes in customer behavior due to new regulatory requirements in late 2012 . 46 noninterest expenses noninterest expense in 2014 increased $ 14.9 million to $ 147.8 million from $ 132.9 million in 2013. excluding the non-routine and other one-time items listed in the table below , noninterest expense increased $ 9.8 million , or 8 % , to $ 137.9 million in 2014 from $ 128.1 million in 2013. replace_table_token_17_th ( 1 ) a change in the method of billing for armored car services by our cash connect division caused revenues and expenses for these services to be reported separately rather than netted together in our statement of operations beginning in the third quarter of 2012 . ( 2 ) corporate development costs were largely attributable to professional fees related to the array/ arrow asset purchase that closed during the third quarter of 2013 and the acquisition of first wyoming financial corporation that closed during the third quarter of 2014 , and 2013 activities related to the calling and consolidating of the equity tranche sasco of a 2002 reverse mortgage trust transaction . the recent acquisition of fnbw and the array/arrow asset purchase drove corporate development costs to increase by $ 3.3 million while the additional staff associated with these transactions and organic hiring of revenue generating professionals increased salaries , benefits and other compensation by $ 5.5 million . in addition , we invested in the related infrastructure and staffing to support these activities while also hiring additional compliance personnel . we also incurred an additional $ 2.8 million increase in professional fees related to short-lived projects that are not expected to re-occur at the same levels after year-end . further , we recorded a $ 565,000 ( pretax ) adjustment in benefit expense for its post-retirement health plan obligations due to changes in assumptions and longer life expectancies in updated mortality tables . in 2013 , loan workout and reo related costs decreased by $ 4.3 million from the prior year due to broad improvement in our loan portfolio credit metrics . in addition , during 2013 we had lower regulatory costs , including a decrease in fdic assessment fees of $ 2.2 million . partially offsetting these decreases were higher salaries , benefits and other compensation , which increased $ 4.8 million , or 7 % , mainly as a result of higher performance-based compensation in 2013. also , equipment expenses increased by $ 1.2 million , or 16 % , mainly due to business growth . income taxes we recorded $ 17.6 million of tax expense for the year ended december 31 , 2014 compared to tax expense of $ 24.8 million and $ 17.0 million for the years ended december 31 , 2013 and 2012 , respectively . in 2013 , we recorded a deferred tax asset and corresponding valuation allowance in connection with the consolidation of the reverse mortgage trust . during early 2014 , this valuation allowance was removed and the consolidation resulted in a $ 6.7 million tax benefit in 2014. excluding this item , the effective tax rate for the year ended december 31 , 2014 is 34.1 % . story_separator_special_tag the effective tax rates for the years ended december 31 , 2014 , 2013 and 2012 were 24.7 % , 34.6 % , and 35.2 % , respectively . volatility in effective tax rates is impacted by the level of pretax income or loss , combined with the amount of tax-free income as well as the effects of unrecognized tax benefits . the provision for income taxes includes federal , state and local income taxes that are currently payable or deferred because of temporary differences between the financial reporting basis and the tax reporting basis of the assets and liabilities . for additional information see note 15 to the consolidated financial statements . segment information for financial reporting purposes , our business has three reporting segments : wsfs bank , cash connect , and trust and wealth management . the wsfs bank segment provides loans and other financial products to commercial and retail customers . cash connect provides turnkey atm services through strategic partnerships with several of the largest network , manufacturers and service providers in the atm industry . the trust and wealth management segment provides a broad array of fiduciary , investment management , credit and deposit products to clients . 47 segment financial information for the years ended december 31 , 2014 , 2013 and 2012 is provided in note 20 to the consolidated financial statements in this report . financial condition total assets increased $ 337.6 million , or 7 % , to $ 4.9 billion as of december 31 , 2014 , compared to $ 4.5 billion as of december 31 , 2013. included in this increase was a $ 251.7 million , or 9 % , increase in net loans which includes $ 176.0 million in net loans from the fnbw acquisition . total liabilities increased $ 231.6 million during the year to $ 4.4 billion at december 31 , 2014. this increase was primarily the result of an increase in total customer funding of $ 431.3 which includes $ 228.8 million in customer deposits from the fnbw acquisition . fhlb advances decreased by $ 232.2 million . cash in non-owned atms during 2014 , cash managed by cash connect in non-owned atm 's increased $ 24.8 million , or 6 % , to $ 414.2 million . at december 31 , 2014 , cash connect serviced over 15,000 atms as well as more than 450 wsfs-owned atms to serve customers in our markets . investment securities investment securities , which include mortgage-backed securities , increased $ 49.2 million to $ 866.4 million during 2014. included in this increase was our portfolio of available-for-sale mbs , which increased $ 25.4 million ; municipal bonds , which increased $ 26.0 million ; and u.s. treasury securities , which increased $ 4.9 million . these increases were partly offset by a decrease of $ 7.0 million of investments in available for sale securities . at december 31 , 2014 , 161 municipal securities with a fair value of $ 124.9 million were transferred from available-for-sale to held-to-maturity . the reclassification was permitted as the company has appropriately determined the ability and intent to hold these securities as an investment until maturity . loans , net net loans ( including those held for sale ) increased $ 248.7 million , or 9 % , during 2014. loan growth included $ 176.0 million in acquired loans from the fnbw combination in the third quarter of 2014. increased originations were partially offset by commercial prepayments , and payoffs and pay downs of a significant amount of problem loans . reverse mortgage related assets reverse mortgage related assets include reverse mortgage loans , sasco 2002-rm1 's class o certificates and the bbb-related tranche of this reverse mortgage security . for additional information on these reverse mortgage related assets , see note 7 to our consolidated financial statements . goodwill and intangibles goodwill and intangibles increased $ 18.6 million during 2014. due to the acquisition of fnbw , we recorded goodwill of $ 16.4 million and other intangibles of $ 3.2 million . customer deposits customer deposits increased $ 444.1 million , or 15 % , during 2014 to $ 3.5 billion . included in this growth is $ 228.8 million from the fnbw combination in the third quarter of 2014 and a year over year net increase of $ 73.0 million in temporary trust related money market deposits . 48 the table below depicts the changes in customer deposits during the last three years : replace_table_token_18_th borrowings and brokered deposits borrowings and brokered deposits decreased by $ 217.8 million during 2014. included in the decrease was $ 232.2 million decrease in fhlb advances . partially offsetting this was the decrease of $ 31.2 million in federal funds purchased and securities sold under agreements to repurchase and $ 18.2 million in brokered deposits . stockholders ' equity stockholders ' equity increased $ 106 million , or 28 % , to $ 489.1 million at december 31 , 2014 compared to $ 383.1 million at december 31 , 2013. capital in excess of par value increased $ 23.0 million , mostly due to stock issued in conjunction with the fnbw acquisition . other comprehensive income increased $ 24.8 million , mainly due to the change in unrealized gains and losses in available-for-sale securities . retained earnings increased $ 49.1 million , or 10 % , to $ 523.1 million during 2014 , primarily as a result of earnings from the year less dividends paid . additionally , treasury stock decreased $ 11.7 million , also related to shares issued for the fnbw acquisition which was partially offset by stock repurchases of $ 2.7 million . asset/liability management our primary asset/liability management goal is to optimize long term net interest income opportunities within the constraints of managing interest rate risk , ensuring adequate liquidity and funding and maintaining a strong capital base . in general , interest rate risk is mitigated by closely matching the maturities or repricing periods of interest-sensitive assets and liabilities to ensure a favorable interest rate spread .
| we recorded net income of $ 46.9 million for the year ended december 31 , 2013 , a $ 15.6 million , or 50 % , increase compared to $ 31.3 million for the year ended december 31 , 2012 , and a $ 24.2 million increase from $ 22.7 million for the year ended december 31 , 2011. income allocable to common stockholders ( after preferred stock dividends ) was $ 45.2 million , or $ 5.06 per diluted common share for the year ended december 31 , 2013 , compared to income allocable to common shareholders of $ 28.5 million , or $ 3.25 per diluted common share ( a 55 % increase in diluted eps ) , and income of $ 19.9 million , or $ 2.28 per common share , for the years ended december 31 , 2012 and 2011 , respectively . earnings for 2013 were impacted by a lower provision for loan losses which decreased $ 24.9 million to $ 7.2 million partially offset by securities gains which decreased by $ 17.9 million to $ 3.5 million . net interest income increased during the year due to continued franchise loan growth and prudent balance sheet management . additionally , we continue to have significant increases in wealth management income , credit/debit card and atm income and mortgage banking activities . noninterest expense decreased $ 416,000 when compared to december 31 , 2012 due to management 's continued careful monitoring of operating expenses despite the growth in core revenue and corporate development costs . salaries and benefits increased due to additional performance-driven incentive compensation costs , while loan workout and other real estate owned expenses continued to decrease due to our improved performance and the continued improvement in nonperforming assets and fdic expenses from prior year levels . net interest income net interest income increased $ 12.9 million , or 10 % , to $ 144.5 million in 2014 , while net interest margin increased 12 basis points to 3.78 % in 2014 compared to 3.56 % in 2013. the increase in net interest income was due to lending growth during 2014 , including the acquisition of fnbw , and improvement
| 16,000 |
on march 3 , 2011 , we announced the launch of a new business unit within our sales services segment , engagece . engagece provides clinical educator services to our customers . the goal of clinical educators is to work with healthcare providers in the management of chronic diseases in order to optimize patient care and outcomes . we have seen a growing demand for these types of services within our customers and we believe that the clinical educator services provided via engagece will complement traditional sales force efforts and enhance our offerings . in july 2010 , we announced our intent to exit the marketing research business conducted by our tvg business unit . changes in the healthcare industry , including various mergers and acquisitions as well as healthcare reform , have resulted in a significant decrease in demand for the market research services our tvg business unit provided . we completed our exit from the tvg business by september 30 , 2010. see note 18 , discontinued operations , to our consolidated financial statements included in this annual report on form 10-k for additional details . while we recognize that there is currently significant volatility in the markets in which we provide services , we believe there are opportunities for growth in our sales services , marketing services and pc services businesses . these businesses provide our customers with the flexibility to successfully respond to a constantly changing market and a means of controlling costs through promotional outsourcing partnerships . in particular , we believe that the significant reduction in the number of pharmaceutical sales representatives within the industry during the past few years is placing increasing demands on our customers ' product portfolios and therefore we expect the market share penetration of outsourced sales organizations to increase in order to address these needs . we have recently intensified our focus on strengthening all aspects of the core outsourced pharmaceutical sales teams business that we believe will most favorably position pdi as the leading outsourced promotional services organization in the united states . we believe our focus has led to the significant level of new business we experienced in 2011. in addition , we continue to diligently evaluate the risks and rewards of opportunities within our pc services segment as they arise , while enhancing future value-added service offerings , as well as continue to evaluate acquisitions that will enhance our current service offerings and provide new business opportunities . description of reporting segments for the year ended december 31 , 2011 , our three reporting segments were as follows : ▪ sales services , which is comprised of the following business units : dedicated sales teams ; shared sales teams ; and engagece . ▪ marketing services , which is comprised of the following business units : group dca ; and voice . ▪ product commercialization services ( pc services ) which is comprised of the following business unit : interpace biopharma . select financial information for each of these segments is contained in note 17 , segment information , to our consolidated financial statements included in this annual report on form 10-k and in the discussion under “ consolidated results of operations. ” critical accounting policies we prepare our financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) . the preparation of financial statements and related disclosures in conformity with gaap requires management to make judgments , 20 pdi , inc. annual report on form 10-k ( continued ) estimates and assumptions at a specific point in time that affect the amounts reported in our consolidated financial statements and disclosed in the accompanying notes . these assumptions and estimates are inherently uncertain . outlined below are accounting policies , which are important to our financial position and results of operations , and require our management to make significant judgments in their application . some of those judgments can be subjective and complex . management 's estimates are based on historical experience , information from third-party professionals , facts and circumstances available at the time and various other assumptions that are believed to be reasonable . actual results could differ from those estimates . additionally , changes in estimates could have a material impact on our consolidated results of operations in any one period . for a summary of all of our significant accounting policies , including the accounting policies discussed below , see note 1 , nature of business and significant account policies , to our consolidated financial statements included in this annual report on form 10-k. revenue and cost of services we recognize revenue from services rendered when the following four revenue recognition criteria are met : persuasive evidence of an arrangement exists ; services have been rendered ; the selling price is fixed or determinable ; and collectability is reasonably assured . sales services revenue under pharmaceutical detailing contracts is generally based on the number of physician details made or the number of sales representatives utilized . revenue is generally recognized on a straight-line basis over the contract period or as the physician details are performed . a portion of revenues earned under certain contracts may be risk-based . the risk-based metrics are based on contractually defined percentages of prescriptions written . revenue from risk-based metrics is recognized in the period which the metrics have been attained and when we are reasonably assured that payment will be made . many of our product detailing contracts also allow for additional periodic incentive fees to be earned if certain activity based performance benchmarks have been attained . revenue from incentive fees is recognized in the period earned if the performance benchmarks have been attained and when we are reasonably assured that payment will be made . many contracts also stipulate penalties if agreed upon performance benchmarks have not been met . revenue is recognized net of any potential penalties until the performance criteria relating to the penalties have been achieved . commission based revenue is recognized when performance is completed . story_separator_special_tag our product detailing contracts are generally for terms of one to two years and may be renewed or extended . the majority of these contracts , however , are terminable by the customer for any reason upon 30 to 180 days ' notice . certain contracts provide for termination payments if the customer terminates the agreement without cause . typically , however , these penalties do not offset the revenue we could have earned under the contract or the costs we may incur as a result of its termination . we maintain continuing relationships with our sales services customers which may lead to multiple ongoing contracts between us and one customer . in situations where we enter into multiple contracts with one customer at or near the same time , we evaluate the various factors involved in negotiating the arrangements in order to determine if the contracts were negotiated as a package and should be accounted for as a single agreement . the loss or termination of a large pharmaceutical detailing contract or the loss of multiple contracts could have a material adverse effect on our financial condition or results of operations . historically , we have derived a significant portion of service revenue from a limited number of customers . concentration of business in the pharmaceutical industry is common and the industry continues to consolidate . as a result , we are likely to continue to experience significant customer concentration in future periods . for the year ended december 31 , 2011 , our three largest customers , who each individually represented 10 % or more of our service revenue , collectively accounted for approximately 72.4 % of our service revenue . for the year ended december 31 , 2010 , our three largest customers , who each individually represented 10 % or more of our service revenue , collectively accounted for approximately 82.6 % of our service revenue . see note 13 , significant customers , to our consolidated financial statements included in this annual report on form 10-k. cost of services consists primarily of the costs associated with executing product detailing programs , performance based contracts or other sales services identified in the contracts and includes personnel costs and other direct costs , as well as the initial direct costs associated with staffing a product detailing program . personnel costs , which constitute the largest portion of cost of services , include all labor related costs , such as salaries , bonuses , fringe benefits and payroll taxes for the sales representatives , sales managers and professional staff that are directly responsible for executing a particular program . initial direct program costs are those costs associated with initiating a product detailing program , such as recruiting , hiring , and training the sales representatives who staff a particular program . other direct costs include , but are not limited to , facility rental fees , travel expenses , sample expenses and other promotional expenses . all personnel costs , initial direct program costs and other direct costs are expensed as 21 pdi , inc. annual report on form 10-k ( continued ) incurred . reimbursable out-of-pocket expenses include those relating to travel and other similar costs , for which we are reimbursed at cost by our customers . reimbursements received for out-of-pocket expenses incurred are characterized as revenue and an identical amount is included as cost of services in the consolidated statements of operations . for the years ended december 31 , 2011 and 2010 , reimbursable out-of-pocket expenses were $ 24.8 million and $ 21.3 million , respectively . training costs include the costs of training the sales representatives and managers on a particular product detailing program so that they are qualified to properly perform the services specified in the related contract . for the majority of our contracts , training costs are reimbursable out-of-pocket expenses . marketing services revenue under marketing service contracts are primarily based on a series of deliverable services associated with the design and execution of interactive digital promotional programs . the contracts are generally terminable by the customer for any reason . upon termination , the customer is generally responsible for payment for all work completed to date , plus the cost of any nonrefundable commitments we have made on behalf of the customer . revenue from certain promotional contracts that include more than one service offering is accounted for as multiple-element arrangements . for these contracts , the deliverable elements are divided into separate units of accounting provided the following criteria are met : the price is fixed and determinable ; the delivered elements have stand-alone value to the customer ; and there is no right of return or refund . the contract revenue is then allocated to the separate units of accounting . revenue and cost of services are recognized for each unit of accounting separately as the related services are rendered and costs are incurred , respectively . a majority of our multiple-element arrangements generally contain two phases for each wave of promotional content that is developed under the program : the development phase and the delivery phase . the development phase represents the creation of the promotional assets to be used in the program while the delivery phase represents the delivery of those assets to the customer 's target audience and any communications received from the targets in response to the materials . we have determined that these two phases represent the units of accounting of a majority of our multiple-element arrangements . we uses our best estimate of selling price to determine the value of all deliverables within the development unit of accounting and a majority of the deliverables within the delivery unit of accounting . the best estimate of selling price of standard deliverables is derived primarily from our standard rate card , which covers a majority of the deliverables included within our customer contracts and is reviewed and updated on an annual basis or more frequently if circumstances warrant , and management 's margin objectives .
| the following is an updated summary of how accounting related to the group dca acquisition is impacting our reported results : as of the purchase date , group dca had deferred revenue on its historical closing balance sheet . had group dca not been purchased , that amount would have been recorded as revenue by group dca as projects were completed through 2011. however , as required by the rules of acquisition accounting , a large part of the deferred revenue balance at the date of the acquisition did not carry over to pdi after the acquisition , the majority of which impacted 2011 , making reported revenue for 2011 lower than we believe it will be going forward on an annualized basis . acquisition accounting requires ongoing amortization of finite lived intangibles acquired and valued for accounting purposes as of the date of the acquisition . these include the acquired proprietary technology and the extensive health care provider database . amortization of these intangibles will result in annual charges of approximately $ 0.9 million . the accounting for potential earn-out payments is influenced by acquisition accounting . up to $ 5.0 million of the potential $ 30.0 million of earn-out payments would have been charged against earnings if they were earned in 2011 and 2012. however , in determining the amount that was recorded in the initial purchase price , acquisition accounting required the company to estimate the fair value for the remainder of the $ 25.0 million of potential earn-out payments which we determined by estimating the present value of earn-out payments we thought were probable on a weighted risk-adjusted basis . as of the acquisition date we recorded $ 1.6 million as the fair value of these estimated earn-out payments , which is part of the initial purchase price for accounting purposes . in november 2011 , we announced that we amended the group dca purchase agreement to negotiate a buyout of the potential earn-out fee . under
| 16,001 |
during the year ended march 31 , 2019 , we recognized fee and commission expense of $ 6,238 , compared to fee and commission expense of $ 2,288 during the year ended march 31 , 2018. the increase was associated with higher commission fees paid to the central depository , stock exchanges and brokerage fees to our prime brokers of $ 4,660 and was partially offset by a decrease in bank services commissions of $ 710. the increases in fee and commission expense were the result of both growth in our client base and increased transaction volume from our existing clients . operating expense . during the year ended march 31 , 2019 , operating expense totaled $ 43,134 compared to $ 21,700 during the year ended march 31 , 2018. the increase was primarily attributed to higher general and administrative expenses related to expansion of our operations and growth of our branch office network . in particular , the rise in operating expense during the year ended march 31 , 2019 , included increases of $ 9 , 432 in payroll expense , $ 3 , 116 in advertising expense , $ 2 , 158 in rent expense as a result of relocating and expanding our head offices in russia and kazakhstan and opening a number of new branch offices , $ 1 , 877 in equity compensation expense for equity awards made to employees in october 2018 , $ 784 in expense for office supplies , consumables and goods and materials used to furnish new branch offices , $ 742 in office maintenance , $ 633 in professional services fees , $ 548 in depreciation and amortization expenses , $ 451 in expenses for communication services , $ 443 in software support expense , $ 414 in utilities and $ 836 related to taxes other than income tax , training and conference , and other expenses . provision for impairment losses . during the year ended march 31 , 2019 , our provision for impairment losses was $ 1,498 , compared to $ 423 during the year ended march 31 , 2018 . we increased our provision because at march 31 , 2019 , we had significantly higher amounts of securities sold for which payment was receivable as of the reporting date compared to march 31 , 2018 . income tax expense we recognized net income before income tax of $ 8,515 during the year ended march 31 , 2019 , and $ 18,615 during the year ended march 31 , 2018. during the year ended march 31 , 2019 , we realized income tax expense of $ 1,368 , compared to an income tax expense of $ 418 during the year ended march 31 , 2018. the change of the effective tax rates from 2.25 % during the year ended march 31 , 2018 to 16.07 % during the year ended march 31 , 2019 , was the result of changes in the composition of the revenues we realized from our operating activities and the tax treatment of those revenues in the various foreign jurisdictions where our subsidiaries operate along with the incremental u.s. tax on gilti . comprehensive income due to the depreciation of the russian ruble by 13 % and the kazakhstani tenge by 19 % against the united states dollar during the periods covered in this annual report , we realized a foreign currency translation loss of $ 15,517 during the year ended march 31 , 2019 , compared to a foreign currency translation loss of $ 598 during the year ended march 31 , 2018. as a result of the factors discussed above , coupled with the significant increase in our foreign currency translation loss , during the year ended march 31 , 2019 , we realized a comprehensive loss of $ 8,348 , compared to a comprehensive income of $ 17,577 during the year ended march 31 , 2018 . 33 liquidity and capital resources liquidity is a measurement of our ability to meet our potential cash requirements for general business purposes . our operations are funded through a combination of existing cash on hand , cash generated from operations , proceeds from the issuance of common stock , proceeds from the sale of bonds of one of our subsidiaries , our credit facility , other borrowings and capital contributions from our controlling shareholder . regulatory requirements applicable to our subsidiaries require them to maintain minimum capital levels . as of march 31 , 2019 , we had cash and cash equivalents of $ 49,960 compared to cash and cash equivalents of $ 65,731 , as of march 31 , 2018. at march 31 , 2019 , we had total assets of $ 350,911 and total liabilities of $ 233,314. by comparison , at march 31 , 2018 , we had total assets of $ 350,902 and total liabilities of $ 223,870. at march 31 , 2019 , we had net liquid assets of $ 295,936 , consisting of cash and cash equivalents , trading securities , available-for-sale securities , at fair value , brokerage and other receivables and other assets compared to $ 308,024 at march 31 , 2018. currency fluctuations during the periods discussed above led to a 13 % reduction in the value of the russian ruble and a 19 % reduction in the value of the kazakhstani tenge against the us dollar during the period from march 31 , 2018 to march 31 , 2019. as a result , in accordance with us gaap , balance sheet items denominated in russian rubles and kazakhstani tenge had to be revalued . this resulted in us realizing a $ 4,118 net loss on foreign exchange operations and a foreign currency translation loss of $ 15,517 during the year ended march 31 , 2019. during the year ended march 31 , 2019 , we experienced a shift in the composition of our debt obligations . story_separator_special_tag our obligations under direct repurchase agreements denominated in kazakhstani tenge , which bore interest at an average rate of 11.74 % , decreased by $ 81,154 from march 31 , 2018 to march 31 , 2019. during the same period , we issued $ 34,287 worth of freedom kz bonds denominated in kazakhstani tenge and united states dollars and freedom ru bonds denominated in russian rubles and repurchased or redeemed $ 14,786 worth of freedom kz and freedom ru bonds . the bonds denominated in kazakhstani tenge have a coupon rate of 11.5 % , the bonds denominated in united states dollars have a coupon rate of 8 % and the freedom ru bonds have a coupon rate of 12 % . we also received and repaid non-bank loans denominated in kazakhstani tenge which bore interest at a rate of 3 % . during the year ended march 31 , 2019 , timur turlov , our ceo , chairman of the board and majority shareholder made capital contributions of $ 225. as of march 31 , 2019 , the value of the trading securities held in our proprietary trading account totaled $ 167,949 compared to $ 212,595 at march 31 , 2018. this reduction in value was primarily attributable to our decision to reallocate a portion of trading securities from equities to fixed income securities . as of march 31 , 2019 , $ 101,124 , or 60 % , of the trading securities held in our proprietary trading account were subject to securities repurchase obligations and of the $ 49,960 in cash and cash equivalents at march 31 , 2019 , $ 7,887 , or 16 % , was subject to reverse repurchase agreements . 34 as of march 31 , 2019 , approximately $ 60,000 , or 36 % , of our proprietary trading account was invested in the securities of a single company . we initially invested in this security based on our analysis that it was significantly undervalued and presented a good investment opportunity . as of the date of this annual report , this position remains open . while we have reduced the concentration of our position in this security , based on the size of our position and the leveraging we have employed to maintain it , our liquidity , capitalization , projected return on investment and results of operations could be significantly negatively affected if our analysis of this investment opportunity and or market conditions , including our ability to liquidate the position as needed , proves to be incorrect . we monitor and manage our leverage and liquidity risk through various committees and processes we have established . we assess our leverage and liquidity risk based on considerations and assumptions of market factors , as well as other factors , including the amount of available liquid capital ( i.e. , the amount of their cash and cash equivalents not invested in our operating business ) . while we are confident in the risk management monitoring and management processes we have in place , a significant portion of our trading securities and cash and cash equivalents are subject to collateralization agreements . this significantly enhances our risk of loss in the event financial markets move against our positions . when this occurs our liquidity , capitalization and business can be negatively impacted . because of the amount of leverage we employ in our proprietary trading activities , coupled with our strategy to at times take large positions in select companies or industries , our liquidity , capitalization , projected return on investment and results of operations can be significantly affected when we misjudge the impact of events , timing and liquidity of the market for those securities . we have pursued an aggressive growth strategy during the past several years , and we anticipate continuing efforts to expand the footprint of our business in eastern europe and central asia . while this strategy has led to revenue growth it also results in increased expenses and greater need for capital resources . further growth and expansion may require greater capital resources than we currently possess , which could require us to pursue additional equity or debt financing from outside sources . we can not assure that such financing will be available to us on acceptable terms , or at all , at the time it is needed . we believe that our current cash and cash equivalents , cash expected to be generated from operating activities , and forecasted returns from our proprietary trading will be sufficient to meet our working capital needs for the next 12 months . we monitor our financial performance to ensure adequate liquidity to fund operations and execute our business plan . 35 cash flows the following table presents our cash flows for the years ended march 31 , 2019 and 2018 : replace_table_token_4_th net cash from operating activities during the year ended march 31 , 2019 , was $ 58,475. by comparison , during the year ended march 31 , 2018 , net cash used in operating activities was $ 114 , 701. net cash from operating activities during the year ended march 31 , 2019 , was driven by net income adjusted for non-cash movements ( depreciation and amortization , non-cash stock compensation expense , unrealized loss/ ( gain ) on trading securities , allowance for receivables , net change in accrued interest and loss on sale of fixed assets ) and net cash from operating activities primarily from changes in operating assets and liabilities , including a $ 52,174 increase in brokerage and other receivables due to significantly higher amounts of securities sold for which payment was receivable as of the reporting date as compared to march 31 , 2018 , a $ 52,745 increase in customer liabilities resulting from our increased client base and operations , an $ 8,452 decrease in trading securities primarily from increased sales of securities held in our proprietary account , a $ 5,536 decrease in loans issued due to repayment of loans , and a $ 23,201 increase in trade payables
| during the year ended march 31 , 2019 and 2018 , fees and commissions generated from brokerage and related banking services were $ 44,316 and $ 12,174 , respectively , an increase of $ 32,142. during the year ended march 31 , 2019 , fees and commissions from brokerage services increased $ 30,381 as compared to the year ended march 31 , 2018. this growth resulted from a focus on developing this revenue stream to reduce our reliance on the results of our proprietary trading . during fiscal 2019 we increased the number of clients we serviced by expanding our branch office network via acquisitions and internal growth , increasing the number of our retail financial advisers , expanding the volume of analysts ' reports available to our customer base and growth in trading activity by our existing customers . these factors also led to a $ 2,714 increase in fees and commissions from our related banking services during the year ended march 31 , 2019. fees for bank services consist primarily of wire transfer fees , commissions for payment processing and commissions for currency exchange operations . these increases were partially offset by a $ 1,248 decrease in fees and commissions realized from underwriting and market making services during the year ended march 31 , 2019 , due to our engaging in fewer underwritings and market making activities during fiscal 2019 . 30 net gain on trading securities . during the year ended march 31 , 2019 , we recognized a net gain on trading securities of $ 20,162 , which included $ 25,535 of realized net gain and $ 5,373 of unrealized net losses compared to a net gain of $ 34,227 on trading securities for the year ended march 31 , 2018 , which included $ 17,725 of realized net gain and $ 16,502 of unrealized net gain . the primary contributing factors to the decrease in our net gain on trading securities during the year ended march 31 , 2019 , was the
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research and development efforts are focused on improving current products and developing highly-engineered products that meet customer needs and serve niche markets with meaningful sales potential . proposed new products may be subject to regulatory clearance or approval prior to commercialization and the time period for introducing a new product to the marketplace can be unpredictable . we also focus on controlling costs by investing in modern manufacturing technologies and controlling purchasing processes . we have been successful in consistently generating cash from operations and have used that cash to reduce or eliminate indebtedness , to fund capital expenditures , to make investment purchases , to repurchase stock and to pay dividends . -18- our strategic objective is to further enhance our position in our served markets by : · focusing on customer needs ; · expanding existing product lines and developing new products ; · maintaining a culture of controlling cost ; and · preserving and fostering a collaborative , entrepreneurial management structure . for the year ended december 31 , 2013 , we reported revenues of $ 132.0 million , operating income of $ 37.9 million and net income of $ 26.6 million . story_separator_special_tag to impact our liquidity or capital resources . at december 31 , 2013 , we were in compliance with all financial covenants . we believe the bank providing the credit facility is highly-rated and that the entire $ 40.0 million under the credit facility is currently available to us . if that bank were unable to provide such funds , we believe such inability would not impact our ability to fund operations . at december 31 , 2013 , we had a total of $ 57.0 million in cash and cash equivalents , short-term investments and long-term investments , an increase of $ 12.4 million from december 31 , 2012. the principal contributor to this increase was the cash generated by operating activities . cash flows provided by operations of $ 36.6 million in 2013 were primarily comprised of net income plus the net effect of non-cash expenses . at december 31 , 2013 , we had working capital of $ 81.0 million , including $ 28.6 million in cash and cash equivalents and $ 18.4 million in short-term investments . the $ 31.4 million increase in working capital during 2013 was primarily related to increases in cash and cash equivalents , short-term investments and inventories partially offset by increases in accounts payable and accrued liabilities . the net increase in cash and cash equivalents was primarily related to the maturities of short-term investments . the increase in short-term investments was primarily related to the reclassification of long-term investments as their maturities became less than one year . increased inventories are primarily related to higher safety stock levels necessary to support increased revenues . increased accounts payable and accrued liabilities were primarily related to increased accrued compensation . working capital items consisted primarily of cash , accounts receivable , short-term investments , inventories and other current assets minus accounts payable and other current liabilities . -20- capital expenditures for property , plant and equipment totaled $ 7.5 million in 2013 , compared with $ 10.3 million in 2012 and $ 12.0 million in 2011. these expenditures were primarily for machinery and equipment . we expect 2014 capital expenditures , primarily machinery and equipment , to be greater than the average of the levels expended during each of the past three years . we paid cash dividends totaling $ 4.8 million , $ 24.5 million and $ 3.7 million during 2013 , 2012 and 2011 , respectively . in november 2012 , our board of directors declared a special cash dividend of $ 10.00 per share on our outstanding common stock . this dividend which totaled $ 20.2 million was paid on december 10 , 2012. we expect to fund future dividend payments with cash flows from operations . we purchased treasury stock totaling $ 9.2 million , $ 5.3 million and $ 1.5 million during 2013 , 2012 and 2011 , respectively . the table below summarizes debt , lease and other contractual obligations outstanding at december 31 , 2013 : replace_table_token_5_th we believe our cash , cash equivalents , short-term investments and long-term investments , cash flows from operations and available borrowings of up to $ 40.0 million under our credit facility will be sufficient to fund our cash requirements for at least the foreseeable future . we believe our strong financial position would allow us to access equity or debt financing should that be necessary . additionally , we expect our cash and cash equivalents and investments , as a whole , will continue to increase in 2014. off-balance sheet arrangements we have no off-balance sheet financing arrangements . impact of inflation we experience the effects of inflation primarily in the prices we pay for labor , materials and services . over the last three years , we have experienced the effects of moderate inflation in these costs . at times , we have been able to offset a portion of these increased costs by increasing the sales prices of our products . however , competitive pressures have not allowed for full recovery of these cost increases . new accounting pronouncements from time to time , new accounting standards updates applicable to us are issued by the financial accounting standards board ( “ fasb ” ) , which we will adopt as of the specified effective date . unless otherwise discussed , we believe the impact of recently issued standards updates that are not yet effective will not have a material impact on our consolidated financial statements upon adoption . story_separator_special_tag -21- critical accounting policies the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . in the preparation of these financial statements , we make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . we believe the following discussion addresses our most critical accounting policies and estimates , which are those that are most important to the portrayal of our financial condition and results and require management 's most difficult , subjective and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . actual results could differ significantly from those estimates under different assumptions and conditions . from time to time , we accrue legal costs associated with certain litigation . in making determinations of likely outcomes of litigation matters , we consider the evaluation of legal counsel knowledgeable about each matter , case law and other case-specific issues . we believe these accruals are adequate to cover the legal fees and expenses associated with litigating these matters . however , the time and cost required to litigate these matters as well as the outcomes of the proceedings may vary from what we have projected . we maintain an allowance for doubtful accounts to reflect estimated losses resulting from the failure of customers to make required payments . on an ongoing basis , the collectability of accounts receivable is assessed based upon historical collection trends , current economic factors and the assessment of the collectability of specific accounts . we evaluate the collectability of specific accounts and determine when to grant credit to our customers using a combination of factors , including the age of the outstanding balances , evaluation of customers ' current and past financial condition , recent payment history , current economic environment , and discussions with our personnel and with the customers directly . accounts are written off when it is determined the receivable will not be collected . if circumstances change , our estimates of the collectability of amounts could be changed by a material amount . we are required to estimate our provision for income taxes and uncertain tax positions in each of the jurisdictions in which we operate . this process involves estimating our actual current tax exposure , including assessing the risks associated with tax audits , together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within the balance sheet . we assess the likelihood that our deferred tax assets will be recovered from future taxable income and , to the extent we believe that recovery is more likely than not , do not establish a valuation allowance . in the event that actual results differ from these estimates , the provision for income taxes could be materially impacted . we assess the impairment of our long-lived identifiable assets , excluding goodwill which is tested for impairment as explained below , whenever events or changes in circumstances indicate that the carrying value may not be recoverable . this review is based upon projections of anticipated future cash flows . although we believe that our estimates of future cash flows are reasonable , different assumptions regarding such cash flows or future changes in our business plan could materially affect our evaluations . no such changes are anticipated at this time . we assess goodwill for impairment pursuant to asc 350 , intangibles—goodwill and other , which requires that goodwill be assessed whenever events or changes in circumstances indicate that the carrying value may not be recoverable , or , at a minimum , on an annual basis by applying a qualitative assessment on goodwill impairment to determine whether it is necessary to perform the two-step goodwill impairment test . -22- during 2013 , 2012 and 2011 , none of our critical accounting policy estimates required significant adjustments . we did not note any material events or changes in circumstances indicating that the carrying value of long-lived assets were not recoverable . quantitative and qualitative disclosures about market risks foreign exchange risk we are not exposed to material fluctuations in currency exchange rates because the payments from our international customers are received primarily in united states dollars . principal and interest rate risk our cash equivalents and short-term and long-term investments consist of money-market accounts and taxable corporate bonds . our investment policy is to seek to manage these assets to achieve the goal of preserving principal , maintaining adequate liquidity at all times , and maximizing returns subject to established investment guidelines . in general , the primary exposure to market risk is interest rate sensitivity . this means that a change in prevailing interest rates may cause the value of and the return on the investment to fluctuate . forward-looking statements statements in this management 's discussion and analysis and elsewhere in this form 10-k that are forward looking are based upon current expectations , and actual results or future events may differ materially . therefore , the inclusion of such forward-looking information should not be regarded as a representation by us that our objectives or plans will be achieved . such statements include , but are not limited to , our expectations regarding our research and development expenditures in 2014 , our depreciation charges in 2014 , our 2014 effective tax rate , our ability to obtain component parts in the event of a supply disruption , the impact of the restrictive covenants in our credit facility on our liquidity and capital resources , our earnings in 2014 , our growth in operating income in 2014 , our 2014 capital expenditures , funding future
| manufacturing efficiencies and the impact of cost-savings projects partially offset by the new 2.3 percent excise tax on the sale of certain medical devices in the united states . the decrease in gross profit percentage in 2012 from the prior year was primarily due to a less favorable product mix and reduced manufacturing capacity utilization . operating expenses were $ 25.1 million in 2013 compared with $ 22.5 million in 2012 and $ 21.8 million in 2011. research and development , or r & d expenses increased $ 522,000 in 2013 as compared to 2012 primarily related to increased costs for supplies , outside services and compensation , partially offset by decreased travel costs . r & d expenses consist primarily of salaries and other related expenses of our r & d personnel as well as costs associated with regulatory matters . in 2013 , selling expenses increased $ 524,000 primarily related to increased outside services , compensation , commissions and promotional expenses . selling expenses consist primarily of salaries , commissions and other related expenses for sales and marketing personnel , marketing , advertising and promotional expenses . general and administrative , or g & a , expenses increased $ 1.6 million in 2013 as compared to 2012 primarily related to increased compensation and outside services . g & a expenses consist primarily of salaries and other related expenses of administrative , executive and financial personnel and outside professional fees . -19- in 2012 increases in selling expenses and increases in r & d expenses were partially offset by decreases in g & a expenses . r & d expenses increased $ 898,000 in 2012 as compared to 2011 primarily related to increased costs for compensation , supplies , travel and outside services . in 2012 , selling expenses increased $ 369,000 primarily related to increased compensation , commissions and promotional expenses . g & a expenses decreased $ 592,000 in 2012 as compared to 2011 primarily related to decreased
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however , the company does not believe that such variations are a meaningful indicator of the company 's gross margins . consignment orders accounted for less than 5 % of the company 's revenues for the year ended april 30 , 2011. in the past , the timing and rescheduling of orders have caused the company to experience significant quarterly fluctuations in its revenues and earnings , and the company expects such fluctuations to continue . the uncertainty associated with the worldwide economy in general and the united states economy specifically makes forecasting difficult . short-term customer demands remain volatile . the company experienced pricing pressures from both its customer and vendors and its margins continued to be reduced in fiscal 2011 , specifically in the second half of fiscal 2011. the company unfortunately sees this trend continuing for the balance of calendar year 2011. during fiscal 2011 the company relocated its california operation from hayward to union city without disruption in support for its customers . the new plant layout has increased productivity and assisted in attracting interest from many new customers including some in the aviation , defense and medical markets . the company will continue to target these markets in fiscal 2012. the company has gained new customers at all locations during fiscal 2011 and in most cases has started production . the production launches were later than expected , but show promise and the company believes they will assist with increasing revenues and profits in fiscal 2012 . 17 critical accounting policies : management estimates and uncertainties the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the united states of america ( u.s . gaap ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . significant estimates made in preparing the consolidated financial statements include depreciation and amortization periods , the allowance for doubtful accounts , reserves for inventory and valuation of long-lived assets . actual results could materially differ from these estimates . revenue recognition revenues from sales of the company 's electronic manufacturing services business are recognized when the finished good product is shipped to the customer . in general , and except for consignment inventory , it is the company 's policy to recognize revenue and related costs when the finished goods have been shipped from our facilities , which is also the same point that title passes under the terms of the purchase order . consignment finished goods inventory is shipped from the company to an independent warehouse for storage or shipped directly to the customer and stored in a segregated part of the customer 's own facility . upon the customer 's request for finished goods inventory , the consignment inventory is shipped to the customer , if the inventory was stored off-site , or transferred from the segregated part of the customer 's facility for consumption or use by the customer . the company recognizes revenue upon such shipment or transfer . the company does not earn a fee for storing the consignment inventory . the company from time to time may ship finished goods from its facilities which is also the same point that title passes under the terms of the purchase order and invoice the customer at the end of the calendar month . this is done only in special circumstances to accommodate a specific customer . further , from time to time customers request the company hold finished goods after they have been invoiced to consolidate finished goods for shipping purposes . the company generally provides a 90 day warranty for workmanship only and does not have any installation , acceptance or sales incentives , ( although the company has negotiated longer warranty terms in certain instances ) . the company assembles and tests assemblies based on customers ' specifications . historically , the amount of returns for workmanship issues has been de minimis under the company 's standard or extended warranties . inventories inventories are valued at the lower of cost or market . cost is determined by the first-in , first-out method . in the event of an inventory write-down , the company records expense to state the inventory at lower of cost or market . the company establishes inventory reserves for valuation , shrinkage , and excess and obsolete inventory . the company records provisions for inventory shrinkage based on historical experience to account for unmeasured usage or loss . actual results differing from these estimates could significantly affect the company 's inventories and cost of products sold . the company records provisions for excess and obsolete inventories for the difference between the cost of inventory and its estimated realizable value based on assumptions about future product demand and market conditions . actual product demand or market conditions could be different than that projected by management . impairment of long-lived assets the company reviews long-lived assets , including amortizable intangible assets , for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . an asset is considered impaired if its carrying amount exceeds the future undiscounted net cash flow the asset is expected to generate . if such asset is considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair market value . income tax the company accounts for income taxes in accordance with accounting standards codification ( asc ) 740 income taxes . our income tax expense , deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management 's best assessment of estimated future taxes to be paid . we are subject to income taxes in both the u.s. and numerous foreign jurisdictions . significant judgments and estimates are required in determining the consolidated income tax expense assessment . story_separator_special_tag deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense . in evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise , the company considers all available positive and negative evidence , 18 including scheduled reversals of deferred tax liabilities , projected future taxable income , tax planning strategies and recent financial operations . in projecting future taxable income , the company begins with historical results adjusted for the results of discontinue operations and changes in accounting policies , and incorporates assumptions including the amount of future state , federal and foreign pretax operating income , the reversal of temporary differences , and the implementation of feasible and prudent tax planning strategies . these assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates the company uses to manage the underlying businesses . in evaluating the objective evidence that historical results provide , the company considers three years of cumulative operating income and or loss . changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future . management is not presently aware of any such changes that would have a material effect on the company 's results of operations , cash flows or financial position . the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations . fasb asc topic 740 , income taxes provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination , including resolutions of any related appeals or litigation processes , based on the technical merits . asc topic 740 also provides guidance on measurement , derecognition , classification , interest and penalties , accounting in interim periods , disclosure and transition . the company recognizes tax liabilities in accordance with asc topic 740 and the company adjusts these liabilities when its judgment changes as a result of the evaluation of new information not previously available . due to the complexity of some of these uncertainties , the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities . these differences will be reflected as increases or decreases to income tax expense in the period in which they are determined . new accounting standards : in october 2009 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) no . 2009-13 for updated revenue recognition guidance under the provisions of asc 605-25 , multiple-element arrangements . the previous guidance has been retained for criteria to determine when delivered items in a multiple-deliverable arrangements should be considered separate units of accounting , however the updated guidance removes the previous separation criterion that objective and reliable evidence of fair value of any undelivered items must exist for the delivered items to be considered a separate unit or separate units of accounting . this guidance was effective for fiscal years beginning on or after july 15 , 2010. the adoption of this guidance did not have a material effect on the company 's consolidated results of operations and financial condition . in march 2010 , the fasb issued asu 2010-11 , scope exception related to embedded credit derivatives to address questions that have been raised in practice about the intended breadth of the embedded credit derivative scope exception in paragraphs 815-15-15-8 through 815-15-15-9 of asc 815 , derivatives and hedging . the amended guidance clarifies that the scope exception applies to contracts that contain an embedded credit derivative that is only in the form of subordination of one financial instrument to another . this guidance was effective on august 1 , 2010 for the company . the adoption of this guidance did not have a material impact on the company 's consolidated results of operations and financial condition . in december 2010 , the fasb issued authoritative guidance regarding asc no . 805 , business combinations , on the disclosure of supplementary pro forma information for business combinations . asc no . 805 requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period . the disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period . the adoption of this guidance did not have a material impact on the company 's consolidated results of operations and financial condition . 19 in may 2011 , the fasb issued asu 2011-04 , amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrs , which results in common fair value measurement and disclosure requirements in u.s. gaap and ifrs . consequently , the amendments change the wording used to describe many of the requirements in u.s. gaap for measuring fair value and for disclosing information about fair value measurements . asu 2011-04 is effective for interim and annual periods beginning after december 15 , 2011 , which will first be applicable to the company 's fiscal quarter beginning february 1 , 2012. the adoption of this guidance is not expected to have a material impact on the company 's consolidated results of operations and financial condition . story_separator_special_tag net income $ 1,978,034 eps reconciliation : income per common share assuming dilution before relocation expenses $ 0.65 net income per common share assuming dilution of relocation expenses net of tax ( $ 0.14 ) net income per common share assuming dilution $ 0.51 weighted average number of common equivalent shares outstanding assuming dilution 3,890,949 liquidity and capital resources : operating activities .
| the company has experienced pricing pressures from both its customer and vendors and its margins continued to be reduced in fiscal 2011 , specifically in the second half of fiscal 2011. the company unfortunately sees this trend continuing for the balance of calendar year 2011. gross profit was negatively affected by foreign currency losses of $ 157,971 in fiscal year 2011 compared to $ 276,000 in the prior year . in fiscal year 2011 , the company incurred relocation expenses of approximately $ 892,000 which negatively impacted the gross profit . selling and administrative expenses increased in fiscal year 2011 to $ 11,460,908 compared to $ 10,826,880 in fiscal year 2010 ; however , the percentage of net sales represented by such expenses decreased to 7.6 % of net sales in fiscal year 2011 compared to 8.8 % of net sales in the prior fiscal year . the decrease in selling and administrative expense as a percentage of net sales is due to the increased sales volume in fiscal 20 year 2011 compared to fiscal year 2010. the dollar increase in specific categories of such expenses for fiscal year 2011 was approximately $ 1,150,820 and is primarily due to a restoration of salary reductions previously implemented in response to the downturn in business . insurance , travel and professional fees also increased for fiscal year 2011. these increases in selling and administrative expenses for fiscal year 2011 were partially offset by a decrease of $ 516,792 in amortization expense , bank fees and other selling and administrative expenses , resulting in selling and administrative expenses increasing by a net amount of $ 634,028. in fiscal year 2010 , the company filed an insurance claim due to damage incurred at one of its buildings . the claim was settled in april 2010 and the company recorded a gain from this involuntary conversion of $ 1,233,830 which was included in other income on the consolidated statement of income for
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these assets are generally fee-based and the revenues and earnings we realize from gathering natural gas , processing natural gas in order to remove ngl from the natural gas stream , and fractionating ngl into their base components , are affected by the volumes of natural gas made available to our systems . such volumes are impacted by producer rig count and drilling activity . in addition to fee based arrangements , we also provide some services based on percent-of-proceeds , percent-of-index and keep-whole contracts some of which may include minimum volume requirements . our service contracts may rely solely on a single type of arrangement , but more often they combine elements of two or more of the above , which helps us and our counterparties manage the extent to which each shares in the potential risks and benefits of changing commodity prices . the co 2 source and transportation business primarily has third-party contracts with minimum volume requirements , which as of december 31 , 2016 , had a remaining average contract life of approximately nine years . co 2 sales contracts vary from customer to customer and have evolved over time as supply and demand conditions have changed . our recent contracts have generally provided for a delivered price tied to the price of crude oil , but with a floor price . on a volume-weighted basis , for third-party contracts making deliveries in 2017 , and utilizing the average oil price per barrel contained in our 2017 budget , approximately 98 % of our revenue is based on a fixed fee or floor price , and 2 % fluctuates with the price of oil . in the long-term , our success in this portion of the co 2 business segment is driven by the demand for co 2 . however , short-term changes in the demand for co 2 typically do not have a significant impact on us due to the required minimum sales volumes under many of our contracts . in the co 2 business segment 's oil and gas producing activities , we monitor the amount of capital we expend in relation to the amount of production that we expect to add . in that regard , our production during any period is an important measure . in addition , the revenues we receive from our crude oil , ngl and co 2 sales are affected by the prices we realize from the sale of these products . over the long-term , we will tend to receive prices that are dictated by the demand and overall market price for these products . in the shorter term , however , market prices are likely not indicative of the revenues we will receive due to our risk management , or hedging , program , in which the prices to be realized for certain of our future sales quantities are fixed , capped or bracketed through the use of financial derivative contracts , particularly for crude oil . the realized weighted average crude oil price per barrel , with the hedges allocated to oil , was $ 61.52 per barrel in 2016 , $ 73.11 per barrel in 2015 , and $ 88.41 per barrel in 2014. had we not used energy derivative contracts to transfer commodity price risk , our crude oil sales prices would have averaged $ 41.36 per barrel in 2016 , $ 47.56 per barrel in 2015 , and $ 86.48 per barrel in 2014. the factors impacting our terminals business segment generally differ depending on whether the terminal is a liquids or bulk terminal , and in the case of a bulk terminal , the type of product being handled or stored . our liquids terminals business generally has longer-term contracts that require the customer to pay regardless of whether they use the capacity . thus , similar to our natural gas pipeline business , our liquids terminals business is less sensitive to short-term changes in supply and demand . therefore , the extent to which changes in these variables affect our terminals business in the near term is a function of the length of the underlying service contracts ( which on average is approximately four years ) , the extent to which revenues under the contracts are a function of the amount of product stored or transported , and the extent to which such contracts expire during any given period of time . as with our refined petroleum products pipeline transportation business , the revenues from our bulk terminals business are generally driven by the volumes we handle and or store , as well as the prices we receive for our 38 services , which in turn are driven by the demand for the products being shipped or stored . while we handle and store a large variety of products in our bulk terminals , the primary products are steel , coal and petroleum coke . for the most part , we have contracts for this business that contain minimum volume guarantees and or service exclusivity arrangements under which customers are required to utilize our terminals for all or a specified percentage of their handling and storage needs . the profitability of our minimum volume contracts is generally unaffected by short-term variation in economic conditions ; however , to the extent we expect volumes above the minimum and or have contracts which are volume-based we can be sensitive to changing market conditions . to the extent practicable and economically feasible in light of our strategic plans and other factors , we generally attempt to mitigate the risk of reduced volumes and pricing by negotiating contracts with longer terms , with higher per-unit pricing and for a greater percentage of our available capacity . in addition , weather-related factors such as hurricanes , floods and droughts may impact our facilities and access to them and , thus , the profitability of certain terminals for limited periods of time or , in relatively rare cases of severe damage to facilities , for longer periods . story_separator_special_tag in addition to liquid and bulk terminals , we also own jones act tankers . as of december 31 , 2016 , we have twelve jones act qualified tankers that operate in the marine transportation of crude oil , condensate and refined products in the u.s. and are currently operating pursuant to multi-year predominately fixed price charters with major integrated oil companies , major refiners and the u.s. military sealift command . the profitability of our refined petroleum products pipeline transportation and storage business is generally driven by the volume of refined petroleum products that we transport and the prices we receive for our services . we also have approximately 55 liquids terminals in this business segment that store fuels and offer blending services for ethanol and biofuels . the transportation and storage volume levels are primarily driven by the demand for the refined petroleum products being shipped or stored . demand for refined petroleum products tends to track in large measure demographic and economic growth , and with the exception of periods of time with very high product prices or recessionary conditions , demand tends to be relatively stable . because of that , we seek to own refined petroleum products pipelines located in , or that transport to , stable or growing markets and population centers . the prices for shipping are generally based on regulated tariffs that are adjusted annually based on changes in the u.s. producer price index . our crude and condensate transportation services are primarily provided either pursuant to ( i ) long-term contracts that normally contain minimum volume commitments or ( ii ) through terms prescribed by the toll settlements with shippers and approved by regulatory authorities . as a result of these contracts , our settlement volumes are generally not sensitive to changing market conditions in the shorter term , however , in the longer term the revenues and earnings we realize from our crude and condensate pipelines in the u.s. and canada are affected by the volumes of crude and condensate available to our pipeline systems , which are impacted by the level of oil and gas drilling activity in the respective producing regions that we serve . our petroleum condensate processing facility splits condensate into its various components , such as light and heavy naphtha , under a long-term fee-based agreement with a major integrated oil company . a portion of our business portfolio transacts in and or uses the canadian dollar as the functional currency , which affects segment results due to the variability in u.s. - canadian dollar exchange rates . our canadian operations are included in three of our business segments : ( i ) our kinder morgan canada segment , which is comprised of the trans mountain pipeline , an oversubscribed common carrier crude oil and refined petroleum pipeline serving western canada , the trans mountain ( puget ) pipeline serving washington state ; and the jet fuel pipeline serving vancouver international airport ; ( ii ) terminal facilities located in western canada that are included in our terminals business segment ; and ( iii ) the canadian portion of our cochin pipeline , which is included in our products pipelines business segment . in our discussions of the operating results of individual businesses that follow ( see “ —results of operations ” below ) , we generally identify the important fluctuations between periods that are attributable to acquisitions and dispositions separately from those that are attributable to businesses owned in both periods . critical accounting policies and estimates accounting standards require information in financial statements about the risks and uncertainties inherent in significant estimates , and the application of gaap involves the exercise of varying degrees of judgment . certain amounts included in or affecting our consolidated financial statements and related disclosures must be estimated , requiring us to make certain assumptions with respect to values or conditions that can not be known with certainty at the time our financial statements are prepared . these estimates and assumptions affect the amounts we report for our assets and liabilities , our revenues and expenses during the reporting period , and our disclosure of contingent assets and liabilities at the date of our financial statements . we routinely evaluate these estimates , utilizing historical experience , consultation with experts and other methods we consider reasonable in the particular circumstances . nevertheless , actual results may differ significantly from our estimates , and any effects on our business , financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known . 39 in preparing our consolidated financial statements and related disclosures , examples of certain areas that require more judgment relative to others include our use of estimates in determining : ( i ) revenue recognition and income taxes , ( ii ) the economic useful lives of our assets and related depletion rates ; ( iii ) the fair values used to assign purchase price from business combinations , determine possible asset and equity investment impairment charges , and calculate the annual goodwill impairment test ; ( iv ) reserves for environmental claims , legal fees , transportation rate cases and other litigation liabilities ; ( v ) provisions for uncollectible accounts receivables ; and ( vi ) exposures under contractual indemnifications . for a summary of our significant accounting policies , see note 2 “ summary of significant accounting policies ” to our consolidated financial statements . we believe that certain accounting policies are of more significance in our consolidated financial statement preparation process than others , which policies are discussed as follows . acquisition method of accounting for acquired businesses , we generally recognize the identifiable assets acquired , the liabilities assumed and any noncontrolling interest in the acquiree at their estimated fair values on the date of acquisition .
| 2015 amount also includes ( i ) $ 1,150 million of losses related to goodwill impairments on our non-regulated midstream reporting unit ; ( ii ) $ 52 million of losses related to divestitures of our non-regulated midstream assets ; ( iii ) $ 47 million of losses related to other impairments on our non-regulated midstream assets ; ( iv ) $ 26 million of impairments on equity investments ; and ( v ) a $ 19 million net decrease in earnings related to project write-offs and other certain items . 2014 amount also includes a $ 6 million decrease in earnings from other certain items . other ( c ) income tax expense and interest income that were allocated to and presented in segment ebda in prior periods are presented herein in income tax expense and interest expense , net , respectively , to conform to our current presentation as discussed above in “ —overview. ” the amounts for 2016 , 2015 and 2014 were $ 7 million , $ 4 million and $ 6 million , respectively , in income tax expense and for 2014 , $ 1 million in interest income . ( d ) joint venture throughput is reported at our ownership share . volumes for acquired pipelines are included at our ownership share for the entire period , however , ebda contributions from acquisitions are included only for the periods subsequent to their acquisition . 46 below are the changes in both segment ebda before certain items and revenues before certain items in 2016 and 2015 , when compared with the respective prior year : year ended december 31 , 2016 versus year ended december 31 , 2015 replace_table_token_13_th the changes in segment ebda for our natural gas pipelines business segment are further explained by the following discussion of the significant factors driving segment ebda before certain items in the comparable years of 2016 and 2015 : decrease of $ 109 million ( 25 % ) from sng primarily due to our sale of a 50 % interest in sng to the southern company ( southern company ) on september 1 , 2016 ; decrease of $ 62 million ( 18 % ) from south texas midstream primarily due to lower volumes and price . revenue decreased approximately $ 229 million partially offset by a decrease in costs of sales ; decrease of $ 48 million ( 36 % ) from kinderhawk due to lower volumes ; decrease of $ 31 million ( 135 % ) from kmlp as a result of a customer contract buyout in the
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certain items impacting earnings throughout md & a , the company has provided a discussion of the outlook and results both inclusive and exclusive of acquisition-related charges , gains on sales of businesses , and a one-time net tax charge related to the recently enacted u.s. tax legislation . the acquisition-related charges relate primarily to the newell tools and craftsman brand acquisitions , while the gain on sales of businesses primarily related to the divestiture of the mechanical security businesses . the amounts and measures , including gross profit and segment profit , on a basis excluding such charges are considered relevant to aid analysis and understanding of the company 's results aside from the material impact of these charges . in addition , these measures are utilized internally by management to understand business trends , as once the anticipated cost synergies from these acquisitions , as applicable , are realized , such charges are not expected to recur . during 2017 , the company reported $ 156 million in pre-tax acquisition-related charges , which were comprised of the following : $ 47 million reducing gross profit primarily pertaining to amortization of the inventory step-up adjustment for the newell tools acquisition ; $ 38 million in sg & a primarily for integration-related costs and consulting fees ; $ 58 million in other , net primarily for deal transaction and consulting costs ; and $ 13 million in restructuring charges pertaining to facility closures and employee severance . the company also reported a $ 264 million pre-tax gain on sales of businesses in 2017 , primarily relating to the previously discussed sale of the majority of the mechanical security businesses . the net tax benefit of the acquisition-related charges and gain on sales of businesses was $ 7 million . furthermore , in the fourth quarter of 2017 , the company recorded a $ 24 million net tax charge relating to the recently enacted u.s. tax legislation . 24 the acquisition-related charges , gain on sales of businesses , and one-time net tax charge resulted in a net after-tax gain of $ 91 million , or $ 0.59 per diluted share . driving further profitable growth by fully leveraging our core franchises each of the company 's franchises share common attributes : they have world-class brands and attractive growth characteristics , they are scalable and defensible , they can differentiate through innovation , and they are powered by our sfs 2.0 operating system . the tools & storage business is the tool company to own , with strong brands , proven innovation , global scale , and a broad offering of power tools , hand tools , accessories , and storage & digital products across many channels in both developed and developing markets . the engineered fastening business is a highly profitable , gdp+ growth business offering highly engineered , value-added innovative solutions with recurring revenue attributes and global scale . the security business , with its attractive recurring revenue , presents a significant margin accretion opportunity over the longer term and has historically provided a stable revenue stream through economic cycles , is a gateway into the digital world and an avenue to capitalize on rapid digital changes . while diversifying the business portfolio through strategic acquisitions remains important , management recognizes that the core franchises described above are important foundations that continue to provide strong cash flow and growth prospects . management is committed to growing these businesses through innovative product development , brand support , continued investment in emerging markets and a sharp focus on global cost-competitiveness . continuing to invest in the stanley black & decker brands the company has a strong portfolio of brands associated with high-quality products including stanley® , black+decker® , d e walt® , flexvolt® , irwin® , lenox® , craftsman® , porter-cable® , bostitch® , proto® , mac tools® , facom® , aeroscout® , powers® , lista® , sidchrome® , vidmar® , sonitrol® , diyz® and gq® . the stanley® , black+decker® and d e walt® brands are recognized as three of the world 's great brands and are amongst the company 's most valuable assets . during 2017 , the stanley® and d e walt® brands had prominent signage in major league baseball ( mlb ) stadiums appearing in 47 % of all mlb games . the company has also maintained long-standing nascar and nhra racing sponsorships , which provided brand exposure during 60 events in 2017 with the stanley® , d e walt® , irwin® and mac tools® brands . the company has continued its ten-year alliance agreement with the walt disney world resort® whereby stanley® logos are displayed on construction walls throughout the theme parks . brand logos and or products are featured in various attractions where they are seen by millions of visitors each year . the company also advertises in the english premier league , which is the number one soccer league in the world , featuring stanley® , black+decker® and dewalt® brands to a global audience . starting in 2014 , the company became a sponsor for one of the world 's most popular football clubs , fc barcelona , including player image rights , hospitality assets and stadium signage . the company also advertises in televised professional bull riding events , and sponsors three riders in 'the built ford tough series , ' one of the fastest growing sports in the u.s. with over 48 million fans . additionally , the company sponsors moto gp , the world 's premiere motorcycle racing series reaching 150 million fans per year and airing in over 200 countries , and the monster yamaha tech3 team . in 2017 , stanley® , black+decker® and d e walt® , continued to partner with three of the fastest growing and thrilling extreme sports categories , bmx , freeride mountain biking ( mtb ) and skateboarding , supporting over 18 athletes from grass-roots to professional level , to drive the company 's generation z marketing objectives . story_separator_special_tag the above marketing initiatives highlight the company 's strong emphasis on brand building and support , which has resulted in more than 240 billion brand impressions annually and a steady improvement across the spectrum of brand awareness measures . the company will continue allocating its brand and advertising spend wisely to capture the emerging digital landscape , whilst continuing to evolve proven marketing programs . 25 the stanley fulfillment system and sfs 2.0 over the years , the company has successfully leveraged the stanley fulfillment system ( `` sfs '' ) to drive efficiency throughout the supply chain and improve working capital performance in order to generate incremental free cash flow . historically , sfs focused on streamlining operations , which helped reduce lead times , realize synergies during acquisition integrations , and mitigate material and energy price inflation . in 2015 , the company launched a refreshed and revitalized sfs operating system , entitled sfs 2.0 , to drive from a more programmatic growth mentality to a true organic growth culture by more deeply embedding breakthrough innovation and commercial excellence into its businesses , and at the same time , becoming a significantly more digitally-enabled enterprise . the positive impacts of sfs 2.0 began in 2016 , as evidenced by the launch of the flexvolt® battery system in june 2016 , and have continued into 2017 as demonstrated by the robust levels of organic growth and margin expansion . additionally , in 2017 , the company opened the stanley engineered fastening breakthrough innovation center in friedrichsdorf , germany and launched the futures innovation factory , housed in one of boston 's centers for start-up activity and advanced research . the engineered fastening facility is the first europe-based breakthrough innovation center within the company and will serve as the center of excellence for engineered fastening 's `` first innovation '' team focusing on bringing disruptive technologies to the fastening industry . the futures innovation factory is dedicated to advancing technological innovation in stanley security 's business . this group focuses on uncovering disruptive business models and exploring technologies to transform and secure the world . the company has made a significant commitment to sfs 2.0 and management believes that its success will be characterized by continued organic growth in the 4-6 % range as well as expanded operating margin rates over the next 3 to 5 years as the company leverages the growth and reduces structural sg & a levels . sfs 2.0 is transforming the company by focusing its employees on the following five key pillars : digital excellence uses the power of digital to contemporize , be disruptive , and create value throughout the company 's array of products , processes and business models . digital excellence means leveraging the power of emerging technologies across the company 's businesses to connected devices , the internet of things ( `` iot '' ) , and big data , as well as social and mobile , even more than what is being done today . digital is penetrating all aspects of the organization and feeds into and supports the other elements of sfs 2.0 - enabling better asset efficiency through core sfs , greater cost effectiveness via the company 's support functions , and improving revenues and margins via customer-facing opportunities . commercial excellence is about how the company becomes more effective and efficient in its customer-facing processes resulting in continued share gains and margin expansion throughout its businesses . the company views commercial excellence as world-class execution across seven areas : customer insights , innovation and portfolio management , pricing and promotion , brand and marketing , sales force deployment and effectiveness , channel programs , and the customer experience . breakthrough innovation is aimed at developing a culture to identify and commercialize market disrupting innovations , each with revenue generation potential greater than $ 100 million annually . the company 's focus remains on utilizing technologies to come up with major breakthroughs in the industries in which the company operates which , when combined with its existing strong core innovation machine , will drive outsized share gains and margin expansion . core sfs / industry 4.0 , which targets cost and asset efficiency , remains as the foundation for the company 's operating system and has yielded significant advances in improving working capital turns and free cash flow generation . the five operating principles encompassed by core sfs , which work in concert , include : sales and operations planning ( `` s & op '' ) , operational lean , complexity reduction , global supply management , and order-to-cash excellence . the company plans to continue leveraging these principles to further enhance the company 's already strong asset efficiency performance . additionally , the company is making investments behind the adoption of industry 4.0 and advancing the company 's capabilities surrounding the automation of manufacturing that includes iot , cloud computing , artificial intelligence ( `` ai '' ) , 3-d printing , robotics , and advanced materials , among others . functional transformation takes a clean-sheet approach to redesigning the company 's key support functions such as finance , hr , it and others , which although highly effective , after roughly a hundred acquisitions are not as efficient as they can be based on external benchmarks . this presents the company with an opportunity to realize the benefits from scale , reduce its sg & a as a percent of sales , and become a cost effectiveness enabler with the side benefit of helping to fund the other aspects of sfs 2.0 and to support margin expansion . 26 these five pillars will serve as a powerful value driver in the years ahead , feeding the company 's new product innovation machine , embracing outstanding commercial and supply chain excellence , embedding digital into the various business models , and funding it with world-class functional efficiency .
| in the tools & storage segment , net sales increased 5 % compared to 2015 due to strong organic growth of 7 % , driven by solid growth across all regions , bolstered by the launch of the flexvolt® battery system , partially offset by foreign currency pressures of 2 % . industrial net sales declined 5 % relative to 2015 primarily due to a 4 % decrease in organic sales volume , which was mainly driven by weaker electronics volumes attributable to a major customer and pressured industrial volumes in the engineered fastening business as well as fewer off-shore pipeline projects and an ongoing difficult scrap steel market in the infrastructure business . excluding the impact of the electronics customer , the industrial segment 's organic growth was relatively flat in 2016. net sales in the security segment were relatively flat compared to 2015 as organic growth of 1 % and small bolt-on electronic acquisitions of 1 % were offset by foreign currency headwinds of 2 % . gross profit : the company reported gross profit of $ 4.778 billion , or 37.5 % of net sales , in 2017 compared to $ 4.267 billion , or 37.4 % of net sales , in 2016 . acquisition-related charges , which reduced gross profit , were $ 46.8 million in 2017 , primarily relating to the amortization of the inventory step-up adjustment for the newell tools acquisition . excluding acquisition-related charges , gross profit was 37.8 % of net sales in 2017 , compared to 37.4 % in 2016. the year-over-year increase in the profit rate was attributable to volume leverage , productivity and cost control , which more than offset increasing commodity inflation and the impact from the mechanical security business divestiture . the company reported gross profit of $ 4.267 billion , or 37.4 % of net sales , in 2016 compared to $ 4.072 billion , or 36.4 % of net sales , in 2015 . the increase in the profit rate reflects favorable impacts from price , productivity , cost actions and commodity deflation , which more than offset unfavorable foreign currency . 27 sg & a
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if these types of investments do not provide attractive returns to investors , the demand for such instruments will likely fall , thereby reducing our opportunity to earn new management fees or maintain existing management fees . approximately ninety-six percent of our existing aum are cdos . the creation of 58 cdos and permanent capital vehicles has depended upon a vibrant securitization market . since 2008 , volumes within the securitization market have dropped significantly and have not recovered since that time . consequently , we have been unable to complete a new securitization since 2008. a portion of our revenues is generated from principal investing activities . therefore , our revenues are impacted by the underlying operating results of these investments . as of december 31 , 2012 , we had $ 38,323 of other investments , at fair value representing our principal investment portfolio . of this amount , $ 37,560 , or 98 % , is comprised of investments in four separate investment funds and permanent capital vehicles : star asia , eurodekania , tiptree , and the star asia special situations fund . furthermore , the investment in star asia is our largest single principal investment and , as of december 31 , 2012 , had a fair value of $ 30,169 , representing 79 % of the total amount of other investments , at fair value . star asia seeks to invest in asian commercial real estate structured finance products , including cmbs , corporate debt of reits and real estate operating companies , whole loans , mezzanine loans , and other commercial real estate fixed income investments , and in real property in japan . therefore , our results of operations and financial condition will be significantly impacted by the financial results of these investments and , in the case of star asia , the japanese real estate market in general . our investment in star asia and our principal investing revenue was impacted by the earthquake , tsunami , and nuclear disaster in japan that occurred during the first quarter of 2011. see year ended december 31 , 2011 compared to the year ended december 2010 revenues principal transactions and other income below . margin pressures in corporate bond brokerage business performance in the financial services industry in which we operate is highly correlated to the overall strength of the economy and financial market activity . overall market conditions are a product of many factors that are beyond our control and can be unpredictable . these factors may affect the financial decisions made by investors , including the 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 volatility of the equity and fixed income markets , the level and shape of the various yield curves , and the volume and value of trading in securities . since 2010 , both margins and volumes in certain products and markets within the corporate bond brokerage business have decreased materially as competition has increased and general market activity has declined . further , we continue to expect that competition will increase over time , resulting in continued margin pressure . our response to this margin compression has included : ( i ) building a diversified securitized product trading platform ; ( ii ) expanding our european capital markets business ; ( iii ) acquiring new product lines , including through the acquisitions of jvb and princeridge in 2011 ; and ( iv ) monitoring our fixed costs . during the third quarter of 2011 , the company implemented significant cost savings initiatives . these initiatives included the elimination of duplicative costs that arose with the princeridge transaction as well as net reductions in overall costs to address adverse market conditions . the initiatives included : termination of staff , reductions in compensation and benefits of remaining staff , the sublease and termination of duplicative leases , termination of or reduction in pricing of subscriptions , and other measures . more recently we have undertaken additional cost-cutting initiatives by merging support functions among and across many of our subsidiaries and business lines . however , there can be no certainty that these efforts will be sufficient . if insufficient , we will likely see a continued decline in profitability . legislation affecting the financial services industry on july 21 , 2010 , the dodd-frank wall street reform and consumer protection act ( the dodd-frank act ) was signed into law . the dodd-frank act contains a variety of provisions designed to regulate financial markets , including credit and derivative transactions . many aspects of the dodd-frank act are subject to rulemaking that will take effect over the next several years , thus making it difficult to assess the impact on the financial industry , including us , at this time . the dodd-frank act establishes enhanced compensation and 59 corporate governance oversight for the financial services industry , provides a specific framework for payment , clearing and settlement regulation , and empowers the sec to adopt regulations requiring new fiduciary duties and other more stringent regulation of broker-dealers , investment companies and investment advisers . we will continue to monitor all applicable developments in the implementation of the dodd-frank act and expect to adapt successfully to any new applicable legislative and regulatory requirements . recent events or transactions departure of certain officers of princeridge on july 19 , 2012 , princeridge , ifmi , and the operating llc entered into a series of separate agreements with michael hutchins , the former ceo and board member of princeridge , and john costas , the former chairman of the board of princeridge , whereby ( i ) princeridge repurchased all of the equity and profit units in princeridge held by mr. costas and mr. hutchins ; ( ii ) mr. costas and mr. hutchins resigned as employees and board members of princeridge ; ( iii ) mr. costas and mr. story_separator_special_tag hutchins agreed to forfeit all of their unvested equity awards both from princeridge and ifmi ; and ( iv ) mr. costas and mr. hutchins withdrew as members of princeridge gp and as partners of ccprh . daniel g. cohen , our chairman and ceo , was appointed chairman and ceo of princeridge by the board of managers of princeridge gp . see note 18 to our consolidated financial statements included in this annual report on form 10-k. sale of equity derivatives brokerage business we entered into a purchase agreement , dated as of january 27 , 2012 , as amended on november 30 , 2012 and december 31 , 2012 , whereby , we agreed , subject to approval by finra and other customary closing conditions , to sell our equity derivatives brokerage business to an entity owned by two individuals that were employed by the us until december 31 , 2012 ( the fgc buyer ) . in connection with the sale of our equity derivative brokerage business , the fgc buyer received certain intellectual property , books and records and rights to the fgc name . the transaction was subject to finra approval which was obtained in november 2012 and the equity derivatives brokerage business was transferred to the fgc buyer on december 31 , 2012 , the closing date of the transaction . all of our equity derivatives employees were terminated and joined the fgc buyer . see note 5 to our consolidated financial statements included in this annual report on form 10-k. repurchase of mandatorily redeemable equity interests on october 5 , 2012 , princeridge , ifmi , and the operating llc entered into a separation , release and repurchase agreement ( collectively , the princeridge separation agreements ) with each of ahmed alali , ronald j. garner and matthew g. johnson ( collectively , the princeridge separated employees ) . under the princeridge separation agreements , the princeridge separated employees resigned from all positions and offices held with princeridge and its affiliates including , with respect to messrs. alali and johnson , as members of the board of managers of princeridge gp . see notes 17 and 18 to our consolidated financial statements included in this annual report on form 10-k. consolidated results of operations the following section provides a comparative discussion of our consolidated results of operations for the specified periods . the period-to-period comparisons of financial results are not necessarily indicative of future results . year ended december 31 , 2012 compared to the year ended december 31 , 2011 the following table sets forth information regarding our consolidated results of operations for the year ended december 31 , 2012 and 2011 . 60 institutional financial markets , inc. consolidated statements of operations ( dollars in thousands ) ( unaudited ) replace_table_token_5_th n/m = not meaningful revenues revenues decreased by $ 5,091 , or 5 % , to $ 95,240 for the year ended december 31 , 2012 from $ 100,331 for the year ended december 31 , 2011. as discussed in more detail below , the change was comprised of decreases of $ 3,681 in net trading and $ 4,320 in principal transactions and other income , partially offset by increases of $ 1,436 in new issue and advisory revenue and $ 1,474 in asset management revenue . 61 net trading net trading revenue decreased by $ 3,681 , or 5 % , to $ 69,486 for the year ended december 31 , 2012 from $ 73,167 for the year ended december 31 , 2011. the following table provides detail on net trading revenue by operation . jvb was acquired effective january 1 , 2011 and princeridge was acquired on may 31 , 2011. the princeridge and other capital markets line includes the operations of princeridge since its acquisition on may 31 , 2011 , as well as the results from the company 's other capital markets professionals not included in the jvb or ccfl lines for 2011. in conjunction with the acquisition of princeridge , we contributed substantially all of our capital markets professionals ( with the exception of those within jvb and ccfl ) to princeridge . therefore , the revenues earned from princeridge during the period we owned them include the revenues earned by the capital markets professionals contributed . replace_table_token_6_th the increase in revenue in jvb was primarily due to an increase in trading revenue associated with us agency and structured product new issues . the increase in revenue in ccfl was primarily due to an increase in structured product trading . the decline in princeridge and other capital markets was primarily due to the decline in trading revenue earned from trading in securitized products such as cdos and clos . our net trading revenue includes unrealized gains on our trading investments , as of the applicable measurement date , that may never be realized due to changes in market or other conditions not in our control that may adversely affect the ultimate value realized from these investments . in addition , our net trading revenue also includes realized gains on certain proprietary trading positions . our ability to derive trading gains from trading positions is subject to overall market conditions . due to volatility and uncertainty in the capital markets , the net trading revenue recognized during the year ended december 31 , 2012 , may not be indicative of future results . furthermore , some of the assets included in the investments trading line of our consolidated balance sheets represent level 3 valuations within the fasb fair value hierarchy . level 3 assets are carried at fair value based on estimates derived using internal valuation models and other estimates . see notes 8 and 9 to our consolidated financial statements included in this annual report on form 10-k. the fair value estimates made by the company may not be indicative of the final sale price at which these assets may be sold .
| and amortization ) . as is described below in the financing section , the company paid a total of $ 14,699 to acquire ownership interests in princeridge that it did not previously own . as a result , the company 's ownership of princeridge increased from 70 % to 98 % . the company financed these payments primarily by reducing the amount of capital it had invested in its trading items . this was the main reason for the $ 18,548 of net inflows from trading activities described in the previous paragraph . the cash provided by investing activities of $ 9,110 was comprised of ( a ) cash received of $ 12,093 from our equity method affiliates ( see note 15 to our consolidated financial statements included in this annual report on form 10-k ) ; ( b ) cash proceeds of $ 379 from the return of principal and sale of other investments , at fair value ; ( c ) cash proceeds from the sale of a cost method investment of $ 1,937 ; partially offset by ( d ) the purchase of additional furniture and leasehold improvements of $ 193 ; ( e ) the investment in equity method affiliates of $ 4,716 ( see note 15 to our consolidated financial statements included in this annual report on form 10-k ) ; and ( f ) the purchase of other investments , at fair value of $ 390 . 88 the cash used in financing activities of $ 27,717 was comprised of ( a ) the repurchase of $ 150 notional amount of old notes for $ 147 ; ( b ) the redemption of $ 10,210 notional amount of the old notes for $ 10,210 ; ( c ) the purchase of $ 1,177 principal amount of subordinated notes payable for $ 1,089 ; ( d ) the payment in full of the promissory notes issued in connection with the repurchase of mandatorily redeemable equity interests for $ 4,824 ( see note 17 to our
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in anticipation of the transition from processing voisey 's bay nickel concentrates at vale 's sudbury and thompson smelters to processing at the long harbour hydrometallurgical plant , the company is engaged in discussions with vale concerning calculation of the royalty once voisey 's bay nickel concentrates are processed at long harbour . vale proposed a calculation of the royalty that the company estimates could result in the substantial reduction of royalty payable to lnrlp on voisey 's bay nickel concentrates processed at long harbour . please see `` principal royalties on producing propertiesvoisey 's bay ( labrador , canada ) '' in part i , item 2 , for further information . 39 historical production the following table discloses historical production for the past three fiscal years for the principal producing properties that are subject to our royalty interests , as reported to us by the operators of the mines : historical production ( 1 ) by property principal producing properties for the fiscal years ended june 30 , 2014 , 2013 and 2012 replace_table_token_16_th ( 1 ) historical production relates to the amount of metal sales , subject to our royalty interests for each fiscal year presented , as reported to us by the operators of the mines . critical accounting policies listed below are the accounting policies that the company believes are critical to its financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset , liability , revenue or expense being reported . please refer to note 2 of the notes to consolidated financial statements for a discussion on recently issued accounting pronouncements . use of estimates the preparation of our financial statements , in conformity with accounting principles generally accepted in the united states of america , requires management to make estimates and assumptions . these estimates and assumptions affect the reported amounts of assets and liabilities , at the date of the financial statements , as well as the reported amounts of revenues and expenses during the reporting period . our most critical accounting estimates relate to our assumptions regarding future gold , silver , nickel , copper and other metal prices and the estimates of reserves , production and recoveries of third-party mine operators . we rely on reserve estimates reported by the operators on the properties in which we have royalty interests . these estimates and the underlying assumptions affect the potential impairments of long-lived assets and the ability to realize income tax benefits associated with deferred 40 tax assets . these estimates and assumptions also affect the rate at which we recognize revenue or charge depreciation , depletion and amortization to earnings . on an ongoing basis , management evaluates these estimates and assumptions ; however , actual amounts could differ from these estimates and assumptions . differences between estimates and actual amounts are adjusted and recorded in the period that the actual amounts are known . royalty and stream interests royalty and stream interests include acquired royalty and stream interests in production , development and exploration stage properties . the costs of acquired royalty and stream interests are capitalized as tangible assets as such interests do not meet the definition of a financial asset under the accounting standards codification ( `` asc '' ) guidance . acquisition costs of production stage royalty and stream interests are depleted using the units of production method over the life of the mineral property ( as royalty payments are recognized or sales occur under stream interests ) , which are estimated using proven and probable reserves as provided by the operator . acquisition costs of royalty and stream interests on development stage mineral properties , which are not yet in production , are not amortized until the property begins production . acquisition costs of royalty interests on exploration stage mineral properties , where there are no proven and probable reserves , are not amortized . at such time as the associated exploration stage mineral interests are converted to proven and probable reserves , the cost basis is amortized over the remaining life of the mineral property , using proven and probable reserves . the carrying values of exploration stage mineral interests are evaluated for impairment at such time as information becomes available indicating that the production will not occur in the future . exploration costs are expensed when incurred . asset impairment we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts of an asset or group of assets may not be recoverable . the recoverability of the carrying value of royalty interests in production and development stage mineral properties is evaluated based upon estimated future undiscounted net cash flows from each royalty interest property using estimates of proven and probable reserves and other relevant information received from the operators . we evaluate the recoverability of the carrying value of royalty interests in exploration stage mineral properties in the event of significant decreases in the price of gold , silver , copper , nickel and other metals , and whenever new information regarding the mineral properties is obtained from the operator indicating that production will not likely occur or may be reduced in the future , thus affecting the future recoverability of our royalty interests . impairments in the carrying value of each property are measured and recorded to the extent that the carrying value in each property exceeds its estimated fair value , which is generally calculated using estimated future discounted cash flows . our estimates of gold , silver , copper , nickel and other metal prices , operator 's estimates of proven and probable reserves related to our royalty or streaming properties , and operator 's estimates of operating , capital and reclamation costs are subject to certain risks and uncertainties which may affect the recoverability of our investment in these royalty interests in mineral properties . story_separator_special_tag although we have made our best assessment of these factors based on current market conditions , it is possible that changes could occur , which could adversely affect the net cash flows expected to be generated from these royalty interests . available-for-sale securities investments in securities that management does not have the intent to sell in the near term and that have readily determinable fair values are classified as available-for-sale securities . unrealized gains 41 and losses on these investments are recorded in accumulated other comprehensive income as a separate component of stockholders ' equity , except that declines in market value judged to be other than temporary are recognized in determining net income . when investments are sold , the realized gains and losses on these investments , determined using the specific identification method , are included in determining net income . the company 's policy for determining whether declines in fair value of available-for-sale securities are other than temporary includes a quarterly analysis of the investments and a review by management of all investments for which the cost exceeds the fair value . any temporary declines in fair value are recorded as a charge to other comprehensive income . this evaluation considers a number of factors including , but not limited to , the length of time and extent to which the fair value has been less than cost , the financial condition and near term prospects of the issuer , and management 's ability and intent to hold the securities until fair value recovers . if such impairment is determined by the company to be other-than-temporary , the investment 's cost basis is written down to fair value and recorded in net income during the period the company determines such impairment to be other-than-temporary . the new cost basis is not changed for subsequent recoveries in fair value . please refer to note 5 of our notes to consolidated financial statements for further information on our available-for-sale securities . revenue revenue is recognized pursuant to guidance in asc 605 and based upon amounts contractually due pursuant to the underlying royalty or streaming agreement . specifically , revenue is recognized in accordance with the terms of the underlying royalty or stream agreements subject to ( i ) the pervasive evidence of the existence of the arrangements ; ( ii ) the risks and rewards having been transferred ; ( iii ) the royalty or stream being fixed or determinable ; and ( iv ) the collectability being reasonably assured . for royalty payments received in-kind , revenue is recorded at the average spot price of gold for the period in which the royalty was earned . for our streaming agreements , we sell most of the delivered gold within three weeks of receipt and recognize revenue when the metal received is sold . gold sales gold received under our metal streaming agreements is sold primarily in the spot market or using average rate gold forward contracts . for our gold sold in the spot market , the sales price is fixed at the delivery date based on the gold spot price , while the sales price for our gold sold in average rate gold forward contracts is determined by the average gold price under the term of the contract , typically 15 consecutive trading days shortly after the receipt and purchase of the gold . revenue from gold sales is recognized on the date of the settlement , which is also the date that title to the gold passes to the purchaser . cost of sales cost of sales is specific to our streaming agreement for mt . milligan and is the result of the company 's purchases of gold for a cash payment of the lesser of $ 435 per ounce , or the prevailing market price of gold when purchased . income taxes the company accounts for income taxes in accordance with the guidance of accounting standards codification topic 740. the company 's annual tax rate is based on income , statutory tax rates in effect and tax planning opportunities available to us in the various jurisdictions in which the company operates . significant judgment is required in determining the annual tax expense , current tax assets and liabilities , deferred tax assets and liabilities , and our future taxable income , both as a whole and in various tax jurisdictions , for purposes of assessing our ability to realize future benefit from our deferred 42 tax assets . actual income taxes could vary from these estimates due to future changes in income tax law , significant changes in the jurisdictions in which we operate or unpredicted results from the final determination of each year 's liability by taxing authorities . the company 's deferred income taxes reflect the impact of temporary differences between the reported amounts of assets and liabilities for financial reporting purposes and such amounts measured by tax laws and regulations . in evaluating the realizability of the deferred tax assets , management considers both positive and negative evidence that may exist , such as earnings history , reversal of taxable temporary differences , forecasted operating earnings and available tax planning strategies in each tax jurisdiction . a valuation allowance may be established to reduce our deferred tax assets to the amount that is considered more likely than not to be realized through the generation of future taxable income and other tax planning strategies . the company has asserted the indefinite reinvestment of certain foreign subsidiary earnings as determined by management 's judgment about and intentions concerning the future operations of the company . as a result , the company does not record a u.s. deferred tax liability for the excess of the book basis over the tax basis of its investments in foreign corporations to the extent that the basis difference results from earnings that meet the indefinite reversal criteria . refer to note 12 of our notes to consolidated financial statements for further discussion on our assertion .
| replace_table_token_18_th ( 1 ) reported production relates to the amount of metal sales , subject to our royalty interests , for the twelve months ended june 30 , 2014 and june 30 , 2013 , as reported to us by the operators of the mines . ( 2 ) individually , no royalty included within the `` other '' category contributed greater than 5 % of our total revenue for either period . ( 3 ) for our streaming interest at mt . milligan , our revenue is a product of the reported production , our 52.25 % stream interest , an applicable provisional percentage ( for the first 12 shipments only ) and an average gold sale price of $ 1,292 per ounce . during the fiscal year 2014 , the company sold approximately 21,100 ounces and had approximately 7,800 ounces of gold in inventory as of june 30 , 2014. the decrease in total revenue for the fiscal year ended june 30 , 2014 , compared with the fiscal year ended june 30 , 2013 , resulted primarily from a decrease in the average gold , silver , copper and nickel prices and decreases in production primarily at andacollo , voisey 's bay , mulatos , and robinson . these decreases during the current period were partially offset by new production at mt . milligan and 47 production increases at peñasquito . refer to part i , item 2 , properties , for discussion and any updates on our principal producing properties . cost of sales were approximately $ 9.2 million for the fiscal year ended june 30 , 2014 , compared to zero for the fiscal year ended june 30 , 2013. cost of sales for our fiscal year 2014 is specific to our streaming agreement for mt . milligan , which began production during the current period , and is the result of the company 's purchases of gold for a cash payment of the lesser of $ 435 per ounce , or the prevailing market price of gold when purchased . general and administrative expenses decreased to $ 21.2 million for the fiscal year ended june 30 , 2014 , from $ 24.0 million for the fiscal year ended june 30 , 2013. the decrease was
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all non-essential corporate travel and spending . we have taken the following actions to improve our liquidity position thus far in 2021 : raised $ 138.0 million , net of underwriting discounts , of additional capital in january 2021 through an underwritten public equity offering at $ 5.00 per share ; paid down the outstanding balance under our revolving credit facility in february 2021 and also amended and extended our existing facility , further extending the covenant waiver period were we to draw the credit line over 35 % ; and sold the dreams puerto aventuras in february 2021 for a total cash consideration of $ 34.5 million . in addition , we reduced the size of our board of directors in 2020 to align with the company 's size and needs , and such reduction has reduced , and will continue to reduce , our expenses . we can not predict when the effects of the pandemic will subside , and thus we can not predict whether our resorts will be permitted to remain open or when our business will return to normalized or even to break-even levels . there also can be no guarantee that when the effects of the pandemic subside that there will not be continuing resurgences of the virus or that the demand for lodging , and consumer confidence in travel generally , will recover as quickly as other industries . the longer and more severe the pandemic , and the actual occurrence or even the possibility of repeat or cyclical outbreaks of the virus beyond the one currently being experienced , the greater the material adverse effect the pandemic will have on our business , results of operations , cash flows , financial condition , access to credit markets and ability to service our indebtedness . see part i , item 1a . risk factors included elsewhere in this report for additional information . 39 results of operations years ended december 31 , 2020 and 2019 the following table summarizes our results of operations on a consolidated basis for the years ended december 31 , 2020 and 2019 ( $ in thousands ) : replace_table_token_4_th the tables below set forth information with respect to our occupancy , net package adr , net package revpar , net package revenue , net non-package revenue , management fee revenue , total net revenue , adjusted ebitda and adjusted ebitda margin . for a description of these operating metrics and non-u.s. gaap measures , and reconciliations to the most comparable u.s. gaap financial measures , see “ key indicators of financial and operating performance ” and “ non-u.s. gaap financial measures ” below . our comparable portfolio for the year ended december 31 , 2020 excludes the following resorts : hilton la romana all-inclusive resort and hilton playa del carmen all-inclusive resort , which were under renovation in 2019 ; jewel runaway bay beach resort & waterpark and jewel dunn 's river beach resort & spa , which were sold in may 2020 ; and hyatt ziva and hyatt zilara cap cana , a ground-up development opened november 2019 . 40 total portfolio replace_table_token_5_th comparable portfolio replace_table_token_6_th total revenue and total net revenue our total revenue for the year ended december 31 , 2020 decreased $ 363.3 million , or 57.1 % , compared to the year ended december 31 , 2019. our total net revenue for the year ended december 31 , 2020 decreased $ 344.3 million , or 56.7 % , compared to the year ended december 31 , 2019. these decreases are due to the closures of and reduced occupancy at all our resorts during the second , third and fourth quarters in response to the covid-19 pandemic . total net revenue during the year ended december 31 , 2020 includes a $ 2.6 million favorable vat tax adjustment following oecd guidelines for transfer pricing for multinational enterprises which considers the economic impact of the covid-19 pandemic . this adjustment results in a favorable impact to net package revenue and net package adr . excluding this adjustment , net package revenue would be $ 219.0 million and net package adr would be $ 281.48 , representing a decrease of 57.7 % and an increase of 9.7 % , respectively , for the year ended december 31 , 2020. see “ impact of covid-19 pandemic ” above for more information regarding the effects of the covid-19 pandemic on our results of operations . 41 the following table shows a reconciliation of comparable net package revenue , net non-package revenue , management fee revenue and total net revenue to total revenue for the years ended december 31 , 2020 and 2019 ( $ in thousands ) : replace_table_token_7_th direct expenses the following table shows a reconciliation of our direct expenses to net direct expenses for the years ended december 31 , 2020 and 2019 ( $ in thousands ) : replace_table_token_8_th our direct expenses include resort expenses , such as food and beverage , salaries and wages , utilities and other ongoing operational expenses . our net direct expenses for the year ended december 31 , 2020 were $ 201.8 million , or 76.7 % , of total net revenue . our net direct expenses for the year ended december 31 , 2019 were $ 346.2 million , or 57.0 % , of total net revenue . net direct expenses for the year ended december 31 , 2020 decreased $ 144.4 million , or 41.7 % , compared to the year ended december 31 , 2019. net direct expenses at our comparable properties decreased $ 127.2 million , or 45.3 % , compared to the year ended december 31 , 2019. the decreases in net direct expenses are due to the closures of and reduced occupancy at all of our resorts during the second , third and fourth quarters in response to the covid-19 pandemic . direct operating expenses fluctuate based on various factors , including changes in occupancy , labor costs , utilities , repair and maintenance costs and license and property taxes . story_separator_special_tag management fees and franchise fees , which are computed as a percentage of revenue , increase/decrease as a result of changes in revenues . 42 net direct expenses consists of the following ( $ in thousands ) : total portfolio replace_table_token_9_th comparable portfolio replace_table_token_10_th selling , general and administrative expenses our selling , general and administrative expenses for the year ended december 31 , 2020 decreased $ 21.6 million , or 17.2 % , compared to the year ended december 31 , 2019. these decreases were primarily driven by the closures of and reduced occupancy at all our resorts during the year ended december 31 , 2020 and cost cutting measures taken in response to the covid-19 pandemic . these resort closures and cost cutting measures drove a $ 21.6 million decrease in advertising and sales commissions and a $ 2.7 million decrease in credit card commissions . we also experienced a $ 3.7 million decrease in transaction expenses due to the completion of the sap implementation at all of our properties and our corporate entities during 2019. these decreases were partially offset by an increase of $ 4.3 million in insurance expense , an additional $ 1.7 million in bad debt expense due to the negative effects of covid-19 , and a $ 1.5 million increase due to repair and maintenance expenses at our properties in the yucatán peninsula due to hurricane delta and hurricane zeta during the fourth quarter of 2020 . 43 depreciation and amortization expense our depreciation and amortization expense for the year ended december 31 , 2020 decreased $ 9.3 million , or 9.2 % , compared to the year ended december 31 , 2019. the decrease was due primarily to $ 16.1 million of accelerated depreciation incurred in 2019 related to renovation projects at the hilton playa del carmen all-inclusive resort and hilton la romana all-inclusive resort and a $ 4.2 million decrease due to the sale of the jewel dunn 's river beach resort & spa and jewel runaway bay beach resort & waterpark in may 2020. these decreases were partially offset by the opening of hyatt ziva and hyatt zilara cap cana in the fourth quarter of 2019 , which accounted for a $ 9.9 million increase . impairment loss our impairment loss for the year ended december 31 , 2020 increased $ 49.5 million , or 801.7 % , compared to the year ended december 31 , 2019. the increase was driven by $ 25.3 million of property and equipment impairment recognized upon classification of the jewel dunn 's river beach resort & spa and jewel runaway bay beach resort & waterpark as held for sale in may 2020 and $ 10.6 million of property and equipment impairment recognized upon classification of the dreams puerto aventuras as held for sale in november 2020. for further details on our property and equipment impairment losses , see note 5 to our consolidated financial statements . the remaining increase was driven by $ 17.7 million of goodwill impairment resulting from the decrease in forecasted future cash flows during the first quarter of 2020 from the temporary suspension of operations from covid-19 , as we fully impaired the goodwill of our jewel runaway bay beach resort & waterpark , jewel dunn 's river beach resort & spa and jewel paradise cove beach resort & spa reporting units and $ 2.0 million of goodwill impairment losses recognized at the hilton rose hall resort & spa during the fourth quarter of 2020. we partially impaired the goodwill of this reporting unit . for further details on our goodwill impairment losses , see note 18 to our consolidated financial statements . these increases were partially offset by a decrease of $ 6.2 million as a result of the full impairment of goodwill at the panama jack resorts playa del carmen recognized during the year ended december 31 , 2019. loss on sale of assets our loss on sale of assets for the year ended december 31 , 2020 increased $ 2.0 million , or 100.0 % , as compared to the year ended december 31 , 2019. the increase was due to the sale of the jewel dunn 's river beach resort & spa and jewel runaway bay beach resort & waterpark in may 2020 , which resulted in a $ 1.8 million loss for the year ended december 31 , 2020. gain on insurance proceeds our gain on insurance proceeds for the year ended december 31 , 2020 increased $ 3.0 million , or 100.0 % , as compared to the year ended december 31 , 2019 as a result of insurance proceeds received for the temporary suspension of operations at all of our resorts in late march 2020 due to the covid-19 pandemic . we had no gain on insurance proceeds during the year ended december 31 , 2019. interest expense our interest expense for the year ended december 31 , 2020 increased $ 37.9 million , or 85.9 % , as compared to the year ended december 31 , 2019. the increase in interest expense was driven primarily by $ 13.0 million capitalized interest recorded in the year ended december 31 , 2019 related to our development projects at hilton playa del carmen all-inclusive resort , hilton la romana all-inclusive resort and hyatt ziva and hyatt zilara cap cana . for the year ended december 31 , 2020 , we did not record any capitalized interest as none of our resorts were under development . the increase in interest expense was also driven by an $ 8.9 million increase due to the change in fair value of our interest rate swaps . in march 2019 , we adopted hedge accounting and designated our interest rate swaps as cash flow hedges , which required changes in fair value to be recorded through other comprehensive ( loss ) income . starting in march 2020 , as our cash flow hedges were deemed ineffective due to the decline in interest rates , we recognized all changes in fair value of our interest rate swaps through interest expense .
| and comparable net package revpar would be $ 92.68 , representing an increase of 8.8 % and a decrease of 57.8 % , respectively , for the year ended december 31 , 2020. total segment owned net revenue during the year ended december 31 , 2020 includes a $ 1.8 million favorable vat tax adjustment . excluding this adjustment , net package revenue would be $ 91.8 million , representing a decrease of 55.4 % for the year ended december 31 , 2020. net package adr would be $ 277.77 and net package revpar would be $ 92.15 , representing an increase of 8.2 % and a decrease of 57.8 % , respectively , for the year ended december 31 , 2020. segment comparable owned resort ebitda . our comparable owned resort ebitda for the year ended december 31 , 2020 decreased $ 58.7 million , or 80.5 % , compared to the year ended december 31 , 2019. this decrease is a result of the closures of and reduced occupancy at all of our resorts during the second , third and fourth quarters in response to the covid-19 pandemic . 49 pacific coast the following tables set forth information with respect to our occupancy , net package adr , net package revpar , net package revenue , net non-package revenue , owned net revenue , owned resort ebitda and owned resort ebitda margin for our pacific coast segment for the years ended december 31 , 2020 and 2019 for the total segment portfolio : replace_table_token_15_th segment owned net revenue . our owned net revenue for the year ended december 31 , 2020 decreased $ 52.2 million , or 61.2 % , compared to the year ended december 31 , 2019. this decrease is a result of the closures of and reduced occupancy at all of our resorts during the second , third and fourth quarters in response to the covid-19 pandemic . owned net revenue during the year ended december 31 , 2020 includes a $
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changes in market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities , as well as the volume and types of interest-earning assets , interest-bearing and noninterest-bearing liabilities are usually the largest drivers of periodic changes in net interest spread , net interest margin and net interest income . fluctuations in market interest rates are driven by many factors , including governmental monetary policies , inflation , deflation , macroeconomic developments , changes in unemployment , the money supply , political and international conditions and conditions in domestic and foreign financial markets . periodic changes in the volume and types of loans in our loan portfolio are affected by , among other factors , economic and competitive conditions in louisiana , texas and our other out-of-state market areas . during the extended period of historically low interest rates , we continue to evaluate our investments in interest-earning assets in relation to the impact such investments have on our financial condition , results of operations and shareholders ' equity . - 40 - financial highlights for 2019 and 2018 : first guaranty completed its merger with union bancshares , incorporated . ( `` union '' ) and its wholly owned subsidiary , the union bank , on november 7 , 2019. first guaranty acquired a total of $ 274.8 million in assets and assumed $ 231.5 million in liabilities . shareholders of union received $ 1,061.20 per share in cash , yielding an aggregate deal value of $ 43.4 million . the cash consideration was partially financed by a $ 32.5 million term loan from first horizon bank . first guaranty acquired a total of $ 184.2 million in loans , securities of $ 38.8 million , cash and due from banks of $ 20.1 million , premises of $ 7.2 million , other real estate owned of $ 1.6 million and other assets that totaled $ 9.3 million . intangibles recorded from the transaction were a total of $ 13.7 million , including goodwill of $ 9.5 million . total assumed liabilities included deposits of $ 205.0 million , fhlb advances of $ 16.6 million , repurchase agreements of $ 6.9 million and other liabilities of $ 3.0 million . expenses related to the merger totaled approximately $ 0.3 million in 2019. total assets at december 31 , 2019 increased $ 300.0 million , or 16.5 % , to $ 2.1 billion when compared with december 31 , 2018 . total loans at december 31 , 2019 were $ 1.5 billion , an increase of $ 300.2 million , or 24.5 % , compared with december 31 , 2018 . total deposits were $ 1.9 billion at december 31 , 2019 , an increase of $ 223.4 million , or 13.7 % compared with december 31 , 2018 . retained earnings were $ 43.3 million at december 31 , 2019 , an increase of $ 8.3 million compared to $ 34.9 million at december 31 , 2018 . shareholders ' equity was $ 166.0 million and $ 147.3 million at december 31 , 2019 and december 31 , 2018 , respectively . net income for each of the years ended december 31 , 2019 and 2018 was $ 14.2 million . earnings per common share were $ 1.47 for each of the years ended december 31 , 2019 and 2018 . total weighted average shares outstanding were 9,695,131 at december 31 , 2019 compared to 9,687,123 at december 31 , 2018 . the change in shares was due to issuance of 54,130 shares of stock in a private placement in november of 2019. net interest income for 2019 was $ 61.7 million compared to $ 57.0 million for 2018 . the provision for loan losses totaled $ 4.9 million for 2019 compared to $ 1.4 million in 2018 . first guaranty received a $ 3.6 million negotiated payment in settlement of a commercial and industrial non-accrual loan on may 9 , 2018. the payment resulted in a recovery of $ 1.6 million . the recovery impacted the allowance for loan losses and the end result was a negative provision for loan losses in the second quarter of 2018. noninterest income for 2019 was $ 8.3 million compared to $ 5.3 million for 2018 . during the third quarter of 2019 , first guaranty sold the guaranteed portion of sba and usda loans which generated a gain on the sale of loans of $ 1.4 million . the net interest margin was 3.41 % for 2019 and 2018 . first guaranty attributed the stable net interest margin to a rise in interest income associated with loans and the change in balance sheet composition to higher yielding loans from lower yielding securities , partially offset by a rise in interest expense associated with interest-bearing deposits . loans as a percentage of average interest earning assets increased to 72.7 % at december 31 , 2019 compared to 69.8 % at december 31 , 2018 . investment securities totaled $ 427.0 million at december 31 , 2019 , an increase of $ 21.7 million when compared to $ 405.3 million at december 31 , 2018 . first guaranty acquired $ 38.8 million in securities from the union acquisition and sold securities in order to fund loan growth and reduce interest rate risk . losses on the sale of securities were $ 0.2 million for 2019 as compared to losses of $ 1.8 million for 2018. at december 31 , 2019 , available for sale securities , at fair value , totaled $ 340.4 million , an increase of $ 43.5 million when compared to $ 297.0 million at december 31 , 2018 . at december 31 , 2019 , held to maturity securities , at amortized cost , totaled $ 86.6 million , a decrease of $ 21.7 million when compared to $ 108.3 million at december 31 , 2018 . total loans net of unearned income were $ 1.5 billion at december 31 , 2019 compared to $ 1.2 billion at december 31 , 2018 . story_separator_special_tag total loans net of unearned income are reduced by the allowance for loan losses which totaled $ 10.9 million at december 31 , 2019 and $ 10.8 million at december 31 , 2018 . total impaired loans increased $ 11.9 million to $ 20.7 million at december 31 , 2019 compared to $ 8.8 million at december 31 , 2018 . nonaccrual loans increased $ 5.7 million to $ 14.4 million at december 31 , 2019 compared to $ 8.7 million at december 31 , 2018 . the allowance for loan losses was 0.72 % of loans at december 31 , 2019 . loan discounts related to acquisition accounting from the union transaction was approximately $ 2.4 million at december 31 , 2019 . return on average assets was 0.76 % and 0.82 % for the years ended december 31 , 2019 and 2018 , respectively . return on average common equity was 8.99 % and 9.98 % for 2019 and 2018 , respectively . return on average assets is calculated by dividing net income by average assets . return on average common equity is calculated by dividing net income to common shareholders by average common equity . book value per common share was $ 17.04 as of december 31 , 2019 compared to $ 15.20 as of december 31 , 2018 . tangible book value per common share was $ 15.05 as of december 31 , 2019 compared to $ 14.57 as of december 31 , 2018 . the increase in book value was due primarily to an increase in accumulated other comprehensive income ( `` aoci '' ) and retained earnings . aoci is comprised of unrealized gains and losses on available for sale securities . - 41 - first guaranty 's board of directors declared cash dividends of $ 0.64 per common share in 2019 , which was the equivalent of $ 0.60 per common share after adjusting for the 10 % common stock dividend paid in december 2019. first guaranty also declared cash dividends of $ 0.64 in 2018 , which was the equivalent of $ 0.58 per common share after adjusting for the 10 % common stock dividend paid in december 2019. first guaranty has paid 106 consecutive quarterly dividends as of december 31 , 2019 . in november 2017 , first guaranty announced the launch of an at-the-market equity offering program ( `` atm offering '' ) . first guaranty may sell up to $ 25.0 million of common stock under the atm offering . first guaranty expects to use the net proceeds of the atm offering for general corporate purposes , including support for organic growth and financing possible acquisitions of other financial institutions . first guaranty has not sold any shares of common stock under the atm offering during the years ended december 31 , 2019 and 2018 . first guaranty currently has one new facility under construction in order to facilitate future expansion . this construction commitment totals $ 10.1 million with $ 6.8 million incurred as of december 31 , 2019. first guaranty also completed construction on a new branch facility in amite , louisiana during the fourth quarter of 2019 . - 42 - application of critical accounting policies our accounting and reporting policies conform to generally accepted accounting principles in the united states and to predominant accounting practices within the banking industry . certain critical accounting policies require judgment and estimates which are used in the preparation of the financial statements . allowance for loan losses . the allowance for loan losses is established through a provision for loan losses charged to expense . loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely . the allowance , which is based on evaluation of the collectability of loans and prior loan loss experience , is an amount that , in the opinion of management , reflects the risks inherent in the existing loan portfolio and exists at the reporting date . the evaluations take into consideration a number of subjective factors including changes in the nature and volume of the loan portfolio , overall portfolio quality , review of specific problem loans , current economic conditions that may affect a borrower 's ability to pay , adequacy of loan collateral and other relevant factors . in addition , regulatory agencies , as an integral part of their examination process , periodically review the estimated losses on loans . such agencies may require additional recognition of losses based on their judgments about information available to them at the time of their examination . the following are general credit risk factors that affect our loan portfolio segments . these factors do not encompass all risks associated with each loan category . construction and land development loans have risks associated with interim construction prior to permanent financing and repayment risks due to the future sale of developed property . farmland and agricultural loans have risks such as weather , government agricultural policies , fuel and fertilizer costs , and market price volatility . one- to four-family residential , multifamily , and consumer credits are strongly influenced by employment levels , consumer debt loads and the general economy . non-farm non-residential loans include both owner-occupied real estate and non-owner occupied real estate . common risks associated with these properties is the ability to maintain tenant leases and keep lease income at a level able to service required debt and operating expenses . commercial and industrial loans generally have non-real estate secured collateral which requires closer monitoring than real estate collateral . although management uses available information to recognize losses on loans , because of uncertainties associated with local economic conditions , collateral values and future cash flows on impaired loans , it is reasonably possible that a material change could occur in the allowance for loan losses in the near term . however , the amount of the change that is reasonably possible can not be estimated . the evaluation of the adequacy of loan collateral is often based upon estimates and appraisals .
| earnings per common share for the years ended december 31 , 2019 and december 31 , 2018 was $ 1.47 per common share ( as adjusted for the 10 % stock dividend in december 2019 ) . year ended december 31 , 2018 compared with year ended december 31 , 2017. net income for the year ended december 31 , 2018 was $ 14.2 million , an increase of $ 2.5 million , or 21.0 % , from $ 11.8 million for the year ended december 31 , 2017. the increase in net income of $ 2.5 million for the year ended december 31 , 2018 was the result of several factors . first guaranty experienced increased interest income associated with loans along with a decrease in the provision for loan losses , partially offset by increased loan interest and noninterest expense and decreased noninterest income . the decrease in the provision for loan losses for the year ended december 31 , 2018 was attributed to the aforementioned recovery associated with the payoff of the nonaccrual oil and gas credit along with improvement of overall credit quality of the loan portfolio . the increase in interest expense was due to the rising interest rate environment and increased competition . the decrease in noninterest income was primarily the result of an increase in securities losses . losses on the sale of securities were $ 1.8 million for the year ended december 31 , 2018 compared to gains of $ 1.4 million for 2017. first guaranty also had a decrease in income tax expense of $ 3.9 million resulting from the decrease in the federal corporate tax rate as a result of the tax cuts and jobs act . earnings per common share for the year ended december 31 , 2018 was $ 1.47 per common share , an increase of 21.5 % or $ 0.26 per common share from $ 1.21 per common share for the year ended december 31 , 2017 ( as adjusted for the 10 % stock dividend in december 2019 ) . the increase in earnings per share was caused by the increase in net income . - 64
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- tier 1 leverage ratio of 9.06 % and 8.10 % . credit quality . continued disciplined underwriting . - allowance for loan losses of 0.99 % as a percentage of period-end total gross loans . - provision for loan losses of 0.30 % as a percentage of total gross loans . - net loan charge-offs of 0.22 % as a percentage of average total gross loans . + consists of fee income for foreign exchange , credit cards , deposit services , client investments , letters of credit and lending related activities . this is a non-gaap financial measure . ( see the non-gaap reconciliation under “ results of operations—noninterest income ” ) . ++ this ratio excludes certain financial line items where performance is typically subject to market or other conditions beyond our control . it is calculated by dividing noninterest expense by total revenue , after adjusting for gains or losses on investment securities and equity warrant assets . this is a non-gaap financial measure . ( see the non-gaap reconciliation under “ results of operations—noninterest expense ” ) . 40 a summary of our performance in 2018 compared to 2017 is as follows : replace_table_token_3_th ( 1 ) see “ results of operations–noninterest income ” below for a description and reconciliation of non-gaap core fee income and noninterest income . ( 2 ) see “ results of operations–noninterest expense ” below for a description and reconciliation of non-gaap noninterest expense , non-gaap operating efficiency ratio and non-gaap core operating efficiency ratio . 41 ( 3 ) ratio represents consolidated net income available to common stockholders divided by average assets . ( 4 ) ratio represents consolidated net income available to common stockholders divided by average svbfg stockholders ' equity . ( 5 ) see “ capital resources–capital ratios ” for a reconciliation of non-gaap tangible common equity to tangible assets and tangible common equity to risk-weighted assets . ( 6 ) the operating efficiency ratio is calculated by dividing total noninterest expense by total net interest income plus noninterest income . ( 7 ) book value per common share is calculated by dividing total svbfg stockholders ' equity by total outstanding common shares at period-end . critical accounting policies and estimates our accounting policies are fundamental to understanding our financial condition and results of operations . we have identified three policies as being critical because they require us to make particularly difficult , subjective and or complex judgments about matters that are inherently uncertain , and because it is likely that materially different amounts would be reported under different conditions or using different assumptions . we evaluate our estimates and assumptions on an ongoing basis and we base these estimates on historical experiences and various other factors and assumptions that are believed to be reasonable under the circumstances . actual results may differ materially from these estimates under different assumptions or conditions . our critical accounting policies include those that address the adequacy of the allowance for loan losses and allowance for unfunded credit commitments , measurements of fair value , and the valuation of equity warrant assets . our senior management has discussed and reviewed the development , selection , application and disclosure of these critical accounting policies with the audit committee of our board of directors . we disclose our method and approach for each of our critical accounting policies in note 2— “ summary of significant accounting policies ” of the “ notes to the consolidated financial statements ” under part ii , item 8 of this report . allowance for loan losses and allowance for unfunded credit commitments allowance for loan losses the allowance for loan losses is management 's estimate of credit losses inherent in the loan portfolio at the balance sheet date . we consider our accounting policy for the allowance for loan losses to be critical as our estimation of the allowance involves material estimates by us and is particularly susceptible to significant changes in the near-term . determining the allowance for loan losses requires us to make forecasts that are highly uncertain and require a high degree of judgment . our loan loss reserve methodology is applied to our loan portfolio and we maintain the allowance for loan losses at levels that we believe are appropriate to absorb estimated probable losses inherent in our loan portfolio . a committee comprised of senior management evaluates the adequacy of the allowance for loan losses . our allowance for loan losses is established for loan losses that are probable and incurred but not yet realized . the process of anticipating loan losses is inherently imprecise . we apply a systematic process for the evaluation of individual loans and pools of loans for inherent risk of loan losses . at the time of approval , each loan in our portfolio is assigned a credit risk rating through an evaluation process , which includes consideration of such factors as payment status , the financial condition of the borrower , borrower compliance with loan covenants , underlying collateral values , potential loan concentrations , and general economic conditions . the credit risk ratings for each loan are monitored and updated on an ongoing basis . the allowance for loan losses is based on a formula allocation for similarly risk-rated loans by client industry sector and individually for impaired loans . our formula allocation is determined on a quarterly basis by utilizing a historical loan loss migration model , which is a statistical model used to estimate an appropriate allowance for outstanding loan balances by calculating the likelihood of a loan being charged-off based on its credit risk rating using historical loan performance data from our portfolio . the formula allocation provides the average loan loss experience for each portfolio segment , which considers our quarterly historical loss experience since the year 2000 , both by risk-rating category and client industry sector . story_separator_special_tag the resulting loan loss factors for each risk-rating category and client industry sector are ultimately applied to the respective period-end client loan balances for each corresponding risk-rating category by client industry sector to provide an estimation of the allowance for loan losses . we also supplement our allowance by applying qualitative allocations to the results we obtained through our historical loan loss migration model to ascertain the total allowance for loan losses . these qualitative allocations are based upon management 's assessment of the risks that may lead to a loan loss experience different from our historical loan loss experience . these risks are aggregated to become our qualitative allocation . refer to note 2— “ summary of significant accounting policies ” of the “ notes to the consolidated financial statements ” under part ii , item 8 of this report for a summary of the factors management considers for its qualitative allocation as part of management 's estimate of the changing risks in the lending environment . in 2016 , we made certain enhancements to factors included in our qualitative allocation . we changed from a total loan portfolio weighted average loss factor to a portfolio segment specific loss factor for our estimated reserve floor for portfolio segments that would not draw a minimum reserve based on the lack of historical loan loss experience . additionally , in response 42 to increased average borrowing amounts by our clients , we increased our definition of a large loan used for our qualitative reserve for large funded loan exposure . allowance for unfunded credit commitments the allowance for unfunded credit commitments is determined using a methodology that is inherently similar to the methodology used for calculating the allowance for loan losses adjusted for factors specific to binding commitments , including the probability of funding and exposure at funding . our reserve methodology for unfunded loan commitments applies segment specific historical loss experience for our funded loan portfolio and segment specific probability of funding factors to estimate the allowance for unfunded credit commitments . the allowance for unfunded credit commitments also includes certain qualitative allocations as deemed appropriate by management . we consider our accounting policy for the allowance for unfunded credit commitments to be critical as estimation of the reserve involves material estimates by management and is susceptible to changes in the near term . the allowance for unfunded credit commitments equals management 's best estimate of probable credit losses that are inherent in the portfolio at the balance sheet date . fair value measurements we use fair value measurements to record fair value for certain financial instruments and to determine fair value disclosures . we disclose our method and approach for fair value measurements of assets and liabilities in note 2— “ summary of significant accounting policies ” of the “ notes to the consolidated financial statements ” under part ii , item 8 of this report . asc 820 , fair value measurements and disclosures , establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value . the classification of assets and liabilities within the hierarchy is based on whether the significant inputs to the valuation methodology used for measurement are observable or unobservable and the significance of the level of the input to the entire measurement . observable inputs reflect market-derived or market-based information obtained from independent sources , while unobservable inputs reflect our estimates about market data . the three levels for measuring fair value are defined in note 2— “ summary of significant accounting policies ” of the “ notes to the consolidated financial statements ” under part ii , item 8 of this report . the degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters . for financial instruments that trade actively and have quoted market prices or observable market parameters , there is minimal subjectivity involved in measuring fair value ( level 1 measurements ) . when observable market prices and parameters are not fully available , management judgment is necessary to estimate fair value . for inactive markets , there is little information , if any , to evaluate if individual transactions are orderly . accordingly , we are required to estimate , based upon all available facts and circumstances , the degree to which orderly transactions are occurring and provide more weighting to price quotes that are based upon orderly transactions ( level 2 measurements ) . in addition , changes in the market conditions may reduce the availability of quoted prices or observable data . for example , reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable . therefore , when market data is not available , we use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement ( level 3 measurements ) . significant judgment is required to determine whether certain assets measured at fair value are included in level 2 or level 3. when making this judgment , we consider available information and our understanding of the valuation techniques and significant inputs used . the classification of level 2 or level 3 is based upon the specific facts and circumstances of each instrument or instrument category and judgments are made regarding the significance of the level 3 inputs to the instrument 's fair value measurement in its entirety .
| overall , the increase in our net interest income was due primarily to both higher average loan and investment portfolio balances as well as higher interest rates . the main factors affecting interest income and interest expense for 2018 , compared to 2017 , are discussed below : interest income for 2018 increased by $ 510.9 million primarily due to : ◦ a $ 332.7 million increase in interest income from loans to $ 1.4 billion in 2018 , compared to $ 1.0 billion in 2017 . this increase was reflective of an increase in average loan balances of $ 4.5 billion and an increase in the overall yield on our loan portfolio of 45 basis points to 5.30 percent from 4.85 percent . gross loan yields , excluding loan interest recoveries and loan fees , increased by 55 basis points to 4.77 percent from 4.22 percent , reflective of the benefit of interest rate increases , partially offset by the strong growth of our lower yielding private equity/venture capital loan portfolio . our private equity/venture capital portfolio represented 49.5 percent and 42.8 percent of our total gross loan portfolio at december 31 , 2018 and 2017 , respectively , ◦ a $ 164.5 million increase in interest income from our fixed income investment securities to $ 585.4 million in 2018 , compared to $ 420.9 million in 2017 . the increase was reflective of an increase of $ 2.4 billion in average fixed income investment balances as a result of strong deposit growth in 2018 and an increase in our fixed income securities yield of 48 basis points to 2.36 percent from 1.88 percent . the increase in our fixed income securities yield was primarily from higher reinvestment yields on maturing fixed income investments as well as higher yields on new purchases due to interest rate increases , and 45 ◦ a $ 13.7 million increase in interest income from our federal reserve deposits to $ 35.2 million
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we believe that our performance and future success depend upon several factors including manufacturing costs , investments in our growth , our ability to expand into growing addressable markets , including consumer , enterprise , and automotive , the asp of our products per device , the number of antennas per device , and our ability to diversify the number of devices that incorporate our antenna products . our customers are extremely price conscious , and our operating results are affected by pricing pressure which may force us to lower prices below our established list prices . in addition , a few end-customer devices which incorporate our antenna products comprise a significant amount of our sales , and the discontinuation or modification of such devices may materially and adversely affect our sales and results of operations . our ability to maintain or increase our sales depends on , among other things , new and existing end-customers selecting our antenna solutions for their wireless devices and networks , the proliferation of wi-fi connected home devices and data intensive applications , investments in our growth to address customer needs , our ability to target new end markets , development of our product offerings and technology solutions , and international expansion , as well as our ability to successfully integrate past and any future acquisitions . while each of these areas presents significant opportunities for us , they also pose significant risks and challenges we must successfully address . we discuss many of these risks , uncertainties and other factors in this annual report in greater detail under the section entitled “ risk factors. ” seasonality our operating results historically have not been subject to significant seasonal variations . however , our operating results are affected by how customers make purchasing decisions around local holidays in china . for example , a national holiday the first week of october in china may cause customers to purchase product in the third quarter ahead of their holiday season to account for higher volume requirements in the fourth quarter . in addition , although it is difficult to make broad generalizations , our sales tend to be lower in the first quarter of each year compared to other quarters due to the chinese new year . the extension of the lunar new year holidays due to the recent outbreak of covid 19 originating in china may contribute the traditionally slower first quarter sales this 39 year . results for any quarter may not be indicative of the results that may be achieved for the full f iscal year and these patterns may change as a result of general customer demand or product cycles . key components of our results of operations and financial condition sales we primarily generate revenue from the sales of our products . as discussed further in “ critical accounting policies and significant judgments and estimates ” below , we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services . we generally recognize sales at the time of shipment to our customers , provided that all other revenue recognition criteria have been met . although currently insignificant , we also generate service revenue derived from agreements to provide design , engineering , and testing for a customer . cost of goods sold the cost of goods sold reflects the cost of producing antenna products that are shipped for our customers ' devices . this primarily includes manufacturing costs of our products payable to our third-party contract manufacturers , as well as manufacturing costs incurred at our facility in arizona . the cost of goods sold that we generate from services provided to customers primarily includes personnel costs . operating expenses our operating expenses are classified into three categories : research and development , sales and marketing , and general and administrative . for each category , the largest component is personnel costs , which includes salaries , employee benefit costs , bonuses , and stock-based compensation . operating expenses also include allocated overhead costs for depreciation of equipment , facilities and information technology . allocated costs for facilities consist of leasehold improvements and rent . operating expenses are generally recognized as incurred . research and development . research and development expenses primarily consist of personnel and facility-related costs attributable to our engineering research and development personnel . these expenses include work related to the design , engineering and testing of antenna designs , and antenna integration , validation and testing of customer devices . these expenses include salaries , including stock-based compensation , benefits , bonuses , travel , communications , and similar costs , and depreciation and allocated operating expenses such as office supplies , premises expenses and insurance . we may also incur expenses from consultants and for prototyping new antenna solutions . we expect research and development expenses to increase in absolute dollars in future periods as we continue to invest in the development of new solutions and markets and as we invest in improving efficiencies within our supply chain , although our research and development expense may fluctuate as a percentage of total sales . sales and marketing . sales and marketing expenses primarily consist of personnel and facility-related costs for our sales , marketing , and business development personnel , stock-based compensation and bonuses earned by our sales personnel , and commissions earned by our third-party sales representative firms . sales and marketing expenses also includes the costs of trade shows , marketing programs , promotional materials , demonstration equipment , travel , recruiting , and allocated costs for certain facilities . over the next several quarters , we expect sales and marketing expenses to fluctuate as a percentage of sales . general and administrative . story_separator_special_tag general and administrative expenses primarily consist of personnel and facility- related costs for our executive , finance , and administrative personnel , including stock-based compensation , as well as legal , accounting , and other professional services fees , depreciation , and other corporate expenses . we expect general and administrative expenses to fluctuate over the next several quarters as we grow our operations . other income interest income . interest income consists of interest from our cash and cash equivalents and short-term investments . 40 gain on deferred purchase price liability . during the year ending december 31 , 2018 , skycross , inc. and we and skycross came to an agreement that we would pay skycross $ 375 ,000 for deferred consideration under our asset purchase agreement entered into in december 2015. gain on deferred purchase price liability consists of the variance between the amount paid to skycross for the deferred purchase price and th e elimination of the accounts receivable due from skycross and the accounts payable due to skycross . interest expense . interest expense consists of interest charges on accrued expenses . provision for income taxes provision for income taxes consists of federal and state income taxes . in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . management considers the scheduled reversal of deferred tax liabilities ( including the impact of available carryback and carryforward periods ) , projected future taxable income , and tax-planning strategies in making this assessment . it is difficult for us to project future taxable income as the timing and size of sales of our products are variable and difficult to predict . we concluded that it is not more likely than not that we will utilize our deferred tax assets other than those that are offset by reversing temporary differences . on december 22 , 2017 , the 2017 tax act , was enacted . the 2017 tax act includes a number of changes to existing u.s. tax laws that impact us , most notably a reduction of the u.s. corporate income tax rate from 35 % to 21 % effective for tax years beginning january 1 , 2018. the 2017 tax act changes primarily affected our tax rate on certain deferred tax assets and deferred tax liabilities . story_separator_special_tag related to the acceleration of stock compensation expense for a former executive , $ 0.5 million in non-recurring expenses related to executive severance , and $ 0.4 million increase in personnel expenses associated with headcount increases offset by a $ 0.6 million decrease in outsourced services . 43 other i ncome replace_table_token_9_th other income decreased $ 0.2 million for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 , primarily due to the one-time $ 0.4 million gain on deferred purchase price liability in 2018 but offset in part by a $ 0.1 million increase in interest income . other income increased $ 0.7 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to a $ 0.4 million gain on deferred purchase price liability , a $ 0.3 million increase in interest income from investments . liquidity and capital resources we had cash and cash equivalents of $ 13.2 and $ 21.7 in short-term investments at december 31 , 2019. our short-term investments consist predominantly of commercial paper , corporate debt securities , u.s. treasury securities and asset backed securities . before 2013 , we had incurred net losses in each year since our inception . as a result , we had an accumulated deficit of $ 44.1 million at december 31 , 2019. since inception , we have primarily financed our operations and capital expenditures through private sales of preferred stock , public offerings of our common stock and cash flows from our operations . we have raised an aggregate of $ 29.5 million in net proceeds from the issuance of our preferred stock and convertible promissory notes and $ 37.0 million from the sale of common stock in public offerings . as of december 31 , 2018 , we had paid off the remaining balance outstanding under a term loan pursuant to our prior amended and restated loan and security agreement with silicon valley bank . in addition , under our second amended and restated loan and security agreement with silicon valley bank , or the amended loan agreement , we have a revolving line of credit for $ 10.0 million . as of december 31 , 2019 , there was no balance owed on the line of credit . the revolving line of credit expired in january 31 , 2020 and was not extended or renewed . on january 31 , 2018 , we entered into the amended loan agreement with silicon valley bank . the amended loan agreement amended and restated the terms of our prior amended and restated loan and security agreement with silicon valley bank . the agreement , among other things , increased the aggregate principal amount available under the revolving line of credit from $ 3.0 million to $ 10.0 million and modified certain existing financial covenants . under the amended loan agreement , we were allowed to borrow up to $ 10.0 million under the line of credit , subject to a borrowing base limit of 80 % of the aggregate face amount of all eligible receivables .
| gross profit replace_table_token_7_th gross profit as a percentage of sales increased 1.7 % for the year ended december 31 , 2019 , as compared to the year ended december 31 , 2018. the increase in gross profit as a percentage of sales was primarily driven by a shift in the sales mix for the year ended december 31 , 2019 , when compared to the year ended december 31 , 2018. gross profit as a percentage of sales decreased 3.3 % for the year ended december 31 , 2018 , as compared to the year ended december 31 , 2017. the decrease in gross profit as a percentage of sales was primarily driven by a shift in the sales mix for the year ended december 31 , 2018 when compared to the year ended december 31 , 2017 . 42 operating expenses replace_table_token_8_th research and development research and development expense decreased $ 0.3 million for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 , primarily due to a decrease in personnel expenses . research and development expense increased $ 2.0 million for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , primarily due to a $ 1.4 million increase in operating expenses associated with increase in personnel expenses associated with headcount increases , $ 0.4 million increase in miscellaneous research and development expenses and $ 0.1 million increase in depreciation . sales and marketing sales and marketing expense decreased $ 4.0 million for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 , primarily due to a $ 2.7 million decrease related to the termination of a marketing agreement in 2018 and a $ 1.3 million decrease in personnel and consultants ' expenses and executive severance in 2018. sales and marketing expense increased $ 4.0 million for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , primarily due to a $ 1.5 million increase in non-recurring expenses related to a marketing-related agreement and its termination and executive severance , $ 1.2 million increase in marketing expenses , $ 0.9 million increase in personnel expenses associated with headcount increases and $ 0.2 million increase in miscellaneous sales and marketing expenses . general and administrative general and administrative expense decreased $ 0.6 million for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 ,
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sales distribution by segment for the years ended december 31 , 2017 , 2016 and 2015 was as follows : replace_table_token_7_th strategy & recent highlights since 2011 , our corporate strategy has been focused on transforming the company into a more sustainable organization , one that we believe can generate consistent value for shareholders through a competitive portfolio of manufacturing assets and a solid presence in long-term growth markets . this includes , on the one hand , a gradual retreat from certain paper grades , and on the other , using our strong financial position to act on opportunities to diversify and grow . this strategy has three core themes : maximizing value generation from paper , growing in pulp , tissue , and wood products , and integrating our pulp into value-added quality tissue . in order to successfully execute this strategic plan , we also recognize the need to maintain a disciplined approach to capital allocation as well as a level of financial leverage and flexibility that supports the evolution of our transformation . maximizing value generation from paper we compete today as a leading , lower-cost north american paper producer , due to continuous improvement and mill optimization . maintaining this competitive advantage is a key focus . in order to remain competitive in the demand-challenged markets that our paper operations face , we strive to consistently : maintain a stringent focus on reducing costs and optimizing our diversified asset base , including divesting idled and non-core assets or unprofitable operations ; maximize the benefits of our access to virgin fiber ; pursue a strategy of managing production and inventory levels and focus production at our most profitable and lower-cost facilities and machines ; and 25 optimize our organizational structure to maintain a competitive selling , general and administrative expenses ( or “ sg & a ” ) to sales ratio . growing in pulp , tissue , and wood products we believe in taking an opportunistic approach to strategic initiatives , pursuing only those that reduce our cost position , improve our product diversification and provide synergies . we believe that our market pulp , tissue , and wood products segments are aligned with those criteria , will benefit from long-term growth markets , and are therefore critical to our transformation strategy . since 2011 , we have completed a number of strategic initiatives in those segments , leading to a relative shift in our business away from our structurally-challenged paper business ( comprised of newsprint and specialty papers ) and into those growth markets ( comprised of market pulp , tissue and wood products ) , as illustrated below . 26 ( 1 ) for a reconciliation of net income ( loss ) including noncontrolling interests to earnings before interest expense , income taxes , and depreciation and amortization , or “ ebitda , ” and adjusted ebitda , see note 1 under “ reconciliations ” below . integrating our pulp into value-added quality tissue consistent with our overall business transformation strategy , we began our entry into the tissue market in 2015 with the announcement of our plan to build a greenfield tissue facility at our calhoun facility and the acquisition of atlas paper holdings , inc. and its subsidiaries ( or “ atlas tissue ” ) . this significant strategic decision supports our firm belief in adding value through the integration of our market pulp , particularly as paper utilization continues its steady decline . in addition , we believe that the tissue market will provide a more stable source of revenue and profitability . our tissue operations are almost entirely supplied from our pulp mills , creating synergies and effectively minimizing risks associated with market pulp supply . for our calhoun tissue facility , local pulp production is directly transferred as slush pulp into the tissue operation , reducing process , handling and logistics costs . equipped with three modern converting lines sized specifically for the tissue machine , we sell converted products from the calhoun tissue facility , targeting the fast growing premium private-label markets of the u.s. our transformation since 2011 is summarized below : ( 1 ) by acquiring fibrek inc. , we grew our market pulp capacity by over 70 % , increasing our presence in a market that we believe will continue to grow over the long term . ( 2 ) we installed a 65 mw steam turbine at our thunder bay pulp and paper mill , which reduces the mill 's energy costs as well as maximizes our local woodlands , sawmill , pulp and paper , and energy operations by fully utilizing forest-based biomass to produce green electricity . ( 3 ) our ignace and atikokan sawmills in northern ontario , as well as the acquisition of a second sawmill in senneterre and resulting consolidation , have added more than 300 million board feet of annualized wood products capacity . ( 4 ) we acquired atlas tissue , gaining an immediate position in the north american consumer tissue market and access to a customer base to accelerate the sale and distribution of our calhoun tissue production . 27 ( 5 ) we completed a $ 100 million project to build a continuous pulp digester at the calhoun pulp and paper mill , increasing our annual pulp capacity by 100,000 metric tons . this incremental capacity serves in part to supply slush pulp to our new calhoun tissue machine ( see note 6 below ) . ( 6 ) the calhoun facility has a total annualized capacity of 66,000 short tons ( 60,000 metric tons ) of at-home , premium bathroom tissue and toweling products , focused on the growing private-label market . the new tissue machine is expected to attain its targeted operational capacity in mid-2018 . capital management we make capital management a priority . story_separator_special_tag building on our focus to reduce manufacturing costs , we will continue our efforts to decrease overhead , spend our capital in a disciplined , strategic and focused manner , concentrated on our most competitive sites , and to explore divestiture options for idled and non-core assets , as well as unprofitable operations . maintaining our strong financial position and financial flexibility is one of our primary financial goals . in 2013 , we refinanced the remaining balance of our senior secured notes with 5.875 % senior unsecured notes due 2023 ( or the “ 2023 notes ” ) . in addition to adding five years to maturity , the refinancing reduced our annual cash interest burden by $ 16 million and improves our financial flexibility . in 2015 , we refinanced our senior secured asset-based revolving credit facility ( or “ abl credit facility ” ) . the new five-year credit agreement provides more flexible terms and conditions , improves pricing and immediately lowers our cost of capital , to better support the execution of our growth and diversification initiatives . in 2016 , we entered into a senior secured credit facility ( or “ senior secured credit facility ” ) for up to $ 185 million , comprised of a $ 46 million nine-year term loan ( or “ term loan ” ) and a $ 139 million six-year revolving credit facility ( or “ revolving credit facility ” ) . this new facility increases our liquidity levels and will further enhance our flexibility in the execution of our growth and diversification strategy . in 2014 , we modified our u.s. other postretirement benefit ( or “ opeb ” ) plans to encourage greater participation in a medicare exchange program . in addition to securing high-quality healthcare for participants , this modification , along with similar initiatives undertaken since mid-2013 , helped to reduce our u.s. opeb liability on the balance sheet from $ 250 million to $ 77 million as of december 31 , 2014. in 2016 and 2017 , we undertook steps to optimize our pension plan contributions , as further discussed below under “ liquidity and capital resources – employee benefit plans – pension funding , ” reducing the volatility as well as the amount of required contributions . when compared to the baseline contributions of 2016 , we estimate that pension contributions will drop by approximately $ 170 million between 2017 and 2020 , including $ 30 million realized in 2017. sustainable performance and development our sustainability strategy is based on a balanced approach to environmental , social and economic performance , designed to enhance our competitive position . it is supported by public commitments in a number of key performance areas , focusing primarily on : improving resource efficiency , which helps control fiber , fuel , and power costs , three significant input costs in our industry ; moving beyond regulatory compliance and environmental incident management to differentiate ourselves as an environmental supplier of choice ; positioning ourselves as a competitive employer in order to attract , engage and retain the best and brightest minds , promoting employee engagement , innovation and longevity ; and building solid community relations to support long-term regional prosperity and our own financial and operational success . our recent key sustainability achievements include : beating our ambitious safety target by achieving an occupational safety and health administration incident rate of 0.66 in 2017. safety is our first priority , and we strive for zero injuries . achieving a 76 % reduction in absolute greenhouse gas ( or “ ghg ” ) emissions ( scope 1 and 2 ) , below 2000 levels . 28 joining forces with fpinnovations in a cdn $ 21 million project to establish a biorefinery pilot plant hosted at our thunder bay pulp and paper mill . the initiative will focus on developing new ways to efficiently produce and commercialize innovative biochemicals derived from wood . launching a clean energy project to improve our thunder bay mill 's energy efficiency and lower its ghg emissions . the mill plans to reduce its use of natural gas by recovering waste heat from its exhaust streams and optimizing condensate returns by installing efficient steam traps . by mid-2019 , the cdn $ 12 million project is expected to provide annual natural gas cost savings of more than 35 % , while reducing the mill 's overall annual ghg emissions by over 20 % , or approximately 43,000 metric tons of co 2 equivalents per year . partnering with co 2 solutions to deploy a co 2 capture unit and ancillary equipment to improve growth rates at toundra greenhouse in saint-félicien ( quebec ) , in which we hold a 49 % interest . maintaining 100 % certification of resolute-owned or managed woodlands to internationally recognized forest management standards . 100 % of our managed forests have been certified to one or more of two standards ( sustainable forestry initiative ® , or “ sfi ® ” , and or forest stewardship council ® , or “ fsc ® ” ) . accordingly , our commitments extend well beyond strict compliance with applicable forestry regulations , which in quebec and ontario are already among the most , if not the most , rigorous in the world . maintaining fiber-tracking systems that allow us to identify the source of the fiber or wood used , all of which have chain of custody certification . 100 % of these tracking systems are third-party certified according to one or more of the following internationally recognized chain of custody standards : sfi , programme for the endorsement of forest certification , and or fsc . continuing to report climate , water and forest disclosures to cdp ( formerly the carbon disclosure project ) . full disclosures and scores are available on cdp 's website ( https : //www.cdp.net/ ) , though this information is not incorporated by reference into this form 10-k and should not be considered part of this or any other report that we file with or furnish to the sec .
| the average transaction price dropped by $ 14 per short ton , despite some pricing gains realized in the latter part of 2017. shipments were 171,000 short tons ( 155,000 metric tons ) lower , or 11 % , mainly in white and coated paper grades , largely due to declining market conditions , which led to the permanent closure of two paper machines in calhoun at the end of the third quarter of 2017 , and one paper machine in catawba at the end of the second quarter of 2017 , partly offset by an increase due to the restart of a paper machine in alma . finished goods fell by 26,000 short tons ( 24,000 metric tons ) . 56 cost of sales , excluding depreciation , amortization and distribution costs cos were $ 102 million lower in 2017. restructuring initiatives reduced cos by $ 65 million , including the elimination of $ 32 million in fixed manufacturing costs . after removing the effects of the canadian dollar fluctuation , the lower volume , and the effect of the restructuring initiatives , manufacturing costs improved by $ 9 million , reflecting : favorable chemical costs ( $ 9 million ) , mainly price-related ; lower power costs ( $ 5 million ) , mostly price-related ; and higher contribution from our cogeneration assets in dolbeau that sell power externally ( $ 2 million ) ; offset in part by : unfavorable steam costs ( $ 6 million ) , mostly due to higher natural gas prices ; and lower internal hydroelectric generation ( $ 5 million ) , due to a planned maintenance outage . distribution costs after removing the effects of the lower volume , the restructuring initiatives , and the canadian dollar fluctuation , distribution costs increased by $ 8 million , primarily as a result of an increase in the average length of haul , and higher freight rates , including the effect of the shortage of truck drivers . selling , general and administrative expenses the higher overall sg & a was mostly offset by lower allocated expenses as a result of capacity reductions . 2016 vs. 2015 operating income variance analysis sales specialty paper sales decreased by $ 89 million , or 8 % , to $ 1,015 million in 2016. the average transaction price dropped by $ 28 per short ton as a result of lower market prices across all grades , but mostly for coated mechanical and sc grades . shipments were 66,000 short tons ( 60,000 metric tons ) lower , or 4 % . 57
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” after giving effect to the d-j basin acquisition and the divestiture of our legacy non-core niobrara assets to miej as discussed above , as of february 7 , 2015 , the company was producing approximately 994 boepd from our d-j basin asset , we currently hold approximately 26,990 net operated acres in our d-j basin asset , and we hold interests in 53 gross ( 15.6 net ) wells in our d-j basin asset , of which 14 gross ( 12.5 net ) wells are operated by our wholly-owned subsidiary , red hawk and are currently producing , 17 gross ( 3.1 net ) wells are non-operated , and 22 wells have an after-payout interest . we have also entered into agreements to acquire a 5 % interest in a canadian publicly-traded company which is in the process of acquiring a 100 % working interest in production and exploration licenses covering an approximate 380,000 acre oil and gas producing asset located in the pre-caspian basin in kazakhstan , which we plan to close upon receipt of required approvals from the kazakhstan government and satisfaction of other customary closing conditions , which are planned to be satisfied on or before july 2015. in connection with our recent d-j basin acquisition , we provided gge a one-year option to acquire our interest in our kazakhstan opportunity for $ 100,000 , described in greater detail below in “ recent developments – d-j basin asset acquisition. ” we believe that the d-j basin shale play represents among the most promising unconventional oil and natural gas plays in the u.s. we plan to continue to seek additional acreage proximate to our currently held core acreage located in the wattenberg and wattenberg extension areas of weld county , colorado . our strategy is to be the operator , directly or through our subsidiaries and joint ventures , in the majority of our acreage so we can dictate the pace of development in order to execute our business plan . the majority of our capital expenditure budget for the next 12 calendar months will be focused on the acquisition , development and expansion of our d-j basin asset . we plan to drill and complete , and participate in the drilling and completion of , approximately 14 additional total wells ( equivalent to 3.5 net wells to us ) in our d-j basin asset through 2015 for total capital expenditures of approximately $ 24 million , including both operated and non-operated wells , 4 of which will be long lateral wells . we plan to utilize projected cash flow from operations , the approximately $ 13.5 million gross ( $ 11.0 million net , after origination-related fees and expenses ) available under our current senior debt facility , our cash on hand , and proceeds from future potential debt and or equity financings to fund our operations and business plan . the company is currently working with dome energy to prepare a projected drilling and completion schedule and budget assuming the company 's acquisition of dome us is consummated , which new 2015 program we anticipate will provide for the drilling of approximately 9 gross ( 3.5 net ) long lateral wells at an estimated capital cost to the company of approximately $ 25.8 million , and 24 gross ( 9 net ) short lateral wells at an estimated capital cost to the company of approximately $ 28.0 million , increasing our 2015 capital expenditure program with respect to drilling and completions to approximately $ 53.8 million , and to approximately $ 55.5 million total including lease renewals . we have listed below the total production volumes and total revenue net to the company for the years ended december 31 , 2014 and 2013 attributable to our d-j basin asset , including the calculated production volumes and revenue numbers for our d-j basin asset held indirectly through condor that would be net to our interest if reported on a consolidated basis , and which does not include any production realized from our recent d-j basin acquisition closed effective january 1 , 2015 . 67 replace_table_token_5_th ( 1 ) assumes 6 mcf of natural gas is equivalent to 1 barrel of oil . we are pleased with our recent almost four-fold increase in year-over-year production ( boe ) . we are especially encouraged since we achieved this increase despite issues of inadequate access to sufficient produced water disposal resources and adverse weather conditions that hindered operations throughout the year . we will continue to use our team 's experience to improve our oil production while lowering and normalizing the operating costs of our d-j basin asset . detailed information about our business plans and operations , including our core dj basin asset is contained under “ part 1 ” - “ item 1. business ” beginning on page 5 of this annual report . d-j basin asset reserves estimates the following table sets forth as of december 31 , 2014 , the estimated net proved oil and natural gas reserves and the estimated present value ( discounted at an annual rate of ten percent ( 10 % ) ) of estimated future net revenues before future income taxes ( pv-10 ) of our reserves with respect solely to the niobrara “ a ” , “ b ” and “ c ” benches of our d-j basin asset after giving effect to the d-j basin acquisition and the divestiture of our non-core niobrara interests to miej , each prepared in accordance with assumptions described by the sec . the information presented below does not reflect any reserves that may be attributable to the codell , greenhorn , j-sands or other prospective formations available for development in the d-j basin , formations that are actively being pursued by companies in our area and which we will be eagerly watching their operations and results . lastly , these numbers only reflect a development plan that contemplates developing approximately 50 % of our available d-j basin asset acreage . story_separator_special_tag the pv-10 value is a widely used measure of value of oil and natural gas assets and represents a pre-tax present value of estimated cash flows discounted at ten percent ( 10 % ) . pv-10 is considered a non-gaap financial measure as defined by the sec . we believe that our pv-10 presentation is relevant and useful to our investors because it presents the discounted future net cash flows attributable to our proved reserves before taking into account the related future income taxes , as such taxes may differ among various companies because of differences in the amounts and timing of deductible basis , net operating loss carry forwards and other factors . we believe investors and creditors use our pv-10 as a basis for comparison of the relative size and value of our proved reserves to the reserve estimates of other companies . pv-10 is not a measure of financial or operating performance under gaap and is not intended to represent the current market value of our estimated oil and natural gas reserves . pv-10 should not be considered in isolation or as a substitute for the standardized measure of discounted future net cash flows as defined under gaap . these calculations were prepared using standard geological and engineering methods generally accepted by the petroleum industry and in accordance with sec financial accounting and reporting standards . due to the inherent uncertainties and the limited nature of reservoir data , reserves are subject to change as additional information becomes available . the estimates of reserves are based on various assumptions , including those prescribed by the sec , and are inherently imprecise . although we believe these estimates are reasonable , actual future production , cash flows , taxes , development expenditures , operating expenses and quantities of recoverable oil and natural gas reserves may vary substantially from these estimates . 68 replace_table_token_6_th ( 1 ) 6 mcf of natural gas is equivalent to 1 barrel of oil . ( 2 ) in accordance with applicable financial accounting and reporting standards of the sec , the estimates of our proved reserves and the pv-10 set forth herein reflect estimated future gross revenue to be generated from the production of proved reserves , net of estimated production and future development costs , using prices and costs under existing economic conditions at december 31 , 2014. for purposes of determining prices , we used the unweighted arithmetical average of the prices on the first day of each month within the 12-month period ended at december 31 , 2014. the prices should not be interpreted as a prediction of future prices . the amounts shown do not give effect to non-property related expenses , such as corporate general administrative expenses and debt service , future income taxes or to depreciation , depletion and amortization . how we conduct our business and evaluate our operations our use of capital for acquisitions and development allows us to direct our capital resources to what we believe to be the most attractive opportunities as market conditions evolve . we have historically acquired properties that we believe had significant appreciation potential . we intend to continue to acquire both operated and non-operated properties to the extent we believe they meet our return objectives . we will use a variety of financial and operational metrics to assess the performance of our oil and natural gas operations , including : ● production volumes ; ● realized prices on the sale of oil and natural gas , including the effects of our commodity derivative contracts ; ● oil and natural gas production and operating expenses ; ● capital expenditures ; ● general and administrative expenses ; ● net cash provided by operating activities ; and ● net income . 69 production volumes production volumes will directly impact our results of operations . after giving effect to the d-j basin asset acquisition and the divestiture of our non-core niobrara assets to miej as discussed above , we currently hold interests in 53 gross ( 15.6 net ) wells in our d-j basin asset , of which 14 gross ( 12.5 net ) wells are operated by our wholly-owned subsidiary , red hawk and are currently producing , 17 gross ( 3.1 net ) wells are non-operated , and 22 wells have an after-payout interest . additionally , we expect to increase production assuming drilling success in the future as we expand operations in our dj basin asset . factors affecting the sales price of oil and natural gas we expect to market our crude oil and natural gas production to a variety of purchasers based on regional pricing . the relative prices of crude oil and natural gas are determined by the factors impacting global and regional supply and demand dynamics , such as economic conditions , production levels , weather cycles and other events . in addition , relative prices are heavily influenced by product quality and location relative to consuming and refining markets . oil . the new york mercantile exchange-west texas intermediate ( nymex-wti ) futures price is a widely used benchmark in the pricing of domestic crude oil in the u.s. the actual prices realized from the sale of crude oil differ from the quoted nymex-wti price as a result of quality and location differentials . quality differentials to nymex-wti prices result from the fact that crude oils differ from one another in their molecular makeup , which plays an important part in their refining and subsequent sale as petroleum products . among other things , there are two characteristics that commonly drive quality differentials : ( a ) the crude oil 's american petroleum institute , or api , gravity and ( b ) the crude oil 's percentage of sulfur content by weight . in general , lighter crude oil ( with higher api gravity ) produces a larger number of lighter products , such as gasoline , which have higher resale value and , therefore , normally sell at a higher price than heavier oil .
| for the year ended december 31 , 2014 , we generated a total of $ 4,812,000 in revenues , compared to $ 744,000 for the year ended december 31 , 2013. the increase of $ 4,068,000 was primarily due to the increased revenue resulting from production acquired in the purchase of the wattenberg asset as of march 7 , 2014. lease operating expenses . for the year ended december 31 , 2014 , lease operating expenses associated with the oil and gas properties were $ 1,674,000 , compared to $ 648,000 for the year ended december 31 , 2013. the increase of $ 1,026,000 was primarily due to $ 396,000 of costs associated with the sale of oil inventory from the purchase of the wattenberg asset and the increased lease operating expenses resulting from the purchase of the wattenberg asset as of march 7 , 2014. exploration expense . for the year ended december 31 , 2014 , exploration expense was $ 1,306,000 primarily related to the acquisition of seismic data for our recently acquired wattenberg asset and lease extension expense . we had no exploration expense for the year ended december 31 , 2013. selling , general and administrative expenses . for the year ended december 31 , 2014 , selling , general and administrative ( “ sg & a ” ) expenses were $ 8,712,000 , compared to $ 7,150,000 for the year ended december 31 , 2013. the increase of $ 1,562,000 was primarily due to an increase in stock compensation expense , as a result of the vesting of certain stock grants during the period , and increased salaries , primarily related to our staff in houston , texas . the components of sg & a expense are summarized below ( amounts in thousands ) : 75 replace_table_token_7_th impairment of oil and gas properties . for the year ended december 31 , 2014 , impairment of oil and gas properties was $ 5,416,000 , compared to $ 3,303,000 for the year ended december 31 , 2013 , the $ 2,113,000 increase is due to the $ 5,377,000 impairment related to our mississippian asset in the fourth quarter of 2014 resulting from the expiration of leases , compared to
| 16,014 |
finally , the seller had the desire to see atlas operated as an independent brand and organization in the future . all of these objectives were achieved in our mutually advantageous relationship ( see note 6 in the consolidated financial statements ) . 16 as a part of the atlas acquisition , we discontinued operations at the atlas dyeing facility in los angeles and moved the carpet dyeing of their products to our susan street dyeing operation located in santa ana , california . as part of the acquisition , we initiated a restructuring plan to accommodate the dyeing move and address the modification of computer systems . the costs of these initiatives are expected to be approximately $ 1.8 million . $ 1.4 million of costs were incurred under this plan in 2014 and the remaining initiatives for $ 400 thousand are expected to be completed in 2015. on september 22 , 2014 , we purchased certain assets , including specialized tufting equipment , and assumed certain liabilities from burtco enterprises . we believe the unique capabilities of this tufting equipment will enable us to develop products that complement our high-end , specialized commercial markets . the total consideration for the equipment , inventories and certain receivables , net of liabilities assumed was approximately $ 2.4 million . this transaction resulted in a pre-tax bargain purchase of $ 173 thousand ( see note 6 in the consolidated financial statements ) . we continue to see opportunities for our modular tile offerings in both the masland contract and atlas markets . further , the future opportunities in hospitality , we believe , can be capitalized upon with the creation of masland hospitality and leveraging our investment in burtco and its unique position in custom computerized yarn placement tufting technology . also , we remain optimistic about conditions that affect the higher-end residential markets we serve . we believe the actions discussed above have been , and are , necessary to position us to more fully take advantage of the markets we serve and have helped to facilitate the growth we have experienced and that we anticipate in the future . story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:9pt ; '' > loss from discontinued operations and loss on disposal of discontinued operations , net of tax . in the fourth quarter of 2014 , we discontinued the carousel specialty tufting and weaving operation that was part of the 2013 robertex , inc. acquisition . as a result , we recognized a loss on the disposal of the discontinued operation of $ 1.5 million , net of tax , which included the impairment of certain intangibles associated with carousel and the related machinery and equipment . additionally , 2014 included a loss from the discontinued carousel operations of $ 598 thousand , net of tax , compared with a loss of $ 198 thousand , net of tax in 2013. net income ( loss ) . continuing operations reflected income of $ 673 thousand , or $ 0.03 per diluted share in 2014 , compared with income from continuing operations of $ 5.6 million , or $ 0.42 per diluted share in 2013. our discontinued operations reflected a loss of $ 608 thousand , or $ 0.04 per diluted share , and a loss on disposal of discontinued operations of $ 1.5 million , or $ 0.10 per diluted share in 2014 compared with a loss from discontinued operations of $ 266 thousand , or $ 0.02 per diluted share in 2013. including discontinued operations , we had a net loss of $ 1.4 million , or $ 0.11 per diluted share , in 2014 compared with net income of $ 5.3 million , or $ 0.40 per diluted share , in 2013. fiscal year ended december 28 , 2013 compared with fiscal year ended december 29 , 2012 net sales . net sales for the year ended december 28 , 2013 were $ 344.4 million compared with $ 266.4 million in the year-earlier period , an increase of 29.3 % for the year-over-year comparison . the carpet industry reported a percentage increase in the mid- single digits in net sales in 2013 compared with 2012. our 2013 year-over-year carpet sales comparison reflected an increase of 28.6 % in net sales . sales of residential carpet were up 26.7 % and sales of commercial carpet increased 34.3 % . revenue from carpet yarn processing and carpet dyeing and finishing services increased $ 4.1 million in 2013 compared with 2012. we believe our residential and commercial sales were positively affected primarily as a result of the introduction of new products and the expansion of our wool products . cost of sales . cost of sales , as a percentage of net sales , was basically unchanged in 2013 compared with 2012. cost of sales in 2013 included approximately $ 5.1 million of costs associated with acquisitions in late 2012 and 2013 as well as certain process realignment and expansion initiatives undertaken during 2013. cost of sales in 2012 included incremental costs of approximately $ 1.4 million related to tufting equipment relocations and costs related to the transition of products from our beck dyeing operations to our continuous dyeing operations acquired in the fourth quarter of 2012. gross profit . gross profit increased $ 20.2 million in 2013 compared with 2012. the increase in gross profit was primarily attributable to higher sales . gross profit in 2013 and 2012 was negatively affected by the incremental costs discussed above related to costs of sales . selling and administrative expenses . selling and administrative expenses were $ 76.2 million in 2013 compared with $ 63.5 million in 2012 , a decline of 1.7 percentage points as a percentage of sales in 2013 compared with 2012. selling and 18 administrative costs in 2013 included approximately $ 1.8 million of sampling costs incurred to incorporate the new wool products associated with the robertex acquisition and our launch of a new tile product line . story_separator_special_tag 2012 included $ 1.7 million related to investment in the development and sampling of new product initiatives , $ 409 thousand for incremental costs related to the two acquisitions and $ 600 thousand of costs related to management changes . other operating ( income ) expense , net . net other operating ( income ) expense was $ 494 thousand in 2013 compared with $ 68 thousand in 2012. the change in 2013 was due to the disposal of certain manufacturing assets taken out of service , losses on currency valuations and settlement of a claim against a supplier . operating income . operating income was $ 8.9 million in 2013 compared with operating income of $ 1.8 million in 2012. the increase in 2013 was primarily a result of the increased level of sales in 2013 , less the variable selling expenses associated with the sales increase . interest expense . interest expense increased $ 610 thousand in 2013 principally due to higher levels of debt to support our growth , including an increase in debt related to business acquisitions in late 2012 and during mid-2013 . other ( income ) expense , net . other ( income ) expense , net was an expense of $ 26 thousand in 2013 compared to income of $ 277 thousand in 2012. the change was primarily the result of a $ 187 thousand gain recognized on the sale of a non-operating asset in 2012. income tax provision ( benefit ) . our income tax provision was a benefit of $ 577 thousand in 2013 on positive earnings primarily as a result of the reversal of $ 1.2 million of previously established reserves for state income tax loss and tax credit carryforwards . the reversal of the reserves was based on a number of factors including current and future earnings assumptions by taxing jurisdiction . additionally , 2013 included certain tax credits of approximately $ 520 thousand related to the years 2009 - 2011 determined to be available for utilization and $ 304 thousand of 2012 research and development tax credits that could not be recognized until the extension of the credit was approved by congress in 2013. our effective income tax benefit rate was 38.0 % in 2012. the effective tax rate varied from statutory rates in 2012 primarily as a result of adjustments to estimates used in the 2011 estimated tax calculations versus amounts used in the subsequent tax return filing for the 2011 period , net of the effects of permanent differences on the lower level of pre-tax earnings in the 2012 tax calculations . net income ( loss ) . continuing operations reflected income of $ 5.6 million , or $ 0.42 per diluted share in 2013 , compared with a loss from continuing operations of $ 653 thousand , or $ 0.05 per diluted share in 2012. our discontinued operations reflected a loss of $ 266 thousand , or $ 0.02 per diluted share in 2013 , compared with a loss of $ 274 thousand , or $ 0.02 per diluted share in 2012. including discontinued operations , our net income was $ 5.3 million , or $ 0.40 per diluted share , in 2013 compared with a net loss of $ 927 thousand , or $ 0.07 per diluted share , in 2012. liquidity and capital resources we believe our operating cash flows , credit availability under our senior loan and security agreement and other sources of financing are adequate to finance our normal foreseeable liquidity requirements . however , deterioration in our markets or significant additional cash expenditures above our normal liquidity requirements could require supplemental financing or other funding sources . there can be no assurance that such supplemental financing or other sources of funding can be obtained or will be obtained on terms favorable to us . during the year ended december 27 , 2014 , we generated funds of $ 24.6 million from the may 2014 equity offering , net of issuance costs including the underwriter discount . additionally , we generated $ 3.4 million from operating activities and $ 6.8 million from proceeds related to the sales of capitalized assets and the sale of an equity investment . these funds were used to finance our operations , invest $ 17.7 million in business acquisitions , invest $ 9.5 million for purchases of property , plant and equipment , reduce debt $ 3.5 million , $ 2.7 million to fund outstanding checks and $ 1.2 million for deposits for future equipment purchases . excluding assets acquired and liabilities assumed in the atlas and burtco acquisitions and the change in the current portion of debt , working capital increased $ 1.1 million in 2014. the increase in working capital was primarily a result of an increase in current deferred income tax assets offset by a decrease in accounts payable and accrued expenses . capital asset acquisitions for the year ended december 27 , 2014 , excluding those acquired in business acquisitions , were $ 32.8 million ; $ 9.5 million through funded debt and $ 23.3 million of assets acquired under capital leases and notes payable , while depreciation and amortization was $ 12.9 million . we expect capital expenditures to be approximately $ 13.5 million in 2015 while depreciation and amortization is expected to be approximately $ 14.1 million . planned capital expenditures in 2015 are primarily for new equipment . debt facilities on march 14 , 2014 , we amended our senior credit facility ( `` amended senior credit facility '' ) , effective as of march 19 , 2014 to permit the acquisition of atlas carpet mills , inc. by means of an over advance ( `` tranche b advance '' ) of $ 5.4 million which 19 increased to $ 5.8 million and matured on june 30 , 2014. the tranche b advance bore interest at a rate of 3.50 % plus libor , subject also to various availability percentages , limitations , covenants and conditions .
| cost of sales , as a percentage of net sales , increased 1.3 percentage points , as a percentage of net sales in 2014 compared with 2013. the expansion and restructuring initiatives undertaken along with the expansion of our workforce negatively affected our operating results in the form of training costs , production inefficiencies , increased levels of waste and scrap and generally higher operating costs associated with the breadth and scope of activity . gross profit . gross profit increased $ 9.9 million in 2014 compared with 2013. the increase in gross profit was primarily attributable to higher sales . however , the gross profit dollars in 2014 were negatively impacted by our actions taken to address our capacity constraints . selling and administrative expenses . selling and administrative expenses were $ 93.2 million in 2014 compared with $ 76.2 million in 2013 , or an increase of 0.7 % as a percentage of sales . our selling expense increase as a percentage of sales was 17 primarily driven by the higher relative selling expense of atlas and higher levels of investment in new products and marketing in our masland contract business compared with the prior year . other operating ( income ) expense , net . net other operating ( income ) expense was an expense of $ 904 thousand in 2014 compared with expense of $ 494 thousand in 2013. the change in 2014 was primarily a result of an increase in losses on currency valuations and the amortization of an intangible asset associated with the 2014 atlas acquisition . operating income ( loss ) . operations reflected an operating loss of $ 5.2 million in 2014 compared with operating income of $ 8.9 million in 2013. facility consolidation expenses of $ 5.5 million and related asset impairment expenses of $ 1.1 million were included in the 2014 operating results . interest expense . interest expense increased $ 546 thousand in 2014 principally due to higher levels of debt to support our growth and the acquisition of capital assets under various debt arrangements . other ( income ) expense , net . other ( income ) expense , net was income of $ 154 thousand in 2014 compared with expense of $ 26 thousand in 2013 . $ 209 thousand of earnings from equity investments were included
| 16,015 |
in fiscal 2015 , sg & a expenses as a percentage of sales were 8.1 % and as a percentage of gross profit were 71.2 % as compared with 8.5 % and 72.6 % , respectively , in fiscal 2014. sg & a expenses as a percentage of gross profit at em decreased 197 basis points year over year due primarily to the benefits of recent restructuring and cost savings actions and from an increase in gross profit due to increased sales , partially offset by increases associated with fiscal 2014 acquisitions and increases to fund organic growth and other costs . sg & a expenses as a percentage of gross profit at ts decreased 224 basis points from fiscal 2014 due primarily to the benefits of recent restructuring and costs savings actions , partially offset by the decrease in gross profit and increases to fund organic growth and other costs . sg & a expenses were $ 2.34 billion in fiscal 2014 , an increase of $ 136.8 million , or 6.2 % , from fiscal 2013. this increase consisted primarily of an increase of approximately $ 138.0 million related to expenses from businesses acquired , and to a lesser extent from an approximately $ 18.0 million increase related to the impact of differences in foreign currency exchange rates between the fiscal years . these increases were partially offset by a decrease related to recent restructuring and cost reduction actions net of sg & a expense increases to fund organic growth and other costs , including employee merit compensation increases . in fiscal 2014 , sg & a expenses as a percentage of sales were 8.5 % and as a percentage of gross profit were 72.6 % as compared with 8.7 % and 74.0 % , respectively , in fiscal 2013. sg & a expenses as a percentage of gross profit at em decreased 241 basis points year over year due primarily to the benefits of restructuring and cost savings actions and from an increase in gross profit , partially offset by increases associated with recently acquired businesses that were not fully integrated for the entire fiscal 2014 and increases to fund organic growth and other costs . sg & a expenses as a percentage of gross profit at ts decreased 15 basis points from fiscal 2013 due primarily to the benefits of restructuring and costs savings actions and the increase in gross profit , partially offset by the increases associated with recently acquired businesses and increases to fund organic growth and other costs . restructuring , integration and other expenses during fiscal 2015 , the company took certain restructuring actions in an effort to reduce future operating costs including restructuring activities for certain regional and global businesses to better align such operations , products and services with the known and anticipated demands of the company 's suppliers and customers . in addition , the company incurred integration and other costs primarily associated with acquired businesses and certain global and regional businesses . as a result , during fiscal 2015 the company recorded restructuring , integration and other expenses of $ 90.8 million . the company recorded $ 58.7 million for restructuring costs , and expects to realize approximately $ 50.0 million 26 in incremental annualized operating costs savings as a result of such restructuring actions . restructuring expenses consisted of $ 25.9 million for severance , $ 8.8 million for facility exit costs , $ 18.2 million for asset impairments , and $ 5.8 million for other restructuring expenses . integration and other costs including acquisition costs were $ 19.1 million and $ 13.7 million , respectively . the company also recorded a net benefit of $ 0.7 million for changes in estimates for restructuring liabilities established in prior years . the after tax impact of restructuring , integration and other expenses were $ 65.9 million and $ 0.47 per share on a diluted basis . the company expects to incur additional r estructuring expenses of up to $ 1 0 .0 million through the second quarter of fiscal 2016 related to such restructuring actions initiated in fiscal 2015 in order to achieve the above targeted annualized cost savings . when realized , the annualized cost savings are expected to benefit the em operating group by approximately $ 20.0 million and the ts operating group by approximately $ 30 . 0 million . during fiscal 2014 , the company took certain actions in an effort to reduce future operating costs including activities necessary to achieve planned synergies from recently acquired businesses . in addition , the company incurred integration and other costs primarily associated with acquired or divested businesses and for the consolidation of facilities . as a result , during fiscal 2014 the company recorded restructuring , integration and other expenses of $ 94.6 million . restructuring expenses of $ 65.7 million consisted of $ 53.3 million for severance , $ 11.6 million for facility exit costs and asset impairments , and $ 0.9 million for other restructuring expenses . integration and other costs including acquisition costs were $ 20.5 million and $ 8.8 million , respectively . the company also recorded a net benefit of $ 0.3 million for changes in estimates for restructuring liabilities established in prior years . the after tax impact of restructuring , integration and other expenses was $ 70.8 million and $ 0.50 per share on a diluted basis . during fiscal 2013 , the company took certain restructuring actions to reduce costs in both operating groups in response to the then current market conditions and incurred acquisition and integration costs primarily associated with recently acquired businesses . as a result , the company recorded restructuring , integration and other expenses of $ 149.5 million . restructuring expenses of $ 120.0 million consisted of $ 73.3 million for severance , $ 34.4 million for facility exit costs and asset impairments , and $ 12.3 million for other restructuring expenses . integration costs were $ 35.7 million and other costs were a net benefit of $ 3.2 million . story_separator_special_tag the company also recorded a benefit of $ 3.1 million for changes in estimates for restructuring liabilities established in prior years . the after tax impact of restructuring , integration and other expenses was $ 116.4 million and $ 0.83 per share on a diluted basis . see note 17 , “ restructuring , integration and other expenses ” to the company 's consolidated financial statements included in item 15 of this annual report on form 10-k for additional information related to restructuring , integration and other expenses . operating income during fiscal 2015 , the company had operating income of $ 827.7 million , representing a 4.8 % increase as compared with fiscal 2014 operating income of $ 789.9 million . operating income margin was 3.0 % as compared with 2.9 % in fiscal 2014. both years included restructuring , integration and other expenses and the amortization of acquired intangible assets . excluding these amounts from both years , adjusted operating income was $ 972.5 million , or 3.5 % of sales , in fiscal 2015 representing a 4.4 % increase as compared with $ 931.3 million , or 3.4 % of sales , in fiscal 2014. em operating income of $ 797.4 million increased 6.6 % year over year , with all regions contributing to the increase . em 's operating income margin increased 8 basis points year over year to 4.6 % . the increase in em operating income margin was primarily due to an increase in emea in constant currency , partially offset by the weaker euro adversely impacting the contribution to operating income margin in emea , the geographic mix shift towards asia discussed above , as well as an increase in select high volume supply chain engagements between fiscal years . ts operating income of $ 325.7 million increased 2.5 % year 27 over year and operating income margin increased 18 basis points to 3.1 % primarily due to improvements in the emea region . during fiscal 2014 , the company had operating income of $ 789.9 million , representing a 26.2 % increase as compared with fiscal 2013 operating income of $ 626.0 million . consolidated operating income margin was 2.9 % as compared with 2.5 % in fiscal 2013. both years included restructuring , integration and other expenses and the amortization of acquired intangible assets . excluding these amounts from both years , adjusted operating income was $ 931.3 million , or 3.4 % of sales , in fiscal 2014 representing a 15.3 % increase as compared with $ 807.9 million , or 3.2 % of sales , in fiscal 2013. em operating income of $ 747.9 million increased 17.7 % year over year , led by em emea with higher sales and operating income compared to fiscal 2013 , and with all em regions delivering increased operating income in comparison to fiscal 2013. em 's operating income margin increased 31 basis points year over year to 4.5 % . the increase in em operating income margin was primarily due to increases at em americas and em asia due primarily to a combination of reduced operating expenses as a result of recent restructuring and cost reduction initiatives as well as improved operating leverage , partially offset by increases in operating expenses at em emea from a fiscal 2014 acquisition , from which all synergies had not yet been realized . ts operating income of $ 317.8 million increased 6.2 % year over year and operating income margin remained essentially flat at 2.9 % , with improvements at ts asia being offset by declines in the western regions . interest expense interest expense for fiscal 2015 was $ 95.7 million , a decrease of $ 9.2 million , or 8.7 % , compared with fiscal 2014. the decrease in interest expense was primarily due to the repayment at maturity of $ 300.0 million of 5.875 % notes at the end of the third quarter of fiscal 2014 and a corresponding lower average borrowing rate . interest expense for fiscal 2014 was $ 104.8 million , a decrease of $ 2.8 million , or 2.6 % , compared with fiscal 2013. the decrease in interest expense was primarily due to the repayment at maturity of $ 300.0 million of 5.875 % notes at the end of the third quarter of fiscal 2014 and a corresponding lower average borrowing rate . other income ( expense ) , net during fiscal 2015 , the company recognized $ 19.0 million of other expense as compared with $ 6.1 million in fiscal 2014. the increase in other expense in fiscal 2015 is primarily attributable to the strengthening of the u.s. dollar relative to foreign currencies , including the euro , during fiscal 2015 and the corresponding higher costs incurred to purchase forward foreign currency exchange contracts in order to economically hedge such foreign currency exposures . during fiscal 2014 , the company recognized $ 6.1 million of other expense as compared with $ 0.1 million in fiscal 2013. the increase in other expense in fiscal 2014 is primarily attributable to fiscal 2013 benefiting from a realized gain on the sale of marketable securities and to a lesser extent lower interest income in fiscal 2014 compared to fiscal 2013. fiscal 2014 and fiscal 2013 had similar amounts of net foreign currency exchange losses . gain on legal settlement , bargain purchase and other during fiscal 2014 , the company received award payments and recognized a gain on legal settlement of $ 22.1 million before tax , $ 13.5 million after tax and $ 0.09 per share on a diluted basis .
| replace_table_token_9_th ( 1 ) represents the approximate annual sales for the acquired businesses ' most recent fiscal year prior to acquisition by avnet and based upon average foreign currency exchange rates for such fiscal year . 23 fiscal 2015 comparison to fiscal 2014 the table below provides the comparison of reported fiscal 2015 and 2014 sales for the company and its operating groups to organic sales to allow readers to better assess and understand the company 's sales performance by operating group . replace_table_token_10_th sales for fiscal 2015 were $ 27.92 billion , an increase of 1.5 % , or $ 425.0 million , from fiscal 2014 consolidated sales of $ 27.50 billion . organic sales increased 1.1 % year over year and increased 5.0 % in constant currency . the organic sales increase was primarily due to organic growth at em as discussed further below . em sales of $ 17.34 billion for fiscal 2015 increased 4.8 % from fiscal 2014 sales of $ 16.54 billion . em sales were impacted by the weaker euro during fiscal 2015 in comparison to fiscal 2014 as em organic sales in constant currency increased 8.3 % year over year due to growth across all regions . on a regional basis , sales in the americas increased 1.6 % . in emea , organic sales in constant currency increased 7.8 % due to strong demand across the region . asia sales increased 12.3 % year over year , which was primarily due to increased select high volume supply chain engagements in fiscal 2015 compared to fiscal 2014. the higher growth rate in asia and the effect of the weaker euro during fiscal 2015 resulted in a regional shift in the mix of sales toward asia , which represented approximately 43 % of total em sales in fiscal 2015 compared to approximately 40 % in fiscal 2014. such regional mix shift had a corresponding impact on fiscal 2015 em gross profit margin and operating income margin . ts sales of $ 10.58 billion for fiscal 2015 decreased 3.4 % from fiscal 2014 sales of $ 10.96 billion . sales
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under normal market conditions , at least 80 % of the value of our net assets ( including the amount of any borrowings for investment purposes ) will be invested directly and indirectly in senior loans . senior loans typically pay interest at rates which are determined periodically on the basis of a floating base lending rate , primarily libor , plus a premium . senior loans in which we invest are typically made to u.s. and , to a limited extent , non-u.s. corporations , partnerships and other business entities which operate in various industries and geographical regions . senior loans typically are rated below investment grade . securities rated 76 below investment grade are often referred to as leveraged loans , high yield or junk securities , and may be considered high risk compared to debt instruments that are rated investment grade . in addition , some of our debt investments are not scheduled to fully amortize over their stated terms , which could cause us to suffer losses if the respective issuer of such debt investment is unable to refinance or repay their remaining indebtedness at maturity . while the company does not typically seek to invest in traditional equity securities as part of its investment objective , the company may occasionally acquire some equity securities in connection with senior loan investments and in certain other unique circumstances , such as the company 's equity investments in gemino healthcare finance , llc ( gemino ) and north mill holdco llc ( nm holdco ) . we invest in senior loans made primarily to private , leveraged middle-market companies with approximately $ 20 million to $ 100 million of earnings before income taxes , depreciation and amortization ( ebitda ) . our business model is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors . our direct investments in individual securities will generally range between $ 5 million and $ 30 million each , although we expect that this investment size will vary proportionately with the size of our capital base and or strategic initiatives . in addition , we may invest a portion of our portfolio in other types of investments , which we refer to as opportunistic investments , which are not our primary focus but are intended to enhance our overall returns . these opportunistic investments may include , but are not limited to , direct investments in public companies that are not thinly traded and securities of leveraged companies located in select countries outside of the united states . we may invest up to 30 % of our total assets in such opportunistic investments , including loans issued by non-u.s. issuers , subject to compliance with our regulatory obligations as a bdc under the 1940 act . our investment activities are managed by solar capital partners , llc ( solar capital partners or investment adviser ) and supervised by our board of directors , a majority of whom are non-interested , as such term is defined in the 1940 act . solar capital management , llc ( solar capital management or administrator ) provides the administrative services necessary for us to operate . as of december 31 , 2020 , the investment adviser has directly invested approximately $ 10.0 billion in more than 400 different portfolio companies since 2006. over the same period , the investment adviser completed transactions with over 200 different financial sponsors . recent developments on january 8 , 2021 , our board of directors declared a monthly dividend of $ 0.10 per share payable on february 2 , 2021 to holders of record as of january 25 , 2021. on february 3 , 2021 , our board of directors declared a monthly dividend of $ 0.10 per share payable on march 2 , 2021 to holders of record as of february 18 , 2021. on february 24 , 2021 , our board of directors declared a monthly dividend of $ 0.10 per share payable on april 2 , 2021 to holders of record as of march 18 , 2021. the global outbreak of the covid-19 pandemic , and the related effect on the u.s. and global economies , has continued to have adverse consequences for the business operations of some of the company 's portfolio companies and , as a result , has had adverse effects on the company 's operations . the ultimate economic fallout from the pandemic , and the long-term impact on economies , markets , industries and individual issuers , including the company , remain uncertain . the operational and financial performance of the issuers of securities in which the company invests depends on future developments , including the duration and spread of the outbreak , and such uncertainty may in turn adversely affect the value and liquidity of the company 's investments and negatively impact the company 's performance . investments our level of investment activity can and does vary substantially from period to period depending on many factors , including the amount of debt and equity capital available to middle market companies , the level of 77 merger and acquisition activity for such companies , the general economic environment and the competitive environment for the types of investments we make . as a bdc , we must not acquire any assets other than qualifying assets specified in the 1940 act unless , at the time the acquisition is made , at least 70 % of our total assets are qualifying assets ( with certain limited exceptions ) . qualifying assets include investments in eligible portfolio companies. the definition of eligible portfolio company includes certain public companies that do not have any securities listed on a national securities exchange and companies whose securities are listed on a national securities exchange but whose market capitalization is less than $ 250 million . revenue we generate revenue primarily in the form of interest and dividend income from the securities we hold and capital gains , if any , on investment securities that we may sell . story_separator_special_tag our debt investments generally have a stated term of three to seven years and typically bear interest at a floating rate usually determined on the basis of a benchmark london interbank offered rate ( libor ) , commercial paper rate , or the prime rate . interest on our debt investments is generally payable monthly or quarterly but may be bi-monthly or semi-annually . in addition , our investments may provide payment-in-kind ( pik ) interest . such amounts of accrued pik interest are added to the cost of the investment on the respective capitalization dates and generally become due at maturity of the investment or upon the investment being called by the issuer . we may also generate revenue in the form of commitment , origination , structuring fees , fees for providing managerial assistance and , if applicable , consulting fees , etc . expenses all investment professionals of the investment adviser and their respective staffs , when and to the extent engaged in providing investment advisory and management services , and the compensation and routine overhead expenses of such personnel allocable to such services , are provided and paid for by solar capital partners . we bear all other costs and expenses of our operations and transactions , including ( without limitation ) : the cost of our organization and public offerings ; the cost of calculating our net asset value , including the cost of any third-party valuation services ; the cost of effecting sales and repurchases of our shares and other securities ; interest payable on debt , if any , to finance our investments ; fees payable to third parties relating to , or associated with , making investments , including fees and expenses associated with performing due diligence reviews of prospective investments and advisory fees ; transfer agent and custodial fees ; fees and expenses associated with marketing efforts ; federal and state registration fees , any stock exchange listing fees ; federal , state and local taxes ; independent directors ' fees and expenses ; brokerage commissions ; fidelity bond , directors and officers errors and omissions liability insurance and other insurance premiums ; direct costs and expenses of administration , including printing , mailing , long distance telephone and staff ; fees and expenses associated with independent audits and outside legal costs ; 78 costs associated with our reporting and compliance obligations under the 1940 act and applicable federal and state securities laws ; and all other expenses incurred by either solar capital management or us in connection with administering our business , including payments under the administration agreement that will be based upon our allocable portion of overhead and other expenses incurred by solar capital management in performing its obligations under the administration agreement , including rent , the fees and expenses associated with performing compliance functions , and our allocable portion of the costs of compensation and related expenses of our chief compliance officer and our chief financial officer and their respective staffs . we expect our general and administrative operating expenses related to our ongoing operations to increase moderately in dollar terms . during periods of asset growth , we generally expect our general and administrative operating expenses to decline as a percentage of our total assets and increase during periods of asset declines . incentive fees , interest expense and costs relating to future offerings of securities , among others , may also increase or reduce overall operating expenses based on portfolio performance , interest rate benchmarks , and offerings of our securities relative to comparative periods , among other factors . portfolio and investment activity during our fiscal year ended december 31 , 2020 , we invested approximately $ 71 million across 23 portfolio companies through a combination of primary and secondary market purchases . this compares to investing approximately $ 108 million in 25 portfolio companies for the previous fiscal year ended december 31 , 2019. investments sold or prepaid during the fiscal year ended december 31 , 2020 totaled approximately $ 186 million versus approximately $ 100 million for the fiscal year ended december 31 , 2019. at december 31 , 2020 , our portfolio consisted of 44 portfolio companies and was invested 72.4 % directly in senior secured loans and 27.6 % in common equity/equity interests/warrants ( of which 10.4 % is gemino and 17.2 % is nm holdco , through which the company indirectly invests in senior secured loans ) , in each case , measured at fair value versus 48 portfolio companies invested 78.5 % directly in senior secured loans and 21.5 % in common equity/equity interests/warrants ( of which 7.8 % is gemino and 13.6 % is nm holdco ) at december 31 , 2019. at december 31 , 2020 , 96.0 % or $ 327.2 million of our income producing investment portfolio * was floating rate and 4.0 % or $ 13.5 million was fixed rate , measured at fair value . at december 31 , 2019 , 98.5 % or $ 452.9 million of our income producing investment portfolio * was floating rate and 1.5 % or $ 7.1 million was fixed rate , measured at fair value . since the initial public offering of solar senior on february 24 , 2011 and through december 31 , 2020 , invested capital totaled over $ 1.7 billion in over 155 portfolio companies . over the same period , solar senior completed transactions with more than 75 different financial sponsors . * we have included gemino healthcare finance , llc and north mill holdco llc within our income producing investment portfolio . gemino healthcare finance , llc we acquired gemino ( d/b/a gemino senior secured healthcare finance ) on september 30 , 2013. gemino is a commercial finance company that originates , underwrites , and manages primarily secured , asset-based loans for small and mid-sized companies operating in the healthcare industry . our initial investment in gemino was $ 32.8 million . the management team of gemino co-invested in the transaction and continues to lead gemino .
| administrative services and other general and administrative expenses totaled $ 3.1 million and $ 3.2 million , respectively , for the fiscal years ended december 31 , 2020 and 2019. expenses generally consist of management fees , performance-based incentive fees , administrative services expenses , insurance , legal expenses , directors ' expenses , audit and tax expenses , transfer agent fees and expenses , and other general and administrative expenses . interest and other credit facility expenses generally consist of interest , unused fees , agency fees and loan origination fees , if any , among others . the decrease in net expenses year over year is primarily due to lower interest expense due to reductions in libor and an increase in the waivers of fees . net investment income the company 's net investment income totaled $ 20.4 million or $ 1.27 per average share and $ 22.6 million or $ 1.41 per average share , for the fiscal years ended december 31 , 2020 and 2019 , respectively . net realized gain ( loss ) the company had investment sales and prepayments totaling approximately $ 186 million and $ 100 million , respectively , for the fiscal years ended december 31 , 2020 and 2019. net realized gain ( loss ) for the fiscal years ended december 31 , 2020 and 2019 totaled $ 0.2 million and ( $ 4.8 ) million , respectively . net realized gains for the fiscal year ended december 31 , 2020 were primarily related to the sale of select assets . net realized losses for the fiscal year ended december 31 , 2019 were primarily related to the company 's exit of trident usa health services partially offset by gains on the exit of engineering solutions & products , llc . 84 net change in unrealized gain ( loss ) for the fiscal years ended december 31 , 2020 and 2019 , the net change in unrealized gain ( loss ) on the company 's assets and liabilities totaled ( $ 6.7 ) million and $ 5.1 million , respectively . net unrealized loss for the fiscal year ended december 31 , 2020 is primarily due to depreciation on our investments in north mill holdco llc , gemino healthcare finance , llc , composite technology acquisition corp. , sho holdings i corporation and disa holdings acquisition subsidiary corp. , among others , partially offset by appreciation on our investments in
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subsequent to initial recognition , the fdic loss-sharing asset is reviewed quarterly and adjusted for any changes in expected cash flows . these adjustments are measured on the same basis as the related covered assets . any decrease in expected cash flows due to an increase in expected credit losses will increase the fdic loss-sharing asset and any increase in expected future cash flows due to a decrease in expected credit losses will decrease the fdic loss-sharing asset . increases and decreases to the fdic loss-sharing asset are recorded as adjustments to noninterest income . valuation and recoverability of goodwill goodwill represented $ 344.0 million of our $ 7.16 billion in total assets and $ 1.05 billion in total shareholders ' equity as of december 31 , 2013 . the company has one , single reporting unit . we review goodwill for impairment annually , during the third quarter , and also test for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount . such events and circumstances may include among others : a significant adverse change in legal factors or in the general business climate ; significant decline in our stock price and market capitalization ; unanticipated competition ; the testing for recoverability of a significant asset group within the reporting unit ; and an adverse action or assessment by a regulator . any adverse change in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our consolidated financial statements . under the intangibles – goodwill and other topic of the fasb asc , the testing for impairment may begin with an assessment of qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount . when required , the goodwill impairment test involves a two-step process . in step one we would test goodwill for impairment by comparing the fair value of the reporting unit with its carrying amount . if the fair value of the reporting unit exceeds the carrying amount of the reporting unit , goodwill is not deemed to be impaired , and no further testing is necessary . if the carrying amount of the reporting unit were to exceed the fair value of the reporting unit , we would perform a second test to measure the amount of impairment loss , if any . to measure the amount of any impairment loss , we would determine the implied fair value of goodwill in the same manner as if the reporting unit were being acquired in a business combination . specifically , we would allocate the fair value of the reporting unit to all of the assets and liabilities of the reporting unit in a hypothetical calculation that would determine the implied fair value of goodwill . if the implied fair value of goodwill is less than the recorded goodwill , we would record an impairment charge for the difference . the accounting estimates related to our goodwill require us to make considerable assumptions about fair values . our assumptions regarding fair values require significant judgment about economic and industry factors , as well as our views regarding the growth and earnings prospects of the bank . changes in these judgments , either individually or collectively , may have a significant effect on the estimated fair values . based on the results of the annual goodwill impairment test , we determined that no goodwill impairment charges were required as our single reporting unit 's fair value exceeded its carrying amount . as of december 31 , 2013 we determined there were no events or circumstances which would more likely than not reduce the fair value of our reporting unit below its carrying amount . even though we determined that there was no goodwill impairment during 2013 , additional adverse changes in the operating environment for the financial services industry may result in a future impairment charge . please refer to note 10 to the consolidated financial statements in “ item 8. financial statements and supplementary data ” of this report for further discussion . 28 2013 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > 2013 , comprising 96 % of total deposits compared to $ 3.80 billion , or 94 % , of total deposits at december 31 , 2012 . the company is well capitalized with a total risk-based capital ratio of 14.68 % at december 31 , 2013 compared to 20.62 % at december 31 , 2012 . the decrease in the total risk-based capital ratio was due to the deployment of capital for the acquisition of west coast . the number of branches increased from 99 at december 31 , 2012 to 142 at december 31 , 2013 due to the acquisition of west coast . 29 business combinations on april 1 , 2013 , the company completed its acquisition of west coast . the company acquired approximately $ 2.63 billion in assets , including $ 1.41 billion in loans measured at fair value , and approximately $ 1.88 billion in deposits . see note 2 to the consolidated financial statements in `` item 8. financial statements '' of this report for further information regarding this acquisition . on august 5 , 2011 , the bank acquired certain assets and assumed certain liabilities of the bank of whitman from the fdic in an fdic-assisted transaction . the bank and the fdic entered into a modified whole bank purchase and assumption agreement without loss share . the bank acquired approximately $ 437.5 million in assets , including $ 200.0 million in loans measured at fair value , and approximately $ 401.1 million in deposits located in nine branches in eastern washington . story_separator_special_tag the bank participated in a competitive bid process in which the accepted bid included no deposit premium on non-brokered deposits and a negative bid of $ 30.0 million on net assets acquired . on may 27 , 2011 , the bank acquired certain assets and assumed certain liabilities of first heritage bank from the fdic in an fdic-assisted transaction . the bank acquired approximately $ 165.0 million in assets and approximately $ 159.5 million in deposits located in five branches in the king and snohomish counties of washington . first heritage bank 's loans and other real estate assets acquired of approximately $ 89.7 million are subject to a loss-sharing agreement with the fdic . the bank participated in a competitive bid process in which the accepted bid included a 0.75 % deposit premium on non-brokered deposits and a negative bid of $ 10.5 million on net assets acquired . on may 20 , 2011 , the bank acquired certain assets and assumed certain liabilities of summit bank from the fdic , in an fdic-assisted transaction . the bank acquired approximately $ 131.1 million in assets and approximately $ 123.3 million in deposits located in three branches in the northern puget sound region of washington . summit bank 's loans and other real estate assets acquired of approximately $ 71.9 million are subject to a loss-sharing agreement with the fdic . the bank participated in a competitive bid process in which the accepted bid included a 0.75 % deposit premium on non-brokered deposits and a negative bid of $ 9.5 million on net assets acquired . 30 results of operations summary a summary of the company 's results of operations for each of the last five years ended december 31 follows : replace_table_token_7_th net interest income net interest income is the difference between interest income and interest expense . net interest income on a fully taxable-equivalent basis expressed as a percentage of average total interest-earning assets is referred to as the net interest margin , which represents the average net effective yield on interest-earning assets . 31 the following table sets forth the average balances of all major categories of interest-earning assets and interest-bearing liabilities , the total dollar amounts of interest income on interest-earning assets and interest expense on interest-bearing liabilities , the average yield earned on interest-earning assets and average rate paid on interest-bearing liabilities by category and in total , net interest income , net interest spread , net interest margin and the ratio of average interest-earning assets to interest-earning liabilities : net interest income summary replace_table_token_8_th ( 1 ) nonaccrual loans were included in loans . amortized net deferred loan fees and net unearned discounts on certain acquired loans were included in the interest income calculations . the amortization of net deferred loan fees was $ 3.3 million in 2013 , $ 2.1 million in 2012 and $ 1.3 million in 2011 . the accretion of net unearned discounts on certain acquired loans was $ 28.4 million in 2013 , $ 5.9 million in 2012 , and $ 14.3 million in 2011 . ( 2 ) incremental accretion on acquired impaired loans is included in covered loan interest earned . the incremental accretion income on acquired impaired loans was $ 29.8 million in 2013 , $ 55.3 million in 2012 and $ 53.1 million in 2011 . ( 3 ) yields on fully taxable equivalent basis , based on a marginal tax rate of 35 % . the tax equivalent yield adjustment to interest earned on noncovered loans was $ 619 thousand , $ 765 thousand and $ 567 thousand for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . the tax equivalent yield adjustment to interest earned on tax exempt securities was $ 5.4 million , $ 5.5 million and $ 5.6 million for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . ( 4 ) federal home loan bank advances includes prepayment charges of $ 1.5 million and $ 603 thousand in 2013 and 2012 , respectively . no prepayment charges were recorded on federal home loan bank advances during 2011 . as a result of the 2013 prepayment , the company recorded $ 874 thousand in premium amortization , which partially offset the impact of the prepayment charge . 32 net interest income is impacted by the volume ( changes in volume multiplied by prior rate ) , interest rate ( changes in rate multiplied by prior volume ) and the mix of interest-earning assets and interest-bearing liabilities . the following table shows changes in net interest income on a fully taxable-equivalent basis between 2013 and 2012 , as well as between 2012 and 2011 broken down between volume and rate . changes attributable to the combined effect of volume and interest rates have been allocated proportionately to the changes due to volume and the changes due to interest rates : changes in net interest income replace_table_token_9_th comparison of 2013 with 2012 taxable-equivalent net interest income totaled $ 297.1 million in 2013 , compared with $ 245.2 million for 2012 . the increase in net interest income during 2013 resulted from the increase in the size of the noncovered loan portfolio as well as lower rates paid on deposits . these increases were partially offset by decreased balances and lower incremental accretion on covered loans . the incremental accretion income represents the amount of income recorded on the acquired loans above the contractual rate stated in the individual loan rates . the additional income stems from the discount established at the time these loan portfolios were acquired , and increases net interest income . 33 the following table shows the impact to interest income of incremental accretion income as well as the net interest margin and operating net interest margin for the periods presented : replace_table_token_10_th ( 1 ) operating net interest margin is a non-gaap measurement . see non-gaap measures section of item 7 , management 's discussion and analysis .
| noninterest expense increased $ 68.0 million , or 42 % to $ 230.9 million for 2013 due to additional ongoing noninterest expense resulting from the west coast acquisition as well as the acquisition-related expenses of $ 25.5 million recorded in 2013 , compared to only $ 1.8 million for the prior year period . total assets at december 31 , 2013 were $ 7.16 billion , up 46 % from $ 4.91 billion at the end of 2012 , primarily due to the acquisition of west coast . investment securities available for sale totaled $ 1.66 billion at december 31 , 2013 compared to $ 1.00 billion at december 31 , 2012 . loans , excluding covered loans , were $ 4.22 billion , up 67 % from $ 2.53 billion at the end of 2012 . the increase from december 31 , 2012 was due in large part to the acquisition of west coast , which added $ 1.41 billion in loans . the allowance for noncovered loan and lease losses was relatively unchanged at $ 52.3 million at december 31 , 2013 compared to $ 52.2 million at december 31 , 2012 due to improved loan quality on a substantially larger loan portfolio . the company 's allowance amounts to 1.24 % of total noncovered loans , compared with 2.07 % at the end of 2012 . this ratio was impacted by including recently acquired loans in the ratio , which had a fair value discount applied as of the acquisition date . please refer to the section titled “ allowance for loan and lease losses and unfunded commitments and letters of credit ” for further discussion . nonperforming assets totaled $ 57.9 million at december 31 , 2013 , up from $ 48.5 million at december 31 , 2012 . the increase in nonperforming assets was primarily due to the nonperforming assets acquired from west coast , which consisted of $ 9.4 million of nonaccrual loans and $ 6.9 million of other real estate owned at december 31 , 2013 . however , nonperforming
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these adjustments , which have generally been made on an annual basis , have resulted in annual period-to-period volatility in mac and csa 's profitability . mac and csa have entered into such an amendment effective as of june 1 , 2017 which is expected to positively affect mac and csa 's profitability compared to results for the fiscal year ended march 31 , 2017 . 19 on june 1 , 2016 , the current dry-lease agreements were amended to extend the expiration date to may 31 , 2020. the dry-lease agreements may be terminated by fedex or mac and csa , respectively , at any time upon 90 days ' written notice and fedex may at any time terminate the lease of any particular aircraft thereunder upon 10 days ' written notice . in addition , each of the dry-lease agreements provides that fedex may terminate the agreement upon written notice if 60 % or more of mac or csa 's revenue ( excluding revenues arising from reimbursement payments under the dry-lease agreement ) is derived from the services performed by it pursuant to the respective dry-lease agreement , fedex becomes mac or csa 's only customer , or mac or csa employs less than six employees . as of the date of this report , fedex would have been permitted to terminate each of the dry-lease agreements under this provision . the company believes that the short-term nature of its agreements with fedex is standard within the airfreight contract delivery service industry , where performance is measured on a daily basis . fedex has been a customer of the company since 1980. loss of its contracts with fedex would have a material adverse effect on the company . under the dry-lease service contracts in place during the first two months of the fiscal year ended march 31 , 2016 and prior periods , fedex leased its aircraft to mac and csa for a nominal amount and paid a monthly administrative fee to mac and csa to operate the aircraft . under these contracts , all direct costs related to the operation of the aircraft ( including fuel , outside maintenance , landing fees and pilot costs ) were passed through to fedex without markup . pass- through costs under the dry-lease agreements with fedex totaled $ 23,379,000 and $ 24,632,000 for the years ended march 31 , 2017 and 2016 , respectively . as of march 31 , 2017 , mac and csa had an aggregate of 80 aircraft under its dry-lease agreements with fedex . included within the 80 aircraft are 4 cessna caravan aircraft that are considered soft-parked . soft-parked aircraft remain covered under our agreements with fedex although at a reduced administrative fee compared to aircraft that are in operation . mac and csa continue to perform maintenance on soft-parked aircraft , but they are not crewed and do not operate on scheduled routes . ggs manufactures , sells and services aircraft deicers and other specialized equipment on a worldwide basis . ggs manufactures five basic models of mobile deicing equipment with capacities ranging from 700 to 2,800 gallons . ggs also offers fixed-pedestal-mounted deicers . each model can be customized as requested by the customer , including single operator configuration , fire suppressant equipment , open basket or enclosed cab design , a patented forced-air deicing nozzle and on-board glycol blending system to substantially reduce glycol usage , color and style of the exterior finish . ggs also manufactures five models of scissor-lift equipment , for catering , cabin service and maintenance service of aircraft , and has developed a line of decontamination equipment , flight-line tow tractors , glycol recovery vehicles and other special purpose mobile equipment . ggs competes primarily on the basis of the quality , performance and reliability of its products , prompt delivery , customer service and price . 20 in july 2009 , ggs was awarded a new contract to supply deicing trucks to the usaf , which expired in july 20 14. on may 15 , 2014 , ggs was awarded a new contract to supply deicing trucks to the usaf . the initial contract award is for two years through july 13 , 2016 with four additional one-year extension options that may be exercised by the usaf , the first of which was exercised , extending the contract term to july 13 , 2017. in september 2010 , ggs was awarded a contract to supply flight-line tow tractors to the usaf . the contract award was for one year commencing september 28 , 2010 with four additional one-year extension options exercisable by the usaf . all option periods und er the contract have been exercised and the contract expired in september 2015 , though it continues to govern orders placed under the contract prior to its expiration . for the fiscal year ended march 31 , 2017 , ggs revenues included $ 3,174,000 of flight-line tow tractors sales to the usaf under this contract ( $ 708,000 for the fiscal year ended march 31 , 2016 ) . sales of flight-line tow tractors under this contract have been at very low margins . because the usaf is not obligated to purchase a set or minimum number of units under these contracts , the value of these contracts , as well as the number of units to be delivered , depends upon the usaf 's requirements and available funding . at march 31 , 201 7 , ggs 's backlog of orders was $ 2.8 million , compared to a backlog of $ 10.0 million at march 31 , 2016. gas provides aircraft ground support equipment , fleet , and facility maintenance services . at march 31 , 2017 , gas was providing ground support equipment , fleet , and facility maintenance services to more than 114 customers at 84 north american airports . during the quarter ended march 31 , 2017 , gas entered into new agreements with its principal customer which replaced certain fixed price agreements covering certain locations that had been unprofitable . story_separator_special_tag gas anticipates the terms of these new agreements will permit it to operate with improved profitability at those locations . in addition , in december 2016 , gas was awarded a five-year contract to provide a major airline customer with ground support equipment services at 28 locations . in the contract award , which was part of a periodic request-for-bid process , gas retained 21 of its 22 incumbent locations with the customer covered by the rfp process and added seven new locations . on october 31 , 2016 , gas acquired , effective as of october 1 , 2016 , substantially all of the assets of d & d gse support , inc. ( “ d & d ” ) which was in the business of marketing , selling and providing aviation repair , equipment , parts , and maintenance sales services and products at the fort lauderdale airport . the total amount paid at closing in connection with this acquisition was $ 400,000 , with an additional $ 100,000 paid 30 days after closing and an additional $ 100,000 payable in equal monthly installments of $ 16,667 commencing on november 1 , 2016. earn-out payments of up to $ 100,000 may also be payable based on specified performance for the twelve-month period ending september 30 , 2017. on november 24 , 2015 , the company purchased ( i ) at face value a $ 2,500,000 principal amount five-year senior subordinated promissory note ( the “ senior subordinated note ” ) issued by delphax 's canadian operating subsidiary for a combination of cash and the surrender of outstanding principal of $ 500,000 and accrued and unpaid interest thereunder , and cancellation of , a 90-day senior subordinated note purchased at face value by the company from that delphax subsidiary on october 2 , 2015 and ( ii ) for $ 1,050,000 in cash a total of 43,000 shares ( the “ shares ” ) of delphax 's series b preferred stock ( the “ series b preferred stock ” ) and a stock purchase warrant ( the “ warrant ” ) to acquire an additional 95,600 shares of series b preferred stock at a price of $ 33.4728 per share ( subject to adjustment for specified dilutive events ) . each share of series b preferred stock is convertible into 100 shares of common stock of delphax , subject to anti-dilution adjustments . based on the number of shares of delphax common stock outstanding and reserved for issuance under delphax 's employee stock option plans , at march 31 , 2016 the number of shares of common stock underlying the shares represent approximately 38 % of the shares of delphax common stock that would be outstanding assuming conversion of the shares and approximately 31 % of the outstanding shares assuming conversion of the shares and the issuance of all the shares of delphax common stock reserved for issuance under delphax 's employee stock option plans . under the agreement that provided for the company 's purchase of these interests , on november 24 , 2015 three designees of the company ( including nick swenson , the company 's president , chief executive officer and chairman , and michael moore , the president of our ggs subsidiary ) were elected to the board of directors of delphax , which had a total of seven members following their election . pursuant to the terms of the series b preferred stock , for so long as amounts are owed to air t under the senior subordinated note or we continue to hold a specified number of the shares and interests in the warrant holders of the series b preferred stock , voting as a separate class , the company would be entitled to elect , after june 1 , 2016 , four-sevenths of the members of the board of directors of delphax and , without the written consent or waiver of the company , delphax may not enter into specified corporate transactions . as a result of these transactions , we determined that we had obtained control over delphax in conjunction with the acquisition of the interests described above , and we have consolidated delphax in air t 's consolidated financial statements beginning on november 24 , 2015. the operating loss attributable to delphax in our consolidated financial statements for the fiscal years ended march 31 , 2017 and march 31 , 2016 was approximately $ 5,938,000 and $ 1,967,000 , respectively . 21 delphax designs , manufactures and sells advanced digital print production equipment ( including high-speed , high-volume cut-sheet and continuous roll-fed printers ) , maintenance contracts , spare parts , supplies and consumable items for these systems . the equipment , spare parts , supplies and consumable items are manufactured , and maintenance and services are provided by delphax canada and such products and services are sold through delphax , delphax canada and delphax subsidiaries located in canada , the united kingdom and france . a significant portion of delphax 's net sales has historically been related to service and support provided after the sale , including the sale of consumable items for installed printing systems . delphax 's legacy consumables production business was expected to generate cash flow while delphax rolled-out its next generation élan commercial inkjet printer . during the quarter ended june 30 , 2016 , delphax was informed by its largest customer that the customer had decided to accelerate its plans for removing delphax legacy printing systems from production and that delphax should , as a consequence , expect the future volume of legacy product orders from the customer to decline markedly from prior forecasts . furthermore , the future timeframe over which orders could be expected from this customer was being sharply curtailed . in addition to this specific customer communication , delphax also experienced a broad-based decline in legacy product customer demand during the first quarter . sales of delphax 's new élan printer system also had not materialized to expectations .
| revenue increased with growth into new markets and services for both new and existing customers and strong parts sales . during the fourth quarter of the fiscal year ended march 31 , 2017 , gas entered into new agreements with its principal customer which replaced certain fixed price agreements covering certain locations that had been unprofitable . gas anticipates the terms of these new agreements will permit it to operate with improved profitability at those locations . o ur new commercial jet engines and parts segment formed through the acquisitions of the businesses of contrail aviation and jet yard during the fiscal year 2017 contributed $ 7,456,000 to consolidated revenues for the fiscal year . revenues for de lphax , net of intercompany eliminations , totaled approximately $ 9,019,000 , representing a $ 5,064,000 ( 128 % ) increase from the prior fiscal year , primarily due to the inclusion of delphax in our consolidated results for the full fiscal year following our acquisition of interests in delphax on november 24 , 2015. in addition , delphax implemented a final production run of consumable products for its legacy printing systems during the fourth quarter of the fiscal year ended march 31 , 2017. consolidated operating income was adversely affected by the $ 5,938,000 operating loss of the printing equipment and maintenance segment for the fiscal year . 24 during the quarter ended june 30 , 2016 , delphax was informed by its largest customer that the customer had decided to accelerate its plans for removing delphax legacy printing systems from production and that delphax should , as a consequence , expect the future volume of legacy product orders from the customer to decline markedly from prior forecasts . furthermore , the future timeframe over which orders could be expected from this customer was being sharply curtailed . in addition to this specific customer communication , delphax also experienced a broad-based decline in legacy product customer demand during the quarter . sales of delphax 's new élan printer system also did not materialize to expectations in
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the carrying amount of the company 's equity investments as of december 31 , 2019 was $ 93.8 million , which included four investments : $ 16.2 million for a 33 % interest in primex , ltd. ( barbados ) ; $ 7.0 million for a 50 % interest in nippon quaker chemical , ltd. ( japan ) ; $ 0.2 million for a 50 % interest in kelko quaker chemical , s.a. ( panama ) , and $ 70.4 for a 50 % interest in korea houghton corporation ( korea ) ( which was acquired in the combination ) , respectively . the company also has a 50 % interest in a venezuelan affiliate , kelko quaker chemical , s.a ( venezuela ) . due to heightened foreign exchange controls , deteriorating economic circumstances and other restrictions in venezuela , during the third quarter of 2018 the company concluded that it no longer had significant influence over this affiliate . prior to this determination , the company historically accounted for this affiliate under the equity method . as of december 31 , 2019 and 2018 , the company had no remaining carrying value for its investment in venezuela . see note 17 of notes to consolidated financial statements in item 8 of this report . tax exposures , uncertain tax positions and valuation allowances : quaker houghton records expenses and liabilities for taxes based on estimates of amounts that will be determined as deductible in tax returns filed in various jurisdictions . the filed tax returns are subject to audit , which often occur several years subsequent to the date of the financial statements . disputes or disagreements may arise during audits over the timing or validity of certain items or deductions , which may not be resolved for extended periods of time . the company also evaluates uncertain tax positions on all income tax positions taken on previously filed tax returns or expected to be taken on a future tax return in accordance with fin 48 , which prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return and , also , whether the benefits of tax positions are probable or if they will be more likely than not sustained upon audit based upon the technical merits of the tax position . for tax positions that are determined to be more likely than not sustained upon audit , the company recognizes the largest amount of benefit that is greater than 50 % likely of being realized upon ultimate settlement in the financial statements . for tax positions that are not determined to be more likely than not sustained upon audit , the company does not recognize any portion of the benefit in its financial statements . in addition , the company 's continuing practice is to recognize interest and or penalties related to income tax matters in income tax expense . also , the company nets its liability for unrecognized tax benefits against deferred tax assets related to net operating losses or other tax credit carryforward on the basis that the uncertain tax position is settled for the presumed amount at the balance sheet date . quaker houghton also records valuation allowances when necessary to reduce its deferred tax assets to the amount that is more likely than not to be realized . while the company has considered future taxable income and assesses the need for a valuation allowance , in the event quaker houghton were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount , an adjustment to the deferred tax asset would increase income in the period such determination was made . likewise , should the company determine that it would not be able to realize all or part of its net deferred tax assets in the future , an adjustment to the deferred tax asset would be charged to income in the period such determination was made . both determinations could have a material impact on the company 's financial statements . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as “ u.s . tax reform ” . u.s. tax reform implemented a new system of taxation for non-u.s. earnings which eliminated u.s. federal income taxes on dividends from certain foreign subsidiaries and imposed a one-time transition tax on the deemed repatriation of undistributed earnings of certain foreign subsidiaries that is payable over eight years . b ased on interpretations and assumptions the company believes to be reasonable with regard to various uncertainties and ambiguities in the application of certain provisions of u.s. tax reform and subsequent to numerous temporary regulations , notices , and other formal guidance published by the internal revenue service ( “ i.r.s. ” ) , u.s. treasury , and various state taxing authorities in 2018 , the company completed its accounting for the tax effects of u.s. tax reform as of december 22 , 2018. it is possible that the i.r.s . could issue subsequent guidance or take positions on audit that differ from the company 's interpretations and assumptions . the company currently believes that subsequent guidance or interpretations made by the i.r.s . will not be materially different from the company 's application of the provisions of u.s. tax reform and would not have a material adverse effect on the company 's tax liabilities , earnings , or financial condition . pursuant to u.s. tax reform , the company recorded a $ 15.5 million transition tax liability for u.s. income taxes on the undistributed earnings of non-u.s. subsidiaries . story_separator_special_tag however , the company may also be subject to other taxes , such as withholding taxes and dividend distribution taxes , if these undistributed earnings are ultimately remitted to the u.s. as of december 31 , 2019 , the company has a deferred tax liability of $ 8.2 million , which primarily represents the estimate of the non-u.s. taxes the company will incur to remit certain previously taxed earnings to the u.s. it is the company 's current intention to reinvest its future undistributed earnings of non-u.s. subsidiaries to support working capital needs and certain other growth initiatives outside of the u.s. the amount of such undistributed earnings at december 31 , 2019 was approximately $ 255.3 million . any tax liability which might result from ultimate remittance of these earnings is expected to be substantially offset by foreign tax credits ( subject to certain limitations ) . it is currently impractical to estimate any such incremental tax expense . see note 10 of notes to consolidated financial statements in item 8 of this report . 23 goodwill and other intangible assets : the company accounts for business combinations under the acquisition method of accounting . this method requires the recording of acquired assets , including separately identifiable intangible assets , at their acquisition date fair values . any excess of the purchase price over the estimated fair value of the identifiable net assets acquired is recorded as goodwill . the determination of the estimated fair value of assets acquired requires management 's judgment and often involves the use of significant estimates and assumptions , including assumptions with respect to future cash inflows and outflows , discount rates , royalty rates , asset lives and market multiples , among other items . when necessary , the company consults with external advisors to help determine fair value . for non-observable market values , the company may determine fair value using acceptable valuation principles , including the excess earnings , relief from royalty , lost profit or cost methods . the company amortizes definite-lived intangible assets on a straight-line basis over their useful lives . goodwill and intangible assets that have indefinite lives are not amortized and are required to be assessed at least annually for impairment . in completing its quantitative impairment test , the company compares the reporting units ' 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 discounted cash flows involve considerable management judgment and are based upon certain significant assumptions . these assumptions include the weighted average cost of capital ( “ wacc ” ) as well as projected revenue growth rates and operating income , which result in estimated ebitda and ebitda margins . the company completes its annual goodwill impairment test during the fourth quarter of each year , or more frequently if triggering events indicate a possible impairment in one or more of its reporting units . during the third quarter of 2019 , the company changed its reportable segments and associated reporting units . in connection with this change , the company performed a qualitative assessment and concluded that there was no evidence of events or circumstances that would indicate a material change from the company 's prior year quantitative impairment assessment . the company 's consolidated goodwill at december 31 , 2019 and 2018 was $ 607.2 million and $ 83.3 million , respectively . the company completed its annual goodwill impairment assessment during the fourth quarter of 2019 , 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 used a wacc assumption for each of its reporting units of approximately 9 % , and this assumption would have had to increase by approximately 24 % , or 2.2 percentage points , before any of the company 's reporting units would be considered potentially impaired . further , the company 's assumption of future and projected ebitda margins by reporting unit would have had to decrease by more than approximately 16 % , or 2.0 percentage points , before any of the company 's reporting units would be considered potentially impaired . the company 's consolidated indefinite lived intangible assets at december 31 , 2019 and 2018 were $ 243.1 million and $ 1.1 million , respectively . the company completed its annual indefinite lived intangible asset impairment assessment during the fourth quarter of 2019 , and no impairment charge was warranted . given the relative short period of time between the fair value determination for the acquired houghton indefinite lived intangible assets as of the closing of the combination and the annual impairment testing date , the company 's impairment assessment concluded that the $ 242.0 million carrying value of acquired houghton indefinite lived intangible assets generally approximated fair value , with excess fair value of less than 5 % . see note 16 of notes to consolidated financial statements in item 8 of this report . pension and postretirement benefits : the company provides certain defined benefit pension and other postretirement benefits to current employees , former employees and retirees . independent actuaries , in accordance with u.s. gaap , 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 , which is based on applicable yield curve data , including the use of a split discount rate ( spot-rate approach ) for the u.s. plans and certain foreign plans , 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 .
| excluding houghton and norman hay net sales , the company 's net sales would have declined 6 % year-over-year , primarily driven by lower volumes of approximately 3 % and a negative impact from foreign currency translation of 3 % . the company 's gross profit increased $ 79.8 million in 2019 , primarily driven by the inclusion of houghton and norman hay partially offset by the impact of $ 11.7 million of expense associated with selling acquired houghton and norman hay inventory that was adjusted to fair value in accordance with purchase accounting . in 2019 , the company 's gross margin was 34.6 % ; however , without the one-time increase to costs of goods sold ( “ cogs ” ) associated with selling acquired houghton and norman hay inventory and certain accelerated depreciation charges related to the company 's integration plans , the company 's gross margin would have been 35.7 % in 2019 compared to 36.0 % in 2018 , reflecting the impact of price and product mix primarily due to lower gross margins in the houghton business compared to legacy quaker . the company 's selling , general and administrative expenses ( “ sg & a ” ) in 2019 were also higher compared to the prior year due to the inclusion of the houghton and norman hay sg & a , partially offset by positive impacts due to foreign currency translation and the initial benefits of realized cost savings associated with the combination . in addition , the company incurred $ 38.0 million of total combination and other acquisition-related expenses in 2019 related to the completion of the combination and acquisition of norman hay . the company also initiated a restructuring program and recorded restructuring expense of approximately $ 26.7 million during 2019 , as part of its plan to realize integration cost synergies associated with the combination . further details of the company 's consolidated operating performance are discussed in the company 's consolidated operations review , in the operations section of this item , below . the company 's 2019 net income and earnings per diluted share of $ 31.6 million and $ 2.08 , respectively , declined compared to $ 59.5 million and $ 4.45 per diluted share , respectively , in 2018 , which
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sales within our pumps platform increased compared to 2017 due to strength in the north american industrial distribution market as well as strength in the oil and gas end market and lease automated custody transfer ( “ lact ” ) products . sales within the water platform increased compared to 2017 due to strong international sales and increased project demand . sales within our agriculture platform increased year over year due to broad based demand across both oem and distribution channels in north america and europe . sales within the valves platform increased over 2017 primarily due to strong demand within the chemical end market in europe and asia . sales within our energy platform decreased slightly compared to 2017 primarily as a result of the divestiture of our faure herman business in october 2017 , partially offset by strong truck builds and project gains in the lpg end market . operating income and operating margin of $ 275.1 million and 28.9 % , respectively , were higher than the $ 241.0 million and 27.4 % , respectively , recorded in 2017 , primarily due to higher volume and productivity initiatives , partially offset by higher restructuring expenses in 2018 and the divestiture in 2017. health & science technologies segment replace_table_token_15_th sales of $ 896.4 million increased $ 76.3 million , or 9 % , in 2018 compared with 2017 . this increase reflected a 6 % increase in organic sales , a 2 % increase from acquisitions ( fli - july 2018 and thinxxs - december 2017 ) and a 1 % favorable impact 20 from foreign currency translation . in 2018 , sales increased 7 % domestically and 11 % internationally . sales to customers outside the u.s. were approximately 56 % of total segment sales in 2018 and 55 % in 2017 . sales within our scientific fluidics & optics platform increased compared to 2017 due to new product introductions , market share gains , strong demand across our end markets , including ivd , biotechnology , semiconductor and defense and the finger lakes instrumentation and thinxxs acquisitions . sales within our material processing technologies platform increased compared to 2017 primarily due to the timing of several large projects in 2018 and continued demand within the pharmaceutical end market in asia , partially offset by the impact of strategic changes in product focus which resulted in discontinued product offerings in 2017 . sales within our sealing solutions platform increased compared to 2017 due to the extremely strong global demand in the semiconductor end market and strength in the energy , automotive and industrial end markets . sales in our gast platform increased compared to 2017 primarily due to the impact of oem tailwinds and higher distribution volume as well as new product introductions . sales within our micropump platform increased compared to 2017 due to increasing demand in the printing end market . operating income and operating margin of $ 205.7 million and 22.9 % , respectively , in 2018 were up from $ 179.6 million and 21.9 % , respectively , in 2017 , primarily due to higher volume and productivity initiatives , partially offset by higher restructuring expenses in the current year related to site consolidations . fire & safety/diversified products segment replace_table_token_16_th sales of $ 637.0 million increased $ 49.5 million , or 8 % , in 2018 compared with 2017 . this increase reflected a 7 % increase in organic sales and a 1 % favorable impact from foreign currency translation . in 2018 , sales increased 6 % domestically and 11 % internationally . sales to customers outside the u.s. were approximately 53 % of total segment sales in 2018 compared with 52 % in 2017 . sales within our dispensing platform increased compared to 2017 due to strong global demand led by the u.s. and asia . sales increased in our band-it platform compared to 2017 due to market share gain across all global regions , strength in the energy , automotive and industrial end markets and several large project gains . sales within our fire & safety platform increased compared to 2017 primarily due to oem and distribution strength as well as strong demand for rescue tools across all geographies . operating income of $ 168.6 million and operating margin of 26.5 % , respectively , were higher than the $ 147.0 million and 25.0 % , respectively , in 2017 , primarily due to increased volume and productivity initiatives , partially offset by higher restructuring expenses in 2018. performance in 2017 compared with 2016 replace_table_token_17_th sales in 2017 were $ 2.3 billion , an 8 % increase from 2016. this increase reflects a 6 % increase in organic sales and a 2 % increase from acquisitions/divestitures ( acquisitions : thinxxs - december 2017 ; sfc koenig - september 2016 ; awg fittings - july 2016 and akron brass - march 2016 / divestitures : faure herman - october 2017 ; cvi korea - december 2016 ; ietg - october 2016 ; cvi japan - september 2016 and hydra-stop - july 2016 ) . sales to customers outside the u.s. represented approximately 49 % of total sales in 2017 compared with 50 % in 2016. in 2017 , fluid & metering technologies contributed 38 % of sales and 42 % of total segment operating income ; health & science technologies contributed 36 % of sales and 32 % of total segment operating income ; and fire & safety/diversified products contributed 26 % of sales and 26 % of total segment operating income . 21 gross profit of $ 1.0 billion in 2017 increased $ 95.9 million , or 10 % , from 2016 , while gross margin increased 90 basis points to 44.9 % in 2017 from 44.0 % in 2016. the increase in gross profit and margin is primarily a result of increased sales volume and the dilutive impact in the prior year attributable to $ 14.7 million of fair value inventory step-up charges from 2016 acquisitions . story_separator_special_tag sg & a expenses increased to $ 524.9 million in 2017 from $ 492.4 million in 2016. the $ 32.5 million increase is mainly attributable to $ 15.2 million of net incremental impact from acquisitions and divestitures as well as higher variable compensation and stock compensation expense . as a percentage of sales , sg & a expenses were 23.0 % for 2017 and 23.3 % for 2016. in 2017 , the company divested its faure herman business for a pre-tax gain of $ 9.3 million . in 2016 , the company divested four businesses during the year ( hydra-stop - july 2016 ; cvi japan - september 2016 ; ietg - october 2016 ; and cvi korea - december 2016 ) for a pre-tax loss-net of $ 22.3 million . in 2017 and 2016 , the company incurred pre-tax restructuring expenses totaling $ 8.5 million and $ 3.7 million , respectively , as part of initiatives that support the implementation of key strategic efforts designed to facilitate long-term , sustainable growth through cost reduction actions primarily consisting of employee reductions and facility rationalization . operating income of $ 502.6 million in 2017 increased from $ 412.4 million in 2016 , primarily due to a gain on a divestiture in 2017 compared to a net loss on four divestitures in 2016 , higher sales volume and the $ 14.7 million of fair value inventory step- up charges from 2016 acquisitions , partially offset by higher restructuring costs in 2017 and overall higher sg & a costs in 2017 due to higher variable and share-based compensation as well as outside consulting costs . operating margin of 22.0 % in 2017 was up 250 basis points from 19.5 % in 2016 primarily due to the gain on the sale of a business in 2017 compared to a net loss on the sale of businesses in 2016 , the dilutive impact in the prior year due to $ 14.7 million of fair value inventory step-up charges from 2016 acquisitions , as well as higher volume and productivity initiatives . other ( income ) expense - net changed by $ 4.1 million , from income of $ 1.7 million in 2016 to expense of $ 2.4 million in 2017 mainly due to a $ 4.7 million foreign exchange gain on intercompany loans in the prior year that did not repeat in 2017 due to the fact that the company entered into foreign currency exchange contracts to minimize the earnings impact associated with these intercompany loans . interest expense decreased to $ 44.9 million in 2017 from $ 45.6 million in 2016. the decrease was primarily due to slightly lower borrowings in 2017 compared with 2016. the provision for income taxes is based upon estimated annual tax rates for the year applied to federal , state and foreign income . the provision for income taxes increased to $ 118.0 million in 2017 compared to $ 97.4 million in 2016. the effective tax rate decreased to 25.9 % in 2017 compared to 26.4 % in 2016 due to the enactment of the tax cuts and jobs act ( the “ tax act ” ) , a change in the permanent reinvestment assertion related to certain foreign subsidiaries as well as the incurrence of certain foreign income withholding taxes in the prior year . these amounts were offset by the prior year tax benefits on the divestitures of cvi korea and cvi japan , certain return-to-provision adjustments , a partial change in the assertion of permanent reinvestment of certain foreign earnings , as well as the mix of global pre-tax income among jurisdictions . net income for the year of $ 337.3 million increased from $ 271.1 million in 2016. diluted earnings per share in 2017 of $ 4.36 increased $ 0.83 from $ 3.53 in 2016. fluid & metering technologies segment replace_table_token_18_th sales of $ 881.0 million increased $ 31.9 million , or 4 % , in 2017 compared with 2016. this increase reflected a 6 % increase in organic sales and a 2 % decline from divestitures ( faure herman - october 2017 ; ietg - october 2016 ; and hydra-stop - july 2016 ) . in 2017 , sales were up 7 % domestically and down 1 % internationally . sales to customers outside the u.s. were approximately 42 % of total segment sales in 2017 compared with 44 % in 2016. sales within our energy platform decreased compared to 2016 primarily due to the impact of the 2017 divestiture as well as a large , non-recurring project in 2016 and weakness in the midstream oil and gas markets , partially offset by continued strength within the aviation market , increased market share in lpg mobile and increasing truck builds . sales within our pumps platform 22 increased compared to 2016 due to strength in the upstream oil market and the improving economy as well as a strong u.s. distribution channel . sales within the water platform decreased slightly compared to 2016 primarily due to the hydra-stop and ietg divestitures , partially offset by increased municipal spending and share gain from new product development . sales within our agriculture platform increased year over year due to increased demand across both oem and distribution channels as well as pre-season order strength in the fourth quarter of 2017. sales within the valves platform increased over 2016 as a result of strong global industrial markets as well as an uptick in chemical markets . operating income and operating margin of $ 241.0 million and 27.4 % , respectively , were higher than the $ 217.5 million and 25.6 % , respectively , recorded in 2016 , primarily due to productivity initiatives and higher volume .
| performance in 2018 compared with 2017 replace_table_token_13_th sales in 2018 were $ 2.5 billion , a 9 % increase from last year . this increase reflects an 8 % increase in organic sales and a 1 % favorable impact from foreign currency translation . sales to customers outside the u.s. represented approximately 51 % of total sales in 2018 compared with 49 % in 2017 . in 2018 , fluid & metering technologies contributed 38 % of sales and 42 % of total segment operating income ; health & science technologies contributed 36 % of sales and 32 % of total segment operating income ; and fire & safety/diversified products contributed 26 % of sales and 26 % of total segment operating income . gross profit of $ 1.1 billion in 2018 increased $ 91.2 million , or 9 % , from 2017 , while gross margin increased 10 basis points to 45.0 % in 2018 from 44.9 % in 2017 . the increase in gross profit and margin is primarily a result of productivity initiatives and volume leverage , partially offset by higher engineering costs . selling , general and administrative ( “ sg & a ” ) expenses increased to $ 536.7 million in 2018 from $ 524.9 million in 2017 . the $ 11.8 million increase is mainly attributable to a stamp duty tax in switzerland associated with the restructuring of intercompany loans and higher stock compensation . as a percentage of sales , sg & a expenses were 21.6 % for 2018 and 23.0 % for 2017 . in 2017 , the company divested its faure herman business for a pre-tax gain of $ 9.3 million . in 2018 and 2017 , the company incurred pre-tax restructuring expenses totaling $ 12.1 million and $ 8.5 million , respectively , as part of initiatives that support the implementation of key strategic efforts designed to facilitate long-term , sustainable growth through cost reduction actions primarily consisting of employee reductions and facility rationalization . 19 operating income of $ 569.1 million in 2018 increased from $ 502.6 million in 2017 ,
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we also intend to continue to make investments in building our sales team and marketing our products and services to potential customers . we incurred aggregate general , administrative , and sales and marketing expenses of $ 37.7 million and $ 21.6 million for the years ended december 31 , 2020 and 2019 , respectively . 56 we focus a substantial portion of our resources on platform , workflow and assay development , as well as on business development and sales and marketing . our research and development efforts are geared towards developing new workflows and assay capabilities , as well as new advanced systems and optoselect chips and reagent kits , to meet both our customers ' needs and to address new markets . we incurred research and development expenses of $ 47.2 million and $ 38.4 million for the years ended december 31 , 2020 and 2019 , respectively . we generally outsource all of our production manufacturing . design work , prototyping and pilot manufacturing are performed in-house before outsourcing to third party contract manufacturers . our outsourced production strategy is intended to drive cost leverage and scale , and avoid the high capital outlays and fixed costs related to constructing and operating a manufacturing facility . the contract manufacturers of our systems , reagent kits and optoselect chip components are located in the united states , asia and europe . certain of our suppliers of components and materials are single source suppliers . we perform final manufacture and assembly steps of our optoselect chips in-house . we have financed our operations primarily from the issuance and sale of equity securities , borrowings under our long-term debt agreement , as well as cash flows from operations . on july 21 , 2020 , we closed our initial public offering ( the “ ipo ” ) , in which we sold 9,315,000 shares of common stock ( which included 1,215,000 shares that were sold pursuant to the full exercise of the ipo underwriters ' option to purchase additional shares ) at a price to the public of $ 22.00 per share . we received aggregate net proceeds of $ 187.9 million after deducting offering costs , underwriting discounts and commissions of $ 17.0 million . since our inception in 2011 , we have incurred net losses in each year . our net losses were $ 41.6 million and $ 18.3 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 191.9 million and cash and cash equivalents totaling $ 233.4 million . we expect to continue to incur significant expenses and operating losses for the foreseeable future . we expect our expenses will increase substantially in connection with our ongoing activities , as we : attract , hire and retain qualified personnel ; invest in processes and infrastructure to scale our platform ; support research and development to introduce new products ; market and sell new and existing products and services ; protect and defend our intellectual property ; and acquire businesses or technologies to support the growth of our business . access options to digital cell biology enabled by the berkeley lights platform our business model is focused on driving the adoption of the berkeley lights platform and maximizing its use across our customers ' value chains . this is achieved by enabling more functional testing of single cells throughout our customers ' value chains and by finding opportunities for customers to perform single-cell functional testing earlier in their product development process to advance better product candidates . we engage with potential customers to identify a significant challenge they are facing and then evaluate which of our workflows and underlying assays can address their problem . customers can gain access to our platform via direct purchase , subscription , or strategic partnership . in many cases we can address customers ' needs with existing or variants of existing workflows . alternately , we may form strategic partnerships to develop substantially new workflows with our customers to address their needs . for the years ended december 31 , 2020 and 2019 , revenue was $ 44.7 million and $ 39.1 million , respectively , from direct purchases ( or 69 % and 69 % , respectively ) , $ 1.1 million and $ 89,000 , respectively , from subscription and related revenue ( 2 % and none , respectively ) , and $ 5.8 million and $ 9.6 million , respectively , from strategic partnerships ( or 9 % and 17 % , respectively ) . direct purchase : under this option the customer acquires the platform through a one-time purchase . in addition , the customer may be required to acquire an annually renewable workflow license for any applicable workflow the customer plans to deploy . customers can opt to buy extended warranty and service agreements from us and purchase the required berkeley lights consumables and reagents as needed . subscription : through our recently launched subscription program , a customer is able to subscribe to a specific workflow and pay a quarterly fee over a fixed period of time which covers the annual workflow license , the advanced automation system , as well as warranty and service . in our current subscription offering , customers purchase the required berkeley lights consumables and reagents as needed . strategic partnership : this option can combine the direct purchase or subscription access option along with milestone payments for joint workflow development programs . depending on the partnership , it may in the future include shared revenue arrangements in the form of royalties . under these access options we have the potential to generate recurring revenue streams in the form of optoselect chip and reagent kit sales , service and extended warranty arrangements , annual renewable workflow license fees , subscription fees , as well as the potential for the future sale of biological assets and royalty arrangements . story_separator_special_tag growth and predictability of recurring revenue is impacted by the mix between these access options , the total number and frequency of workflows deployed and performed , the length and magnitude of fee and subscription arrangements and their related renewal rates , and to a lesser extent , seasonal budget patterns of our customers . it is our goal and expectation that recurring revenue will grow over time , both in absolute dollars and as a percentage of our revenue . our sales process can vary considerably depending upon the type of customer and engagement type . our sales process can be long , with sales cycles spanning several quarters or more , depending upon the magnitude of the transaction . given the variability of our sales cycle and the impact of system placement mix from the different access options , as well as the number of placements that require an upfront feasibility study , we expect continued fluctuations in our revenue on a period-to-period basis until we achieve broader adoption of our platform and recurring revenue grows to a higher percentage of our revenue . we enter a given period with limited backlog and our revenue relies on a high 57 conversion percentage of orders to be booked and shipped in that period , which also results in somewhat limited revenue visibility from period to period . key factors affecting our results of operations and future performance we believe that our financial performance has been , and in the foreseeable future will continue to be , primarily driven by multiple factors as described below , each of which presents growth opportunities for our business . these factors also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations . our ability to successfully address these challenges is subject to various risks and uncertainties , including those described under the heading “ risk factors. ” new customer adoption of the berkeley lights platform our financial performance has largely been driven by , and a key factor to our future success will be , our ability to increase the adoption of our platform . we plan to drive global customer adoption through business development efforts , a direct sales and marketing organization in the united states , parts of europe , china , and third party distributors and dealers in asia . we are investing in our direct sales organization and establishing distributors in certain global geographies . as part of this effort , we increased our quota carrying sales force by 31 % in the year ended december 31 , 2020 compared to the year ended december 31 , 2019. as of december 31 , 2020 and december 31 , 2019 , our installed base of advanced automation systems outside of our biofoundry was 75 and 48 , respectively . for the purposes of defining our installed base of advanced automation systems , we do not include the culture station as it is not a direct driver of recurring revenue . adoption of the platform access options we offer we offer different access options to our platform in order to meet customer budget and business model needs . we believe this helps to drive customer adoption of our platform . customers can access our platform with a direct platform purchase or subscription . we also form strategic partnerships to jointly develop workflows , through which the customer can gain access to our platform through a combination of direct platform purchase or subscription , milestone payments and , in the future , potentially shared revenue arrangements . substantially all of our customers to date have chosen to access our platform with a direct platform purchase or to form a strategic partnership with us . we launched the subscription access option in february 2020 and believe that over time , a growing portion of our new customers will choose subscription . the degree to which customers adopt one access option over the other could create variations in the amount of and timing in which we recognize revenue and derive cash flow from operations . in addition , as adoption of the subscription access option increases , it will make it difficult to compare our future results with our historical results as a consequence of differing accounting treatment . utilization and value of our workflows workflows represent a source of recurring revenue from customers using our platform through increased consumables consumption and licenses . we are driving utilization of our workflows by engaging with customers leveraging our customer success organization to help them advance through the platform adoption cycle from early stage validation of the platform into an integrated solution . as our platform advances towards becoming fully integrated within customer processes , customers utilize more workflows . we also develop new workflows for use at multiple points within the discovery , development and production phases of our customers ' value chains . we increase the value of our workflows by building additional assays that can be used with a given workflow and by further integrating the workflows into our customers ' existing processes . we are also expanding the upstream and downstream reach of our workflows . this increases the workflow value to our customers and enables us to share in that value creation , which we believe will increase workflow adoption . adoption of our platform across existing customers ' organizations there is an opportunity to increase broader adoption and utilization of our platform throughout our customers ' organizations by their purchasing of more systems to support multiple locations , to meet redundancy requirements , or driven by a need to increase capacity . increased usage amongst existing customers can also occur as customers advance through the platform adoption cycle from early stage validation phase into an integrated solution . development and monetization of proprietary biological assets our ability to participate in the end-markets of cell-based products is a function of how many proprietary biological assets are generated during new workflow development in our biofoundry .
| these decreases were partially offset by an increase of $ 3.3 million from sales in service warranty and application support arrangements . costs of sales , gross profit and gross margin replace_table_token_11_th product cost of sales increased by $ 1.8 million , or 16 % , for the year ended december 31 , 2020 , compared to the year ended december 31 , 2019. the increase in product cost of sales was in line with revenue growth for consumables and platforms . service cost of sales increased by $ 4.8 million , or 241 % , for the year ended december 31 , 2020 , compared to the year ended december 31 , 2019. the increase was primarily due to costs incurred for joint development agreements under which we provide services on a time-and-materials basis , as well as increased costs for extended warranty services as a result of the nature and timing of work performed under such arrangements gross profit increased by $ 1.1 million , or 2 % primarily due to increased revenue . gross margin declined by 8 percentage points for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 , driven by reduced margins on service revenues related to the nature and timing of work performed and increased costs incurred related to the joint development agreements and programs under which we provide services on a time-and-materials basis , including the buy-out of two of the workflow programs that were developed in collaboration with ginkgo bioworks which , while not impacting our costs incurred , does serve to reduce revenue and gross margin related to these specific programs . gross margin was also impacted by the regional mix of platform sales . operating expenses research and development year ended december 31 , change ( in thousands , except percentages ) 2020 2019 amount % research and development $ 47,240 $ 38,414 $ 8,826 23 % research and development expenses increased by $ 8.8 million , or 23 % ,
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as of december 31 , 2012 , the company estimates the fair value of the contingent consideration to be $ 19,975 in u.s. dollars . 20 in our retail segment , same store sales ( sales of those stores , including the e-commerce websites , that were in operation throughout 2012 and 2011 ) increased 7.9 % , and sales per square foot increased to $ 890 in 2012 compared to sales per square foot of $ 853 ( recomputed using the current year 's methodology ) in 2011. as of december 31 , 2012 , we had 109 stores in operation , compared to 84 stores as of december 31 , 2011. in 2012 , we made significant progress on our strategic initiative to expand our e-commerce business . we introduced two new e-commerce websites for the marketing and sale of betsey johnson and superga brand products and we realized a 16 % growth in e-commerce sales during fiscal 2012. our total inventory turnover increased to 10.6 times compared to 10.2 times in the comparable period of last year . our accounts receivable average collection days were 66 days in 2012 compared to 65 days in 2011 , primarily due to the significant growth in our private label business and our international business , both of which have , customarily , customers with longer payment terms . as of december 31 , 2012 , we had $ 266,264 in cash , cash equivalents and marketable securities , no short or long-term debt and total stockholders ' equity of $ 626,400 . working capital increased to $ 306,776 as of december 31 , 2012 , compared to $ 211,469 on december 31 , 2011 . 21 the following tables set forth information on operations for the periods indicated : replace_table_token_5_th story_separator_special_tag of sm canada , established superga® and betsey johnson online stores and closed four under-performing stores during the year ended december 31 , 2012. as a result , we had 109 retail stores as of december 31 , 2012 , compared to 84 stores as of december 31 , 2011. the 109 stores currently in operation include 91 steve madden full price stores , eleven steve madden outlet stores , two steven stores , one report store , one superga store and three e-commerce websites . comparable store sales ( sales of those stores , including the e-commerce websites , that were open for all of 2012 and 2011 ) for the year ended december 31 , 2012 increased 7.9 % when compared to the prior year . during the year ended december 31 , 2012 , gross margin increased to 62.3 % from 61.4 % in 2011 , primarily due to the impact of the twelve new stores currently open in canada which achieve significantly higher gross profit margins than stores located in the u.s. as well as improved operating efficiencies . excluding the impact of the acquisition of sm canada , gross profit margin slightly decreased to 61.3 % from 61.4 % . in 2012 , operating expenses increased to $ 92,789 from $ 74,725 in 2011 primarily due to the incremental cost associated with the net year-over-year increase of 25 stores . as a percentage of sales , operating expenses increased to 48.5 % in 2012 from 48.2 % in the prior year . for the year ended december 31 , 2012 , income from operations for the retail segment increased to $ 26,311 compared to $ 20,370 in the prior year . first cost segment : the first cost segment generated income from operations of $ 7,778 for the year ended december 31 , 2012 , compared to $ 9,795 in the prior year . this decrease is primarily due to a $ 852 bad debt expense resulting from the bakers bankruptcy as well as a decline in business with bakers during the year ended december 31 , 2012. licensing segment : during the year ended december 31 , 2012 , licensing income decreased to $ 7,617 from $ 8,920 in the prior year . the decrease in net licensing revenue is primarily due to a loss of revenue that occurred when we transitioned outerwear business from an under-performing licensee to a new licensee with whom we expect to increase revenues in future years . year ended december 31 , 2011 vs. year ended december 31 , 2010 consolidated : total net sales for the year ended december 31 , 2011 increased by 52 % to $ 968,549 from $ 635,418 for the comparable period of 2010. for the year ended december 31 , 2011 , gross margin as a percentage of net sales decreased to 37.4 % compared to 43.4 % in the year ended december 31 , 2010. operating expenses increased in 2011 to $ 226,893 from $ 176,859 in 2010 , primarily due to incremental costs associated with our acquisition of the topline and cejon businesses and our new betsey johnson® and big buddha® shoe businesses . as a percentage of sales , operating expenses decreased 4.4 % to 23.4 % in the year ended december 31 , 2011 compared to 27.8 % in the prior year , reflecting leverage from increased sales . commission and licensing fee income decreased to $ 18,715 in 2011 compared to $ 22,629 in 2010 , primarily due to the transition of our target private label and olsenboye® footwear businesses from the commission model to the wholesale model in the fourth quarter of 2010 and the first quarter of 2011 , respectively . during the year ended december 31 , 2011 , income from operations increased to $ 153,770 and net income attributable to steven madden , ltd. increased to $ 97,319 compared to income from operations of $ 121,624 and a net income of $ 75,725 in 2010. wholesale footwear segment : net sales generated by the wholesale footwear segment was $ 636,809 , or 66 % , and $ 402,567 , or 63 % , of our total net sales for the years ended december 31 , 2011 and 2010 , respectively . story_separator_special_tag the 58 % increase in net sales year over year was partially due to the inclusion of net sales from our topline business acquired in 2011. the transition of our target business to the wholesale model also contributed to the increase in net sales . similarly , the inclusion of net sales from our olsenboye® business , which since the fourth quarter of 2010 has been included in the net sales line , contributed to the increase in net sales . excluding sales from the topline acquisition and the full year impact of sales transition from first cost model to wholesale model for target and 24 olsenboye , organic net sales growth was $ 46,627 or 11.6 % driven by growth in our steve madden women 's and madden girl brands and a 53 % sales increase in our international business contributed to the net sales increase in the fiscal year 2011. finally , two new brands , big buddha® shoes , which began shipping in the third quarter of 2010 , and betsey johnson® shoes , which began shipping in the first quarter of 2011 , also contributed to the increase in net sales . gross profit margin decreased to 32.3 % in 2011 from 38.9 % in 2010 , due to sales mix shifts as a result of the addition of the topline business and the inclusion of the company 's target private label and olsenboye® footwear businesses in net sales , which typically achieve lower gross margins . excluding the impact from the topline acquisition and the full year impact of sales transition from first cost model to wholesale model for target and olsenboye , gross profit for 2011 was 38.8 % . in the year ended december 31 , 2011 , operating expenses increased to $ 118,703 from $ 81,060 in the same period of 2010 , primarily due to incremental costs associated with our topline business and our betsey johnson® and big buddha® shoe businesses acquired in 2011. as a percentage of sales , operating expenses improved to 18.6 % in 2011 from 20.1 % in 2010 , reflecting leverage from increased sales . income from operations for the wholesale footwear segment increased to $ 86,676 for the year ended december 31 , 2011 compared to $ 75,543 for the year ended december 31 , 2010. wholesale accessories segment : net sales generated by the wholesale accessories segment accounted for $ 176,824 or 18 % , and $ 98,548 or 16 % of total company net sales for the years ended december 31 , 2011 and 2010 , respectively . the 79 % increase in net sales period over period was primarily due to our new cejon business , which we acquired in the second quarter of 2011. excluding sales from the acquisition of cejon , net sales increased by $ 14,959 or 15.2 % driven by net sales increases in our big buddha® , madden zone and steve madden® handbags businesses during the year ended december 31 , 2011. gross profit margin in the wholesale accessories segment decreased to 34.8 % in 2011 from 38.5 % in 2010 , primarily due to the addition of our cejon cold weather accessories business and the growth in our private label business , both of which typically achieve lower gross margins than our existing handbag and belt businesses . excluding the impact of cejon , gross profit margin was 38 % . in the year ended december 31 , 2011 , operating expenses increased to $ 33,465 compared to $ 23,603 in the year ended december 31 , 2010 , primarily due to the incremental costs related to our cejon business acquired in 2011. as a percentage of sales , operating expenses improved to 18.9 % in 2011 from 24.0 % in 2010. this improvement is partially due to our cejon cold weather accessory business , acquired in may 2011 , which does a significant percentage of its sales in the second half of the year , resulting in a lower operating expenses percentage during that period . income from operations for the wholesale accessories segment increased 96 % to $ 28,009 in 2011 compared to $ 14,323 in 2010. retail segment : net sales generated by the retail segment accounted for $ 154,916 , or 16 % , and $ 134,303 , or 21 % , of total company net sales for the years ended december 31 , 2011 and 2010 , respectively . we opened nine new stores , acquired one store as part of the acquisition of topline and closed ten under-performing stores during the year ended december 31 , 2011. as a result , we had 84 retail stores as of both december 31 , 2011 and 2010. the 84 stores in operation at the end of 2011 include 73 steve madden full price stores , six steve madden outlet stores , three steven stores , one report store and one e-commerce website . comparable store sales ( sales of those stores , including the e-commerce website , that were open for all of 2011 and 2010 ) for the year ended december 31 , 2011 increased 13.3 % when compared to the prior year . during the year ended december 31 , 2011 , gross margin increased to 61.4 % from 60.6 % in 2010 , primarily due to a decrease in promotional selling . in 2011 , operating expenses increased to $ 74,725 from $ 72,196 in 2010. as a percentage of sales , operating expenses improved to 48.2 % in 2011 from 53.8 % in 2010 , reflecting leverage from increased sales , in addition to a charge of $ 1,750 in the third quarter of 2010 for the preliminary settlement of a class action lawsuit . for the year ended december 31 , 2011 , income from operations for the retail segment increased 123 % to $ 20,370 compared to $ 9,129 in the prior year .
| the increase reflects $ 103,285 due to our sm canada business acquired during 2012 and our topline business acquired in may 2011. excluding sales attributable to topline and our acquired sm canada business in each year , organic net sales growth was 10.4 % . organic net sales growth was driven by a 40 % increase in net sales in our wholesale private label business , as well as double digit sales increases in our steve madden® women 's brand . in addition , our steve madden kids brand , steve madden men 's brand and our international business all realized increased sales revenue in 2012. finally , our new superga® brand , which began shipping in the first quarter of 2012 and our new betseyville® shoe brand , which began shipping in the second quarter of 2012 , contributed to the increase in net sales in 2012. gross profit margin decreased to 31.4 % in 2012 from 32.3 % in the prior year , primarily due to sales mix shifts as a result of the addition of the topline business , and significant sales increases in our target private label business and our international business , which typically achieve lower gross margins . excluding the full year impact of topline and our acquired sm canada business , gross profit margin was 34.6 % in 2012 and 35.3 % in 2011. in the year ended december 31 , 2012 , operating expenses increased to $ 145,221 from $ 118,703 in the same period of 2011 , primarily due to incremental costs associated with our recently acquired sm canada business and our topline business acquired in may 2011. as a percentage of sales , operating expenses improved to 18.1 % in 2012 from 18.6 % in 2011 , reflecting leverage from increased sales . income from operations for the wholesale footwear segment increased to $ 104,326 for the year ended december 31 , 2012 compared to $ 86,676 for the year ended december 31 , 2011. wholesale accessories segment : net sales generated by the
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elfa segment revenue is recorded upon shipment to customers . the retail and wholesale businesses in which we operate are cyclical , and consequently our sales are affected by general economic conditions . purchases of our products are sensitive to trends in the levels of consumer spending , which are affected by a number of factors such as consumer disposable income , housing market conditions , stock market performance , consumer debt , interest rates , tax rates and overall consumer confidence . our net sales are moderately seasonal . as a result , our revenues fluctuate from quarter to quarter , which often affects the comparability of our interim results . net sales are historically higher in the fourth quarter due primarily to the impact of our annual elfa® sale , which traditionally begins on or about december 24 th and runs into february . gross profit and gross margin gross profit is equal to our net sales less cost of sales . gross profit as a percentage of net sales is referred to as gross margin . cost of sales in our tcs segment includes the purchase cost of inventory less vendor rebates , in-bound freight , as well as inventory shrinkage . direct installation and organization costs , as well as costs incurred to ship or deliver merchandise to customers , are also included in cost of sales in our tcs segment . elfa segment cost of sales from manufacturing operations includes costs associated with production , primarily material , wages , freight and other variable costs , and applicable manufacturing overhead . the components of our cost of sales may not be comparable to the components of cost of sales or similar measures by other retailers . as a result , data in this report regarding our gross profit and gross margin may not be comparable to similar data made available by other retailers . our gross profit is variable in nature and generally follows changes in net sales . our gross margin can be impacted by changes in the mix of products and services sold . for example , sales from our tcs segment typically provide a higher gross margin than sales to third parties from our elfa segment . additionally , sales of products typically provide a higher gross margin than sales of services . gross 44 margin for our tcs segment is also susceptible to foreign currency risk as purchases of elfa® products from our elfa segment are in swedish krona , while sales of these products are in u.s. dollars . we mitigate this risk through the use of forward contracts , whereby we hedge purchases of inventory by locking in foreign currency exchange rates in advance . similarly , gross margin for our elfa segment is susceptible to foreign currency risk as certain purchases of raw materials are transacted in currencies other than swedish krona , which is the functional currency of elfa . selling , general and administrative expenses selling , general and administrative expenses include all operating costs not included in cost of sales , stock-based compensation , and pre-opening costs . for our tcs segment , these include payroll and payroll-related expenses , marketing expenses , occupancy expenses ( which include rent , real estate taxes , common area maintenance , utilities , telephone , property insurance , and repairs and maintenance ) , costs to ship product from the distribution center to our stores , and supplies expenses . we also incur costs for our distribution and corporate office operations . for our elfa segment , these include sales and marketing expenses , product development costs , and all expenses related to operations at headquarters . depreciation and amortization are excluded from both gross profit and selling , general and administrative expenses . selling , general and administrative expenses include both fixed and variable components and , therefore , is not directly correlated with net sales . the components of our selling , general and administrative expenses may not be comparable to the components of similar measures of other retailers . we expect that our selling , general and administrative expenses will increase in future periods with expected future store growth . pre-opening costs non-capital expenditures associated with opening new stores and relocating stores , including rent , marketing expenses , travel and relocation costs , training costs , and certain corporate overhead costs , are expensed as incurred and are included in pre-opening costs in the consolidated statement of operations . comparable store sales a store is included in the comparable store sales calculation on the first day of the sixteenth full fiscal month following the store 's opening . comparable store sales are net of discounts and returns . when a store is relocated , we continue to consider sales from that store to be comparable store sales . net sales from our website and call center are also included in calculations of comparable store sales . in the first quarter of fiscal 2016 , we changed our comparable store sales operating measure to reflect the point at which merchandise and service orders are fulfilled and delivered to customers , excluding shipping and delivery . prior to the first quarter of fiscal 2016 , our comparable store sales operating measure in a given period was based on merchandise and service orders placed in that period , excluding shipping and delivery , which did not always reflect the point at which merchandise and services were received by the customer and , therefore , recognized in our financial statements as net sales . we believe that changing the comparable store sales operating metric to better align with net sales presented in our financial statements will assist investors in evaluating our financial performance . comparable store sales allow us to evaluate how our retail store base is performing by measuring the change in period-over-period net sales in stores that have been open for fifteen months or more . story_separator_special_tag the comparable store sales growth metric is an operating measure intended only as supplemental information and is not a substitute for net sales presented in accordance with generally accepted accounting principles . various factors affect comparable store sales , including : national and regional economic trends in the united states ; 45 changes in our merchandise mix ; changes in pricing ; changes in timing of promotional events or holidays ; and weather . opening new stores is part of our growth strategy . as we continue to pursue our growth strategy , we anticipate that a portion of our net sales will come from stores not included in our comparable store sales calculation . accordingly , comparable store sales is only one measure we use to assess the success of our growth strategy . ebitda and adjusted ebitda ebitda and adjusted ebitda are key metrics used by management , our board of directors and lgp to assess our financial performance . in addition , we use adjusted ebitda in connection with covenant compliance , executive performance evaluations , and to supplement gaap measures of performance to evaluate the effectiveness of our business strategies , to make budgeting decisions and to compare our performance against that of other peer companies using similar measures . we believe it is useful for investors to see the measures that management uses to evaluate the company , its executives and our covenant compliance , as applicable . ebitda and adjusted ebitda are also frequently used by analysts , investors and other interested parties to evaluate companies in our industry . we define ebitda as net income ( loss ) before interest , taxes , depreciation , and amortization . adjusted ebitda is calculated in accordance with the senior secured term loan facility and the revolving credit facility and is one of the components for performance evaluation under our executive compensation programs . adjusted ebitda reflects further adjustments to ebitda to eliminate the impact of certain items , including certain non-cash and other items , that we do not consider representative of our ongoing operating performance . for reconciliation of adjusted ebitda to the most directly comparable gaap measure , refer to `` item 6 : selected financial and operating data. `` adjusted net income and adjusted net income per common sharediluted we use adjusted net income and adjusted net income per common sharediluted to supplement gaap measures of performance to evaluate the effectiveness of our business strategies , to make budgeting decisions and to compare our performance against that of other peer companies using similar measures . we present adjusted net income and adjusted net income per common sharediluted because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance and because we believe it is useful for investors to see the measures that management uses to evaluate the company . adjusted net income is a supplemental measure of financial performance that is not required by , or presented in accordance with , gaap . we define adjusted net income as net income ( loss ) available to common shareholders before distributions accumulated to preferred shareholders , stock-based compensation and other costs in connection with our ipo , restructuring charges , losses on extinguishment of debt , certain gains on disposal of assets , certain management transition costs incurred and benefits realized , charges incurred as part of the implementation of our optimization plan , charges associated with an elfa manufacturing facility closure , and the tax impact of these adjustments and unusual or infrequent tax items . we define adjusted net income per common sharediluted as adjusted net income divided by the diluted weighted average common shares outstanding . for a reconciliation of adjusted net income to the most directly comparable gaap measure , refer to `` item 6 : selected financial and operating data. `` 46 adjustment for currency exchange rate fluctuations additionally , this management 's discussion and analysis also refers to elfa third party net sales after the conversion of elfa 's net sales from swedish krona to u.s. dollars using the prior year 's conversion rate . the company believes the disclosure of elfa third party net sales without the effects of currency exchange rate fluctuations helps investors understand the company 's underlying performance . note on dollar amounts all dollar amounts in this management 's discussion and analysis of financial condition and results of operations are in thousands , except per share amounts , unless otherwise stated . story_separator_special_tag user-specified tagged table -- > net sales net sales for fiscal 2016 $ 819,930 incremental net sales increase ( decrease ) due to : new stores 27,662 comparable stores ( including a $ 11,398 , or 20.3 % , increase in online sales ) 6,601 elfa third party net sales ( excluding impact of foreign currency translation ) ( 77 ) impact of foreign currency translation on elfa third party net sales 2,675 shipping and delivery 437 net sales for fiscal 2017 $ 857,228 during fiscal 2017 , thirteen new stores generated $ 27,662 of incremental net sales , nine of which were opened prior to or during fiscal 2016 and four of which were opened in fiscal 2017. additionally , comparable stores generated $ 6,601 , or 0.9 percentage points , of the 4.5 % increase in net sales . elfa third party net sales increased $ 2,598 during fiscal 2017 , primarily due to the positive impact of foreign currency translation , which increased third party net sales by $ 2,675. after converting elfa 's third party net sales from swedish krona to u.s. dollars using the prior year 's conversion rate for fiscal 2017 and fiscal 2016 , elfa third party net sales decreased $ 77 primarily due to lower net sales in the nordic markets , partially offset by higher net sales in russia .
| the comparable store sales growth metric is an operating measure intended only as supplemental information and is not a substitute for net sales presented in accordance with generally accepted accounting principles ( `` gaap '' ) . 48 ( 2 ) we have presented ebitda , adjusted ebitda , adjusted net income , and adjusted net income per common sharediluted as supplemental measures of financial performance that are not required by , or presented in accordance with , gaap . these non-gaap measures should not be considered as alternatives to net income ( loss ) as a measure of financial performance or cash flows from operations as a measure of liquidity , or any other performance measure derived in accordance with gaap and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items . these non-gaap measures are key metrics used by management , our board of directors , and lgp to assess our financial performance . we present these non-gaap measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance and because we believe it is useful for investors to see the measures that management uses to evaluate the company . these non-gaap measures are also frequently used by analysts , investors and other interested parties to evaluate companies in our industry . in evaluating these non-gaap measures , you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation . our presentation of these non-gaap measures should not be construed to imply that our future results will be unaffected by any such adjustments . management compensates for these limitations by relying on our gaap results in addition to using non-gaap measures supplementally . our non-gaap measures are not necessarily comparable to other similarly titled
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we have also worked closely with local and national officials to keep our manufacturing facilities open due to the essential nature of our products . during 2020 , we were able to broadly maintain our operations . we intend to continue to work with government authorities and implement our employee safety measures to help ensure that we are able to continue manufacturing and shipping our products during the covid-19 pandemic and 66 related phe . however , the covid-19 pandemic and related phe could result in an unforeseen disruption to our supply chain that could impact our operations . for additional information on risk factors that could impact our results , please refer to “ risk factors ” in part i , item 1a of this annual report on form 10-k. overview we are a medical technology company that primarily develops , manufactures and markets innovative pocs used to deliver supplemental long-term oxygen therapy to patients suffering from chronic respiratory conditions . long-term oxygen therapy is defined as the provision of oxygen therapy for use at home in patients who have chronic low blood oxygen levels ( hypoxemia ) . traditionally , these patients have relied on stationary oxygen concentrator for use in the home and oxygen tanks or cylinders for mobile use , which we call the delivery model . the tanks and cylinders must be delivered regularly and have a finite amount of oxygen , which requires patients to plan activities outside of their homes around delivery schedules and a finite oxygen supply . additionally , patients must attach long , cumbersome tubing to their stationary concentrators simply to enable mobility within their homes . our proprietary inogen one ® systems concentrate the air around the patient to offer a single source of supplemental oxygen anytime , anywhere with a portable device weighing as little as approximately 2.8 pounds with a single battery . our inogen one systems range from 2.6 to 6.5 hours of battery life with a single battery and can be plugged into an outlet when at home , in a car , or in a public place with outlets available . we believe our inogen one systems reduce the patient 's reliance on stationary concentrators and scheduled deliveries of tanks with a finite supply of oxygen , thereby improving patient quality of life and fostering mobility . we believe that we were the first oxygen therapy manufacturer to employ a direct-to-consumer marketing strategy , meaning we advertise directly to patients , process their physician paperwork , and provide clinical support as needed , which we believe has contributed to our market leadership position in the poc market . while other manufacturers have also begun direct-to-consumer marketing campaigns to drive patient sales , we believe we are the only poc manufacturer that employs a direct-to-consumer rental strategy in the united states , meaning we bill medicare or insurance on the consumer 's behalf . we derive the majority of our revenue from the sale and rental of our inogen one systems and related accessories to patients , insurance carriers , home healthcare providers , resellers , charitable organizations , and distributors , including our private label partner . we sell multiple configurations of our inogen one and inogen at home systems with various batteries , accessories , warranties , power cords and language settings . we also rent our products to medicare beneficiaries and patients with other insurance coverage to support their long-term oxygen needs as prescribed by a physician as part of a care plan . our goal is to design , build and market oxygen solutions that redefine how long-term oxygen therapy is delivered . to accomplish this goal and to grow our revenue , we intend to : expand our domestic direct-to-consumer sales and physician-based sales teams and increase productivity . during the year ended december 31 , 2020 , the number of inside sales representatives decreased to 300 from 329 as of december 31 , 2019. in 2021 , we plan to restart our sales capacity expansion efforts , selectively hiring new sales representatives across all three of our facilities . however , we expect fewer hires in the first half of 2021 due to the continued impacts of the covid-19 pandemic and related phe . going forward , except as otherwise limited by the impact of the covid-19 pandemic and related phe , our plan is to continue to hire to expand sales capacity while focusing on increased productivity , improved sales personnel and lead distribution systems , and improved training . we also plan to expand our physician referral team to drive increased physician referrals for rental patients and direct-to-consumer sales . this specialized sales team consisted of 24 sales representatives and 5 support personnel as of december 31 , 2020. we have seen and believe we could continue to see a decline in sales in our direct-to-consumer channel until patient mobility and consumer confidence increases after the covid-19 pandemic and related phe ends . as this is a dynamic situation , we plan to continue to monitor the covid-19 phe and may adjust our sales plans accordingly . expand our domestic direct-to-consumer marketing , drive better lead utilization , and optimize pricing . while we continued marketing efforts at a reduced level to continue to drive patient awareness of our products and patient inquiries about their ability to switch from their current oxygen products to our technology , media and advertising costs declined to $ 34.2 million in 2020 compared to $ 40.3 million in 2019 , primarily associated with reductions due to the covid-19 pandemic and related phe and an increased focus on new rental setups . we plan to increase marketing spend to drive consumer and physician awareness of our products in 2021 ; however , during the covid-19 pandemic and related phe we expect to have lower marketing spend than in a typical year due to the lower return on those investments . story_separator_special_tag we also plan to perform a pricing trial in 2021 to optimize pricing in our direct-to-consumer sales channel as well as look for opportunities to improve the close rate of leads through product offerings , pricing , and partnerships with hme providers , however , these may be delayed due to the covid-19 pandemic and related phe . as this is a dynamic situation , we plan 67 to continue to monitor the progression of the covid-19 pandemic and related phe in the united states and may adjust our marketing plan accordingly . expand our rental revenues through a dedicated rental intake team . during the year ended december 31 , 2020 , we expanded our rental intake team to focus exclusively on new rental additions to drive overall sales productivity and simplify training . we ended 2020 with 34 patient intake representatives and administrative personnel and plan to continue to scale the rental intake team in 2021 , which we believe will lead to increased patients on service and growth in rental revenue in future periods . we also have increased focus on rentals from our direct-to-consumer inside and physician-based sales team , which should drive higher rental setups . due to the covid-19 phe , medicare and commercial payors have reduced some of the administrative burden for oxygen therapy , which also contributed to increased rental setups in the second , third and fourth quarters of 2020. we believe this change will continue to contribute to increased rental setups during the remainder of the covid-19 pandemic and related phe . we have also seen increased reimbursement rates in some areas for medicare beneficiaries , which have increased rental revenue during the covid-19 pandemic and related phe and are expected to continue to do so for the remainder of the covid-19 pandemic and related phe . expand our domestic hme provider and reseller sales . we are also focused on building our domestic business-to-business partnerships , including relationships with distributors , key accounts , resellers , our private label partner , traditional hme providers , and charitable organizations . we offer patient-preferred , low service cost products and services to help providers convert their businesses to a non-delivery poc business model . while hme providers have been adopting our products over time , recent growth has been challenged due to difficulties in their ongoing efforts to restructure from the delivery business model to the non-delivery portable model , lack of access to available credit , provider capital expenditure constraints , and reimbursement rate changes . however , supplemental oxygen is a treatment prescribed by healthcare professionals for some patients with covid-19 . while there was an initial surge in demand for oxygen concentrators by our hme providers early in the covid-19 pandemic and related phe , domestic business-to-business demand declined in the second and third quarters of 2020 due to lower retail sales , lower patient travel , physician offices limiting patient interactions for copd patient referrals , hme providers minimizing patient interactions in response to the covid-19 pandemic and related phe which includes replacing existing oxygen patient setups with pocs , and hme providers turning their purchasing focus to stationary oxygen concentrators to treat covid-19 patients . domestic hme provider demand increased in the fourth quarter of 2020 , primarily due to increased demand for pocs as hospital systems and stationary oxygen concentrator supply were strained to keep up with the rapid increase in covid-19 cases . increase international business-to-business adoption . although our main growth opportunity remains poc adoption in the united states given what we still believe is a relatively low penetration rate , we believe there is a large international market opportunity . in order to take advantage of these international markets , we have built out an infrastructure over the past few years , which includes sales in 58 international countries and a contract manufacturing partner , foxconn , located in the czech republic to support european sales volumes . as in the united states , while there was an initial surge in demand for oxygen concentrators by our international hme customers early in the covid-19 pandemic , international demand declined in the second , third and fourth quarters of 2020 primarily due to the temporary closures and reduced operating capacity of certain european respiratory assessment centers due to the covid-19 pandemic , continued tender delays in certain european markets , and decreased sales in other markets , primarily canada . in addition , as in the united states , providers turned their focus to supplying stationary oxygen concentrators with higher flow characteristics in response to the covid-19 pandemic . to grow our international sales markets , we are also in the process of developing regulatory and sales pathways to capture opportunities in new and emerging markets . we expect to begin sales in the chinese market as early as the end of 2021 although this could be delayed due to regulatory clearance delays , other impacts of the covid-19 pandemic or government actions , by the united states or china that impose barriers or restrictions that would impact our ability to access the chinese market . over time , as the u.s. and european markets mature , our growth will depend on our ability to drive poc adoption in emerging markets , where limited oxygen therapy treatment exists today . however , growth may also be limited by currency fluctuations , capital expenditure constraints , ongoing restructuring challenges , and tender uncertainty . invest in our oxygen product offerings to develop innovative products . we incurred $ 14.1 million , $ 9.4 million and $ 7.0 million in 2020 , 2019 and 2018 , respectively , in research and development expenses , and we intend to continue to make such investments in the foreseeable future .
| 74 replace_table_token_12_th domestic business-to-business sales decreased 9.4 % for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the decrease was primarily due to decreased demand from our hme partners for oxygen concentrators in response to the covid-19 pandemic and related phe due to lower retail sales , lower patient travel , physician offices limiting patient interactions that traditionally have led to new oxygen patient referrals , hme providers minimizing patient interactions in response to the covid-19 pandemic and related phe which includes replacing existing oxygen patient setups with pocs , and hme providers turning their purchasing focus to stationary oxygen concentrators to treat covid-19 patients . in addition , lower inogen one g5 availability early in the year and uncertainty around competitive bidding round 2021 for most of 2020 contributed to lower sales in the year . international business-to-business sales decreased 20.3 % for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , mostly driven by the temporary closures and reduced operating capacity of certain european respiratory assessment centers due to the covid-19 pandemic and continued tender delays in certain european markets . in addition , like in the united states , hme providers turned their focus to supplying stationary oxygen concentrators with higher flow characteristics in responses to the covid-19 pandemic . in the year ended december 31 , 2020 , sales in europe as a percentage of total international sales revenue decreased slightly to 85.8 % versus 86.4 % in the comparative period in 2019. domestic direct-to-consumer sales decreased 22.1 % for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , primarily due to the impact of the covid-19 pandemic and related phe on reduced consumer travel and mobility as well as lower consumer confidence , which decreased demand and associated sales representative productivity in the period compared to the same period in the prior year . in addition , sales declined associated with an approximate 4 % decline in average direct-to-consumer sales representative headcount in the comparative periods . domestic direct-to-consumer rentals increased 32.3 % for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , primarily due to an increase in patients on service , higher billable patients as a percent of total patients on service , increased medicare reimbursement rates , and lower rental revenue adjustments . cost of revenue and gross profit replace_table_token_13_th 75
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one of our keys to developing a profitable business will be to carefully match the cost of extending our network to reach new customers with the revenue expected to be generated by those customers . in addition , we may add customers to our network through strategic acquisitions . we believe some of the most important trends in our industry are the continued long-term growth in internet traffic and a decline in internet access prices on a per megabit basis . the effective price per megabit for our corporate customers is declining as the bandwidth utilization and connection size of our corporate customer connections increases . as internet traffic continues to grow and prices per unit of traffic continue to decline , we believe we can continue to load our network and gain market share from less efficient network operators . however , continued erosion in internet access prices will likely have a negative impact on the rate at which we can increase our revenues and our profitability . our revenue may also be negatively affected if we are unable to grow our internet traffic or if the rate of growth of internet traffic does not offset an expected decline in pricing . we do not know if internet traffic will increase or decrease , or the rate at which it will increase or decrease . changes in internet traffic will be a function of the number of internet users , the amount of time users spend on the internet , the applications for which the internet is used , the bandwidth intensity of these applications and the pricing of internet services , and other factors . the growth in internet traffic has a more significant impact on our net-centric customers who represent the vast majority of the traffic on our network and who tend to consume the majority of their allocated bandwidth on their connections . net-centric customers tend to purchase their service on a price per megabit basis . our corporate customers tend to utilize a small portion of their allocated bandwidth on their connections and tend to purchase their service on a per connection basis . over the past several years , our revenue from corporate customers has grown faster than our revenue from our net-centric customers . we are a facilities-based provider of internet access and communications services . facilities-based providers require significant physical assets , or network facilities , to provide their services . typically when a facilities-based network services provider begins providing its services in a new jurisdiction losses are incurred for several years until economies of scale have been achieved . our foreign operations are in europe , canada , mexico , asia , latin america and australia . europe accounts for roughly 75 % of our foreign operations . our european operations have incurred losses and will continue to do so until our european customer base and revenues have grown enough to achieve sufficient economies of scale . due to our strategic acquisitions of network assets and equipment , we believe we are well positioned to grow our revenue base . we continue to purchase and deploy network equipment to parts of our network to maximize the utilization of our assets and to expand and increase the capacity of our network . our future capital expenditures will be based primarily on the expansion of our network and the addition of on-net buildings . we plan to continue to expand our network and to increase the number of on-net buildings we serve including multi-tenant office buildings , carrier neutral data centers and cogent controlled data centers . many factors can affect our ability to add buildings to our network . these factors include the willingness of building owners to grant us access rights , the availability of optical fiber networks to serve those buildings , the cost to connect buildings to our network and equipment availability . 27 story_separator_special_tag leases . when we provide off-net services we also assume the cost of the associated tail circuits . selling , general , and administrative expenses ( “ sg & a ” ) . our sg & a expenses , including non-cash equity- based compensation expense , increased 9.8 % from 2018 to 2019. non-cash equity-based compensation expense is included in sg & a expenses consistent with the classification of the employee 's salary and other compensation and was $ 17.5 million for 2019 and $ 16.8 million for 2018. sg & a expenses increased primarily from an increase in salaries and related costs required to support our expansion and increases in our sales efforts and an increase in our headcount . our sales force headcount increased by 10.8 % from 619 at december 31 , 2018 to 686 at december 31 , 2019 and our total headcount increased by 8.3 % from 974 at december 31 , 2018 to 1,055 at december 31 , 2019. depreciation and amortization expenses . our depreciation and amortization expenses decreased 1.2 % from 2018 to 2019. the decrease is primarily due to the depreciation expense associated with the increase related to 29 newly deployed fixed assets being offset by the decline in depreciation expense from fully depreciated fixed assets . gains on equipment transactions . we exchanged certain used network equipment and cash consideration for new network equipment resulting in gains of $ 1.1 million for 2019 and $ 1.0 million for 2018. the gains are based upon the excess of the estimated fair value of the new network equipment over the carrying amount of the returned used network equipment and the cash paid . the increase in gains from 2018 to 2019 was due to purchasing more equipment under the exchange program in 2019 than we purchased in 2018. interest expense . story_separator_special_tag interest expense results from interest incurred on our $ 445.0 million of senior secured notes , interest incurred on our $ 189.2 million of senior unsecured notes , interest on our installment payment agreement , interest on our finance lease obligations and interest incurred on our 135.0 million of 2024 notes that we issued on june 25 , 2019. our interest expense increased by 12.5 % for 2019 from 2018 primarily due to the issuance of $ 70.0 million of senior secured notes we issued in august 2018 , the issuance of 135.0 million of senior unsecured notes we issued in june 2019 and an increase in our finance lease obligations . the 2024 notes were issued at par for 135.0 million ( $ 153.7 million ) on june 25 , 2019. the 2024 notes were issued in euros and are reported in our reporting currency — us dollars . as of december 31 , 2019 the 2024 notes were valued at $ 151.4 million resulting in an unrealized gain on foreign exchange of $ 2.3 million in 2019. income tax expense . our income tax expense was $ 15.1 million for 2019 and $ 12.7 million for 2018. the increase in our income tax expense was primarily related to an increase in our income before income taxes . buildings on-net . as of december 31 , 2019 and 2018 we had a total of 2,801 and 2,676 on-net buildings connected to our network , respectively . year ended december 31 , 2018 compared to the year ended december 31 , 2017 our management reviews and analyzes several key financial measures in order to manage our business and assess the quality of and variability of our service revenue , operating results and cash flows . the following summary tables present a comparison of our results of operations with respect to certain key financial measures . the comparisons illustrated in the tables are discussed in greater detail below . replace_table_token_5_th ( 1 ) includes non-cash equity-based compensation expense of $ 895 and $ 604 for 2018 and 2017 , respectively . ( 2 ) includes non-cash equity-based compensation expense of $ 16,813 and $ 12,686 for 2018 and 2017 , respectively . 30 replace_table_token_6_th service revenue . our service revenue increased 7.2 % from 2017 to 2018. exchange rates positively impacted our increase in service revenue by approximately $ 4.0 million . all foreign currency comparisons herein reflect results for 2018 translated at the average foreign currency exchange rates for 2017. we increased our total service revenue by increasing the number of sales representatives selling our services , by expanding our network , by adding additional buildings to our network , by increasing our penetration into the buildings connected to our network and by gaining market share by offering our services at lower prices than our competitors . revenue recognition standards include guidance relating to any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include , but is not limited to , gross receipts taxes , universal service fund fees and certain state regulatory fees . we record these taxes billed to our customers on a gross basis ( as service revenue and network operations expense ) in our consolidated statements of operations . the impact of these taxes including the universal service fund resulted in an increase to our revenues from 2017 to 2018 of approximately $ 1.6 million . our net-centric customers tend to purchase their service on a price per megabit basis . our corporate customers tend to utilize a small portion of their allocated bandwidth on their connections and tend to purchase their service on a per connection basis . revenues from our corporate and net-centric customers represented 64.9 % and 35.1 % of total service revenue , respectively , for 2018 and represented 62.3 % and 37.7 % of total service revenue , respectively , for 2017. revenues from corporate customers increased 11.8 % to $ 337.8 million for 2018 from $ 302.1 million for 2017 primarily due to an increase in our number of our corporate customers . revenues from our net-centric customers decreased by 0.4 % to $ 182.3 million for 2018 from $ 183.1 million for 2017 primarily due to an increase in our number of net-centric customers being offset by a decline in our average price per megabit . our revenue from our net-centric customers has declined as a percentage of our total revenue and grew at a slower rate than our corporate customer revenue because net-centric customers purchase our services based upon a price per megabit basis and our average price per megabit declined by 25.9 % from 2017 to 2018. additionally , the net-centric market experiences a greater level of pricing pressure than the corporate market and net-centric customers who renew their service with us expect their renewed service to be at a lower price than their current price . we expect that our average price per megabit will continue to decline at similar rates which would result in our corporate revenues continuing to represent a greater portion of our total revenues and our net-centric revenues continuing to grow at a lower rate than our corporate revenues . additionally , the impact of foreign exchange rates has a more significant impact on our net-centric revenues . our on-net revenues increased 8.1 % from 2017 to 2018. we increased the number of our on-net customer connections by 12.1 % at december 31 , 2018 from december 31 , 2017. on-net customer connections increased at a greater rate than on-net revenues primarily due to the 5.1 % decline in our on-net arpu , primarily from a decline in arpu for our net-centric customers . arpu is determined by dividing revenue for the period by the average customer connections for that period .
| the impact of these taxes including the universal service fund resulted in an increase to our revenues from 2018 to 2019 of approximately $ 2.4 million . our net-centric customers tend to purchase their service on a price per megabit basis . our corporate customers tend to utilize a small portion of their allocated bandwidth on their connections and tend to purchase their service on a per connection basis . revenues from our corporate and net-centric customers represented 28 68.4 % and 31.6 % of total service revenue , respectively , for 2019 and represented 64.9 % and 35.1 % of total service revenue , respectively , for 2018. revenues from corporate customers increased 10.6 % to $ 373.7 million for 2019 from $ 337.8 million for 2018 primarily due to an increase in our number of our corporate customers . revenues from our net-centric customers decreased by 5.4 % to $ 172.5 million for 2019 from $ 182.3 million for 2018 primarily due to an increase in our number of net-centric customers being offset by a decline in our average price per megabit . our revenue from our net-centric customers has declined as a percentage of our total revenue and grew at a slower rate than our corporate customer revenue because net-centric customers purchase our services based upon a price per megabit basis and our average price per megabit declined by 23.9 % from 2018 to 2019. additionally , the net-centric market experiences a greater level of pricing pressure than the corporate market and net-centric customers who renew their service with us expect their renewed service to be at a lower price than their current price . we expect that our average price per megabit will continue to decline at similar rates which would result in our corporate revenues continuing to represent a greater portion of our total revenues and our net-centric revenues continuing to grow at a lower rate than our corporate revenues . additionally , the impact of foreign exchange rates has
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in addition to traditional repair and maintenance , our service offerings continue to expand into value-added services for a range of market needs , including regulatory compliance . expanding emerging markets . emerging markets , comprising asia ( excluding japan ) , eastern europe , latin america , the middle east , and africa , account for approximately 33 % of our total net sales . we have a two-pronged strategy in emerging markets : first , to capitalize on long-term growth opportunities in these markets and second , to leverage our low-cost manufacturing operations in china . we have almost a 30-year track record in china , and our sales in asia have grown more than 13 % on a compound annual growth basis in local currencies since 1999. we have broadened our product offering to the asian markets and benefit as multinational customers shift production to china . india has also been a source of emerging market sales growth in past years due to increased life science research activities . overall , market conditions in emerging markets were generally favorable during 2016 . we experienced a 9 % increase in emerging market local currency sales during 2016 versus the prior year , which included 9 % local currency sales growth in china . emerging market sales can be volatile and uncertain . we continue to experience unfavorable market conditions and reduced demand in certain industrial-related end-user segments in china due to overcapacity . within china , we continue to redeploy resources and sales and marketing efforts to the faster-growing segments of pharma , food safety , and environment . we believe the long-term growth of these segments will be favorably impacted by the chinese government 's emphasis on science , high-value industries , and product quality . we expect our laboratory , process analytics , and product inspection businesses will particularly benefit from these segments . we also continue to invest and add sales and marketing resources to pursue growth in underpenetrated emerging markets . 30 extending our technology lead . we continue to focus on product innovation . in the last three years , we spent approximately 5 % of net sales on research and development . we seek to drive shorter product life cycles , as well as improve our product offerings and their capabilities with additional integrated technologies and software . in addition , we aim to create value for our customers by having an intimate knowledge of their processes via our significant installed product base . maintaining cost leadership . we continue to strive to improve our margins by optimizing our cost structure . for example , we have focused on reallocating resources and better aligning our cost structure to support our investments in market penetration initiatives , higher growth areas , and opportunities for margin improvement . we have also initiated various restructuring programs over the past few years in response to changing market conditions . as previously mentioned , shifting production to china has also been an important component of our cost savings initiatives . we have also implemented global procurement and supply chain management programs over the last several years aimed at lowering supply costs . our cost leadership and productivity initiatives are also focused on continuously improving our invested capital efficiency , such as reducing our working capital levels and ensuring appropriate returns on our expenditures . pursuing strategic acquisitions . we seek to pursue `` bolt-on '' acquisitions that may leverage our global sales and service network , respected brand , extensive distribution channels , and technological leadership . we have identified life sciences , product inspection , and process analytics as three key areas for acquisitions . for example , during the third quarter of 2016 , we acquired substantially all of the assets of henry troemner llc ( troemner ) , a supplier of lab equipment , weights and weight calibration based in the united states for an aggregate purchase price $ 95.8 million that will be integrated into our laboratory product offering . during the third quarter of 2015 , we also acquired a real-time water purity technology in the united states that has been integrated into our process analytics product offering . results of operations — consolidated net sales net sales were $ 2,508.3 million for the year ended december 31 , 2016 , compared to $ 2,395.4 million in 2015 , and $ 2,486.0 million in 2014 . this represents an increase of 5 % in 2016 and a decrease of 4 % in 2015 in u.s. dollars and an increase of 7 % and 3 % in local currencies , respectively . the troemner acquisition contributed approximately 1 % to our net sales during 2016. in 2016 , our net sales by geographic destination increased in u.s. dollars 5 % in the americas , 3 % in europe , and 6 % in asia/rest of world . in local currencies , our net sales by geographic destination increased in 2016 by 5 % in the americas , 5 % in europe , and 10 % in asia/rest of world . excluding the troemner acquisition , our local currency net sales growth in the americas was 4 % . while market conditions were generally favorable during 2016 , we remain cautious regarding our sales outlook given the uncertainty in global markets . a discussion of sales by operating segment is included below . as described in note 17 to our audited consolidated financial statements , our net sales comprise product sales of precision instruments and related services . service revenues are primarily derived from repair and other services , including regulatory compliance qualification , calibration , certification , preventative maintenance , and spare parts . net sales of products increased 5 % in u.s. dollars and 7 % in local currencies during 2016 and decreased 3 % in u.s. dollars and increased 3 % in local currencies in 2015 . the troemner acquisition contributed approximately 1 % to our net sales of products during 2016. service revenue ( including spare parts ) increased 4 % in u.s. story_separator_special_tag dollars and 6 % in local currencies in 2016 , and decreased 5 % in u.s. dollars and increased 4 % in local currencies in 2015 . the troemner acquisition contributed approximately 1 % to our net sales of service during 2016 . 31 net sales of our laboratory-related products , which represented approximately 49 % of our total net sales in 2016 , increased 6 % in u.s. dollars and 8 % in local currencies during 2016 . the local currency increase in net sales of our laboratory-related products during 2016 was driven by strong growth in most product categories , especially pipettes and automated chemistry . the troemner acquisition contributed approximately 1 % to our net sales growth of laboratory-related products and services . net sales of our industrial-related products , which represented approximately 42 % of our total net sales in 2016 , increased 3 % in u.s. dollars and 5 % in local currencies during 2016 . local currency net sales included strong sales growth in product inspection . net sales of our food retailing products , which represented approximately 9 % of our total net sales in 2016 , increased 4 % in u.s. dollars and 6 % in local currencies during 2016 . the increase in net sales in local currencies of our food retailing products during 2016 included growth in each geographic region , with strong growth in europe and asia/rest of world . gross profit gross profit as a percentage of net sales was 57.2 % for 2016 , compared to 56.4 % for 2015 and 54.7 % for 2014 . gross profit as a percentage of net sales for products was 60.8 % for 2016 , compared to 60.1 % for 2015 and 58.1 % for 2014 . gross profit as a percentage of net sales for services ( including spare parts ) was 44.6 % for 2016 , compared to 43.6 % for 2015 and 42.8 % for 2014 . the increase in gross profit as a percentage of net sales for 2016 includes benefits from higher sales volume , favorable price realization and reduced material costs , partially offset by investments in our field service organization . research and development and selling , general , and administrative expenses research and development expenses as a percentage of net sales were 4.8 % for 2016 and 5.0 % for both 2015 and 2014 . research and development expenses in u.s. dollars increased 1 % in 2016 and decreased 3 % in 2015 , and in local currencies increased 4 % in 2016 and 2 % in 2015 , relating to the timing of research and development project activity . selling , general , and administrative expenses as a percentage of net sales were 29.2 % for 2016 , compared to 29.3 % for both 2015 and 2014 . selling , general , and administrative expenses increased 4 % in 2016 in u.s. dollars and 6 % in local currencies and decreased 4 % in u.s. dollars and increased 3 % in local currencies in 2015 . the increase during 2016 includes higher cash incentive expense , investments in our field sales organization and acquisitions , offset in part by benefits from our cost savings programs . amortization expense amortization expense was $ 36.1 million in 2016 , compared to $ 31.0 million and $ 29.2 million in 2015 and 2014 , respectively . the increase in amortization expense is primarily related to our investments in information technology , including the company 's blue ocean program , as well as the troemner acquisition . restructuring charges during the past few years , we initiated cost reduction measures in response to global economic conditions . for the year ended december 31 , 2016 , we have incurred $ 6.2 million of restructuring expenses which primarily comprise employee-related costs . see note 14 to our audited consolidated financial statements for a summary of restructuring activity during 2016 . 32 other charges ( income ) , net other charges ( income ) , net consisted of net charges of $ 8.5 million in 2016 , compared to net income of $ 0.9 million and net charges of $ 2.2 million in 2015 and 2014 , respectively . during 2016 , other charges ( income ) , net includes a one-time non-cash pension settlement charge of $ 8.2 million related to a lump sum offering to former employees of our u.s. pension plan , as well as $ 1.1 million of acquisition transaction costs . other charges ( income ) , net also includes ( gains ) losses from foreign currency transactions and hedging activity , interest income , and other items . interest expense and taxes interest expense was $ 28.0 million for 2016 , compared to $ 27.5 million for 2015 and $ 24.5 million for 2014 . our annual effective tax rate was 24 % for 2016 , 2015 , and 2014 . our consolidated income tax rate is lower than the u.s. statutory rate primarily because of benefits from lower-taxed non-u.s. operations . the most significant of these lower-taxed operations are in switzerland and china . results of operations — by operating segment the following is a discussion of the financial results of our operating segments . we currently have five reportable segments : u.s. operations , swiss operations , western european operations , chinese operations , and other . a more detailed description of these segments is outlined in note 17 to our audited consolidated financial statements . u.s. operations ( amounts in thousands ) replace_table_token_4_th the increase in total net sales and net sales to external customers of 5 % in 2016 reflects solid sales growth in most product categories against difficult comparisons in the previous year . net sales in our u.s. operations also benefited approximately 1 % from the troemner acquisition during 2016. segment profit increased $ 14.0 million in our u.s. operations segment during 2016 , compared to an increase of $ 24.2 million during 2015 .
| over the past two years , the u.s. dollar strengthened against most of the major currencies throughout the world . the strength of the u.s. dollar may have a significant negative impact on the company 's financial performance in the future . in addition to the effects of exchange rate movements on operating profits , our debt levels can fluctuate due to changes in exchange rates , particularly between the u.s. dollar and the euro . based on our outstanding debt at december 31 , 2016 , we estimate that a 10 % weakening of the u.s. dollar against the 38 currencies in which our debt is denominated would result in an increase of approximately $ 23.0 million in the reported u.s. dollar value of our debt . taxes we are subject to taxation in many jurisdictions throughout the world . our effective tax rate and tax liability will be affected by a number of factors , such as changes in law , the amount of taxable income in particular jurisdictions , the tax rates in such jurisdictions , tax treaties between jurisdictions , the extent to which we transfer funds between jurisdictions , and earnings repatriations between jurisdictions . generally , the tax liability for each taxpayer within the group is determined either ( i ) on a non-consolidated/non-combined basis or ( ii ) on a consolidated/combined basis only with other eligible entities subject to tax in the same jurisdiction , in either case without regard to the taxable losses of non-consolidated/non-combined affiliated legal entities . environmental matters we are subject to environmental laws and regulations in the jurisdictions in which we operate . we own or lease a number of properties and manufacturing facilities around the world . like many of our competitors , we have incurred , and will continue to incur , capital and operating expenditures and other costs in complying with such laws and regulations . we are currently involved in , or have potential liability with respect to , the remediation of past contamination in certain
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each unvested cytocom restricted stock unit award will be converted into a restricted stock unit award of the company . immediately following the effective time of the merger , the board of directors of the company will consist of seven members , three of whom will be designated by the company and four of whom will be designated by cytocom . in addition , upon the closing of the merger , cytocom 's chief executive officer , michael handley , will serve as chief executive officer of the combined company . the closing of the merger is subject to the satisfaction or waiver of certain conditions including , among other things , ( i ) the required approvals by the company 's stockholders , ( ii ) the accuracy of the respective representations and warranties of each party , subject to certain materiality qualifications , ( iii ) compliance by the parties with their respective covenants , ( iv ) the absence of any law or order preventing the merger and related transactions , ( v ) the shares of the company 's common stock to be issued in the merger being approved for listing ( subject to official notice of issuance ) on nasdaq as of the closing and ( vi ) a registration statement on form s-4 having become effective in accordance with the provisions of the securities act of 1933 , as amended , and not being subject to any stop order or proceeding ( or threatened proceeding by the sec ) seeking a stop order with respect to such registration statement that has not been withdrawn . covid-19 pandemic the covid-19 pandemic has continued to affect multiple countries , including the united states , where a national emergency was declared , and several european and asian countries . the continued spread of covid-19 in the united states and worldwide , as well as the government-ordered shutdown and shelter-in-place orders imposed to counter the pandemic , have led to severe disruptions to the global economy . in this connection , on march 20 , 2020 , the governor of new york announced that 100 % of the workforce of all businesses , excluding essential services , must stay home . during the effectiveness of this order , we implemented a work-from-home policy for all employees based in our buffalo , new york headquarters . under new applicable state orders , our offices may be occupied at 50 % of their normal capacity if other safety precautions are taken , however , generally very few of our employees have returned to the office . we are continuing to monitor the situation and will take such further action as may be required by federal , state or local authorities , or that we determine are in the best interests of our employees . covid-19 and the governmental responses to it may cause us to experience disruptions that could severely impact our business , operations , preclinical studies and clinical trials . the global outbreak of covid-19 continues to rapidly evolve and has begun to have indeterminable adverse effects on general commercial activity and the world economy . the extent to which covid-19 may impact our business , research and development efforts , preclinical studies , clinical trials , prospects for regulatory approval of our drug candidates , and operations will depend on future developments , which are highly uncertain and can not be predicted with confidence , such as the ultimate geographic spread of the disease , the duration of the outbreak , the pace and effectiveness of vaccination efforts , the extent and duration of travel restrictions and social distancing in the united states and other countries , business closures or business disruptions and the effectiveness of actions taken in the united states and other countries to contain and treat the disease . in addition , a recession or market correction resulting from the spread of covid-19 could materially affect our business prospects and the value of our common stock . furthermore , if we or any of the third parties with whom we engage were to experience or re-experience shutdowns or other business disruptions , our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted , which could have a material adverse effect on our business , financial condition and results of operations . registered direct offering as previously disclosed , on february 19 , 2021 , the company entered into a securities purchase agreement ( the `` purchase agreement `` ) with several healthcare-focused and institutional investors for the sale by the company of 2,000,000 shares ( the `` shares `` ) of the company 's common stock at a purchase price of $ 7.00 per share , in a registered direct offering . the closing of the sale of the shares under the purchase agreement occurred on february 23 , 2021. the gross proceeds to the company from the transaction were approximately $ 14 million , before deducting the placement agent 's fees and other estimated offering expenses . the shares were offered and sold by the company under a prospectus supplement and accompanying prospectus filed with the sec pursuant to an effective shelf registration statement on form s-3 , which was filed with the sec on may 21 , 2020 and subsequently declared effective on may 29 , 2020 ( file no . 333-238578 ) . story_separator_special_tag under the company 's engagement letter ( the `` engagement letter `` ) with h.c. wainwright & co. , llc ( `` wainwright `` ) , pursuant to which wainwright agreed to serve as exclusive placement agent for the issuance and sale of the shares and warrants , the company agreed to pay wainwright an aggregate fee equal to 7.25 % of the gross proceeds received by the company from the sale of the securities in the transaction as well as a management fee equal to 1.0 % of the gross proceeds received by the company from the sale of the securities in the transactions . pursuant to the engagement letter , the company also issued to designees of wainwright warrants to purchase up to 7.5 % of the aggregate number of shares of common stock sold in the transactions , or warrants to purchase up to 150,000 shares of common stock ( the `` placement agent warrants `` ) . subject to certain ownership limitations , the placement agent warrants are immediately exercisable at an exercise price of $ 8.75 per share of common stock , subject to customary adjustments as provided under the terms of the placement agent warrants . the warrants are exercisable for five years from the commencement of sales of the shares being offered . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. ( `` gaap `` ) . the preparation of these financial statements requires us to make estimates and judgments that affect our reported amounts of assets , liabilities , revenues , and expenses . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses , income taxes , stock-based compensation , investments , and in-process r & d . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources . actual results may differ from these estimates . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements . revenue recognition revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed and determinable , collectability is reasonably assured , contractual obligations have been satisfied and title and risk of loss have been transferred to the customer . we generate our revenue from two different types of contractual arrangements : ( i ) cost-reimbursement grants and contracts and ( ii ) fixed-price grants and contracts . costs consist primarily of actual internal labor charges , subcontractor and material costs incurred , plus an allocation of fringe benefits , overhead and general and administrative expenses ( `` g & a `` ) , and applicable fees , if any , based on the terms of the contract . 41 revenues on cost-reimbursement grants and contracts are recognized in an amount equal to the costs incurred during the period , plus an estimate of the applicable fee earned . the estimate of the applicable fee earned is determined by reference to the contract ; if the contract defines the fee in terms of risk-based milestones and specifies the fees to be earned upon the completion of each milestone , then the fee is recognized when the related milestones are earned . otherwise , we compute fee income earned in a given period by using a proportional performance method based on costs incurred during the period as compared to total estimated project costs and application of the resulting fraction to the total project fee specified in the grant or contract . revenues on fixed-price grants and contracts are recognized using a percentage-of-completion method , which uses assumptions and estimates , as appropriate . these assumptions and estimates are developed in coordination with the principal investigator performing the work under the fixed-price grant or contract to determine levels of accomplishments throughout the life of the grant or contract . stock-based compensation we expense all share-based awards to employees and consultants , including grants of stock options and shares , based on their estimated fair value at the date of grant . costs of all share-based payments are recognized over the requisite service period that an employee or consultant must provide to earn the award ( i.e. , the vesting period ) and allocated to the functional operating expense associated with that employee or consultant . fair value of financial instruments the carrying value of cash and cash equivalents , accounts receivable , short-term investments , accounts payable and accrued expenses approximates fair value due to the relatively short maturity of these instruments . certain common stock warrants , which are classified as liabilities , are recorded at their fair market value as of each reporting period . the measurement of fair value requires the use of techniques based on observable and unobservable inputs . observable inputs reflect market data obtained from independent sources , while unobservable inputs reflect our market assumptions . the inputs create the following fair value hierarchy : level 1 – quoted prices for identical instruments in active markets . level 2 – quoted prices for similar instruments in active markets ; quoted prices for identical or similar instruments in markets that are not active ; and model-derived valuations where inputs are observable or where significant value drivers are observable . level 3 – instruments where significant value drivers are unobservable to third parties .
| since our founding in 2003 , we have funded our operations through a variety of means : from inception through december 31 , 2020 , we have raised $ 147.9 million of net equity capital , including amounts received from the exercise of options and warrants . we have also received $ 7.3 million in net proceeds from the issuance of long-term debt instruments ; dod and the biomedical advanced research and development authority ( barda ) , within the office of the assistant secretary for preparedness and response in the u.s. department of health and human services , have funded grants and contracts totaling $ 48.4 million for the development of entolimod for its biodefense indication ; the russian federation has funded a series of contracts totaling $ 17.3 million , based on the exchange rates in effect on the date of funding . these contracts included requirements for us to contribute matching funds , which we have satisfied with both the value of developed intellectual property at the time of award , incurred development expenses and future expenses ; we have been awarded $ 4.0 million in grants and contracts not described above , all of which has been recognized at december 31 , 2020 ; 44 incuron was formed to develop and commercialize the curaxins product line , including its lead oncology drug candidate cbl0137 . in 2015 , we sold our ownership interest for approximately $ 4.0 million and retained a 2 % royalty interest in the cbl0137 technology ; and panacela was formed to develop and commercialize preclinical compounds , which were transferred to panacela through assignment and lease agreements . rusnano contributed $ 9.0 million to panacela and cbli contributed $ 3.0 million plus intellectual property to panacela . as of the date of this filing , cbli owns 67.57 % of panacela . we have incurred cumulative net losses and expect to incur additional losses related to our r & d activities . we do not have commercial products and have limited capital resources . as of december 31 , 2020 , we had $ 2.3
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business environment our business is materially affected by economic conditions in the financial markets , political conditions , broad trends in business and finance , changes in volume and price levels of securities transactions , and changes in interest rates , all of which can affect our profitability and are unpredictable and beyond our control . these factors may affect the financial decisions made by investors and companies , including their level of participation in the financial markets and their willingness to participate in corporate transactions . severe market fluctuations or weak economic conditions could continue to reduce our trading volume and revenues , could negatively affect our ability to generate new issue and advisory revenue , and adversely affect our profitability . the markets remain uneven and vulnerable to changes in investor sentiment . we believe the general business environment will continue to be challenging into the foreseeable future . a portion of our revenues is generated from net trading activity . we engage in proprietary trading for our own account , provide securities financing for our customers , as well as execute “ riskless ” trades with a customer order in hand resulting in limited market risk to us . the inventory of securities held for our own account , as well as held to facilitate customer trades , and our market making activities are sensitive to market movements . a portion of our revenues is generated from new issue and advisory engagements . the fees charged and volume of these engagements is sensitive to the overall business environment . during the first quarter of 2014 , we stopped providing investment banking and advisory services in the united states as a result of the loss of certain of jvb 's former employees . currently , jvb 's primary source of new issue revenue is our sba group 's participation in coof securitizations . the sba secondary market program allows for the purchaser of a sba loan certificate to “ strip ” a portion of the interest rate from a guaranteed loan portion , creating what is called an originator fee or interest only strip . this enhances the ability of sba pool assemblers to securitize the guaranteed portion of loans that do not have the same interest rate . our sba group 's participation in this area has grown over the past year . a portion of our revenues is generated from management fees . our ability to charge management fees and the amount of those fees is dependent upon the underlying investment performance and stability of the investment vehicles . if these types of investments do not provide attractive returns to investors , the demand for such instruments will likely fall , thereby reducing our opportunity to earn new management fees or maintain existing management fees . as of december 31 , 2014 , 99.7 % of our existing aum were cdos . the creation of cdos and permanent capital vehicles has depended upon a vibrant securitization market . since 2008 , volumes within the securitization market have dropped significantly and have not recovered since that time . consequently , we have been unable to complete a new securitization since 2008. a portion of our revenues is generated from our principal investing activities . therefore , our revenues are impacted by the underlying operating results of these investments . as of december 31 , 2014 , our total other investments , at fair value ( which represents our principal investments ) was $ 28,399. of this amount , $ 21,518 , or 76 % , represented investments in ten clos . of these clo investments , nine represent investments in the most junior tranche of the clo . the value of these investments is impacted by the performance of the underlying loans in these clos as well as the overall clo market . margin pressures in corporate bond brokerage business performance in the financial services industry in which we operate is highly correlated to the overall strength of the economy and financial market activity . overall market conditions are a product of many factors beyond our control and can be 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 volatility of the equity and fixed income markets , the level and shape of the various yield curves , and the volume and value of trading in securities . 42 since 2010 , both margins and volumes in certain products and markets within the corporate bond brokerage business have decreased materially as competition has increased and general market activity has declined . further , we continue to expect that competition will increase over time , resulting in continued margin pressure . our response to this margin compression has included : ( i ) building a diversified securitized product trading platform ; ( ii ) expanding our european capital markets business until we determined to sell our european operations pursuant to the european transaction ; ( iii ) acquiring new product lines ; ( iii ) building a hedging and funding operations to service mortgage originators ; and ( iv ) monit oring our fixed costs . our cost reduction initiatives are ongoing . however , there can be no certainty that these efforts will be sufficient . if insufficient , we will likely see a decline in profitability . in january 2014 , we completed the combination of our two u.s. broker-dealers ( see consolidation of ccpr and jvb below ) . legislation affecting the financial services industry in july 2010 , the federal government passed the dodd-frank wall street reform and consumer protection act ( the “ dodd-frank act ” ) . the dodd-frank act significantly restructures and intensifies regulation in the financial services industry , with provisions that include , among other things , the creation of a new systemic risk oversight body ( i.e . story_separator_special_tag , the financial stability oversight council ) , expansion of the authority of existing regulators , increased regulation of and restrictions on otc derivatives markets and transactions , broadening of the reporting and regulation of executive compensation , expansion of the standards for market participants in dealing with clients and customers , and regulation of fiduciary duties owed by municipal advisors or conduit borrowers of municipal securities . in addition , section 619 of the dodd-frank act ( known as the “ volker rule ” ) and section 716 of the dodd-frank act ( known as the “ swaps push-out rule ” ) limit proprietary trading of certain securities and swaps by certain banking entities . although we are not a banking entity and are not otherwise subject to these rules , some of our clients and many of our counterparties are banks or entities affiliated with banks and will be subject to these restrictions . these sections of the dodd-frank act and the regulations that are adopted to implement them could negatively affect the swaps and securities markets by reducing their depth and liquidity and thereby affect pricing in these markets . further , the dodd-frank act as a whole and the intensified regulatory environment will likely alter certain business practices and change the competitive landscape of the financial services industry , which may have an adverse effect on our business , financial condition and results of operations . we will continue to monitor all applicable developments in the implementation of dodd-frank and expect to adapt successfully to any new applicable legislative and regulatory requirements . recent events consolidation of ccpr and jvb effective january 31 , 2014 , we merged ccpr and jvb . the merged broker-dealer subsidiary will operate going forward under the jvb brand . in connection with this merger , we reduced our workforce by approximately 20 % by eliminating certain redundant and non-core business lines . sale of star asia and other related entities on february 20 , 2014 , we completed the sale of all of our ownership interests in star asia , star asia special situations fund , star asia manager , star asia capital management , saa manager , and sap gp ( collectively , the “ star asia group ” ) . in consideration of the sale of the star asia group , we received an initial upfront payment of $ 20,043 and we will receive contingent payments equal to 15 % of certain revenues generated by star asia manager , saa manager , sap gp , star asia capital management , and certain affiliated entities for a period of at least four years . see note 5 to our consolidated financial statements included in this annual report on form 10-k. sale of european operations on august 19 , 2014 , we announced that we had entered into a definitive agreement to sell our european operations to an entity controlled by daniel g. cohen , the vice chairman of the company 's board of directors and of the board of managers of the operating llc , president and chief executive of our european business , and president of ccfl . the purchase price for our european operations of $ 8,700 consists of an upfront payment of $ 4,750 ( subject to adjustment ) and $ 3,950 to be paid over four years . upon closing , we will enter into a non-cancellable trust deed with one of the entities included in the sale of our european operations that will entitle us to substantially all of the revenues earned from the management of the munda clo . this sale will include all activities carried out in our london , paris , and madrid offices and involves approximately 30 employees . as part of the transaction , mr. cohen will resign as president and c hief executive of our european b usiness and will receive no severance or other termination benefits in connection with such resignation . the european t ransaction is subject to regulatory approval of the u.k. financial conduct authority ( “ fca ” ) . 43 the combined european business t o be sold , excluding the revenues and expenses related to munda clo i , accounted for approximately $ 8,869 of revenue for the year ended december 30 , 2014 , and $ 1,858 of operating loss for the year ended december , 2014 , and included approximately $ 2,072 of net assets as of december 31 , 2014. under the terms of the definitive purchase agreement , we had the right to initiate , solicit , facilitate , and encourage alternative acquisition proposals from third parties for a “ go shop ” period of up to 90 days from the signing of the purchase agreement . on october 29 , 2014 , the special committee of our b oard of d irectors elected to end the “ go shop ” period . the “ go shop ” period did not result in us receiving a superior proposal from a third party , and we intend to pursue the transaction with the entity controlled by mr. cohen , which is expected to close in the first half of 2015 . see note 5 to our consolidated financial statements included in this annual report on form 10-k. completion of new european asset management fund in july 2014 , ccfl became the investment advisor of a newly created investment fund with total commitments of 238,000. the fund targets subordinated debt investments in small and medium sized european insurance companies . the fund has an initial investment period of two years and expected maturity in 2026. ccfl will earn management fees and performance fees if returns exceed certain thresholds . ccfl did not earn any revenue on this fund through december 31 , 2014. the management contract of this fund wi ll be included in the european b usiness to be sold described immediately above .
| our net trading revenue includes unrealized gains on our trading investments , as of the applicable measurement date that may never be realized due to changes in market or other conditions not in our control . this may adversely affect the ultimate value realized from these investments . in addition , our net trading revenue also includes realized gains on certain proprietary trading positions . our ability to derive trading gains from such trading positions is subject to overall market conditions . due to volatility and uncertainty in the capital markets , the net trading revenue recognized during the year ended december 31 , 2014 may not be indicative of future results . furthermore , some of the assets included in the investments-trading line of our consolidated balance sheets represent level 3 valuations within the fasb fair value hierarchy . level 3 assets are carried at fair value based on estimates derived using internal valuation models and other estimates . see notes 8 and 9 to our consolidated financial statements included in this annual report on form 10-k. the fair value estimates made by us may not be indicative of the final sale price at which these assets may be sold . asset management assets under management our aum equals the sum of : ( 1 ) the gross assets included in cdos that we have sponsored and manage ; plus ( 2 ) the nav of the permanent capital vehicles and investment funds we manage ; plus ( 3 ) the nav of other accounts we manage . our calculation of aum may differ from the calculations used by other asset managers and , as a result , this measure may not be comparable to similar measures presented by other asset managers . this definition of aum is not necessarily identical to a definition of aum that may be used in our management agreements . replace_table_token_8_th ( 1 ) managem ent fee income earned from our s ponsored cdos is recorded as a component of asset
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the gross profit margin for the fourth quarter of 2016 increased from the prior year quarter due to variable cost savings from operating efficiencies , partially offset by volume declines . sequentially , the gross profit margin for the fourth quarter of 2016 increased from the third quarter of 2016 due to higher volume from pacific and variable cost savings from operating efficiencies . - 29 - the force sensors segment net revenues of $ 14.8 million decreased 3.0 % compared to revenues of $ 15.2 million in the prior quarter due to lower volume predominantly in the precision weighing market sector . net revenues in the fourth quarter of 2016 were down 5.2 % compared to $ 15.6 million in the fourth quarter last year . the decrease in revenues from the prior year period are attributable primarily to lower volume , product mix , and a negative exchange rate impact of $ 0.3 million . the gross profit margin for the quarter increased from the comparable prior year period primarily due to efficiencies achieved from our cost reduction programs . the sequential gross profit margin decreased from the third quarter of 2016 due to a decrease in volume , product mix , and a reduction in inventory . the weighing and control systems segment net revenues were $ 15.6 million in the fourth quarter of 2016 , up 1.5 % from $ 15.4 million in the third quarter of 2016 and down 8.5 % from the $ 17.1 million in the fourth quarter last year . sequentially , volume improved in our process weighing and steel businesses . however , those businesses declined from the prior year period , which offset the added net revenues from our stress-tek acquisition . the gross profit margin for the segment was 46.5 % in the fourth quarter of 2016 versus 47.0 % ( 47.8 % excluding the kelk acquisition purchase accounting adjustments of $ 0.2 million ) in the fourth quarter of 2015 and 44.9 % in the third quarter of 2016. the decline in the gross profit margin for the quarter compared to the prior year period was due to the decline in volume . however , on a sequential basis , volume increased which , with a favorable product mix , resulted in an increase in gross profit margin . optimize core competence the company 's core competency and key value proposition is providing customers with proprietary foil technology products and precision measurement sensors and sensor-based systems . our foil technology resistors and strain gages are recognized as global market leading products that provide high precision and high stability over extreme temperature ranges , and long life . our force sensor products and our weighing and control systems products are also certified to meet some of the highest levels of precision measurements of force , weight , pressure , torque , tilt , motion , and acceleration . we continue to optimize all aspects of our development , manufacturing and sales processes , including by increasing our technical sales efforts ; continuing to innovate in product performance and design ; and refining our manufacturing processes . our foil technology research group developed innovations that enhance the capability and performance of our strain gages , while simultaneously reducing their size and power consumption as part of our advanced sensors product line . we believe this new foil technology will create new markets as customers “ design in ” these next generation products in existing and new applications . our development engineering team is also responsible for creating new processes to further automate manufacturing , and improve productivity and quality . our advanced sensors manufacturing technology offers us the capability to produce high-quality foil strain gages in a highly automated environment , which we expect to result in reduced manufacturing and lead times , and increased margins . the implementation of this innovative manufacturing technology was the basis for a significant portion of the restructuring efforts we undertook in 2015 and 2016. our design , research , and product development teams , in partnership with our marketing teams , drive our efforts to bring innovations to market . we intend to leverage our insights into customer demand to continually develop and roll out new , innovative products within our existing lines and to modify our existing core products in ways that make them more appealing , addressing changing customer needs and industry trends in terms of form , fit , and function . we also seek to achieve significant production cost savings through the transfer , expansion , and construction of manufacturing operations in countries such as india and israel , where we can benefit from lower labor costs , improved efficiencies , or available tax and other government-sponsored incentives . for example , in 2016 , we relocated a significant portion of our force sensor manufacturing from leased locations with higher labor costs , to the owned facility we constructed in india . we closed a facility in costa rica and consolidated its functions to existing operations where significant efficiencies were available . this consolidation was part of our global restructuring and cost reduction program announced in november 2015 and substantially completed in 2016. acquisition strategy we expect to continue to make strategic acquisitions where opportunities present themselves to grow our segments . historically , our growth and acquisition strategy has been largely focused on vertical product integration , using our foil strain gages in our force sensor products , and incorporating those products into our weighing and control systems . the acquisitions of stress-tek and kelk , each of which employ our foil strain gages to manufacture load cells for their systems , continue this strategy . additionally , the kelk acquisition resulted in the acquisition of certain optical sensor technology . the pacific instruments acquisition significantly broadened our existing data acquisition offerings and opened new markets for us . story_separator_special_tag along with our recent success in mems technology for on-board weighing , we expect to expand our expertise , and our acquisition focus , outside our traditional vertical approach to other precision sensor solutions in the fields of measurement of force , weight , pressure , torque , tilt , motion , and acceleration . we believe acquired businesses will benefit from improvements we implement to reduce redundant functions and from our current global manufacturing and distribution footprint . - 30 - research and development research and development will continue to play a key role in our efforts to introduce innovative products to generate new sales and to improve profitability . we expect to continue to expand our position as a leading supplier of precision foil technology products . we believe our r & d efforts should provide us with a variety of opportunities to leverage technology , products , and our manufacturing base in order to ultimately improve our financial performance . the amount charged to expense for research and development aggregated $ 11.1 million , $ 9.6 million , and $ 10.1 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . cost management to be successful , we believe we must seek new strategies for controlling operating costs . through automation in our plants , we believe we can optimize our capital and labor resources in production , inventory management , quality control , and warehousing . we are in the process of moving some manufacturing from higher-cost countries to lower-cost countries . this may enable us to become more efficient and cost competitive , and also maintain tighter controls of the operation . production transfers , facility consolidations , and other long-term cost-cutting measures require us to initially incur significant severance and other exit costs . we are realizing the benefits of our restructuring through lower labor costs and other operating expenses , and expect to continue reaping these benefits in future periods . however , these programs to improve our profitability also involve certain risks which could materially impact our future operating results , as further detailed in part i , item 1a “ risk factors ” of this annual report on form 10-k. the company recorded restructuring costs of $ 2.7 million , $ 4.5 million , and $ 0.7 million during the years ended december 31 , 2016 , 2015 , and 2014 , respectively . restructuring costs were comprised primarily of employee termination costs , including severance and statutory retirement allowances , and were incurred in connection with various cost reduction programs . we are evaluating plans to further reduce our costs by consolidating additional manufacturing operations . these plans may require us to incur restructuring and severance costs in future periods . while streamlining and reducing fixed overhead , we are exercising caution so that we will not negatively impact our customer service , or our ability to further develop products and processes . foreign currency we are exposed to foreign currency exchange rate risks , particularly due to transactions in currencies other than the functional currencies of certain subsidiaries . u.s. gaap requires that entities identify the “ functional currency ” of each of their subsidiaries and measure all elements of the financial statements in that functional currency . a subsidiary 's functional currency is the currency of the primary economic environment in which it operates . in cases where a subsidiary is relatively self-contained within a particular country , the local currency is generally deemed to be the functional currency . however , a foreign subsidiary that is a direct and integral component or extension of the parent company 's operations generally would have the parent company 's currency as its functional currency . we have subsidiaries that fall into each of these categories . foreign subsidiaries which use the local currency as the functional currency our operations in europe , canada , and certain locations in asia primarily generate and expend cash using local currencies , and accordingly , these subsidiaries utilize the local currency as their functional currency . for those subsidiaries where the local currency is the functional currency , assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange as of the balance sheet date . translation adjustments do not impact the results of operations and are reported as a separate component of equity . for those subsidiaries where the local currency is the functional currency , revenues and expenses are translated at the average exchange rate for the year . while the translation of revenues and expenses into u.s. dollars does not directly impact the consolidated statements of operations , the translation effectively increases or decreases the u.s. dollar equivalent of revenues generated and expenses incurred in those foreign currencies . foreign subsidiaries which use the u.s. dollar as the functional currency our operations in israel and certain locations in asia primarily generate cash in u.s. dollars , and accordingly , these subsidiaries utilize the u.s. dollar as their functional currency . for those foreign subsidiaries where the u.s. dollar is the functional currency , all foreign currency financial statement amounts are remeasured into u.s. dollars . exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations . while these subsidiaries transact most business in u.s. dollars , they may have significant costs , particularly related to payroll , which are incurred in the local currency . - 31 - effects of foreign exchange rate on operations for the year ended december 31 , 2016 , exchange rate impacts reduced net revenues by $ 2.8 million , and reduced costs of products sold and selling , general , and administrative expenses by $ 3.1million , when compared to the prior year .
| the precision sensor market is integral to the development of intelligent products across a wide variety of end markets upon which we focus , including medical , agricultural , transportation , industrial , avionics , military , and space applications . we believe that as original equipment manufacturers ( “ oems ” ) continue a drive to make products “ smarter , ” they will integrate more sensors and related systems into their solutions to link the mechanical/physical world with digital control and or response . we believe this offers a substantial growth opportunity for our products and expertise . vpg reports in three product segments : the foil technology products segment , the force sensors segment , and the weighing and control systems segment . the foil technology products reporting segment is comprised of the foil resistor and strain gage operating segments . 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 , 2016 were $ 224.9 million versus $ 232.2 million for the prior year . net earnings ( loss ) attributable to vpg stockholders for the year ended december 31 , 2016 were $ 6.4 million , or $ 0.48 per diluted share , versus $ ( 13.0 ) million , or $ ( 0.96 ) per diluted share , for the prior year . the results of operations for the years ended december 31 , 2016 and 2015 include items affecting comparability as listed in the reconciliations below . the reconciliations below include certain financial measures which are not recognized in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) , including adjusted gross profits , adjusted gross profit margin , adjusted net earnings ( loss ) , and adjusted net earnings ( loss ) per diluted share . these non-gaap measures should not be viewed as an alternative to gaap measures of performance . non-gaap measures such as adjusted gross profit margin , adjusted net earnings ( loss ) , and adjusted net earnings ( loss )
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● the ponderosa franchise division which includes our worldwide operations of the bonanza and ponderosa steakhouse concepts . key performance indicators to evaluate the performance of our business , we utilize a variety of financial and performance measures , which are typically calculated on a system-wide basis . these key measures include new store openings , average unit volumes and same-store sales growth in addition to the general income statement line items such as revenues , general and administrative expenses , income before income tax expense and net income . new store openings - the number of new store openings reflects the number of franchised restaurant locations opened during a reporting period . the total number of new stores per year and the timing of stores openings has , and will continue to have , an impact on our results . average unit volumes - average unit volumes ( “ auv ” ) for any 12-month period consist of the average sales of all stores over that period that have been open a full year . average unit volumes are calculated by dividing total sales from all stores open a full year by the number of stores open during that period . the measurement of auvs allows us to assess changes in guest traffic and per transaction patterns at our stores . same-store sales growth - s ame-store sales growth reflects the change in year-over-year sales for the comparable store base , which we define as the number of stores open for at least one full fiscal year . given our focused marketing efforts and public excitement surrounding each opening , new stores often experience an initial start-up period with considerably higher than average sales volumes , which subsequently decrease to stabilized levels after three to six months . thus , we do not include stores in the comparable store base until they have been open for at least one full fiscal year . we expect that this trend will continue for the foreseeable future as we continue to open and expand into new markets . story_separator_special_tag average unit volumes – our average unit volumes were $ 767,717 and $ 747,892 , respectively for the 52 weeks ended december 31 , 2017 and december 25 , 2016. the 2.7 % increase was primarily the result of higher same-store sales from the opening of new stores and initiatives such as co-branding and adoption of mobile delivery . results of segment operations of buffalo 's . buffalo 's was historically under control of fccg and is a predecessor of fat brands for financial reporting purposes . to provide comparative segment financial information for two full fiscal years , the data presented below was compiled using : ● the audited financial statements of buffalo 's for the 2016 fiscal year , and ● for 2017 , combining the audited financial statements of buffalo 's for the pre-acquisition period from december 26 , 2016 through october 19 , 2017 with the buffalo 's segment results included in the audited consolidated financial statements of fat brands inc. for the period beginning march 21,2017 ( inception ) through december 31 , 2017 ( which includes the segment results of buffalo 's from october 20 , 2017 through december 31 , 2017 ) . the following table summarize key components of the results of operations for our buffalo 's segment for the periods indicated : ( in thousands ) for the fiscal years ended replace_table_token_5_th 32 for the year ended december 31 , 2017 as compared to the year ended december 25 , 2016. net income – buffalo 's net income for the year ended december 31 , 2017 decreased slightly to $ 639,000 , compared to $ 659,000 for the year ended december 25 , 2016. increases in revenue and other income were offset by similar increases in general and administrative expenses and income taxes . revenues – buffalo 's revenues consist of royalty fees and recognized franchise fees . buffalo 's had revenues of $ 1,756,000 and $ 1,604,000 for the years ended december 31 , 2017 and december 25 , 2016 , respectively . the increase in revenue of $ 152,000 , or 9.5 % , is primarily the result of increases in recognized franchise fees in 2017 of $ 275,000. this increase was partially reduced by lower royalties in 2017 in the amount of $ 123,000 due primarily to the closure of two long-standing franchise locations in atlanta , georgia and riyadh , saudi arabia . general and administrative expenses – general and administrative expenses of buffalo 's primarily consist of payroll , consulting fees and an allocation of corporate overhead from the parent company . general and administrative expenses for the year ended december 31 , 2017 increased by $ 120,000 or 18 % to $ 783,000 as compared to $ 663,000 for the year ended december 25 , 2016. this increase was primarily the result of an increase in the corporate overhead allocation of $ 99,000 and an increase in professional fees of $ 151,000 which was partially offset by decreases in salary and wage expense of $ 142,000 for the 2017 period . other income - other income increased from $ 36,000 in 2016 to $ 95,000 in 2017. the increase was primarily the result of interest income on intercompany receivables from fccg , which began accruing interest during 2017. income tax expense – we recorded a provision for income taxes of $ 429,000 for year ended december 31 , 2017. on december 22 , 2017 , the tax cuts and jobs act ( the “ tcj act ” ) was enacted into law . the reduction in the corporate tax rate under the tcj act required a one-time revaluation of our deferred tax assets and liabilities to reflect their value at the lower corporate tax rate of 21 % . as a result of the tax reform act , we recorded a tax expense of $ 33,000 due to a remeasurement of deferred tax assets and liabilities . story_separator_special_tag new store openings – there were no new stores opened by our buffalo 's cafe franchisees during the year ended december 31 , 2017 , as compared to two new seasonal stores opened for the year ended december 25 , 2016. same-store sales growth – same-store sales for buffalo 's cafe were positive 1.4 % for the year ended december 31 , 2017 and positive 2.4 % for the year ended december 25 , 2016. the softening in positive same-store sales for the year ended december 31 , 2017 was primarily attributable to adverse weather conditions in the atlanta area in the first quarter of 2017 , which had a negative effect on customer traffic . we excluded two restaurants from the calculation of same-store sales because they were subject to extraordinary adverse operating conditions in 2016 and 2017 , related to changes in the alcohol laws or political sanctions affecting the supply chain and the related local economy : canyon , texas , and the ezdan mall doha , qatar . if these restaurants were included , the same-store sales system-wide would have been negative 1.5 % for the year ended december 31 , 2017 and positive 0.4 % for the year ended december 35 , 2016. average unit volumes – our average unit volumes were $ 1,512,653 and $ 1,538,442 , respectively for the years ended december 31 , 2017 and december 25 , 2016. the 1.7 % decline was the result of the changes in alcohol laws and political sanctions described above for two of the restaurants . 33 results of segment operations of ponderosa we were not affiliated with the ponderosa entities until they became our wholly owned subsidiaries on october 20 , 2017. accordingly , only the financial results of ponderosa which occurred subsequent to fccg 's contribution are presented . the following table summarizes key components of the results of operations of our ponderosa segment for the period indicated : ( in thousands ) for the period from october 20 , 2017 ( acquisition ) through december 31 , 2017 replace_table_token_6_th net income - net income of ponderosa for the short period from october 20 , 2017 through december 31 , 2017 was $ 151,000. the primary contributor to the income was the recognition of income tax benefits in the amount of $ 175,000. revenues - ponderosa 's revenues consist of royalty fees and franchise fees . ponderosa had revenues of $ 807,000 for the short period from october 20 , 2017 through december 31 , 2017 , consisting almost entirely of royalties . general and administrative expense - general and administrative expense of ponderosa consists primarily of payroll costs . general and administrative expenses for the period from october 20 , 2017 through december 31 , 2017 totaled $ 815,000 of which $ 665,000 was payroll related . income tax benefit – we recorded an income tax benefit of $ 175,000 for interim period ended december 31 , 2017. on december 22 , 2017 , the tax cuts and jobs act ( the “ tcj act ” ) was enacted into law . the reduction in the corporate tax rate under the tcj act required a one-time revaluation of our deferred tax assets and liabilities to reflect their value at the lower corporate tax rate of 21 % . as a result of the tax reform act , we recorded a tax benefit of $ 167,000 due to a remeasurement of deferred tax assets and liabilities . new store openings - for the year ended december 31 , 2017 , ponderosa franchisees opened 1 location as compared to 2 locations for the year ended december 26 , 2016. same-store sales growth – domestic same-store sales for ponderosa were positive 1.1 % for the year ended december 31 , 2017 and negative 0.7 % for the year ended december 26 , 2016. overall systemwide same-store sales were negative 2.7 % for the year ended december 31 , 2017 and negative 3.3 % for the year ended december 26 , 2016. international sales were affected negatively in 2017 due to hurricanes maria and irma , which caused temporary closures and lower sales for 27 stores in the puerto rico market . average unit volumes – our average unit volumes were $ 1,404,345 and $ 1,424,645 , respectively , for the years ended december 31 , 2017 and december 26 , 2016. the 1.4 % decline was primarily the result of hurricane maria , which caused temporary closures for all the 27 stores in the puerto rico market . 34 changes in financial condition overview our assets , liabilities and stockholders ' equity for the years ended december 31 , 2017 can be summarized as follows : ( dollars in thousands ) total assets $ 29,236 total liabilities $ 27,227 total stockholders ' equity $ 2,009 the significant components of our balance sheet are as follows : cash our cash balance was $ 32,000 as of december 31 , 2017. significant sources and uses of cash during the 2017 fiscal year included : ● we received $ 20,930,000 in net proceeds from the issuance of stock , net of costs . ● we received $ 1,499,000 of cash provided by operations – comprised primarily of our net loss of $ ( 613,000 ) , adjusted for non-cash items . ● we used $ 10,550,000 to acquire ponderosa . ● we used $ 11,875,000 to partially repay the related party debt . accounts receivable accounts receivable consist primarily of royalty and advertising fees from franchisees reduced by reserves for the estimated amount deemed uncollectible due to bad debts . as of december 31 , 2017 , our accounts receivable totaled $ 918,000 which was net of $ 679,000 in reserves . trade notes receivable trade notes receivable are created when the settlement of a delinquent franchisee receivable account is reached and the entire balance is not immediately paid . notes receivable generally include personal guarantees from the franchisee .
| the reduction in the corporate tax rate under the tcj act required a one-time revaluation of our deferred tax assets and liabilities to reflect their value at the lower corporate tax rate of 21 % . as a result of the tax reform act , we recorded a tax expense of $ 505,000 due to a remeasurement of deferred tax assets and liabilities . results of segment operations of fatburger fatburger was historically under control of fccg and is a predecessor of fat brands for financial reporting purposes . to provide comparative segment financial information for two full fiscal years , the data presented below was compiled using : ● the audited financial statements of fatburger for the 2016 fiscal year , and ● for fiscal 2017 , combining the audited financial statements of fatburger for the pre-acquisition period from december 26 , 2016 through october 19 , 2017 with the fatburger segment results included in the audited consolidated financial statements of fat brands inc. for the period beginning march 21,2017 ( inception ) through december 31 , 2017 ( which includes the segment results of fatburger from october 20 , 2017 through december 31 , 2017 ) . 30 the following table summarize key components of the results of operations for our fatburger segment for the periods indicated : ( in thousands ) for the fiscal years ended replace_table_token_4_th for the year ended december 31 , 2017 compared to the year ended december 25 , 2016 net income - net income of fatburger for the year ended december 31 , 2017 decreased by $ 1,343,000 or 38 % to $ 2,201,000 compared to $ 3,544,000 for the year ended december 25 , 2016. the decrease was primarily attributable to lower recognized franchise fees in the amount of $ 1,881,000 , partially offset by a reduction in general and administrative expenses of $ 183,000 and an increase in other income of $ 268,000. revenues - fatburger 's revenues consist of royalty fees , franchise fees and management fees . fatburger had revenues of $ 6,712,000 and $ 8,456,000 for the years ended december 31 , 2017 and december 25 , 2016 , respectively . the $ 1,744,000
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on september 20 , 2012 , we filed a registration statement on form s-11 with the sec , to register $ 500 million in shares of our common stock ( exclusive of shares to be sold pursuant to our distribution reinvestment program ) at a price of $ 10.00 per share , and $ 50.0 million in shares of our common stock to be sold pursuant to our distribution reinvestment plan at $ 9.50 per share , pursuant to a follow-on offering to the initial public offering ( the “ follow-on offering , ” and together with the initial public offering , the “ prior public offerings ” ) . as of april 12 , 2013 , the date we terminated our initial public offering , we had accepted aggregate gross offering proceeds of $ 22.2 million . our total stockholders ' equity increased $ 1.0 million from $ 11.0 million as of december 31 , 2012 to $ 12.0 million as of december 31 , 2013. the increase in our total stockholders ' equity is primarily attributable to the cumulative gain of $ 3,699,367 , net of disposition fees , which we realized on the partial sale of our controlling indirect joint venture equity interest in the berry hill property , reflected in our additional paid-in capital , offset by our net loss of $ 2,971,001 for the period . from the date of effectiveness of our follow-on offering through september 9 , 2013 , we sold aggregate gross primary offering proceeds of approximately $ 330,251 under our follow-on offering . after consideration by our board of strategic alternatives to enhance the growth of our portfolio and the slow rate at which we raised funds in our prior public offerings , we terminated the follow-on offering on september 9 , 2013 , including the related distribution reinvestment program . we raised an aggregate of $ 22.6 million in gross proceeds from the sale of shares of our common stock in the prior public offerings . industry outlook bluerock real estate , l.l.c. , or bluerock , which provides us with our senior management team through our advisor , believes that the first wave of opportunity following the financial crisis provided investment-oriented , or ‘ ‘ financial , '' buyers the opportunity to earn significant returns simply by ‘ ‘ spread investing '' ( i.e. , taking advantage of historical spreads between higher acquisition cap rates and lower , long-term financing interest rates ) . we believe that as financial buyers enter their disposition periods , the next phase of recovery provides opportunity for real-estate-centric buyers ( i.e. , buyers who have real estate-specific investment expertise and deep intellectual capital in specific markets ) to create value using proven real estate investment strategies . in addition , bluerock believes that as the economy continues its recovery , private purchasers with greater capital constraints who have needed significant leverage to fund acquisitions will become less competitive in an environment of more traditional ( i.e. , higher ) interest rate levels and cap rate spreads . bluerock believes that both private institutional capital and public reits are mostly focused on investing in apartment properties in primary metropolitan , or ‘ ‘ gateway , '' markets , and that many demographically attractive growth markets are underinvested by institutional/public capital . as a result , we believe that our target markets provide the opportunity to source investments at capitalization rates that are at significant value to gateway markets , and which have the potential to provide not only significant current income , but also capital appreciation . bluerock additionally believes that select demographically attractive growth markets are underserved by newer institutional-quality class a apartment properties , especially as the wave of echo boomers moves into its prime rental years over the upcoming decade . as such , we believe there is opportunity in certain of our target markets for development and or redevelopment to deliver class a product and capture premium rental rates and value growth . we believe that demographic forces indicate strong growth for apartment demand in the foreseeable future due to the increasing number of echo boomer households , the propensity of these echo boomers to rent longer than previous generations , the increase in baby boomer renter households and trends in immigration and population growth . story_separator_special_tag quarter of 2013. interest expense increased $ 3,107,783 from $ 781,359 for the year ended december 31 , 2012 to $ 3,889,142 for the year ended december 31 , 2013. the increase in interest expense is primarily the result of the affiliate working capital line of credit , entered into during the fourth quarter of 2012 , which resulted in interest expense of $ 956,087 for the year ended december 31 , 2013. in addition , interest expense for the year ended december 31 , 2013 includes twelve months of expense , while interest expense for the year ended december 31 , 2012 reflects expense incurred subsequent to the 2012 acquisitions discussed above . the increase was offset by the amortization of the fair value debt adjustment resulting from the consolidation of the springhouse property late in the second quarter of 2012. loss from discontinued operations decreased $ 364,269 from $ 720,815 for the year ended december 31 , 2012 to $ 356,546 for the year ended december 31 , 2013. we recognized a $ 1,242,964 gain on revaluation of the equity on business combination related to additional equity interest purchased in the creekside property in june 2012 , which was offset by a loss of approximately $ 638,372 for the year ended december 31 , 2012 , and recognized a loss of $ 194,365 at the creekside property for the year ended december 31 , 2013. the decrease was primarily due to the amortization of in-place leases in 2012 of approximately $ 452,467 , which was not incurred in 2013 , as in-place leases are amortized over a useful life of 6 months . story_separator_special_tag we recognized a loss at the enders property of approximately $ 1,325,406 for the year ended december 31 , 2012 , compared to a loss of $ 162,864 for the year ended december 31 , 2013 , which was primarily due to acquisition costs of $ 1,090,435 in 2012. property operations we define “ same store ” properties as those that we owned and operated for the entirety of both periods being compared , except for properties that are in the construction or lease-up phases , or properties that are undergoing development or significant redevelopment . we move properties previously excluded from our same store portfolio for these reasons into the same store designation once they have stabilized or the development or redevelopment is complete . for newly constructed or lease-up properties or properties undergoing significant redevelopment , we consider a property stabilized upon attainment of 90 % physical occupancy , subject loss-to-lease , bad debt and rent concessions . for comparison of our years ended december 31 , 2013 and 2012 , the same store properties included properties owned at january 1 , 2012. no other properties owned since january 1 , 2012 were under construction or redevelopment . our same store properties for the years ended december 31 , 2013 and 2012 were springhouse at newport news , the reserve at creekside village and the estates at perimeter . our non-same store properties for the same periods were the apartments at meadowmont , gardens at hillsboro village , enders place at baldwin park , 23hundred @ berry hill and mda apartments . the estates at perimeter and gardens at hillsboro village are accounted for under the equity method , but are reflected in our table of net operating income as if they were consolidated . for the year ended december 31 , 2013 , the components of same store property revenues , property expenses and net operating income represented by our estates at perimeter property were $ 2,670,382 , $ 980,362 and $ 1,690,020 , respectively , and the components of non-same store property revenues , property expenses and net operating loss represented by our gardens at hillsboro property were $ 2,822,352 , $ 2,527,206 and $ 295,146 , respectively . for the year ended december 31 , 2012 , the components of same store property revenues , property expenses and net operating income represented by our estates at perimeter property were $ 2,662,547 , $ 1,014,131 and $ 1,648,416 , respectively , and the components of non-same store property revenues , property expenses and net operating loss represented by our gardens at hillsboro property were $ 3,644,338 , $ 1,289,894 and $ 2,354,444 , respectively . estates at perimeter 's financial information can be found at note 5 , “ equity method investments ” in our notes to consolidated financial statements . the gardens at hillsboro village was sold on september 30 , 2013 . 19 the following table presents the same store and non-same store results from operations for the years ended december 31 , 2013 and 2012 : replace_table_token_3_th ( 1 ) see “ net operating income ” below for a reconciliation of same store noi , non-same store noi and total noi to net income ( loss ) and a discussion of how management uses this non-gaap financial measure . year ended december 31 , 2013 compared to year ended december 31 , 2012 same store property revenues decreased approximately $ 109,361 , or 1.2 % , for the year ended december 31 , 2013 as compared to the same period in 2012 due primarily to decreased rental revenues from the creekside property resulting from a downturn in the local economy . same store occupancy for the year ended december 31 , 2013 increased to 90.88 % from 90.83 % for the year ended december 31 , 2012. same store average annual and monthly effective rent per unit for the year ended december 31 , 2013 increased to approximately $ 10,939 and $ 912 , respectively , from approximately $ 10,872 and $ 906 , respectively , for the year ended december 31 , 2012. the creekside property is included in same store sales and is held for sale as of december 31 , 2013. the creekside property consisted of $ 2,116,264 and $ 2,201,251 in revenues for the years ended december 31 , 2013 and 2012 , respectively . creekside 's average occupancy rate decreased to 96 % during the year ended december 31 , 2013 , compared to 96 % during the year ended december 31 , 2012. the average annual and monthly effective rent per unit for the creekside property increased to $ 11,738 and $ 978 , respectively , for the year ended december 31 , 2013 , from approximately $ 11,380 and $ 948 , respectively , for the year ended december 31 , 2012 due to nationwide increased rental rates . same store property expenses remained relatively flat , increasing approximately $ 11,420 , or 0.3 % , for the year ended december 31 , 2013 as compared to the same period in 2012 driven primarily by decreased repairs and maintenance expense of $ 159,240 , offset by an increase in real estate taxes and insurance of $ 76,202 and salary/benefits of $ 69,093 , as compared to our same store properties from the prior year end . net operating income we believe that net operating income , or noi , is a useful measure of our operating performance . we define noi as total property revenues less total property operating expenses , excluding depreciation and amortization and interest . other reits may use different methodologies for calculating noi , and accordingly , our noi may not be comparable to other reits . 20 we believe that this measure provides an operating perspective not immediately apparent from gaap operating income or net income .
| year ended december 31 , 2013 as compared to the year ended december 31 , 2012 revenues , property operating expenses , management fees , depreciation and amortization , and real estate taxes and insurance increased due to the various equity interest investments entered into following the first quarter for the year ended december 31 , 2012 , including additional equity interest in the springhouse property late in the second quarter of 2012 and the acquisition of the berry hill development property and mda property in the fourth quarter of 2012. the structure of these business combinations allowed us to report consolidated financial information for these investments . we had reported all of our investments under the equity method in previous reporting periods . as the additional equity interest in the springhouse property was not acquired until june 27 , 2012 , and the other investments were not acquired until the fourth quarter of 2012 , the prior period results reflect a smaller amount of financial information . therefore , virtually all statement of operations financial items increased from the year ended december 31 , 2012 by the following amounts compared to the year ended december 31 , 2013 ; revenues by $ 6,313,331 , property operating expenses by $ 1,952,503 , management fees by $ 255,990 , depreciation and amortization by $ 2,556,908 , and real estate taxes and insurance by $ 581,817. general and administrative expenses increased $ 407,585 from $ 1,715,675 for the year ended december 31 , 2012 to $ 2,123,260 for the year ended december 31 , 2013. this increase is primarily due to the addition of three properties to our portfolio during the last half of 2012 and an increase in legal expenses associated with our business operations . 18 gain on business combinations was as a result of the business combination from the company 's additional equity purchases in springhouse in june 2012 , which resulted in a revaluation gain of $ 2,284,656 , and from the acquisition of mda apartments , which resulted in a gain of $ 8,642,386. there were no such business combinations for the 2013 period . gain on sale of jv interests of $
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program , $ 16,387,000 in dividends paid to holders of the depositary shares of nnn 's 5.700 % series e cumulative redeemable preferred stock ( the `` series e preferred stock '' ) , $ 17,940,000 in dividends paid to holders of the depositary shares of nnn 's 5.200 % series f cumulative redeemable preferred stock ( the `` series f preferred stock '' ) , and $ 303,164,000 in dividends paid to common stockholders . 29 financing strategy . nnn 's financing objective is to manage its capital structure effectively in order to provide sufficient capital to execute its operating strategy while servicing its debt requirements , maintaining its investment grade credit rating , staggering debt maturities and providing value to nnn 's stockholders . nnn generally utilizes debt and equity security offerings , bank borrowings , proceeds from the disposition of certain properties , and to a lesser extent , internally generated funds to meet its capital needs . nnn typically funds its short-term liquidity requirements , including investments in additional properties , with cash from its credit facility . as of december 31 , 2018 , there was no outstanding balance and $ 900,000,000 was available for future borrowings under the credit facility . as of december 31 , 2018 , nnn 's ratio of total debt to total gross assets ( before accumulated depreciation and amortization ) was approximately 35 percent and the ratio of secured indebtedness to total gross assets was less than one percent . the ratio of total debt to total market capitalization was approximately 25 percent . certain financial agreements to which nnn is a party contain covenants that limit nnn 's ability to incur additional debt under certain circumstances . the organizational documents of nnn do not limit the absolute amount or percentage of indebtedness that nnn may incur . additionally , nnn may change its financing strategy . contractual obligations and commercial commitments . the information in the following table summarizes nnn 's contractual obligations and commercial commitments outstanding as of december 31 , 2018 . the table presents principal cash flows by year-end of the expected maturity for debt obligations and commercial commitments outstanding as of december 31 , 2018 . replace_table_token_17_th ( 1 ) includes only principal amounts outstanding under mortgages payable and notes payable and excludes unamortized mortgage premiums , note discounts and note costs . ( 2 ) interest calculation based on stated rate of the principal amount . in addition to the contractual obligations outlined above , nnn has committed to fund construction on 19 properties . the improvements on such properties are estimated to be completed within 12 months . these construction commitments , at december 31 , 2018 , are outlined in the table below ( dollars in thousands ) : total commitment ( 1 ) $ 34,756 less amount funded 13,588 remaining commitment $ 21,168 ( 1 ) includes land , construction costs , tenant improvements , lease costs and capitalized interest as of december 31 , 2018 , nnn did not have any other material contractual cash obligations , such as purchase obligations , financing lease obligations or other long-term liabilities other than those reflected in the table . in addition to items reflected in the table , nnn has issued preferred stock with cumulative preferential cash distributions , as described below under “ dividends. ” management anticipates satisfying these obligations with a combination of nnn 's cash provided from operations , current capital resources on hand , its credit facility , debt or equity financings and asset dispositions . generally the properties are leased under long-term net leases , which require the tenant to pay all property taxes and assessments , to maintain the interior and exterior of the property , and to carry property and liability insurance coverage . therefore , management anticipates that capital demands to meet obligations with respect to these properties will be modest for the foreseeable future and can be met with funds from operations and working capital . certain properties are subject to leases under which nnn retains responsibility for specific costs and expenses associated with the property . management anticipates the costs associated with these properties , nnn 's vacant properties or those properties that become vacant will also be met with funds from operations and working capital . nnn may be required to borrow under its credit facility or use other sources of capital in the event of significant capital expenditures or major repairs . 30 the lost revenues and increased property expenses resulting from vacant properties or uncollectibility of lease revenues could have a material adverse effect on the liquidity and results of operations if nnn is unable to re-lease the properties at comparable rental rates and in a timely manner . as of december 31 , 2018 , nnn owned 52 vacant , un-leased properties which accounted for approximately two percent of total properties held in the property portfolio . additionally , as of january 31 , 2019 , less than one percent of total properties held in the property portfolio was leased to one tenant that filed a voluntary petition for bankruptcy under chapter 11 of the u.s. bankruptcy code . as a result , this tenant has the right to reject or affirm its leases with nnn . nnn generally monitors the financial performance of its significant tenants on an ongoing basis . dividends . nnn has made an election to be taxed as a reit under sections 856 through 860 of the internal revenue code of 1986 , as amended ( the `` code '' ) , and related regulations and intends to continue to operate so as to remain qualified as a reit for federal income tax purposes . nnn generally will not be subject to federal income tax on income that it distributes to its stockholders , provided that it distributes 100 percent of its reit taxable income and meets certain other requirements for qualifying story_separator_special_tag program , $ 16,387,000 in dividends paid to holders of the depositary shares of nnn 's 5.700 % series e cumulative redeemable preferred stock ( the `` series e preferred stock '' ) , $ 17,940,000 in dividends paid to holders of the depositary shares of nnn 's 5.200 % series f cumulative redeemable preferred stock ( the `` series f preferred stock '' ) , and $ 303,164,000 in dividends paid to common stockholders . 29 financing strategy . nnn 's financing objective is to manage its capital structure effectively in order to provide sufficient capital to execute its operating strategy while servicing its debt requirements , maintaining its investment grade credit rating , staggering debt maturities and providing value to nnn 's stockholders . nnn generally utilizes debt and equity security offerings , bank borrowings , proceeds from the disposition of certain properties , and to a lesser extent , internally generated funds to meet its capital needs . nnn typically funds its short-term liquidity requirements , including investments in additional properties , with cash from its credit facility . as of december 31 , 2018 , there was no outstanding balance and $ 900,000,000 was available for future borrowings under the credit facility . as of december 31 , 2018 , nnn 's ratio of total debt to total gross assets ( before accumulated depreciation and amortization ) was approximately 35 percent and the ratio of secured indebtedness to total gross assets was less than one percent . the ratio of total debt to total market capitalization was approximately 25 percent . certain financial agreements to which nnn is a party contain covenants that limit nnn 's ability to incur additional debt under certain circumstances . the organizational documents of nnn do not limit the absolute amount or percentage of indebtedness that nnn may incur . additionally , nnn may change its financing strategy . contractual obligations and commercial commitments . the information in the following table summarizes nnn 's contractual obligations and commercial commitments outstanding as of december 31 , 2018 . the table presents principal cash flows by year-end of the expected maturity for debt obligations and commercial commitments outstanding as of december 31 , 2018 . replace_table_token_17_th ( 1 ) includes only principal amounts outstanding under mortgages payable and notes payable and excludes unamortized mortgage premiums , note discounts and note costs . ( 2 ) interest calculation based on stated rate of the principal amount . in addition to the contractual obligations outlined above , nnn has committed to fund construction on 19 properties . the improvements on such properties are estimated to be completed within 12 months . these construction commitments , at december 31 , 2018 , are outlined in the table below ( dollars in thousands ) : total commitment ( 1 ) $ 34,756 less amount funded 13,588 remaining commitment $ 21,168 ( 1 ) includes land , construction costs , tenant improvements , lease costs and capitalized interest as of december 31 , 2018 , nnn did not have any other material contractual cash obligations , such as purchase obligations , financing lease obligations or other long-term liabilities other than those reflected in the table . in addition to items reflected in the table , nnn has issued preferred stock with cumulative preferential cash distributions , as described below under “ dividends. ” management anticipates satisfying these obligations with a combination of nnn 's cash provided from operations , current capital resources on hand , its credit facility , debt or equity financings and asset dispositions . generally the properties are leased under long-term net leases , which require the tenant to pay all property taxes and assessments , to maintain the interior and exterior of the property , and to carry property and liability insurance coverage . therefore , management anticipates that capital demands to meet obligations with respect to these properties will be modest for the foreseeable future and can be met with funds from operations and working capital . certain properties are subject to leases under which nnn retains responsibility for specific costs and expenses associated with the property . management anticipates the costs associated with these properties , nnn 's vacant properties or those properties that become vacant will also be met with funds from operations and working capital . nnn may be required to borrow under its credit facility or use other sources of capital in the event of significant capital expenditures or major repairs . 30 the lost revenues and increased property expenses resulting from vacant properties or uncollectibility of lease revenues could have a material adverse effect on the liquidity and results of operations if nnn is unable to re-lease the properties at comparable rental rates and in a timely manner . as of december 31 , 2018 , nnn owned 52 vacant , un-leased properties which accounted for approximately two percent of total properties held in the property portfolio . additionally , as of january 31 , 2019 , less than one percent of total properties held in the property portfolio was leased to one tenant that filed a voluntary petition for bankruptcy under chapter 11 of the u.s. bankruptcy code . as a result , this tenant has the right to reject or affirm its leases with nnn . nnn generally monitors the financial performance of its significant tenants on an ongoing basis . dividends . nnn has made an election to be taxed as a reit under sections 856 through 860 of the internal revenue code of 1986 , as amended ( the `` code '' ) , and related regulations and intends to continue to operate so as to remain qualified as a reit for federal income tax purposes . nnn generally will not be subject to federal income tax on income that it distributes to its stockholders , provided that it distributes 100 percent of its reit taxable income and meets certain other requirements for qualifying
| during the year ended december 31 , 2018 , nnn 's rental income increased primarily due to the increase in rental income from property acquisitions ( see `` results of operations – property analysis – property acquisitions '' ) . nnn anticipates increases in rental income will continue to come from additional property acquisitions and increases in rents pursuant to existing lease terms . the following summarizes nnn 's revenues ( dollars in thousands ) : replace_table_token_13_th ( 1 ) includes rental income from operating leases , earned income from direct financing leases and percentage rent ( `` rental income '' ) . comparison of revenues – 2018 versus 2017 rental income . rental income increased in amount but remained flat as a percent of the total revenues for the year ended december 31 , 2018 as compared to the same period in 2017. the increase for the year ended december 31 , 2018 is primarily due to a partial year of rental income received as a result of the acquisition of 265 properties with aggregate gross leasable area of approximately 2,167,000 square feet during 2018 and a full year of rental income received as a result of the acquisition of 276 properties with a gross leasable area of approximately 2,243,000 square feet in 2017. comparison of revenues – 2017 versus 2016 rental income . rental income increased in amount and as a percent of the total revenues for the year ended december 31 , 2017 as compared to the same period in 2016. the increase for the year ended december 31 , 2017 is primarily due to a partial year of rental income received as a result of the acquisition of 276 properties with aggregate gross leasable area of approximately 2,243,000 square feet during 2017 and a full year of rental income received as a result of the acquisition of 313 properties with a gross leasable area of approximately 2,734,000 square feet in 2016 . 25 analysis of expenses general . operating expenses increased primarily due to an increase in impairment losses recognized on real estate during the year ended december 31 , 2018 , as compared to the same period
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no other significant changes were made to management 's overall methodology for evaluating the allowance for loan losses during the periods presented in the financial statements of this report . in addition , the company considers that the determination of the valuations of foreclosed assets held for sale involves a high degree of judgment and complexity . the carrying value of foreclosed assets reflects management 's best estimate of the amount to be realized from the sales of the assets . while the estimate is generally based on a valuation by an independent appraiser or recent sales of similar properties , the amount that the company realizes from the sales of the assets could differ materially from the carrying value reflected in the financial statements , resulting in losses that could adversely impact earnings in future periods . carrying value of loans acquired in fdic-assisted transactions and indemnification asset the company considers that the determination of the carrying value of loans acquired in the fdic-assisted transactions and the carrying value of the related fdic indemnification asset involves a high degree of judgment and complexity . the carrying value of the acquired loans and the fdic indemnification asset reflect management 's best ongoing estimates of the amounts to be realized on each of these assets . the company determined initial fair value accounting estimates of the acquired assets and assumed liabilities in accordance with fasb asc 805 , business combinations . however , the amount that the company realizes on these assets could differ materially from the carrying value reflected in its financial statements , based upon the timing of collections on the acquired loans in future periods . because of the loss sharing agreements with the fdic on certain of these assets , the company should not incur any significant losses related to these assets . to the extent the actual values realized for the acquired loans are different from the estimates , the indemnification asset will generally be impacted in an offsetting manner due to the loss sharing support from the fdic . subsequent to the initial valuation , the company continues to monitor identified loan pools and related loss sharing assets for changes in estimated cash flows projected for the loan pools , anticipated credit losses and changes in the accretable yield . analysis of these variables requires significant estimates and a high degree of judgment . see note 4 of the accompanying audited financial statements for additional information regarding the teambank , vantus bank , sun security bank , interbank and valley bank fdic-assisted transactions . goodwill and intangible assets goodwill and intangible assets that have indefinite useful lives are subject to an impairment test at least annually and more frequently if circumstances indicate their value may not be recoverable . goodwill is tested for impairment using a process that estimates the fair value of each of the company 's reporting units compared with its carrying value . the company defines reporting units as a level below each of its operating segments for which there is discrete financial information that is regularly reviewed . as of december 31 , 2016 , the company has one reporting unit to which goodwill has been allocated – the bank . if the fair value of a reporting unit exceeds its carrying value , then no impairment is recorded . if the carrying value amount exceeds the fair value of a reporting unit , 73 further testing is completed comparing the implied fair value of the reporting unit 's goodwill to its carrying value to measure the amount of impairment . intangible assets that are not amortized will be tested for impairment at least annually by comparing the fair values of those assets to their carrying values . at december 31 , 2016 , goodwill consisted of $ 5.4 million at the bank reporting unit , which included goodwill of $ 4.2 million that was recorded during 2016 related to the acquisition of 12 branches from fifth third bank . other identifiable intangible assets that are subject to amortization are amortized on a straight-line basis over a period of seven years . at december 31 , 2016 , the amortizable intangible assets consisted of core deposit intangibles of $ 7.1 million , including $ 3.8 million related to the fifth third bank transaction in january 2016 , $ 1.8 million related to the valley bank transaction in june 2014 and $ 519,000 related to the boulevard bank transaction in march 2014. these amortizable intangible assets are reviewed for impairment if circumstances indicate their value may not be recoverable based on a comparison of fair value . see note 1 of the accompanying audited financial statements for additional information . for purposes of testing goodwill for impairment , the company used a market approach to value its reporting unit . the market approach applies a market multiple , based on observed purchase transactions for each reporting unit , to the metrics appropriate for the valuation of the operating unit . significant judgment is applied when goodwill is assessed for impairment . this judgment may include developing cash flow projections , selecting appropriate discount rates , identifying relevant market comparables and incorporating general economic and market conditions . based on the company 's goodwill impairment testing , management does not believe any of its goodwill or other intangible assets are impaired as of december 31 , 2016. while the company believes no impairment existed at december 31 , 2016 , different conditions or assumptions used to measure fair value of the reporting unit , or changes in cash flows or profitability , if significantly negative or unfavorable , could have a material adverse effect on the outcome of the company 's impairment evaluation in the future . current economic conditions changes in economic conditions could cause the values of assets and liabilities recorded in the financial statements to change rapidly , resulting in material future adjustments in asset values , the allowance for loan losses , or capital that could negatively impact the company 's ability to meet regulatory capital requirements and maintain sufficient liquidity . story_separator_special_tag following the bursting of the housing bubble in mid-2007 and the subsequent housing market correction and subprime mortgage crisis , the united states entered into a significant prolonged economic downturn . unemployment rose from 4.7 % in november 2007 to peak at 10.0 % in october 2009. the elevated unemployment levels negatively impacted consumer confidence , which had a detrimental impact on industry-wide performance nationally as well as in the company 's midwest market area . economic conditions have improved considerably over the past few years as indicated by increasing consumer confidence levels , increased economic activity and low unemployment levels . the national unemployment rate decreased from 5.0 % as of december 2015 to 4.7 % as of december 2016. the labor force participation rate , which is the share of working-age americans who are either employed or are actively looking for a job , remained level at 63 % . the economy added 156,000 jobs in december 2016 , with employment gains predominantly occurring in health care and social assistance . job growth totaled 2.2 million in 2016 , which was less than the 2.7 million increase in 2015. as of december 31 , 2016 , the unemployment rate for the midwest , where most of the company 's business is conducted , was at 4.1 % significantly lower than the 4.6 % u.s. rate . unemployment rates at december 31 , 2016 , were : missouri at 4.4 % , arkansas at 3.9 % , kansas at 4.2 % , iowa at 3.6 % , nebraska at 3.4 % , minnesota at 3.9 % , oklahoma at 5.0 % and texas at 4.6 % . a few state unemployment rates increased compared to december 2015 levels ; however , oklahoma was the only state with an unemployment rate greater than the national average . oklahoma was affected by job losses in the manufacturing , mining and logging industries . of the metropolitan areas in which great southern bank does business , the tulsa market area had the highest unemployment level at december 31 , 2016 at 5.0 % . the unemployment rate at 3.9 % for the springfield market area was below the national average reported as of december 31 , 2016. metropolitan areas in arkansas , iowa , nebraska and minnesota boasted unemployment levels among the lowest in the nation . sales of newly built , single-family homes were at a seasonally adjusted annual rate of 536,000 units in december 2016 , according to the u.s. department of housing and urban development and the u.s. census bureau . this represents a 10.4 % decrease since november 2016 and a 0.4 % drop from the december 2015 rate of 538,000. the median sales price of new houses sold in december 2016 was $ 322,500 , with an average sales price of $ 384,000. the seasonally adjusted estimate of new houses for sale at the end of december 2016 was 259,000 , which represented a supply of 5.8 months at the current sales rate . sales of existing single-family homes closed out 2016 as the best year in a decade , even as sales declined in december as the result of ongoing affordability tensions and historically low supply levels . in december , existing sales decreased 2.8 % resulting in sales only 0.7 % higher than a year ago . first-time buyers made up 32 % of those transactions , the biggest share in four years , easing concerns that a shortage of affordable houses has been pushing entry-level buyers out of the market . the median existing-home price for all housing types in december was $ 232,200 , up 4 % from december 2015 ( $ 223,200 ) . total housing inventory at the end of december dropped 10.8 % to 1.65 million existing homes available for sale , which is the lowest level since national association of realtors began tracking the supply of all housing types in 1999. unsold inventory is at a 3.6 month supply at the current sales pace . 74 distressed sales , which include foreclosures and short sales , rose to 7 % in december , down from 8 % a year ago . foreclosures sold for an average discount of 20 % below market value , while short sales were discounted 10 % . the performance of commercial real estate markets has improved throughout the company 's market areas as shown by increased real estate sales and financing activity . according to real estate services firm costar group , retail , office and industrial types of commercial real estate properties continue to improve or remain stable in occupancy , absorption and rental income , both nationally and in our market areas . while current economic indicators show improvement nationally in employment , housing starts and prices , commercial real estate occupancy , absorption and rental income , our management will continue to closely monitor regional , national and global economic conditions , as these could significantly impact our market areas . loss sharing agreements on april 26 , 2016 , great southern bank executed an agreement with the fdic to terminate the loss sharing agreements for team bank , vantus bank and sun security bank , effective immediately . the agreement required the fdic to pay $ 4.4 million to settle all outstanding items related to the terminated loss sharing agreements .
| interest income - loans during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , interest income on loans increased due to higher average balances , partially offset by lower average interest rates . interest income increased $ 21.8 million as the result of higher average loan balances , which increased from $ 3.24 billion during the year ended december 31 , 2015 , to $ 3.66 billion during the year ended december 31 , 2016. the higher average balances were primarily due to organic loan growth , in addition to the loans obtained as part of the fifth third bank branch acquisition . interest income decreased $ 20.2 million as the result of lower average interest rates on loans . the average yield on loans decreased from 5.48 % during the year ended december 31 , 2015 to 4.89 % during the year ended december 31 , 2016. this decrease was due to lower overall loan rates , and a lower amount of accretion income in the current year resulting from the increases in expected cash flows to be received from the fdic-acquired loan pools , which is discussed in note 4 of the accompanying audited financial statements , which are included in item 8 of this report . on an on-going basis , the company estimates the cash flows expected to be collected from the acquired loan pools . this cash flows estimate has increased , based on the payment histories and the collection of certain loans , thereby reducing loss expectations of certain loan pools , resulting in adjustments to be spread on a level-yield basis over the remaining expected lives of the loan pools . the loss sharing agreements for the team bank , vantus bank and sun security bank transactions were terminated in april 2016 , and the related indemnification assets were reduced to $ -0- at that time . the valley bank transaction does not include a loss sharing agreement with the fdic . therefore , for these four acquisition transactions , there is no related indemnification asset . the entire amount of the discount adjustment has been and will be accreted to interest income over time with no offsetting
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in addition , we anticipate that our expenses will increase significantly in connection with our ongoing activities , as we : · continue research and development activities for srk‑015 , our lead product candidate , as we initiate and conduct our phase 2 clinical trial ; · continue research and development activities for srk-181 , our program focused on inhibitors of the activation of tgfβ1 ; · continue to discover , validate and develop additional product candidates ; · maintain , expand and protect our intellectual property portfolio ; · hire additional research , development and business personnel ; and · create the infrastructure to support our operations as a public company . to date , we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future . if we successfully complete clinical development and obtain regulatory approval for srk‑015 , srk-181 or any of our future product candidates , we may generate revenue in the future from product sales . in addition , if we obtain regulatory approval for srk‑015 , srk-181 or any of our future product candidates , we expect to incur significant expenses related to developing our commercialization capability to support product sales , marketing and distribution activities . financial operations overview operating expenses research and development research and development expenses consist primarily of costs incurred for our research and development activities , including our product candidate discovery efforts , preclinical studies , manufacturing , and clinical trials under our research programs , which include : · employee-related expenses , including salaries , benefits and equity-based compensation expense for our research and development personnel ; · expenses incurred under agreements with third parties that conduct research and development and preclinical activities on our behalf ; 111 · expenses incurred under agreements related to our clinical trials , including the costs for investigative sites and cros , that conduct our clinical trials ; · manufacturing process-development , clinical supplies and technology-transfer expenses ; · consulting and professional fees related to research and development activities ; · costs of purchasing laboratory supplies and non-capital equipment used in our internal research and development activities ; · costs related to compliance with clinical regulatory requirements ; and · facility costs and other allocated expenses , which include expenses for rent and maintenance of facilities , insurance , depreciation and other supplies . research and development costs are expensed as incurred . costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks . nonrefundable advance payments for research and development goods and services to be received in the future from third parties are deferred and capitalized . the capitalized amounts are expensed as the related services are performed . a significant portion of our research and development costs have been external costs , which we track on a program-by-program basis after a clinical product candidate has been identified . our internal research and development costs are primarily personnel-related costs , depreciation and other indirect costs . we do not track our internal research and development expenses on a program-by-program basis as they are deployed across multiple projects . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect research and development costs to increase significantly for the foreseeable future as our product candidate development programs progress . however , we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization . there are numerous factors associated with the successful commercialization of any of our product candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control will impact our clinical development programs and plans . in addition , we expect to incur additional costs in connection with our research and development activities under our collaboration with gilead . the successful development of srk‑015 , srk-181 and any future product candidates is highly uncertain . as such , at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of srk‑015 , srk-181 and any future product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from the sale of our product candidates , if approved . this is due to the numerous risks and uncertainties associated with developing product candidates , including the uncertainty of : · the scope , progress , outcome and costs of our preclinical development activities , clinical trials and other research and development activities ; · establishing an appropriate safety profile ; · successful enrollment in and completion of clinical trials ; · whether our product candidates show safety and efficacy in our clinical trials ; · receipt of marketing approvals from applicable regulatory authorities , if any ; 112 · establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers ; · obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates ; · significant and changing government regulation ; · commercializing the product candidates , if and when approved , whether alone or in collaboration with others ; and · continued acceptable safety profile of the products following any regulatory approval . a change in the outcome of any of these variables with respect to the development of srk‑015 , srk-181 or any of our future product candidates would significantly change the costs and timing associated with the development of that product candidate . story_separator_special_tag general and administrative general and administrative expenses consist primarily of employee-related expenses , including salaries , benefits and equity-based compensation expenses for personnel in executive , finance , business development , investor relations , legal , information technology and human resources functions . other significant general and administrative expenses include facility costs not otherwise included in research and development expenses , legal fees relating to patent and corporate matters and fees for accounting and consulting services . we anticipate that our general and administrative expenses will increase in the future as our business expands to support expected growth in research and development activities , including the continued development of our product candidates . these increases will likely include increased costs related to the hiring of additional personnel , as well as fees to outside consultants , among other expenses . we also anticipate increased expenses associated with being a public company , including costs for audit , legal , regulatory and tax-related services , director and officer insurance premiums and investor relations costs . interest income , net interest income , net consists primarily of interest income earned on our cash and cash equivalents and marketable securities , net of interest expense incurred on capital leases and our credit facility , including amortization of debt discount and debit issuance costs . other expense , net other expense , net consists primarily of non-cash changes in the fair value of warrants issued in connection with our credit facility . 113 story_separator_special_tag roman , times , serif ; font-weight : bold ; font-style : italic ; font-size : 10pt ; '' > sources of liquidity since our inception , we have not generated any product revenue and have incurred significant operating losses and negative cash flows from our operations . we have funded our operations to date primarily with proceeds from the sale of our convertible preferred stock and units in private placements before our ipo , and sale of our common stock through our ipo and to gilead in an exempt private placement . the following table provides information regarding our total cash and cash equivalents and marketable securities at december 31 , 2018 and december 31 , 2017 ( in thousands ) : replace_table_token_3_th during the year ended december 31 , 2018 , our cash , cash equivalents and marketable securities balance increased approximately $ 117.7 million . the increase was primarily due to the payment of $ 80.0 million received under the gilead 115 collaboration , including the upfront payment and payment for the sale of common stock , as well as the net proceeds of $ 77.8 million from the sale of our common stock in our ipo , both of which are further discussed below . these increases were offset by the cash used to operate our business , including payments related to , among other things , research and development and general and administrative expenses as we continue to invest in our primary product candidates and support our internal research and development efforts . we also made investments in capital purchases and payments on our debt and capital leases . in december 2018 , we entered into a master collaboration agreement , or the collaboration agreement , with gilead pursuant to which we will conduct research and pre-clinical development activities relating to the diagnosis , treatment , cure , mitigation or prevention of diseases , disorders or conditions , other than in the field of oncology in accordance with a pre-determined research plan . pursuant to the collaboration agreement , gilead made non-refundable payments of $ 80.0 million , including an upfront payment and an equity investment . in may 2018 , we completed our ipo , in which we issued and sold 6,164,000 shares of common stock , including all additional shares available to cover over-allotments , resulting in net proceeds of $ 77.8 million after deducting underwriting discounts and commissions and other offering costs payable by us . prior to the ipo , we primarily funded our operations from inception through the ipo with the net proceeds of $ 109.2 million from sales of our convertible preferred stock and units , as well as borrowings of $ 2.0 million under our credit facility with svb . in august 2015 , we entered into a credit facility with svb for an equipment line of credit of up to $ 2.0 million to finance the purchase of eligible equipment . pursuant to the credit facility , svb was obligated to make up to five equipment advances , each in an amount of at least $ 0.1 million during the draw period . in august 2016 , we amended the credit facility to extend the draw period to december 31 , 2016. we borrowed a total of $ 2.0 million against the line of credit through december 31 , 2016. amounts borrowed bear interest at an annual prime rate less 0.25 % . in the event of a default , and during such an event , the annual interest rate will increase by 5 % . for each advance , interest-only payments were due and paid through june 2016. principal and interest payments commenced on july 1 , 2016 for a period of 36 months . a final payment fee equal to 4 % of the aggregate advances is also due on june 1 , 2019. we have the option to prepay the outstanding balance of the loan in full subject to a prepayment fee of 0.5 % to 1.0 % , depending on when the prepayment occurs . all borrowings under the credit facility mature on july 1 , 2019. the loan balance at december 31 , 2018 was $ 0.4 million . we granted svb a security interest in all equipment financed under the credit facility . the credit facility contains negative covenants restricting our activities , including limitations on dispositions , change in business ownership or location , mergers or acquisitions , incurring indebtedness or liens , paying dividends or making investments and certain other business transactions .
| general and administrative general and administrative expense was $ 14.4 million for the year ended december 31 , 2018 compared to $ 5.1 million for the year ended december 31 , 2017 , an increase of $ 9.3 million or 182.8 % . the increase in general and administrative expense was primarily attributable to an increase of $ 4.2 million in employee compensation and benefits related to increased headcount , as well as $ 1.2 million in equity compensation expense for the modification of equity awards associated with the retirement of our former chief operating officer . additional increases include $ 2.9 million in professional services and consulting fees primarily related to increases in legal fees , accounting and audit fees , and public and investor relations fees due to costs associated with our ipo , our collaboration with gilead , as well as ongoing business activities , and an increase in public company costs of $ 0.7 million , related to items such as premiums for directors and officers ' insurance and public company filings . in 2019 , we expect our general and administrative expenses to increase , as compared to 2018 , as we continue to invest in our internal infrastructure to support our overall company growth , and as we comply with the responsibilities of being a public company . interest income ( expense ) , net the increase in interest income , net was attributable to increased income earned on our investment portfolio , associated with larger cash balances during the year ended december 31 , 2018 as compared to the year ended december 31 , 2017. we generated cash proceeds during our series c financing round in december 2017 and our ipo in may 2018. other income ( expense ) , net the increase in other income expense , net was attributable to increased expense associated with the change in fair value of the warrant during the year ended december 31 , 2018 compared to the corresponding period in 2017. previously , the warrant was classified as a liability , the
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it is still early in the fiscal year 2020 crop cycle , but we are expecting lower carryover crop volumes and reduced north american volumes . 19 we have entered fiscal year 2020 with a strong balance sheet in part from the cash flow generated in fiscal year 2019. we are well positioned financially to fund upcoming working capital needs and to take advantage of investment opportunities . we also remain committed to our industry leadership and continuing to deliver value to our shareholders as evidenced by the announcement of our 49 th annual dividend increase on may 22 , 2019. story_separator_special_tag fiscal year 2019 would have been 33 % . the effective tax rate included the benefit of various tax planning opportunities , as well as the effects of exchange rate changes on local earnings and taxes of foreign subsidiaries . for the fiscal year ended march 31 , 2018 , the company 's consolidated effective income tax rate was 30 % . income tax expense for fiscal year 2018 included a one-time adjustment amounting to a reduction of $ 4.5 million ( $ 0.18 per diluted share ) for the fiscal year ended march 31 , 2018 , from the enactment of major changes to u.s. corporate income tax law in december 2017. excluding those items , the effective tax rate for fiscal year 2018 , would have been 33 % . results for the fiscal year ended march 31 , 2019 , included restructuring and impairment charges of $ 20.3 million ( $ 0.64 per diluted share ) , primarily recorded to reflect the cost of workforce reductions and impairment in the carrying value of property , plant , and equipment assets as a result of changes in the company 's business in tanzania . for more details , see note 5 to the consolidated financial statements in item 8 of this annual report . fiscal year ended march 31 , 2018 , compared to the fiscal year ended march 31 , 2017 net income for the fiscal year ended march 31 , 2018 , was $ 105.7 million , or $ 4.14 per diluted share , compared with $ 106.3 million , or $ 0.88 per diluted share for the fiscal year ended march 31 , 2017. the fiscal year 2017 results included a one-time reduction of earnings available to common shareholders of $ 74.4 million , or $ 2.99 per diluted share , from the conversion for cash of the remaining outstanding shares of our series b 6.75 % convertible perpetual preferred stock under the mandatory conversion in january 2017. that reduction , the effect of a reduction in income tax expense from the enactment of the tax cuts and jobs act in december 2017 , and certain other non-recurring items are detailed in other items below . excluding those items , diluted earnings per share for fiscal year 2018 of $ 3.96 decreased by $ 0.01 compared to the same period of fiscal year 2017. operating income of $ 171.5 million for the year ended march 31 , 2018 , decreased by $ 6.9 million compared to the year ended march 31 , 2017. segment operating income was $ 180.6 million for the year ended march 31 , 2018 , a decrease of $ 7.9 million , compared to the year ended march 31 , 2017 , as improved results in our other regions and other tobacco operations segments were offset by declines in our north america segment . revenues of $ 2.0 billion for fiscal year 2018 were down only 1.8 % compared to fiscal year 2017 , as lower volumes , primarily in africa , were largely offset by higher sales prices and processing revenues . 21 flue-cured and burley leaf tobacco operations other regions operating income for the other regions segment improved by $ 3.9 million to $ 147.3 million for the fiscal year ended march 31 , 2018 , compared to the fiscal year ended march 31 , 2017. the improvement was driven by lower selling , general , and administrative expenses and higher processing revenues , largely offset by lower sales volumes and other revenues from the receipt of distributions from unconsolidated affiliates . in south america , total lamina sales volumes were up for the fiscal year ended march 31 , 2018 , on higher current crop sales partly offset by reduced carryover crop sales . the higher current year crop volumes also increased processing revenues and improved margins from reduced factory unit costs there . results for the africa region for the fiscal year ended march 31 , 2018 , compared to the fiscal year ended march 31 , 2017 , were down due to lower african burley production levels in fiscal year 2018. earnings improved for the asia region primarily on stronger sales and for the europe region on stronger sales and favorable exchange rates . selling , general , and administrative costs for the segment were lower for fiscal year 2018 , mostly from net foreign currency remeasurement gains compared with losses in fiscal year 2017 , partially offset by an unfavorable comparison due to the reversal of value-added tax reserves in the second quarter of fiscal year 2017. revenues for the other regions segment for the fiscal year ended march 31 , 2018 , were up $ 59.2 million to $ 1.5 billion compared to the fiscal year ended march 31 , 2017 , as higher sales prices and processing revenues as well as a better product mix offset lower sales volumes and other revenues from the receipt of distributions from unconsolidated affiliates . north america north america segment operating income of $ 23.2 million for the fiscal year ended march 31 , 2018 , was down by $ 11.9 million , compared with fiscal year ended march 31 , 2017. the decline was driven by lower sales volumes . story_separator_special_tag in the united states , volumes were down primarily due to large prior crop carryover sales in fiscal year 2017 and some delayed customer shipments in the quarter ended march 31 , 2018 , due to reduced transportation availability , while results for guatemala and mexico were affected by lower volumes and less favorable margins . selling , general and administrative costs were lower compared with fiscal year 2017 , on reduced compensation costs and lower customer claims . segment revenues were down by $ 107.7 million to $ 308.7 million for the fiscal year ended march 31 , 2018 , compared with the fiscal year ended march 31 , 2017 , on the lower volumes . other tobacco operations the other tobacco operations segment operating income increased by $ 0.1 million to $ 10.1 million for the year ended march 31 , 2018 , compared with the year ended march 31 , 2017. for fiscal year 2018 , earnings were lower for the dark tobacco operations , compared to fiscal year 2017 , mostly driven by lower sales in indonesia on the lack of wrapper tobacco availability from the weather damaged crop . indonesian wrapper volumes and quality recovered in the subsequent crop , which was available for sale in fiscal year 2019. earnings for the oriental joint venture increased for the fiscal year ended march 31 , 2018 , largely on higher sales volumes . results for the joint venture for fiscal year 2018 also included gains on the sale of idle assets offset by higher currency remeasurement losses from the devaluation of the turkish lira . operating results for the special services group were up slightly for the fiscal year ended march 31 , 2018 , compared with the fiscal year ended march 31 , 2017. selling , general , and administrative costs for the segment were up modestly for fiscal year 2018 compared to fiscal year 2017 on higher currency remeasurement losses . revenues for the other tobacco operations segment increased by $ 11.3 million to $ 243.1 million for the year ended march 31 , 2018 , compared to fiscal year 2017 , mainly on higher sales prices in our dark tobacco operations . other items cost of goods sold declined by about 1 % to $ 1.7 billion for the fiscal year ended march 31 , 2018 , compared with fiscal year 2017. the decrease was in line with similar percentage decline in revenues . selling , general , and administrative costs decreased by $ 11.5 million to $ 200.5 million for the year ended march 31 , 2018 , compared to the year ended march 31 , 2017. the decrease in fiscal year 2018 was largely on net foreign currency remeasurement gains compared with losses in fiscal year 2017 , mainly in africa , partly offset by an unfavorable comparison due to the reversal of value-added tax reserves in the second quarter of fiscal year 2017. the consolidated effective income tax rate for the year ended march 31 , 2018 , was approximately 30 % . the rate included the effect of the changes in u.s. corporate income tax law under the tax cuts and jobs act of 2017 that were recorded under the sec 's “ provisional ” classification upon enactment of the new law in the third fiscal quarter ended december 31 , 2017 , as well as adjustments made to the “ provisional ” accounting in the quarter ended march 31 , 2018 , due to the collection and analysis of additional information for certain foreign subsidiaries , as well as additional clarifying guidance issued with respect to the new law . the effect of the new law mainly represents changes to deferred tax assets and liabilities , as well as the reduction of the u.s. tax liability on undistributed foreign earnings . as a result of the adjustments to the earlier provisional accounting , our earnings for the year ended march 31 , 2018 , included a $ 4.5 million ( $ 0.18 per share ) net reduction of income tax expense from the new law after those adjustments . the consolidated effective income tax rate for the fiscal year ended march 31 , 2017 , was approximately 34 % . income taxes for that period were lower than the 35 % federal statutory rate at that time , due to a combination of lower net effective tax rates on income from certain foreign subsidiaries , and effects of changes in local currency exchange rates on deferred income tax balances . for more details , see note 5 to the consolidated financial statements in item 8 of this annual report . 22 in december 2016 , 111,072 shares of the series b 6.75 % convertible perpetual preferred stock were converted into approximately 2.5 million shares of the company 's common stock . in january 2017 , the company completed a mandatory cash conversion of the remaining 107,418 outstanding shares of the preferred stock in accordance with the original terms of the preferred shares . although the conversions of the preferred stock did not impact the company 's net income , the cash conversions in january 2017 resulted in a one-time reduction of retained earnings of approximately $ 74.4 million during the fourth quarter ended march 31 , 2017 , and a corresponding one-time reduction of earnings available to common shareholders for the fiscal year ending march 31 , 2017 for purposes of determining the amounts reported for basic and diluted earnings per share . the effect of the conversions on diluted earnings per share for the fiscal year ended march 31 , 2017 , was ( $ 2.99 ) . results for the year ended march 31 , 2017 , included restructuring and impairment costs of $ 4.4 million ( $ 0.10 per diluted share ) .
| excluding those non-recurring items , net income and earnings per share increased by $ 11.7 million and $ 0.49 , respectively , for fiscal year 2019 compared to fiscal year 2018. operating income of $ 161.2 million for the fiscal year ended march 31 , 2019 , which included restructuring and impairment charges of $ 20.3 million detailed in other items below , decreased by $ 9.7 million , compared to operating income of $ 170.8 million for the fiscal year ended march 31 , 2018. segment operating income was $ 186.8 million for the fiscal year ended march 31 , 2019 , an increase of $ 6.8 million , compared to segment operating income of $ 180.0 million for the fiscal year ended march 31 , 2018. results reflected earnings improvements in the other regions and other tobacco operations segments and flat results for the north america segment for fiscal year 2019. consolidated revenues increased by $ 193.2 million to $ 2.2 billion for the fiscal year 2019 , compared to the prior fiscal year , primarily due to higher sales and processing volumes . flue-cured and burley leaf tobacco operations other regions operating income for the other regions segment increased by $ 4.8 million to $ 151.5 million for the fiscal year ended march 31 , 2019 , compared with fiscal year 2018 , on stronger sales and processing volumes partially offset by higher selling , general and administrative costs . in fiscal year 2019 , volumes increased in africa , mainly from higher burley production volumes and carryover crop sales . in south america , volumes also increased , but the product mix was less favorable . results for asia reflected lower sales and trading volumes for fiscal year 2019 , while europe saw improvements in processing volumes . selling , general , and administrative costs were higher for fiscal year 2019 compared to fiscal year 2018 , primarily from negative foreign currency remeasurement and exchange variances , higher compensation and incentive accruals , and higher customer claim costs , partially offset by higher net recoveries on advances to suppliers . revenues for the other regions segment of $ 1.6 billion for
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selling , general and administrative expenses decreased $ 90 million , or 17.8 % , for the year ended december 31 , 2016 compared to the same period in 2015 primarily due to : lower functional spending and incentive compensation costs of $ 31 million ; productivity initiatives across all of our business segments ; and a decrease in pension and other postretirement plan net periodic benefit cost of $ 21 million . 42 operating profit increased $ 567 million , or 173.9 % , for the year ended december 31 , 2016 compared to the same period in 2015 primarily due to : lower raw material costs across all of our business segments ; a favorable impact from other ( charges ) gains , net of $ 340 million . in december 2015 , we terminated our existing agreement with a raw materials supplier in singapore . in connection with the contract termination , we recorded $ 174 million to other ( charges ) gains , net , which did not recur in 2016. we also recorded long-lived asset impairment losses of $ 123 million to fully write-off certain ethanol related assets at our acetyl facility in nanjing , china during the three months ended december 31 , 2015 , which did not recur in 2016. see note 18 - other ( charges ) gains , net in the accompanying consolidated financial statements for further information ; and a decrease in sg & a expenses ; partially offset by : lower net sales . equity in net earnings ( loss ) of affiliates decreased $ 26 million for the year ended december 31 , 2016 compared to the same period in 2015 primarily due to : a decrease in equity in net earnings ( loss ) of affiliates of $ 50 million from our ibn sina strategic affiliate as a result of lower pricing for methyl tertiary-butyl ether ( `` mtbe '' ) and methanol . our effective income tax rate for the year ended december 31 , 2016 was 12 % compared to 41 % for the year ended 2015 . the lower effective income tax rate is primarily due to settlement of uncertain tax positions and technical clarifications in germany and the us of $ 55 million . see note 19 - income taxes in the accompanying consolidated financial statements for further information . 43 business segments advanced engineered materials replace_table_token_17_th year ended december 31 , 2017 compared to year ended december 31 , 2016 net sales increased for the year ended december 31 , 2017 compared to the same period in 2016 primarily due to : higher volume primarily due to net sales generated from softer and from nilit , which represents approximately three-fourths of the increase in volume ; and higher volume within our base business driven by new project launches and pipeline growth globally , which represents the remainder of the volume growth ; slightly offset by : lower pricing for most of our products due to customer and regional mix . operating profit increased for the year ended december 31 , 2017 compared to the same period in 2016 primarily due to : higher net sales ; partially offset by : higher plant spending of $ 138 million , primarily related to our acquisitions of softer and nilit , as these acquired businesses incur ongoing plant spending ; higher energy and raw material costs , primarily related to methanol ; and higher depreciation and amortization expense , primarily related to our acquisitions of softer and nilit . equity in net earnings ( loss ) of affiliates increased for the year ended december 31 , 2017 compared to the same period in 2016 primarily due to : an increase in equity investment in earnings of $ 20 million from our ibn sina strategic affiliate as a result of higher pricing and timing of turnaround activity ; an increase in equity investment in earnings of $ 11 million from our infraserv gmbh & co. hoechst kg affiliate as a result of an ownership change between our advanced engineered materials and other activities segments . see note 9 - investment in affiliates in the accompanying consolidated financial statements for further information ; and 44 an increase in equity investment in earnings of $ 8 million and $ 7 million from our fortron industries llc ( `` fortron '' ) and polyplastics co. , ltd. ( `` polyplastics '' ) strategic affiliates , respectively , as a result of higher demand . on february 1 , 2018 , we completed the acquisition of 100 % of the ownership interests of omni plastics , l.l.c . and its subsidiaries ( `` omni plastics '' ) . omni plastics specializes in custom compounding of various engineered thermoplastic materials . the acquisition further strengthens our global asset base by adding compounding capacity in the americas . see note 29 - subsequent events in the accompanying consolidated financial statements for further information . on may 3 , 2017 , we acquired the nylon compounding division of nilit , an independent producer of high performance nylon resins , fibers and compounds . we acquired the nylon compounding product portfolio , customer agreements and manufacturing , technology and commercial facilities . the acquisition of nilit increases our global engineered materials product platforms , extends the operational model , technical and industry solutions capabilities and expands project pipelines . see note 4 - acquisitions , dispositions and plant closures in the accompanying consolidated financial statements for further information . year ended december 31 , 2016 compared to year ended december 31 , 2015 net sales increased for the year ended december 31 , 2016 compared to the same period in 2015 primarily due to : higher volume , primarily for pom in europe and asia , driven by new project launches and base business growth ; partially offset by : lower pricing in pom due to regional and customer mix . story_separator_special_tag operating profit increased for the year ended december 31 , 2016 compared to the same period in 2015 primarily due to : higher net sales ; lower energy and raw material costs , primarily for methanol and polyester ; and cost savings of $ 18 million primarily due to productivity initiatives . equity in net earnings ( loss ) of affiliates decreased for the year ended december 31 , 2016 compared to the same period in 2015 primarily due to : a decrease in equity in net earnings ( loss ) of affiliates of $ 50 million from our ibn sina strategic affiliate as a result of lower pricing for mtbe and methanol ; partially offset by : an increase in equity in net earnings ( loss ) of affiliates from our polyplastics and korea engineering plastics co. , ltd. ( `` kepco '' ) strategic affiliates of $ 15 million and $ 9 million , respectively , primarily as a result of higher demand . in december 2016 , we acquired 100 % of the stock of the forli , italy based softer , a leading thermoplastic compounder . the acquisition included its comprehensive product portfolio of engineering thermoplastics , including nylon and polypropylene polymers , and thermoplastic elastomers , as well as all of its manufacturing , technology and commercial facilities and customer agreements . the acquisition supports the strategic growth of the engineered materials business . see note 4 - acquisitions , dispositions and plant closures in the accompanying consolidated financial statements for further information . 45 consumer specialties replace_table_token_18_th year ended december 31 , 2017 compared to year ended december 31 , 2016 net sales decreased for the year ended december 31 , 2017 compared to the same period in 2016 primarily due to : lower acetate tow volume and pricing due to lower global industry utilization . operating profit decreased for the year ended december 31 , 2017 compared to the same period in 2016 primarily due to : lower net sales ; partially offset by : lower spending and raw material costs of $ 37 million primarily related to productivity initiatives in our cellulose derivatives business . on june 18 , 2017 , celanese , through various subsidiaries , entered into an agreement with affiliates of the blackstone entities to form a joint venture which combines substantially all of the operations of our cellulose derivatives business and the operations of the rhodia acetow cellulose acetate business owned by the blackstone entities . see note 4 - acquisitions , dispositions and plant closures in the accompanying consolidated financial statements for further information . we have received regulatory approval in four out of six jurisdictions requiring approval , and the european commission ( `` ec '' ) has moved into its phase ii investigation of the ongoing merger review process . under the standard review process of a phase ii investigation , we received a statement of objections from the ec . this statement of objections sets out the provisional position of the ec and does not prejudge the final outcome of the case . year ended december 31 , 2016 compared to year ended december 31 , 2015 net sales decreased for the year ended december 31 , 2016 compared to the same period in 2015 primarily due to : lower acetate tow pricing due to lower global industry utilization ; partially offset by : higher acetate tow volume , primarily in europe , due to customer destocking in the first half of prior year , which did not recur in 2016 . 46 operating profit increased for the year ended december 31 , 2016 compared to the same period in 2015 primarily due to : lower raw material costs , including acetic acid and anhydride ; a favorable impact in other ( charges ) gains , net due to employee termination costs of $ 24 million , which was recorded as a result of a 50 % capacity reduction at our acetate tow facility in lanaken , belgium in december 2015 , which did not recur in 2016. see note 4 - acquisitions , dispositions and plant closures in the accompanying consolidated financial statements for further information ; and cost savings of $ 25 million primarily due to productivity initiatives in our cellulose derivatives business ; partially offset by : lower net sales . depreciation and amortization expense , which is included within operating profit ( loss ) , decreased during the year ended december 31 , 2016 compared to the same period in 2015 as a result of accelerated depreciation expense of $ 10 million related to a 50 % capacity reduction at our acetate tow facility in lanaken , belgium in december 2015 , which did not recur in 2016. see note 4 - acquisitions , dispositions and plant closures in the accompanying consolidated financial statements for further information . industrial specialties replace_table_token_19_th year ended december 31 , 2017 compared to year ended december 31 , 2016 net sales increased for the year ended december 31 , 2017 compared to the same period in 2016 primarily due to : higher pricing and volume in our emulsion polymers business due to higher raw material costs for vam across all regions and stronger demand in china . operating profit decreased for the year ended december 31 , 2017 compared to the same period in 2016 primarily due to : higher spending and raw material costs of $ 41 million , primarily vam ; partially offset by : higher net sales . 47 year ended december 31 , 2016 compared to year ended december 31 , 2015 net sales decreased for the year ended december 31 , 2016 compared to the same period in 2015 primarily due to : lower pricing in our emulsion polymers and eva polymers businesses due to lower raw material costs globally for vam .
| ( `` softer '' ) and from the nylon compounding division of nilit group ( `` nilit '' ) , as well as within our base business , which was driven by new project launches and pipeline growth globally ; and higher pricing for most of our products in our acetyl intermediates segment ; partially offset by : lower acetate tow pricing and volume in our consumer specialties segment ; and lower volume for ethanol in our acetyl intermediates segment . selling , general and administrative expenses increased $ 40 million , or 9.6 % for the year ended december 31 , 2017 compared to the same period in 2016 primarily due to : an increase in spending of approximately $ 100 million in our advanced engineered materials segment and other activities primarily related to ongoing merger , acquisition and integration related costs ; partially offset by : a decrease in pension and other postretirement plan net periodic benefit cost of $ 77 million . operating profit increased $ 8 million , or 0.9 % , for the year ended december 31 , 2017 compared to the same period in 2016 primarily due to : an increase in net sales ; and cost savings in our acetyl intermediates and consumer specialties segments , primarily due to productivity initiatives ; partially offset by : higher raw material costs , primarily in our acetyl intermediates segment ; higher plant spending of $ 138 million in our advanced engineered materials segment , primarily related to our acquisitions of softer and nilit , as these acquired businesses incur ongoing plant spending ; an unfavorable impact of $ 49 million to other ( charges ) gains , net in our acetyl intermediates segment . during the year ended december 31 , 2017 , we provided notice of termination of a contract with a key raw materials supplier at our ethanol production unit in nanjing , china . as a result , we recorded an estimated $ 51 million of plant/office closure costs primarily consisting of a $ 22
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in response to covid-19 , we have taken the following proactive measures at the property and corporate levels : in coordination with our hotel operators , we suspended operations at 20 of our 30 previously operating hotels throughout march and april 2020. as of march 1 , 2021 , 26 of our 30 previously operating hotels were open . we developed and implemented action plans with our hotel operators to significantly reduce operating costs at each of our hotels and cultivate alternative demand , where possible . we canceled or deferred over 65 % of our capital expenditures planned for 2020. we paused the rebuild of frenchman 's reef , which we had previously planned to open as two separate hotels in late 2020 , and renegotiated existing construction contracts , saving the company significant cash outlays for construction . in late 2020 , we initiated a process to explore alternatives for completing the rebuild , including finding a capital partner , and we expect to complete that process later in 2021. we suspended our quarterly common dividend to common stockholders beginning with the dividend that would have been paid in april 2020. the resumption in quarterly common dividends will be determined by our board of directors after considering our projected taxable income , obligations under our financing agreements , expected capital requirements , and risks affecting our business . we drew down funds on our $ 400 million senior unsecured credit facility in march 2020 to enhance our liquidity . as of december 31 , 2020 , we had $ 345 million of borrowing capacity on our the senior unsecured credit facility and $ 111.8 million of unrestricted cash on hand . on june 9 , 2020 , we executed amendments to the credit agreements for our $ 400 million senior unsecured credit facility and $ 400 million of unsecured term loans that provided for a waiver of the quarterly tested financial covenants beginning with the second quarter of 2020 through the first quarter of 2021 and certain other modifications to the covenants thereafter through the fourth quarter of 2021. on january 20 , 2021 , we executed additional amendments to extend the waiver of the quarterly tested financial covenants through the fourth quarter of 2021 and certain other modifications to the covenants thereafter through the first quarter of 2023. on june 25 , 2020 , we refinanced our only significant near-term debt maturity by closing on a $ 48.0 million mortgage loan secured by the salt lake city marriott downtown at city creek ( the `` salt lake city marriott '' ) . the loan proceeds were used to repay the existing $ 52.5 million mortgage loan secured by the salt lake city marriott that was scheduled to mature on november 1 , 2020. the new loan matures in january 2022 with an option to extend maturity to january 2023 , subject to the satisfaction of certain conditions . in july 2020 , we negotiated and entered into an amendment to the loan secured by the westin boston waterfront , which is the company 's largest mortgage loan . the amendment enabled the company to use funds in the reserve for replacement of furniture and fixtures to pay debt service for three months . in 2020 , we issued a total of 4,760,000 shares of series a preferred stock , for net proceeds of $ 114.5 million , and 10,680,856 shares of common stock , for net proceeds of $ 86.8 million . the situation surrounding the covid-19 pandemic remains fluid . market demand for lodging at our hotels is closely correlated with reported infection levels near our hotel locations , consumer confidence , and guidance from health officials and federal , state , and local governments . see also “ risk factors ” in part i , item 1a of this report . outlook for 2021 the u.s. economy is in the early stages of recovering from a global pandemic that disproportionately impacted the travel industry . economic indicators such as gdp growth , corporate profits , tsa checkpoint data , and consumer confidence are exhibiting steady improvement , but have yet to reattain pre-pandemic levels of activity . we expect the u.s. will experience revpar growth in 2021 from 2020 levels , due to the availability and administration of vaccines , disruption of existing room supply , and growing demand for travel . our portfolio is composed primarily of destination resorts and hotels in the 25 largest urban markets . we expect our destination hotels will continue to outperform the broader u.s. market for the foreseeable future . the strong preference for drive-to leisure destinations , while most work and school are executed virtually , is expected to persist into 2021. longer term , -51- we believe strong , secular demand for experiential leisure travel , low growth in directly competitive supply , and targeted investments to renovate and reposition destination hotels can extend and intensify our company 's growth . urban hotels should also experience strong growth in 2021 , but we expect the pace of recovery in these markets will lag the u.s. overall as employers are reticent to resume business travel and conference activity until there is definitive progress on the pandemic . early indications suggest that business travel activity is likely to resume in late 2021. historically , total group revenues comprise approximately one-third of our total room revenue , but group revenue at large conference hotels accounted for less than 10 % of our total rooms revenue . we anticipate industry profitability will be challenged by low occupancy and a short booking window and guest mix that makes it challenging to maximize room rates . we continue to work closely with our hotel managers to maximize revenue and identify operating efficiencies . story_separator_special_tag we expect the distribution of covid-19 vaccines will enable the industry to gradually return to profitability by late-2021 , and we enter the year with several favorable factors , including the following : ( 1 ) ownership of a high-quality portfolio , with a meaningful concentration in destination resort locations , ( 2 ) internal growth from the continuation of our asset management initiatives , ( 3 ) expense savings from the conversion of six formerly marriott-managed contracts to marriott franchises , ( 4 ) conservative debt capital structure with limited near-term debt maturities , and ( 5 ) and liquidity of $ 481.7 million as of december 31 , 2020. story_separator_special_tag such provisions do not allow the lender the right to accelerate repayment of the underlying debt . as of december 31 , 2020 , the debt service coverage ratios or debt yields for all of our mortgage loans were below the minimum thresholds such that the cash trap provision of each respective loan was triggered , with the exception of the mortgage loan secured by the salt lake city marriott downtown at city creek , which does not have a cash trap provision . we do not expect that such cash traps will affect our ability to satisfy our short-term liquidity requirements . our long-term liquidity requirements consist primarily of funds necessary to pay for the costs of acquiring additional hotels , renovations , and other capital expenditures that need to be made periodically to our hotels , scheduled debt payments , debt maturities , redemption of limited operating partnership units ( “ common op units ” ) and making distributions to our common and preferred stockholders . we expect to meet our long-term liquidity requirements through various sources of capital , including cash provided by operations , borrowings , issuances of additional equity , including common op units , and or debt securities and proceeds from property dispositions . our ability to incur additional debt is dependent upon a number of factors , including the state of the credit markets , our degree of leverage , the value of our unencumbered assets and borrowing restrictions imposed by existing lenders . our ability to raise capital through the issuance of additional equity and or debt securities is also dependent on a number of factors including the current state of the capital markets , investor sentiment and intended use of proceeds . we may need to raise additional capital if we identify acquisition opportunities that meet our investment objectives and require liquidity in excess of existing cash balances . our ability to raise funds through the issuance of equity securities depends on , among other things , general market conditions for hotel companies and reits and market perceptions about us . our financing strategy -56- since our formation in 2004 , we have been committed to a conservative capital structure with prudent leverage . our outstanding debt consists of fixed interest rate mortgage debt , unsecured term loans and borrowings on our senior unsecured credit facility . we have a preference to maintain a significant portion of our portfolio as unencumbered assets in order to provide balance sheet flexibility . we expect that our strategy will enable us to maintain a balance sheet with an appropriate amount of debt throughout all phases of the lodging cycle . we believe that it is prudent to reduce the inherent risk of highly cyclical lodging fundamentals through a low leverage capital structure . we prefer a relatively simple but efficient capital structure . we generally structure our hotel acquisitions to be straightforward and to fit within our capital structure ; however , we will consider a more complex transaction , such as the issuance of common op units in connection with the acquisition of cavallo point , if we believe that the projected returns to our stockholders will significantly exceed the returns that would otherwise be available . we believe that we maintain a reasonable amount of debt . as of december 31 , 2020 , we had $ 1.0 billion of debt outstanding with a weighted average interest rate of 3.89 % and a weighted average maturity date of approximately 3.5 years . we have limited near-term mortgage debt maturities and 23 of our 31 hotels unencumbered by mortgage debt . we remain committed to our core strategy of prudent leverage . information about our financing activities is available in note 8 to the accompanying consolidated financial statements . further information is available in note 1 to the accompanying consolidated financial statements for measures taken in response to the impact of covid-19 . atm program we have equity distribution agreements , dated august 8 , 2018 , with a number of sales agents ( the “ atm program ” ) to issue and sell , from time to time , shares of our common stock , par value $ 0.01 per share , having an aggregate offering price of up to $ 200 million ( the “ atm shares ” ) . sales of the atm shares can be made in privately negotiated transactions and or any other method permitted by law , including sales deemed to be an “ at the market ” offering , which includes sales made directly on the new york stock exchange or sales made to or through a market maker other than on an exchange . actual future sales of the atm shares will depend upon a variety of factors , including but not limited to market conditions , the trading price of the company 's common stock , and the company 's capital needs . we have no obligation to sell the atm shares under the atm program . during the year ended december 31 , 2020 , we sold 10,680,856 shares of our common stock at an average price of $ 8.23 per share for gross proceeds of $ 87.9 million , less $ 1.1 million in fees paid to the applicable sales agent and other offering costs .
| revenue consists primarily of the room , food and beverage and other operating revenues from our hotels , as follows ( in millions ) : replace_table_token_7_th our total revenues decreased $ 638.6 million from $ 938.1 million for the year ended december 31 , 2019 to $ 299.5 million for the year ended december 31 , 2020. the following are key hotel operating statistics for the years ended december 31 , 2020 and 2019. replace_table_token_8_th food and beverage revenues decreased $ 146.7 million from the year ended december 31 , 2019. other revenues , which primarily represent spa , parking , resort fees and attrition and cancellation fees , decreased $ 27.4 million from the year ended december 31 , 2019. hotel operating expenses . the operating expenses consisted of the following ( in millions ) : -54- replace_table_token_9_th our hotel operating expenses decreased $ 336.5 million from $ 690.8 million for the year ended december 31 , 2019 to $ 354.3 million for the year ended december 31 , 2020. for the year ended december 31 , 2020 , we recognized $ 7.6 million of severance costs at our properties in connection with the covid-19 pandemic . additionally , in connection with the change in hotel manager of the renaissance charleston historic district hotel , we recognized $ 1.4 million of accelerated amortization of the unfavorable management agreement liability during the year ended december 31 , 2020 , which reduced base management fees . depreciation and amortization . our depreciation and amortization expense decreased $ 3.4 million from the year ended december 31 , 2019. this is primarily due to the timing of fully depreciated capital expenditures . impairment losses . during the year ended december 31 , 2020 , we recorded an impairment loss of $ 174.1 million related to frenchman 's reef . no impairment losses were recorded during the year ended december 31 , 2019. corporate expenses . corporate expenses principally consist of employee-related costs , including base payroll , bonus and restricted stock . corporate
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business segments we operate in two segments : completion solutions : our completion solutions segment provides services integral to the completion of unconventional wells through a full range of tools and methodologies . through our completion solutions segment , we provide ( i ) cementing services , which consist of blending high-grade cement and water with various solid and liquid additives to create a cement slurry that is pumped between the casing and the wellbore of the well , ( ii ) an innovative portfolio of completion tools , including those that provide pinpoint frac sleeve system technologies as well as a portfolio of completion technologies used for completing the toe stage of a horizontal well and fully-composite , dissolvable , and extended range frac plugs to isolate stages during plug and perf operations , ( iii ) wireline services , the majority of which consist of plug-and-perf completions , which is a multistage well completion technique for cased-hole wells that consists of deploying perforating guns to a specified depth , and ( iv ) coiled tubing services , which perform wellbore intervention operations utilizing a continuous steel pipe that is transported to the wellsite wound on a large spool in lengths of up to 30,000 feet and which provides a cost-effective solution for well work due to the ability to deploy efficiently and safely into a live well . production solutions : our production solutions segment provides a range of production enhancement and well workover services that are performed with a well servicing rig and ancillary equipment . our well servicing business encompasses a full range of services performed with a mobile well servicing rig ( or workover rig ) and ancillary equipment throughout a well 's life cycle from completion to ultimate plug and abandonment . our rigs and personnel install and remove downhole equipment and eliminate obstructions in the well to facilitate the flow of oil and natural gas , often immediately increasing a well 's production . we believe the production increases generated by our well services substantially enhance our customers ' returns and significantly reduce their payback periods . how we generate revenue and the costs of conducting our business we generate our revenues by providing completion and production services to e & p customers across all major onshore basins in both the u.s. and canada as well as abroad . we primarily earn our revenues pursuant to work orders entered into with our customers on a job-by-job basis . we typically will enter into an msa with each customer that provides a framework of general terms and conditions of our services that will govern any future transactions or jobs awarded to us . each specific job is obtained through competitive bidding or as a result of negotiations with customers . the rate we charge is determined by location , complexity of the job , operating conditions , duration of the contract , and market conditions . in addition to msas , we have entered into a select number of longer-term contracts with certain customers relating to our wireline and cementing services , and we may enter into similar contracts from time to time to the extent beneficial to the operation of our business . these longer-term contracts address pricing and other details concerning our services , but each job is performed on a standalone basis . the principal expenses involved in conducting both our completion solutions and production solutions segments are labor costs , materials and freight , the costs of maintaining our equipment , and fuel costs . our direct labor costs vary with the amount of equipment deployed and the utilization of that equipment . another key component of labor costs relates to the ongoing training of our field service employees , which improves safety rates and reduces employee attrition . 36 how we evaluate our operations we evaluate our performance based on a number of financial and non-financial measures , including the following : revenue : we compare actual revenue achieved each month to the most recent projection for that month and to the annual plan for the month established at the beginning of the year . we monitor our revenue to analyze trends in the performance of each of our segments compared to historical revenue drivers or market metrics applicable to that service . we are particularly interested in identifying positive or negative trends and investigating to understand the root causes . adjusted gross profit ( excluding depreciation and amortization ) : adjusted gross profit ( excluding depreciation and amortization ) is a key metric that we use to evaluate segment operating performance and to determine resource allocation between segments . we define segment adjusted gross profit ( excluding depreciation and amortization ) as segment revenues less segment direct and indirect costs of revenues ( excluding depreciation and amortization ) . costs of revenues include direct and indirect labor costs , costs of materials , maintenance of equipment , fuel and transportation freight costs , contract services , crew cost , and other miscellaneous expenses . for additional information , see “ non-gaap financial measures ” below . adjusted ebitda : we define adjusted ebitda as net income ( loss ) before interest expense , taxes , and depreciation and amortization , further adjusted for ( i ) property and equipment , goodwill , and or intangible asset impairment charges , ( ii ) transaction and integration costs related to acquisitions and our ipo , ( iii ) loss or gain from discontinued operations , ( iv ) loss or gain on revaluation of contingent liabilities , ( v ) loss or gain on equity method investment , ( vi ) stock-based compensation expense , ( vii ) loss or gain on sale of property and equipment , and ( viii ) other expenses or charges to exclude certain items which we believe are not reflective of ongoing performance of our business , such as legal expenses and settlement costs related to litigation outside the ordinary course of business and restructuring costs . story_separator_special_tag for additional information , see “ non-gaap financial measures ” below . return on invested capital ( “ roic ” ) : we define roic as after-tax net operating profit ( loss ) , divided by average total capital . we define after-tax net operating profit ( loss ) as net income ( loss ) plus ( i ) transaction and integration costs related to acquisitions and our ipo , ( ii ) property and equipment , goodwill , and or intangible asset impairment charges , ( iii ) interest expense , and ( iv ) the provision or benefit for deferred income taxes . we define total capital as book value of equity plus the book value of debt less balance sheet cash and cash equivalents . we compute the average of the current and prior year-end total capital for use in this analysis . for additional information , see “ non-gaap financial measures ” below . safety : we measure safety by tracking the total recordable incident rate ( “ trir ” ) , which is reviewed on a monthly basis . trir is a measure of the rate of recordable workplace injuries , defined below , normalized and stated on the basis of 100 workers for an annual period . the factor is derived by multiplying the number of recordable injuries in a calendar year by 200,000 ( i.e. , the total hours for 100 employees working 2,000 hours per year ) and dividing this value by the total hours actually worked in the year . a recordable injury includes occupational death , nonfatal occupational illness , and other occupational injuries that involve loss of consciousness , restriction of work or motion , transfer to another job , or medical treatment other than first aid . factors affecting the comparability of our results of operations our future results of operations may not be comparable to our historical results of operations for the periods presented , and our historical results of operations among the periods presented may not be comparable to each other , primarily for the reasons described below : public company expenses : we have only been a publicly traded company since the first quarter of 2018. we incur direct , incremental general and administrative expenses as a result of being a publicly traded company , including costs associated with hiring additional financial and other personnel , instituting a more comprehensive compliance function , implementing an internal audit function , annual and quarterly reports to stockholders , quarterly tax provision preparation , independent auditor fees , other expenses relating to compliance with the rules and regulations of the sec , listing standards of the nyse and the sarbanes-oxley act , investor relations activities , registrar and transfer agent fees , incremental director and officer liability insurance costs , and independent director compensation . these direct , incremental general and administrative expenses are not included in our historical results of operations , except for the year ended december 31 , 2018 . 37 the magnum acquisition : our historical results of operations included in this annual report include the impact of the magnum acquisition from the closing date through the end of the year . as a result , the historical results of operations prior to the closing date may not give you an accurate indication of what our actual results would have been if the magnum acquisition had been completed at the beginning of the period presented , or of what our future results of operations are likely to be for the following reasons : as a result of the magnum acquisition and the application of purchase accounting , our identifiable net assets have been adjusted to their estimated fair value as of the closing date . these adjusted valuations will increase our operating expenses primarily due to an increase in the carrying value and related amortization of our intangible assets with definite lives . additionally , the excess of the total purchase price over the estimated fair value of the identifiable net assets acquired as of the closing date has been allocated to goodwill . we have recorded a significant increase in goodwill as a result of the preliminary determination of the estimated fair value of the identifiable net assets acquired . as a result of the magnum acquisition , our completion tools line constitutes a larger portion of our business . we expect that the magnum acquisition will generate additional free cash flow , reduce overall capital intensity , and improve our margins . we also expect that the magnum acquisition will further diversify our basin exposure and add significant size and scale . for additional information on the magnum acquisition , see note 3 – acquisitions and combinations included in item 8 of part ii of this annual report . we incurred significant indebtedness in connection with the consummation of the magnum acquisition , and our total indebtedness and related interest expense is significantly higher than prior to the magnum acquisition . as of december 31 , 2018 , we had approximately $ 435.0 million of total debt before deferred financing costs . for additional information on our debt obligations , see note 8 – debt obligations included in item 8 of part ii of this annual report . industry trends and outlook our business depends to a significant extent on the level of unconventional resource development activity and corresponding capital spending of oil and natural gas companies onshore in north america . these activity and spending levels are strongly influenced by the current and expected oil and natural gas prices . during 2018 , oil prices rose to their highest levels since the downturn that began in late 2014. however , during the fourth quarter of 2018 , oil prices declined approximately 40 % , which is generally believed to be due to concerns over a worldwide oversupply of oil as well as concerns over the possible slowing of global demand growth .
| completion tools revenue increased 100 % , reflecting a 115 % increase in stages ; tools revenue per stage fell 7 % due to the transition to a higher volume of plugs sold versus sleeves , reflective of the market change . 39 cementing revenue increased by 44 % , primarily due to a 21 % increase in job count and improved pricing . coiled tubing services revenue increased 34 % , mainly due to improved pricing , as total job count increased by 12 % . production solutions : revenue increased $ 4.0 million , or 5 % , to $ 81.9 million in 2018. rig activity , measured in hours worked , decreased 3 % , but was more than offset by an increase in non-rig work and a reduction in third-party costs charged to customers . cost of revenues ( exclusive of depreciation and amortization ) cost of revenues increased $ 190.8 million , or 43 % , to $ 639.3 million in 2018. the increase was a result of an increase in revenue-generating activity related to improvement in the oil and gas market in comparison to 2017. materials installed in wells and consumed while performing services increased $ 91.0 million . employee costs increased $ 69.7 million , and other costs such as repairs and maintenance , vehicle , travel and meals and entertainment expense , increased $ 30.1 million , mostly related to increased levels of activity . the increase in cost of revenues by reportable segment is discussed below . completion solutions : cost of revenues increased $ 183.9 million , or 48 % , to $ 568.5 million in 2018. costs related to materials installed in wells and consumed while performing services increased $ 90.4 million , primarily as a result of the increased level of activity . employee costs increased $ 66.1 million , as headcount was increased in response to the increase in activity and revenue . other costs such as repair and maintenance , vehicle , travel and meals , and entertainment expense , increased $ 27.3 million , mostly related to increased levels of activity . production solutions :
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sales of snowmobiles to customers outside of north america , principally within the scandinavian region and russia , decreased approximately 19 percent in 2019 as compared to 2018. north american dealer inventories of snowmobiles decreased mid-single digits percent from 2018. the average unit sales price in 2019 increased approximately one percent over 2018 's per unit sales price . for the orv/snowmobiles segment , gross profit , as a percentage of sales , increased from 2018 to 2019 , primarily due to higher average selling prices partially offset by higher tariff costs . 29 motorcycles : sales of motorcycles , inclusive of pg & a sales , increased seven percent to $ 584.1 million for 2019 compared to 2018. the increase in 2019 sales was primarily due to increased sales of indian motorcycles of 14 percent , partially offset by a decrease in sales of slingshot of approximately 22 percent . the company estimates north american industry retail sales , 900cc and above cruiser , touring , and standard market segments ( including slingshot ) , decreased mid-single digits percent in 2019 compared to 2018. over the same period , polaris north american unit retail sales to consumers decreased approximately 10 percent . north american polaris motorcycle dealer inventory increased mid-teens percent in 2019 versus 2018 levels . sales of motorcycles to customers outside of north america increased approximately 24 percent in 2019 compared to 2018 , due primarily to an increase in indian motorcycle shipments . the average per unit sales price for the motorcycles segment in 2019 was approximately flat compared to 2018 's per unit sales price . gross profit , as a percentage of sales , decreased from 2018 to 2019 , primarily due to higher tariffs , higher warranty expense , and the negative impact of foreign currency rates . global adjacent markets : global adjacent markets sales , inclusive of pg & a sales , increased four percent to $ 461.3 million for 2019 compared to 2018. the increase in sales was primarily due to growth in polaris adventures as well as the government and defense business . sales to customers outside of north america increased approximately five percent in 2019 compared to 2018 primarily due to higher sales in the commercial , government and defense business . gross profit , as a percentage of sales , increased from 2018 to 2019 , primarily due to improved sales mix , increased productivity and lower warranty expense . aftermarket : aftermarket sales , which includes transamerican auto parts ( tap ) , along with our other aftermarket brands of klim , kolpin , proarmor , trail tech and 509 , of $ 906.7 million for 2019 were up two percent compared to 2018 , primarily due to growth in the other aftermarket brands , which increased 14 % . tap 's sales were approximately flat . gross profit , as a percentage of sales , decreased from 2018 to 2019 , primarily due to tariffs and sales mix . boats : boat sales , which primarily relate to the boat holdings acquisition which closed on july 2 , 2018 , were $ 621.3 million in 2019 compared to $ 279.7 million in 2018. we estimate that u.s. pontoon industry unit sales decreased low single-digits percent during 2019. polaris u.s. pontoon unit retail sales to consumers outperformed the market , and is estimated to be down slightly compared to 2018. gross profit , as a percentage of sales , increased from 2018 to 2019 , primarily due to purchase accounting adjustments in 2018 , as well as increased pricing and improved productivity . liquidity and capital resources our primary source of funds has been cash provided by operating and financing activities . our primary uses of funds have been for acquisitions , repurchase and retirement of common stock , capital investment , new product development and cash dividends to shareholders . the seasonality of production and shipments cause working capital requirements to fluctuate during the year . we believe that existing cash balances , cash flow to be generated from operating activities and available borrowing capacity under the line of credit arrangement will be sufficient to fund operations , new product development , cash dividends , share repurchases , acquisitions and capital requirements for the foreseeable future . at this time , we are not aware of any factors that would have a material adverse impact on cash flow . 30 the following table summarizes the cash flows from operating , investing and financing activities for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_10_th operating activities : net cash provided by operating activities totaled $ 655.0 million and $ 477.1 million in 2019 and 2018 , respectively . the $ 177.9 million increase is primarily the result of a decrease in net working capital , partially offset by lower net income . the primary driver of lower net working capital is the result of timing of payments for accounts payable and higher accrued expenses , including sales promotions and incentives and dealer holdback . higher accrued expenses is driven largely by higher dealer inventory . investing activities : net cash used for investing activities was $ 239.3 million in 2019 compared to $ 959.5 million in 2018. the primary uses of cash in 2019 were for the purchase of property and equipment and tooling for continued capacity and capability at our manufacturing and distribution facilities and for product development . the primary use of cash in the prior year comparable period was for the acquisition of boat holdings . financing activities : net cash used for financing activities was $ 411.8 million in 2019 compared to net cash provided by financing activities of $ 523.4 million in 2018 . we paid cash dividends of $ 149.1 million and $ 149.0 million in 2019 and 2018 , respectively . total common stock repurchased in 2019 and 2018 totaled $ 8.4 million and $ 348.7 million , respectively . story_separator_special_tag in 2019 , we had net repayments under debt arrangements , finance lease obligations and notes payable of $ 270.0 million , compared to net borrowings of $ 973.7 million in 2018 to fund the boat holdings acquisition . proceeds from the issuance of stock under employee plans were $ 15.7 million and $ 47.4 million in 2019 and 2018 , respectively . financing arrangements : we are party to an unsecured $ 700.0 million variable interest rate revolving loan facility that expires in july 2023 , under which we have unsecured borrowings . at december 31 , 2019 , there were borrowings of $ 75.2 million outstanding under this arrangement . we are also party to a $ 1,180.0 million term loan facility , of which $ 1,000.0 million is outstanding as of december 31 , 2019 . interest is charged at rates based on libor or “ prime. ” in december 2010 , the company entered into a master note purchase agreement to issue $ 25.0 million of unsecured senior notes due may 2018 and $ 75.0 million of unsecured senior notes due may 2021 ( collectively , the “ senior notes ” ) . the senior notes were issued in may 2011. in december 2013 , the company entered into a first supplement to master note purchase agreement , under which the company issued $ 100.0 million of unsecured senior notes due december 2020. in july 2018 , the company entered into a master note purchase agreement to issue $ 350.0 million of unsecured senior notes due july 2028. at december 31 , 2019 and 2018 , outstanding borrowings under the amended master note purchase agreement totaled $ 525.0 million and $ 525.0 million , respectively . as a component of the boat holdings merger agreement , polaris has committed to make a series of deferred payments to the former owners following the closing date of of the merger through july 2030. the original discounted payable was for $ 76.7 million , of which $ 71.7 million is outstanding as of december 31 , 2019 . the outstanding balance is included in long-term debt and current portion of long-term debt in the consolidated balance sheets . at december 31 , 2019 and 2018 , we were in compliance with all debt covenants . our debt to total capital ratio was 60 percent and 69 percent at december 31 , 2019 and 2018 , respectively . 31 contractual obligations : the following table summarizes our significant future contractual obligations at december 31 , 2019 : replace_table_token_11_th in the table above , we assumed our december 31 , 2019 , outstanding borrowings under the senior notes will be paid at their respective due dates . interest expense has not been estimated beyond year five . additionally , at december 31 , 2019 , we had letters of credit outstanding of $ 21.6 million related to purchase obligations for raw materials . not included in the above table are unrecognized tax benefits of $ 28.1 million , including interest , as the timing of payment is uncertain . we administer and provide extended service contracts to consumers and certain insurance contracts to dealers and consumers through various third-party suppliers . we finance our self-insured risks related to extended service contracts , but do not retain any insurance or financial risk under any of the other arrangements . the balance of restricted cash as of december 31 , 2019 , 2018 , and 2017 was $ 39.2 million , $ 32.0 million , and $ 23.3 million , respectively . restricted cash represents cash equivalents held in trust , as well as amounts held on deposit with regulatory agencies in the various jurisdictions in which our insurance entity does business . share repurchases : our board of directors has authorized the cumulative repurchase of up to 90.5 million shares of our common stock through an authorized stock repurchase program . of that total , approximately 87.3 million shares have been repurchased cumulatively from 1996 through december 31 , 2019 . we repurchased a total of 0.1 million shares of our common stock for $ 8.4 million during 2019 , which had an immaterial impact on earnings per share . we have authorization from our board of directors to repurchase up to an additional 3.2 million shares of our common stock as of december 31 , 2019 . the repurchase of any or all such shares authorized remaining for repurchase will be governed by applicable sec rules . wholesale customer financing arrangements : we have arrangements with certain finance companies to provide secured floor plan financing for our dealers . these arrangements provide liquidity by financing dealer purchases of our products without the use of our working capital . a majority of the worldwide sales of snowmobiles , orvs , motorcycles , boats and related pg & a are financed under similar arrangements whereby we receive payment within a few days of shipment of the product . the amount financed by worldwide dealers under these arrangements related to snowmobiles , orvs , motorcycles , boats and related pg & a as of december 31 , 2019 and 2018 , was approximately $ 1,884.1 million and $ 1,643.8 million , respectively . we participate in the cost of dealer financing up to certain limits . polaris acceptance , a joint venture between polaris and wells fargo commercial distribution finance corporation ( “ wfcdf ” ) , a direct subsidiary of wells fargo bank , n.a . ( “ wells fargo ” ) , which is supported by a partnership agreement between their respective wholly owned subsidiaries , finances substantially all of our u.s. sales of snowmobiles , orvs , motorcycles , and related pg & a , whereby we receive payment within a few days of shipment of the product . the partnership agreement is effective through february 2027. polaris acceptance sells a majority of its receivables portfolio ( the “ securitized receivables ” ) to a securitization facility ( “ securitization facility ” ) arranged by wells fargo , a wfcdf affiliate .
| million in 2018. the increase in cost of sales in 2019 is primarily attributed to the acquisition of boat holdings which closed on july 2 , 2018 , as well as increased purchased materials and services related to higher sales volumes and tariff costs . gross profit : consolidated gross profit , as a percentage of sales , decreased in 2019 due to higher tariff costs , the negative impact of foreign currency rates , and the addition of boats , which has lower gross profit margins , partially offset by increased productivity and higher average selling prices . 27 operating expenses : operating expenses for 2019 , in absolute dollars , increased primarily due to the boat holdings acquisition , which closed on july 2 , 2018 , ongoing investments in research and development , and investments in strategic projects . operating expenses , as a percentage of sales , increased primarily due to ongoing investments in research and development and investments in strategic projects , partially offset by boat holdings , which has a lower operating expense to sales ratio . income from financial services : the following table reflects our income from financial services : replace_table_token_8_th income from financial services decreased 7 percent to $ 80.9 million in 2019 compared to $ 87.4 million in 2018. the decrease in 2019 was primarily due to lower retail sales and lower penetration rates , partially offset by higher wholesale credit income due to higher dealer inventory levels . interest expense : the increase in 2019 compared to 2018 , was primarily due to increased debt levels to finance the boat holdings acquisition . equity in loss of other affiliates : as a result of the decision by the eicher-polaris private limited ( eppl ) board of directors to shut down the operations of the eppl joint venture , we impaired our investment in eppl and incurred additional wind-down related costs in 2018. such costs did not occur in
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operating expenses of $ 2,995 million for 2016 increased 2 % from $ 2,931 million for 2015. excluding the charges from both years mentioned above , operating expenses decreased 1 % primarily due to lower employee benefit costs . operating earnings of $ 1,119 million for 2016 decreased 14 % from $ 1,300 million for 2015. the decrease in operating earnings was driven by lower gross profit margin and higher restructuring costs and other charges . operating earnings included the charges noted above . excluding these charges from both years , operating earnings decreased 6 % . other expense , net was $ 100 million in 2016 compared to $ 50 million of expense in 2015. the following table summarizes the components of other income and expense ( in thousands of dollars ) : replace_table_token_10_th the increase in expense was driven by higher interest expense from the $ 1 billion in long-term debt issued in june 2015 and $ 400 million in long-term debt issued in may 2016 , as well as higher operating losses from the company 's clean energy investments . income taxes of $ 386 million in 2016 decreased 17 % compared with $ 466 million in 2015. grainger 's effective tax rates were 37.9 % and 37.2 % in 2016 and 2015 , respectively . the year-over-year increase in the tax rate was primarily due to a larger proportion of earnings from higher tax rate jurisdictions , partially offset by a higher benefit from the company 's clean energy investments . the twelve months ended december 31 , 2016 , included a benefit from the conclusion of the federal income tax audit for the years 2009 through 2012 and other discrete items . excluding the discrete tax benefits and nondeductible intangible write-downs , the company 's effective tax rate was 37.1 % . the company 's clean energy investment generated $ 0.15 per share of earnings for the year ended december 31 , 2016. the table below reconciles reported net earnings determined in accordance with u.s. generally accepted accounting principles ( gaap ) to adjusted net earnings , a non-gaap measure . management believes adjusted net earnings is an important indicator of operations because it excludes items that may not be indicative of core operating results . because 20 non-gaap financial measures are not standardized , it may not be possible to compare this financial measure with other companies ' non-gaap financial measures having the same or similar names . ( in thousands of dollars ) : replace_table_token_11_th net earnings attributable to w.w. grainger , inc. for 2016 decreased by 21 % to $ 606 million from $ 769 million in 2015. the decrease in net earnings primarily resulted from lower operating earnings , partially offset by lower income taxes . excluding the charges from both years mentioned above and discrete tax items , net earnings decreased 10 % . diluted earnings per share of $ 9.87 in 2016 were 15 % lower than $ 11.58 for 2015 , due to lower earnings , partially offset by lower average shares outstanding as a result of share repurchases . excluding the charges mentioned above , diluted earnings per share would have been $ 11.58 , compared to $ 11.94 in 2015 , a decrease of 3 % . segment analysis - 2017 compared to 2016 the following comments at the reportable segment and other business unit level include external and intersegment net sales and operating earnings . see note 16 to the consolidated financial statements . united states net sales were $ 7,960 million for 2017 , an increase of $ 90 million , or 1 % when compared with net sales of $ 7,870 million for 2016 . on a daily basis , the 2 % increase consisted of the following : percent increase/ ( decrease ) volume 7 intercompany sales to zoro 1 divestiture ( 1 ) price ( 5 ) total 2 % sales to customers in natural resources , resellers and retail end markets increased mid-single digits , while heavy manufacturing and government increased low single digits . the sales growth was partially offset by declines in contractors and commercial services . volume increased year over year , primarily driven by the pricing actions . in 2017 , ecommerce sales for the u.s. business were $ 3,909 million , an increase of 7 % over the prior year . total ecommerce sales represented 49 % and 46 % of total sales for 2017 and 2016 , respectively . the increase was primarily driven by grainger.com and other electronic purchasing platforms . if the u.s. business included keepstock® , total ecommerce and keepstock® sales would represent 55 % and 53 % of total sales for 2017 and 2016 , respectively . 21 gross profit margin decreased 1.7 percentage points in 2017 compared to 2016 , primarily driven by price deflation exceeding higher volume in response to pricing actions . operating expenses of $ 1,994 were down 2 % for 2017 versus 2016 . excluding restructuring costs , net gains on the sale of assets and other charges in both periods mentioned above , operating expenses increased 1 % or $ 19 million , driven by higher employee related costs . see note 6 to the consolidated financial statements . operating earnings of $ 1,213 million for 2017 decreased 5 % versus $ 1,275 million in 2016 . excluding restructuring costs , gains on the sale of assets and other charges in both periods mentioned above , operating earnings decreased 9 % or $ 116 million , driven primarily by price deflation . see note 6 to the consolidated financial statements . canada net sales were $ 753 million for 2017 , an increase of $ 19 million , or 3 % , when compared with $ 734 million for 2016 . on a daily basis , the 3 % increase consisted of volume across all end segments . in 2017 , ecommerce sales for the canada business were $ 135 million , an increase of 38 % over the prior year . story_separator_special_tag total ecommerce sales represented 18 % and 13 % of total sales for 2017 and 2016 , respectively . if the canada business included keepstock® , total ecommerce and keepstock® sales would represent 32 % and 26 % of total sales for 2017 and 2016 , respectively . gross profit margin increased 1.0 percentage point in 2017 versus 2016 , primarily due to a favorable comparison to an inventory adjustment in the second quarter of 2016 that did not repeat in 2017 , partially offset by price deflation , cost inflation and higher freight costs from an increase in shipping directly to customers in 2017. operating expenses decreased 9 % in 2017 versus 2016 . excluding restructuring costs in both periods , operating expenses would have increased 3 % , primarily related to higher professional service fees related to the business transformation . operating losses of $ 77 million for 2017 increased versus operating losses of $ 65 million in 2016 . excluding the restructuring costs and the inventory adjustment , operating losses would have been $ 37 million compared to $ 41 million in the prior year . other businesses net sales for other businesses were $ 2,120 million for 2017 , an increase of $ 235 million , or 12 % , when compared to $ 1,885 million for 2016 . the net sales increase was primarily due to incremental sales at zoro and monotaro . on a daily basis , the 13 % increase consisted of the following : percent increase/ ( decrease ) volume 15 foreign exchange ( 2 ) total 13 % operating earnings for other businesses were $ 56 million for 2017 compared to $ 41 million for 2016 . excluding restructuring charges in 2017 and the goodwill and intangible impairment charges of $ 52 million in the fabory and colombia businesses in the prior year , operating earnings increased $ 18 million or 19 % , due to strong performance from the single channel online businesses . segment analysis - 2016 compared to 2015 united states net sales were $ 7,870 million for 2016 , a decrease of $ 93 million , or 1 % when compared with net sales of $ 7,963 million for 2015. the 1 % decrease consisted of the following : 22 percent increase/ ( decrease ) intercompany sales to zoro 1 volume ( 1 ) price ( 1 ) total ( 1 ) % mid-single-digit sales growth to government and retail customers and low single-digit growth to light manufacturing were offset by mid-teen declines in sales to natural resource and reseller customers and mid-single-digit declines to heavy manufacturing customers and contractors . in 2016 , ecommerce sales for the u.s. business were $ 3,660 million , an increase of 12 % over the prior year and represented 46 % of total sales . the increase was primarily driven by an increase in sales via edi and electronic purchasing platforms . if the u.s. business included keepstock® , the electronic inventory management offering , total ecommerce and keepstock® sales would represent 53 % of total sales . gross profit margin decreased 1.3 percentage points in 2016 compared to 2015 , driven by price deflation exceeding cost deflation and stronger sales growth to lower margin customers . operating expenses were down 2 % for 2016 versus 2015. the decrease in operating expenses was driven by lower employees benefit costs , partially offset by higher restructuring costs and other charges discussed above . excluding the restructuring and other charges in both periods , operating expenses would have been down 4 % . operating earnings of $ 1,275 million for 2016 decreased 7 % versus $ 1,372 million in 2015. the decline in operating earnings for 2016 was primarily driven by lower sales and gross profit margin , partially offset by lower operating expenses . excluding the restructuring costs and other charges in both periods , operating earnings decreased 5 % . canada net sales were $ 734 million for 2016 , a decrease of $ 157 million , or 18 % , when compared with $ 891 million for 2015. in local currency , sales decreased 15 % for 2015. the 18 % decrease consisted of the following : percent decrease volume ( 10 ) foreign exchange ( 3 ) price ( 2 ) erp implementation ( 2 ) wildfire impact ( 1 ) total ( 18 ) % sales performance in the canada business was primarily driven by declines within the oil and gas sector in alberta , combined with declines in all other end markets across the country . the alberta region , which represents about one-third of the sales in the canada business , decreased 23 % versus prior year , as it was negatively impacted by oil prices . sales growth for the remaining regions in aggregate was down 10 % in local currency . in addition , the canada business implemented the u.s. erp system in february 2016 , which negatively impacted sales as employees transitioned to operating with the new system . in 2016 , ecommerce sales for the canada business were $ 98 million , a decrease of 8 % over the prior year and represented 13 % of total sales . the decrease was primarily driven by lower sales volume . if the canada business included keepstock® , total ecommerce and keepstock® sales would represent 26 % of total sales . gross profit margin decreased 7.8 percentage points in 2016 versus 2015 , due to an inventory adjustment of $ 10 million in the second quarter of 2016 , along with price deflation versus cost inflation and higher freight costs from an increase in shipping directly to customers . as a result of service issues due to the erp system implementation , the business did not increase prices to customers during 2016 .
| the gross profit margin for 2017 was 39.3 % , down 1.3 percentage points versus 2016 , driven primarily by the pricing actions in the u.s. business . operating expenses of $ 3,049 million for 2017 increased 2 % from $ 2,995 million for 2016 . excluding restructuring costs , gains on the sale of assets and other charges in both periods as noted below , operating expenses increased 3 % , driven primarily by higher employee related costs . operating earnings of $ 1,049 million for 2017 decreased 6 % from $ 1,119 million for 2016 . excluding restructuring costs , gains on the sale of assets and other charges in both periods as noted below , operating earnings decreased 8 % or $ 107 million , driven primarily by lower gross profit and higher operating expenses . other expense , net was $ 113 million in 2017 compared to $ 100 million of expense in 2016 . the increase in expense was primarily due to incremental interest expense on $ 400 million in long-term debt issued in may 2016 and $ 400 million in long-term debt issued in may 2017 , as well as higher operating losses from the company 's clean energy investments . income taxes of $ 313 million in 2017 decreased 19 % compared with $ 386 million in 2016 . grainger 's effective tax rates were 33.5 % and 37.9 % in 2017 and 2016 , respectively . the lower rate versus the prior year is due to discrete tax items and u.s. tax legislation . on december 22 , 2017 , the tax cuts and jobs act ( the tax act ) was signed into law , which significantly revised the u.s. corporate income tax system by lowering corporate income tax rates from 35 % to 21 % effective january 1 , 2018 , allowing accelerated expensing of qualified capital investments for a specific period , limiting net interest expense deductions and transitioning u.s. international taxation from a worldwide to a territorial tax
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our merchandise positioning aims to make us a trusted destination for quality and an authority in a broad category of merchandise . we focus on creating a customer experience that builds strong loyalty and an active customer base . in support of this strategy , we are pursuing the following actions to improve the operational and financial performance of our company : ( i ) broaden and optimize our product mix to appeal to more customers and to encourage additional purchases per customer , ( ii ) increase new and active customers and improve household penetration , ( iii ) increase our gross margin dollars by improving merchandise margins in key product categories while prudently managing inventory levels , ( iv ) reduce our transactional operating expenses while managing our fixed operating expenses , ( v ) grow our internet business with expanded product assortments and internet-only merchandise offerings , ( vi ) expand our internet , mobile and social media channels to attract and retain more customers , and ( vii ) maintain cable and satellite carriage contracts at appropriate durations while seeking cost savings opportunities and improved channel positions . our competition the direct marketing and retail businesses are highly competitive . in our television home shopping and e-commerce operations , we compete for customers with other television home shopping and e-commerce retailers ; infomercial companies ; other types of consumer retail businesses , including traditional “ brick and mortar ” department stores , discount stores , warehouse stores and specialty stores ; catalog and mail order retailers and other direct sellers . in the competitive television home shopping sector , we compete with qvc network , inc. and hsn , inc. , both of whom are substantially larger than we are in terms of annual revenues and customers , and whose programming is carried more broadly to u.s. households than our programming . the american collectibles network , which operates jewelry television , also competes with us for television home shopping customers in the jewelry category . in addition , there are a number of smaller niche players and startups in the television home shopping arena who compete with us . we believe that our major competitors incur cable and satellite distribution fees representing a significantly lower percentage of their sales attributable to their television programming than do we ; and that their fee arrangements are substantially on a commission basis ( in some cases with minimum guarantees ) rather than on the predominantly fixed-cost basis that we currently have . at our current sales level , our distribution costs as a percentage of total consolidated net sales are higher than our competition . however , one of our key strategies is to maintain our distribution fixed cost structure in order to leverage profitability as we grow our business . the e-commerce sector also is highly competitive , and we are in direct competition with numerous other internet retailers , many of whom are larger , better financed and or have a broader customer base than we do . we anticipate continuing competition for viewers and customers , for experienced home shopping personnel , for distribution agreements with cable and satellite systems and for vendors and suppliers — not only from television home shopping companies , but also from other companies that seek to enter the home shopping and internet retail industries , including telecommunications and cable companies , television networks , and other established retailers . we believe that our ability to be successful in the television home shopping and e-commerce sectors will be dependent on a number of key factors , including increasing the number of customers who purchase products from us and increasing the dollar value of sales per customer from our existing customer base . results for fiscal 2011 , 2010 and 2009 consolidated net sales in fiscal 2011 were $ 558.4 million compared to $ 562.3 million in fiscal 2010 , a 1 % decrease . consolidated net sales in fiscal 2010 were $ 562.3 million compared to $ 527.9 million in fiscal 2009 , a 7 % increase . we reported an operating loss of $ 16.8 million and a net loss of $ 48.1 million for fiscal 2011 . our net loss in fiscal 2011 included a $ 25.7 million non-cash debt extinguishment charge . we reported an operating loss of $ 15.5 million and a net loss of $ 25.9 million for fiscal 2010 . operating expenses in fiscal 2010 included $ 1.1 million of restructuring charges and a $ 1.2 million debt extinguishment charge . we reported an operating loss of $ 41.2 million and a net loss of $ 42.0 million for fiscal 2009 , which included a pretax 26 gain of $ 3.6 million from the sale of our auction rate securities . operating expenses in fiscal 2009 included $ 2.3 million of restructuring charges and ceo transition costs of $ 1.9 million . new credit facility on february 9 , 2012 , we entered into a $ 40 million new credit and security agreement ( the “ credit facility ” ) with pnc bank , n.a . ( “ pnc ” ) , a member of the pnc financial services group , inc. , as lender and agent . the credit facility has a three-year maturity and bears interest at libor plus 3 % per annum . maximum borrowings under the credit facility are equal to the lesser of $ 40 million or a calculated borrowing base comprised of eligible accounts receivable and eligible inventory . the initial net proceeds of borrowing of approximately $ 38.2 million were primarily used to retire our existing 11 % , $ 25 million term loan with crystal financial llc and to pay a $ 12.4 million deferred payment obligation to a television distribution provider . subject to certain conditions , the credit facility also provides for the issuance of letters of credit in an aggregate amount up to $ 6 million which , upon issuance , would be deemed advances under the credit facility . story_separator_special_tag remaining capacity under the credit facility will provide liquidity for working capital and general corporate purposes . borrowings under the credit facility mature and are payable in february 2015. the credit facility contains customary covenants and conditions , including , among other things , maintaining a minimum of unrestricted cash plus credit availability of $ 6 million at all times and limiting annual capital expenditures . certain financial covenants including minimum ebitda levels ( as defined in the credit facility agreement ) and minimum fixed charge coverage ratio become applicable only if unrestricted cash plus credit availability falls below $ 12 million or upon an event of default . in addition , the credit facility places restrictions on our ability to incur additional indebtedness or prepay existing indebtedness , to create liens or other encumbrances , to sell or otherwise dispose of assets , to merge or consolidate with other entities , and to make certain restricted payments , including payments of dividends to common shareholders . preferred stock redemption in f e bruary 2011 , we made a $ 2.5 million payment to ge capital equity investments , inc. ( `` ge equity '' ) , in connection with obtaining a consent for the execution of a common stock equity offering in december 2010 , reducing the outstanding accrued dividend payable on the series b preferred stock and recorded a $ 1.2 million charge to income related to the early preferred stock debt extinguishment . in april 2011 , we redeemed all of our outstanding series b preferred stock for $ 40.9 million , paid accrued series b preferred dividends of $ 6.4 million and recorded a $ 24.5 million charge related to the early preferred stock debt extinguishment . results of operations the following table sets forth , for the periods indicated , certain statement of operations data expressed as a percentage of net sales . replace_table_token_8_th 27 key performance metrics replace_table_token_9_th _ ( a ) internet sales percentage is calculated based on sales orders that are generated from our shopnbc.com website and primarily ordered directly online . program distribution average homes reached , or full time equivalent ( `` fte '' ) subscribers , grew 4 % in fiscal 2011 , resulting in a 3.4 million increase in average homes reached compared to fiscal 2010 . average fte subscribers grew 4 % in fiscal 2010 , resulting in a 2.8 million increase in average homes reached compared to fiscal 2009 . the annual increases were driven primarily by increases in our footprint as we expand onto lower digital tiers of service as well as by continued growth in satellite and internet protocol television . we anticipate that our cable programming distribution will increasingly shift towards a greater mix of digital with continued improvement in channel positioning and channel adjacencies , which we believe may result in increased subscriber viewership . nonetheless , because of the broader universe of programming choices available for viewers in digital systems and the higher channel placements commonly associated with digital tiers , the shift towards digital systems may adversely impact our ability to compete for television viewers even if our programming is available in more homes . our television home shopping programming is also simulcast live 24 hours per day , 7 days per week through our internet websites , www.shopnbc.com and www.shopnbc.tv , which is not included in the foregoing data on homes reached . cable and satellite distribution agreements we have entered into cable and direct-to-home satellite distribution agreements that require each operator to offer our television home shopping programming substantially on a full-time basis over their systems . the terms of these existing agreements typically range from one to two years . under certain circumstances , the cable or satellite operators or we may cancel the agreements prior to their expiration . if certain of these agreements are terminated , the termination may materially or adversely affect our business . failure to maintain our cable agreements covering a material portion of our existing cable households on acceptable financial and other terms could materially and adversely affect our future growth , sales revenues and earnings unless we are able to arrange for alternative means of broadly distributing our television programming . net shipped units the number of units shipped during fiscal 2011 decreased 4 % from fiscal 2010 to 4.9 million from 5.2 million . the number of units shipped during fiscal 2010 increased 14 % from fiscal 2009 to 5.2 million from 4.5 million . we believe the 2011 decrease in units shipped is primarily due to our lower than expected sales growth and the increase in average selling price , both discussed below . average selling price our average selling price , or asp , per net unit was $ 104 in fiscal 2011 , a 3 % increase over fiscal 2010 . the increase in the fiscal 2011 asp was driven primarily by unit selling price increases within our jewelry category as well as an increased sales mix of jewelry items within the combined jewelry and watches product category . for fiscal 2010 , the average selling price per net 28 unit was $ 101 , a 6 % decrease over fiscal 2009 . the decrease in the 2010 asp was driven primarily by unit selling price decreases within almost all product categories . return rates our return rate was 22.6 % in fiscal 2011 compared to 19.8 % in fiscal 2010 , a 280 bps basis point increase . we attribute the increase in the 2011 return rate primarily to changes in the product sales mix as well as greater sales of higher price point items , primarily jewelry , which historically have higher return rates . our return rate was 19.8 % in fiscal 2010 compared to 21.0 % in fiscal 2009 , a ( 120 ) bps basis point decrease .
| the current ratio ( our total current assets over total current liabilities ) was 1.8 at january 28 , 2012 and 1.8 at january 29 , 2011 . sources of liquidity our principal source of liquidity is our available cash and cash equivalents of $ 33.0 million as of january 28 , 2012 . our 32 $ 2.1 million restricted cash and investments balance is used as collateral for our issuances of commercial letters of credit and is expected to fluctuate in relation to the level of our seasonal overseas inventory purchases . at january 28 , 2012 , our cash and cash equivalents were held in bank depository accounts primarily for the preservation of cash liquidity . on february 9 , 2012 , we entered into a $ 40 million new credit facility with pnc bank , n.a. , a member of the pnc financial services group , inc. , as lender and agent . the credit facility has a three-year maturity and bears interest at libor plus 3 % per annum . the initial net proceeds of borrowing of approximately $ 38.2 million were primarily used to retire our existing 11 % , $ 25 million term loan with crystal financial llc and to pay a $ 12.4 million deferred payment obligation to a television distribution provider . remaining capacity under the credit facility , currently $ 1.8 million , will provide liquidity for working capital and general corporate purposes . another potential source of near-term liquidity is our ability to increase our cash flow resources by reducing the percentage of our sales offered under our valuepay installment program or by decreasing the length of time we extend credit to our customers under this installment program . we are also currently exploring strategic alternatives in connection with the monetization of our boston television station assets . on april 4 , 2011 , we completed a public offering of 9,487,500 common shares at a price to the public of $ 6.25 per share . net proceeds from the offering were approximately $ 55.5 million after deducting
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in addition , corporate provides shared services for the company and conducts enterprise functions . certain costs incurred in corporate that are not directly attributable to one or more of the operating segments remain in corporate . these costs are typically for enterprise-level functions and are primarily administrative in nature . story_separator_special_tag limited ( “ crb ” ) . during the third quarter of 2013 , we acquired the remaining 15 % ownership interest . crb operates collections and credit bureau businesses and has locations in eight african countries , giving us a strategic presence in seven new african countries . the results of operations of crb , which are not material , have been included as part of our international segment in our consolidated statements of income since the date of acquisition . on december 28 , 2011 , we acquired an 80 % ownership interest in crivo sistemas em informática s.a. ( “ crivo ” ) , a brazilian company . during the fourth quarter of 2012 , we acquired an additional 6.67 % ownership interest . crivo provides software and services to companies in brazil to help them make credit , risk and fraud-related decisions . the results of operations of crivo , which are not material , have been included as part of our international segment in our consolidated statements of income since the date of the acquisition . on december 20 , 2011 , we acquired an additional 7.51 % ownership interest in credit information bureau ( india ) limited ( “ cibil ” ) , bringing our total ownership to 27.5 % . on october 13 , 2011 , we acquired a 100 % ownership interest in financial healthcare systems , llc ( “ fhs ” ) , a colorado limited liability company . fhs provides software-as-a-service solutions to the healthcare industry that helps healthcare providers inform patients about their out-of-pocket costs prior to providing healthcare services . the results of operations of fhs , which are not material , have been included as part of our usis segment in our consolidated statements of income since the date of the acquisition . key components of our results of operations revenue we derive our usis segment revenue from three operating platforms : online data services , credit marketing services and decision services . revenue in online data services is driven primarily by the volume of credit reports that our customers purchase . revenue in credit marketing services is driven primarily by demand for customer acquisition and portfolio review services . revenue in decision services is driven primarily by demand for services that provide our customers with online , real-time , automated decisions at the point of consumer interaction . we report our international segment revenue in two categories : developed markets and emerging markets . our developed markets are canada , hong kong and puerto rico . our emerging markets include africa , latin america , asia pacific and india . 35 we derive revenue in our interactive segment from both direct and indirect channels . our interactive revenue is primarily subscription based . cost of services costs of services include data acquisition and royalty fees , costs related to our databases and software applications , consumer and call center support costs , hardware and software maintenance costs , telecommunication expenses and occupancy costs associated with the facilities where these functions are performed . selling , general and administrative selling , general and administrative expenses include personnel-related costs for sales , administrative and management employees , costs for professional and consulting services , advertising and occupancy and facilities expense of these functions . non-operating income and expense non-operating income and expense includes interest expense , interest income , earnings from equity-method investments , dividends from cost-method investments , expenses related to successful and unsuccessful business acquisitions and other non-operating income and expenses . results of operations—twelve months ended december 31 , 2013 , 2012 and 2011 transunion holding was formed on february 15 , 2012 , as a vehicle to acquire transunion corp. for 2012 , transunion holding 's consolidated results include the stand-alone results of transunion holding from the date of inception through december 31 , 2012 , and the consolidated results of transunion corp and subsidiaries after april 30 , 2012 , the date of acquisition . transunion corp 's historical financial statements are presented on a successor and predecessor basis . periods prior to may 1 , 2012 , reflect the financial position , results of operations , and changes in financial position of transunion corp prior to the 2012 change in control transaction ( the “ predecessor ” ) and periods after april 30 , 2012 , reflect the financial position , results of operations , and changes in financial position of transunion corp after the 2012 change in control transaction ( the “ successor ” ) . the 2012 change in control transaction was accounted for using the acquisition method of accounting in accordance with accounting standards codification ( “ asc ” ) 805 , business combinations . the guidance prescribes that the basis of the assets acquired and liabilities assumed be recorded at fair value to reflect the purchase price . periods after the 2012 change in control transaction are not comparable to prior periods due primarily to the additional amortization of intangibles resulting from the fair value adjustments of the assets acquired and liabilities assumed and interest expense resulting from the additional debt incurred to finance the transaction . in addition , transunion corp predecessor incurred significant stock-based compensation expense and acquisition costs related to the 2012 change in control transaction . we operate transunion holding and transunion corp as one business . story_separator_special_tag to facilitate comparability of 2013 to 2012 , and comparability of 2012 to 2011 , we present below the combination of transunion holding consolidated results from inception through december 31 , 2012 , and transunion corp predecessor consolidated results for the four months ended april 30 , 2012 ( combined results for the year ended december 31 , 2012 ) , and compare those combined results to the consolidated transunion holding 2013 results and the consolidated transunion corp predecessor 2011 results . we present the information in this format to assist readers in understanding and assessing the trends and significant changes in our results of operations on a comparable basis . we believe this presentation is appropriate because it provides a more meaningful comparison and more relevant analysis of our results of operations for 2013 , 2012 and 2011 , than a presentation of separate historical results for transunion holding and transunion corp predecessor and successor periods would provide . the following table sets forth our historical results of operations for the periods indicated below : 36 replace_table_token_5_th nm : not meaningful key performance measures management , including our chief operating decision maker , evaluates the financial performance of our businesses based on a variety of key indicators . these indicators include the non-gaap measures adjusted operating income and adjusted ebitda , and the gaap measures revenue , cash provided by operating activities and cash paid for capital expenditures . for the twelve months ended december 31 , 2013 , 2012 and 2011 , these key indicators were as follows : 37 replace_table_token_6_th nm : not meaningful ( 1 ) for the twelve months ended december 31 , 2013 , adjustments included a $ 3.8 million fourth quarter legal accrual and a $ 2.4 million loss on the disposal of a small operating company recorded in our international segment , a $ 1.1 million gain on the disposal of a healthcare product line recorded in our usis segment and a $ 2.9 million adjustment for a transaction tax related to prior years that was recorded in each segment and in corporate as follows : usis $ 2.6 million ; and corporate $ 0.3 million . for the twelve months ended december 31 , 2012 , adjustments included $ 90.7 million of accelerated stock-based compensation and related expense resulting from the 2012 change in control transaction that were recorded in each segment and corporate as follows : usis $ 41.0 million ; international $ 14.4 million ; interactive $ 2.3 million ; and corporate $ 33.0 million . see part ii , item 8 , “ combined notes to consolidated financial statements , ” note 2 , “ change in control transaction , ” and note 14 , “ stock-based compensation , ” for further information about the impact of the 2012 change in control transaction . for the twelve months ended december 31 , 2011 , adjustments included a $ 3.6 million outsourcing vendor contract early termination fee and a $ 2.7 million software impairment and related restructuring charge due to a regulatory change requiring a software platform replacement . both of these expenses were recorded in our usis segment . ( 2 ) adjusted operating income and adjusted ebitda are non-gaap measures . we present adjusted operating income and adjusted ebitda as supplemental measures of our operating performance because they eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance . in addition to its use as a measure of our operating performance , our board of directors and executive management team focus on adjusted ebitda as a compensation measure . adjusted operating income does not reflect certain stock-based compensation and certain other income and expense . adjusted ebitda does not reflect our capital expenditures , interest , income tax , depreciation , amortization , stock-based compensation or certain other income and expense . other companies in our industry may calculate adjusted operating income and adjusted ebitda differently than we do , limiting their usefulness as comparative measures . because of these limitations , adjusted operating income and adjusted ebitda should not be considered in isolation or as substitutes for performance measures calculated in accordance with gaap . adjusted operating income and adjusted ebitda are not measures of financial condition or profitability under gaap and should not be considered alternatives to cash flow from operating activities , as measures of liquidity or as alternatives to operating income or net income as indicators of operating performance . we believe 38 that the most directly comparable gaap measure to adjusted operating income is operating income and the most directly comparable gaap measure to adjusted ebitda is net income attributable to the company . the reconciliations of adjusted operating income and adjusted ebitda to their nearest gaap measures are included in the table above . ( 3 ) operating income included additional depreciation and amortization beginning may 1 , 2012 , as a result of the purchase accounting fair value adjustments to the tangible and intangible assets recorded in connection with the 2012 change in control transaction . ( 4 ) other income and expense above includes all amounts included on our consolidated statement of income in other income and expense , net , except for earnings from equity method investments and dividends received from cost method investments . for the twelve months ended december 31 , 2013 , other income and expense included $ 10.5 million of acquisition-related expenses and $ 3.1 million of other expenses . for the twelve months ended december 31 , 2012 , other income and expense included $ 42.2 million of acquisition-related expenses , primarily related to the 2012 change in control transaction and the abandoned initial public offering process , and $ 8.6 million of other income and expense .
| 2012 change in control transaction in connection with the 2012 change in control transaction , the company recognized a significant increase in stock-based compensation expense due to the accelerated vesting of outstanding options and a significant increase in depreciation and amortization expense as a result of the step-up in basis to fair value of the assets and liabilities of the company . part ii , item 8 , `` combined notes to the consolidated financial statements , note 2 “ change in control transaction , ” and the operating expense discussion below for additional information . debt transactions on december 16 , 2013 , the company signed amendment no . 6 to the credit facility and borrowed $ 145.0 million against the senior secured term loan to partially fund the acquisition of assets from tlo , llc . on september 3 , 2013 , the company borrowed 34 $ 65.0 million against the senior secured revolving line of credit to partially fund the escan acquisition . on november 22 , 2013 , the company signed amendment no . 5 to the credit facility , borrowed $ 65.0 million against the senior secured term loan and used the proceeds to repay the revolving line of credit . on november 1 , 2012 , transunion holding issued $ 400.0 million principal amount of 8.125 % notes , the proceeds of which were used primarily to pay a dividend to our shareholders . on march 21 , 2012 , transunion holding issued $ 600.0 million principal amount of 9.625 % notes to partially fund the 2012 change in control transaction . on february 10 , 2011 , transunion corp refinanced its senior secured credit facility , which resulted in a significant loss on the early extinguishment of debt . these debt transactions had a significant impact on incremental interest expense and other income and expense in 2013 and 2012 compared to 2011. see part ii , item 8 , “ combined notes to consolidated financial statements , ” note 2 , “ change in control transaction , ” note 12 , “ debt , ” and the non-operating income and expense discussion below for
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through continuous monitoring , the company was able to take actions to ensure that disruptions to customers were minimal while preventing any furloughs , layoffs , or reductions in compensation for our employees . in order to meet the needs of its customers impacted by the pandemic , the company provided funding , flexible repayment options or modifications if necessary . during the year , the company modified 3,054 loans in the amount of $ 1.515 billion primarily with short-term payment deferrals under six months . as of year end , only $ 94.9 million of the modifications remain in the deferral period . in addition , the company originated small business association ( “ sba ” ) paycheck protection program ( “ ppp ” ) loans for small businesses in its communities . the company originated 16,090 ppp in the amount of $ 1.472 billion during the current year of which $ 539 million , or 37 percent , were forgiven by the sba during the year . in the coming year , the company will continue to remain flexible in responding to changing conditions due to covd-19 in the markets it serves and remains optimistic it can continue to deliver profitable results . during 2020 , the company acquired all the outstanding stock of sbaz , a community bank based in lake havasu city , arizona with total assets of $ 745 million . sbaz provides banking services to individuals and business in arizona with ten locations in bullhead city , cottonwood , kingman , lake havasu city , phoenix , prescott valley and prescott . upon closing of the transaction , sbaz was merged into the company 's foothills bank division , which expanded the company 's footprint in arizona to cover all major markets and established it as a leading community bank in arizona . see note 23 in the consolidated financial statements in “ item 8. financial statements and supplementary data ” for additional information regarding these acquisitions . the company ended the year at $ 18.504 billion in assets , which was a 35 percent increase over the prior year and was driven primarily by the current year acquisition along with increases from the ppp loans and debt securities purchased as a result of excess liquidity . organic loan growth was $ 1.158 billion , or 12 percent , during the current year and excluding the ppp loans , organic loan growth was $ 249 million , or 3 percent . the company experienced another great year in core deposit which organically increased $ 3.433 billion , or 32 percent , with non-interest bearing deposits increasing $ 1.616 billion , or 44 percent , during the year . tangible stockholders ' equity increased $ 296 million , or $ 2.60 per share , as a result of earnings retention , an increase in other comprehensive income ( “ oci ” ) and company stock issued in connection with the current year acquisition . the company increased its total regular quarterly dividends declared from $ 1.11 per share during 2019 to $ 1.18 per share in 2020. during the current year , s & p dow jones indices selected the company to transition from the s & p smallcap 600® to the s & p midcap 400® . the s & p midcap 400® index consist of 400 companies that are chosen with regard to market capitalizing , liquidity and industry representation . the company continued to decrease its non-performing assets and ended the year at $ 35.4 million , or 0.19 percent of assets , which was a decrease of $ 2.0 million , or 5 percent , from the prior year end . in addition , early stage delinquencies ( accruing 30-89 days past due ) as a percentage of loans at december 31 , 2020 was 0.20 percent compared to 0.24 percent at the prior year end . the company had record net income for the year of $ 266 million , which was an increase of $ 55.9 million , or 27 percent , over the prior year net income of $ 211 million . diluted earnings per share for the year was $ 2.81 , an increase of 18 percent , from the 2019 diluted earnings per share of $ 2.38. the improvement in net income for 2020 was due to recent acquisitions , organic growth , the significant increase in commercial interest income from the ppp loans and the record year for gain on sale of loans . the company 's net interest margin for 2020 was 4.09 percent , a 30 basis points decrease from the net interest margin of 4.39 percent from 2019 which was primarily driven by the low rate environment and the shift in the earning asset mix from higher yielding loans to lower yielding debt securities . looking forward , the company 's future performance will depend on many factors including economic conditions in the markets the company serves , interest rate changes , increasing competition for deposits and loans , loan quality and growth , the impact and successful integration of acquisitions , and managing regulatory burden . 27 financial highlights replace_table_token_11_th recent acquisitions the company completed the following acquisitions during the last two years : state bank corp. and its wholly-owned subsidiary , state bank of arizona ; heritage bancorp and its wholly-owned subsidiary , heritage bank of nevada ; and fnb bancorp and its wholly-owned subsidiary , the first national bank of layton . the business combinations were accounted for using the acquisition method with the results of operations included in the company 's consolidated financial statements as of the acquisition dates . for additional information regarding acquisitions , see note 23 to the consolidated financial statements in “ item 8. financial statements and supplementary data. story_separator_special_tag ” the following table discloses the fair value of selected classifications of assets and liabilities acquired : replace_table_token_12_th 28 financial condition analysis assets the following table summarizes the company 's assets as of the dates indicated : replace_table_token_13_th total debt securities of $ 5.528 billion at december 31 , 2020 increased $ 2.728 billion , or 97 percent , from the prior year end . during 2020 , the company purchased debt securities with excess liquidity from the increase in core deposits and sba forgiveness of ppp loans . debt securities represented 30 percent of total assets at december 31 , 2020 compared to 20 percent of total assets at december 31 , 2019. the loan portfolio of $ 11.123 billion increased $ 1.610 billion , or 17 percent during the current year . excluding the ppp loans and the sbaz acquisition , the loan portfolio increased $ 249 million , or 3 percent , from the prior year end with the largest increase in commercial real estate loans which increased $ 401 million , or 7 percent . liabilities the following table summarizes the company 's liabilities as of the dates indicated : replace_table_token_14_th 29 excluding the sbaz acquisition , core deposits increased $ 3.433 billion , or 32 percent , from the prior year end , with non-interest bearing deposits increasing $ 1.616 billion , or 44 percent . the current year significant increase in deposits was attributable to a number of factors including the ppp loan proceeds deposited by customers and the increase in customer savings . non-interest bearing deposits were 37 percent of total core deposits at december 31 , 2020 compared to 34 percent at december 31 , 2019. wholesale deposits of $ 38.1 million at december 31 , 2020 decreased $ 15.2 million , or 28 percent , from the prior year end . federal home loan bank ( “ fhlb ” ) advances were paid off in full as of december 31 , 2020 , which resulted in a decrease of $ 38.6 million from the prior year . the reduction in wholesale deposits and fhlb advances were the result of the significant increase in core deposits which funded loans and debt security growth . wholesale deposits and fhlb advances will continue to fluctuate as necessary for balance sheet growth and to supplement liquidity needs of the company . stockholders ' equity the following table summarizes the stockholders ' equity balances as of the dates indicated : replace_table_token_15_th tangible stockholders ' equity increased $ 296 million over the prior year , which was the result of $ 112 million of company stock issued for the acquisitions of sbaz and an increase in other comprehensive income and earnings retention . these increases more than offset the increase in goodwill and core deposit intangible associated with the acquisition . the current year decrease in both the stockholders ' equity to total assets ratio and the tangible stockholders ' equity to total tangible assets ratio was primarily the result of adding $ 909 million of ppp loans and $ 2.7 billion in debt securities . tangible book value per common share of $ 18.21 at the current year end increased $ 2.60 per share from a year ago . 30 story_separator_special_tag 32 provision for credit losses the following table summarizes the provision for credit losses on the loan portfolio , net charge-offs and select ratios relating to the provision for credit losses on loans for the previous eight quarters : replace_table_token_18_th the provision for credit losses was $ 39.8 million for 2020 , including provision for credit losses of $ 37.6 million on the loan portfolio , $ 2.1 million of provision for credit losses on unfunded loan commitments , and no provision for credit losses on debt securities . the provision for credit losses was $ 37.6 million in the current year compared to $ 57 thousand prior year provision for credit losses on the loan portfolio . the current year increase was primarily attributable to changes in the economic forecast related to covid-19 . net charge-offs during the current year were $ 7.7 million compared to $ 6.8 million during the prior year . efficiency ratio the efficiency ratio was 49.97 percent for 2020. excluding the impact from the ppp loans , the efficiency ratio would have been 53.70 percent . the prior year efficiency ratio was 57.78 and excluding the impact from the termination of the cash flow hedges and the accelerated stock compensation expense , the efficiency ratio would have been 54.79 percent . excluding these adjustments , the current year efficiency ratio decreased 109 basis points from the prior year efficiency ratio which was driven primarily by the combined increased on gain on sale of loans and the increased net interest income that more than offset the decrease in service fee income from the durbin amendment and increased compensation expense . 33 additional management 's discussion and analysis investment activity the company 's investment securities primarily consist of debt securities classified as available-for-sale or held-to-maturity . non-marketable equity securities consist primarily of capital stock issued by the fhlb of des moines . debt securities in november 2018 , the company adopted fasb asu 2017-12 , derivatives and hedging , and in doing so redesignated state and local government securities with a carrying value of $ 270 million , from held-to-maturity classification to available-for-sale classification . the company considers the available-for-sale classification of these debt securities to be appropriate since it no longer had the intent to hold them to maturity . debt securities classified as available-for-sale are carried at estimated fair value and debt securities classified as held-to-maturity are carried at amortized cost . unrealized gains or losses , net of tax , on available-for-sale debt securities are reflected as an adjustment to oci . the company 's debt securities are summarized below : replace_table_token_19_th the company 's debt securities are primarily comprised of state and local government securities and mortgage-backed securities .
| the total funding cost ( including non-interest bearing deposits ) for 2020 was 19 basis points , which decreased 20 basis points compared to 39 basis points in 2019. the net interest margin as a percentage of earning assets , on a tax-equivalent basis , during 2020 was 4.09 percent , a 30 basis points decrease from the net interest margin of 4.39 percent for 2019. the core net interest margin , excluding 3 basis points of discount accretion and , 1 basis point of non-accrual interest , was 4.05 compared to a core margin of 4.30 percent in the prior year . although the company was successful in reducing the total , cost of funding , it was not enough to outpace the decrease in yields on loans and debt securities driven by the current interest rate environment and the shift in the earning asset mix from higher yielding loans to lower yielding debt securities . non-interest income non-interest income of $ 173 million for 2020 increased $ 42.1 million , or 32 percent , over last year . service charges and other fees of $ 52.5 million for 2020 decreased $ 15.4 million , or 23 percent , from the prior year as a result of a decrease in overdraft activity and the impact of the durbin amendment which outpaced the additional fees from increased customer accounts . as of july 1 , 2019 , the company became subject to the durbin amendment which established limits on the amount of interchange fees that can be charged to merchants for debit card processing . miscellaneous loan fees increased $ 2.0 million , or 38 percent , driven by increased activity primarily in residential real estate . gain of $ 99.5 million on the sale of loans for 2020 , increased $ 65.4 million , or 192 percent , compared to the prior year as a result of a significant increase in purchase and refinance activity driven by the decrease in interest rates . other income increased $ 3.4 million from the prior year and was primarily the result of a gain of $ 2.4 million on the sale of a former branch building in the first quarter of 2020 . 31 during the prior year third quarter , the company terminated $ 260 million notional pay-fixed interest rate swaps and corresponding debt along with the sale of $ 308 million of available-for-sale debt securities . sale of the investment securities resulted
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overview-revenue and gross margins revenue recognition . we recognize revenue on a percentage-of-completion method of accounting , which is commonly used in the construction industry . the percentage-of-completion accounting method results in recognizing contract revenues and earnings ratably over the contract term in proportion to our incurrence of contract costs . the profits or losses recognized on individual contracts are based on estimates of contract revenues , costs and profitability . contract losses are recognized in full when determined , and contract profit estimates are adjusted based on ongoing reviews of contract profitability . changes in job performance , labor costs , equipment costs , job conditions , weather , estimated profitability and final contract settlements may result in revisions to costs and income and their effects are recognized in the period in which the revisions are determined . we record adjustments to estimated costs of contracts when we believe the change in estimate is probable and the amounts can be reasonably estimated . these adjustments could result in either increases or decreases in profit margins . the gross margins we record in the current period may not be indicative of margins in future periods . gross margins . our gross margin can vary between periods as a result of many factors , some of which are beyond our control . these factors include : the mix of revenue derived from the industries we serve , the size and duration of our projects , the mix of business conducted in different parts of the united states and canada , the mix in service and maintenance work compared to new construction work , the amount of work that we subcontract , the amount of material we supply , changes in labor , equipment or insurance costs , seasonal weather patterns , changes in fleet utilization , pricing pressures due to competition , efficiency of work performance , fluctuations in commodity prices of materials , delays in the timing of projects and other factors . overview-economic , industry and market factors we operate in competitive markets , which can result in pricing pressures for the services we provide . work is often awarded through a bidding and selection process , where price is always a principal factor . we generally focus on managing our profitability by : selecting projects that we believe will provide attractive margins ; actively monitoring the costs of completing our projects ; holding customers accountable for costs related to changes to contract specifications ; and rewarding our employees for controlling costs . the demand for construction and maintenance services from our customers has been , and will likely continue to be , cyclical in nature and vulnerable to downturns in the markets we serve as well as the economy in general . the financial condition of our customers and their access to capital , variations in the margins of projects performed during any particular period , and regional and national economic conditions in the 31 united states and canada may materially affect results . project schedules , particularly in connection with larger , multi-year projects , can also create fluctuations in our revenues . other market and industry factors , such as changes to our customers ' capital spending plans or delays in regulatory approvals can affect project schedules . changes in technology , tax and other incentives and new or changing regulatory requirements affecting the industries we serve can impact demand for our services . while we actively monitor economic , industry and market factors affecting our business , we can not predict the impact such factors may have on our future results of operations , liquidity and cash flows . as a result of economic , industry and market factors , our operating results in any particular period or year may not be indicative of the results that can be expected for any other period or for any other year . overview-seasonality although our revenues are primarily driven by spending patterns in our customers ' industries , our revenues , particularly those derived from our t & d segment , and results of operations can be subject to seasonal variations . these variations are influenced by weather , daylight hours , availability of system outages from utilities , and holidays . during the winter months , demand for our t & d work may be high , but our work can be delayed due to inclement weather . during the summer months , the demand for our t & d work may be affected by fewer available system outages during which we can perform electrical line service work due to peak electrical demands caused by warmer weather conditions . during the spring and fall months , the demand for our t & d work may increase due to improved weather conditions and system availability ; however , extended periods of rain and other severe weather can affect the deployment of our crews and efficiency of operations . we also provide storm restoration services to our t & d customers . these services tend to have a higher profit margin . however , storm restoration service work that is performed under an msa typically has similar rates to other work under the agreement . in addition , deploying employees on storm restoration work may , at times , delay work on other transmission and distribution work . storm restoration service work is unpredictable and can affect results of operations . outlook we continue to expect long-term growth in the transmission market , although the timing of large bids and subsequent construction is likely to be highly variable from year to year . we believe several multi-year transmission projects will be available for bid in the 2017 to 2018 timeframe . story_separator_special_tag we also expect bidding activity in small and medium-sized transmission and distribution projects to continue in 2017. while it is unclear what impact the new administration may have on our business , we are optimistic about overall economic growth and infrastructure spending and believe that improving industry activity will continue in both of our market segments and the drivers for utility investment will remain intact . we believe that regulatory reform , state renewable portfolio standards , the aging of the electric grid , and the general improvement of the economy will positively impact the level of spending by our customers . although competition remains strong , we see these trends as positive factors for us in the future . our business is directly impacted by the level of spending on t & d infrastructure and the level of c & i electrical construction activity across the united states and canada . the electric grid is aging and requires significant upgrades and maintenance to meet current and future demands for electricity . in addition , regulatory pressures and low energy prices may accelerate the shut-down of coal-fired generating plants , which could result in the need for line upgrades and new substations . over the past several years , many utilities have begun to implement plans to improve their transmission systems , improve reliability and reduce congestion . these utilities have started or planned new construction , line upgrades and maintenance projects on many transmission systems . we believe that our customers remain committed to the expansion and strengthening of their transmission infrastructure , with planning , engineering and funding for many of their projects already in place . we continue to see opportunities in the canadian transmission market which we expect will extend over the next several years driven by load center delivery requirements , aging infrastructure , additional hydropower generation development and hydropower interconnection projects to serve canadian load and the import of hydro power to the united states . 32 we believe that renewable resources in the united states will still be a driver for large transmission project activity under the new administration . state renewable portfolio standards , which set required or voluntary standards for how much electricity is to be generated from renewable energy sources , as well as general environmental concerns , are driving the development of renewable energy projects . the economic feasibility of renewable energy projects , and therefore the attractiveness of investment in the projects , may depend on the availability of tax incentive programs or the ability of the projects to take advantage of such incentives . the late-2015 congressional approval of a five-year extension to the production tax credit and investment tax credit should continue to spur additional wind and solar development , and we believe we will benefit from an increase in these projects . as a result of reduced spending by united states utilities on their distribution systems for several years , we believe there is a continued need for sustained investment by utilities on their distribution systems to properly maintain or meet reliability requirements . in 2016 , we saw increased bidding activity in some of our electric distribution markets , as economic conditions improved in those areas . we believe that continued recovery in the united states economy , and in the housing market in particular , over the next few years could provide additional stimulus for spending by our customers on their distribution systems . in addition , we believe there will be a push to strengthen utility distribution systems against major storm-related damage . several industry and market trends are also prompting customers in the electric utility industry to seek outsourcing partners rather than performing projects internally . these trends include an aging electric utility workforce , increasing costs and staffing constraints . we believe electric utility employee retirements could increase with further economic recovery , which may result in an increase in outsourcing opportunities . we expect to see an incremental increase in distribution opportunities in the united states in 2017 and we believe these opportunities will continue to be bid in a competitive market . we believe we will continue to see significant bidding activity on large transmission projects in 2017 and 2018. the timing of multi-year transmission project awards and substantial construction activity is difficult to predict due to regulatory requirements and right-of-way permits needed to commence construction . significant construction on any large , multi-year projects awarded in 2017 will not likely occur until 2018. bidding and construction activity for small to medium-size transmission projects and upgrades remains strong , and we expect this trend to continue in 2017 , primarily due to reliability and economic drivers . competition and the unpredictability of awards in the transmission market may impact our ability to maintain high utilization of equipment and manpower resources which is essential to maintaining contract margins . we saw increased activity in many of our c & i markets in 2016. results in our c & i segment improved over the prior year due to our strategic acquisitions , organic expansion into new markets and improved economic conditions . we expect to see continued improvement in bidding opportunities in our c & i segment in 2017. we expect the long-term growth in our c & i segment to generally track the economic growth of the regions we serve and benefit to the extent economic conditions continue to improve in the markets we serve . through 2016 , we continued to implement a three-pronged strategy of organic growth , strategic acquisitions and prudent capital returns , which is further detailed below . additionally , in june 2016 , we entered into an amended and restated , five-year credit agreement , which expanded our borrowing capacity to $ 250 million . this new credit agreement provided added resources and flexibility to execute each of our three-pronged strategy initiatives . organic growth in 2016 , we expanded our operations at our california office to include c & i services .
| selling , general and administrative expenses ( sg & a ) , which were $ 96.4 million for the year ended december 31 , 2016 , increased $ 17.2 million from $ 79.2 million for the year ended december 31 , 2015. the increase in sg & a was primarily due to $ 9.4 million of costs associated with our organic and acquisitive growth strategies . bonus and profit sharing costs as well as personnel costs to support our overall growth increased in 2016. we also incurred $ 1.0 million of costs associated with responding to activist investors . the impact of these increases was partially offset by a $ 1.4 million cost related to an executive officer transition in the fourth quarter of 2015. as a percentage of revenues , sg & a increased to 8.4 % for the year ended december 31 , 2016 from 7.5 % for the year ended december 31 , 2015 . 37 gain on sale of property and equipment . gains from the sale of property and equipment in the year ended december 31 , 2016 were $ 1.3 million compared to $ 2.3 million in the year ended december 31 , 2015. gains from the sale of property and equipment are attributable to routine sales of property and equipment no longer useful or valuable to our ongoing operations . interest expense . interest expense was $ 1.3 million for the year ended december 31 , 2016 compared to $ 0.7 million in the year ended december 31 , 2015. this increase is primarily attributable to the borrowings on our line of credit during the year ended december 31 , 2016. other income . other income was $ 0.9 million for the year ended december 31 , 2016 compared to $ 0.2 million in the year ended december 31 , 2015. this increase is primarily attributable to contingent consideration related to margin guarantees of $ 1.4 million recognized on certain contracts associated with the acquisition of wpe . income tax expense . the provision for income taxes was $ 16.9 million for the year ended december 31 , 2016 , with an effective tax rate of 44.1 % , compared to a provision of
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however , in order to more efficiently schedule production or to meet agreements with customers to have inventory in the pipeline , the company occasionally manufactures products in advance of purchase orders . in these instances , the company bears the risk that it will be left with product manufactures to specification for which there are no customer purchase orders . the company scrutinizes its inventory and , in the absence of pending orders or strong evidence of future sales , establishes an obsolescence reserve when there has been no activity on a particular part for twelve month period . in determining inventory cost , the company uses the first-in , first-out method and states inventory at the lower of cost or market . virtually all of the company 's inventory is customer specific ; as a result , if a customer 's order is cancelled , it is unlikely that cps would be able to sell that inventory to another customer . likewise , if the company chooses to manufacture product in advance of anticipated purchase orders and those orders did not materialize , it is unlikely that it would be able to sell that inventory to another customer . the value of cps 's work in process and finished goods is based on the assumption that specific customers will take delivery of specific items of inventory . the company has not experienced losses to date as a result of customer cancellations and has not established a reserve for such cancellations . property and equipment property and equipment are stated at cost . depreciation of equipment is calculated on a straight-line basis over the estimated useful life , generally five years for production equipment and three to five years for furniture and office equipment . amortization of equipment under capital leases is calculated on a straight-line basis over the life of the lease . maintenance and repairs are charged to expense as incurred . upon retirement or sale , the cost and related accumulated depreciation or amortization are removed from their respective accounts . any gains or losses on the disposition of property and equipment are included in the results of operations in the period in which they occur . income taxes deferred tax assets and liabilities are based on the net tax effects of tax credits , operating loss carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . the company considers many factors in assessing whether or not a valuation allowance for its deferred tax asset is warranted . on the positive side , the company considered such factors as its : history of taxable earnings ( seven consecutive years from 2003-10 ) , global customer base consisting of large companies with significant resources , current products and their expected life , technological advantages , potential for price increases , trend of improved manufacturing efficiencies and the magnitude of the deferred tax asset compared with the company 's expectation of future earnings over the remaining life of the asset . on the negative side , the company considered such factors as : the global economic environment , the company 's ability to absorb a period of operating losses and negative cash flow and the potential for the technological breakthroughs and substitution of the company 's products by lower cost solutions . at december 27 , 2014 the company 's deferred tax asset included net operating loss carryforwards and other temporary differences which will require taxable income of approximately $ 5.8 million to fully utilize , assuming an effective corporate tax rate of 39 % . the company has concluded that it is more likely than not that its deferred tax asset will be fully realized . current projections of future taxable income , including the reversal of temporary differences , reflect the company 's belief that it has attractive growth opportunities and a favorable cost structure . these projections support the conclusion that the company will generate taxable income sufficient to utilize the losses before they expire . an important consideration in this analysis is the fact that none of the nol carryforwards expire before 2032. the company 's policy is to recognize interest and penalties related to income tax matters in income tax expense . as of december 27 , 2014 and december 28 , 2013 , the company had no accruals for interest or penalties related to income tax matters . the company did not have any uncertain tax positions at december 27 , 2014 or december 28 , 2013 which required accrual or disclosure . income tax effects related to share-based compensation that are in excess , or less than , of grant-date fair value , less any proceeds received on exercise of stock prices , are recognized as either an increase or decrease to additional paid-in capital upon exercise . these tax effects are either offset against currently payable taxes or the benefit of net operating loss utilization . story_separator_special_tag sans-serif ; margin : 0 ; background-color : white ; text-indent : 0.5in '' > at december 27 , 2014 , the company had no borrowing under its lease line . in addition at december 28 , 2013 the company had no borrowings under this loc while its borrowing base at the time would have permitted borrowings of $ 2 million . the covenants with santander bank are identical for the line of credit and equipment financing facility . the covenant requirements are shown below together with the actual ratios achieved at the end of 2014 : replace_table_token_3_th management believes that cash flows from operations , existing cash balances and the leasing and credit line in place with santander bank will be sufficient to fund our cash requirements for the foreseeable future . however , there is no assurance that we will be able to generate sufficient revenues or reduce certain discretionary spending in the event that planned story_separator_special_tag however , in order to more efficiently schedule production or to meet agreements with customers to have inventory in the pipeline , the company occasionally manufactures products in advance of purchase orders . in these instances , the company bears the risk that it will be left with product manufactures to specification for which there are no customer purchase orders . the company scrutinizes its inventory and , in the absence of pending orders or strong evidence of future sales , establishes an obsolescence reserve when there has been no activity on a particular part for twelve month period . in determining inventory cost , the company uses the first-in , first-out method and states inventory at the lower of cost or market . virtually all of the company 's inventory is customer specific ; as a result , if a customer 's order is cancelled , it is unlikely that cps would be able to sell that inventory to another customer . likewise , if the company chooses to manufacture product in advance of anticipated purchase orders and those orders did not materialize , it is unlikely that it would be able to sell that inventory to another customer . the value of cps 's work in process and finished goods is based on the assumption that specific customers will take delivery of specific items of inventory . the company has not experienced losses to date as a result of customer cancellations and has not established a reserve for such cancellations . property and equipment property and equipment are stated at cost . depreciation of equipment is calculated on a straight-line basis over the estimated useful life , generally five years for production equipment and three to five years for furniture and office equipment . amortization of equipment under capital leases is calculated on a straight-line basis over the life of the lease . maintenance and repairs are charged to expense as incurred . upon retirement or sale , the cost and related accumulated depreciation or amortization are removed from their respective accounts . any gains or losses on the disposition of property and equipment are included in the results of operations in the period in which they occur . income taxes deferred tax assets and liabilities are based on the net tax effects of tax credits , operating loss carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . the company considers many factors in assessing whether or not a valuation allowance for its deferred tax asset is warranted . on the positive side , the company considered such factors as its : history of taxable earnings ( seven consecutive years from 2003-10 ) , global customer base consisting of large companies with significant resources , current products and their expected life , technological advantages , potential for price increases , trend of improved manufacturing efficiencies and the magnitude of the deferred tax asset compared with the company 's expectation of future earnings over the remaining life of the asset . on the negative side , the company considered such factors as : the global economic environment , the company 's ability to absorb a period of operating losses and negative cash flow and the potential for the technological breakthroughs and substitution of the company 's products by lower cost solutions . at december 27 , 2014 the company 's deferred tax asset included net operating loss carryforwards and other temporary differences which will require taxable income of approximately $ 5.8 million to fully utilize , assuming an effective corporate tax rate of 39 % . the company has concluded that it is more likely than not that its deferred tax asset will be fully realized . current projections of future taxable income , including the reversal of temporary differences , reflect the company 's belief that it has attractive growth opportunities and a favorable cost structure . these projections support the conclusion that the company will generate taxable income sufficient to utilize the losses before they expire . an important consideration in this analysis is the fact that none of the nol carryforwards expire before 2032. the company 's policy is to recognize interest and penalties related to income tax matters in income tax expense . as of december 27 , 2014 and december 28 , 2013 , the company had no accruals for interest or penalties related to income tax matters . the company did not have any uncertain tax positions at december 27 , 2014 or december 28 , 2013 which required accrual or disclosure . income tax effects related to share-based compensation that are in excess , or less than , of grant-date fair value , less any proceeds received on exercise of stock prices , are recognized as either an increase or decrease to additional paid-in capital upon exercise . these tax effects are either offset against currently payable taxes or the benefit of net operating loss utilization . story_separator_special_tag sans-serif ; margin : 0 ; background-color : white ; text-indent : 0.5in '' > at december 27 , 2014 , the company had no borrowing under its lease line . in addition at december 28 , 2013 the company had no borrowings under this loc while its borrowing base at the time would have permitted borrowings of $ 2 million . the covenants with santander bank are identical for the line of credit and equipment financing facility . the covenant requirements are shown below together with the actual ratios achieved at the end of 2014 : replace_table_token_3_th management believes that cash flows from operations , existing cash balances and the leasing and credit line in place with santander bank will be sufficient to fund our cash requirements for the foreseeable future . however , there is no assurance that we will be able to generate sufficient revenues or reduce certain discretionary spending in the event that planned
| significant fourth quarter 2014 activity revenues totaled $ 6.0 million in the fourth quarter of 2014 versus $ 5.1 million in the comparable quarter in 2013. the increase was due in large part to the sales of baseplates and , to a lesser extent , sales of fracking balls , offset is part by $ 0.3 million of price decreases . gross margin increased in the fourth quarter of 2014 versus the fourth quarter of 2013 to $ 1,535 thousand ( 26 % of sales ) from $ 1,362 thousand ( 27 % of sales ) . the primary reason for the improvement in 2014 was due to higher sales volume offset in part by approximately $ 0.3 million of price decreases on existing products . selling , general and administrative expenses totaled $ 957 thousand in the fourth quarter of 2014 , up 11 % versus the fourth quarter of 2013 , due to three major factors : higher sales commissions associated with higher sales volume and increases in professional fees and legal costs associated with a patent issue in japan . the operating profit of $ 578 thousand in the fourth quarter 2014 compares with an operating profit of $ 431 thousand in the fourth quarter of 2013 , driven by an increase in sales volume . net income in the fourth quarter of 2014 totaled $ 619 thousand , up from net income of $ 276 thousand in the corresponding quarter of 2013. liquidity and capital resources the company 's cash and cash equivalents at december 27 , 2014 totaled $ 2.3 million with no borrowings on the company 's $ 2 million committed line of credit . this compares with cash and cash equivalents of $ 1.6 million and zero bank borrowings at december 28 , 2013. this improvement in the company 's net cash position of $ 0.7 million was due primarily to earnings from operations . at the end of 2014 , the company 's investment in receivables , inventories and prepaid expenses , less accounts payables and accruals , totaled $ 3.9 million versus $ 3.1 million in these accounts at the end of 2013. this increase of $ 0.8
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if vendor advertising allowances were substantially reduced or eliminated , the company would likely consider other methods of advertising as well as the volume and frequency of the company 's product advertising , which could increase or decrease the company 's expenditures . similarly , the company is not able to assess the impact of vendor advertising allowances on creating additional revenue ; as such allowances do not directly generate revenue for the company 's stores . story_separator_special_tag style= '' display : inline ; font-size:7.5pt ; '' > replace_table_token_12_th increased fiscal 2019 sales resulted from new and replacement store buildings , the introduction of new products and product presentation , especially in higher margin products , effective promotions and cost competitiveness . general economic conditions were favorable in the company 's market area . the company increased its use of the ingles advantage savings and rewards card ( the “ ingles advantage card ” ) to increase net sales and comparable store sales through enhanced loyalty programs and special offers . information obtained from holders of the ingles advantage card also assists the company in optimizing product offerings and promotions specific to customer shopping patterns . the company expects non-gasoline sales will be higher in the 2020 fiscal year compared with fiscal 2019. the company anticipates adding new stores in fiscal 2020 , expects to continue remodeling a significant number of existing stores , and plans to add more fuel stations and pharmacies . fiscal 2020 sales growth will also likely be influenced by market fluctuations in the per gallon price of gasoline and milk , changes in commodity food prices , general labor- and distribution-influenced economic conditions and changing customer preferences for purchasing items sold by the company . gross profit . gross profit for the fiscal year ended september 28 , 2019 increased $ 41.8 million , or 4.3 % , to $ 1.02 b illion compared with $ 980.2 million for the fiscal year ended september 29 , 2018. as a percentage of sales , gross profit totaled 24.3 % for the fiscal year ended september 28 , 2019 and 24.0 % for the fiscal year ended september 29 , 2018. gasoline gross profit increased $ 13.1 million for fiscal year 2019 compared with 2018 . grocery segment gross profit as a percentage of total sales ( excluding gasoline ) de creased 19 basis points in fiscal 2019 compared with fiscal 2018. the gross margin de crease was primarily due to market factors that adversely affected certain product lines . in addition to the direct product cost , the cost of goods sold line item for the grocery segment includes inbound freight charges and the costs related to the company 's distribution network . operating and administrative expenses . operating and administrative expenses increased $ 17.8 million , or 2.1 % , to $ 873.9 million for the fiscal year ended september 28 , 2019 , from $ 856.1 million for the fiscal year ended september 29 , 2018. as a percentage of sales , operating and administrative expenses were 20.8 % and 20.9 % for fiscal years 2019 and 2018 , respectively . excluding gasoline , which does not have significant direct operating expenses , the ratio of operating expenses to sales was 23.9 % for fiscal 2019 compared with 24.3 % for fiscal 2018. fiscal year 2019 sales growth resulted in operating expense leverage . 18 a breakdown of the major increases in operating and administrative expenses is as follows . replace_table_token_13_th salaries and wages increased due to the addition of labor hours required for the increased sales volume and changes to the sales mix . in general , the labor market in the company 's market area has become more competitive . repairs and maintenance increased due to a higher level of maintenance required on more sophisticated equipment and updated lighting in our stores , and also due to a higher level of building maintenance . bank charges have increased as more sales transactions are being settled with debit and credit cards , and the per transaction card costs have increased . advertising and promotion expenses decreased as a result of more efficient usage of digital , broadcast , and print advertising programs . insurance expenses de creased due to lower claims experienced under its self-insurance programs . gain from sale or disposal of assets . during the current fiscal year , the company recognized a $ 3.2 million gain on the sale of a former store property . there were no other significant sale/disposal transactions in either fiscal year 2019 or 2018 . other income , net . other income , net totaled $ 1.8 million and $ 3.1 million for the fiscal years ended september 28 , 2019 and september 29 , 2018 , respectively . other income consists primarily of sales of waste paper and packaging . interest expense . interest expense was relatively unchanged at $ 47.4 million for the fiscal year ended september 28 , 2019 and $ 47.6 million for the fiscal year ended september 29 , 2018. total debt was $ 852.2 million at the end of fiscal 2019 compared with $ 865.6 million at the end of fiscal 2018. the company had lower line of credit usage during the current fiscal year , and interest rates have been relatively stable . income taxes . income tax expense totaled $ 25.0 million for fiscal year 2019 , an effective tax rate of 23.5 % . this compares with an income tax benefit totaling $ 17.0 million for fiscal year 2018 . in december 2017 , the tax cuts and jobs act ( the “ tax act ” ) became law . story_separator_special_tag among other things , the tax act reduced the federal corporate tax rate from 35 % to 21 % and allowed for full depreciation expensing of qualified property when placed in service . for the fiscal years ended september 28 , 2019 and september 29 , 2018 the company has a blended federal corporate tax rate of 21.0 % and 24.5 % , respectively , based on the effective date of the tax rate reduction . as a result of the decrease in the federal rate , the company recorded in fiscal year 2018 a decrease in its net deferred tax liabilities of $ 26.7 million , with a corresponding reduction to deferred income tax expense . also during fiscal year 2018 the company adopted a tax calculation method change that resulted in the accelerated deduction of certain property-related expenditures . as a result of this change and the change in the federal statutory tax rate , the company recorded a decrease in its net deferred tax liabilities of $ 10.6 million , with a corresponding reduction to deferred income tax expense . without the $ 37.3 million tax expense reductions , the company 's effective tax rate would have been 25.2 % for the fiscal year ended september 29 , 2018 . net income . net income totaled $ 81.6 million for the fiscal year ended september 28 , 2019 compared with net income of $ 97.4 million for the fiscal year ended september 29 , 2018. basic and diluted earnings per share for class a common stock were $ 4 . 14 and $ 4 . 03 , respectively , for the fiscal year ended september 28 , 2019 compared with $ 4.94 and $ 4.81 , respectively , for the fiscal year ended september 29 , 2018. basic and diluted earnings per share for class b common stock were each $ 3 . 76 for the fiscal year ended september 28 , 2019 compared with $ 4.49 of basic and diluted earnings per share for the fiscal year ended september 29 , 2018 . 19 fiscal year ended september 29 , 2018 compared to the fiscal year ended september 30 , 2017 there are two significant occurrences that will affect many of the comparisons between the fiscal years ended september 29 , 2018 and september 30 , 2017. first , fiscal year 2017 was a 53 week year , resulting generally in higher sales , operating expenses and operating income compared with the 52 weeks in fiscal year 2018. in addition , changes to federal tax laws and the company 's adoption of a different tax calculation method resulted in significant deferred tax benefits totaling $ 37.3 million in fiscal year 2018. the company will cite these factors wherever they are relevant to the comparison of its results of operations for fiscal years 2018 with those of fiscal year 2017 . net income for the fiscal year ended september 29 , 2018 was $ 97.4 million , compared with net income of $ 53.9 million for the fiscal year ended september 30 , 2017 , primarily due to the positive impact of the fiscal year 2018 deferred tax benefits . pretax income was $ 80.3 million for fiscal year 2018 , compared with pretax income of $ 84.3 million for fiscal year 2017 , a decrease primarily attributable to fiscal year 2017 's extra week . sales and gross margin increased in the retail segment , including increases in gasoline margins . expenses increased primarily as a result of continued tight labor conditions in the company 's market area . fluid dairy income decreased due to decreased overall milk demand , and real estate income increased as the company added tenants in existing shopping centers and in acquired shopping centers where the company had previously leased a store . net sales . net sales for the fiscal year ended september 29 , 2018 totaled $ 4.09 billion , compared with $ 4.00 billion for the fiscal year ended september 30 , 2017 . management analyzes comparable store sales for the 52 weeks of fiscal year 2018 with the corresponding 52 calendar weeks of fiscal year 2017. on this basis , retail comparable sales excluding gasoline increased 2.0 % during fiscal 2018 compared with 2017. the number of transactions ( excluding gasoline ) increased 0.3 % while the average transaction size ( excluding gasoline ) increased by 2.2 % . comparing fiscal 2018 with 2017 on a 52-week basis , gasoline gallons increased 2.3 % and per gallon gasoline prices increased 19.1 % . sales by product category for the fiscal years ended september 29 , 2018 and september 30 , 2017 , respectively , were as follows : replace_table_token_14_th the grocery category includes grocery , dairy and frozen foods . the non-foods category includes alcoholic beverages , tobacco , pharmacy , and health/beauty/cosmetic products . the perishables category includes meat , produce , deli and bakery . changes in retail grocery sales for the fiscal year ended september 29 , 2018 are summarized as follows ( in thousands ) : replace_table_token_15_th increased fiscal 2018 sales resulted from new and replacement store buildings , the introduction of new products and product presentation , especially in higher margin products , effective promotions and cost competitiveness . the company increased its use of the ingles advantage savings and rewards card ( the “ ingles advantage card ” ) to increase net sales and comparable store sales through enhanced loyalty programs and special offers . information obtained from holders of the ingles advantage card also assists the company in optimizing product offerings and promotions specific to customer shopping patterns . gross profit .
| net income for the fiscal year ended september 28 , 2019 was $ 81.6 million , compared with net income of $ 97.4 million for the fiscal year ended september 29 , 2018 , primarily due to the positive impact of the fiscal year 2018 deferred tax benefits . pretax income was $ 106.6 million for fiscal year 2019 , an increase of 32.7 % compared with pretax income of $ 80.3 million for fiscal year 2018 . sales and gross margin increased in the retail segment , including increases in gasoline gross profit . expenses increased primarily as a result of continued tight labor conditions in the company 's market area . fluid dairy income was level over the comparative fiscal years , and real estate income increased as the company added tenants in existing shopping centers and in acquired shopping centers where the company had previously leased a store . net sales . net sales for the fiscal year ended september 28 , 2019 totaled $ 4.20 billion , compared with $ 4.09 billion for the fiscal year ended september 29 , 2018 . 17 r etail comparable sales excluding gasoline increased 3 . 9 % during fiscal 2019 compared with 2018. the number of transactions ( excluding gasoline ) increased 0 . 9 % while the average transaction size ( excluding gasoline ) increased by 2 . 8 % . comparing fiscal 2019 with 2018 , gasoline gallons sold de creased 0 . 5 % and per gallon gasoline prices de creased 3 . 5 % . sales by product category for the fiscal years ended september 28 , 2019 and september 29 , 2018 , respectively , were as follows : replace_table_token_11_th the grocery category includes grocery , dairy and frozen foods . the non-foods category includes alcoholic beverages , tobacco , pharmacy , and health/beauty/cosmetic products . the perishables category includes meat , produce , deli and bakery . changes in retail grocery sales for
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government , funding for the purchase of our products and services generally follows trends in u.s. aerospace and defense spending . customers that represented more than 10 % of net sales for the fiscal years presented are as follows : replace_table_token_10_th sales in fiscal 2011 , 2010 , and 2009 directly and indirectly to the u.s. government and its agencies , including sales to our significant customers discussed above , totaled $ 855.8 million , $ 786.1 million , and $ 701.3 million , respectively . the standard missile program , which is included in the u.s. government sales , represented 24 % , 26 % , and 22 % of net sales for fiscal 2011 , 2010 , and 2009 , respectively . the demand for certain of our services and products is directly related to the level of funding of government programs . industry update for the government fiscal year ( gfy ) ending september 30 , 2012 and beyond , federal department/agency budgets are expected to remain under severe pressure due to the financial impacts from spending cap agreements contained in the budget control act of 2011 , as well as from ongoing military operations and the cumulative effects of annual federal budget deficits and rising u.s. federal debt . as a result , the dod budget is expected to decrease by $ 21 billion for gfy 2012 relative to the administration requested level and by $ 46 billion in the gfy 2013 budget request to be submitted by the administration in february 2012. the nasa budget will decline by $ 924 million for gfy 2012 relative to the administration 's requested level and is expected to decline slightly for gfy 2013. nevertheless , aerojet is well-positioned to benefit from continued dod investment in high priority transformational systems that address current war fighting requirements , the recapitalization of weapon systems and equipment expended during combat operations in the middle east , and systems that meet new worldwide threats . the administration has indicated a commitment to maintain adequate , albeit lower levels of funding for the dod than those experienced during the height of conflicts in the middle east while building defense capabilities for the 21st century . priority areas that impact our products include : fully equipping u.s. forces for the missions they face ; maintaining situational awareness ; preserving air supremacy ; maintaining forces at sea ; ensuring access to and freedom of space ; and developing pragmatic and cost effective missile defense systems . in 2010 , the nasa authorization act took effect impacting gfys 2011-2013. the authorization act aimed to : safely retire the space shuttle ; extend the international space station through 2020 ; continue the development of the multipurpose crew exploration vehicle ; build a new heavy lift launch vehicle ; invest in new space technologies ; and sustain and grow the science and aeronautics programs at nasa . we are well-positioned to succeed among our competitors due to our diverse offerings , innovative technologies , and existing contracts with both traditional and emerging launch providers . additionally , we are the main propulsion provider for the multipurpose crew vehicle and plan to compete for elements of the newly announced heavy lift launch vehicle . however , funding levels for both gfy 2011 and gfy 2012 were both below the authorized level , and we anticipate this trend continuing in gfy 2013. as a part of the budget control act of 2011 ( public law 112-25 ) ( the debt-ceiling and deficit-reduction compromise agreement signed into law on august 2 , 2011 ) , approximately $ 487 billion in defense spending cuts 34 over the next ten years have been initiated in gfy 2012 appropriations measures and the gfy 2013 budget request . on january 5 , 2012 , president obama , secretary of defense leon panetta and chairman of the joint chiefs general martin dempsey unveiled the new military strategy that will guide and underpin the dod 's budget decisions and global posture beginning with the gfy 2013 budget and over the next ten years . specifics of the gfy 2013 defense cuts are anticipated to become public with the submission of the president 's budget request on february 6 , 2012. since the bicameral and bipartisan congressional joint select committee on deficit reduction created by the act and charged with reducing the deficit by another $ 1.2 to $ 1.5 trillion over the ten years beginning with gfy 2013 failed to reach a compromise , additional mandatory spending caps will be triggered beginning in january 2013 if congress and the administration do not reach agreement on means to reduce the deficit by $ 1.2 trillion . additional spending cuts that may be triggered include the potential for an additional $ 500 billion over nine years in defense cuts against overall defense outlays for the period of well over $ 5 trillion . there remains a significant level of uncertainty and lack of detail available to predict specific future aerospace and defense spending . environmental matters our current and former business operations are subject to , and affected by , federal , state , local , and foreign environmental laws and regulations relating to the discharge , treatment , storage , disposal , investigation , and remediation of certain materials , substances , and wastes . our policy is to conduct our business with due regard for the preservation and protection of the environment . we continually assess compliance with these regulations and we believe our current operations are materially in compliance with all applicable environmental laws and regulations . as of november 30 , 2011 , the aggregate range of our anticipated environmental costs was $ 190.6 million to $ 333.7 million and the accrued amount was $ 190.6 million . story_separator_special_tag see note 7 ( d ) of the notes to consolidated financial statements for a summary of the environmental reserve activity for fiscal 2011. most of our environmental costs are incurred by our aerospace and defense segment , and certain of these costs are allowable to be included in our contracts with the u.s. government or reimbursable by northrop . prior to the third quarter of fiscal 2010 , approximately 12 % of such costs related to our sacramento site and our former azusa site were charged to the consolidated statements of operations . subsequent to the third quarter of fiscal 2010 , because we reached the reimbursement ceiling under the northrop agreement , approximately 37 % of such costs are expensed to the consolidated statements of operations . however , we are seeking to amend our agreement with the u.s. government to increase the amount allocable to u.s. government contracts . there can be no assurances that we will be successful in this pursuit . the inclusion of such environmental costs in our contracts with the u.s. government does impact our competitive pricing and earnings ; however , we believe that this impact is mitigated by driving improvements and efficiencies across our operations as well as our ability to deliver innovative and quality products to our customers . capital structure we have a substantial amount of debt for which we are required to make interest and principal payments . interest on long-term financing is not a recoverable cost under our u.s. government contracts . as of november 30 , 2011 and 2010 , we had $ 326.4 million and $ 396.7 million of debt principal , respectively . retirement benefits as of the last measurement date at november 30 , 2011 , our total defined benefit pension plan assets , total projected benefit obligations , and unfunded pension obligation for our qualified pension plan were approximately $ 1,296.8 million , $ 1,550.4 million , and $ 236.4 million , respectively . the pension protection act ( the ppa ) requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the funded status of the plan as of specified measurement dates . our funded ratio as of november 30 , 2010 under the ppa for our tax-qualified defined benefit pension plan was 96.2 % which was above the 96.0 % funding target ratio required under the ppa . the required funded ratio to be met as of the november 30 , 2011 measurement 35 date is 100 % . while the final calculated ppa funded ratio as of november 30 , 2011 is expected to be completed in the second half of 2012 , we do not anticipate meeting the 100 % requirement which could trigger funding requirements in the future , but not prior to 2013 , which is the earliest possible date funding would be required . we do not expect to make significant contributions to the tax-qualified defined benefit pension plan in 2012. see additional discussion at note 6 in notes to consolidated financial statements . we have accumulated $ 59.5 million in prepayment credits as of november 30 , 2011. companies may prepay contributions and , under certain circumstances , use those prepayment credits to satisfy the required funding of the pension plan 's annual required contribution thereby allowing companies to defer cash payments into the pension plan . further , with the office of federal procurement policy issuance of the final rule harmonizing cas 412 , composition and measurement of pension cost , and cas 413 , adjustment and allocation of pension cost with the ppa , on december 27 , 2011 , we expect to recover portions of any required pension funding through our government contracts on a more favorable basis . we are currently evaluating the impact of the harmonization of cas 412 and cas 413 on our financial statements . the funded status of the pension plan may be adversely affected by the investment experience of the plan 's assets , by any changes in u.s. law and by changes in the statutory interest rates used by tax-qualified pension plans in the u.s. to calculate funding requirements . accordingly , if the performance of our plan 's assets does not meet our assumptions , if there are changes to the internal revenue service regulations or other applicable law or if other actuarial assumptions are modified , our future contributions to our underfunded pension plan could be higher than we expect . in addition , changes to the discount rate used to measure pension liabilities could adversely affect the funded status of the plan . implementation of erp system during fiscal 2010 , we conducted a thorough review of the business to assess the effectiveness of our current business processes and supporting information systems . after extensive study and analysis , we determined that there are many potential benefits from the investment in a state-of-the-art erp system . the benefits will be achieved through the integration of our data and processes into one single system based upon industry best business practices . we engaged a consulting firm to work with us to evaluate which erp system would provide us with the best business value while maximizing the long-term benefits . the analysis included multiple factors such as how the system would improve operational affordability , organizational alignment , transactional efficiency , and flexibility to adapt to future business opportunities . we selected oracle as our erp solution and work began on the project in fiscal 2011. we have committed a full-time cross-functional team of employees to work with our erp partner and our systems integrator . this team is responsible for ensuring that the system configuration is consistent with our business requirements and best business practices , coordinating data migration , addressing change management issues , testing controls , resolving implementation issues and developing a user training program .
| during fiscal 2010 , approximately 50 % of our net sales were from fixed-price contracts , 43 % from cost reimbursable contracts , and 7 % from other sales including commercial contracts and real estate activities . during fiscal 2009 , approximately 51 % of our net sales were from fixed-price contracts , 37 % from cost reimbursable contracts , and 12 % from other sales including commercial contracts and real estate activities . cost of sales ( exclusive of items shown separately below ) replace_table_token_13_th * primary reason for change . the decrease in costs of sales as a percentage of net sales was primarily driven by lower non-cash aerospace and defense retirement benefit plan expense of $ 8.3 million . see discussion of retirement benefit plans below . * * primary reason for change . the increase in costs of sales as a percentage of net sales was primarily due to an increase of $ 37.2 million of non-cash aerospace and defense retirement benefit plan expense in the fiscal 2010 compared to the prior period . see discussion of retirement benefit plans below . the increase in retirement benefit plan expense was partially offset by overall improvement in contract performance due to lower overhead expenses and higher sales . the decrease in overhead costs in fiscal 2010 is a result of cost saving initiatives implemented by management . selling , general and administrative ( sg & a ) replace_table_token_14_th * primary reason for change . the increase in sg & a expense is primarily due to an increase of $ 12.8 million of non-cash corporate retirement benefit plan expenses . see discussion of retirement benefit plans below . additionally , stock-based compensation increased by $ 3.3 million in the current period compared to the prior period primarily due to changes in the fair value of the stock appreciation rights and stock awards granted in november 2010 and march 2011 . 38 * * primary reason for change . the increase in sg & a expense was primarily due to an increase of $ 16.6 million of non-cash corporate retirement benefit plan expense . see discussion of retirement benefit plans below . depreciation and amortization replace_table_token_15_th * primary reason
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the company currently pays the health network , inc. $ 0.00 per month as a general operating fee , which covers use of the office space , use of certain equipment , and various other services . consulting agreements the company has entered into a consulting agreement with mr. howell whereby the company agreed to pay mr. howell $ 10,000 per month . the consulting agreement may be terminated at will by the company . the company intends to continue to engage mr. howell as a consultant until his consulting services are no longer required . director independence the company is not listed on any national exchange , or quoted on any inter-dealer quotation service , that imposes independence requirements on any committee of the company 's directors , such as an audit , nominating or compensation committee . the company 's board of directors consists of ron howell , who is not independent . page 25 item 14. principal accounting fees and services the following is a summary of the fees paid to sadler , gibb & associates llc , the company 's independent public accounting firm , during the fiscal years ended december 31 , 2016 and 2017 . 2017 2016 audit fees $ 10,500 $ 13,500 audit-related fees - - tax fees - - all other fees - - total $ 10,500 $ 13,500 audit committee pre-approval of services of principal accountants we do not currently have an audit committee appointed by the board of directors and the full board of directors did not vote on whether any non-audit services impacted our auditor 's independence . we currently do not have any policy for approval of audit and permitted non-audit services by our independent auditor . we plan to appoint an audit committee by our board of directors and adopt procedures for approval of audit and non-audit services . page 26 part iv item 16. exhibits and financial statement schedules financial statements and schedules . the following consolidated financial statements of hst global , inc. are included herein beginning on page f-9 : · report of independent registered public accounting firm · consolidated balance sheets as of december 31 , 2017 and 2016 · consolidated statements of operations for the years ended december 31 , 2017 , and 2016 · consolidated statements of changes in stockholders ' interest for the years ended december 31 , 2017 and 2016 · consolidated statements of cash flows for the years ended december 31 , 2017 and 2016 · notes to consolidated financial statements exhibits the following exhibits are included herein : exhibit no . description 31.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 31.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 32.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 32.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 101 interactive data files signatures pursuant to the requirements of section 13 or 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 . hst global , inc. ( the registrant ) by : \s\ ron howell ron howell chief executive officer date : april 2 , 2017 page 27 story_separator_special_tag forward-looking statements statements about our future expectations are `` forward-looking statements '' within the meaning of applicable federal securities laws , and are not guarantees of future performance . when used herein , the words `` may , '' `` will , '' `` should , '' `` anticipate , '' `` believe , '' `` appear , '' `` intend , '' `` plan , '' `` expect , '' `` estimate , '' `` approximate , '' and similar expressions are intended to identify such forward-looking statements . these statements involve risks and uncertainties inherent in our business , including those set forth in item 1a under the caption `` risk factors , '' in this annual report on form 10-k for the year ended december 31 , 2017 , and other filings with the sec , and are subject to change at any time . our actual results could differ materially from these forward-looking statements . we undertake no obligation to update publicly any forward-looking statement . overview hst global , inc. is an integrated health and wellness biotechnology company that is developing and /or acquiring a network of wellness centers worldwide that are primarily focused on the homeopathic and alternative treatment of late stage cancer . in addition , the company intends to acquire innovative products for the treatment of individual health challenges . in this regard , the company primarily focuses on homeopathic and alternative product candidates that are undergoing or have already completed significant clinical testing . the company has identified the growing acceptance of alternative treatments worldwide which has placed us in a perfect position to open our own brand of treatment centers . this strategy will enable the company to address the challenges individuals face in the treatment challenging and in some cases life threatening diseases . plan of operation general and administrative expenses consist primarily of salaries and related personnel costs , professional fees , business insurance , rent , general legal activities , and other corporate expenses . we have never been profitable and do not anticipate having net income unless and until we develop and or acquire our wellness centers and story_separator_special_tag the company currently pays the health network , inc. $ 0.00 per month as a general operating fee , which covers use of the office space , use of certain equipment , and various other services . consulting agreements the company has entered into a consulting agreement with mr. howell whereby the company agreed to pay mr. howell $ 10,000 per month . the consulting agreement may be terminated at will by the company . the company intends to continue to engage mr. howell as a consultant until his consulting services are no longer required . director independence the company is not listed on any national exchange , or quoted on any inter-dealer quotation service , that imposes independence requirements on any committee of the company 's directors , such as an audit , nominating or compensation committee . the company 's board of directors consists of ron howell , who is not independent . page 25 item 14. principal accounting fees and services the following is a summary of the fees paid to sadler , gibb & associates llc , the company 's independent public accounting firm , during the fiscal years ended december 31 , 2016 and 2017 . 2017 2016 audit fees $ 10,500 $ 13,500 audit-related fees - - tax fees - - all other fees - - total $ 10,500 $ 13,500 audit committee pre-approval of services of principal accountants we do not currently have an audit committee appointed by the board of directors and the full board of directors did not vote on whether any non-audit services impacted our auditor 's independence . we currently do not have any policy for approval of audit and permitted non-audit services by our independent auditor . we plan to appoint an audit committee by our board of directors and adopt procedures for approval of audit and non-audit services . page 26 part iv item 16. exhibits and financial statement schedules financial statements and schedules . the following consolidated financial statements of hst global , inc. are included herein beginning on page f-9 : · report of independent registered public accounting firm · consolidated balance sheets as of december 31 , 2017 and 2016 · consolidated statements of operations for the years ended december 31 , 2017 , and 2016 · consolidated statements of changes in stockholders ' interest for the years ended december 31 , 2017 and 2016 · consolidated statements of cash flows for the years ended december 31 , 2017 and 2016 · notes to consolidated financial statements exhibits the following exhibits are included herein : exhibit no . description 31.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 31.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 32.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 32.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 101 interactive data files signatures pursuant to the requirements of section 13 or 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 . hst global , inc. ( the registrant ) by : \s\ ron howell ron howell chief executive officer date : april 2 , 2017 page 27 story_separator_special_tag forward-looking statements statements about our future expectations are `` forward-looking statements '' within the meaning of applicable federal securities laws , and are not guarantees of future performance . when used herein , the words `` may , '' `` will , '' `` should , '' `` anticipate , '' `` believe , '' `` appear , '' `` intend , '' `` plan , '' `` expect , '' `` estimate , '' `` approximate , '' and similar expressions are intended to identify such forward-looking statements . these statements involve risks and uncertainties inherent in our business , including those set forth in item 1a under the caption `` risk factors , '' in this annual report on form 10-k for the year ended december 31 , 2017 , and other filings with the sec , and are subject to change at any time . our actual results could differ materially from these forward-looking statements . we undertake no obligation to update publicly any forward-looking statement . overview hst global , inc. is an integrated health and wellness biotechnology company that is developing and /or acquiring a network of wellness centers worldwide that are primarily focused on the homeopathic and alternative treatment of late stage cancer . in addition , the company intends to acquire innovative products for the treatment of individual health challenges . in this regard , the company primarily focuses on homeopathic and alternative product candidates that are undergoing or have already completed significant clinical testing . the company has identified the growing acceptance of alternative treatments worldwide which has placed us in a perfect position to open our own brand of treatment centers . this strategy will enable the company to address the challenges individuals face in the treatment challenging and in some cases life threatening diseases . plan of operation general and administrative expenses consist primarily of salaries and related personnel costs , professional fees , business insurance , rent , general legal activities , and other corporate expenses . we have never been profitable and do not anticipate having net income unless and until we develop and or acquire our wellness centers and
| results of operations the company had no revenues and no cost of revenues for the years ended december 31 , 2017 and 2016. the company incurred operating expenses of $ 152,995 for the year ended december 31 , 2017 , compared to $ 137,274 in 2016. the increase in expenses in 2017 was primarily a result of an increase in administrative expenses . we do not believe these costs are indicative of future years , and we can not at this time predict our costs if and when we begin earning revenues and exit the start-up stage . the company had a net loss of $ 165,092 in the year ended december 31 , 2017 compared to $ 173,022 in 2016. this is primarily a result of increase in administrative expenses . we believe the net profits of the company are the result of being in the development stage , and are not indicative of future earnings once we exit the development stage . liquidity and capital resources our capital requirements are principally related to our efforts to implement our business plan . our cash balance as of december 31 , 2017 was $ 291. cash flows replace_table_token_0_th the company does not currently have sufficient capital in its accounts , nor sufficient firm commitments for capital to assure its ability to meet its current obligations or to continue its planned operations . the company is continuing to pursue working capital and additional revenue through the seeking of the capital it needs to carry on its planned operations . there is no assurance that any of the planned activities will be successful . off-balance sheet arrangements
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we expect spending in technology and content will increase over time as we add computer scientists , designers , software and hardware engineers , and merchandising employees . our technology and content investment and capital spending projects often support a variety of product and service offerings due to geographic expansion and the cross-functionality of our systems and operations . we seek to invest efficiently in several areas of technology and content , including aws , and expansion of new and existing product categories and service offerings , as well as in technology infrastructure to enhance the customer experience and improve our process efficiencies . we believe that advances in technology , specifically the speed and reduced cost of processing power and the advances of wireless connectivity , will continue to improve the consumer experience on the internet and increase its ubiquity in people 's lives . to best take advantage of these continued advances in technology , we are investing in initiatives to build and deploy innovative and efficient software and electronic devices . we are also investing in aws , which offers a broad set of global compute , storage , database , and other service offerings to developers and enterprises of all sizes . we seek to efficiently manage shareholder dilution while maintaining the flexibility to issue shares for strategic purposes , such as financings , acquisitions , and aligning employee compensation with shareholders ' interests . we utilize restricted stock units as our primary vehicle for equity compensation because we believe this compensation model aligns the long-term interests of our shareholders and employees . in measuring shareholder dilution , we include all vested and unvested stock awards outstanding , without regard to estimated forfeitures . total shares outstanding plus outstanding stock awards were 490 million and 497 million as of december 31 , 2015 and 2016. our financial reporting currency is the u.s. dollar and changes in foreign exchange rates significantly affect our reported results and consolidated trends . for example , if the u.s. dollar weakens year-over-year relative to currencies in our international locations , our consolidated net sales and operating expenses will be higher than if currencies had remained constant . likewise , if the u.s. dollar strengthens year-over-year relative to currencies in our international locations , our consolidated net sales and operating expenses will be lower than if currencies had remained constant . we believe that our increasing diversification beyond the u.s. economy through our growing international businesses benefits our shareholders over the long-term . we also believe it is useful to evaluate our operating results and growth rates before and after the effect of currency changes . in addition , the remeasurement of our intercompany balances can result in significant gains and losses associated with the effect of movements in foreign currency exchange rates . currency volatilities may continue , which may significantly impact ( either positively or negatively ) our reported results and consolidated trends and comparisons . for additional information about each line item summarized above , refer to item 8 of part ii , “ financial statements and supplementary data—note 1—description of business and accounting policies. ” _ ( 3 ) the operating cycle is the number of days of sales in inventory plus the number of days of sales in accounts receivable minus accounts payable days . 19 critical accounting judgments the preparation of financial statements in conformity with generally accepted accounting principles of the united states ( “ gaap ” ) requires estimates and assumptions that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes . the sec has defined a company 's critical accounting policies as the ones that are most important to the portrayal of the company 's financial condition and results of operations , and which require the company to make its most difficult and subjective judgments , often as a result of the need to make estimates of matters that are inherently uncertain . based on this definition , we have identified the critical accounting policies and judgments addressed below . we also have other key accounting policies , which involve the use of estimates , judgments , and assumptions that are significant to understanding our results . for additional information , see item 8 of part ii , “ financial statements and supplementary data—note 1—description of business and accounting policies. ” although we believe that our estimates , assumptions , and judgments are reasonable , they are based upon information presently available . actual results may differ significantly from these estimates under different assumptions , judgments , or conditions . inventories inventories , consisting of products available for sale , are primarily accounted for using the first-in first-out method , and are valued at the lower of cost or market value . this valuation requires us to make judgments , based on currently available information , about the likely method of disposition , such as through sales to individual customers , returns to product vendors , or liquidations , and expected recoverable values of each disposition category . these assumptions about future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future . as a measure of sensitivity , for every 1 % of additional inventory valuation allowance as of december 31 , 2016 , we would have recorded an additional cost of sales of approximately $ 130 million . in addition , we enter into supplier commitments for certain electronic device components . these commitments are based on forecasted customer demand . if we reduce these commitments , we may incur additional costs . income taxes we are subject to income taxes in the u.s. ( federal and state ) and numerous foreign jurisdictions . story_separator_special_tag tax laws , regulations , and administrative practices in various jurisdictions may be subject to significant change , with or without notice , due to economic , political , and other conditions , and significant judgment is required in evaluating and estimating our provision and accruals for these taxes . there are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain . our effective tax rates could be affected by earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates , losses incurred in jurisdictions for which we are not able to realize the related tax benefit , changes in foreign currency exchange rates , entry into new businesses and geographies and changes to our existing businesses , acquisitions ( including integrations ) and investments , changes in our stock price , changes in our deferred tax assets and liabilities and their valuation , and changes in the relevant tax , accounting , and other laws , regulations , administrative practices , principles , and interpretations , including fundamental changes to the tax laws applicable to corporate multinationals . the u.s. , the european union and its member states , and a number of other countries are actively pursuing changes in this regard . except as required under u.s. tax laws , we do not provide for u.s. taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed since we intend to invest such undistributed earnings indefinitely outside of the u.s. if our intent changes or if these funds are needed for our u.s. operations , we would be required to accrue or pay u.s. taxes on some or all of these undistributed earnings and our effective tax rate would be adversely affected . we are also currently subject to audit in various jurisdictions , and these jurisdictions may assess additional income tax liabilities against us . developments in an audit , litigation , or the relevant laws , regulations , administrative practices , principles , and interpretations could have a material effect on our operating results or cash flows in the period or periods for which that development occurs , as well as for prior and subsequent periods . for instance , the irs is seeking to increase our u.s. taxable income related to transfer pricing with our foreign subsidiaries for transactions undertaken in 2005 and 2006 , and we are currently contesting the matter in u.s. tax court . in addition to the risk of additional tax for 2005 and 2006 transactions , if this litigation is adversely determined or if the irs were to seek transfer pricing adjustments of a similar nature for transactions in subsequent years , we could be subject to significant additional tax liabilities . in addition , in october 2014 , the european commission opened a formal investigation to examine whether decisions by the tax authorities in luxembourg with regard to the corporate income tax paid by certain of our subsidiaries comply with european union rules on state aid . if this matter is adversely resolved , luxembourg may be required to assess , and we may be required to pay , additional amounts with respect to current and prior periods and our taxes in the future could increase . although we believe our tax estimates are reasonable , the final outcome of tax audits , investigations , and any related litigation could be materially different from our historical income tax provisions and accruals . 20 recent accounting pronouncements see item 8 of part ii , “ financial statements and supplementary data—note 1—description of business and accounting policies—recent accounting pronouncements. ” liquidity and capital resources cash flow information is as follows ( in millions ) : replace_table_token_4_th our principal sources of liquidity are cash flows generated from operations and our cash , cash equivalents , and marketable securities balances , which , at fair value , were $ 17.4 billion , $ 19.8 billion , and $ 26.0 billion as of december 31 , 2014 , 2015 , and 2016 . amounts held in foreign currencies were $ 5.4 billion , $ 7.3 billion , and $ 9.1 billion , as of december 31 , 2014 , 2015 , and 2016 , and were primarily euros , japanese yen , and british pounds . cash provided by ( used in ) operating activities was $ 6.8 billion , $ 11.9 billion , and $ 16.4 billion in 2014 , 2015 , and 2016 . our operating cash flows result primarily from cash received from our consumer , seller , developer , enterprise , and content creator customers , advertising agreements , and our co-branded credit card agreements , offset by cash payments we make for products and services , employee compensation ( less amounts capitalized related to internal-use software that are reflected as cash used in investing activities ) , payment processing and related transaction costs , operating leases , and interest payments on our long-term obligations . cash received from our customers and other activities generally corresponds to our net sales . because consumers primarily use credit cards to buy from us , our receivables from consumers settle quickly . the increase in operating cash flow in 2015 , compared to the comparable prior year period , was primarily due to the increase in net income , excluding non-cash charges such as depreciation , amortization , and stock-based compensation , and changes in working capital . the increase in operating cash flow in 2016 , compared to the comparable prior year period , was primarily due to the increase in net income , excluding non-cash charges such as depreciation , amortization , and stock-based compensation . cash provided by ( used in ) operating activities is also subject to changes in working capital .
| increased unit sales were driven largely by our continued efforts to reduce prices for our customers , including from our shipping offers , sales in faster growing categories such as electronics and other general merchandise , increased in-stock inventory availability , and increased selection of product offerings . international sales increased 12 % , 6 % , and 24 % in 2014 , 2015 , and 2016 , compared to the comparable prior year periods . the sales growth in each year primarily reflects increased unit sales , including sales by marketplace sellers . changes in foreign currency exchange rates impacted international net sales by $ ( 580 ) million , $ ( 5.0 ) billion , and $ ( 489 ) million in 2014 , 2015 , and 2016 . increased unit sales were driven largely by our continued efforts to reduce prices for our customers , including from 23 our shipping offers , sales in faster growing categories such as electronics and other general merchandise , increased in-stock inventory availability , and increased selection of product offerings . aws sales increased 49 % , 70 % , and 55 % in 2014 , 2015 , and 2016 , compared to the comparable prior year periods . the sales growth primarily reflects increased customer usage , partially offset by pricing changes . pricing changes were driven largely by our continued efforts to reduce prices for our customers . operating income ( loss ) operating income ( loss ) by segment is as follows ( in millions ) : replace_table_token_6_th operating income was $ 178 million , $ 2.2 billion , and $ 4.2 billion for 2014 , 2015 , and 2016 . we believe that operating income ( loss ) is a more meaningful measure than gross profit and gross margin due to the diversity of our product categories and services . the increase in north america operating income in absolute dollars in 2014 , 2015 , and 2016 , compared to the comparable prior year periods , is primarily due to increased unit sales , including sales by marketplace sellers , partially offset by increased
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our significant accounting policies are more fully described in note 1 to our consolidated financial statements included elsewhere in this annual report on form 10-k. our most critical accounting estimates include research , development and patent expenses which impacts operating expenses and accrued liabilities , stock-based compensation which impacts operating expenses and goodwill and purchased intangibles . we review our estimates and assumptions periodically and reflect the effects of revisions in the period in which they are deemed to be necessary . we believe that the following accounting policies are critical to the judgments and estimates used in preparation of our consolidated financial statements . research , development and patent expenses our research , development and patents expenses consist primarily of license fees related to our product candidates , salaries and related employee benefits , costs associated with the preclinical and clinical development of 56 our product development programs , costs associated with non-clinical activities , such as regulatory expenses , and pre-commercialization manufacturing development activities . we use external service providers to manufacture our compounds to be used in clinical trials and for the majority of the services performed in connection with the preclinical and clinical development of our product candidates . research , development and patents expenses include fees paid to consultants , contract research organizations , contract manufacturers and other external service providers , including professional fees and costs associated with legal services , patents and patent applications for our intellectual property . internal research and development expenses include costs of compensation and other expenses for research and development personnel , supplies , facility costs and depreciation . to date , our accrued research , development and patent expenses have not differed significantly from the actual expenses incurred . the following table summarizes our research , development and patent expenses for the periods indicated for each of our product development programs . to the extent that costs , including personnel costs , are not tracked to a specific product development program , such costs are included in the “ other r & d expense ” category ( in thousands ) : replace_table_token_1_th stock-based compensation we use the black-scholes option pricing model to estimate the fair value of stock option awards including performance-based options . the black-scholes model requires the use of highly subjective and complex assumptions , including the company 's stock price , expected volatility , expected term , risk-free interest rate , and expected dividend yield . for expected volatility , we base the assumption on the historical volatility of the company 's common stock . the expected term of the awards is based on historical data regarding employees ' option exercise behaviors . the risk-free interest rate assumption is based on observed interest rates appropriate for the terms of the awards . the dividend yield assumption is based on the company 's history and expectation of dividend payouts . only expenses associated with awards that are ultimately expected to vest are included in our financial statements . changes to our estimations and assumptions could have a significant impact on the stock-based compensation amount recognized . in-process research and development ( “ ipr & d ” ) and goodwill as a result of our acquisitions we have recorded goodwill and other identifiable finite and indefinite lived acquired intangibles . the identification and valuation of these intangible assets at the time of acquisition require significant management judgment and estimates , including the amount and timing of future cash flows , growth rates , discount rates and useful lives . we review ipr & d and goodwill for impairment annually or more frequently whenever events or changes in circumstances indicate that the carrying amount of the asset might not be recoverable . when evaluating for impairment of indefinite lived intangible assets , we may first perform a qualitative assessment to determine whether it is more likely than not that our indefinite-lived intangible assets are impaired . the criteria used for these evaluations include management 's estimate of the asset 's continuing ability to generate income from operations and positive cash flows in future periods , business and economic trends as well as the strategic significance of any 57 intangible assets in our business objectives . additionally , we consider the reasonableness of the various inputs and assumption s used in determining the ipr & d fair value , including a probability of success factor , a debt free working capital requirement , costs to complete , our tax rate , peak sales years , potential market size , a royalty rate and any up-front milestone revenue payments . if assets are considered to be impaired , the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets . recent accounting pronouncements the impact of recent accounting pronouncements is more fully described in note 1 of our consolidated financial statements included elsewhere in this annual report on form 10-k. story_separator_special_tag p style= '' background-color : # ffffff ; margin-bottom:0pt ; margin-top:0pt ; text-indent:0 % ; color : # 000000 ; font-size:1pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > factors that may affect future financial condition and liquidity as of december 31 , 2020 , we had available cash and cash equivalents of $ 60.0 million and working capital of $ 58.5 million . on january 29 , 2021 we sold and issued 3,656,307 shares of our common stock at a price of $ 5.47 per share for approximately $ 20 million in gross proceeds in a private placement of stock . as of the date of this report , we believe we have sufficient working capital to fund operations at least through the end of 2022. our future funding requirements will depend on many factors , including , but not limited to : progress in , and the costs of story_separator_special_tag our significant accounting policies are more fully described in note 1 to our consolidated financial statements included elsewhere in this annual report on form 10-k. our most critical accounting estimates include research , development and patent expenses which impacts operating expenses and accrued liabilities , stock-based compensation which impacts operating expenses and goodwill and purchased intangibles . we review our estimates and assumptions periodically and reflect the effects of revisions in the period in which they are deemed to be necessary . we believe that the following accounting policies are critical to the judgments and estimates used in preparation of our consolidated financial statements . research , development and patent expenses our research , development and patents expenses consist primarily of license fees related to our product candidates , salaries and related employee benefits , costs associated with the preclinical and clinical development of 56 our product development programs , costs associated with non-clinical activities , such as regulatory expenses , and pre-commercialization manufacturing development activities . we use external service providers to manufacture our compounds to be used in clinical trials and for the majority of the services performed in connection with the preclinical and clinical development of our product candidates . research , development and patents expenses include fees paid to consultants , contract research organizations , contract manufacturers and other external service providers , including professional fees and costs associated with legal services , patents and patent applications for our intellectual property . internal research and development expenses include costs of compensation and other expenses for research and development personnel , supplies , facility costs and depreciation . to date , our accrued research , development and patent expenses have not differed significantly from the actual expenses incurred . the following table summarizes our research , development and patent expenses for the periods indicated for each of our product development programs . to the extent that costs , including personnel costs , are not tracked to a specific product development program , such costs are included in the “ other r & d expense ” category ( in thousands ) : replace_table_token_1_th stock-based compensation we use the black-scholes option pricing model to estimate the fair value of stock option awards including performance-based options . the black-scholes model requires the use of highly subjective and complex assumptions , including the company 's stock price , expected volatility , expected term , risk-free interest rate , and expected dividend yield . for expected volatility , we base the assumption on the historical volatility of the company 's common stock . the expected term of the awards is based on historical data regarding employees ' option exercise behaviors . the risk-free interest rate assumption is based on observed interest rates appropriate for the terms of the awards . the dividend yield assumption is based on the company 's history and expectation of dividend payouts . only expenses associated with awards that are ultimately expected to vest are included in our financial statements . changes to our estimations and assumptions could have a significant impact on the stock-based compensation amount recognized . in-process research and development ( “ ipr & d ” ) and goodwill as a result of our acquisitions we have recorded goodwill and other identifiable finite and indefinite lived acquired intangibles . the identification and valuation of these intangible assets at the time of acquisition require significant management judgment and estimates , including the amount and timing of future cash flows , growth rates , discount rates and useful lives . we review ipr & d and goodwill for impairment annually or more frequently whenever events or changes in circumstances indicate that the carrying amount of the asset might not be recoverable . when evaluating for impairment of indefinite lived intangible assets , we may first perform a qualitative assessment to determine whether it is more likely than not that our indefinite-lived intangible assets are impaired . the criteria used for these evaluations include management 's estimate of the asset 's continuing ability to generate income from operations and positive cash flows in future periods , business and economic trends as well as the strategic significance of any 57 intangible assets in our business objectives . additionally , we consider the reasonableness of the various inputs and assumption s used in determining the ipr & d fair value , including a probability of success factor , a debt free working capital requirement , costs to complete , our tax rate , peak sales years , potential market size , a royalty rate and any up-front milestone revenue payments . if assets are considered to be impaired , the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets . recent accounting pronouncements the impact of recent accounting pronouncements is more fully described in note 1 of our consolidated financial statements included elsewhere in this annual report on form 10-k. story_separator_special_tag p style= '' background-color : # ffffff ; margin-bottom:0pt ; margin-top:0pt ; text-indent:0 % ; color : # 000000 ; font-size:1pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > factors that may affect future financial condition and liquidity as of december 31 , 2020 , we had available cash and cash equivalents of $ 60.0 million and working capital of $ 58.5 million . on january 29 , 2021 we sold and issued 3,656,307 shares of our common stock at a price of $ 5.47 per share for approximately $ 20 million in gross proceeds in a private placement of stock . as of the date of this report , we believe we have sufficient working capital to fund operations at least through the end of 2022. our future funding requirements will depend on many factors , including , but not limited to : progress in , and the costs of
| 58 the following table shows a summary of our cash flows for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_2_th equity financing on may 22 , 2015 , we entered into an at-the-market issuance sales agreement ( the “ 2015 atm agreement ” ) with mlv & co. llc ( mlv ) , pursuant to which we could sell common stock through mlv from time to time up to an aggregate offering price of $ 30.0 million . sales of our common stock through mlv , if any , were to be made by any method that is deemed to be an “ at-the-market ” equity offering as defined in rule 415 promulgated under the securities act of 1933 , as amended , including sales made directly on nasdaq , on any other existing trading market for the common stock or to or through a market maker . mlv could also sell the common stock in privately negotiated transactions , subject to our prior approval . we agreed to pay mlv an aggregate commission rate of up to 4.0 % of the gross proceeds of any common stock sold under this agreement . proceeds from sales of common stock depended on the number of shares of common stock sold to mlv and the per share purchase price of each transaction . we were not obligated to make any sales of common stock under the sales agreement and could terminate the sales agreement at any time upon written notice . on september 16 , 2016 , we entered into an amendment no . 1 to the 2015 atm agreement with mlv to also include fbr capital markets & co ( fbr ) as a sales agent . the 2015 atm agreement was terminated on august 23 , 2019. on august 23 , 2019 , we entered into an at market issuance sales agreement ( the “ 2019 atm agreement ” ) with b. riley fbr , inc. ( b. riley fbr ) pursuant to which we may sell common stock through b. riley fbr from time
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included in the 40 industrial properties sold during the year ended december 31 , 2019 was a gain related to the reclassification of an operating lease to a sales-type lease which was triggered by a tenant that exercised an option in its lease to purchase a 0.6 million square foot building from us located in the phoenix market . the sale of this property occurred during the year ended december 31 , 2020. interest expense increased $ 1.0 million , or 2.0 % , primarily due to an increase in the weighted average debt balance outstanding for the year ended december 31 , 2020 ( $ 1,593.5 million ) as compared to the year ended december 31 , 2019 ( $ 1,397.6 million ) , offset by an increase in capitalized interest of $ 1.1 million for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 , as well as a decrease in the weighted average interest rate for the year ended december 31 , 2020 ( 3.65 % ) as compared to the year ended december 31 , 2019 ( 4.01 % ) . amortization of debt issuance costs increased $ 0.2 million , or 6.5 % , primarily due to debt issuance costs incurred related to the refinancing of a $ 200 million unsecured term loan in july 2020 , the issuance of $ 150.0 million of private placement notes in july 2019 and the issuance of $ 300.0 million of private placement notes in september 2020. equity in income of joint ventures for the year ended december 31 , 2020 decreased $ 12.0 million , or 74.1 % primarily due to a decrease in our pro-rata share of gain related to the sale of real estate and accrued incentive fees during the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. income tax expense decreased $ 1.0 million , or 29.3 % , primarily due to a decrease in our pro-rata share of gain from the sale of real estate by the joint ventures as well as accrued incentive fees we earned from the joint ventures . our equity ownership in the joint ventures is owned through a wholly-owned trs . 34 comparison of year ended december 31 , 2019 to year ended december 31 , 2018 a discussion of changes in our results of operations between 2019 and 2018 can be found in `` item 7 - management 's discussion and analysis of financial condition and results of operations - comparison of year ended december 31 , 2019 to year ended december 31 , 2018 '' of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2019. critical accounting policies a critical accounting policy is one that involves an estimate or assumption that is subjective and requires management judgment about the effect of a matter that is inherently uncertain and material to an entity 's financial condition and results of operations . of the significant accounting policies discussed in note 2 to the consolidated financial statements , we believe the the following policies relate to the more significant judgments and estimates used in the preparation of our consolidated financial statements : acquisitions of real estate assets : we allocate the purchase price of acquired real estate , including real estate acquired as a portfolio , based upon the fair value of the assets acquired and liabilities assumed , which generally consists of land , buildings , tenant improvements , construction in progress , leasing commissions and lease intangibles including in-place leases and above market and below market lease assets and liabilities . the purchase price is allocated to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant . the determination of fair value includes the use of significant assumptions such as land comparables , discount rates , terminal capitalization rates and market rent assumptions . acquired above and below market lease intangibles are valued based on the present value of the difference between prevailing market rental rates and the in-pace rental rates measured over a period equal to the remaining term of the lease for above market leases or the remaining term of the lease plus the term of any below market fixed rate renewal options for below market leases . the purchase price is further allocated to in-place lease values based on an estimate of the lease revenue received during a reasonable lease-up period as if the property was vacant on the date of acquisition . impairment of real estate assets : we review our tangible and intangible real estate assets held for use for possible impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable . the judgments regarding the existence of indicators of impairment are based on the operating performance , market conditions , as well as our ability to hold and our intent with regard to each property . the judgments regarding whether the carrying amounts of these assets may not be recoverable are based on estimates of future undiscounted cash flows from properties which include estimates of future operating performance and market conditions . if any real estate investment is considered permanently impaired , a loss is recorded to reduce the carrying value of the property to its estimated fair value . the impairment assessment and fair value measurement requires the use of estimates and assumptions related to the timing and amounts of cash flow projections , discount rates and terminal capitalization rates . 35 liquidity and capital resources at december 31 , 2020 , our cash and cash equivalents and restricted cash were approximately $ 162.1 million and $ 37.6 million , respectively . restricted cash is comprised of gross proceeds from the sales of certain industrial properties . these sale proceeds will be disbursed as we exchange industrial properties under section 1031 of the code . story_separator_special_tag we also had $ 724.6 million available for additional borrowings under our unsecured credit facility as of december 31 , 2020. we have considered our short-term ( through december 31 , 2021 ) liquidity needs and the adequacy of our estimated cash flow from operations and other expected liquidity sources to meet these needs . we have a $ 200.0 million term loan maturing in july 2021. in connection with this maturity , we have two , one-year extension options at our election , subject to the satisfaction of certain conditions . also , our unsecured credit facility matures in october 2021 ; however , it is extendable for one year , at our election , subject to the satisfaction of certain conditions . lastly , we have $ 58.8 million in mortgage loans payable outstanding at december 31 , 2020 maturing in october 2021. we expect to satisfy these payment obligations on or prior to the maturity dates by extending the term of the unsecured credit facility and or the $ 200.0 million term loan or through the issuance of other debt or equity securities . with the exception of the $ 200.0 million term loan , the unsecured credit facility and the mortgage maturities , we believe that our principal short-term liquidity needs are to fund normal recurring expenses , property acquisitions , developments , renovations , expansions and other nonrecurring capital improvements , debt service requirements , the minimum distributions required to maintain the company 's reit qualification under the code and distributions approved by the company 's board of directors . we anticipate that these needs will be met with cash flows provided by operating activities as well as the disposition of select assets . these needs may also be met by the issuance of other debt or equity securities , subject to market conditions or borrowings under our unsecured credit facility . we expect to meet long-term ( after december 31 , 2021 ) liquidity requirements such as property acquisitions , developments , scheduled debt maturities , major renovations , expansions and other nonrecurring capital improvements through long-term unsecured and secured indebtedness , the disposition of select assets and the issuance of additional equity or debt securities , subject to market conditions . as of february 15 , 2021 , we had approximately $ 724.6 million available for additional borrowings under our unsecured credit facility . our unsecured credit facility contains certain financial covenants including limitations on incurrence of debt and debt service coverage . our access to borrowings may be limited if we fail to meet any of these covenants . we believe that we were in compliance with our financial covenants as of december 31 , 2020 , and we anticipate that we will be able to operate in compliance with our financial covenants in 2021. as of december 31 , 2020 , our senior unsecured notes have been assigned credit ratings from standard & poor 's , moody 's and fitch ratings of bbb/stable , baa2/stable and bbb/stable , respectively . a securities rating is not a recommendation to buy , sell or hold securities and is subject to revision or withdrawal at any time by the rating organization . in the event of a downgrade , we believe we would continue to have access to sufficient capital ; however , our cost of borrowing would increase and our ability to access certain financial markets may be limited . 36 cash flow activity the following table summarizes our cash flow activity for the company for the years ended december 31 , 2020 and 2019 : replace_table_token_16_th the following table summarizes our cash flow activity for the operating partnership for the years ended december 31 , 2020 and 2019 : replace_table_token_17_th changes in cash flow for the year ended december 31 , 2020 , compared to the prior year are described as follows : operating activities : cash provided by operating activities decreased $ 5.1 million for the company ( decreased $ 4.5 million for the operating partnership ) , primarily due to the following : decrease in accounts payable , accrued expenses , other liabilities , rents received in advance and security deposits due to timing of cash payments ; and decrease in operating distributions from our joint ventures of $ 11.7 million in 2020 as compared to 2019 ; offset by decrease in tenant accounts receivable , prepaid expenses and other assets due to timing of cash receipts ; decrease in payments to settle derivative instruments of $ 3.1 million ; and increase in net operating income from same store properties , acquired properties , and recently developed properties of $ 32.1 million , offset by decreases in net operating income due to property disposals of approximately $ 21.7 million . investing activities : cash used in investing activities increased $ 46.4 million , primarily due to the following : increase of $ 67.5 million related to the acquisition of real estate ; increase of $ 31.3 million related to net contributions made to our joint ventures in 2020 as compared to 2019 ; decrease of $ 50.6 million in net proceeds received from the disposition of real estate and collection of a sales-type lease receivable in 2020 as compared to 2019 ; offset by decrease of $ 96.1 million related to the development of real estate and payments for improvements and leasing commissions in 2020 as compared to 2019 ; decrease of $ 8.2 million in escrow balances ; and increase of $ 6.5 million related to the collection of insurance settlement proceeds .
| ( re ) developments include developments and redevelopments that were not : a ) substantially complete 12 months prior to january 1 , 2019 ; or b ) stabilized prior to january 1 , 2019. other revenues are derived from the operations of properties not placed in service under one of the categories discussed above , the operations of our maintenance company and other miscellaneous revenues . other property expenses are derived from the operations of properties not placed in service under one of the categories discussed above , the operations of our maintenance company , vacant land expenses and other miscellaneous regional expenses . during the year ended december 31 , 2018 , one industrial property , comprising approximately 0.1 million square feet of gla , was taken out of service for redevelopment . as a result of taking this industrial property out of service , the results of operations related to this property were reclassified from the same store property classification to the ( re ) development classification . during the year ended december 31 , 2018 , we completed the redevelopment of this property and as of december 31 , 2018 , the property was 100 % leased . this property returned to the same store classification in the first quarter 2020. during the year ended december 31 , 2016 , one industrial property , comprising approximately 28 thousand square feet of gla , was taken out of service due to a fire which caused complete destruction of the building . the results of this property are included in the ( re ) development classification . during the year ended december 31 , 2019 , we completed the rebuild of this property and as of december 31 , 2019 , the property was 100 % leased . this property will return to the same store classification in the first quarter 2021. our future financial condition and results of operations , including rental revenues , may be impacted by the future acquisition , ( re ) development and sale of properties . our future revenues and expenses may vary materially from historical rates . for the years ended december 31 , 2020 and 2019 , the average occupancy rates of our same store properties were 97.1 % and 97.7 % ,
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estimated manufacturing cost-at-completion for these contracts are reviewed on a periodic basis , and adjustments are made as needed to the estimated cost-at-completion , based on actual costs incurred , progress made , and estimates of costs required to complete the contractual requirements . when the estimated manufacturing cost-at-completion exceeds the contract value , the contract is written down to its net realizable value and the loss resulting from the cost overruns are immediately recognized . we also manufacture certain components , assemblies , and subsystems which service our wireless communications customers . we recognize revenue at a point in time upon transfer of control of the products to our customer . point in time recognition was determined as our customers do not simultaneously receive or consume the benefits provided by our performance and the asset being manufactured has alternative uses to us . net sales consist of gross sales less an allowance for returns , which typically have been less than 2 % of gross sales . we provide our customers a limited right of return for defective pcbs including components , subsystems and assemblies . we record an estimate for sales returns and allowances at the time of sale based on historical results and anticipated returns . cost of goods sold consists of materials , labor , outside services , and overhead expenses incurred in the manufacture and testing of our products . shipping and handling fees and related freight costs and supplies associated with shipping products are also included as a component of cost of goods sold . many factors affect our gross margin , including capacity utilization , product mix , production volume , and yield . while we have entered into supply assurance agreements with some of our key suppliers to maintain the continuity of supply of some of the key materials we use , we generally do not participate in any significant long-term contracts with suppliers , and we believe there are a number of potential suppliers for the raw materials we use . selling and marketing expenses consist primarily of salaries , labor related benefits , and commissions paid to our internal sales force , independent sales representatives , and our sales support staff , as well as costs associated with marketing materials and trade shows . 38 gen eral and administrative costs primarily include the salaries for executive , finance , accounting , information technology , facilities , research and development , and human resources personnel , as well as expenses for accounting and legal assistance , incentive compensation expense , and gains or losses on the sale or disposal of property , plant and equipment . critical accounting policies and estimates our consolidated financial statements included in this report have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , net sales and expenses , and related disclosure of contingent assets and liabilities . a critical accounting policy is defined as one that is both material to the presentation of our consolidated financial statements and requires us to make judgments that could have a material effect on our financial condition or results of operations . these policies require us to make assumptions about matters that are highly uncertain at the time of the estimate . different estimates we could reasonably have used , or changes in the estimates that are reasonably likely to occur , could have a material effect on our financial condition or results of operations . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . management has discussed the development , selection and disclosure of these estimates with the audit committee of our board of directors . actual results may differ from these estimates under different assumptions or conditions . our critical accounting policies include impairment of goodwill and intangible assets ; realizability of deferred tax assets ; and valuation of assets acquired and liabilities assumed from business combinations . goodwill and intangible assets we have significant goodwill and definite-lived intangibles . we review these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . in addition , we perform an impairment test related to goodwill at least annually . as necessary , we make judgments regarding future cash flow forecasts in the assessment of impairment . we have two reportable segments consisting of pcb and e-m solutions . there is only goodwill in our pcb reportable segment . goodwill is allocated to our reporting units , which are our operating segments or one level below our operating segments ( the component level ) . reporting units are determined by the discrete financial information available for the component and whether it is regularly reviewed by segment management . components are aggregated into a single reporting unit if they share similar economic characteristics . our pcb reportable segment is made up of five reporting units . the company evaluates its goodwill on an annual basis in the fourth quarter or more frequently if it believes indicators of impairment exist . we assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount or perform its annual impairment test . when tested quantitatively , we compare the fair value of the applicable reporting unit with its carrying value . we estimate the fair values of our reporting units using a combination of the income and market approach . if the carrying amount of a reporting unit exceeds the reporting unit 's fair value , the amount by which the carrying value exceeds the fair value is recognized as an impairment loss . story_separator_special_tag in the fourth quarter of 2018 , we performed our annual impairment test quantitatively and concluded that goodwill was not impaired . in performing the impairment test , we determined the fair value of our reporting units by using discounted cash flow ( dcf ) and market analyses . for the portions of our business related to our acquisition of anaren , it was determined that fair value was equivalent to carrying value due to the recent valuation in the second quarter of 2018 and results and forecasts in line with our forecasted cash flow at the time of acquisition . determining fair value requires us to make judgments about appropriate discount rates , terminal value growth rates and the amount and timing of expected future cash flows . the cash flows employed in the dcf analysis for each reporting unit are based on the reporting unit 's budget , long-term business plan , and recent operating performance . discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions . under the market approach , we use revenue and earnings multiples based on comparable industry multiples to estimate the fair value of the reporting units . for the fourth quarter 2018 test , excluding the impact of the acquisition of anaren , the fair value of the reporting units tested exceeded the respective carrying values by 10 % to 34 % . significant assumptions used in the dcf included terminal value growth rates and discount rates that ranged from 15 % to 25 % . an increase in the discount rate and decrease in the long-term growth rates of 0.5 % would result in the fair value of the reporting units exceeding their respective carrying values by 9 % to 25 % . given the inherent uncertainty in determining the assumptions underlying a dcf and market analysis , actual results may differ from those used in our valuations . in assessing the reasonableness of the determined fair values , we also reconciled the aggregate determined fair value of the company to the company 's market capitalization , which , at the date of our fourth quarter 2018 impairment test , included a 28 % control premium on a normalized basis . 39 management will continue to monitor the reporting units for changes in the business environment that could impact recoverability . the recoverability of goodwill is dependent upon the continued growth of cash flows from our business activities . if t he economy or business environment falter and we are unable to achieve our assumed revenue growth rates or profit margin percentages , our projections used would need to be re - measured , which could impact the carrying value of our goodwill in one or more of our reporting units . we also assess definite-lived intangibles for potential impairment given similar impairment indicators . when indicators of impairment exist related to our definite-lived intangible assets , we use an estimate of the undiscounted cash flows in measuring whether the carrying amount of the assets is recoverable . measurement of the amount of impairment , if any , is based upon the difference between the asset 's carrying value and estimated fair value . fair value is determined through various valuation techniques , including cost-based , market and income approaches as considered necessary , which involve judgments related to future cash flows and the application of the appropriate valuation model . income taxes deferred income tax assets are reviewed for recoverability , and valuation allowances are provided , when necessary , to reduce deferred income tax assets to the amounts that are more likely than not to be realized based on our estimate of future taxable income . at december 31 , 2018 , we had a net noncurrent deferred income tax asset of $ 13.7 million , which is comprised of a net deferred tax asset of $ 174.8 million and a net deferred tax liability of $ 161.1 million . at december 31 , 2018 , our deferred income tax asset of $ 174.8 million was net of a valuation allowance of approximately $ 27.4 million . should our expectations of taxable income change in future periods , it may be necessary to adjust our valuation allowance , which could affect our results of operations in the period such a determination is made . effects of the tax cuts and jobs act on december 22 , 2017 , u.s. tax act was enacted . accounting standards codification ( asc ) topic 740 , accounting for income taxes , requires companies to recognize the effect of tax law changes in the period of enactment regardless of the effective date of those tax law changes . certain provisions of u.s. tax act are effective september 27 , 2017 , december 31 , 2017 and january 1 , 2018. u.s. tax act included provisions requiring a “ deemed ” one-time mandatory repatriation transition tax on the net accumulated earnings and profits of a u.s. taxpayer 's foreign subsidiaries earned post 1986. we have performed an earnings and profits analysis with consideration given to foreign loss carryforwards acquired as a result of our acquisitions and determined that there was no income tax effect in the current or any prior or future period . other significant provisions that are effective and for which we have considered their impact on income taxes include : limitations on certain entertainment expenses , the inclusion of commissions and performance based compensation in determining the excessive compensation limitation , limitation on the current deductibility of net interest expense in excess of 30 percent of adjusted taxable income , an incremental tax ( base erosion anti-abuse tax or beat ) on excessive amounts paid to foreign related parties , a minimum tax on certain foreign earnings in excess of 10 percent of the foreign subsidiaries tangible assets ( i.e.
| net sales total net sales increased $ 188.7 million , or 7.1 % , from $ 2,658.6 million for the year ended january 1 , 2018 to $ 2,847.3 million for the year ended december 31 , 2018. net sales for the pcb reportable segment increased $ 172.8 million , or 7.1 % , from $ 2,448.5 million for the year ended january 1 , 2018 to $ 2,621.3 million for the year ended december 31 , 2018. this increase was primarily due to the acquisition of anaren , which accounted for $ 191.0 million in net sales in 2018 , as well as higher demand in the aerospace and defense , computing/storage/peripherals and medical/industrial/instrumentation end markets compared to the year ended january 1 , 2018 , partially offset by a decline in demand in our cellular phone , networking/communications and automotive end markets . these changes resulted in an average pcb selling price increase of 8.1 % , driven mainly by product mix shift , however the resulting increase in net sales was partially offset by a 6.9 % decrease in the volume of pcb shipments as compared to the year ended january 1 , 2018. net sales for the e-m solutions reportable segment increased $ 15.8 million , or 7.5 % , from $ 210.1 million for the year ended january 1 , 2018 to $ 225.9 million for the year ended december 31 , 2018. the increase was primarily due to higher demand in our automotive and networking/communications end markets . 41 total net sales increased $ 125.2 million , or 4.9 % , from $ 2,533.4 million for the year ended january 2 , 201 7 to $ 2,658.6 million for the year ended january 1 , 2018 . net sales for the pcb reportable segment increased $ 113.6 million , or 4.9 % , from $ 2,334.9 million for the year ended january 2 , 2017 to $ 2,448.5 million for the year ended january 1 , 2018. this increase was primarily due to higher demand in our cellular phone , computing/storage/peripherals and aerospace and defense end markets compared to the year end ed january 2 , 2017 , partially offset by lower demand in our networking/communications end market . while these changes resulted in essentially no change in pcb shipments as compared to the year ended january 2 , 2017 , average pcb selling price increased by 4 .9 % as a result of higher average pcb selling price in our cellular phone end market , which is primarily due to a more complex technology at a higher cost . net sales for the e- m solutions reportable segment increased $ 11.6 million , or 5.8 % , from $ 198.5 mil lion for the year ended january 2 , 2017 to $
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general and administrative expenses consist primarily of salaries and related expenses for executive and administrative personnel , professional fees and other corporate expenses , including information technology , facilities costs and general legal activities . we expect to incur significant research and development costs in connection with the continuing development of our drug candidates . as a result , we will need to generate significantly higher revenues to achieve profitability . 27 critical accounting policies revenue recognition we recognize revenues when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price is fixed or determinable , and collectibility is reasonably assured . payments received in advance under these arrangements are recorded as deferred revenue until earned . upfront fees under our drug discovery and development alliances are recognized as revenue on a straight-line basis over the estimated period of service , generally the contractual research term , as this period is our best estimate of the period over which the services will be rendered , to the extent they are non-refundable . we have determined that the level of effort we perform to meet our obligations is fairly constant throughout the estimated periods of service . as a result , we have determined that it is appropriate to recognize revenue from such agreements on a straight-line basis , as we believe this reflects how the research is provided during the initial period of the agreement . when it becomes probable that a collaborator will extend the research period , we adjust the revenue recognition method as necessary based on the level of effort required under the agreement for the extension period . research funding under these alliances is recognized as services are performed to the extent they are non-refundable , either on a straight-line basis over the estimated service period , generally the contractual research term ; or as contract research costs are incurred . milestone-based fees are recognized upon completion of specified milestones according to contract terms . payments received under target validation collaborations and government grants and contracts are recognized as revenue as we perform our obligations related to such research to the extent such fees are non-refundable . non-refundable technology license fees are recognized as revenue upon the grant of the license , when performance is complete and there is no continuing involvement . revenues recognized from multiple element contracts are allocated to each element of the arrangement based on the relative fair value of the elements . an element of a contract can be accounted for separately if the delivered elements have standalone value to the collaborator and the fair value of any undelivered elements is determinable through objective and reliable evidence . if an element is considered to have standalone value but the fair value of any of the undelivered items can not be determined , all elements of the arrangement are recognized as revenue over the period of performance for such undelivered items or services . a change in our revenue recognition policy or changes in the terms of contracts under which we recognize revenues could have an impact on the amount and timing of our recognition of revenues . research and development expenses research and development expenses consist of costs incurred for research and development activities solely sponsored by us as well as collaborative research and development activities . these costs include direct and research-related overhead expenses and are expensed as incurred . technology license fees for technologies that are utilized in research and development and have no alternative future use are expensed when incurred . we have advanced multiple drug candidates into clinical development . we are presently devoting most of our resources to the development of our two most advanced drug candidates : lx4211 , an orally-delivered small molecule drug candidate that we are developing as a treatment for type 1 and type 2 diabetes ; and telotristat etiprate , or lx1032 , an orally-delivered small molecule drug candidate that we are developing as a treatment for carcinoid syndrome . our most advanced drug candidates , as well as compounds from a number of additional drug discovery and development programs that we have advanced into various stages of clinical and preclinical development , originated from our own internal drug discovery efforts . these efforts were driven by a systematic , target biology-driven approach in which we used gene knockout technologies and an integrated platform of advanced medical technologies to systematically study the physiological and behavioral functions of almost 5,000 genes in mice and assessed the utility of the proteins encoded by the corresponding human genes as potential drug targets . we identified and validated in living animals , or in vivo , more than 100 targets with promising profiles for drug discovery . 28 the drug development process takes many years to complete . the cost and length of time varies due to many factors including the type , complexity and intended use of the drug candidate . we estimate that drug development activities are typically completed over the following periods : phase estimated completion period preclinical development 1-2 years phase 1 clinical trials 1-2 years phase 2 clinical trials 1-2 years phase 3 clinical trials 2-4 years we expect research and development costs to increase in the future as our existing clinical drug candidates advance to later stage clinical trials and new drug candidates enter clinical development . due to the variability in the length of time necessary for drug development , the uncertainties related to the cost of these activities and ultimate ability to obtain governmental approval for commercialization , accurate and meaningful estimates of the ultimate costs to bring our potential drug candidates to market are not available . we record significant accrued liabilities related to unbilled expenses for products or services that we have received from service providers , specifically related to ongoing preclinical studies and clinical trials . these costs primarily relate to clinical study management , monitoring , laboratory and analysis costs , drug supplies , toxicology studies and investigator grants . story_separator_special_tag we have multiple drugs in concurrent preclinical studies and clinical trials at clinical sites throughout the world . in order to ensure that we have adequately provided for ongoing preclinical and clinical development costs during the period in which we incur such costs , we maintain accruals to cover these expenses . substantial portions of our preclinical studies and clinical trials are performed by third-party laboratories , medical centers , contract research organizations and other vendors . for preclinical studies , we accrue expenses based upon estimated percentage of work completed and the contract milestones remaining . for clinical studies , expenses are accrued based upon the number of patients enrolled and the duration of the study . we monitor patient enrollment , the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to us by the vendors and clinical site visits . our estimates depend on the timeliness and accuracy of the data provided by our vendors regarding the status of each program and total program spending . we periodically evaluate the estimates to determine if adjustments are necessary or appropriate based on information we receive . although we use consistent milestones or subject or patient enrollment to drive expense recognition , the assessment of these costs is a subjective process that requires judgment . upon settlement , these costs may differ materially from the amounts accrued in our consolidated financial statements . we record our research and development costs by type or category , rather than by project . significant categories of costs include personnel , facilities and equipment costs , laboratory supplies and third-party and other services . in addition , a significant portion of our research and development expenses is not tracked by project as it benefits multiple projects . consequently , fully-loaded research and development cost summaries by project are not available . stock-based compensation expense we recognize compensation expense in our statements of comprehensive loss for share-based payments , including stock options issued to employees , based on their fair values on the date of the grant , with the compensation expense recognized over the period in which an employee is required to provide service in exchange for the stock award . stock-based compensation expense for awards without performance conditions is recognized on a straight-line basis . stock-based compensation expense for awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met . we had stock-based compensation expense of $ 7.4 million for the year ended december 31 , 2013 , or $ 0.01 per share . as of december 31 , 2013 , stock-based compensation cost for all outstanding unvested options was $ 11.7 million , which is expected to be recognized over a weighted-average vesting period of 1.3 years . the fair value of stock options is estimated at the date of grant using the black-scholes option-pricing model . for purposes of determining the fair value of stock options , we segregate our options into two homogeneous groups , based on exercise and post-vesting employment termination behaviors , resulting in a change in the assumptions used for expected option lives and forfeitures . expected volatility is based on the historical volatility in our stock price . the following weighted-average assumptions were used for options granted in the years ended december 31 , 2013 , 2012 and 2011 , respectively : 29 replace_table_token_4_th impairment of long-lived assets our long-lived assets include property , plant and equipment , intangible assets and goodwill . we regularly review long-lived assets for impairment . the recoverability of long-lived assets , other than goodwill , is measured by comparing the assets carrying amount to the expected undiscounted future cash flows that the asset is expected to generate . determining whether an impairment has occurred typically requires various estimates and assumptions , including determining which cash flows are directly related to the potentially impaired asset , the useful life over which cash flows will occur , their amount , and the asset 's residual value , if any . we use internal cash flow estimates , quoted market prices when available and independent appraisals as appropriate to determine fair value . we derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate . during the year ended december 31 , 2011 , we determined that one of our buildings was impaired and therefore recorded an impairment loss of $ 800,000 , which was recorded as research and development expense in the accompanying statement of comprehensive loss . in june 2011 , we sold this building with an immaterial additional loss on the sale . there were no significant impairments of long-lived assets in 2012 and 2013 . goodwill is not amortized , but is tested at least annually for impairment at the reporting unit level . we have determined that the reporting unit is the single operating segment disclosed in our current financial statements . impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value . the first step in the impairment process is to determine the fair value of the reporting unit and then compare it to the carrying value , including goodwill . we determined that the market capitalization approach is the most appropriate method of measuring fair value of the reporting unit . under this approach , fair value is calculated as the average closing price of our common stock for the 30 days preceding the date that the annual impairment test is performed , multiplied by the number of outstanding shares on that date . a control premium , which is representative of premiums paid in the marketplace to acquire a controlling interest in a company , is then added to the market capitalization to determine the fair value of the reporting unit .
| interest income was $ 0.2 million in 2013 , consistent with the prior year , and decreased 16 % in 2012 from $ 0.3 million in 2011 , primarily due to lower yields on our investments . interest expense . interest expense decreased 7 % in 2013 to $ 2.0 million from $ 2.1 million in 2012 and decreased 16 % in 2012 from $ 2.5 million in 2011 . other income ( expense ) , net . other income , net was $ 0.1 million , $ 0.1 million , and $ 0.2 million in the years ended december 31 , 2013 , 2012 , and 2011 , respectively . consolidated net loss and consolidated net loss per common share consolidated net loss decreased to $ 104.1 million in 2013 from $ 110.2 million in 2012 and decreased from $ 116.2 million in 2011 . net loss per common share was $ 0.20 in 2013 , $ 0.23 in 2012 , and $ 0.34 in 2011 . liquidity and capital resources we have financed our operations from inception primarily through sales of common and preferred stock , contract and milestone payments to us under our drug discovery and development collaborations , target validation , database subscription 33 and technology license agreements , government grants and contracts and financing under debt and lease arrangements . we have also financed certain of our research and development activities under our agreements with symphony icon , inc. from our inception through december 31 , 2013 , we had received net proceeds of $ 986.9 million from issuances of common and preferred stock . in addition , from our inception through december 31 , 2013 , we received $ 457.9 million in cash payments from drug discovery and development collaborations , target validation , database subscription and technology license agreements , sales of compound libraries and reagents and government grants and contracts , of which $ 444.8 million had been recognized as revenues through december 31 , 2013 . as of december 31 , 2013 , we had $ 129.1 million in cash , cash equivalents and investments . as of december 31 , 2012 , we had $ 223.2 million in cash ,
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in addition , the impact of the continuing weakness of the u.s. , european countries and other key economies , projected budget deficits for the u.s. , european countries and other governments and the consequences associated with possible additional downgrades of securities of the u.s. , european countries and other governments by credit rating agencies is inherently unpredictable and could have a material adverse effect on financial markets and economic conditions in the u.s. and throughout the world . in turn , this could have a material adverse effect on our business , financial condition and results of operations and , in particular , this could have a material adverse effect on the value and liquidity of securities in our investment portfolio . natural catastrophe risk we monitor our natural catastrophe risk globally for all perils and regions , in each case , where we believe there is significant exposure . our models employ both proprietary and vendor-based systems and include cross-line correlations for property , marine , offshore energy , aviation , workers compensation and personal accident . currently , we seek to limit our 1-in-250 year return period net probable maximum pre-tax loss from a severe catastrophic event in any geographic zone to approximately 25 % of total shareholders ' equity . we reserve the right to change this threshold at any time . based on in-force exposure estimated as of january 1 , 2014 , our modeled peak zone catastrophe exposure is a windstorm affecting the northeastern u.s. , with a net probable maximum pre-tax loss of $ 801 million , followed by windstorms affecting the gulf of mexico and florida tri-county with net probable maximum pre-tax losses of $ 670 million and $ 566 million , respectively . our exposures to other perils , such as u.s. earthquake and international events , are less than the exposures arising from u.s. windstorms and hurricanes . as of january 1 , 2014 , our modeled peak zone earthquake exposure ( new madrid area earthquake ) represented approximately 46 % of our peak zone catastrophe exposure , and our modeled peak zone international exposure ( japan earthquake ) is substantially less than both our peak zone windstorm and earthquake exposures . net probable maximum pre-tax loss estimates are net of expected reinsurance recoveries , before income tax and before excess reinsurance reinstatement premiums . loss estimates are reflective of the zone indicated and not the entire portfolio . since hurricanes and windstorms can affect more than one zone and make multiple landfalls , our loss estimates include clash estimates from other zones . the loss estimates shown above do not represent our maximum exposures and it is highly likely that our actual incurred losses would vary materially from the modeled estimates . there can be no assurances that we will not suffer a net loss greater than 25 % of our total shareholders ' equity from one or more catastrophic events due to several factors , including the inherent uncertainties in estimating the frequency and severity of such events and the margin of error in making such determinations resulting from potential inaccuracies and inadequacies in the data provided by clients and brokers , the modeling techniques and the application of such techniques or as a result of a decision to change the percentage of shareholders ' equity exposed to a single catastrophic event . in addition , actual losses may increase if our reinsurers fail to meet their obligations to us or the reinsurance protections purchased by us are exhausted or are otherwise unavailable . see “ risk factors—risk relating to our industry ” and “ management 's discussion and analysis of financial condition and results of operations—natural and man-made catastrophic events. ” 86 financial measures management uses the following three key financial indicators in evaluating our performance and measuring the overall growth in value generated for acgl 's common shareholders : book value per common share book value per common share represents total common shareholders ' equity divided by the number of common shares outstanding . management uses growth in book value per common share as a key measure of the value generated for our common shareholders each period and believes that book value per common share is the key driver of acgl 's common share price over time . book value per common share is impacted by , among other factors , our underwriting results , investment returns and share repurchase activity , which has an accretive or dilutive impact on book value per common share depending on the purchase price . book value per common share was $ 39.82 at december 31 , 2013 , a 10.0 % increase from $ 36.19 at december 31 , 2012 . the growth in 2013 was primarily generated through underwriting returns . after-tax operating return on average common equity after-tax operating return on average common equity ( “ operating roae ” ) represents after-tax operating income available to common shareholders divided by the average of beginning and ending common shareholders ' equity during the period . after-tax operating income available to common shareholders , a “ non-gaap measure ” as defined in the sec rules , represents net income available to common shareholders , excluding net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method , net foreign exchange gains or losses and loss on repurchase of preferred shares , net of income taxes . management uses operating roae as a key measure of the return generated to common shareholders and has set an objective to achieve an average operating roae of 15 % or greater over the insurance cycle , which it believes to be an attractive return to common shareholders given the risks we assume . see “ comment on non-gaap financial measures. ” our operating roae was 11.7 % for 2013 , compared to 7.7 % for 2012 and 7.2 % for 2011 . story_separator_special_tag the operating roae for 2013 reflects a lower amount of losses from catastrophic events than the comparable periods , somewhat offset by the impact of lower interest yields on the investment portfolio . total return on investments total return on investments includes net investment income , equity in net income or loss of investment funds accounted for using the equity method , net realized gains and losses and the change in unrealized gains and losses generated by our investment portfolio . total return is calculated on a pre-tax basis and before investment expenses and includes the effect of financial market conditions along with foreign currency fluctuations . management uses total return on investments as a key measure of the return generated to common shareholders on the capital held in the business , and compares the return generated by our investment portfolio against a benchmark return index . the benchmark return index is a customized combination of indices intended to approximate a target portfolio by asset mix and average credit quality while also matching the approximate estimated duration and currency mix of our insurance and reinsurance liabilities . although the estimated duration and average credit quality of this index will move as the duration and rating of its constituent securities change , generally we do not adjust the composition of the benchmark return index . the benchmark return index should not be interpreted as expressing a preference for or aversion to any particular sector or sector weight . the index is intended solely to provide , unlike many master indices that change based on the size of their constituent indices , a relatively stable basket of investable indices . 87 at december 31 , 2013 , the benchmark return index had an average moody 's credit quality of “ aa1 ” , an estimated duration of 3.66 years and included weightings to the following indices : weighting the bank of america merrill lynch 1-10 year aa u.s. corporate & yankees index 21.250 % the bank of america merrill lynch 5-10 year u.s. treasury index 12.500 the bank of america merrill lynch u.s. mortgage backed securities index 11.875 barclays capital cmbs , aaa index 10.000 the bank of america merrill lynch 1-5 year u.s. treasury index 7.500 the bank of america merrill lynch 1-10 year u.s. municipal securities index 7.125 the bank of america merrill lynch us bullet agency securities 1-10 years index 5.000 msci world free index 5.000 the bank of america merrill lynch 0-3 month u.s. treasury bill index 5.000 the bank of america merrill lynch 1-10 year emu governments index 4.000 the bank of america merrill lynch u.s. high yield constrained index 2.750 barclays capital u.s. high-yield corporate loan index 2.750 the bank of america merrill lynch 1-10 year u.k. gilt index 2.750 the bank of america merrill lynch 1-5 year cad governments index 2.500 total 100.000 % the following table summarizes the pre-tax total return ( before investment expenses ) of our investment portfolio compared to the benchmark return against which we measured our portfolio during the periods : replace_table_token_14_th ( 1 ) our investment expenses were approximately 0.26 % , 0.22 % and 0.22 % , respectively , of average invested assets in 2013 , 2012 and 2011 . total return for our investment portfolio outperformed that of the benchmark return index in 2013 and reflected strong returns on high-yield corporate bonds and bank loan investments , which augmented the return on our investment grade fixed income portfolio . excluding foreign exchange , total return was 1.13 % for 2013 , compared to 5.59 % for 2012 and 4.10 % for 2011 . comment on non-gaap financial measures throughout this filing , we present our operations in the way we believe will be the most meaningful and useful to investors , analysts , rating agencies and others who use our financial information in evaluating the performance of our company . this presentation includes the use of after-tax operating income available to common shareholders , which is defined as net income available to common shareholders , excluding net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method net foreign exchange gains or losses and loss on repurchase of preferred shares , net of income taxes . the presentation of after-tax operating income available to common shareholders is a “ non-gaap financial measure ” as defined in regulation g. the reconciliation of such measure to net income available to common shareholders ( the most directly comparable gaap financial measure ) in accordance with regulation g is included under “ results of operations ” below . we believe that net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method , net foreign exchange gains or losses and loss on repurchase of preferred shares in any particular period are not indicative of the performance of , or trends in , our business . although net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of our operations , the decision to realize investment gains or losses , the recognition of net impairment losses , the recognition of equity in net income or loss of investment funds accounted for using the equity method and the recognition of foreign exchange gains or 88 losses are independent of the insurance underwriting process and result , in large part , from general economic and financial market conditions . furthermore , certain users of our financial information believe that , for many companies , the timing of the realization of investment gains or losses is largely opportunistic . in addition , net impairment losses recognized in earnings on our investments represent other-than-temporary declines in expected recovery values on securities without actual realization .
| the increase in program business was due to a combination of new business , underlying exposure growth and the impact of rate increases while the growth in construction and national accounts primarily resulted from new business and strong renewal retention . contract binding , launched in early 2013 , is an insurance facility that caters to smaller accounts written through the wholesale distribution channel . the reductions in professional liability and executive assurance business resulted from a continued strategic reduction in exposure to international business while the lower level of travel and accident business was due in part to a change in distribution strategy at the end of 2012 . 90 2012 versus 2011 : net premiums written by the insurance segment were 6.0 % higher in 2012 than in 2012. increases in programs , professional liability , executive assurance and accident and health business were partially offset by a reduction in onshore energy business . the increase in program business was primarily due to growth within existing programs and the impact of rate movements . growth in professional liability primarily reflected new business written in small and medium sized accounts while the growth in executive assurance business primarily resulted from small and medium sized accounts in the u.k. and the u.s. the increase in accident and health business primarily resulted from new business . the reduction in onshore energy premiums reflected a strategic shift towards writing more on an excess basis and utilizing smaller capacity per account as well as an increased use of reinsurance . net premiums earned . the following table sets forth our insurance segment 's net premiums earned by major line of business : replace_table_token_18_th ( 1 ) includes alternative markets , contract binding , accident and health and excess workers ' compensation business . net premiums earned by the insurance segment were 4.2 % higher in 2013 than in 2012 , reflecting changes in net premiums written over the previous five quarters . net premiums earned by the
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we can not determine with certainty the duration and completion costs of the current or future development activities . the duration , costs and timing of trials , formulation studies and development of our prescription drug and non-prescription products will depend on a variety of factors , including : ● the scope , rate of progress , and expense of our ongoing , as well as any additional clinical trials , formulation studies and other research and development activities ; ● future clinical trial and formulation study results ; ● potential changes in government regulations ; and ● the timing and receipt of any regulatory approvals . a change in the outcome of any of these variables with respect to the development of a prescription drug product candidate or non-prescription product could mean a significant change in the costs and timing associated with our development activities . 78 we expect research and development expense to increase due to the start-up costs associated with our clinical trials for other indications . sales and marketing expense sales and marketing expenses consist of personnel and related benefit expense , stock-based compensation expense , direct sales and marketing expense , employee travel expense , and management consulting expense . we currently incur sales and marketing expenses to promote mytesi . we do not currently have any marketing or promotional expenses related to neonorm calf or neonorm foal for the years ended december 31 , 2020 and 2019. we expect sales and marketing expense to increase going forward as we focus on expanding our market access activities and commercial partnerships for the development of follow-on indications of mytesi and crofelemer . general and administrative expense general and administrative expenses consist of personnel and related benefit expense , stock-based compensation expense , employee travel expense , legal and accounting fees , rent and facilities expense , and management consulting expense . in the near term , we expect general and administrative expense to remain flat as we focus on our pipeline development and market access expansion . this will include efforts to grow the business . interest expense interest expense consists primarily of non-cash and cash interest costs related to our borrowings . critical accounting policies and significant judgments and estimates the preparation of financial statements in conformity with u.s. generally accepted accounting principles ( “ u.s . gaap ” ) requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosures in the financial statements . critical accounting policies are those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change , and that have a material impact on financial condition or operating performance . while we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances , actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies used in the preparation of our financial statements require significant judgments and estimates . for additional information relating to these and other accounting policies , see note 2 to the consolidated financial statements , appearing elsewhere in this report . revenue recognition the company recognizes revenue in accordance with asc topic 606 , revenue from contracts with customers ( “ asc 606 ” ) . we recognize revenue in accordance with the core principle of asc 606 or when there is a transfer of control of promised goods or services to customers in an amount that reflects the consideration that we expect to be entitled to in exchange for those goods or services . we recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less . 79 we do not to adjust the amount of consideration for the effects of a significant financing component if , at contract inception , the expected period between the transfer of promised goods or services and customer payment is one year or less . we have elected to treat shipping and handling activities as fulfillment costs . additionally , we have elected to record revenue net of sales and other similar taxes . contracts – cardinal health effective january 16 , 2019 , napo engaged cardinal health as its exclusive third party logistics distribution agent for commercial sales for the company 's mytesi product and to perform certain other services which include , without limitation , storage , distribution , returns , customer support , financial support , electronic data interchange ( “ edi ” ) and system access support ( exclusive distribution agreement ) . in addition to the terms and conditions of the exclusive distribution agreement , cardinal health 's purchase of products , and assumption of title therein , is set forth in the title model addendum . the title model addendum states that upon receipt of product at the 3pl facility ( cardinal health in la vergne , tennessee ) from the company , title and risk of loss for the mytesi product purchased by cardinal health ( excluding consigned inventory ) shall pass to cardinal health , and title and risk of loss for consigned inventory shall remain with napo until purchased by cardinal health in accordance with this addendum . napo considers cardinal health the company 's exclusive customer for mytesi products per the cardinal health exclusive distribution agreement . jaguar 's neonorm and botanical extract products are primarily sold to distributors , who then sell the products to the end customers . since 2014 , we entered into several distribution agreements with established distributors such as animart , vedco , vpi , rj matthews , henry schein , and stockmen supply to distribute the company 's products in the united states , japan , and china . story_separator_special_tag the distribution agreements and the related purchase order together meet the contract existence criteria under asc 606‑10‑25‑1 . jaguar sells directly to its customers without the use of an agent . performance obligations for animal products sold by jaguar , the single performance obligation identified above is the company 's promise to transfer the company 's animal products to distributors based on specified payment and shipping terms in the arrangement . product warranties are assurance-type warranties that do not represent a performance obligation . for the company 's human product , mytesi , which is sold by napo , the single performance obligation identified above is the company 's promise to transfer mytesi to cardinal health , the company 's exclusive distributor for the product , based on specified payment and shipping terms as outlined in the exclusive distribution agreement . transaction price for contracts with cardinal health , for both jaguar and napo , the transaction price is the amount of consideration to which the company expects to collect in exchange for transferring promised goods or services . the transaction price of mytesi and neonorm is the wholesaler acquisition cost ( “ wac ” ) , net of estimated discounts , returns , and price adjustments . allocate transaction price for contracts with cardinal health , for both jaguar and napo , the entire transaction price is allocated to the single performance obligation contained in each contract . 80 revenue recognition for contracts with cardinal health , for both jaguar and napo , a single performance obligation is satisfied at a point in time , upon the free on board ( “ fob ” ) terms of each contract when control , including title and all risks , has transferred to the customer . disaggregation of product revenue human sales of mytesi are recognized as revenue when the products are delivered to the wholesaler . net revenues from the sale of mytesi were $ 9.3 million and $ 5.7 million for the years ended december 31 , 2020 and 2019 , respectively . animal the company recognized neonorm revenues of $ 76,000 and $ 102,000 for the years ended december 31 , 2020 and 2019 , respectively . revenues are recognized upon shipment , which is when title and control is transferred to the buyer . sales of neonorm calf and foal to distributors are made under agreements that may provide distributor price adjustments and rights of return under certain circumstances . contracts – atlas sciences , llc effective april 15 , 2020 , the company entered into a patent purchase agreement with atlas sciences , llc ( “ atlas ” ) , pursuant to which atlas agreed to purchase certain patents and patent applications relating to napo 's np-500 drug product candidate ( the “ patent rights ” ) for an upfront cash payment of $ 1.5 million . concurrent with the patent rights sale , the company entered into a license agreement with atlas ( the “ license agreement ” ) , pursuant to which atlas granted the company an exclusive 10-year license to use the patent rights and improvements thereon to develop and commercialize np-500 in all territories worldwide except greater china ( i.e. , china , hong kong , taiwan and macau ) , inclusive of the right to sublicense np-500 development and commercialization rights ( “ the license ” ) . included in the arrangement with atlas , the company was obligated to initiate a proof of concept phase 2 study of np-500 under an investigational new drug ( “ ind ” ) application with the u.s. food and drug administration or an ind-equivalent dossier under appropriate regulatory authorities ( the “ phase 2 study ” ) within nine months of april 15 , 2020. the company would incur a trial delay fee if the company failed to initiate the phase 2 study by this date , for any reason , including the timely receipt of adequate funding to initiate the phase 2 study . atlas had the right to terminate the license in the event that the company ( i ) failed to complete the phase 2 study within five years of april 15 , 2020 or ( ii ) had not timely initiated the phase 2 study and thereafter failed to make three or more consecutive trial delay payments . performance obligations the patent rights sale to atlas and the phase 2 study to be performed by the company , identified above , represent a single transaction with two separate performance obligations ; with the sale of the patent rights , the company transferred control of the internally generated patent rights to atlas at the date of sale . transaction price for the contract with atlas , the upfront payment of $ 1.5 million from atlas as consideration for the patent rights sale and the phase 2 study , is variable consideration that is fully constrained due to the potential incurrence of a trial delay fee of $ 2.5 million if the phase 2 study had not been initiated by january 15 , 2021. the company 's 81 method for estimating the variable consideration was to use the most likely amount method . the company fully constrained the value of the variable consideration based on inherent uncertainty of timing of clinical trials . accordingly , at inception , the total transaction price of $ 1.5 million is deferred and the transaction price is zero . allocate transaction price for the contract with atlas , the transaction price of $ 1.5 million as follows : ( i ) $ 1.0 million was allocated to the phase 2 study using the cost-plus margin approach based on the price quoted by a third-party contract research organization , and ( ii ) $ 529,000 was allocated to the patent sale using the residual method .
| 85 research and development expense the following table presents the components of research and development ( “ r & d ” ) expense for the years ended december 31 , 2020 and 2019 : replace_table_token_3_th the change in r & d expense of $ 593,000 for the year ended december 31 , 2020 compared to 2019 was due primarily to : ● other expenses increased $ 881,000 from $ 1.2 million for the year ended december 31 , 2019 to $ 2.1 million in 2020 mainly consisting of consulting , formulation and regulatory fees . consulting expenses increased $ 775,000 due to an increase in clinical trial consultants , which is consistent with the increased activity in development of multiple follow ‑ on indications for mytesi . direct r & d testing costs also increased $ 25,000 due to an increase in r & d work . ● stock-based compensation decreased $ 120,000 from $ 869,000 for the year ended december 31 , 2019 to $ 749,000 in 2020 primarily due to higher prior year expense incurred for options granted with upfront vesting to existing employees . ● travel , other expenses decreased $ 119,000 from $ 164,000 for the year ended december 31 , 2019 to $ 45,000 in 2020 due to reduced travel as a result of the covid-19 pandemic . ● clinical and contract manufacturing expenses decreased $ 86,000 from $ 1.8 million for the year ended december 31 , 2019 to $ 1.7 million in 2020 primarily due to a decrease in contract manufacturing costs for enhanced manufacturing process improvements . sales and marketing expense the following table presents the components of sales and marketing ( “ s & m ” ) expense for the years ended december 31 , 2020 and 2019 : replace_table_token_4_th 86 the change in s & m expense of $ 327,000 for the year ended december 31 , 2020 compared to 2019 was due primarily to : ● personnel and related benefits decreased $ 875,000 from $ 4.2 million for the year ended december 31 , 2019 to $ 3.3 million in 2020 due to sales force reduction . ● other expenses
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this study is expected to commence in the first half of 2018. bhv-0223 we are developing bhv-0223 for the treatment of amyotrophic lateral sclerosis ( `` als '' ) . in december 2016 , we received orphan drug designation from the fda for bhv-0223 to treat als . in january 2018 , we announced results of a bioequivalence study with bhv-0223 and marketed riluzole . 131 these results demonstrated bioequivalence , thus providing pivotal data that we believe will enable submission of a new drug application ( `` nda '' ) to the fda and pursue the regulatory approval of bhv-0223 for als under section 505 ( b ) ( 2 ) of the u.s. federal food , drug , and cosmetic act . in addition , biohaven opened an ind in the us in late 2017 , with the first study assessing tolerability in dysphagic patients with als . this study is expected to complete dosing in the first quarter 2018. a pre-nda meeting with the fda is planned in the first quarter 2018 , and we plan on filing a nda in the second half of 2018. we are also starting an additional tolerability study with two-month dosing in als patients in the first quarter of 2018. bhv-5000 we are also developing bhv-5000 , an orally available , first-in-class , low-trapping nmda receptor antagonist , for the treatment of neuropsychiatric diseases . one key target indication is the treatment of symptoms associated with rett syndrome , including breathing irregularities . rett syndrome is a rare and severe genetic neurodevelopmental disorder for which no approved treatments are currently available . we acquired worldwide rights to bhv-5000 under an exclusive license agreement with astrazeneca ab ( `` astrazeneca '' ) , in october 2016. we selected a lead formulation at the end of 2017 and commenced a phase 1 clinical trial of bhv-5000 in december 2017 to evaluate its pharmacokinetic properties and support future later stage trials . financings and other recent developments since our inception in september 2013 , we have devoted substantially all of our resources to acquiring and developing product candidates , organizing and staffing our company , business planning , raising capital , prosecuting intellectual property rights , planning for commercialization , and conducting research and development activities for our product candidates . we do not have any products approved for sale and have not generated any revenue from product sales . prior to our initial public offering ( `` ipo '' ) in may 2017 , we funded our operations primarily with proceeds from the sale of preferred shares and common shares through private placements and borrowings under a credit agreement with a bank . prior to the completion of our ipo in may 2017 , we had received net cash proceeds of $ 96.4 million from sales of our preferred shares and common shares through private placements and gross proceeds of $ 5.0 million from borrowings under the credit agreement . on may 3 , 2017 , our registration statement on form s-1 relating to our ipo was declared effective by the sec . the ipo closed on may 9 , 2017 and we issued and sold 9,900,000 common shares at a public offering price of $ 17.00 per share , for net proceeds of $ 152.7 million after deducting underwriting discounts and commissions of $ 11.8 million and other offering expenses of $ 3.9 million . upon the closing of the ipo , all of the convertible preferred shares then outstanding converted into an aggregate of 9,358,560 common shares . in addition , on may 9 , 2017 , the underwriters of the ipo fully exercised their option to purchase additional shares , and on may 11 , 2017 , we issued and sold 1,485,000 common shares resulting in net proceeds of $ 23.5 million after deducting offering expenses of $ 1.8 million . thus , the aggregate net proceeds we received from the ipo , after deducting underwriting discounts and commissions and offering expenses , were $ 176.1 million . in connection with the completion of the ipo , we issued an aggregate of 1,883,523 common shares to bms and astrazeneca in satisfaction of obligations to contingently issue equity securities pursuant to our license agreements for no additional consideration . since our inception , we have incurred significant operating losses . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current product candidates and programs . our net loss was $ 127.2 million , $ 63.5 million and $ 10.1 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . as of december 31 , 2017 , we had an accumulated deficit of $ 202.6 million . we 132 will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates . we expect to continue to incur significant expenses for at least the next several years as we advance our product candidates from discovery through preclinical development and clinical trials and seek regulatory approval and pursue commercialization of any approved product candidate . in addition , if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . in addition , we may incur expenses in connection with the in-license or acquisition of additional product candidates . we also incur incremental costs associated with operating as a public company , including significant legal , accounting , investor relations and other expenses that we did not incur as a private company . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve profitability . even if we are able to generate product sales , we may not become profitable . story_separator_special_tag if we fail to become profitable , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . as a result , we will need substantial additional funding to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through the public or private sale of equity , debt financings or other capital sources , including collaborations with other companies or other strategic transactions . we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms , or at all . if we fail to raise capital or enter into such agreements as , and when , needed , we may have to significantly delay , scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions . as of december 31 , 2017 , we had cash of $ 131.5 million . without additional external funding , we expect that our existing cash will be sufficient to fund our planned operating expenses , financial commitments and other cash requirements through december 31 , 2018. the assumption for remaining cash usage assumes that planned programs and expenditures continue and that we do not reduce , stop or curtail programs or other spending . beyond that point , we will need to raise additional capital to finance our operations , which can not be assured . we have concluded that this circumstance raises substantial doubt about our ability to continue as a going concern within one year after the issuance date of our financial statements for the year ended december 31 , 2017. similarly , in its report on our financial statements for the year ended december 31 , 2017 , our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations since inception and required additional funding to finance our operations raise substantial doubt about our ability to continue as a going concern . components of our results of operations revenue to date , we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future . if our development efforts for our product candidates are successful and result in regulatory approval or additional license agreements with third parties , we may generate revenue in the future from product sales . 133 operating expenses research and development expenses research and development expenses consist primarily of costs incurred in connection with the development of our product candidates . we expense research and development costs as incurred . these expenses include : expenses incurred under agreements with contract research organizations ( `` cros '' ) or contract manufacturing organizations ( `` cmos '' ) , as well as investigative sites and consultants that conduct our clinical trials , preclinical studies and other scientific development services ; manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials , including manufacturing validation batches ; employee-related expenses , including salaries , benefits , travel and share-based compensation expense for employees engaged in research and development functions ; costs related to compliance with regulatory requirements ; payments made in cash , equity securities or other forms of consideration under third-party licensing agreements . we recognize external development costs based on an evaluation of the progress to completion of specific tasks using estimates of our clinical personnel or information provided to us by our service providers . our external direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs , such as fees paid to outside consultants , cros , cmos , and central laboratories in connection with our preclinical development , process development , manufacturing and clinical development activities . our direct research and development expenses by program also include fees incurred under license agreements . we do not allocate employee costs or other indirect costs , to specific programs because these costs are deployed across multiple programs and , as such , are not separately classified . we use internal resources primarily to oversee the research and development as well as for managing our preclinical development , process development , manufacturing and clinical development activities . many employees work across multiple programs and we do not track personnel costs by program . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . as a result , we expect that our research and development expenses will increase substantially over the next several years as we increase personnel costs conduct clinical trials and prepare regulatory filings for our product candidates . we also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into license agreements to acquire the rights to our product candidates . the successful development and commercialization of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when , if ever , material net cash inflows may commence from any of our product candidates .
| the decrease in direct costs for our bhv-5000 program during 2017 primarily related to the costs associated with acquiring technology under our licensing agreement with astrazeneca in october 2016 which did not recur in 2017. upon acquiring the technology , we accrued a liability of $ 8.6 million for our contingent obligation to issue equity to astrazeneca and paid an upfront license fee of $ 5.0 million under the agreement , for total expense of $ 13.6 million during the year ended december 31 , 2016. during the year ended december 31 , 2017 , we incurred direct costs of $ 1.9 million primarily associated with pre-clinical studies which commenced in the second quarter of 2017 and start-up activities related to our phase 1 clinical trial which commenced in the fourth quarter of 2017. the increase in personnel costs of $ 10.2 million in personnel-related costs was primarily as a result of hiring additional personnel to support our expanding number of clinical trials and preparing for potential commercialization of bhv-0223 . our headcount in research and development increased to 29 as of december 31 , 2017 , compared to 6 as of december 31 , 2016. personnel-related costs for the years ended december 31 , 2017 and 2016 included share-based compensation expense of $ 6.9 million and $ 2.4 million , respectively . the increase in share-based compensation was a result of hiring new personnel and the impact of higher stock price on both our employee and non-employee share-based compensation expense . the increase in other unallocated costs was primarily due to increased use of research and development consultants that support activities across multiple drug candidate programs as well as the increased purchase of supplies used across all programs . general and administrative expenses general and administrative expenses were $ 18.1 million for the year ended december 31 , 2017 , compared to $ 5.1 million for the year ended december 31 , 2016. the increase of $ 13.0 million was primarily due to increases of $ 5.9 million in personnel-related costs , including share-based compensation , due to the hiring of additional personnel in our general and administrative functions , $ 5.8 million in professional fees supporting ongoing business operations , including increased compliance and other costs associated with becoming a public company . personnel-related costs for the years ended december 31 , 2017 and 2016 included share-based compensation expense of $ 6.3 million and $ 2.2 million , respectively . the increase in share-based compensation
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for us , this new guidance became effective january 1 , 2018 and is reported in the statement of operations on the line item `` investment gains ( losses ) '' and as a subcomponent in the financial statement notes and this discussion as `` change in value of equity securities '' . due to the inherent volatility of equity securities , which can be impacted by both company specific and broad economic factors , including the change in fair value of equity securities as a component of net income is likely to produce significant fluctuations in net income from period to period . information in this discussion is presented in whole dollars rounded to the nearest thousand , except for per share information . tabular amounts are presented in thousands . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > p & c segment combined ratio for the year ended december 31 , 2019 , the p & c segment had a gaap combined ratio of 100.1 % . reported claims from cat events totaling $ 6,623,000 combined with reported claims from non-catastrophe wind and hail totaling $ 9,133,000 increased the p & c segment combined ratio in 2019 by 28.9 percentage points . in comparison , for the year ended december 31 , 2018 , the p & c segment had a gaap combined ratio of 101.3 % . reported claims from cat events totaling $ 9,138,000 ( net of reinsurance recoveries ) combined with reported claims from non-catastrophe wind and hail totaling $ 6,792,000 increased the p & c segment combined ratio in 2018 by 28.7 percentage points . partially offsetting the increase in catastrophe losses and non-cat wind and hail losses in 2019 was a decrease in reported fire losses of $ 976,000 compared to the same period in the prior year . overview - balance sheet highlights at december 31 , 2019 compared to december 31 , 2018 replace_table_token_13_th invested assets invested assets as of december 31 , 2019 were $ 118,969,000 compared to $ 112,690,000 as of december 31 , 2018 ; an increase of 5.6 % . the increase in invested assets was primarily due to a $ 4,910,000 increase in market value of fixed income securities available for sale . significant declines in market interest rates over the past twelve months was the primary driver of the increase in market value of fixed income securities . cash the company , primarily through its insurance subsidiaries , had $ 11,809,000 in cash and cash equivalents at december 31 , 2019 , compared to $ 5,676,000 at december 31 , 2018. the primary reason for the increase in cash and cash equivalents compared to last year was timing in investment of positive cash flow from operations and investments . total assets total assets as of december 31 , 2019 were $ 153,934,000 compared to $ 144,231,000 at december 31 , 2018. positive cash flow from insurance operations contributed to an increase in purchases of fixed maturity securities and a $ 4,910,000 increase in market value of our portfolio of fixed maturity securities further contributed to the increase in total assets for 2019 . 24 policy liabilities policy related liabilities were $ 78,472,000 at december 31 , 2019 , compared to $ 77,988,000 at december 31 , 2018 ; an increase of $ 484,000 or 0.6 % . increases in life insurance reserves were partially offset by a decline in p & c reserves leading to a marginal increase in policy liabilities . debt outstanding total debt at december 31 , 2019 was $ 14,164,000 compared to $ 14,352,000 at december 31 , 2018. debt was reduced $ 188,000 during 2019 primarily from the reduction of long-term debt in our holding company . shareholders ' equity shareholders ' equity as of december 31 , 2019 was $ 53,461,000 , up $ 7,595,000 , compared to december 31 , 2018 shareholders ' equity of $ 45,866,000 . book value per share was $ 21.12 at december 31 , 2019 , compared to $ 18.15 per share at december 31 , 2018 ; an increase of 16.4 % or $ 2.97 per share . the primary factors contributing to the increase in both book value per share and shareholders ' equity were net income of $ 4,067,000 and accumulated other comprehensive income of $ 4,013,000 . the increase in accumulated comprehensive income was driven by increases in market value of our bond investments available for sale . offsetting the increase in shareholders ' equity was shareholder dividends paid of $ 531,000 . industry segment data : net premiums earned for our two operating segments are summarized as follows ( amounts in thousands ) : replace_table_token_14_th the property and casualty segment composed 90.2 % of consolidated net premiums earned in 2019 compared to 90.1 % in 2018. through the p & c segment , we offer primarily dwelling fire and homeowners insurance coverage to our customers . the life segment composed 9.8 % of net premiums earned in 2019 compared to 9.9 % in 2018 with revenue produced from life , accident and supplemental health insurance products . while reading this discussion regarding segment information , reference is made to note 15 to the consolidated financial statements which provides additional segment related information . the following discussion outlines more specific information with regard to the individual operating segments of the company along with non-insurance related information ( primarily administration expenses and interest expense on debt ) associated with the insurance holding company . 25 life and accident and health insurance operations : premium revenues and operating income for the life segment for the year ended december 31 , 2019 and 2018 are summarized below : replace_table_token_15_th year ended december 31 , 2019 compared to year ended december 31 , 2018 : net premiums earned in the life segment was $ 5,864,000 at december 31 , 2019 compared to $ 6,019,000 at december 31 , 2018 ; a decrease of 2.6 % . story_separator_special_tag the $ 155,000 decrease in net earned premium revenue was primarily due to a decline in new business production in both the traditional life and supplemental accident and health insurance products offered in nsic . the table below provides the major categories of investment income , primarily dividend and interest income , for the year ended december 31 , 2019 and 2018 : replace_table_token_16_th while nsic composes only 9.8 % of premium revenue , the subsidiary holds 42.6 % of consolidated assets . the majority of these assets consist of fixed maturity investments . net investment income had a moderate , 1.7 % decrease at $ 2,677,000 for the year ended december 31 , 2019 compared to $ 2,722,000 for the same period last year . lower reinvestment yields on fixed maturity investments due to the declining interest rate environment experienced in 2019 was the primary factor contributing to the moderate decline in interest income . 26 the table below provides investment gains and losses for the year ended december 31 , 2019 and 2018 : replace_table_token_17_th nsic net investment gains , for the year ended december 31 , 2019 , were $ 861,000 compared to net investment losses of $ 78,000 for the same period last year ; an improvement of $ 939,000. net investment gains and losses are highly dependent on numerous internal and external factors including but not limited to market conditions , tax position and liquidity needs of the company and can vary significantly from period to period . a factor contributing to the increase , in 2019 , was a $ 233,000 realized gain primarily from our minority stake in privately held trinity bancorp , which merged with privately held river financial corporation , in october of 2019 , in a cash and stock transaction . a second factor contributing to the increase in net investment gains , in 2019 , was an increase in the change in value of equity securities held for investment of $ 589,000 compared to a loss of $ 71,000 in the prior year . this increase in the value of equity securities held for investment , in 2019 , was primarily driven by improved performance in the overall equity market compared to the prior year . other income was $ 853,000 in 2019 compared to $ 1,078,000 for the same period last year ; a decrease of $ 225,000. other income consists primarily of adjuster fees paid to nsic from the p & c segment . as a percent of net earned premium , other income was 14.5 % in 2019 and 17.9 % in 2018. claims were $ 5,027,000 through december 31 , 2019 compared to $ 5,242,000 through december 31 , 2018 ; a decrease of $ 215,000 or 4.1 % . the primary reason for the decrease was elevated claim payments in the prior year due to an increase in both ordinary life and industrial life related claims . deferred policy acquisition cost amortization and commission expenses decreased $ 109,000 for the year ended december 31 , 2019 at $ 1,017,000 compared to $ 1,126,000 for the same period last year ; a decline of 9.7 % . as a percent of net premiums earned , policy acquisition cost amortization and commission expense was 17.3 % in 2019 compared to 18.7 % in 2018. a decline in the rate of new business production was the primary reason for the decline in commission expenses . general and administrative expenses were $ 1,948,000 in 2019 compared to $ 2,111,000 in 2018. as a percent of earned premium , general and administrative expenses were 33.2 % and 35.1 % at december 31 , 2019 and 2018 , respectively . the $ 163,000 decrease in general and administrative expenses , in 2019 compared to 2018 , was primarily due to a decline in adjuster expenses of $ 63,000 coupled with a $ 37,000 decrease in depreciation expenses and a $ 19,000 decrease in actuarial and consulting fees . for the year ended december 31 , 2019 and 2018 , insurance taxes , licenses and fees were $ 285,000 and $ 220,000 , respectively . as a percent of earned premium , insurance taxes , licenses and fees were 4.9 % in 2019 and 3.7 % in 2018. the primary reason for the increase in , 2019 compared to 2018 , was the payment of expenses associated with our alabama department of insurance examination . interest expense was $ 43,000 for the year ended december 31 , 2019 compared to $ 48,000 for the year ended december 31 , 2018. interest expense in nsic is associated with interest payments on insurance policies with a deposit fund . deposit fund balances declined in 2019 leading to a reduction in interest expense . for the year ended december 31 , 2019 , the life segment had pretax income of $ 1,935,000 compared to a pretax income of $ 994,000 for the same period last year . the $ 514,000 increase in life segment revenues , primarily driven by investment gains in equity securities , coupled with the $ 427,000 decrease in life segment expenses were the primary factors contributing to the $ 941,000 increase in pretax income . 27 property & casualty operations : pretax income for the p & c segment for the year ended december 31 , 2019 and 2018 is summarized below : replace_table_token_18_th year ended december 31 , 2019 compared to year ended december 31 , 2018 : net premiums earned in the p & c segment is primarily driven by our dwelling fire and homeowner lines of business . the following table provides premiums earned by line of business : replace_table_token_19_th property and casualty segment net premiums earned for 2019 was $ 54,019,000 compared to $ 54,837,000 for the same period last year . the primary reason for the moderate decline , in 2019 compared to 2018 , was a 4.8 % decrease in gross premium revenue in our homeowners program primarily driven by a reduction in premium revenue in coastal louisiana . an increase in catastrophe reinsurance cost ( ceded premium ) of 10.4
| short-term volatility due to changes in market value of equity securities can mask both the positive or negative performance of our insurance operations from period to period . premium revenue for the year ended december 31 , 2019 , net premiums earned were down $ 973,000 at $ 59,883,000 compared to $ 60,856,000 during the same period last year . the decrease in premium revenue was primarily driven by a decline in net earned premium in the p & c segment of $ 818,000. the decline in gross earned premium was primarily attributable to a decrease in our surplus lines business in coastal louisiana . in addition , p & c segment ceded premium was up $ 665,000 or 10.4 % , in 2019 , compared to the same period last year , due to an increase in the cost of our catastrophe reinsurance . investment gains ( losses ) investment gains for the year ended december 31 , 2019 were $ 3,055,000 compared to investment losses of $ 552,000 for the year ended december 31 , 2018. one primary reason for the increase in 2019 investment gains , compared to the 2018 investment losses , was a gain on our company owned life insurance ( coli ) investment of $ 1,792,000. in addition , in 2019 , we had unrealized gains in our equity investments totaling $ 712,000 compared to unrealized losses 23 in equity investments of $ 203,000 in 2018. we also recognized $ 233,000 in realized gains on the sale of equity securities in 2019. net income for the year ended december 31 , 2019 , the company had net income of $ 4,067,000 , $ 1.61 income per share , compared to net income of $ 779,000 , $ 0.31 income per share , for the same period last year . the primary reason for the increase in 2019 earnings compared to 2018 earnings was an increase in investment gains . investments gains consisted of the gain on company owned life
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in the event that our initial business combination does not close , we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment . up to $ 1,500,000 of notes may be convertible into private units , at a price of $ 10.00 per unit . the units would be identical to the private units . we do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business prior to our initial business combination . however , if our estimates of the costs of identifying a target business , undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amount necessary to do so , we may have insufficient funds available to operate our business prior to our business combination . moreover , we may need to obtain additional financing either to complete our business combination or because we become obligated to redeem a significant number of our public shares upon completion of our business combination , in which case we may issue additional securities or incur debt in connection with such business combination . if we are unable to complete our initial business combination because we do not have sufficient funds available to us , we will be forced to cease operations and liquidate the trust account . 31 off-balance sheet financing arrangements we have no obligations , assets or liabilities which would be considered off-balance sheet arrangements as of december 31 , 2019. we do not participate in transactions that create relationships with unconsolidated entities or financial partnerships , often referred to as variable interest entities , which would have been established for the purpose of facilitating off-balance sheet arrangements . we have not entered into any off-balance sheet financing arrangements , established any special purpose entities , guaranteed any debt or commitments of other entities , or purchased any non-financial assets . contractual obligations we do not have any long-term debt , capital lease obligations , operating lease obligations or long-term liabilities other than an agreement to pay an affiliate of our sponsor a monthly fee of $ 10,000 for office space , utilities and secretarial and administrative support . we began incurring these fees on march 5 , 2019 and will continue to incur these fees monthly until the earlier of the completion of the business combination and our liquidation . we have engaged earlybirdcapital to act as an advisor in connection with a business combination , to assist us in holding meetings with our shareholders to discuss the potential business combination and the target business ' attributes , introduce us to potential investors that are interested in purchasing our securities in connection with a business combination , assist us in obtaining shareholder approval for the business combination and assist us with our press releases and public filings in connection with the business combination . we will pay earlybirdcapital a cash fee for such services upon the consummation of a business combination in an amount equal to $ 9,660,000 ( exclusive of any applicable finders ' fees which might become payable ) ; provided that up to 30 % of the fee may be allocated at our sole discretion to other finra members that assist us in identifying and consummating a business combination . critical accounting policies the preparation of financial statements and related disclosures in conformity with 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 income and expenses during the periods reported . actual results could materially differ from those estimates . we have identified the following critical accounting policies : common stock subject to possible redemption we account for common stock subject to possible redemption in accordance with the guidance in accounting standards codification ( “ asc ” ) topic 480 “ distinguishing liabilities from equity. ” common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value . conditionally redeemable common stock ( including common stock that feature redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control ) is classified as temporary equity . at all other times , common stock is classified as stockholders ' equity . our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events . accordingly , common stock subject to possible redemption is presented at redemption value as temporary equity , outside of the stockholders ' equity section of our balance sheets . net loss per common share we apply the two-class method in calculating earnings per share . common stock subject to possible redemption which is not currently redeemable and is not redeemable at fair value , have been excluded from the calculation of basic net loss per common share since such shares , if redeemed , only participate in their pro rata share of the trust account earnings . our net income is adjusted for the portion of income that is attributable to common stock subject to possible redemption , as these shares only participate in the earnings of the trust account and not our income or losses . 32 recent accounting pronouncements management does not believe that any other recently issued , but not yet effective , accounting pronouncements , if currently adopted , would have a material effect on our financial statements . related party transactions in order to finance transaction costs in connection with a business combination , the sponsor or certain of our officers and directors or their affiliates may , but are not obligated to , loan us funds as may be story_separator_special_tag in the event that our initial business combination does not close , we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment . up to $ 1,500,000 of notes may be convertible into private units , at a price of $ 10.00 per unit . the units would be identical to the private units . we do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business prior to our initial business combination . however , if our estimates of the costs of identifying a target business , undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amount necessary to do so , we may have insufficient funds available to operate our business prior to our business combination . moreover , we may need to obtain additional financing either to complete our business combination or because we become obligated to redeem a significant number of our public shares upon completion of our business combination , in which case we may issue additional securities or incur debt in connection with such business combination . if we are unable to complete our initial business combination because we do not have sufficient funds available to us , we will be forced to cease operations and liquidate the trust account . 31 off-balance sheet financing arrangements we have no obligations , assets or liabilities which would be considered off-balance sheet arrangements as of december 31 , 2019. we do not participate in transactions that create relationships with unconsolidated entities or financial partnerships , often referred to as variable interest entities , which would have been established for the purpose of facilitating off-balance sheet arrangements . we have not entered into any off-balance sheet financing arrangements , established any special purpose entities , guaranteed any debt or commitments of other entities , or purchased any non-financial assets . contractual obligations we do not have any long-term debt , capital lease obligations , operating lease obligations or long-term liabilities other than an agreement to pay an affiliate of our sponsor a monthly fee of $ 10,000 for office space , utilities and secretarial and administrative support . we began incurring these fees on march 5 , 2019 and will continue to incur these fees monthly until the earlier of the completion of the business combination and our liquidation . we have engaged earlybirdcapital to act as an advisor in connection with a business combination , to assist us in holding meetings with our shareholders to discuss the potential business combination and the target business ' attributes , introduce us to potential investors that are interested in purchasing our securities in connection with a business combination , assist us in obtaining shareholder approval for the business combination and assist us with our press releases and public filings in connection with the business combination . we will pay earlybirdcapital a cash fee for such services upon the consummation of a business combination in an amount equal to $ 9,660,000 ( exclusive of any applicable finders ' fees which might become payable ) ; provided that up to 30 % of the fee may be allocated at our sole discretion to other finra members that assist us in identifying and consummating a business combination . critical accounting policies the preparation of financial statements and related disclosures in conformity with 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 income and expenses during the periods reported . actual results could materially differ from those estimates . we have identified the following critical accounting policies : common stock subject to possible redemption we account for common stock subject to possible redemption in accordance with the guidance in accounting standards codification ( “ asc ” ) topic 480 “ distinguishing liabilities from equity. ” common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value . conditionally redeemable common stock ( including common stock that feature redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control ) is classified as temporary equity . at all other times , common stock is classified as stockholders ' equity . our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events . accordingly , common stock subject to possible redemption is presented at redemption value as temporary equity , outside of the stockholders ' equity section of our balance sheets . net loss per common share we apply the two-class method in calculating earnings per share . common stock subject to possible redemption which is not currently redeemable and is not redeemable at fair value , have been excluded from the calculation of basic net loss per common share since such shares , if redeemed , only participate in their pro rata share of the trust account earnings . our net income is adjusted for the portion of income that is attributable to common stock subject to possible redemption , as these shares only participate in the earnings of the trust account and not our income or losses . 32 recent accounting pronouncements management does not believe that any other recently issued , but not yet effective , accounting pronouncements , if currently adopted , would have a material effect on our financial statements . related party transactions in order to finance transaction costs in connection with a business combination , the sponsor or certain of our officers and directors or their affiliates may , but are not obligated to , loan us funds as may be
| 30 on march 12 , 2019 , in connection with the underwriters ' exercise of their over-allotment option in full , we consummated the sale of an additional 3,600,000 units at a price of $ 10.00 per unit , generating total gross proceeds of $ 36,000,000. in addition , we also consummated the sale of an additional 72,000 private units to our sponsor and earlybirdcapital and its designee at $ 10.00 per private unit , generating total gross proceeds of $ 720,000. following the ipo , the exercise of the over-allotment option and the sale of the private units , a total of $ 276,000,000 was placed in the trust account . we incurred $ 6,059,098 in ipo related costs , including $ 5,520,000 of underwriting fees , and $ 539,098 of other costs . as of december 31 , 2019 , we had marketable securities held in the trust account of $ 280,103,245 ( including approximately $ 4,103,000 of interest income , net of unrealized gains ) consisting of u.s. treasury bills with a maturity of 180 days or less . interest income on the balance in the trust account may be used by us to pay taxes . through december 31 , 2019 , we withdrew $ 938,000 of interest earned on the trust account to pay our income tax obligations . for the year ended december 31 , 2019 , cash used in operating activities was $ 1,634,432. net income of $ 3,367,179 was affected by interest earned on marketable securities held in the trust account of $ 4,912,346 , an unrealized gain on marketable securities held in our trust account of $ 128,899 and a deferred income tax provision of $ 27,069. changes in operating assets and liabilities provided $ 12,565 of cash from operating activities . we intend to use substantially all of the funds held in the trust account , to acquire a target business and to pay our expenses relating thereto , including a fee payable to earlybirdcapital , upon consummation of our initial business combination for assisting us in connection with our initial business combination .
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also during 2012 , we redeemed our 6.95 % series e cumulative redeemable preferred shares with a redemption value of $ 72.5 million . these transactions continue to strengthen our balance sheet and further enhance our access to various sources of capital . while the availability of capital has improved over the past year , there can be no assurance that favorable pricing and availability will not deteriorate in the future . at december 31 , 2012 , we owned or operated under long-term leases , either directly or through our interest in real estate joint ventures or partnerships , a total of 292 developed income-producing properties and two properties under various stages of construction and development . the total number of centers includes 288 neighborhood and community shopping centers and six other operating properties located in 21 states spanning the country from coast to coast . we also owned interests in 38 parcels of land held for development that totaled approximately 27.5 million square feet at december 31 , 2012 . we had approximately 6,800 leases with 4,600 different tenants at december 31 , 2012 . leases for our properties range from less than a year for smaller spaces to over 25 years for larger tenants . rental revenues generally include minimum lease payments , which often increase over the lease term , reimbursements of property operating expenses , including real estate taxes , and additional rent payments based on a percentage of the tenants ' sales . our anchor tenants are supermarkets , value-oriented apparel/discount stores and other retailers or service providers who generally sell basic necessity-type goods and services . through this challenging economic environment , we believe the stability of our anchor tenants , combined with convenient locations , attractive and well-maintained properties , high quality retailers and a strong tenant mix , should ensure the long-term success of our merchants and the viability of our portfolio . retail operational metrics in assessing the performance of our shopping centers , management carefully monitors various operating metrics of the portfolio . below are performance metrics associated with our occupancy , same property net operating income ( `` spnoi '' ) growth and leasing activity on a pro rata basis . replace_table_token_12_th replace_table_token_13_th _ ( 1 ) see non-gaap financial measures for a definition of the measurement of spnoi and a reconciliation to operating income within this section of item 7 . 30 replace_table_token_14_th _ ( 1 ) average lease commissions per square foot for the three and twelve months ended december 31 , 2012 were $ 3.50 and $ 3.23 , respectively . the operating metrics of our portfolio strengthened in 2012 as the economy continued to stabilize , and we focused on increasing occupancy and spnoi . our portfolio delivered exceptional operating results with : an increase in occupancy of .7 % over 2011 ; an increase of 1.5 % in non-anchor shop ( spaces less than 10,000 square feet ) occupancy over 2011 ; an increase of 4.2 % in spnoi over 2011 ; and rental rate increases for 2012 of 4.5 % , which includes an increase of 2.2 % on new leases . while we will continue to monitor the economy and the effects on our tenants , we believe the significant diversification of our portfolio , both geographically and by tenant base , and the quality of our portfolio will allow us to further increase occupancy levels as we move through 2013 , assuming no bankruptcies by multiple national or regional tenants . a stabilization in economic conditions and a reduction in quality retail space available contributed to the increase in overall rental rates on a same-space basis as we completed new leases and renewed existing leases . while we have achieved strong growth in both rental rates and spnoi during 2012 , maintaining this level of positive operating performance through 2013 is not assured . leasing volume is anticipated to decline as we have less vacant space available for leasing and are experiencing reductions in tenant fallout . new development at december 31 , 2012 , we had two properties in various stages of construction and development . we have funded $ 58.3 million to date on these projects , and we estimate our aggregate net investment upon completion to be $ 97.2 million . overall , the average projected stabilized return on investment for these properties is approximately 7.9 % upon completion . we have approximately $ 121.3 million in land held for development at december 31 , 2012 . while we are experiencing a greater interest than previous years from retailers and other market participants in our land held for development , opportunities for economically viable developments remain scarce . we continue to pursue additional development and redevelopment opportunities in multiple markets ; however , finding the right opportunities remains very challenging . acquisitions and joint ventures acquisitions are a key component of our long-term strategy . the availability of quality acquisition opportunities in the market remains sporadic . competition for the highest quality core properties is intense which has in many cases driven pricing to pre-recession highs . we remain disciplined in approaching these opportunities , pursuing only those that provide appropriate risk-adjusted returns . 31 dispositions dispositions are also a key component of our ongoing management process where we selectively prune properties from our portfolio that no longer meet our geographic or growth targets . dispositions provide capital , which may be recycled into properties that have high barrier-to-entry locations within high growth metropolitan markets , and thus have higher long-term growth potential . additionally , proceeds from dispositions may be used to reduce outstanding debt , further deleveraging our balance sheet . over time , we expect this will produce a portfolio with higher occupancy rates and stronger revenue growth . our disposition program may be impacted by market pricing conditions and debt financing available to prospective purchasers . story_separator_special_tag after specifically identifying potential disposition properties and analyzing current market data , we recognized an impairment charge of $ 8.8 million during the year ended december 31 , 2012 on properties which we believe are either probable to sell or were sold as part of this initiative . summary of critical accounting policies our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and contingencies as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods . we evaluate our assumptions and estimates on an ongoing basis . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies require more significant judgments and estimates used in the preparation of our consolidated financial statements . real estate joint ventures and partnerships to determine the method of accounting for partially owned real estate joint ventures and partnerships , management evaluates the characteristics of associated entities and determines whether an entity is a variable interest entity ( “ vie ” ) and , if so , determines which party is the primary beneficiary by analyzing whether we have both the power to direct the entity 's significant economic activities and the obligation to absorb potentially significant losses or receive potentially significant benefits . significant judgments and assumptions inherent in this analysis include the design of the entity structure , the nature of the entity 's operations , future cash flow projections , the entity 's financing and capital structure , and contractual relationships and terms . we consolidate a vie when we have determined that we are the primary beneficiary . primary risks associated with our vies include the potential funding of the entities ' debt obligations or making additional contributions to fund the entities ' operations . partially owned , non variable interest real estate joint ventures and partnerships over which we have a controlling financial interest are consolidated in our consolidated financial statements . in determining if we have a controlling financial interest , we consider factors such as ownership interest , authority to make decisions , kick-out rights and substantive participating rights . partially owned real estate joint ventures and partnerships where we do not have a controlling financial interest , but have the ability to exercise significant influence , are accounted for using the equity method . management continually analyzes and assesses reconsideration events , including changes in the factors mentioned above , to determine if the consolidation treatment remains appropriate . decisions regarding consolidation of partially owned entities frequently require significant judgment by our management . errors in the assessment of consolidation could result in material changes to our consolidated financial statements . 32 property acquisitions of properties are accounted for utilizing the acquisition method and , accordingly , the results of operations of an acquired property are included in our results of operations from the date of acquisition . estimates of fair values are based upon future cash flows and other valuation techniques in accordance with our fair value measurements accounting policy . fair values are used to record the purchase price of acquired property among land , buildings on an “ as if vacant ” basis , tenant improvements , other identifiable intangibles and any goodwill or gain on purchase . other identifiable intangible assets and liabilities include the effect of out-of-market leases , the value of having leases in place ( “ as is ” versus “ as if vacant ” and absorption costs ) , out-of-market assumed mortgages and tenant relationships . depreciation and amortization is computed using the straight-line method , generally over estimated useful lives of 40 years for buildings and over the lease term which includes bargain renewal options for other identifiable intangible assets . the impact of these estimates , including incorrect estimates in connection with acquisition values and estimated useful lives , could result in significant differences related to the purchased assets , liabilities and resulting depreciation or amortization . acquisition costs are expensed as incurred . impairment our property is reviewed for impairment if events or changes in circumstances indicate that the carrying amount of the property , including any capitalized costs and any identifiable intangible assets , may not be recoverable . if such an event occurs , a comparison is made of the current and projected operating cash flows of each such property into the foreseeable future , with consideration of applicable holding periods , on an undiscounted basis to the carrying amount of such property . if we determine the carrying amount is not recoverable , our basis in the property is reduced to its estimated fair value to reflect impairment in the value of the asset . fair values are determined by management utilizing cash flow models , market capitalization and discount rates , or by obtaining third-party broker or appraisal estimates in accordance with our fair value measurements accounting policy . we review current economic considerations each reporting period , including the effects of tenant bankruptcies , the suspension of tenant expansion plans for new development projects , declines in real estate values and any changes to plans related to our new development projects including land held for development , to identify properties where we believe market values may be deteriorating .
| impairment loss the impairment loss in 2012 of $ 10.0 million is mainly attributable to three properties being marketed for sale during the year , an equity interest in an unconsolidated real estate joint venture that owns industrial properties and the sale of unimproved land parcels . the impairment loss in 2011 of $ 55.6 million related primarily to land held for development , properties that were sold or marketed for sale , our equity interest in certain unconsolidated joint ventures and the net credit loss on the exchange of tax increment revenue bonds . 34 interest expense , net net interest expense decreased $ 23.9 million or 17.1 % . the components of net interest expense were as follows ( in thousands ) : replace_table_token_16_th gross interest expense totaled $ 121.6 million in 2012 , down $ 21.0 million or 14.7 % from 2011. the decrease in gross interest expense results primarily from a reduction in both interest rates and the weighted average debt outstanding as a result of refinancing notes and mortgages through the revolving credit facility by means of proceeds from the industrial and retail dispositions and the issuance of $ 300 million of 3.38 % senior unsecured notes maturing in 2022. in 2012 , the weighted average debt outstanding was $ 2.3 billion at a weighted average interest rate of 5.1 % as compared to $ 2.6 billion outstanding at a weighted average interest rate of 5.5 % in 2011. the amortization of convertible bond discount ceased in july 2011. gain on sale of real estate joint venture and partnership interests the increase of $ 14.2 million is attributable to the sale of an interest in six unconsolidated real estate joint ventures during 2012. equity in ( losses ) earnings of real estate joint ventures and partnerships , net the decrease of $ 9.4 million is attributable to the reduction of earnings from our unconsolidated real estate investments as a result of impairment losses . in 2012 , impairment losses totaled $ 19.9 million as compared to $ 7.0 million in 2011. gain on acquisition the increase of $ 1.9 million is attributable to
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the company recorded share-based compensation of $ 14,177 and $ 14,177 for the years ended december 31 , 2019 and 2018 , respectively . note 9 . subsequent events management has evaluated all subsequent events through the date of the filing and determined that there were none . f-13 signatures pursuant to the requirements of section 13 or 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 there under duly authorized . all-american sportpark , inc. dated : march 30 , 2020 by : ronald s. boreta ronald s. boreta , chief executive officer ( principal executive officer and principal financial officer ) pursuant to the requirements of the securities exchange act of 1934 , this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated : signature title date ronald s. boreta march 30 , 2020 ronald s. boreta president ( chief executive officer ) , treasurer ( principal financial officer ) and director director steven miller cara corrigan director march 30 , 2020 cara corrigan john boreta director march 30 , 2020 john boreta story_separator_special_tag the following information should be read in conjunction with the company 's financial statements and the notes thereto included in this report . critical accounting policies and estimates our financial statements are prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) in connection with the preparation of the financial statements , we are required to make assumptions and estimates about future events that affect the reported amounts of assets , liabilities , revenue , expenses and the related disclosures . we base our assumption and estimate on historical experience and other factors that management believes are relevant at the time our financial statements are prepared . on a periodic basis , management reviews the accounting policies , assumptions and estimates to ensure that our financial statements are presented fairly and in accordance with gaap . however , because future events and their effects can not be determined with certainty , actual results could differ from the estimates and assumptions , and such differences could be material . our significant accounting policies are discussed in note 2 , summary of significant accounting policies in the notes to the financial statements . the following accounting policies are most critical in fully understanding and evaluating our reported financial results . use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , and the disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amount of revenues and expenses during the reporting period . significant estimates and assumptions made by management include , but are not limited to , the determination of the provision for income taxes and the fair value of stock-based compensation . the company bases the estimates on historical experience and on various other assumptions that are believed to be reasonable . actual results could differ from those estimates . 6 fair value of financial instruments fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . there are three levels of inputs that may be used to measure fair value : level 1 - quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities . level 2 - quoted prices for similar assets and liabilities in active markets ; quoted prices for identical or similar assets and liabilities in markets that are not active ; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets . level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . level 3 assets and liabilities include financial instruments whose value is determined using pricing models , discounted cash flow methodologies , or similar techniques , as well as instruments for which the determination of fair value requires significant management judgment or estimation . inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions , including assumptions about risk . an investment 's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement . however , the determination of what constitutes “ observable ” requires significant judgment by the company . management considers observable data to be market data which is readily available , regularly distributed or updated , reliable and verifiable , not proprietary , provided by multiple , independent sources that are actively involved in the relevant market . the categorization of an investment within the hierarchy is based upon the pricing transparency of the investment and does not necessarily correspond to the company 's perceived risk of that investment . at december 31 , 2019 , and 2018 , the carrying amount of prepaid , accounts payable and accrued liability , accounts payable and accrued liability–related parties , due to related parties and notes payable and accrued interest payable–related parties approximate fair value because of the short maturity of these instruments . revenue the company has no revenue . 7 earnings per share basic earnings per share excludes any dilutive effects of options , story_separator_special_tag the company recorded share-based compensation of $ 14,177 and $ 14,177 for the years ended december 31 , 2019 and 2018 , respectively . note 9 . subsequent events management has evaluated all subsequent events through the date of the filing and determined that there were none . f-13 signatures pursuant to the requirements of section 13 or 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 there under duly authorized . all-american sportpark , inc. dated : march 30 , 2020 by : ronald s. boreta ronald s. boreta , chief executive officer ( principal executive officer and principal financial officer ) pursuant to the requirements of the securities exchange act of 1934 , this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated : signature title date ronald s. boreta march 30 , 2020 ronald s. boreta president ( chief executive officer ) , treasurer ( principal financial officer ) and director director steven miller cara corrigan director march 30 , 2020 cara corrigan john boreta director march 30 , 2020 john boreta story_separator_special_tag the following information should be read in conjunction with the company 's financial statements and the notes thereto included in this report . critical accounting policies and estimates our financial statements are prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) in connection with the preparation of the financial statements , we are required to make assumptions and estimates about future events that affect the reported amounts of assets , liabilities , revenue , expenses and the related disclosures . we base our assumption and estimate on historical experience and other factors that management believes are relevant at the time our financial statements are prepared . on a periodic basis , management reviews the accounting policies , assumptions and estimates to ensure that our financial statements are presented fairly and in accordance with gaap . however , because future events and their effects can not be determined with certainty , actual results could differ from the estimates and assumptions , and such differences could be material . our significant accounting policies are discussed in note 2 , summary of significant accounting policies in the notes to the financial statements . the following accounting policies are most critical in fully understanding and evaluating our reported financial results . use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , and the disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amount of revenues and expenses during the reporting period . significant estimates and assumptions made by management include , but are not limited to , the determination of the provision for income taxes and the fair value of stock-based compensation . the company bases the estimates on historical experience and on various other assumptions that are believed to be reasonable . actual results could differ from those estimates . 6 fair value of financial instruments fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . there are three levels of inputs that may be used to measure fair value : level 1 - quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities . level 2 - quoted prices for similar assets and liabilities in active markets ; quoted prices for identical or similar assets and liabilities in markets that are not active ; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets . level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . level 3 assets and liabilities include financial instruments whose value is determined using pricing models , discounted cash flow methodologies , or similar techniques , as well as instruments for which the determination of fair value requires significant management judgment or estimation . inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions , including assumptions about risk . an investment 's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement . however , the determination of what constitutes “ observable ” requires significant judgment by the company . management considers observable data to be market data which is readily available , regularly distributed or updated , reliable and verifiable , not proprietary , provided by multiple , independent sources that are actively involved in the relevant market . the categorization of an investment within the hierarchy is based upon the pricing transparency of the investment and does not necessarily correspond to the company 's perceived risk of that investment . at december 31 , 2019 , and 2018 , the carrying amount of prepaid , accounts payable and accrued liability , accounts payable and accrued liability–related parties , due to related parties and notes payable and accrued interest payable–related parties approximate fair value because of the short maturity of these instruments . revenue the company has no revenue . 7 earnings per share basic earnings per share excludes any dilutive effects of options ,
| we may acquire assets and establish wholly-owned subsidiaries in various businesses or acquire existing businesses as subsidiaries . the company has not entered into any definitive or binding agreements and there are no assurances that such transactions will occur . such a combination would normally take the form of a merger , stock-for-stock exchange or stock-for-assets exchange . the company may determine to structure any business combination to be within the definition of a tax-free reorganization under section 351 or section 368 of the internal revenue code of 1986 , as amended . 8 it is anticipated that any securities issued in any such business combination would be issued in reliance upon an exemption from registration under applicable federal and state securities laws . in some circumstances , however , as a negotiated element of its transaction , the company may agree to register all or a part of such securities immediately after the transaction is consummated or at specified times thereafter . if such registration occurs , it will be undertaken by the surviving entity after the company has entered into an agreement for a business combination or has consummated a business combination . the issuance of additional securities and their potential sale into any trading market in the company 's securities may depress the market value of the company 's securities in the future . results of operations – year ended december 31 , 2019 versus year ending december 31 , 2018. general and administrative ( “ g & a ” ) g & a expenses consist principally of administrative payroll , professional fees , and other corporate costs . these expenses increased by $ 3,107 to $ 83,826 in 2019 from $ 80,719 in 2018. the increase is attributed to a change in the timing of the payment of audit fees . impairment on property and equipment in 2019 and 2018 there was no impairment on property and equipment . depreciation and amortization depreciation and amortization decreased by $ 55 in 2019 to $ 0 from $ 55 in 2018. the decrease in
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the s & p 500 index returned ( 6.7 % ) for the year and ( 16.2 % ) during the fourth quarter . the nasdaq index saw even greater volatility , as it returned ( 4.0 % ) for 2018 and ( 21.3 % ) over the fourth quarter . the weakness was most pronounced during the latter half of the year as investors became increasingly concerned with the impact of tightening monetary policy by the federal open market committee ( `` fomc '' ) , the possibility of an escalating trade war with china , slowing global growth and possible signs that the u.s. had entered the later stages of the business cycle . commodity prices were not immune from the volatility , as the crb commodity price index decreased by 14.9 % during the fourth quarter , bringing the 2018 decrease to 14.2 % . the price of oil fell dramatically , with wti crude falling by 58.6 % during the fourth quarter , and 24.9 % for the year . despite the volatility in the financial markets , the u.s. labor market remained strong . monthly gains in nonfarm payrolls averaged 254,00 for the fourth quarter , outpacing the average increase of 220,00 for all of 2018. the unemployment rate remained close to multi-year lows at 3.9 % . the consensus forecast for gdp growth in 2018 is 3 % , but the consensus for 2019 and 2020 reflect some of the same concerns as listed above , with estimates of 2.3 % and 2 % , respectively . inflation remained subdued , with the u.s. personal consumption expenditure core price index dropping below the federal reserve 's inflation target of 2 % in december after spending the first 11 months of the year between 2 % and 3 % . implied breakeven rates on treasury inflation protected securities , which reflect the markets expectation of future inflation rates , were sharply lower at year end , with the implied 2 year inflation rate at 0.66 % and the implied 5 year inflation rate at 1.49 % . the fomc raised the federal funds target rate four times during the year , causing yields on shorter maturity treasuries to increase at a faster pace than longer maturity treasuries ( commonly referred to as a `` flattening '' of the yield curve ) . with concerns over higher inflation receding during the fourth quarter , market expectations for further fomc policy action changed dramatically . over the course of the fourth quarter , the pricing of federal funds futures contracts went from implying an additional two increases during 2019 to implying no further increases during 2019 , and cuts in 2020. structured securities performed poorly during 2018. agency mortgages underperformed similar duration treasuries for the full year , with nearly all the underperformance occurring during the fourth quarter . the outlook for agency rmbs remains mixed , as the potential for continued interest rate and spread volatility and the tapering of reinvestment activity by the federal reserve weighs on the market . prepayment activity remained muted through 2018 , as rate incentives were not large enough to induce many homeowners to refinance , and supply and affordability issues also kept housing activity relatively muted . during 2018 , spreads ( defined as the yield in excess of risk-free rates ) on cmbs and gse crt securities widened during the market volatility of the fourth quarter ; however , fundamentals in both commercial and residential housing remain on solid footing . financing markets remained accommodative throughout 2018 , though repurchase agreement rates moved higher in line with increases in the federal funds rate and typical year end bank balance sheet pressures . as we move into 2019 , concerns center around potentially slowing economic growth , uncertain federal reserve policy and expanding trade disputes . we expect the u.s. will continue to experience moderate , albeit slowing , economic growth , and that core inflation will remain close to the federal reserve 's policy objective of 2 % . other concerns include the actions of central banks , and their impact on the global economy , the sustainability of china 's economic growth , and the potential impact of the brexit process and resulting stress in the european banking system . in addition , the regulatory landscape for our repurchase agreement counterparties continues to evolve which may affect their funding methods and lending practices . while we are not directly subject to compliance with the implementation of rules regarding financial institutions , the effect of these regulations and others could impact our ability to finance our assets in the future . replace_table_token_42_th investment activities the table below shows the allocation of our equity as of december 31 , 2018 and 2017 : replace_table_token_43_th ( 1 ) non-agency cmbs , commercial loans and investments in unconsolidated ventures ( that are included in other assets on our consolidated balance sheet ) are considered commercial credit . ( 2 ) non-agency rmbs , gse crt and a loan participation interest ( that is included in other assets on our consolidated balance sheet ) are considered residential credit . the table below shows the breakdown of our investment portfolio as of december 31 , 2018 and 2017 : replace_table_token_44_th during 2018 , we purchased $ 6.3 billion of mortgage-backed and credit risk transfer securities . our purchases were concentrated in newly issued 30 year fixed-rate agency rmbs ( $ 4.5 billion ) , agency cmbs ( $ 988.8 million ) , non-agency cmbs ( $ 322.5 million ) and non-agency rmbs ( $ 184.2 million ) . we funded our purchases through sales of securities and reinvestment of cash flows from principal repayments on securities and commercial loans . as of december 31 , 2018 our holdings of 30 year fixed-rate agency rmbs represented 56 % of our total investment portfolio versus 42 % of our total investment portfolio as of december 31 , 2017 . story_separator_special_tag available returns in non-agency rmbs were relatively low compared to agency rmbs , agency cmbs and non-agency cmbs as a result of credit spread tightening , limiting our reinvestment in the sector during 2018. during the second half of 2018 , we rotated out of seasoned agency mbs , particularly the shorter duration 15 year fixed-rate and hybrid arm sectors , and purchased newly issued 30 year fixed-rate specified pools . the rise in interest rates , as well as the systematic reduction in the federal reserve 's balance sheet , resulted in wider spreads and produced accretive opportunities in the 30 year fixed-rate sector . we believe the impact on the sector from balance sheet reduction is mostly priced in , as spreads widened 15-20 basis points during the year , which provided an attractive entry point to increase our allocation at accretive levels . in addition to the sector rotation within agency mbs , we sold a portion of our seasoned agency mbs assets to reduce leverage as spreads widened during the latter half of the fourth quarter . we began investing in agency cmbs issued by freddie mac and fannie mae in 2018. we purchased these securities because we believe they have an attractive convexity and return on equity profile . they offer targeted exposure to multi-family replace_table_token_45_th loans and benefit from a guarantee of principal and interest payments from government agencies and federally chartered corporations . further , the hedging costs are economical as they are less sensitive to interest rate risk given limited extension beyond initial expected maturity dates and underlying loan prepayment protection . our portfolio of investments that have credit exposure include non-agency cmbs , non-agency rmbs , gse crts , commercial real estate loans and a loan participation interest . rather than relying on the rating agencies , we utilize proprietary models as well as third party applications to quantify and monitor the credit risk associated with our portfolio holdings . our analysis generally begins at the underlying asset level , where we gather detailed information on loan , borrower , and property characteristics that inform our expectations for future performance . in addition to base case cash flow projections , we perform a range of scenario stresses to gauge the sensitivity of returns to potential deviations in underlying asset behavior . we perform this detailed credit analysis at the time of initial purchase and regularly throughout the holding period of each investment . our non-agency cmbs portfolio generally consists of assets originated during and after 2010. these assets continued to benefit from rating agency upgrades , property price appreciation and limited supply . non-agency cmbs represents approximately 19 % of our total investment portfolio as of december 31 , 2018 . our non-agency rmbs portfolio represents approximately 7 % of our total investment portfolio as of december 31 , 2018. we primarily invest in rmbs collateralized by prime and alt-a loans . in addition , we have invested in re-securitizations of real estate mortgage investment conduit ( `` re-remic '' ) rmbs and reperforming mortgage loans that we expect to provide attractive risk adjusted returns . we also invest in gse crts , which have the added benefit of paying a floating rate coupon and reduce our need to hedge interest rate risk . the majority of our gse crt holdings are concentrated in 2013 and 2014 vintages , where reference loans have significant embedded home price appreciation . from a fundamental perspective , we continue to view gse crt as an attractive asset class based on the strength of the u.s. housing market and the strong performance of reference mortgage loans to date . during the third quarter of 2018 , we acquired a participation interest in a secured loan collateralized by mortgage servicing rights associated with fannie mae , freddie mac , and ginnie mae loans . the loan has a two year term subject to a one year extension at the borrower 's option . we funded $ 55.0 million of the loan during 2018 and have committed to fund up to an additional $ 20.0 million . as of december 31 , 2018 , our commercial real estate loan portfolio includes two mezzanine loans with a weighted average maturity of 1.7 years that we either purchased or originated . our floating rate commercial real estate loan portfolio continued to benefit from favorable fundamentals and increasing libor in 2018. the commercial real estate loan portfolio 's weighted average loan-to-value ratio is approximately 73.5 % based on the most recently attained independent property appraisals and the relevant loan amounts . for further details on our commercial loan portfolio , refer to note 5 - `` commercial loans held-for-investment '' of our consolidated financial statements in part iv , item 15 of this report . we evaluate the collectibility of our commercial loans held-for investment using the factors described in note 2 - `` summary of significant accounting policies '' of our consolidated financial statements in part iv , item 15 of this report . we determined that no provision for loan losses for our commercial loans was required as of december 31 , 2018 . new credit risk retention rules for commercial mortgage-backed securities became effective under the dodd-frank wall street reform and consumer protection act on december 24 , 2016. the credit risk retention rules require originators and or an investor to retain at least 5 % of the fair market value of the cmbs or sell all or a portion of this amount to a qualified third-party purchaser ( “ b-piece investor ” ) . there is a minimum five year holding period for the retained investment . despite the implementation of the credit risk retention rules , new issuance continued in 2018. replace_table_token_46_th portfolio characteristics the table below illustrates the vintage distribution of our non-agency rmbs , gse crt and non-agency cmbs portfolio as of december 31 , 2018 as a percentage of fair value : replace_table_token_47_th ( 1 ) for re-remics , the table reflects the year in which the resecuritizations were issued .
| we earned interest income of $ 643.0 million ( 2017 : $ 545.1 million ; 2016 : $ 478.7 million ) during 2018 . our interest income consists of coupon interest and net premium amortization on mbs and gse crts as well as interest income on commercial and other loans as shown in the table below . replace_table_token_62_th total interest income increased $ 98.0 million during the year ended december 31 , 2018 compared to 2017 primarily due to the full year impact of investing the proceeds from our august 2017 series c preferred stock offering and lower premium amortization . net premium amortization decreased $ 37.4 million during 2018 primarily due to slower prepayments speeds on 30 year fixed-rate agency rmbs and purchases of non-agency cmbs securities at a discount during 2018. interest income on commercial and other loans decreased $ 12.0 million during 2018 primarily due to commercial loan payoffs . commercial loans held-for -investment were $ 31.6 million as of december 31 , 2018 compared to $ 191.8 million as of december 31 , 2017 . total interest income increased $ 66.4 million during the year ended december 31 , 2017 compared to 2016 primarily due to higher coupon interest on mbs and gse crt earning assets . mbs and gse crt average earning assets rose $ 1.4 billion to $ 17.0 billion in 2017 as detailed in the table above . lower net premium amortization increased interest income by $ 23.1 million during the year ended december 31 , 2017 primarily due to slower prepayment speeds . interest income on our floating rate commercial real estate loans increased $ 1.3 million during the year ended december 31 , 2017 primarily due to increasing libor rates . the yield on our average investment portfolio during the year ended december 31 , 2018 was 3.55 % ( 2017 : 3.20 % ; 2016 : 3.07 % ) . our average earning asset yields increased during the year
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we define our comparable properties as our properties , including those that we acquired through the starwood combination , that were open and operating under one of our legacy-marriott or legacy-starwood brands since the beginning of the last full calendar year ( since january 1 , 2015 for the current period ) , and have not , in either the current or previous year : ( i ) undergone significant room or public space renovations or expansions , ( ii ) been converted between company-operated and franchised , or ( iii ) sustained substantial property damage or business interruption . for 2016 compared to 2015 , we had 3,698 comparable north american properties ( including 483 legacy-starwood properties ) and 965 comparable international properties ( including 506 legacy-starwood properties ) . for 2015 compared to 2014 , we had 3,077 comparable north american properties and 367 comparable international properties . we also believe company-operated house profit margin , which is the ratio of property-level gross operating profit to total property-level revenue , is a meaningful indicator of our performance because this ratio measures our overall ability as the operator to produce property-level profits by generating sales and controlling the operating expenses over which we have the most direct control . house profit includes room , food and beverage , and other revenue and the related expenses including payroll and benefits expenses , as well as repairs and maintenance , utility , general and administrative , and sales and marketing expenses . house profit does not include the impact of management fees , furniture , fixtures and equipment replacement reserves , insurance , taxes , or other fixed expenses . business trends our 2016 results reflected a year-over-year increase in the number of properties in our system , favorable demand for our brands in many markets around the world , and slow but steady economic growth . comparable worldwide systemwide revpar for 2016 increased 1.8 percent to $ 113.50 , adr increased 1.0 percent on a constant dollar basis to $ 156.53 , and occupancy increased 0.6 percentage points to 72.5 percent , compared to 2015 . in north america , 2016 lodging demand for our brands reflected increased transient business , driven by higher retail and government travel , but weaker premium-priced corporate transient demand . group business was higher in most of 2016 compared to 2015. revenue growth was constrained in certain markets by new lodging supply , weak demand from the oil and gas industries , the impact of the strong dollar on international travel to u.s. gateway markets , and moderate gdp growth . the 2017 group revenue pace for systemwide full-service hotels in north america was up more than two percent as of year-end 2016 , compared to the 2016 group pace measured as of year-end 2015 . 25 our europe region experienced higher demand in 2016 across most countries , led by spain , portugal and russia , partially constrained by weaker demand in france , belgium , and turkey following terrorism events in those countries . in our asia pacific region in 2016 , revpar growth was strong in india and thailand , while revpar growth in china was constrained in hong kong and certain southern and tertiary china markets . middle east demand continued to be impacted by geopolitical instability , oversupply in dubai and qatar , and lower oil prices . in south africa , results were favorable in 2016 , reflecting strong local demand and higher international tourism attracted by the weak south african rand . in the caribbean and latin america , growth from strong demand in mexico and the summer olympic games in rio de janeiro was offset by concerns relating to the zika virus in the caribbean and weak economic conditions in most markets in south america . we monitor market conditions and provide the tools for our hotels to price rooms daily in accordance with individual property demand levels , generally adjusting room rates as demand changes . our hotels modify the mix of business to improve revenue as demand changes . for our company-operated properties , we continue to focus on enhancing property-level house profit margins and making productivity improvements . compared to 2015 , worldwide comparable company-operated house profit margins in 2016 increased by 50 basis points and worldwide comparable company-operated house profit per available room ( “ hp-par ” ) increased by 2.7 percent on a constant u.s. dollar basis , reflecting higher occupancy , rate increases , improved productivity , and solid cost controls primarily at our legacy-marriott properties . north american company-operated house profit margins increased by 70 basis points , and hp-par at those properties increased by 4.4 percent . international company-operated house profit margins increased by 20 basis points , and hp-par at those properties increased by 0.7 percent compared to 2015. system growth and pipeline in 2016 , we added 348 properties with 55,321 rooms , in addition to the 1,342 properties and 381,440 rooms gained with the starwood combination on the merger date . approximately 40 percent of the added rooms are located outside north america , and 18 percent are conversions from competitor brands . of the rooms gained with the starwood combination , approximately 50 percent are located outside north america . in 2016 , 34 properties ( 5,691 rooms ) exited our system . at the end of 2016 , including rooms under legacy-starwood brands , we had more than 420,000 hotel rooms in our development pipeline , which includes hotel rooms under construction and under signed contracts , and nearly 34,000 hotel rooms approved for development but not yet under signed contracts . more than half of the rooms in our development pipeline are outside north america . we believe that we have access to sufficient financial resources to finance our growth , as well as to support our ongoing operations and meet debt service and other cash requirements . story_separator_special_tag nonetheless , our ability to develop and update our brands and the ability of hotel developers to build or acquire new marriott-branded properties , both of which are important parts of our growth plan , depend in part on capital access , availability and cost for other hotel developers and third-party owners . these growth plans are subject to numerous risks and uncertainties , many of which are outside of our control . see the “ forward-looking statements ” and “ risks and uncertainties ” captions earlier in this report and the “ liquidity and capital resources ” caption later in this report . 26 brand statistics the following brand statistics for 2016 , and for 2016 compared to 2015 , include legacy-starwood comparable properties for both full years even though marriott did not own the legacy-starwood brands before the starwood combination . the statistics for 2015 , and for 2015 compared to 2014 , are for legacy-marriott comparable properties only , as marriott did not own the legacy-starwood brands at any time during that two-year period . 2016 compared to 2015 . the following tables present revpar , occupancy , and adr for comparable properties under our legacy-marriott and legacy-starwood brands in north america and in our international regions . systemwide statistics include data from our franchised properties , in addition to our company-operated properties . replace_table_token_7_th replace_table_token_8_th ( 1 ) includes jw marriott , the ritz-carlton , w hotels , the luxury collection , st. regis , and edition . ( 2 ) includes marriott hotels , sheraton , westin , renaissance hotels , autograph collection hotels , gaylord hotels , le méridien , and tribute portfolio . ( 3 ) includes composite north american luxury and composite north american upper upscale . ( 4 ) includes courtyard , residence inn , fairfield inn & suites , springhill suites , and towneplace suites . systemwide also includes four points , aloft hotels , and element hotels . 27 replace_table_token_9_th replace_table_token_10_th ( 1 ) includes jw marriott , the ritz-carlton , w hotels , the luxury collection , st. regis , edition , bulgari hotels & resorts , marriott hotels , sheraton , westin , renaissance hotels , autograph collection hotels , protea hotels , le méridien , courtyard , residence inn , fairfield inn & suites , four points , aloft hotels , and ac hotels by marriott . systemwide also includes element hotels and moxy hotels . ( 2 ) includes jw marriott , the ritz-carlton , w hotels , the luxury collection , st. regis , edition , bulgari hotels & resorts , marriott hotels , sheraton , westin , renaissance hotels , autograph collection hotels , protea hotels , gaylord hotels , le méridien , tribute portfolio , courtyard , residence inn , fairfield inn & suites , springhill suites , towneplace suites , four points , aloft hotels , and ac hotels by marriott . systemwide also includes element hotels and moxy hotels . 28 2015 compared to 2014 . the following tables present revpar , occupancy , and adr for comparable properties under our legacy-marriott brands in north america and in our international regions . systemwide statistics include data from our franchised properties , in addition to our company-operated properties . replace_table_token_11_th replace_table_token_12_th ( 1 ) includes the ritz-carlton , marriott hotels , renaissance hotels , and gaylord hotels . systemwide also includes autograph collection hotels . ( 2 ) includes courtyard , residence inn , fairfield inn & suites , springhill suites , and towneplace suites . 29 replace_table_token_13_th replace_table_token_14_th ( 1 ) includes the ritz-carlton , edition , bulgari hotels & resorts , marriott hotels , renaissance hotels , autograph collection hotels , courtyard , residence inn , and fairfield inn & suites . ( 2 ) includes the ritz-carlton , edition , bulgari hotels & resorts , marriott hotels , renaissance hotels , autograph collection hotels , gaylord hotels , courtyard , residence inn , fairfield inn & suites , springhill suites , and towneplace suites . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > decrease d by $ 14 million . the decrease primarily reflected a favorable variance to the 2015 impairment charges on the edition hotels ( $ 12 million ) and corporate equipment ( $ 4 million ) . general , administrative , and other expenses for legacy-marriott operations decrease d by $ 9 million . the decrease primarily reflected $ 15 million in lower reserves for guarantee funding , and $ 9 million in lower foreign exchange losses , partially offset by $ 15 million of higher administrative costs to grow our brands globally , $ 4 million of higher bad debt reserves , and $ 3 million net unfavorable impact to our legal expenses associated with 2015 litigation resolutions . 32 2015 compared to 2014 . operating income increased by $ 191 million to $ 1,350 million in 2015 from $ 1,159 million in 2014. the increase in operating income reflected a $ 151 million increase in fee revenue , which we discuss in the preceding “ revenues ” section , as well as the following changes . replace_table_token_18_th the $ 6 million increase in owned , leased , and other revenue , net of direct expenses was largely attributable to $ 4 million in higher branding fees . owned and leased revenue , net of direct expenses was unchanged as stronger results at several of our international properties , including $ 4 million of lower lease payments for properties that moved to managed , franchised , or left our system , were offset by $ 10 million of weaker performance due to renovations . the $ 9 million decrease in depreciation , amortization , and other expense reflected a $ 25 million favorable variance to the 2014 impairment charge on the edition hotels , partially offset by the 2015 impairment charges of $ 6 million for the miami beach edition residences and $ 6 million for the new york ( madison square park ) edition and a $ 4 million impairment charge on corporate equipment .
| in north america , 65 percent of legacy-marriott managed properties paid incentive fees in 2016 compared to 63 percent in 2015 . outside north america , 74 percent of legacy-marriott managed properties paid incentive fees in both 2016 and 2015 , representing 48 percent of our total incentive management fees in 2016 from legacy-marriott managed properties compared to 51 percent of our total fees in 2015 . the $ 25 million increase in owned , leased , and other revenue for legacy-marriott operations reflected $ 38 million of higher other revenue predominantly from branding fees , partially offset by $ 13 million of lower owned and leased revenue . the decrease in owned and leased revenue primarily reflected lower revenues from properties that converted to managed ( $ 60 million ) and the impact of unfavorable foreign exchange rates ( $ 15 million ) , partially offset by improved sales from several properties following renovations ( $ 29 million ) , stronger sales at other existing properties across our segments ( $ 28 million ) , and favorable results at two new owned properties ( $ 9 million ) . cost reimbursements revenue represents reimbursements of costs incurred on behalf of managed and franchised properties and relates , predominantly , to payroll costs at managed properties where we are the employer but also includes reimbursements for other costs , such as those associated with our loyalty programs , reservations , and marketing programs . as we record cost reimbursements based upon costs incurred with no added markup , this revenue and related expense has no impact on either our operating or net income . the $ 568 million increase in cost reimbursements revenue for legacy-marriott operations reflected the impact of higher property occupancies , unit growth across our system , and growth in the marriott rewards program membership and activity . 2015 compared to 2014 . the following discussion presents our analysis of our revenues for 2015 compared to 2014 . replace_table_token_16_th the $ 26 million increase in base
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there can be no assurance that a business combination will be consummated and the company retains the ability to enter into a letter of intent or definitive transaction agreement with respect to a business combination with another target . liquidity and capital resources at december 31 , 2011 , total outstanding cash balance available for our working capital needs amounted to $ 101.7 thousand , and restricted cash held in trust account amounting to $ 46.2 million . since our initial public offering , our only source of revenue has been interest income earned over the net proceeds from the initial public offering , that are currently held in a trust account and invested in united states united states government securities within the meaning of section 2 ( a ) ( 16 ) of the investment company act of 1940 , having a maturity of 180 days or less , or in money market fund meeting the conditions under rule 2a-7 under the investment company act , until the earlier of ( i ) consummation of an initial business combination , or ( ii ) liquidation of the company . subject to shareholders ' approval , we expect to use substantially all of the net proceeds of our initial public offering to acquire one or more target businesses by identifying and evaluating prospective target businesses , selecting one or more target businesses , and structuring , negotiating and consummating the initial business combination . to the extent we use our share capital in whole or in part as consideration for an initial business combination , the proceeds held in the trust account ( less amounts paid to any public shareholders who properly exercise their shareholder redemption rights and any interest income previously released to us ) as well as any other net proceeds not expended prior to that time will be used to finance the operations of the target business or businesses . the funds could be used in a variety of ways including continuing or expanding the target business ' operations , for strategic acquisitions and for marketing , research and development of existing or new products . the funds could also be used to repay any operating expenses or finders ' fees which we had incurred prior to the completion of our initial business combination if the funds available to us outside of the trust account were insufficient to cover such expenses . 16 we believe the funds available to us outside of the trust account , together with ( i ) the interest income earned on the trust account balance that may be released to us to pay any tax obligations and ( ii ) interest income of up to $ 2.0 million on the balance of the trust account to be released to us for working capital requirements ( so long as we have sufficient funds available to us to pay our tax obligations on such interest income or otherwise then due at that time ) , will not be sufficient to allow us to operate until october 14 , 2012 , assuming an initial business combination is not completed during that time , unless either current interest rates increase or we locate an investment which pays a higher interest rate than current interest rates . we expect that our primary liquidity requirements during that period including , but not limited to , expenses relating to : ( i ) due diligence and investigation of a target business or businesses ; ( ii ) transaction structuring , negotiating and documenting an initial business combination ; ( iii ) reporting requirements ; ( iv ) general working capital ; ( v ) an aggregate of $ 180.0 thousand for office space , administrative services and support , representing a total of $ 7,500 per month for up to 24 months ( since the period to complete our business combination has been extended to october 14 , 2012 , because we have entered into a non-binding letter of intent with respect to an initial business combination prior to april 14 , 2012 ) ; and ( vi ) additional expenses that may be incurred by us in connection with our initial public offering over and above the amounts listed in the section entitled “ use of proceeds ” in the prospectus , incorporated by reference , will be less than $ 1.25 million . as of december 31 , 2011 , we have earned $ 52.4 thousand on interest income and we anticipate that at the current interest rate of approximately 0.2 % per annum , the interest that will accrue on the trust account during the time it will take to identify a target and complete an acquisition will be insufficient to fund our working capital requirements . cazador 's sponsor , cazador sub-holdings ltd. , has committed to advance to us by way of a non-interest bearing loan an amount of up to $ 400,000 to be used to cover cazador 's ongoing costs and expenses relating to its operations and in connection with a potential initial business combination . this commitment was memorialized in a memorandum of understanding dated as of march 23 , 2012 between cazador and cazador sub-holdings . in addition , we believe it is likely that our sponsor would be willing to make additional loans to us , to the extent that reasonable additional funds are required to fund our short-term operation and or in connection with our initial business combination . based on these factors , we believe that we will have access to sufficient funds to meet our working capital and liquidity needs until the earlier of ( i ) consummation of an initial business combination or ( ii ) liquidation of the company . our liquidity and working capital position is largely dependent on our sponsor 's ability to fulfill its obligations under the above referenced memorandum of understanding and , to the extent additional funds are needed story_separator_special_tag there can be no assurance that a business combination will be consummated and the company retains the ability to enter into a letter of intent or definitive transaction agreement with respect to a business combination with another target . liquidity and capital resources at december 31 , 2011 , total outstanding cash balance available for our working capital needs amounted to $ 101.7 thousand , and restricted cash held in trust account amounting to $ 46.2 million . since our initial public offering , our only source of revenue has been interest income earned over the net proceeds from the initial public offering , that are currently held in a trust account and invested in united states united states government securities within the meaning of section 2 ( a ) ( 16 ) of the investment company act of 1940 , having a maturity of 180 days or less , or in money market fund meeting the conditions under rule 2a-7 under the investment company act , until the earlier of ( i ) consummation of an initial business combination , or ( ii ) liquidation of the company . subject to shareholders ' approval , we expect to use substantially all of the net proceeds of our initial public offering to acquire one or more target businesses by identifying and evaluating prospective target businesses , selecting one or more target businesses , and structuring , negotiating and consummating the initial business combination . to the extent we use our share capital in whole or in part as consideration for an initial business combination , the proceeds held in the trust account ( less amounts paid to any public shareholders who properly exercise their shareholder redemption rights and any interest income previously released to us ) as well as any other net proceeds not expended prior to that time will be used to finance the operations of the target business or businesses . the funds could be used in a variety of ways including continuing or expanding the target business ' operations , for strategic acquisitions and for marketing , research and development of existing or new products . the funds could also be used to repay any operating expenses or finders ' fees which we had incurred prior to the completion of our initial business combination if the funds available to us outside of the trust account were insufficient to cover such expenses . 16 we believe the funds available to us outside of the trust account , together with ( i ) the interest income earned on the trust account balance that may be released to us to pay any tax obligations and ( ii ) interest income of up to $ 2.0 million on the balance of the trust account to be released to us for working capital requirements ( so long as we have sufficient funds available to us to pay our tax obligations on such interest income or otherwise then due at that time ) , will not be sufficient to allow us to operate until october 14 , 2012 , assuming an initial business combination is not completed during that time , unless either current interest rates increase or we locate an investment which pays a higher interest rate than current interest rates . we expect that our primary liquidity requirements during that period including , but not limited to , expenses relating to : ( i ) due diligence and investigation of a target business or businesses ; ( ii ) transaction structuring , negotiating and documenting an initial business combination ; ( iii ) reporting requirements ; ( iv ) general working capital ; ( v ) an aggregate of $ 180.0 thousand for office space , administrative services and support , representing a total of $ 7,500 per month for up to 24 months ( since the period to complete our business combination has been extended to october 14 , 2012 , because we have entered into a non-binding letter of intent with respect to an initial business combination prior to april 14 , 2012 ) ; and ( vi ) additional expenses that may be incurred by us in connection with our initial public offering over and above the amounts listed in the section entitled “ use of proceeds ” in the prospectus , incorporated by reference , will be less than $ 1.25 million . as of december 31 , 2011 , we have earned $ 52.4 thousand on interest income and we anticipate that at the current interest rate of approximately 0.2 % per annum , the interest that will accrue on the trust account during the time it will take to identify a target and complete an acquisition will be insufficient to fund our working capital requirements . cazador 's sponsor , cazador sub-holdings ltd. , has committed to advance to us by way of a non-interest bearing loan an amount of up to $ 400,000 to be used to cover cazador 's ongoing costs and expenses relating to its operations and in connection with a potential initial business combination . this commitment was memorialized in a memorandum of understanding dated as of march 23 , 2012 between cazador and cazador sub-holdings . in addition , we believe it is likely that our sponsor would be willing to make additional loans to us , to the extent that reasonable additional funds are required to fund our short-term operation and or in connection with our initial business combination . based on these factors , we believe that we will have access to sufficient funds to meet our working capital and liquidity needs until the earlier of ( i ) consummation of an initial business combination or ( ii ) liquidation of the company . our liquidity and working capital position is largely dependent on our sponsor 's ability to fulfill its obligations under the above referenced memorandum of understanding and , to the extent additional funds are needed
| total gross proceeds to the company from the 4,600,000 units sold in the initial public offering and the private placement sale of sponsors ' warrants amounted to $ 48.2 million . 17 as of december 31 , 2011 we had no contractual commitments other that the service agreement to pay acm a total of $ 7.5 thousand per month for accounting , legal and operational support , access to support staff , and information technology infrastructure , which amounted to $ 90.0 thousand , and $ 18.8 thousand for the year ended december 31 , 2011 , and the period from april 20 , 2010 ( inception ) to december 31 , 2010 , respectively . we expect to continue to generate small amounts of non-operating income in the form of interest income on cash and cash equivalents . interest income is not expected to be significant in light of current low interest rates on risk free investments ( treasury securities ) . in addition , we expect a substantial increase in expenses for the subsequent annual period provided that we are able to consummate an initial business combination . off-balance sheet arrangements as of december 31 , 2011 , we did not have any off-balance sheet arrangements as defined in item 303 ( a ) ( 4 ) ( ii ) of regulation s-k and did not have any commitments or contractual obligations , other than in relation to the monthly fee payable to acm of $ 7.5 thousand for accounting , legal and operational support , access to support staff , and information technology infrastructure . such agreement has been in place since october 14 , 2010 and shall remain effective upon the earlier of ( i ) the completion of an initial business combination or ( ii ) dissolution of the company . recent accounting pronouncements we do not believe that the adoption of any recently issued accounting standards will have a material impact on our financial position and results of
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accordingly , until such time , if ever , as we can generate substantial product revenue , we expect to finance our operations through equity offerings , debt financings or other capital sources , including potentially grants , collaborations , licenses or other similar arrangements . however , we may not be able to secure additional financing or enter into such other arrangements in a timely manner or on favorable terms , if at all . especially in light of the covid-19 pandemic , we can give no assurances that we will be able to secure such additional sources of funds to support our operations , or , if such funds are available to us , that such additional financing will be sufficient to meet our needs . our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay , reduce or terminate our research and development programs or other operations , or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves . the manufacturing process for our allogeneic product candidates is nearly identical to the process for our autologous product candidates , except for the gene editing and related steps . we work with a number of third-party contract manufacturers for production of our product candidates . we also work with a variety of suppliers to provide our manufacturing raw materials including media , dna and rna components . we have completed construction of an internal pilot gmp manufacturing facility in san diego adjacent to our headquarters to develop and manufacture preclinical materials and clinical supplies of our product candidates for phase 1 and phase 2 clinical trials in the future . we commenced operations in this facility in the second half of 2020 , but we expect that we will continue to rely on third parties for various manufacturing needs . in the future , we may also build one or more commercial manufacturing facilities for any approved product candidates . license agreements below is a summary of the key terms for certain of our license agreements . for a more detailed description of these and our other license agreements , see the section titled “ business—license agreements ” and note 10 to our annual consolidated financial statements . license agreement with janssen biotech inc. on august 3 , 2015 , we entered into a license agreement with janssen , or the janssen agreement , pursuant to which we obtained exclusive worldwide rights to research , develop , manufacture and commercialize pharmaceutical 130 products comprising autologous car-modified t-cells or any car-modified natural killer or car-modified natural-killer-like cells expressing certain centyrin molecules car-modified for the treatment or prevention of any disease in humans . this is the binding technology we use in our p-bcma-101 and p-psma-101 product candidates . under the janssen agreement , we also have the right to screen janssen 's centyrin library for agents that bind or modify targets of interest for our internal research and development purposes for potential use in a licensed product . pursuant to the janssen agreement , we paid janssen an upfront fee of $ 0.2 million . as of december 31 , 2020 , we have paid approximately $ 3.3 million in milestone development fees relating to p-bcma-101 and approximately $ 0.7 million in milestone development fees relating to p-psma-101 . we are required to pay janssen up to an aggregate of $ 75.8 million upon the achievement of certain clinical , regulatory and sales milestones for the first licensed product and up to an aggregate of $ 46.8 million upon the achievement of certain clinical , regulatory and sales milestones for each licensed product thereafter . we are also obligated to pay , on a product-by-product and country-by-country basis , royalties in the low single-digit percentage range on annual net sales , with the royalty rates varying depending on if there is a valid claim present within the licensed patent rights covering the licensed product in the applicable country in which the net sales occur . the royalty rates are subject to reduction upon certain events . april 2017 commercial license agreement with teneobio , inc. on april 27 , 2017 , we entered into a commercial license agreement with teneobio , or the 2017 teneobio agreement , pursuant to which we obtained exclusive worldwide rights to use and develop pharmaceutical products comprising allogeneic t-cells expressing a car molecule containing certain heavy chain sequences provided by teneobio for the treatment of human disease . we use this heavy-chain-only binder in our p-bcma-allo1 product candidate . pursuant to the 2017 teneobio agreement , we have paid teneobio $ 0.5 million through our selection of the antibodies licensed under the 2017 teneobio agreement . we are required to pay teneobio up to an aggregate of $ 20.5 million upon the first achievement of certain clinical and regulatory milestones for any allogeneic product and up to an aggregate of $ 20.5 million upon the first achievement of certain clinical and regulatory milestones for any autologous product . we are also obligated to pay , on a product-by-product and country-by-country basis , a royalty in the low single-digit percentage on net sales of any licensed products . august 2018 commercial license agreement with teneobio , inc. on august 3 , 2018 , we entered into a commercial license agreement , or the 2018 teneobio agreement , with teneobio for the development and use of teneobio 's human heavy-chain-only antibodies in car-t cell therapies . under the terms of the 2018 teneobio agreement , we have the option to obtain exclusive rights to research , develop and commercialize up to a certain number of targets from teneobio . pursuant to the 2018 teneobio agreement , we paid teneobio an upfront fee of $ 4.0 million . story_separator_special_tag we are required to pay additional fees in the low- to mid-six figure dollar range upon ( 1 ) selecting exclusivity for a particular target , which restricts teneobio from licensing that particular target to a third party for a period of time , ( 2 ) continuing exclusivity for any selected target on each anniversary thereafter and ( 3 ) exercising our commercial option for each target . we are required to pay teneobio up to an aggregate of $ 31.0 million upon the first achievement of certain clinical and regulatory milestones for each licensed product . we are also obligated to pay , on a product-by-product and country-by-country basis , a low single-digit percentage royalty on net sales of any licensed products . the royalty rate is subject to reduction upon certain events . 131 october 2019 license agreement with genus oncology , llc on october 24 , 2019 , we entered into a license agreement with genus , or the genus agreement . pursuant to the genus agreement , we paid genus an upfront fee of $ 1.5 million and genus granted us the option , which was exercised in april 2020 for an additional $ 1.5 million fee , to obtain an exclusive worldwide license under certain patents and a non-exclusive worldwide license under certain know-how controlled by genus to research , develop and commercialize pharmaceutical products incorporating car cells expressing antibodies and derivatives thereof targeting muc1 , or a genus licensed product , and a non-exclusive worldwide license under certain patents and know-how controlled by genus to research , develop and commercialize companion diagnostics for the treatment , prevention and palliation of human diseases and conditions . we may use a genus antibody or derivative thereof targeting muc1 as a binder in our p-muc1c-allo1 product candidate . pursuant to the genus agreement , we are also required to pay genus up to an aggregate of $ 71.0 million upon first achievement of certain clinical , regulatory and sales milestones for any genus licensed product and companion diagnostics . we are also obligated to pay , on a product-by-product and country-by-country basis , tiered royalties in the low to mid-single-digit percentage on net sales of any genus licensed products and related companion diagnostics . the royalty rate is subject to reduction upon certain events . acquisition of vindico on october 10 , 2016 , we completed the acquisition of all the outstanding ownership interests in vindico nanobiotechnology , inc. , or vindico , a company with expertise in polymer-based nanoparticle technology for delivery of , for example , gene therapy technologies . we paid $ 1.1 million in cash and issued an aggregate of 350,522 shares of common stock to the selling shareholders . the common stock was valued at $ 0.7 million based on the fair value of our common stock at october 10 , 2016 or $ 1.88 per share . we paid additional cash consideration of $ 0.6 million in 2017. in connection with the vindico acquisition , we agreed to pay additional purchase consideration , based on the achievement of a certain developmental milestone using the acquired technology by october 2018 , payable in shares of our common stock . in july 2018 , we amended the terms of the vindico merger agreement , which included an extension of contingency period through july 2019 , the calculation to determine the number of shares to be settled and an option to settle the contingency in cash under certain circumstances . in july 2019 , the developmental milestone was met and pursuant to the terms of the agreement , we subsequently issued 866,125 shares of common stock , valued at $ 10.6 million to the former vindico shareholders in august 2019. there is no further consideration due related to the vindico acquisition . cirm grant funding in december 2017 , we were granted an award in the amount of $ 19.8 million from cirm to support our clinical trial for p-bcma-101 . the terms of the award include an option to repay the grant or convert it to a royalty obligation upon commercialization of the program . based upon the terms of the agreement , we will record proceeds as a liability when received . as of december 31 , 2020 , proceeds received from the grant totaled $ 19.7 million . we may receive up to $ 0.1 million in future milestone payments . in september 2018 , we were granted an additional award in the amount of $ 4.0 million from cirm to support our preclinical studies for p-psma-101 . as of december 31 , 2020 , all $ 4.0 million had been received and no additional future payments were remaining . components of our results of operations operating expenses research and development research and development expenses consist primarily of external and internal costs incurred for our research and development activities , including development of our platform technologies , our drug discovery efforts and the development of our product candidates . 132 external costs include : expenses incurred in connection with the preclinical and clinical development of our product candidates and research programs , including under agreements with third parties , such as consultants , contractors and contract research organizations ; the cost of developing and scaling our manufacturing process and manufacturing drug products for use in our preclinical studies and clinical trials , including under agreements with third parties , such as consultants , contractors and contract manufacturing organizations , or cmos ; payments made under third-party licensing agreements ; and laboratory supplies and research materials . internal costs include : personnel-related expenses , consisting of employee salaries , related benefits and stock-based compensation expense for employees engaged in research and development functions ; facilities , depreciation and other expenses , consisting of direct and allocated expenses for rent and maintenance of facilities and insurance ; and any impairment of indefinite-lived in process research and development , or ipr & d , related assets . we expense research and development costs as incurred .
| general and administrative expenses general and administrative expenses were $ 23.0 million for the year ended december 31 , 2020 , compared to $ 18.5 million for the year ended december 31 , 2019. the increase in general and administrative expenses of $ 4.5 million was primarily due to an increase of $ 5.9 million of personnel expenses related to increased headcount and an decrease of $ 1.4 million of professional fees , largely due to the financing costs expensed in 2019 related to the ipo work completed prior to closing a private round of financing , offset by higher costs incurred in 2020 related to being a public company . increase in contingent consideration our contingent consideration liability relates to the vindico acquisition , in which we had a contingent obligation to issue shares of our common stock to former vindico shareholders upon achievement of a proof of concept preclinical milestone . increase in contingent consideration was $ 0 for the year ended december 31 , 2020 , compared to $ 6.7 million for the year ended december 31 , 2019. in the 2019 period , we recorded an increase in our contingent consideration liability resulting from the successful completion of the milestone in july 2019. upon issuance of the common stock related to the milestone in july 2019 , the liability was reclassified to stockholder 's deficit , within additional paid-in capital . interest expense interest expense was $ 3.5 million for the year ended december 31 , 2020 , compared to $ 3.6 million for the year ended december 31 , 2019. interest expense consisted of interest on the outstanding principal under our loan and security agreement , which was consistent during the respective periods . other income , net other income was $ 0.3 million for the year ended december 31 , 2020 , compared to other income of $ 2.6 million for the year ended december 31 , 2019. this decrease in other income of $ 2.3 million was primarily due to $ 0.7 million of interest income partially offset by a $ 0.4 million increase in warrant liability during the year ended december 31 , 2020 , compared to $ 2.0 million of interest income and a $ 0.5 million decrease of warrant liability during the year ended december 31 , 2019. the decrease in interest income was driven by a decrease in available interest rates for investments . liquidity and capital resources we were incorporated in december 2014 and subsequently spun out from transposagen , a company that
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net income was $ 1,476 million in 2014 , an increase of $ 601 million , or 69 % , from $ 875 million in 2013. this increase was primarily due to higher operating income , partially offset by an increase in income tax expense . adjusted income , defined and reconciled in non-gaap measures of this item 7. management 's discussion and analysis of financial condition and results of operations , was $ 1,625 million in 2015 , an increase of $ 143 million , or 10 % , from $ 1,482 million in 2014. this increase was primarily due to an increase in adjusted operating income , partially offset by increased income tax expense . diluted earnings per share diluted earnings per share was $ 8.40 in 2015 , a decrease of $ 0.06 , or 1 % from $ 8.46 in 2014. this decrease was primarily due to lower net income , partially offset by lower average outstanding shares due to the company 's share repurchase program . diluted earnings per share was $ 8.46 in 2014 , an increase of $ 3.50 , or 71 % from $ 4.96 in 2013. this increase was primarily due to higher net income and lower average outstanding shares due to the company 's share repurchase program . adjusted diluted eps , defined and reconciled in non-gaap measures of this item 7. management 's discussion and analysis of financial condition and results of operations , was $ 10.10 in 2015 , an increase of $ 1.60 , or 19 % , from $ 8.50 in 2014. adjusted diluted eps was $ 8.50 in 2014 , an increase of $ 2.08 , or 32 % , from $ 6.42 in 2013. these increases were primarily due to higher adjusted income and lower average outstanding shares due to the company 's share repurchase program . 30 operating ratio the operating ratio provides the percentage of revenues used to operate the railway . a lower percentage normally indicates higher efficiency in the operation of the railway . the company 's operating ratio was 60.0 % in 2015 , a 470 basis point improvement from 64.7 % in 2014. this improvement was primarily due to : the favourable impact of the change in fx ; efficiencies generated from improved operating performance and asset utilization ; the gain on sale of d & h south ; lower share-based compensation primarily driven by the change in share price and lower incentive-based compensation ; lower fuel price ; and higher land sales . this improvement was partially offset by : lower traffic volume ; higher pension expense ; higher wage and benefit inflation ; and higher casualty expenses as a result of more costly mishaps . the company 's operating ratio was 64.7 % in 2014 , a decrease from 76.8 % in 2013. this improvement was primarily due to an asset impairment charge in 2013 , higher volumes of traffic generating higher freight revenues , and efficiency savings , partially offset by higher incentive and stock-based compensation resulting from improved corporate performance , and higher wage and benefit inflation . adjusted operating ratio , defined and reconciled in non-gaap measures of this item 7. management 's discussion and analysis of financial condition and results of operations , was 61.0 % in 2015 , a 370 basis point improvement from 64.7 % in 2014. the improvement in adjusted operating ratio reflects the same factors discussed above except that adjusted operating ratio excludes the gain on sale of d & h south . adjusted operating ratio was 64.7 % in 2014 , a decrease from 69.9 % in 2013. this improvement was primarily due to higher volumes generating higher freight revenues and efficiency savings , partially offset by higher incentive and stock-based compensation resulting from improved corporate performance , and higher wage and benefit inflation . return on invested capital roic is a measure of how productively the company uses its long-term capital investments , representing critical indicators of good operating and investment decisions made by management , and is an important performance criteria in determining certain elements of the company 's long-term incentive plan . roic was 12.9 % in 2015 , a 150 basis point decrease compared to 14.4 % in 2014 due to the issuance of long-term debt , partially offset by the reduction in total shareholders ' equity , primarily due to the company 's share repurchase program . roic was 14.4 % in 2014 , a 440 basis point increase compared to 10.1 % in 2013 due to higher income and lower total shareholder 's equity , primarily due to the company 's share repurchase program . adjusted roic was 15.2 % at december 31 , 2015 , compared with 14.5 % in 2014 and compared to 12.3 % in 2013. these increases are the result of increased adjusted operating income , partially offset by increased income tax expense and the reductions in total shareholders ' equity as discussed above . roic and adjusted roic , defined and reconciled in non-gaap measures of this item 7. management 's discussion and analysis of financial condition and results of operations . impact of fx on earnings fluctuations in fx affect the company 's results because u.s. dollar-denominated revenues and expenses are translated into canadian dollars . u.s. dollar-denominated revenues and expenses increase ( decrease ) when the canadian dollar weakens ( strengthens ) in relation to the u.s. dollar . in 2015 , the impact of a stronger u.s. dollar resulted in an increase in total revenues of $ 553 million , an increase in total operating expenses of $ 306 million and an increase in interest expense of $ 37 million . replace_table_token_9_th 31 replace_table_token_10_th in 2016 , cp expects that for every $ 0.01 the u.s. dollar appreciates relative to the canadian dollar , it will increase revenues by $ 30 million , operating expenses by $ 15 million and interest expense by $ 3 million on an annualized basis . story_separator_special_tag impact of fuel price on earnings fluctuations in fuel prices affect the company 's results because fuel expense constitutes a significant portion of cp 's operating costs . as fuel prices fluctuate , there will be a timing impact on earnings . in 2015 , the impact of lower fuel prices resulted in a decrease in total revenues of $ 334 million and a decrease in total operating expenses of $ 403 million . replace_table_token_11_th operating revenues replace_table_token_12_th ( 1 ) freight revenues include fuel surcharge revenues of $ 293 million in 2015 , $ 637 million in 2014 and $ 598 million in 2013 . ( 2 ) fx impact is a component of the total change . the company 's revenues are primarily derived from transporting freight . non-freight revenue is generated from leasing of certain assets , switching fees , contracts with passenger service operators , and logistical management services . changes in freight volumes generally contribute to corresponding changes in freight revenues and certain variable expenses , such as fuel , equipment rents and crew costs . freight revenues freight revenues were $ 6,552 million in 2015 , an increase of $ 88 million , or 1 % from $ 6,464 million in 2014. this increase was primarily due to the favourable impact of the change in fx of $ 549 million and an increase in canadian grain revenue due to increased exports . this increase was partially offset by the impact of lower fuel prices on fuel surcharge revenue of $ 334 million , and lower volumes of metals , mineral and consumer products and crude . freight revenues were $ 6,464 million in 2014 , an increase of $ 482 million , or 8 % from $ 5,982 million in 2013. this increase was primarily due to : higher volumes in canadian grain , domestic intermodal , crude , and metals , minerals and consumer products ; higher freight rates ; and the favourable impact of the change in fx . this increase was partially offset by : lower shipments in international intermodal and automotive , primarily due to the exit of certain customer contracts ; 32 lower fertilizers and sulphur shipments primarily due to sulphur production shutdowns ; and lower shipments in certain lines of business in the first half of the year due to the impact of harsh winter operating conditions . non-freight revenues non-freight revenues were $ 160 million in 2015 , an increase of $ 4 million , or 3 % from $ 156 million in 2014. this increase was due to the favourable impact of the change in fx . non-freight revenues were $ 156 million in 2014 , an increase of $ 5 million , or 3 % from $ 151 million in 2013. this increase was primarily due to higher leasing revenues . lines of business canadian grain replace_table_token_13_th ( 1 ) fx impact is a component of the total change . canadian grain revenue was $ 1,068 million in 2015 , an increase of $ 80 million , or 8 % from $ 988 million in 2014. this increase was primarily due to higher freight rates , the favourable impact of the change in fx , and strong export volumes through port of vancouver , partially offset by lower fuel surcharge revenue . canadian grain revenue was $ 988 million in 2014 , an increase of $ 119 million , or 14 % from $ 869 million in 2013. this increase was primarily due to higher shipments as a result of strong export demand and record canadian crop production , partially offset by reduced freight rates . u.s. grain replace_table_token_14_th ( 1 ) fx impact is a component of the total change . u.s. grain revenue was $ 522 million in 2015 , an increase of $ 19 million , or 4 % from $ 503 million in 2014. the increase was primarily due to the favourable impact of the change in fx , partially offset by a decrease in volumes of 9 % primarily due to the reduction in export volumes , and lower fuel surcharge revenue . u.s. grain revenue was $ 503 million in 2014 , an increase of $ 72 million , or 17 % from $ 431 million in 2013. this increase was primarily due to : higher freight rates ; increased volume to the pacific northwest , which has a longer length of haul , in the second half of the year ; and the favourable impact of the change in fx . this increase was partially offset by the impact of harsh winter operating conditions in the first quarter of 2014 . 33 coal replace_table_token_15_th ( 1 ) fx impact is a component of the total change . coal revenue was $ 639 million in 2015 , an increase of $ 18 million , or 3 % from $ 621 million in 2014. this increase was primarily due to the favourable impact of the change in fx and higher freight rates and volumes of u.s. originated thermal coal , partially offset by lower fuel surcharge revenue and a decline in volume in canadian coal business . coal revenue was $ 621 million in 2014 , a decrease of $ 6 million , or 1 % from $ 627 million in 2013. this decrease was primarily due to lower shipments of u.s. originating thermal coal , partially offset by higher canadian originating shipments of metallurgical coal , and increased freight rates . potash replace_table_token_16_th ( 1 ) fx impact is a component of the total change . potash revenue was $ 359 million in 2015 , an increase of $ 12 million , or 3 % from $ 347 million in 2014. this increase was primarily due to the favourable impact of the change in fx and an increase in volumes where growth in export potash , which has a lower revenue per rtm , outpaced domestic potash growth .
| 2016 outlook the company 's outlook for the full year 2016 includes : operating ratio below 59 % ; double-digit eps growth from full-year 2015 adjusted diluted eps of $ 10.10 ; and capital expenditures of approximately $ 1.1 billion . 27 performance indicators the following table lists the key measures of the company 's operating performance : replace_table_token_8_th ( 1 ) certain figures have been revised to conform with current presentation or have been updated to reflect new information . operations performance gtms are defined as the movement of total train weight over a distance of one mile . total train weight comprises the weight of the freight cars , their contents , and any inactive locomotives . an increase in gtms indicates additional workload . gtms for 2015 were 263,333 million , a 3 % decrease compared with 272,862 million in 2014. this decline was primarily due to a drop in volumes in the intermodal , crude and metals , minerals and consumer products lines of business . gtms in 2014 increased by 2 % compared with 267,629 million in 2013. this improvement was primarily due to higher shipments in canadian grain , crude , domestic intermodal , and metals , minerals and consumer products . rtms are defined as the movement of one revenue-producing ton of freight over a distance of one mile . rtms measure the relative weight and distance of rail freight moved by the company . rtms for 2015 were 145,257 million , a decrease of 4,592 million or 3 % compared with 149,849 million in 2014. this decrease was primarily due to lower volumes of crude ; metals , minerals and consumer products ; and u.s. grain . this decrease in rtms was partially offset by increased shipments of potash , canadian grain and forest products . rtms for 2014 were 149,849 million , an increase of 4 % compared with 144,249 million in 2013. this increase was primarily due to higher canadian originating shipments of grain ; volumes in energy-related commodities and frac sand ; and domestic intermodal shipments . this increase was partially offset by lower international intermodal shipments ; fertilizers and sulphur shipments ; and u.s. originating thermal
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in evaluating these statements , you should consider various factors , including the risks , uncertainties and assumptions set forth in reports and other documents we have filed with or furnished to the sec and , including , without limitation , this annual report on form 10-k filing for the fiscal year ended july 31 , 2018 , including the consolidated financial statements and related notes contained herein . these factors , or any one of them , may cause our actual results or actions in the future to differ materially from any forward-looking statement made in this document . refer to “ forward-looking statements ” and item 1a . risk factors . 27 introduction the following discussion summarizes the results of operations for each of our fiscal years ended july 31 , 2018 and 2017 and our financial condition as at july 31 , 2018 and 2017 , with a particular emphasis on fiscal 2018 , our most recently completed fiscal year . story_separator_special_tag valign= '' top '' > 2 ) on 31 october 2017 , the company closed a third tranche of a non-brokered private placement and issued 757,666 subscription receipts at a price of cad $ 0.66 per subscription receipt for aggregate gross proceeds of cad $ 500,060 . 3 ) on 1 november 2017 , the company closed a fourth and final tranche of a non-brokered private placement and issued 68,181 subscription receipts at a price of cad $ 0.66 per subscription receipt for aggregate gross proceeds of cad $ 45,000 . 4 ) on 1 december 2017 , the company closed a non-brokered private placement of 637,393 units at a price of cad $ 0.66 per unit for aggregate gross proceeds of cad $ 420,680. during the year ended july 31 , 2017 , the company completed the following financing : 1 ) on 19 april 2017 , the company closed a private placement issuing a total of 8,700,000 common shares for gross proceeds of cad $ 1,305,000. the company paid share issue costs of cad $ 63,750 related to this private placement . significant expenditures anticipated during the next fiscal year : replace_table_token_8_th 30 we anticipate raising additional funds through the issuance of capital stock and or debt financings within the next 12 months , however , we can not provide any assurance that any additional financing will be available to us , or if available , will be on terms acceptable to us ( see heading ‘ subsequent events ' ) . statement of cash flows during the year ended july 31 , 2018 , our net cash decreased by $ 41,747 ( 2017 : increase of $ 366,584 ) , which included net cash used in operating activities of $ 2,139,327 ( 2017 : $ 459,332 ) , net cash used in investing activities of $ 2,690,063 ( 2017 : $ 95,622 ) , net cash provided by financing activities of $ 4,806,025 ( 2017 : $ 902,932 ) and effect of exchange rate changes on cash and cash equivalents of ( $ 18,382 ) ( 2017 : $ 18,606 ) . cash flow used in operating activities cash flow used in operating activities totaled $ 2,139,327 and $ 459,332 during the year ended july 31 , 2018 and 2017 , respectively . cash used in operating activities increased significantly in 2018 as a result of the company 's finalization of the assignment agreement and the share exchange agreement with nmg . significant changes in cash used in operating activities are outlined as follows : · the company incurred a net loss from operations of $ 1,781,060 during the year ended july 31 , 2018 compared to $ 367,159 in 2017. the net loss in 2018 included non-cash accrued interest of $ nil ( 2017 : $ 1,343 ) , accretion expenses of $ 277,219 ( 2017 : $ nil ) , depreciation of $ 8,811 ( 2017 : $ 1,590 ) , settlement of liabilities of $ nil ( 2017 : $ 51,963 ) , stock-based compensation of $ 789,679 ( 2017 : $ nil ) , deferred tax recovery of $ 1,144,080 ( 2017 - $ nil ) ; transaction costs of $ 330,324 ( 2017 - $ nil ) and write-off of amounts receivable of $ 872 ( 2017 : $ 839 ) . the following non-cash items further adjusted the loss for the year ended july 31 , 2018 and 2017 : · increase in amounts receivable and prepaid of $ 361,854 ( 2017 : $ 15,267 ) , increase in inventory of $ 454,737 ( 2017 : $ nil ) , decrease in trade payables and accrued liabilities of $ 371,586 ( 2017 : decrease of $ 33,765 ) , increase in income taxes payable of $ 239,358 ( 2017 - $ nil ) and increase in due to related parties of $ 46,276 ( 2017 : decrease of $ 36,909 ) . cash flow used in investing activities during the year ended july 31 , 2018 , investing activities used cash of $ 2,690,063 in the year ended july 31 , 2018 as compared to $ 95,622 used in july 31 , 2017. the significant difference relates primarily to the acquisition of nmg , net of cash received , in the amount of $ 2,048,158 ( 2017 : $ nil ) , purchase of property and equipment of $ 564,305 ( 2017 : $ nil ) and investment in nmg ohio llc of $ 77,600 ( 2017 : $ nil ) . story_separator_special_tag cash flow provided by financing activities during the year ended july 31 , 2018 , as part of the concurrent financing requirement of the share exchange agreement with nmg , the company raised $ 4,806,025 ( 2017 - $ 936,828 ) net of share issue costs by issuing 9,102,165 subscription receipts at a price of cad $ 0.66 per subscription receipt . on november 14 , 2017 , each subscription receipt converted into one common share of the company and one share purchase warrant of the company exercisable at a price of cad $ 0.90 for a period of 24 months from the date of issuance . during the year ended july 31 , 2017 , we obtained a short term loan of $ 19,903 from a third party . the loan was settled and we recorded a gain on settlement of liabilities of $ 19,903 related to this loan . the company closed a private placement on april 19 , 2017 and issued 26,100,000 common shares for gross proceeds of $ 984,943. we paid finders ' fee of $ 48,115. during the year ended july 31 , 2017 , we repaid loans totaling $ 53,799. we settled the loans without any interest payments and , as a result , we recorded a gain on settlement of liabilities of $ 18,345. off-balance sheet arrangements there are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to investors . 31 subsequent events on september 19 , 2018 , the company announced the company , through its wholly-owned subsidiary , nmg , and its strategic in-state investment partners received notification that the state of ohio awarded a medical cannabis production licenses to nmg ohio . on october 30 , 2018 the company entered into a strategic investment agreement ( the “ investment agreement ” ) with australis capital inc. ( “ australis ” ) . pursuant to the terms of the investment agreement , australis will acquire ( i ) 16,000,000 units ( the “ units ” ) of bam , each comprised of one common share ( a “ common share ” ) and one common share purchase warrant ( a “ warrant ” ) of the company , at a purchase price of cad $ 0.40 per unit for gross proceeds of cad $ 6,400,000 , and ( ii ) cad $ 1,600,000 principal amount 8 % unsecured convertible debentures ( the “ debentures ” ) of the company maturing two years following the date of issue ( collectively , the “ financing ” ) . each warrant is exercisable to acquire one common share of the company at an exercise price of cad $ 0.50 per share for a period of two years , subject to adjustment and acceleration in certain circumstances . the debentures will bear interest from the date of issuance ( the “ issue date ” ) at a rate of 8 % per annum , calculated and payable semi-annually , in arrears . repayment of the then outstanding principal amount of the debentures , together with any accrued and unpaid interest thereon , is to be made on or prior to the date that is two years from the issue date ( the “ maturity date ” ) . the debentures are convertible at the option of australis into common shares at a conversion price equal to cad $ 0.55 per common share up to the maturity date , subject to adjustment and acceleration in certain circumstances . the company intends to use the proceeds of the financing ( i ) to repay all but usd $ 1,000,000 of the promissory notes issued in connection with the company 's acquisition of nevada medical group llc . the promissory note holders have agreed to extend the due date of the usd $ 1,000,000 to february 14 , 2020 ( ii ) for strategic acquisitions and or investment opportunities within the state of ohio , ( iii ) for development , build out and equipment purchases for the nmg ohio dispensary and or production facility , ( iv ) to pay advisory fees payable to the company 's financial advisor , and ( v ) for working capital purposes . under the terms of the investment agreement , the parties have agreed to negotiate in good faith a license agreement pursuant to which the company will grant australis an exclusive and assignable license to use the bam brand outside of the united states of america on commercially reasonable terms . in addition , the company will enter into a commercial advisory agreement with australis capital ( nevada ) inc. ( “ australis nevada ” ) , a wholly-owned subsidiary of australis , pursuant to which australis nevada will provide advisory and consulting services to the company for a term ending on the date that is the earlier of : ( i ) five years following the closing of the transactions contemplated by the investment agreement , and ( ii ) the date australis no longer holds 10 % or more of the issued and outstanding common shares . subject to certain exceptions , australis will be entitled to maintain its ' pro rata interest in the company until such time as it no longer holds 10 % or more of the issued and outstanding common shares .
| a total of $ 248,201 relates to management and consulting fees paid/accrued to the chief executive officer , chief financial officer and former chief executive officer and $ 29,531 relates to accounting fees paid/accrued to the former chief financial officer and a director . 28 income taxes a reconciliation of income taxes at statutory rates with the reported taxes for the year ended july 31 , 2018 and 2017 is as follows : replace_table_token_6_th the significant components of the company 's deferred income tax assets and liabilities are as follows : replace_table_token_7_th 29 other items during the year ended july 31 , 2018 , our other items accounted for $ 443,959 in expenses as compared to $ 14,875 for the year ended july 31 , 2017. the significant components in other items primarily relates to foreign exchange of $ 193,959 ( 2017 - $ 65,999 ) and write off of deposit of $ 250,000 ( 2017 - $ nil ) . in 2018 , the company recorded a settlement of liabilities resulting in other income of $ nil ( 2017 - $ 51,963 ) . net income ( loss ) the net loss was $ 1,781,060 for the year ended july 31 , 2018 and $ 367,159 for the year ended july 31 , 2017. the increase in net loss resulted primarily from the increase in general and administrative expenses as discussed above . liquidity and capital resources our financial statements have been prepared assuming that we will continue as a going concern and , accordingly , do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation . the following table sets out our cash and working capital as of july 31 , 2018 and 2017 : as of july 31 , 2018 as of july 31 , 2017 cash reserves $ 324,837 $ 366,584 working capital ( deficiency ) $ ( 998,878 ) $ 218,928 financings 1 ) on august 15 , 2017 and august 16 , 2017 , the company closed the first two of four tranches of a non-brokered
| 16,067 |
the company also recorded a net tax benefit of $ 11.7 million , which includes tax benefits of $ 6.7 million related to the extension of the federal research and development credit and other international tax provisions resulting from the retroactive impact of u.s. legislation enacted in january 2013 , $ 2.2 million related to 2012 provision to return and other tax adjustments and $ 8.0 million related to the reversal of certain state deferred tax asset valuation allowances , partially offset by a $ 5.2 million tax expense related to comprehensive income and other tax adjustments . year ended december 31 , 2012 : the company incurred $ 39.7 million of expense and $ 5.7 million of tax expense associated with the loss on sale of the spark plug business , primarily related to the write-down of prior purchase price accounting adjustments included within the disposal group . the company also recorded restructuring expense of $ 27.4 million , primarily associated with the disposal and future requirements of beru 's on-going business , which was partially offset by a tax benefit of $ 7.7 million . retirement related obligations of $ 17.3 million are comprised of a $ 5.7 million loss resulting from the settlement of a portion of the muncie plant 's pension obligation and an $ 11.6 million expense associated with the retirement of certain named executive officers . these obligations were partially offset by a $ 6.1 million tax benefit . the company incurred $ 19.8 million of tax expense resulting from other tax adjustments . these other tax adjustments primarily included tax expense resulting from the settlement of certain tax audits , the company 's second quarter 2012 decision to change its cash repatriation assertion for some of its foreign subsidiaries and a correction of the income taxes payable balance , partially offset by a tax benefit related to certain countries enacting changes to their respective statutory income tax rates . net sales net sales for the year ended december 31 , 2014 totaled $ 8,305.1 million , a 11.7 % increase from the year ended december 31 , 2013. excluding the impact of the 2014 wahler acquisition and weaker foreign currencies , primarily the yen and the real partially offset by the won , net sales increased approximately 8 % . net sales for the year ended december 31 , 2013 totaled $ 7,436.6 million , a 3.5 % increase from the year ended december 31 , 2012. excluding the impact of 2012 dispositions and strengthening foreign currencies , primarily the euro , net sales increased approximately 4 % . 29 the following table details our results of operations as a percentage of net sales : replace_table_token_9_th cost of sales as a percentage of net sales was 78.9 % , 79.1 % and 79.6 % in the years ended december 31 , 2014 , 2013 and 2012 , respectively . the company 's material cost of sales was 50 % to 55 % of net sales in the years ended december 31 , 2014 , 2013 and 2012. the company 's remaining cost to convert raw material to finished product , which includes direct labor and manufacturing overhead , has continued to improve during the years ended december 31 , 2014 and december 31 , 2013 compared to december 31 , 2012 as a result of increased net sales and successful cost reduction actions . gross profit as a percentage of net sales was 21.1 % , 20.9 % and 20.4 % in the years ended december 31 , 2014 , 2013 and 2012 , respectively . selling , general and administrative expenses ( “ sg & a ” ) was $ 698.9 million , $ 639.7 million and $ 629.3 million or 8.4 % , 8.6 % and 8.8 % of net sales for the years ended december 31 , 2014 , 2013 and 2012 , respectively . sg & a increased $ 59.2 million and $ 69.6 million from the years ended december 31 , 2013 and 2012 , respectively , as a result of increased research and development ( `` r & d '' ) costs included in sg & a , offset by continued cost management . r & d costs , net of customer reimbursements , was $ 336.2 million , or 4.0 % of net sales , in the year ended december 31 , 2014 , compared to $ 303.2 million , or 4.1 % of net sales , and $ 265.9 million , or 3.7 % of net sales , in the years ended december 31 , 2013 and 2012 , respectively . we will continue to invest in a number of cross-business r & d programs , as well as a number of other key programs , all of which are necessary for short- and long-term growth . our current long-term expectation for r & d spending is approximately 4 % of net sales . other expense , net was $ 93.8 million , $ 62.6 million and $ 84.7 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . this line item is primarily comprised of transactions discussed within the subtitle `` non-comparable items impacting the company 's earnings per diluted share and net earnings '' above . equity in affiliates ' earnings , net of tax was $ 47.3 million , $ 43.5 million and $ 42.8 million in the years ended december 31 , 2014 , 2013 and 2012 , respectively . this line item is primarily driven by the results of our 50 % -owned japanese joint venture , nsk-warner , and our 32.6 % -owned indian joint venture , turbo energy limited ( “ tel ” ) . refer to note 5 , `` balance sheet information , '' to the consolidated financial statements in item 8 of this report for further discussion of nsk-warner . 30 interest expense and finance charges were $ 36.4 million , $ 34.2 million and $ 39.4 million in the years ended december 31 , 2014 , 2013 and 2012 , respectively . story_separator_special_tag interest expense remained relatively flat for the year ended december 31 , 2014 compared with the year ended december 31 , 2013. the decrease in interest expense for the year ended december 31 , 2013 compared with the year ended december 31 , 2012 was primarily due to the april 2012 settlement of the company 's convertible senior notes . provision for income taxes the provision for income taxes resulted in an effective tax rate of 29.9 % for the year ended december 31 , 2014 , compared with rates of 25.1 % and 31.4 % for the years ended december 31 , 2013 and 2012 , respectively . the company 's effective tax rate was higher for the year ended december 31 , 2014 compared with the year ended december 31 , 2013 primarily due to an increase in u.s. earnings . the effective tax rate of 29.9 % for the year ended december 31 , 2014 includes tax benefits of $ 15.3 million , $ 0.4 million and $ 1.1 million related to restructuring expense , intangible asset impairment losses and the pension settlement loss discussed in note 3 , `` other expense , net , '' to the consolidated financial statements in item 8 of this report . excluding the impact of these non-comparable items , the company 's annual effective tax rate associated with ongoing operations for 2014 was 28.5 % . the effective tax rate of 25.1 % for the year ended december 31 , 2013 includes tax benefits of $ 5.1 million , $ 2.0 million , $ 3.8 million and $ 2.1 million related to restructuring expense , intangible asset impairment losses , program termination agreement and retirement related obligations discussed in note 3 , `` other expense , net , '' to the consolidated financial statements in item 8 of this report . this rate also includes a net tax benefit of $ 11.7 million , which is comprised of tax benefits of $ 6.7 million related to the extension of the federal research and development credit and other international tax provisions resulting from the retroactive impact of u.s. legislation enacted in january 2013 , $ 2.2 million related to 2012 provision to return and other tax adjustments and $ 8.0 million related to the reversal of certain state deferred tax asset valuation allowances , partially offset by a $ 5.2 million tax expense related to comprehensive income and other tax adjustments . excluding the impact of these non-comparable items , the company 's annual effective tax rate associated with ongoing operations for 2013 was 25.9 % . the effective tax rate of 31.4 % for the year ended december 31 , 2012 includes a net tax benefit of $ 2.0 million associated with the loss from disposal activities and restructuring expense . the $ 2.0 million net benefit is comprised of a tax benefit of $ 7.7 million associated with restructuring expense , partially offset by tax expense of $ 5.7 million resulting from the sale of the spark plug business . additionally , the provision includes a tax benefit of $ 6.1 million related to retirement related obligations and additional tax expense of $ 19.8 million resulting from other tax adjustments . these other tax adjustments include $ 5.9 million of tax expense primarily resulting from the settlement of certain tax audits , $ 7.5 million of tax expense associated with the company 's second quarter 2012 decision to change its cash repatriation assertion for some of its foreign subsidiaries , $ 4.7 million of tax benefit related to certain countries enacting changes to their respective statutory income tax rates and $ 11.1 million of u.s. tax expense to correct the income taxes payable balance . excluding the impact of these non-comparable items , the company 's annual effective tax rate associated with ongoing operations for 2012 was 26.8 % . net earnings attributable to the noncontrolling interest , net of tax of $ 31.7 million for the year ended december 31 , 2014 increased by $ 5.0 million and $ 10.2 million compared to 2014 for the years ended december 31 , 2013 and 2012 , respectively . the increases during the years ended december 31 , 2014 and december 31 , 2013 compared to the year ended december 31 , 2012 are primarily related to higher sales and earnings by the company 's joint ventures . 31 story_separator_special_tag style= '' font-family : arial ; font-size:11pt ; '' > under the multi-currency revolving credit agreement . on march 12 , 2014 , the company entered into a new commercial paper program pursuant to which the company may issue short-term , unsecured commercial paper notes up to a maximum aggregate principal amount outstanding of $ 1 billion . under this program , the company may issue notes from time to time and will use the proceeds for general corporate purposes . at december 31 , 2014 , the company had outstanding borrowings of $ 460.9 million under this program , which is classified in the consolidated balance sheet in notes payable and other short-term debt . the total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program can not exceed $ 1 billion . on february 11 , 2014 , the company 's universal shelf registration expired . the company filed a new universal shelf registration with the securities and exchange commission on february 28 , 2014. in addition to the credit facility , the company 's universal shelf registration has an unlimited amount of various debt and equity instruments that could be issued depending upon market participation . on january 22 and april 21 , 2014 , the company 's board of directors declared quarterly cash dividends of $ 0.125 per share of common stock . on july 21 , 2014 and november 12 , 2014 , the company 's board of directors declared quarterly cash dividends of $ 0.13 per share of common stock .
| the segment adjusted ebit margin was 16.2 % for the year ended december 31 , 2014 , down from 16.4 % in the year ended december 31 , 2013. the adjusted ebit margin decrease was driven by the wahler acquisition , which increased sales with minimal contribution to adjusted ebit primarily due to expenses associated with purchase accounting adjustments . the engine segment 's net sales for the year ended december 31 , 2013 increased $ 109.1 million , or 2.2 % , and segment adjusted ebit increased $ 39.6 million , or 5.0 % , from the year ended december 31 , 2012. excluding the impact of 2012 dispositions and strengthening foreign currencies , primarily the euro , net sales increased approximately 4 % from the year ended december 31 , 2012 primarily due to higher sales of turbochargers , egr components and engine timing systems including variable cam timing devices . the segment adjusted ebit margin was 16.4 % for the year ended december 31 , 2013 , up from 16.0 % in the year ended december 31 , 2012. the adjusted ebit margin increase was primarily driven by continued cost management . the drivetrain segment 's net sales for the year ended december 31 , 2014 increased $ 184.9 million , or 7.6 % , and segment adjusted ebit increased $ 51.1 million , or 20.3 % , from the year ended december 31 , 2013. excluding the impact of strengthening foreign currencies , primarily the won , net sales increased approximately 7 % from the year ended december 31 , 2013 primarily due to higher sales of all-wheel drive systems , traditional transmission components , and dual clutch transmission modules . the segment adjusted ebit margin was 11.5 % in the year ended december 31 , 2014 , up from 10.3 % in the year ended december 31 , 2013. the adjusted ebit margin increase was primarily driven by operational improvements and continued cost management . the drivetrain segment 's net sales for the year ended december 31 , 2013 increased $ 147.8 million , or 6.4 % , and segment adjusted ebit increased $ 43.1 million , or 20.6 % , from the year ended december 31 , 2012. excluding the impact of strengthening foreign currencies , primarily the euro , net sales increased approximately 4 % from the year
| 16,068 |
2019 marked a year of execution and performance as the company implemented a number of planning and operational processes which resulted in higher operational efficiencies and lower cycle times . the company drilled 32 % more lateral footage per day while lowering the per lateral foot costs by 24 % as compared to 2018 performance . on the completion side , improved well site management doubled the number of stages per day completed as compared to 2018 , while reducing costs by 26 % . the improved well site management processes further lowered the time from rig release to first stage pumped by six days , accelerating time to first sales . when combined , the average time from spud to first sales was reduced significantly from 71 days in 2018 to 43 days in 2019. silverbow 's continued success in reducing costs is a direct result of its operational and supply teams working with vendors to negotiate the best prices and logistical considerations for the materials used in its operations . 2019 cost reduction initiatives : the company continues to focus on cost reduction measures . these initiatives include the use of regional sand in completions , improved utilization of existing facilities , elimination of redundant equipment , and replacement of rental equipment with company-owned equipment . as previously mentioned , the company continues to improve its process for drilling , completing and equipping wells . the company 's procurement team takes a process-oriented approach to reducing the total delivered costs of purchased services by examining costs at their most granular level . services are routinely sourced directly from the suppliers . the company 's lease operating expenses were $ 0.25 per mcfe for the year ended december 31 , 2019 as compared to $ 0.26 per mcfe for the same period in 2018 . the company 's cash general and administrative costs were $ 18.7 million ( a non-gaap financial measure calculated as $ 24.9 million in net general and administrative costs less $ 6.1 million of share based compensation ) for the year ended december 31 , 2019 , or $ 0.22 per mcfe , compared to $ 16.6 million ( a non-gaap financial measure calculated as $ 22.6 million in net general and administrative costs less $ 6.0 million of share based compensation ) , or $ 0.25 per mcfe , for the same period in 2018 . we have continued to maintain a safe working environment while implementing these cost-reduction efforts . our corporate total recordable incident rate was 0.23 incidents per 2.6 million work hours in 2019 . liquidity and capital resources the company 's primary use of cash has been to fund capital expenditures to develop its oil and gas properties . as of december 31 , 2019 , the company 's liquidity consisted of approximately $ 1.4 million of cash-on-hand and $ 121.0 million in available borrowings on the company 's credit facility 's $ 400.0 million borrowing base . management believes the company has sufficient liquidity to meet its obligations through the first quarter of 2021 and execute its long-term development plans . see note 4 to the company 's consolidated financial statements for more information on its debt facilities . 36 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > decreased from the average price of $ 66.96 per bbl used in the calculation for 2018 . our average ngl price used in the calculation for 2019 was $ 16.83 per bbl . this average price decreased from the average price of $ 26.63 per bbl used in the calculation for 2018 . 38 results of operations revenues — years ended december 31 , 2019 and 2018 2019 - our oil and gas sales in 2019 increased by 12 % compared to revenues in 2018 , primarily due to overall increased production . average oil prices we received were 12 % lower than those received during 2018 , while natural gas prices were 18 % lower and ngl prices were 42 % lower . crude oil production was 12 % and 6 % of our production volumes for the years ended december 31 , 2019 and 2018 , respectively , while crude oil sales revenues were 32 % and 18 % of oil and gas sales revenue for the years ended december 31 , 2019 and 2018 , respectively . natural gas production was 76 % and 84 % of our production volumes for the years ended december 31 , 2019 and 2018 , respectively , while natural gas sales revenues were 59 % and 71 % of oil and gas sales for the years ended december 31 , 2019 and 2018 , respectively . ngl production was 12 % and 10 % of our production volumes for the years ended december 31 , 2019 and 2018 , respectively , while ngl sales were 9 % and 11 % of oil and gas sales for the years ended december 31 , 2019 and 2018 , respectively . the following tables provide information regarding the changes in the sources of our oil and gas sales and volumes for the years ended december 31 , 2019 and 2018 : replace_table_token_16_th ( 1 ) includes our oro grande and uno mas fields . our sales volume increase from 2018 to 2019 was primarily due to increased production as a result of drilling and completion activity . in 2019 , our $ 31.3 million , or 12 % increase in oil , ngl , and natural gas sales resulted from : volume variances that had a $ 100.6 million favorable impact on sales , with a $ 60.4 million increase due to the 0.9 million bbl increase in oil production volumes , a $ 25.0 million increase due to the 7.7 bcf increase in natural gas production volumes and a $ 15.2 million increase due to the 0.6 million bbl increase in ngl production volumes . story_separator_special_tag price variances that had a $ 69.2 million unfavorable impact on sales , with a decrease of $ 37.7 million due to the 18 % decrease in natural gas prices received , a decrease of $ 13.0 million due to the 12 % decrease in oil prices received and a decrease of $ 18.6 million due to the 42 % decrease in ngl prices received . 39 the following table provides additional information regarding our oil and gas sales , by commodity type , as well as the effects of our hedging activities for derivative contracts held to settlement for the years ended december 31 , 2019 and 2018 ( in thousands , except per-dollar amounts : replace_table_token_17_th ( 1 ) oil and natural gas liquids are converted at the rate of one barrel to six mcfe . for the years ended december 31 , 2019 and 2018 we recorded net gains ( losses ) of $ 24.2 million and ( $ 9.8 ) million , respectively , related to our derivative activities . the change was driven primarily by changes in commodity pricing . this activity is recorded in “ net gain ( loss ) on commodity derivatives ” on the accompanying consolidated statements of operations . 40 costs and expenses the following table provides additional information regarding our expenses for the years ended december 31 , 2019 and 2018 : replace_table_token_18_th 2019 - our costs and expenses during 2019 versus 2018 were as follows : general and administrative expenses , net . these expenses on a per mcfe basis were $ 0.29 and $ 0.33 for the years ended december 31 , 2019 and 2018 , respectively . the decrease per mcfe was due to higher production while the increase in costs was primarily due to higher salaries and burdens and higher computer operations expenses . included in general and administrative expenses is $ 6.1 million and $ 6.0 million in share based compensation for the years ended december 31 , 2019 and 2018 , respectively . depreciation , depletion and amortization ( “ dd & a ” ) . these expenses on a per mcfe basis were $ 1.14 and $ 1.01 for the years ended december 31 , 2019 and 2018 , respectively . the increase in the rate per unit is primarily due to a higher depletable base relative to reserves . the higher depletion expense is due to a higher production and a higher per unit rate . lease operating cost . these expenses on a per mcfe basis were $ 0.25 and $ 0.26 for the years ended december 31 , 2019 and 2018 , respectively . the decrease per mcfe was primarily due to higher production . the increase in costs was primarily driven by an increase in the number of operated wells and handling of higher production volumes compared to the prior year . transportation and gas processing . these expenses all related to natural gas and ngl sales . these expenses on a per mcfe basis were $ 0.32 and $ 0.35 for the years ended december 31 , 2019 and 2018 , respectively . severance and other taxes . these expenses on a per mcfe basis were $ 0.16 and $ 0.17 for the years ended december 31 , 2019 and 2018 , respectively . severance and other taxes , as a percentage of oil and gas sales , were approximately 4.8 % and 4.4 % for the years ended december 31 , 2019 and 2018 , respectively . interest . our gross interest cost was $ 36.8 million and $ 28.6 million for the years ended december 31 , 2019 and 2018 , respectively , of which $ 0.2 million and $ 0.9 million was capitalized , respectively . the increase in gross interest from 2018 was primarily due to increased borrowings on our credit facility . income taxes . there was no expense for federal income taxes for the year ended december 31 , 2018 as tax expense that would have been recognized at the statutory rate for 2018 was predominately offset by a reduction in the valuation allowance carried forward from 2017. state income tax of $ 0.9 million was recognized for the year ended december 31 , 2018 . in prior periods , management had determined that it was not more likely than not that the company would realize future cash benefits from its remaining federal carryover items and other deferred tax assets and , accordingly , had taken a full valuation allowance to offset its net deferred tax assets in excess of deferred tax liabilities . . during the second quarter of 2019 , the company was able to complete several operational initiatives that resulted in increased production , lower development costs and expanded inventory of development prospects . the results of these initiatives led management to determine , after weighing both positive and negative evidence , that the company will more likely than not be able to realize the benefits of its deferred tax assets . accordingly , the company released the valuation allowance , resulting in a net deferred tax benefit of $ 21.6 million for the year ended december 31 , 2019 . state income tax of $ 1.1 million was recognized for the year ended december 31 , 2019 41 non-gaap financial measures adjusted ebitda we present adjusted ebitda attributable to common stockholders ( “ adjusted ebitda ” ) in addition to our reported net income ( loss ) in accordance with u.s. gaap . adjusted ebitda is a non-gaap financial measure that is used as a supplemental financial measure by our management and by external users of our financial statements , such as investors , commercial banks and others , to assess our operating performance as compared to that of other companies in our industry , without regard to financing methods , capital structure or historical costs basis . it is also used to assess our ability to incur and service debt and fund capital expenditures .
| the company 's net borrowings under its revolving credit facility were $ 84.0 million for the year ended december 31 , 2019 . for the year ended december 31 , 2018 , the company generated cash from operating activities of $ 121.6 million , of which $ 23.7 million was attributable to changes in working capital . cash used for property additions was $ 266.5 million . this included $ 45.3 million attributable to a net increase of capital related to payables and accrued costs . additionally , $ 8.7 million was paid during the year for property sale obligations related to the sale of our former bay de chene field . 37 contractual commitments and obligations our contractual commitments for the next five years and thereafter are shown below as of december 31 , 2019 ( in thousands ) : replace_table_token_15_th ( 1 ) amounts shown represent fees for the minimum delivery obligations . any amount of transportation utilized in excess of the minimum will reduce future year obligations . ( 2 ) interest on our credit facility is estimated using the weighted average interest rate of 4.5 % for the quarter ended december 31 , 2019 , while interest on our second lien is estimated using libor plus 7.5 % . see note 4 of these consolidated financial statements in this form 10-k for more information . actual interest rate is variable over the term of the facility . ( 3 ) amount shown primarily for obligation under bay de chene sales contract . off-balance sheet arrangements as of december 31 , 2019 , we had no off-balance sheet arrangements requiring disclosure pursuant to article 303 ( a ) of regulation s-k. proved oil and gas reserves during 2019 , our reserves increased by approximately 75.1 bcfe due to increases in our natural gas reserves primarily from our fasken field . as of december 31 , 2019 , 41 % of our total proved reserves were proved developed , compared with 41 % at
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we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition . we recognize revenue when there is persuasive evidence of an arrangement , delivery has occurred , the fee is fixed or determinable , and collection is reasonably assured . product revenue is generally recognized upon shipment of product to customers , net of accruals for estimated sales returns and rebates . however , some of our sales are made through distributors under agreements allowing for price protection , shipped from stock pricing adjustment rights , and limited rights of stock rotation on product unsold by the distributors . although title passes to the distributor upon shipment terms and payment by our distributors is not contingent on resale of the product , product revenue on sales made through distributors with price protection , shipped from stock pricing adjustment rights and stock rotation rights are deferred until the distributors sell the product to end customers . deferred revenue less the related cost of the inventories is reported as deferred income . we do not believe that there is any significant exposure related to impairment of deferred cost of sales , as our historical returns have been minimal and inventory turnover for our distributors generally ranges from 60 to 90 days . our sales to direct customers are made primarily pursuant to standard purchase orders for delivery of products . a portion of our net revenue is derived from sales through third party logistics providers , who maintain warehouses in close proximity to our customer 's facilities . revenue from sales through these third party logistics providers is not recognized until the product is pulled from stock by the customer . the provision for estimated sales returns and allowances on product sales is recorded in the same period the related revenues are recorded . these estimates are based on historical sales returns , analysis of credit memo data and other known factors . actual returns could differ from these estimates . we account for rebates by recording reductions to revenue in the same period that the related revenue is recorded . the amount of these reductions is based upon the terms agreed to with the customers . 40 stock-based compensation . stock-based compensation is measured at the grant date , based on the fair value of the award , and is recognized as expense over the requisite service period . we amortize stock-based compensation expense for time-based and market-based awards under the straight-line attribution method over the vesting period , which is generally four years for annual grants to employees and five years for new hire grants . performance-based awards are amortized using the accelerated method . we estimate the fair value of time-based stock option awards on the date of grant using the black scholes option-pricing model . the fair value of market-based option awards is estimated on the date of grant using a monte carlo simulation model . the value of the portion of the awards that is ultimately expected to vest is recognized as expense over the requisite service periods . the black-scholes and monte carlo models incorporate various highly subjective assumptions including expected term of awards , expected future stock price volatility and expected forfeiture rates . in developing estimates used to calculate assumptions , we establish the expected term for employee options , as well as expected forfeiture rates , based on the historical settlement experience and after giving consideration to vesting schedules . assumptions for stock option exercises and pre-vesting terminations of stock options were stratified by employee groups with sufficiently distinct behavior patterns . expected volatility was developed based on an equally weighted combination of historical stock price volatility and implied volatility derived from traded options on our stock in the marketplace . the expected dividend yield is calculated by dividing annualized dividend payments by the closing stock price on the grant date of the option . forfeitures are estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from initial estimates . stock-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those stock-based awards that are expected to vest . previously recognized expense is reversed for the portion of awards forfeited prior to vesting as and when forfeitures occurred . the fair value of each restricted stock unit is estimated based on the market price of the company 's common shares on the date of grant less the expected dividend yield . in addition , for both stock options and restricted stock units , we are required to estimate forfeiture rates , and true up these forfeiture rates when actual results are different from our estimates . assumptions for forfeitures are stratified by employee groups with sufficiently distinct behavior patterns . changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense , as the effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed . if the actual forfeiture rate is higher than the estimated forfeiture rate , then an adjustment will be made to increase the estimated forfeiture rate , which will result in a decrease to the expense recognized in the financial statements . if the actual forfeiture rate is lower than the estimated forfeiture rate , then an adjustment will be made to lower the estimated forfeiture rate , which will result in an increase to the expense recognized in the financial statements . the expense we recognize in future periods could be affected by changes in the estimated forfeiture rate and may differ significantly from amounts recognized in the current period and or our forecasts . additionally , for certain of our performance-based awards , we must make subjective assumptions regarding the likelihood that the related performance metrics will be met . story_separator_special_tag these assumptions are based on various revenue and operating performance criteria . changes in our actual performance could cause a significant adjustment in future periods for these performance-based awards . accounting for income taxes . to prepare our consolidated financial statements , we estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual tax exposure together with assessing temporary differences resulting from the differing treatment of certain items for tax return and financial statement purposes . these differences result in deferred tax assets and liabilities , which are included within our consolidated balance sheets . 41 we recognize income taxes using an asset and liability approach . this approach requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . the measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated . evaluating the need for an amount of a valuation allowance for deferred tax assets often requires judgment and analysis of all the positive and negative evidence available to determine whether all or some portion of the deferred tax assets will not be realized . a valuation allowance must be established for deferred tax assets when it is more likely than not that they will not be realized . based on the available evidence and judgment , we have determined that it is more likely than not that u.s. research credits and certain acquired net operating losses will not be realized and therefore we have provided a full valuation allowance against these credits . if there is a change in our ability to realize our deferred tax assets , then our tax provision may decrease in the period in which we determine that realization is more likely than not . as a multinational corporation , we conduct our business in many countries and are subject to taxation in many jurisdictions . the taxation of our business is subject to the application of various and sometimes conflicting tax laws and regulations as well as multinational tax conventions . our effective tax rate is highly dependent upon the geographic distribution of our worldwide earnings or losses , the tax regulations and tax holidays in each geographic region , the availability of tax credits and carryforwards , and the effectiveness of our tax planning strategies . the application of tax laws and regulations is subject to legal and factual interpretation , judgment and uncertainty . tax laws themselves are subject to change as a result of changes in fiscal policy , changes in legislation , and the evolution of regulations and court rulings . consequently , taxing authorities may impose tax assessments or judgments against us that could materially impact our tax liability and or our effective income tax rate . we are subject to income tax audits by the respective tax authorities in all of the jurisdictions in which we operate . we recognize the effect of income tax positions only if these positions are more likely than not of being sustained . recognized income tax positions are measured at the largest amount that is more than 50 % likely of being realized . changes in recognition or measurement are reflected in the period in which the change in judgment occurs . we record interest and penalties related to unrecognized tax benefits in income tax expense . the calculation of our tax liabilities involves the inherent uncertainty associated with the application of gaap and complex tax laws . we believe we have adequately provided for in our financial statements additional taxes that we estimate may be required to be paid as a result of such examinations . while we believe that we have adequately provided for all tax positions , amounts asserted by tax authorities could be greater or less than our accrued position . these tax liabilities , including the interest and penalties , are released pursuant to a settlement with tax authorities , completion of audit or expiration of various statutes of limitation . the material jurisdictions in which we may be subject to potential examination by tax authorities throughout the world include china , israel , singapore , switzerland and the united states . the recognition and measurement of current taxes payable or refundable and deferred tax assets and liabilities require that we make certain estimates and judgments . changes to these estimates or a change in judgment may have a material impact on our tax provision in a future period . inventories . we value our inventory at the lower of cost or market , cost being determined under the first-in , first-out method . we regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and production requirements . the estimate of future demand is compared to our inventory levels , including open purchase commitments , to determine the amount , if any , of obsolete or excess inventory . demand for our products can fluctuate significantly from period to period . a significant decrease in demand could result in an increase in the amount of excess inventory on hand . in addition , our industry is characterized by rapid technological change , frequent new product development and rapid product obsolescence that could result in an increase in the amount of obsolete 42 inventory quantities on hand . additionally , our estimates of future product demand may prove to be inaccurate , in which case we may have understated or overstated the provision required for excess and obsolete inventory .
| in wireless connectivity , we have historically focused on providing integrated 1x1 combo solutions for the mobile market , which demand the lowest power consumption , and high-performance 4x4 solutions for the enterprise market , which demand the highest possible throughput . we are gaining significant traction for our 4x4 solutions as global enterprise carriers are realizing this design is the necessary architecture for hd video distribution . in addition to our continued established presence in the 1x1 and 4x4 markets , we are now expanding our footprint by offering integrated 2x2 combo solutions for the tablet and ultrabook markets . in our storage business , we have made solid progress this past year . despite the overall demand challenges within the pc market , we have gained market share within hdds as we have seen strong growth for our 500 gigabyte per platter products . based on our product roadmap and engagement with all the hdd oems , we believe we are well positioned for major new design wins . within the ssd market , our revenue has continued to grow , and we are seeing excellent traction with our products at major ssd oems . in the networking market , we have outperformed the market during the past year , growing revenue by introducing products in new growth areas such as in passive optical network ( gpon and epon ) and 10gbe switching , as well as programmable network processors introduced following our acquisition of xelerated . our customers are increasingly using our programmable network processors to manage both rising consumer bandwidth requirements and rising connected devices in the network . the change to programmable architectures is making software a key element and our investment in software for networking has been critical in quickly enabling differentiated platforms for our customers . 44 our financial position is strong and we also remain committed to deliver shareholder value through our share repurchase and dividend programs . our cash , cash equivalents and short-term investments were $ 1.9 billion at february 2 , 2013 and we generated cash flow from operations
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in addition , we are monitoring collections of customer utility accounts as to potential impacts on cash flows , and increased expenses for costs associated with workforce-related expenses , security and cleaning of company offices and operating facilities , as well as other one-time expenses above the expense amounts included in general rates . in some of the states where we operate , regulators have allowed utilities to resume disconnections from utility service for certain customers who have unpaid balances . some public utility commission are issuing guidance for utilities to defer covid-19 expenses in anticipation of seeking recovery in a future rate proceeding , and we are currently evaluating the impact of this guidance . we are continuing with our capital investment program , and based on the current situation , continue to believe we are able to complete the planned projects and improvements to our utility infrastructure . despite our efforts , the ultimate impact to the company of the covid-19 pandemic also depends on factors beyond our knowledge or control , including the duration and severity of this pandemic as well as third party actions taken to contain its spread and mitigate its public health effects . although we have experienced that some of our customers are facing economic hardships due to various impacts of the covid-19 pandemic and may be unable to pay for our utility services , we do not currently anticipate a significant impact to our financial position , results of operations or cash flows as a result of the covid-19 pandemic . industry mission the mission of the regulated utility industry is to provide quality and reliable utility service at reasonable rates to customers , while earning a fair return for shareholders . a number of challenges face the utility industry , including : strict environmental , health and safety standards ; aging utility infrastructure and the need for substantial capital investment ; economic regulation by state , and or , in some cases , local government ; declining consumption per customer as a result of conservation ; lawsuits and the need for insurance ; the impact of weather on natural gas sales demand ; and the impact of weather and sporadic drought conditions on water sales demand . economic regulation most of our utility operations are subject to regulation by their respective state utility commissions , which have broad administrative power and authority to regulate billing rates , determine franchise areas and conditions of service , approve acquisitions , and authorize the issuance of securities . the utility commissions also generally establish uniform systems of accounts and approve the terms of contracts with affiliates and customers , business combinations with other utility systems , and loans and other financings . the policies of the utility commissions often differ from state to state and may change over time . a small number of our operations are subject to rate regulation by county or city government . over time , the regulatory party in a particular state may change , as was the case for our texas operations where , in 2014 , economic regulation changed from the texas commission on environmental quality to the public utility commission of texas . the profitability of our utility operations is influenced to a great extent by the timeliness and adequacy of rate allowances in the various states in which we operate . one consideration we may undertake in evaluating on which states to focus our growth and investment strategy is whether a state provides for consolidated rates , a surcharge for replacing and rehabilitating infrastructure , fair value treatment of acquired utility systems , and other regulatory policies that promote infrastructure investment and efficiency in processing rate cases . rate case management capability – we strive to achieve the industry 's mission by effective planning , efficient investments , and productive use of our resources . we maintain a rate case management capability to pursue timely and adequate returns on the capital investments that we make in improving our distribution system , treatment plants , information technology systems , and other infrastructure . this capital investment creates assets that are used and useful in providing utility service and is commonly referred to as rate base . timely and adequate rate relief is important to our continued profitability and in providing a fair return to our shareholders ; thus , providing access to capital markets to help fund these investments . accordingly , the objective of our rate case management strategy is to provide that the rates of our utility operations reflect , to the extent practicable , the timely recovery of increases in costs of operations ( primarily labor and employee benefits , electricity , chemicals , transportation , maintenance expenses , insurance and claims costs , and costs 37 ( in thousands of dollars , except per share amounts ) to comply with environmental regulations ) , capital , and taxes . in pursuing our rate case strategy , we consider the amount of net utility plant additions and replacements made since the previous rate decision , the changes in the cost of capital , changes in our capital structure , and changes in operating and other costs . based on these assessments , our utility operations periodically file rate increase requests with their respective state utility commissions or local regulatory authorities . in general , as a regulated enterprise , our utility rates are established to provide full recovery of utility operating costs , taxes , interest on debt used to finance capital investments , and a return on equity used to finance capital investments . our ability to recover our expenses in a timely manner and earn a return on equity employed in the business helps determine the profitability of the company . as of december 31 , 2020 , the company 's rate base is estimated to be $ 8,000,000 , which is comprised of : $ 5,500,000 in the regulated water segment ; and $ 2,500,000 in the regulated natural gas segment . story_separator_special_tag as of december 31 , 2020 , the regulatory status of the company 's rate base is estimated to be as follows : $ 7,000,000 filed with respective state utility commissions or local regulatory authorities ; and $ 1,000,000 not yet filed with respective state utility commissions or local regulatory authorities . our water and wastewater operations are composed of 46 rate divisions , and our natural gas operations are comprised of 5 rate divisions . each of our utility rate divisions require a separate rate filing for the evaluation of the cost of service and recovery of investments in connection with the establishment of tariff rates for that rate division . when feasible and beneficial to our utility customers , we have sought approval from the applicable state utility commission to consolidate rate divisions to achieve a more even distribution of costs over a larger customer base . all of the eight states in which we operate water and wastewater utilities currently permit us to file a revenue requirement using some form of consolidated rates for some or all of the rate divisions in that state . revenue surcharges – seven states in which we operate water utilities , seven states in which we operate wastewater utilities , and two states in which we operate natural gas utilities permit us to add an infrastructure rehabilitation surcharge to their respective bills to offset the additional depreciation and capital costs associated with capital expenditures related to replacing and rehabilitating infrastructure systems . in our other states , utilities absorb all of the depreciation and capital costs of these projects between base rate increases without the benefit of additional revenues . the gap between the time that a capital project is completed and the recovery of its costs in rates is known as regulatory lag . this surcharge is intended to substantially reduce regulatory lag , which could act as a disincentive for utilities to rehabilitate their infrastructure . in addition , some states permit our subsidiaries to use a surcharge or credit on their bills to reflect allowable changes in costs , such as changes in state tax rates , other taxes and purchased water costs , until such time as the new costs are fully incorporated in base rates . effects of inflation – recovery of the effects of inflation through higher customer rates is dependent upon receiving adequate and timely rate increases . however , rate increases are not retroactive and often lag increases in costs caused by inflation . on occasion , our regulated utility companies may enter into rate settlement agreements , which require us to wait for a period of time to file the next base rate increase request . these agreements may result in regulatory lag whereby inflationary increases in expenses may not yet be reflected in rates , or a gap may exist between when a capital project is completed and the start of its recovery in rates . even during periods of moderate inflation , the effects of inflation can have a negative impact on our operating results . growth-through-acquisition strategy part of our strategy to meet the industry challenges is to actively explore opportunities to expand our utility operations through acquisitions of water , wastewater , natural gas , and other utilities either in areas adjacent to our existing service areas or in new service areas , and to explore acquiring market-based businesses that are complementary to our regulated utility operations . to complement our growth strategy , we routinely evaluate the operating performance of our individual utility systems , and in instances where limited economic growth opportunities exist or where we are unable to achieve favorable operating results or a return on equity that we consider acceptable , we will seek to sell the utility system and reinvest the proceeds in other utility systems . consistent with this strategy , we are focusing our acquisitions and resources in states where we have critical mass of operations in an effort to achieve economies of scale and increased 38 ( in thousands of dollars , except per share amounts ) efficiency . our growth-through-acquisition strategy allows us to operate more efficiently by sharing operating expenses over more utility customers and provides new locations for future earnings growth through capital investment . another element of our growth strategy is the consideration of opportunities to expand by acquiring other utilities , including those that may be in a new state if they provide promising economic growth opportunities and a return on equity that we consider acceptable . our ability to successfully execute this strategy historically and to meet the industry challenges has largely been due to our core competencies , financial position , and our qualified and trained workforce , which we strive to retain by treating employees fairly and providing our employees with development and growth opportunities . on march 16 , 2020 , we completed the acquisition of peoples natural gas ( the “ peoples gas acquisition ” ) , which expanded the company 's regulated utility business to include natural gas distribution , serving approximately 750,000 natural gas utility customers in western pennsylvania , west virginia , and kentucky . during 2020 , in addition to the peoples gas acquisition , we completed six acquisitions , which along with the organic growth in our existing systems , represents 24,169 new customers . during 2019 , we completed eight acquisitions , which along with the organic growth in our existing systems , represents 21,613 new customers . during 2018 , we completed nine acquisitions , which along with the organic growth in our existing systems , represents 22,741 new customers . we believe that utility acquisitions , organic growth , and a potential expansion of our market-based business will continue to be the primary sources of growth for us .
| these segments are included as a component of “ other , ” in addition to corporate costs that have not been allocated to the regulated water and natural gas segments , because they would not be recoverable as a cost of utility service , and intersegment eliminations . corporate costs include general and administrative expenses , and interest expense . 44 ( in thousands of dollars , except per share amounts ) the following table provides the regulated water and natural gas segments and consolidated information for the years ended december 31 , 2020 , 2019 , and 2018 : replace_table_token_7_th replace_table_token_8_th replace_table_token_9_th 45 ( in thousands of dollars , except per share amounts ) consolidated results of operations comparison for 2020 and 2019 for the comparison of fiscal years 2019 and 2018 , refer to part ii , item 7 “ management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for our fiscal year ended december 31 , 2019 , filed with the sec on february 28 , 2020. the following results of operations includes the operating results of peoples gas acquisition or the regulated natural gas segment for the period since the acquisition on march 16 , 2020. operating revenues – operating revenues totaled $ 1,462,698 in 2020 , $ 889,692 in 2019 , and $ 838,091 in 2018. our regulated water segment 's revenues totaled $ 938,540 in 2020 , $ 886,430 in 2019 , and $ 834,638 in 2018 , and our regulated natural gas segment 's revenues totaled $ 506,564 in 2020. the growth in our regulated water segment 's revenues over the past three years is a result of increases in our water and wastewater rates and our customer base . rate increases implemented during the past three years have provided additional operating revenues of $ 32,660 in 2020 , $ 55,658 in 2019 , and $ 8,362 in 2018. in 2020 , we experienced a decrease in water revenues of $ 1,402 as a result of a do not consume advisory that was initiated in mid-2019 for some of our customers served by our illinois subsidiary , which we expect to continue into 2021. in 2019 , the
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replace_table_token_7_th states included in the regions mountain idaho and montana west north central iowa , kansas , missouri , nebraska and south dakota east north central indiana and wisconsin middle atlantic/new england pennsylvania south atlantic florida , georgia , maryland , north carolina , south carolina , virginia and west virginia east south central kentucky and tennessee west south central arkansas and louisiana * the following properties have been moved from the same store portfolio during the reporting period and classified as held for sale : louisville , ky comfort suites fort madison , ia super 8 omaha , ne sleep inn jefferson city , mo super 8 louisville , ky sleep inn shawano , wi super 8 fredericksburg , va ( south ) days inn ellenton , fl guesthouse inn shreveport , la days inn 31 our revpar , adr and occupancy , by franchise affiliation , for 2012 , 2011 and 2010 were as follows : replace_table_token_8_th ( 1 ) includes hampton and independent brands ( 2 ) includes key west inns and independent brands ( 3 ) includes savannah suites key performance indicators earnings before interest , taxes , depreciation , amortization , noncontrolling interest and preferred stock dividends the company 's ebitda for the three years ending december 31 , 2012 , 2011 , and 2010 was $ 11.1 million , $ 1.6 million and $ 10.1 million , respectively . adjusted ebitda for the three years ending december 31 , 2012 , 2011 , and 2010 was $ 17.1 million , $ 16.0 million and $ 18.6 million , respectively . please refer to item 6. selected financial data for a reconciliation of ebitda and adjusted ebitda . 32 funds from operations the company 's funds from operations ( ffo ) for the three years ending december 31 , 2012 , 2011 , and 2010 was $ ( 2.3 ) million , $ 3.9 million and $ 6.6 million , respectively . the company 's adjusted ffo for the three years ending december 31 , 2012 , 2011 , and 2010 was $ ( 1.8 ) million , $ 4.1 million and $ 6.6 million , respectively . diluted ffo per share and diluted adjusted ffo per share are computed after adjusting the numerator and denominator of the basic computation for the effects of any dilutive potential common shares outstanding during the period . the company 's outstanding warrants to purchase common stock , stock options , series c convertible preferred stock , and restricted stock would be antidilutive and are not included in the dilution computation . 11,424 preferred operating units are also not included in the dilution computation . please refer to item 6. selected financial data for a reconciliation of ffo and adjusted ffo . 33 net operating income noi is one of the performance indicators the company uses to assess and measure operating results . the company believes that noi is a useful additional measure of operating performance of its hotels because it provides a measure of core operations that is unaffected by depreciation , amortization , financing and general and administrative expense . noi is also an important performance measure used to determine the amount of the management fees paid by the company to the operators of its hotels . noi is a non-gaap measure , and is not necessarily indicative of available earnings and should not be considered an alternative to earnings before net gain ( loss ) on dispositions of assets , other income , interest expense and income taxes . noi is reconciled to earnings before net gain ( loss ) on dispositions of assets , other income , interest expense and income taxes as follows ( dollars in thousands ) : replace_table_token_9_th * other expenses include both continuing and discontinued operations for management fees , bonus wages , insurance , real estate and personal property taxes , and miscellaneous expenses . property operating income poi is a non-gaap financial measure , and should not be considered as an alternative to loss from continuing operations or loss from discontinued operations , net of tax . the company believes that the presentation of hotel property operating results ( poi ) is helpful to investors , and represents a more useful description of its core operations , as it better communicates the comparability of its hotels ' operating results for all of the company 's hotel properties . 34 poi from continuing operations is reconciled to net loss as follows ( in thousands ) : replace_table_token_10_th poi from discontinued operations is reconciled to loss from discontinued operations , net of tax , as follows ( in thousands ) : replace_table_token_11_th 35 story_separator_special_tag style= '' margin-top:18px ; margin-bottom:0px '' > interest expense , depreciation and amortization expense and general and administration expense interest expense from continuing operations decreased slightly by $ 0.3 million . the depreciation expense from continuing operations decreased $ 0.9 million for 2011 over 2010. the general and administration expense from continuing operations for 2011 increased $ 0.5 million or 15.4 percent compared to 2010. the primary drivers for this increase are an increase in salaries and wages due to additional employees and increased legal fees due to management company changes and release of costs associated with discontinued equity programs . 38 impairment losses see the discussion above regarding impairment charges for 2011. for 2010 , we recorded an impairment charge of $ 2.1 million on a hotel in continuing operations , and $ 6.1 million on hotels in discontinued operations , ten of which were subsequently sold . dispositions in 2011 we recognized net gains of approximately $ 1.1 million on the disposition of assets in continuing operations primarily related to the sale of the corporate office building . discontinued operations in 2010 included gains of $ 1.4 million on properties sold in 2010 , offset by $ 0.1 million of net losses on assets held for sale . story_separator_special_tag income tax the income tax benefit ( expense ) from continuing operations is related to the taxable loss ( earnings ) from our taxable reit subsidiary , the trs lessee . management believes the federal and state income tax rate for the trs lessee will be approximately 38 % . the tax benefit ( expense ) is a result of trs lessee 's losses for the year ended december 31 , 2011 and 2010. the income tax benefit ( expense ) will vary based on the taxable loss ( earnings ) of the trs lessee , a c corporation . the income tax benefit from continuing operations increased by approximately $ 0.2 million during 2011 compared to the prior period 's expense , due to a loss from continuing operations by the trs lessee in 2011. liquidity and capital resources our income and ability to meet our debt service obligations , and make distributions to our shareholders , depends upon the operations of the hotels being conducted in a manner that maintains or increases revenue , or reduces expenses , to generate sufficient hotel operating income for trs lessee to pay the hotels ' operating expenses , including management fees and rents to us . we depend on rent payments from trs lessee to pay our operating expenses and debt service and to make distributions to shareholders . the company 's operating performance , as well as its liquidity position , has been and continues to be negatively affected by current economic conditions , many of which are beyond our control . the company anticipates that these adverse economic conditions are likely to continue for a period of time but could abate somewhat over the next year ; however , in addition to our operating performance , the other sources described below will be essential to our liquidity and financial position . our business requires continued access to adequate capital to fund our liquidity needs . in february 2012 , the company issued 3 million shares of series c convertible preferred stock which provided $ 28.6 million of net proceeds . the company agreed to use $ 20 million to pursue hospitality acquisitions , as well as an additional $ 5 million to pursue hospitality acquisitions within a reasonable period thereafter . we have used $ 6.6 million to purchase a hotel and remain committed to use $ 18.4 for hospitality acquisitions . as of february 28 , 2013 , we also have used $ 6.9 million for debt repayment and for operational funds from the proceeds committed to hospitality acquisitions , and we intend to replace these funds so that they are ultimately available for acquisitions . each year the company reviews its entire portfolio , identifies properties considered non-core and develops timetables for disposal of those assets deemed non-core . we focus on improving our liquidity through cash generating asset sales and disposition of assets that are not generating cash at levels consistent with our investment principles . in 2013 , our foremost priorities continue to be preserving and generating capital sufficient to fund our liquidity needs . given the deterioration and uncertainty in the economy and financial markets , management believes that access to conventional sources of capital will be challenging and management has planned accordingly . we are also working to proactively address challenges to our short-term and long-term liquidity position . the following are the expected actual and potential sources of liquidity , which if realized we currently believe will be sufficient to fund our near and long-term obligations : cash and cash equivalents ; 39 cash generated from operations ; proceeds from asset dispositions ; proceeds from additional secured or unsecured debt financings ; and or proceeds from public or private issuances of debt or equity securities . the company has significant indebtedness with great western bank maturing before the end of the year ; two term loans totaling $ 14.1 million and a $ 12.5 million revolving line of credit with a current balance of $ 2.5 million , all of which mature in june 2013. the company believes the debt will be refinanced with the existing lender on acceptable terms . if we are not successful in negotiating the refinancing of this debt or finding alternate sources of financing in a difficult borrowing environment , we will be unable to meet the company 's near-term liquidity requirements . these above sources are essential to our liquidity and financial position , and we can not assure you that we will be able to successfully access them ( particularly in the current economic environment ) . if we are unable to generate cash from these sources , we may have liquidity-related capital shortfalls and will be exposed to default risks . the significant issues with access to the liquidity sources identified above could lead to our insolvency . in the near-term , the company 's cash flow from operations is not projected to be sufficient to meet all of our liquidity needs . in response , management has identified non-core assets in our portfolio to be liquidated over a one to ten year period . among the criteria for determining properties to be sold was the potential upside when hotel fundamentals return to stabilized levels . the 22 properties held for sale as of december 31 , 2012 were determined to be less likely to participate in increased cash flow levels when markets do improve . as such , we expect these dispositions to help us ( 1 ) preserve cash , through potential disposition of properties with current or projected negative cash flow and or other potential near-term cash outlay requirements ( including debt maturities ) and ( 2 ) generate cash , through the potential disposition of strategically identified non-core assets that we believe have equity value above debt . we are actively marketing the 22 properties held for sale , which we anticipate will result in the elimination of an estimated $ 20.4 million of debt . we have had significant interest in many of our 22 held for sale properties .
| hotel and property operations expenses from continuing operations for the year ended 2012 increased $ 1.9 million or 3.7 percent . the majority of the expense variance was due to the acquisition mentioned above . interest expense , depreciation and amortization expense and general and administration expense interest expense from continuing operations decreased by $ 0.3 million , due primarily to declining principal balances . the depreciation and amortization expense from continuing operations decreased $ 0.2 million for 2012 over 2011 , which was primarily caused by furniture , fixtures and equipment from acquisitions becoming fully depreciated . the general and administration expense from continuing operations for 2012 remained essentially flat . 36 impairment losses in 2012 we had $ 3.8 million of impairment losses in continuing operations and $ 6.4 million of impairment losses in discontinued operations for the year . in 2011 we had $ 6.5 million of impairment losses in continuing operations and $ 7.8 million of impairment losses in discontinued operations for the year . discontinued operations consist of hotels held for sale at december 31 , 2012 or sold during 2011 or 2012. see note 6 in the footnotes to the consolidated financial statements for additional information including a discussion of our impairment analysis of our hotel assets . dispositions in 2012 , the $ 7.8 million of net gains on disposition of assets consists primarily of gains realized on nine property sales . in 2011 , the $ 1.1 million of net gains on dispositions of assets in continuing operations is primarily related to the sale of the corporate office building . the $ 0.3 million in discontinued operations in 2011 is due mainly to the gain on the sale of wichita north . income tax the income tax expense from continuing operations is the net result of the benefit related to the taxable loss from our taxable reit subsidiary , the trs lessee , offset by a $ 6.3 million increase in the tax valuation allowance . management believes the federal and state income tax rate
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the primary factors that affect the comparability of our results of operations are our recent acquisitions and disposal activities . these consist of the disposal of monarch corporation , our former canadian business ( “ monarch ” ) , and gain on foreign currency hedge in january 2015 , loss on extinguishment of debt and the acquisition of jeh homes ( `` jeh '' ) in the second quarter of 2015 , the acquisition of three divisions of orleans homes ( `` orleans '' ) in the third quarter of 2015 , and the acquisition of acadia homes ( `` acadia '' ) in january 2016. for all periods presented , the operating results of monarch are included in discontinued operations and historical periods have been recast to show the effects of our segment realignment , which was 36 effective december 31 , 2015. in addition to the impact of the matters discussed in the risk factors listed in item 1a of this annual report , our future results could differ materially from our historical results due to these changes . non-gaap measures in addition to the results reported in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) , we have provided information in this annual report relating to “ adjusted home closings gross margins. ” adjusted home closings gross margins we calculate adjusted home closings gross margin from u.s. gaap home closings gross margin by adding impairment charges , if any , attributable to the write-down of communities , and the amortization of capitalized interest through cost of home closings . management uses adjusted home closings gross margin to evaluate our operational and economic performance on a consolidated basis , as well as the direct operational and relative economic performance of our segments . we believe adjusted home closings gross margin is relevant and useful to investors because it allows investors to evaluate the performance of our homebuilding operations without the often varying effects of interest costs capitalized . this measure is considered a non-gaap financial measure and should be considered in addition to , rather than as a substitute for , the comparable u.s. gaap financial measure as a measure of our operating performance . although other companies in the homebuilding industry report similar information , the methods used may differ . critical accounting policies general the discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities , revenue and expenses , and related disclosures of contingent assets and liabilities at the date of our financial statements . actual results may differ from these estimates under different assumptions or conditions , impacting our reported results of operations and financial condition . certain accounting policies involve significant judgments and assumptions by management , which have a material impact on the carrying value of assets and liabilities and the recognition of income and expenses . the estimates and assumptions used by management are based on historical experience and other factors , which are believed to be reasonable under the circumstances . the significant accounting policies that management believes are the most critical to aid in fully understanding and evaluating our reported financial results are critical accounting policies and are described below . revenue recognition home closings revenue , net home closings revenue is recorded using the completed-contract method of accounting at the time each home is delivered , title and possession are transferred to the buyer , we have no significant continuing involvement with the home , risk of loss has transferred , the buyer has demonstrated sufficient investment in the property , and the receivable , if any , from the homeowner or escrow agent is not subject to future subordination . we typically grant our homebuyers certain sales incentives , including cash discounts , incentives on options included in the home , option upgrades , and seller-paid financing or closing costs . incentives and discounts are accounted for as a reduction in the sales price of the home , and home closings revenue is shown net of discounts . we also receive rebates from certain vendors and these rebates are accounted for as a reduction to cost of home closings . land closings revenue land closings revenue is recognized when title is transferred to the buyer , we have no significant continuing involvement , the buyer has demonstrated sufficient investment in the property sold and the receivable , if any , from the buyer is not subject to future subordination . if the buyer has not made an adequate investment in the property , the profit on such sale is deferred until these conditions are met . mortgage operations revenue 37 loan origination fees ( including title fees , points , closing costs ) are recognized at the time the related real estate transactions are completed , usually upon the close of escrow . all of the loans tmhf originates are sold to third party investors within a short period of time ( within 20-30 business days ) on a non-recourse basis . gains and losses from the sale of mortgages are recognized in accordance with asc topic 860-20 , “ sales of financial assets . ” because tmhf does not have continuing involvement with the transferred assets , we derecognize the mortgage loans at time of sale , based on the difference between the selling price and carrying value of the related loans upon sale , recording a gain/loss on sale in the period of sale . also , we enter into interest rate lock commitments ( “ irlcs ” ) to originate residential mortgage loans held for sale , at specified interest rates and within a specified period of time . these instruments meet the definition of a derivative and the realized and unrealized gain and loss from the irlcs are included in mortgage operations revenue/expenses . story_separator_special_tag real estate inventory valuation and costing inventory consists of raw land , land under development , homes under construction , completed homes , and model homes , which are stated at cost . in addition to direct carrying costs , we also capitalize interest , real estate taxes , and related development costs that benefit the entire community , such as field construction supervision and related direct overhead . home construction costs are accumulated and charged to cost of sales at home closing using the specific identification method . land acquisition , development , interest , real estate taxes and overhead are allocated to homes and units using the relative sales value method . these costs are capitalized to inventory from the point development begins to the point construction is completed . changes in estimated costs to be incurred in a community are generally allocated to the remaining homes on a prospective basis . for those communities that have been temporarily closed or development has been discontinued , we do not allocate interest or other costs to the community 's inventory until activity resumes . the life cycle of the community generally ranges from two to five years , commencing with the acquisition of unentitled or entitled land , continuing through the land development phase and concluding with the sale , construction and delivery of homes . actual community lives will vary based on the size of the community , the sales absorption rate and whether we purchased the property as raw land or as finished lots . we capitalize qualifying interest costs to inventory during the development and construction periods . capitalized interest is charged to cost of sales when the related inventory is delivered or when the related inventory is charged to cost of sales . we assess the recoverability of our land inventory in accordance with the provisions of accounting standards codification ( “ asc ” ) topic 360 , “ property , plant , and equipment . ” we review our real estate inventory for indicators of impairment by community during each reporting period . if indicators of impairment are present for a community , we first perform an undiscounted cash flow analysis to determine if the carrying value of the assets in that community exceeds the undiscounted cash flows . generally , if the carrying value of the assets exceeds their estimated undiscounted cash flows , then the assets are deemed to be impaired and are recorded at fair value as of the assessment date . our determination of fair value is based on a discounted cash flow model which includes projections and estimates relating to sales prices , construction costs , sales pace , and other factors . changes in these expectations may lead to a change in the outcome of our impairment analysis , and actual results may also differ from our assumptions . insurance costs , self-insurance reserves and warranty reserves we have certain deductible amounts under our workers ' compensation , automobile and general liability insurance policies , and we record expense and liabilities for the estimated costs of potential claims for construction defects . we also generally require our sub-contractors and design professionals to indemnify us and provide evidence of insurance for liabilities arising from their work , subject to certain limitations . beneva indemnity company ( “ beneva ” ) , one of our wholly owned subsidiaries , provides insurance coverage for construction defects discovered up to ten years following the closing of a home , premises operations risk and property coverage . we accrue for the expected costs associated with the deductibles and self-insured amounts under our various insurance policies based on historical claims , estimates for claims incurred but not reported , and potential for recovery of costs from insurance and other sources . the estimates are subject to significant variability due to various factors , such as claim settlement patterns , litigation trends and the length of time in which a construction defect claim might be made after the closing of a home . we offer warranties on homes that generally provide for a limited one-year warranty to cover various defects in workmanship or materials or to cover structural construction defects . we may also facilitate a longer warranty in certain markets or to comply with regulatory requirements . warranty reserves are recorded as each home closes in an amount estimated to be adequate to cover expected future costs of materials and outside labor during warranty periods . our warranty is not considered a separate deliverable in each sale arrangement , so it is accounted for in accordance with asc topic 450 , “ contingencies . ” in accordance with asc 450 , warranties that are not separately priced are generally accounted for by accruing the estimated costs 38 to fulfill the warranty obligation . thus , the warranty would not be considered a separate deliverable in the arrangement since it is not priced apart from the home . as a result , we accrue the estimated costs to fulfill the warranty obligation in accordance with asc 450 at the time a home closes , as a component of cost of home closings . our reserves are based on factors that include an actuarial study for historical and anticipated claims , trends related to similar product types , number of home closings , and geographical areas . we also provide third-party warranty coverage on homes where required by federal housing administration or veterans administration lenders . we regularly review the reasonableness and adequacy of our reserves and make adjustments to the balance of the preexisting reserves to reflect changes in trends and historical data as information becomes available . self-insurance and warranty reserves are included in accrued expenses and other liabilities in the accompanying consolidated balance sheets . investments in unconsolidated entities and variable interest entities ( vies ) we are involved in joint ventures with related and unrelated third parties for homebuilding and development activities .
| despite the decrease in the annual results for this region , we experienced fourth quarter improvements in 2016 in the central region with increases in net sales orders and total sales value by 9.4 % and 9.0 % , respectively , when compared to the fourth quarter of 2015. while slower job growth and a decline in relocations to houston compared to previous years impacted the year-over-year performance , the divisions in the central region are showing recent strength , as evidenced by increased average selling prices for the year as well as declining cancellation rates . west : the number of net homes sold and sales value of homes increased by 3.5 % and 15.5 % , respectively , primarily due to an increase in average active selling communities in our california markets . the average selling price of net homes sold increased by 11.7 % as a result of our performance in our california and phoenix divisions which continue to experience price increases due to increased consumer demand . 41 sales order cancellations replace_table_token_17_th ( 1 ) cancellation rate represents the number of canceled sales orders divided by gross sales orders . our consolidated cancellation rate decreased to 13.6 % from 13.9 % year over year . the primary driver for the decrease in the cancellation rate is our houston divisions which are normalizing after twelve months of elevated rates . in addition , our use of prequalification criteria through tmhf and robust earnest money deposits helped us manage our cancellation rate across the company and increase our mortgage capture rate compared to the prior year . sales order backlog replace_table_token_18_th ( 1 ) sales order backlog represents homes under contract for which revenue has not yet been recognized at the end of the period ( including homes sold but not yet started ) . some of the contracts in our sales order backlog are subject to contingencies including mortgage loan approval and buyers selling their existing homes , which can result in future cancellations . total backlog units and total sales value increased by 6.8 % and 10.0 % for the 2016
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in february 2016 , in exchange for our partners ' aggregate 49 % interest in this venture and $ 2.5 million in cash , we distributed one center to our partners . we will consolidate this venture as of the transaction date and re-measure our investment in this venture to its fair value , and recognize a gain , if applicable . the fair value of the acquired properties will primarily be allocated to building , land and other identifiable intangible assets and liabilities . we intend to continue to focus on identifying new development projects as another source of growth . although we have only seen a few viable projects , a lack of supply in new retail space , combined with an increase in supermarket sales , has driven a slight increase in new development activity and retailer interest , which we believe is a positive trend . during 2015 , we invested $ 27.5 million in four new development projects . in addition , we intend to continue to look for internal growth opportunities . currently , we have 11 redevelopment projects in which we plan to invest approximately $ 56.2 million over the next 24 months . additionally , during 2015 , we completed seven redevelopment projects , which has added approximately 142,450 incremental square feet to the total portfolio , with an incremental investment totaling $ 21.7 million . upon completion , the average projected stabilized return on our incremental investment on these redevelopment projects is expected to average 14 % . for 2016 , we expect to invest in new development and redevelopments in the range of $ 50 million to $ 100 million , but we can give no assurances that this will actually occur . we strive to maintain a strong , conservative capital structure which should provide ready access to a variety of attractive long and short-term capital sources . we carefully balance lower cost , short-term financing with long-term liabilities associated with acquired or developed long-term assets . in may 2015 , we issued $ 250 million of 3.85 % senior unsecured notes maturing in 2025 . the notes were issued at 99.23 % of the principal amount with a yield to maturity of 3.94 % . the net proceeds received of $ 246.5 million were used to reduce the amount outstanding under our $ 500 million unsecured revolving credit facility . associated with this transaction , we entered into and settled two forward-starting interest rate swap contracts with an aggregate notional amount of $ 215 million hedging future fixed-rate debt issuances , which fixed the 10 -year swap rates at 2.0 % per annum . including the impact of the gain on the settlement of the two forward-starting contracts , the all-in cost of this financing was 3.77 % . in april 2015 , we called for the redemption our remaining outstanding 6.5 % series f cumulative redeemable preferred shares of beneficial interest with an aggregate redemption value of $ 150 million , which settled on may 8 , 2015 and was funded through existing resources , including cash on hand , proceeds from our atm equity offering program , and borrowings under our revolving credit facilities . upon the redemption of these shares , $ 9.7 million was reported as a deduction in arriving at net income attributable to common shareholders . in march 2015 , we entered into a $ 200 million unsecured term loan with floating borrowing rates at a margin above libor , which have been swapped to a fixed rate of 2.5 % . the term loan matures in march 2020 , and we have the option to repay the loan without penalty at any time . additionally , this loan contains an accordion feature which allows us to increase the loan amount up to an additional $ 100 million . we used the proceeds from the loan to repay amounts outstanding under our unsecured revolving credit facility . additionally , we extended the maturity of an existing $ 66 million secured note to 2025 and reduced the interest rate associated with this note from 7.4 % to 3.5 % with approximately $ 6.1 million of debt extinguishment costs being realized . these transactions have decreased our interest costs by replacing high-cost debt with considerably lower rate debt . in february 2015 , we established an atm equity offering program under which we may , but are not obligated to , sell up to $ 200 million of common shares , in amounts and at times as we determine , at prices determined by the market at the time of sale . we intend to use the net proceeds from future sales for general trust purposes , which may include reducing borrowings under our $ 500 million unsecured revolving credit facility , repaying other indebtedness or repurchasing outstanding debt . as of december 31 , 2015 , we sold 1,128,700 shares with gross proceeds totaling $ 40.8 million . in october 2015 , our board of trust managers approved a $ 200 million share repurchase plan . under this plan , we may repurchase common shares from time-to-time in open-market or in privately negotiated purchases based on management 's evaluation of market conditions and other factors . 26 we believe that these transactions should continue to strengthen our consolidated balance sheet and further enhance our access to various sources of capital , while reducing our cost of capital . due to the variability in the capital markets , there can be no assurance that favorable pricing and availability will be available in the future . operational metrics in assessing the performance of our centers , management carefully monitors various operating metrics of the portfolio . story_separator_special_tag as a result of our strong leasing activity , low tenant fallout and lack of quality retail space in the market , the operating metrics of our portfolio remained very strong in 2015 as we focused on increasing rental rates and same property net operating income ( `` spnoi '' and see non-gaap financial measures for additional information ) . our portfolio delivered solid operating results with : occupancy of 95.1 % at december 31 , 2015 ; an increase of 3.3 % in spnoi for the twelve months ended december 31 , 2015 over the same period of 2014 ; and rental rate increases of 21.2 % for new leases and 9.9 % for renewals were realized for the twelve months ended december 31 , 2015 . below are performance metrics associated with our signed occupancy , spnoi growth and leasing activity on a pro rata basis : replace_table_token_9_th replace_table_token_10_th _ ( 1 ) see non-gaap financial measures for a definition of the measurement of spnoi and a reconciliation to operating income within this section of item 7. replace_table_token_11_th _ ( 1 ) average external lease commissions per square foot for the three and twelve months ended december 31 , 2015 were $ 7.41 and $ 6.55 , respectively . 27 while we will continue to monitor the economy and the effects on our tenants , over the long-term , we believe the significant diversification of our portfolio , both geographically and by tenant base , and the quality of our portfolio will allow future increases to occupancy levels ; however , occupancy may oscillate over the next several quarters as we continue to maximize our long-term portfolio value by repositioning some of our anchor space . a reduction in quality retail space available , as well as improving retailer demand , contributed to the increase in overall rental rates on a same-space basis as we completed new leases and renewed existing leases . leasing volume is anticipated to decline as we have less vacant space available for leasing . our expectation is that spnoi growth with redevelopments will average between 3.5 % to 4.5 % for 2016. new development/redevelopment at december 31 , 2015 , we had four projects under development . we have funded $ 110.3 million through december 31 , 2015 on these projects , and we estimate our aggregate net investment upon completion to be $ 164.4 million . overall , the average projected stabilized return on investment for these properties is expected to be approximately 7.8 % upon completion . effective january 1 , 2016 , we stabilized our development in alexandria , virginia , moving it to our operating property portfolio . we have 11 redevelopment projects in which we plan to invest approximately $ 56.2 million over the next 24 months . additionally , during 2015 , we completed seven redevelopment projects , which has added approximately 142,450 incremental square feet to the total portfolio , with an incremental investment totaling $ 21.7 million . upon completion , the average projected stabilized return on our incremental investment on these redevelopment projects is expected to average 14 % . we had approximately $ 95.5 million in land held for development at december 31 , 2015 that may either be developed or sold . while we are experiencing a greater interest from retailers and other market participants in our land held for development , opportunities for economically viable developments remain limited . we intend to continue to pursue additional development and redevelopment opportunities in multiple markets ; however , finding the right opportunities remains challenging . acquisitions acquisitions are a key component of our long-term growth strategy . the availability of quality acquisition opportunities in the market remains sporadic in our targeted markets . intense competition , along with a decline in the volume of high-quality core properties on the market , has in many cases driven pricing to pre-recession highs . we remain disciplined in approaching these opportunities , pursuing only those that provide appropriate risk-adjusted returns . dispositions dispositions are also a key component of our ongoing management process where we selectively prune properties from our portfolio that no longer meet our geographic or growth targets . dispositions provide capital , which may be recycled into properties that are high barrier-to-entry locations within high growth metropolitan markets , and thus have higher long-term growth potential . additionally , proceeds from dispositions may be used to reduce outstanding debt , further deleveraging our consolidated balance sheet . 28 summary of critical accounting policies our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and contingencies as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods . we evaluate our assumptions and estimates on an ongoing basis . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies require more significant judgments and estimates used in the preparation of our consolidated financial statements . property acquisitions of properties are accounted for utilizing the acquisition method and , accordingly , the results of operations of an acquired property are included in our results of operations from the date of acquisition . estimates of fair values are based upon future cash flows and other valuation techniques in accordance with our fair value measurements accounting policy .
| in 2015 , the weighted average debt outstanding was $ 2.0 billion at a weighted average interest rate of 4.2 % as compared to $ 2.1 billion outstanding at a weighted average interest rate of 4.7 % in the same period of 2014. the increase in extinguishment of debt of $ 3.9 million is attributable primarily to $ 6.1 million in 2015 associated with the refinancing of a $ 66 million secured note and $ 1.2 million in 2014 associated with the redemption of 8.1 % senior unsecured notes . gain on sale and acquisition of real estate joint venture and partnership interests the gain in 2015 is primarily attributable to our return of equity associated with an unconsolidated joint venture 's disposition of its real estate property as compared to the gain in 2014 associated with the partial disposition of an unconsolidated real estate joint venture interest . equity in earnings of real estate joint ventures and partnerships , net the decrease of $ 3.0 million is primarily attributable to the reduction in our share of the gain on sale associated with the disposition of centers in 2015 and 2014 . ( provision ) benefit for income taxes the increase of $ 1.3 million in the provision for income taxes is attributable to the realization of a $ 2.1 million tax benefit in 2014 associated with the sale of unimproved land in our taxable reit subsidiary , which was previously impaired and did not recur in 2015. additionally , texas franchise taxes decreased from the prior year as a result of a reduction in both the tax rate and our apportionment percentage . 31 comparison of the year ended december 31 , 2014 to the year ended december 31 , 2013 the following table is a summary of certain items from our consolidated statements of operations , which we believe represent items that significantly changed during 2014 as compared to the same period in 2013
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we plan to continue to improve our operating results by leveraging our fixed costs and decreasing our selling , general and administrative expenses , as a percentage of our net sales . global economic conditions economic conditions in the u.s. continue to be uneven . fiscal stress in europe and economic uncertainty in the u.s. related to deficit issues , potential tax increases and federal spending cuts have resulted in significant fluctuations in the financial markets . while the u.s. credit markets have stabilized and credit availability has improved compared to the recent recessionary period , economic growth is expected to continue to be weak . consumer spending habits are affected by levels of unemployment , unsettled financial markets , weakness in housing and real estate , higher interest rates , fuel and energy costs , and consumer perception of economic conditions , among others . sudden negative changes in one or more of the factors that affect consumer spending could adversely affect consumer spending levels which could lead to reduced consumer demand for our merchandise and adversely affect our sales levels and financial performance . basis of presentation the company has determined its operating segments on the same basis that it uses to internally evaluate performance . we have combined our three operating segments : retail stores , salon services and e-commerce , into one reportable segment because they have a similar class of consumer , economic characteristics , nature of products and distribution methods . net sales include store and e-commerce merchandise sales as well as salon service revenue . we recognize merchandise revenue at the point of sale in our retail stores and the time of shipment in the case of internet sales . merchandise sales are recorded net of estimated returns . salon service revenue is recognized at the time the service is provided . gift card sales revenue is deferred until the customer redeems the gift card . company coupons and other incentives are recorded as a reduction of net sales . comparable store sales reflect sales for stores beginning on the first day of the 14th month of operation . therefore , a store is included in our comparable store base on the first day of the period after one year of 31 operations plus the initial one month grand opening period . non-comparable store sales include sales from new stores that have not yet completed their 13th month of operation and stores that were closed for part or all of the period in either year as a result of remodel activity . remodeled stores are included in comparable store sales unless the store was closed for a portion of the current or prior period . e-commerce merchandise sales are excluded from comparable store sales . starting in the first quarter of 2013 , comparable store sales will be reported including the company 's e-commerce business . there may be variations in the way in which some of our competitors and other retailers calculate comparable or same store sales . measuring comparable store sales allows us to evaluate the performance of our store base as well as several other aspects of our overall strategy . several factors could positively or negatively impact our comparable store 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 marketing activities ; and the number of new stores opened and the impact on the average age of all of our comparable stores . cost of sales includes : the cost of merchandise sold , including all vendor allowances , which are treated as a reduction of merchandise costs ; warehousing and distribution costs including labor and related benefits , freight , rent , depreciation and amortization , real estate taxes , utilities , and insurance ; store occupancy costs including rent , depreciation and amortization , real estate taxes , utilities , repairs and maintenance , insurance , licenses , and cleaning expenses ; salon payroll and benefits ; customer loyalty program expense ; 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 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 and warehouse operations , which is 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 . 32 pre-opening expense includes 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 expense includes interest costs and unused 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 . story_separator_special_tag 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 . story_separator_special_tag compared to $ 86.4 million in fiscal 2010. the sales increases were due to the opening of 60 net new stores in 2011 and a 10.9 % increase in comparable store sales which was primarily due to a 10.1 % increase in store traffic . non-comparable stores , which include stores opened in fiscal 2011 as well as stores opened in fiscal 2010 which have not yet turned comparable , contributed $ 168.4 million of the net sales increase while comparable stores contributed $ 153.0 million of the total net sales increase . we attribute the increase in comparable store sales to our successful marketing and merchandise strategies . gross profit gross profit increased $ 132.7 million , or 27.4 % , to $ 616.8 million in fiscal 2011 , compared to $ 484.1 million , in fiscal 2010. gross profit as a percentage of net sales increased 140 basis points to 34.7 % in fiscal 2011 compared to 33.3 % in fiscal 2010. the increase in gross profit margin in fiscal 2011 was primarily driven by : 80 basis points of leverage in fixed store costs attributed to the impact of significantly higher sales levels in fiscal 2011 ; and 70 basis points improvement in merchandise margin due primarily to improved promotional pricing and a shift in category mix towards higher margin product compared with fiscal 2010. selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses increased $ 52.6 million , or 14.7 % , to $ 410.7 million in fiscal 2011 compared to $ 358.1 million in fiscal 2010. as a percentage of net sales , sg & a expenses decreased 150 basis points to 23.1 % in fiscal 2011 compared to 24.6 % in fiscal 2010. the leverage in sg & a expense was primarily driven by : 70 basis points improvement in variable store and marketing expense leverage attributed to cost efficiencies and higher sales volume ; and 60 basis points in corporate overhead leverage , excluding the fiscal 2010 non-recurring compensation charge , attributed to higher sales volume . pre-opening expenses pre-opening expenses increased $ 2.9 million , or 40.8 % , to $ 10.0 million in fiscal 2011 compared to $ 7.1 million in fiscal 2010. during fiscal 2011 , we opened 61 new stores , remodeled 17 stores and relocated 2 stores . during fiscal 2010 , we opened 47 new stores and remodeled 13 stores and relocated 5 stores . interest expense interest expense was $ 0.6 million in fiscal 2011 and $ 0.8 million in fiscal 2010. interest expense for both periods represents various fees related to the credit facility . we did not utilize our credit facility during fiscal 2011 or 2010. income tax expense income tax expense of $ 75.3 million in fiscal 2011 represents an effective tax rate of 38.5 % , compared to fiscal 2010 tax expense of $ 47.1 million and an effective tax rate of 39.9 % . the lower tax rate in fiscal 2011 is primarily due to a decrease in non-deductible compensation expense and increases in certain federal and state tax deductions and credits compared to fiscal 2010. net income net income increased $ 49.3 million , or 69.3 % , to $ 120.3 million in fiscal 2011 compared to $ 71.0 million in fiscal 2010. the increase in net income was primarily due to an increase in gross profit of $ 132.7 million , which was offset by a $ 52.6 million increase in sg & a expenses and a $ 28.2 million increase in income tax expense . 35 liquidity and capital resources our primary cash needs are for capital expenditures for new , relocated and remodeled stores , increased merchandise inventories related to store expansion , supply chain improvements and for continued improvement in our information technology systems . our primary sources of liquidity are cash on hand and 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 reduced by related accounts payable and accrued expenses . our working capital position benefits from the fact that we generally collect cash from sales to customers the same day , or within several days of the related sale , while we typically have up to 30 days to pay our vendors . 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 on hand , 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 12 months . the following table presents a summary of our cash flows for fiscal years 2012 , 2011 and 2010 : replace_table_token_8_th operating activities operating activities consist of net income adjusted for certain non-cash items , including depreciation and amortization , non-cash stock-based compensation , realized gains or losses on disposal of property and equipment , and the effect of working capital changes . merchandise inventories were $ 361.1 million at february 2 , 2013 , compared to $ 244.6 million at january 28 , 2012 , representing an increase of $ 116.5 million . average inventory per store increased 20.5 % compared to prior year .
| gross profit gross profit increased $ 166.9 million , or 27.0 % , to $ 783.7 million in fiscal 2012 , compared to $ 616.8 million , in fiscal 2011. gross profit as a percentage of net sales increased 60 basis points to 35.3 % in fiscal 2012 compared to 34.7 % in fiscal 2011. the increase in gross profit margin in fiscal 2012 was primarily driven by : 50 basis points of leverage in fixed store costs attributed to the impact of significantly higher sales levels in fiscal 2012 ; and 30 basis points improvement in merchandise margins driven by our marketing and merchandising strategies . selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses increased $ 78.2 million , or 19.0 % , to $ 488.9 million in fiscal 2012 compared to $ 410.7 million in fiscal 2011. as a percentage of net sales , sg & a expenses decreased 110 basis points to 22.0 % in fiscal 2012 compared to 23.1 % in fiscal 2011. the leverage in sg & a expense was primarily driven by : 70 basis points in corporate overhead leverage attributed to higher sales volume ; and 40 basis points improvement in variable store and marketing expense leverage attributed to cost efficiencies and higher sales volume . pre-opening expenses pre-opening expenses increased $ 4.8 million , or 48.4 % , to $ 14.8 million in fiscal 2012 compared to $ 10.0 million in fiscal 2011. during fiscal 2012 , we opened 102 new stores , remodeled 21 stores and relocated 3 stores . during fiscal 2011 , we opened 61 new stores and remodeled 17 stores and relocated 2 stores . interest expense interest expense was $ 0.2 million in fiscal 2012 and $ 0.6 million in fiscal 2011. interest expense for both periods represents various fees related to the credit facility . we did not utilize our credit facility during fiscal 2012 or 2011. income tax expense income tax expense of $ 107.2 million in fiscal 2012 represents an effective tax rate of 38.3 % , compared to fiscal 2011 tax expense of $ 75.3 million and an effective tax rate of 38.5 % . the lower tax rate in fiscal 2012 is primarily due to a decrease in state taxes and less non-deductible executive compensation compared to fiscal 2011. net income net income increased $ 52.2 million ,
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the rules under the mla will restrict us from offering consumer loan products to covered borrowers above the military annual percentage rate , which is defined by the rules as 36 % , and contain various disclosure requirements , limitations on renewals and refinancing , as well as restrictions on the use of prepayment penalties , arbitration provisions and certain waivers of rights . the rule provides that a lender is subject to fines and other penalties if it extends credit to a covered borrower on prohibited terms . the new rule provides a safe harbor for a lender if it verifies that an applicant is not a covered borrower before extending credit by checking the department of defense 's database or a database of a national credit reporting agency that provides military status information . 48 financial conduct authority during years ended december 31 , 2016 and december 31 , 2015 , our u.k. operations generated 13.9 % and 19.9 % , respectively , of our consolidated total revenue . regulatory changes in the united kingdom during 2014 significantly affected our results from our u.k. operations as described below . in the united kingdom , supervision of consumer credit was transferred on april 1 , 2014 to the fca , and pursuant to new legislation , the fca is authorized to adopt prescriptive rules and regulations . on february 28 , 2014 , the consumer credit sourcebook was issued as part of the fca handbook and incorporates prescriptive regulations for lenders such as us , including mandatory affordability assessments on borrowers , limiting the number of rollovers to two , restricting how lenders can advertise , banning advertisements the fca deems misleading , and introducing a limit of two unsuccessful attempts on the use of continuous payment authority ( which provides a creditor the ability to directly debit a customer 's account for payment when authorized by the customer to do so ) to pay off a loan . as required by the 2013 amendment to the financial services and markets act 2000 , the fca implemented a cap on the total cost of high-cost short-term credit effective january 2 , 2015. the final rule reflects a maximum rate of 0.8 % of principal per day , and limits the total fees , interest ( including post-default interest ) and charges ( including late fees which are capped at £15 ) to an aggregate amount not to exceed 100 % of the principal amount loaned . the rule required us to make changes to all of our high-cost short-term products in the united kingdom . as a result of the final rule , we discontinued offering line of credit accounts to new customers in the united kingdom in late 2014 and effective january 1 , 2015 , we discontinued draws on existing line of credit accounts in the united kingdom . once u.k. customers have paid off their outstanding line of credit balance , they may be eligible for either a short-term or installment loan . on january 29 , 2016 , we received full authorization from the fca to provide consumer credit and to perform related activities for both of our u.k. businesses . we will be required to continue to satisfy certain minimum standards set out in the fsma , which may result in additional costs to us . on february 24 , 2015 , the fca issued a consultation paper that , among other things , proposes to require that providers of high-cost short-term credit include a risk warning in all financial promotions and to amend the fca rules to allow firms to introduce continuous payment authority to collect repayments where a customer is in arrears or default and the lender is exercising forbearance . the fca published its response to this consultation on september 28 , 2015 , and confirmed the ability of firms to use continuous payment authority to collect repayments where a customer is in arrears or default and the lender is exercising forbearance . the fca also imposed a number of regulatory changes on credit brokers and lenders operating in the high-cost-short-term credit market in the united kingdom . the fca now requires that providers of high-cost short-term credit include a risk warning in all financial promotions , including previously exempted size-limited ads like sms text messages and pay-per-click ads . the majority of these changes came into force on november 2 , 2015. in addition , on august 13 , 2015 , the cma published its final order which requires online lenders to publish details of their products on at least one price comparison website which is authorized by the fca . it is anticipated that the fca will publish its price comparison website standards in mid-2016 with an effective date at the end of 2016 or 2017. the cma also ordered online and storefront lenders to provide existing customers with a summary of their cost of borrowing effective august 13 , 2016. the cma also published guidance on the unfair contract provisions in the consumer rights act of 2015 , which sets out the cma 's understanding of the provisions in the act which deal with unfair contract terms and notices . the guidance supersedes the general unfair contract terms guidance issued by the oft we are subject to ongoing examination and review by the fca . during 2014 we were in frequent communication with the fca in an effort to demonstrate that we satisfy the expectations of the fca , and we made significant modifications to many of our business practices to address the fca 's requirements . these modifications included adjustments to our affordability assessment practices and underwriting standards that govern who will qualify for a loan from us , reductions in certain maximum loan amounts , alterations to advertising practices and adjustments to collections processes ( including our practices related to continuous payment authority ) and debt forbearance processes ( or our practices regarding customers who have indicated they are experiencing financial difficulty ) . story_separator_special_tag in addition , we previously did not have a physical presence in the united kingdom as business functions were performed remotely from our facilities in the united states . in order to alleviate concerns in relation to our ability to demonstrate to the fca that we are capable of being effectively supervised , we established an office in london in 2014 for the management of our u.k. business . in 2014 , the fca appointed an independent auditor , referred to as a skilled person under section 166 of the fsma , to undertake a review of certain of our practices , as well as our ability to be effectively supervised . the first phase of that review identified certain of our former business practices that were deemed by the fca to have caused some consumer detriment , the majority of which were during the limited time frame prior to complete implementation of our enhanced affordability assessment . on november 4 , 2015 , the fca announced the final redress program , in which we provided 3,940 customers total redress of approximately $ 2.6 million through a combination of loan balance waivers and cash refunds of interest and fees paid . the skilled person oversaw the execution of the redress program , which was concluded in the latter part of the fourth quarter of 2015. the remainder of the section 166 review has been completed and has not identified further activities deemed by the fca to have caused consumer detriment or that are not in compliance with the fca 's requirements . 49 in connection with implementing the changes described above to our u.k. business , we experienced a significant year-over-year decrease in our u.k. loan volume , u.k. loan balances and u.k. revenue during 2015. we discontinued offering line of credit accounts to new customers in the united kingdom in late 2014 and effective january 1 , 2015 , we discontinued draws on existing line of credit accounts in the united kingdom . the implementation of stricter affordability assessments and underwriting standards resulted in a year-over-year decrease in the number of consumer loans written , the average consumer loan amount and the total amount of consumer loans written to new and returning customers . additionally , we experienced an increase in compliance- and administrative-related costs for the united kingdom , but the overall expenses of our u.k. business ( including our cost of revenue ) decreased as our u.k. business contracted . the ultimate impact of the changes we have made to our u.k. operations will be dependent on a number of factors ( some of which may be unforeseen ) , including the effectiveness of our execution of the operational changes , the impact the fca 's requirements may have on our competitors that could result in a potential increase in our market share , and consumer reaction to the changes occurring to our services , among other things . the decline in revenue and loan balances in the united kingdom has been offset to an extent by improved performance of our u.k. consumer loan portfolio as a result of stricter affordability assessments and underwriting standards being implemented , which has resulted in lower consumer loan loss rates , and by continued strong demand for the online loan products we offer and receivables purchased in the united states and other markets . the results for the year ended december 31 , 2014 do not include the full impact of the changes described above . the results for that period are not indicative of our future results of operations and cash flows from our operations in the united kingdom . safe harbor provisions on october 6 , 2015 , the european court of justice invalidated the so-called “ safe harbor ” framework , which previously evidenced compliance with the u.k. data protection act and the european union data protection directive and allowed companies to pass european union data to non-european union countries if certain certification requirements were met by the company . although many companies , including us , had safe harbor certification , the european union and the united kingdom provide other guidance regarding compliance with data protection laws and regulations for companies who pass data outside the european union . in addition , there are circumstances under which a company is exempt from complying with those laws and regulations . despite the invalidation of the safe harbor framework , we believe we are exempt from and or in compliance with all e.u . and u.k. privacy laws and regulations . on february 2 , 2016 , the european commission and the united states agreed on a new framework for transatlantic data flows , the “ eu-us privacy shield ” , which will replace the invalidated safe harbor framework . the eu-us privacy shield is a framework designed by the u.s. department of commerce ( the “ commerce department ” ) and european commission to provide companies on both sides of the atlantic with a mechanism to comply with eu personal data from the european union to the united states in support of transatlantic commerce . on july 12 , 2016 , the european commission adopted the eu-us privacy shield , which consists of four components : ( i ) the privacy shield principles , which is a code of conduct outlining protections for the handling of personal data ; ( ii ) oversight and enforcement ; ( iii ) ombudsperson mechanism ; and ( iv ) safeguards and limitations . the commerce department began accepting certifications to the eu-us privacy shield on august 1 , 2016. we expect to apply for certification to the eu-us privacy shield , and in the interim , despite the invalidation of the safe harbor framework , we believe we are exempt from and or are in compliance with all e.u . and u.k. privacy laws and regulations . on june 23 , 2016 , the united kingdom voted to exit the european union . the details and timeline of the exit have not yet been finalized .
| we provide non-gaap financial information for informational purposes and to enhance understanding of our gaap consolidated financial statements . readers should consider the information in addition to , but not instead of or superior to , our financial statements prepared in accordance with gaap . this non-gaap financial information may be determined or calculated differently by other companies , limiting the usefulness of those measures for comparative purposes . 55 adjusted earnings measures in addition to reporting financial results in accordance with gaap , we have provided adjusted earnings and adjusted earnings per share , or , collectively , the adjusted earnings measures , which are non-gaap measures . we believe that the presentation of these measures provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures , compensation strategies , derivative instruments and amortization methods , which provides a more complete understanding of our financial performance , competitive position and prospects for the future . we also believe that investors regularly rely on non-gaap financial measures , such as the adjusted earnings measures , to assess operating performance and that such measures may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with gaap . in addition , we believe that the adjustments shown below are useful to investors in order to allow them to compare our financial results during the periods shown without the effect of each of these income or expense items . the following table provides reconciliations between net income and diluted earnings per share calculated in accordance with gaap to the adjusted earnings measures , which are shown net of tax ( in thousands , except per share data ) : replace_table_token_7_th ( a ) for the year ended december 31 , 2016 , we recorded a $ 3.3 million fair value adjustment ( $ 2.0 million net of tax ) to contingent consideration related to a prior year acquisition . ( b ) in may 2015 , we relocated our headquarters and as a result incurred
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property equity ownership resulting from this lending program during 2011 included 280 park avenue and 110 east 42 nd street . outlook several factors introduced into the market during the second half of 2011 have modestly reduced expectations of the recovery in jobs and in demand for office space in 2012. those factors include weaker financial results from large new york city based financial institutions as driven by exogenous factors such as the european credit crisis . despite these factors , we continue to see a solid leasing market and due to the more limited supply of space and lack of new supply , the potential for improving leasing fundamentals as we progress through the year . our significant activities for 2011 included : acquired or consolidated in joint venture interests on five properties for aggregate gross purchase prices of $ 2.0 billion encompassing 3.6 million square feet . invested in four properties through joint ventures for aggregate gross purchase prices of $ 1.8 billion and encompassing 2.0 million square feet . closed on a $ 1.5 billion 4-year revolving credit facility . sold 6.7 million shares of common stock through our `` at-the-market '' equity offering programs raising net proceeds of $ 517.1 million were used to repay certain of our existing indebtedness , make investments in additional properties and debt and preferred equity investments , and for general corporate purposes . issued $ 250.0 million principal amount of 5.00 % senior unsecured notes , due 2018 , at par . the net proceeds from the offering ( approximately $ 246.5 million ) were used to repay certain of our existing indebtedness , make investments in additional properties , and for general corporate purposes . closed on 15 mortgages and loans payable totaling approximately $ 3.3 billion . signed 205 office leases totaling 2.3 million square feet in manhattan during 2011. signed 109 office leases totaling 0.6 million square feet in the suburbs during 2011 . 40 as of december 31 , 2011 , we owned the following interests in commercial office properties in the new york metropolitan area , primarily in midtown manhattan . our investments in the new york metropolitan area also include investments in brooklyn , queens , long island , westchester county , connecticut and new jersey , which are collectively known as the suburban assets : replace_table_token_18_th ( 1 ) the weighted average occupancy represents the total leased square feet divided by total available rentable square feet . we also owned investments in nine stand-alone retail properties encompassing approximately 349,282 square feet , seven development properties encompassing approximately 1,395,838 square feet and three land interests as of december 31 , 2011. in addition , we manage three office properties owned by third parties and affiliated companies encompassing approximately 0.9 million rentable square feet . critical accounting policies our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we evaluate our assumptions and estimates on an ongoing basis . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . investment in commercial real estate properties on a periodic basis , we assess whether there are any indicators that the value of our real estate properties may be impaired or that its carrying value may not be recoverable . a property 's value is considered impaired if management 's estimate of the aggregate future cash flows ( undiscounted and without interest charges for consolidated properties ) to be generated by the property are less than the carrying value of the property . to the extent impairment has occurred , the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property . in addition , we assess our investments in unconsolidated joint ventures for recoverability , and if it is determined that a loss in value of the investment is other than temporary , we write down the investment to its fair value . we evaluate our equity investments for impairment based on the joint venture 's projected discounted cash flows . during 2011 , we recorded a $ 5.8 million impairment charge in connection with the expected sale of one of our equity investments . during 2010 , we recorded a $ 2.8 million impairment charge on one of our equity investments . these charges are included in depreciable real estate reserves . we do not believe that the value of any of our consolidated properties was impaired at december 31 , 2011 and 2010 , respectively . 41 a variety of costs are incurred in the development and leasing of our properties . after determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . the costs of land and building under development include specifically identifiable costs . the capitalized costs include pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs and other costs incurred during the period of development . story_separator_special_tag we consider a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements , but no later than one year from cessation of major construction activity . we cease capitalization on the portions substantially completed and occupied or held available for occupancy , and capitalize only those costs associated with the portions under construction . we allocate the purchase price of real estate to land and building and , if determined to be material , intangibles , such as the value of above- , below- , and at-market leases and origination costs associated with the in-place leases . we depreciate the amount allocated to building and other intangible assets over their estimated useful lives , which generally range from three to 40 years and from one to 14 years , respectively . the values of the above- and below-market leases are amortized and recorded as either an increase ( in the case of below-market leases ) or a decrease ( in the case of above-market leases ) to rental income over the remaining term of the associated lease , which generally range from one to 14 years . the value associated with in-place leases are amortized over the expected term of the associated lease , which generally range from one to 14 years . if a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease , any unamortized balance of the related intangible will be written off . the tenant improvements and origination costs are amortized as an expense over the remaining life of the lease ( or charged against earnings if the lease is terminated prior to its contractual expiration date ) . we assess fair value of the leases based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information . estimates of future cash flows are based on a number of factors including the historical operating results , known trends , and market/economic conditions that may affect the property . investment in unconsolidated joint ventures we account for our investments in unconsolidated joint ventures under the equity method of accounting in cases where we exercise significant influence over , but do not control , these entities and are not considered to be the primary beneficiary . we consolidate those joint ventures that we control or which are vies and where we are considered to be the primary beneficiary . in all these joint ventures , the rights of the joint venture partner are both protective as well as participating . unless we are determined to be the primary beneficiary in a vie , these participating rights preclude us from consolidating these non-vie entities . these investments are recorded initially at cost , as investments in unconsolidated joint ventures , and subsequently adjusted for equity in net income ( loss ) and cash contributions and distributions . any difference between the carrying amount of these investments on our balance sheet and the underlying equity in net assets is amortized as an adjustment to equity in net income ( loss ) of unconsolidated joint ventures over the lesser of the joint venture term or 10 years . equity income ( loss ) from unconsolidated joint ventures is allocated based on our ownership or economic interest in each joint venture . when a capital event ( as defined in each joint venture agreement ) such as a refinancing occurs , if return thresholds are met , future equity income will be allocated at our increased economic percentage . we recognize incentive income from unconsolidated real estate joint ventures as income to the extent it is earned and not subject to a clawback feature . distributions we receive from unconsolidated real estate joint ventures in excess of our basis in the investment are recorded as offsets to our investment balance if we remain liable for future obligations of the joint venture or may otherwise be committed to provide future additional financial support . none of the joint venture debt is recourse to us , except for $ 200.0 million which we guarantee at one joint venture and performance guarantees under a master lease at another joint venture . 42 revenue recognition rental revenue is recognized on a straight-line basis over the term of the lease . the excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in deferred rents receivable on the accompanying balance sheets . we establish , on a current basis , an allowance for future potential tenant credit losses , which may occur against this account . the balance reflected on the balance sheet is net of such allowance . interest income on debt and preferred equity investments is recognized over the life of the investment using the effective interest method and recognized on the accrual basis . fees received in connection with loan commitments are deferred until the loan is funded and are then recognized over the term of the loan as an adjustment to yield . anticipated exit fees , whose collection is expected , are also recognized over the term of the loan as an adjustment to yield . fees on commitments that expire unused are recognized at expiration . income recognition is generally suspended for debt and preferred equity investments at the earlier of the date at which payments become 90 days past due or when , in the opinion of management , a full recovery of income and principal becomes doubtful . income recognition is resumed when the loan becomes contractually current and performance is demonstrated to be resumed . allowance for doubtful accounts we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our tenants to make required payments . if the financial condition of a specific tenant were to deteriorate , resulting in an impairment of its ability to make payments , additional allowances may be required .
| forty-three leases totaling 614,833 square feet represented office leases that replaced previous vacancies , while 162 office leases comprising 1,690,423 square feet had average starting rents of $ 55.34 per rentable square foot , representing a 7.3 percent increase over the previously fully escalated rents on the same office spaces . the average lease term on the manhattan office leases signed during the year ended december 31 , 2011 was 9.6 years and average tenant concessions were 3.7 months of free rent with a tenant improvement allowance and lease commissions of $ 49.59 per rentable square foot . of the 2.0 million square feet of office leases which commenced during 2011 , 434,018 square feet represented office leases that replaced previous vacancies , while 1.6 million square feet represented office leases that had average starting rents of $ 53.37 per rentable square foot , representing a 4.3 percent increase over the previously fully escalated rents on the same office spaces . 44 occupancy for our suburban portfolio was 86.2 percent at december 31 , 2011 as compared to 87.3 percent for the same period in the previous year . during the year ended december 31 , 2011 , we signed 109 office leases in the suburban portfolio totaling 574,046 square feet . thirty-three leases and 183,425 square feet represented office leases that replaced previous vacancies , while 76 office leases comprising 390,621 square feet had average starting rents of $ 33.86 per rentable square foot , representing a 2.5 percent decrease over the previously fully escalated rents on the same office spaces . the average lease term on the suburban office leases signed during the year ended december 31 , 2011was 7.3 years and average tenant concessions were 6.9 months of free rent with a tenant improvement allowance and lease commissions of $ 33.16 per rentable square foot . of the 528,788 square feet of office leases which commenced during 2011 , 107,595 square feet represented office leases that replaced previous vacancies , while 421,193 square feet represented office leases that had average starting rents of $ 33.75 per rentable square foot , representing a 2.8 percent decrease over the previously fully escalated rents on the same office spaces . at december 31 , 2011 , approximately 4.1 % and 11.6 %
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changes include , but are not limited to , a corporate tax rate decrease from 35 % to 21 % effective for tax years beginning after december 31 , 2017 , the transition of u.s international taxation from a worldwide tax system to a territorial system , and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of december 31 , 2017. we have calculated our best estimate of the impact of the act in our year end income tax provision in accordance with our understanding of the act and guidance available as of the date of this filing and as a result have recorded $ 17.4 million as additional income tax benefit in the fourth quarter of 2017 , the period in which the legislation was enacted . the provisional amount relates to the remeasurement of certain deferred tax assets and liabilities , based on the rates at which they are expected to reverse in the future . acquisition of southern light , llc . on july 3 , 2017 , we completed the previously announced acquisition of southern light , llc ( “ southern light ” ) . we acquired all of the outstanding membership interests of southern light for approximately $ 638 million in cash , including the payoff of existing indebtedness and unpaid transaction expenses , and the issuance of 2.5 million common units in the operating partnership with an acquisition date fair value of $ 64.3 million . southern light is a leading provider of data transport services along the gulf coast region serving twelve attractive tier ii and tier iii markets across florida , alabama , louisiana , and mississippi . southern light 's dense regional fiber network comprises nearly 540,000 fiber strand miles , 5,700 fiber route miles , and over 4,500 on-net locations . the results of operations of southern light are reflected in the fiber infrastructure segment beginning july 3 , 2017. acquisition of hunt telecommunications , llc . on july 3 , 2017 , we completed the previously announced acquisition of hunt telecommunications , llc ( “ hunt ” ) . the company acquired all of the outstanding equity interests of hunt for approximately $ 129 million in cash , including the payoff of existing indebtedness and unpaid transaction expenses , and approximately 1.6 million units in the operating partnership with an acquisition date fair value of $ 41.6 million . additional contingent consideration of up to $ 17 million , with an acquisition date fair value of $ 16.4 million will be paid upon the achievement of certain defined financial revenue milestones . hunt is a leading provider of data transport to k-12 schools and government agencies with a dense fiber network in louisiana . the results of operations of hunt are reflected in the fiber infrastructure segment beginning july 3 , 2017. up-reit reorganization . on may 9 , 2017 , we completed our reorganization ( the “ up-reit reorganization ” ) to operate through a customary “ up-reit ” structure . under this structure , the operating partnership , which we control as a general partner , holds substantially all of our assets . the financial position and results of operations of the 28 operating partnership do not include the consumer cle c business because talk america is a direct , wholly-owned subsidiary of uniti . this structure is intended to facilitate future acquisition opportunities by providing the company with the ability to use common units of the operating partnership ( the “ op uni ts ” ) as a tax-efficient acquisition currency for future acquisitions of assets or entities . each op unit is exchangeable on a one-for-one basis for shares of our common stock or , at our election , cash of equivalent value . issuance of senior unsecured notes . on may 8 , 2017 , the company , csl capital , llc and uniti fiber holdings inc. co-issued $ 200 million aggregate principal amount of 7.125 % senior unsecured notes due december 15 , 2024 ( the “ may 2017 notes ” ) . the proceeds from the offering were used to fund a portion of the cash consideration payable in connection with the acquisition of southern light . in connection with the up-reit reorganization on may 9 , 2017 , the operating partnership replaced the company as a co-issuer of the may 2017 notes , and the company and uniti group finance inc. became guarantors of the may 2017 notes . on august 11 , 2017 , the may 2017 notes were mandatorily exchanged for notes issued as “ additional notes ” under the indenture governing our 7.125 % senior unsecured notes due december 15 , 2024 ( the “ 2024 notes ” ) . issuance of common stock . on april 25 , 2017 , we issued 19.5 million shares of our common stock at a public offering price of $ 26.50 , resulting in proceeds to the company of $ 499 million , net of underwriting discounts and commissions , which were used to fund a portion of the cash consideration payable in connection with the acquisitions of southern light and hunt . acquisition of nms . on january 31 , 2017 , we completed the previously announced acquisition of network management holdings ltd ( ‘ ‘ nms '' ) . at close , nms owned and operated 366 wireless communications towers in latin america with an additional 105 build-to-suit tower sites under development . the nms portfolio spans three latin america countries with 212 towers in mexico , 54 in nicaragua , and 100 in colombia . the consideration for the 366 wireless towers currently in operation was $ 62.6 million , which was funded through cash on hand . under the terms of the purchase agreement , we will acquire the towers under development when construction is completed . story_separator_special_tag as of december 31 , 2017 , construction was completed on 50 of the 105 towers that were under development at the time of the nms acquisition , and we acquired the completed towers pursuant to the purchase agreement for approximately $ 5.1 million . the results of operations of nms are reflected in the towers segment beginning january 31 , 2017. comparison of the years ended december 31 , 2017 and 2016 the following tables sets forth , for the periods indicated , our results of operations expressed as dollars and as a percentage of total revenues : 29 replace_table_token_7_th 30 the following table sets forth , for the years ended december 31 , 2017 and 2016 , revenues and adjusted ebitda of our reportable segments : replace_table_token_8_th replace_table_token_9_th revenues leasing – leasing revenues are primarily attributable to rental revenue from leasing our distribution systems to windstream holdings pursuant to the master lease . under the master lease , windstream holdings is responsible for the costs related to operating the distribution systems , including property taxes , insurance , and maintenance and repair costs . as a result , we do not record an obligation related to the payment of property taxes , as windstream makes direct payments to the taxing authorities . the master lease has an initial term of 15 years with four five-year renewal options and encompasses properties located in 29 states . rent under the master lease is an annual fixed amount of approximately $ 654 million . beginning may 2018 and continuing for the remainder of the initial term , rent under the master lease is subject to an annual escalation of 0.5 % . rental revenues over the initial term of the master lease are recognized in the financial statements on a straight-line basis , representing approximately $ 670.8 million per year . the master lease provides that tenant funded capital improvements ( “ tcis ” ) , defined as maintenance , repair , overbuild , upgrade or replacement to leased network , including without limitation , the replacement of copper 31 distribution systems with fiber distribution systems , automatically become property of uniti upon their cons truction by windstream . we receive non-monetary consideration related to tcis as they automatically become our property , and we recognize the cost basis of tcis that are capital in nature as real estate investments and deferred revenue . we depreciate the r eal estate investments over their estimated useful lives and amortize the deferred revenue as additional leasing revenues over the same depreciable life of the tci assets . for the year ended december 31 , 2017 , we recognized $ 685.1 million of revenue under the master lease , which included $ 14.3 million of tci revenue . for the year ended december 31 , 2016 , we recognized $ 677.4 million of revenue under the master lease , which included $ 6.1 million of tci revenue . the increase in tci revenue is attributable to increased investment by windstream in tcis . windstream invested $ 228 million in tcis during the year ended december 31 , 2017 , an increase from $ 157 million it invested in tcis during the year ended december 31 , 2016. since the inception of the master lease , windstream has invested a total of $ 453.5 million in such improvements . because a substantial portion of our revenue is derived from lease payments by windstream pursuant to the master lease , there could be a material adverse impact on our consolidated results of operations , liquidity and or financial condition if windstream were to default under the master lease or otherwise experience operating difficulties and becomes unable to generate sufficient cash to make payments to us . in recent years , windstream has experienced annual declines in its total revenue and sales . most recently , windstream has endured a challenge from an entity who acquired certain windstream debt securities for the purpose of seeking an “ event of default ” under such securities relating to the spin-off . an actual “ event of default ” would permit the trustee or holders of at least 25 % in aggregate principal amount of outstanding of such windstream debt securities to declare the principal amount of all outstanding windstream debt to be immediately due and payable . such an outcome would trigger cross-default provisions in windstream 's other debt instruments , including windstream services ' existing credit facility , which , in turn , would trigger a default under the master lease . accordingly , we monitor the credit quality of windstream through numerous methods , including by ( i ) reviewing the credit ratings of windstream by nationally recognized credit rating agencies , ( ii ) reviewing the financial statements of windstream that are publicly available and that are required to be delivered to us pursuant to the master lease , ( iii ) monitoring ongoing litigation and news reports regarding windstream and its businesses , ( iv ) conducting research to ascertain industry trends potentially affecting windstream , and ( v ) monitoring the timeliness of its lease payments . in addition to periodic financial statements , windstream is obligated under the master lease to provide us ( i ) a detailed consolidated budget on an annual basis and any significant revisions approved by windstream 's board of directors , ( ii ) prompt notice of any adverse action or investigation by a governmental authority relating to windstream 's licenses affecting the leased property , and ( iii ) any information we require to comply with our reporting and filing obligations with the sec .
| 33 the increase to fiber infrastructure operating expense is primarily driven by the timing of the acquisitions of peg and tower cloud , which closed on may 2 , 2016 and august 31 , 2016 , respect ively , as well as the acquisition of southern light and hunt that closed on july 3 , 2017. for the year ended december 31 , 2017 , fiber infrastructure operating expenses included $ 21.1 million of construction-related expenses , $ 15.9 million of lit service e xpense , $ 11.0 million of tower rent , $ 10.4 million of maintenance expense , $ 7.0 million of dark fiber rent and $ 4.8 million of payroll-related expense . for the year ended december 31 , 2016 , fiber infrastructure operating expenses included $ 7.0 million of t ower rent , $ 5.3 million of payroll-related expense and $ 4.3 million of lit service expense . the increase to tower operating expense is primarily driven by the timing of the acquisition of nms , which closed on january 31 , 2017. for the year ended december 31 , 2017 , tower operating expenses included $ 3.2 million of tower rent , $ 0.9 million of site monitoring expenses and $ 0.2 million of insurance expense . expense associated with the consumer clec business is primarily attributable to the wholesale agreement and the master services agreement entered between us and windstream in connection with the spin-off , and also included costs arising under the interconnection agreements with other telecommunication carriers . expense associated with the wholesale agreement and master services agreement for the year ended december 31 , 2017 totaled $ 10.2 million ( 1.1 % of revenue ) and $ 1.3 million ( 0.1 % of revenue ) , respectively , and expense associated with the wholesale agreement and the master services agreement for the year ended december 31 , 2016 totaled $ 12.5 million ( 1.6 % of revenue ) and $ 1.7 million ( 0 .2 % of revenue ) , respectively . other expense other expense for the year ended december 31 , 2017 , totaled $ 11.3 million ( 1.2 % of revenue ) , primarily as a result of a net unrealized loss of $ 10.7 million for mark-to-market adjustments on our contingent consideration arrangements . income tax ( benefit ) expense we recorded a $ 38.8 million benefit in income tax benefit for the year ended december 31 , 2017. this benefit was primarily driven by the release
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critical accounting policies and estimates the company 's consolidated financial statements have been prepared in accordance with u.s. gaap and form the basis for the following discussion and analysis on critical accounting policies and estimates . the preparation of these financial statements requires the company to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on a regular basis , management evaluate its estimates and assumptions . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from these estimates and those differences could have a material effect on the company 's financial position and results of operations . management has discussed the development , selection and disclosure of these estimates with the board of directors and its audit committee . a summary of the company 's significant accounting policies is provided in note 1 of the notes to consolidated financial statements in item 8 of this report . management believes the critical accounting policies and estimates described below reflect its more significant estimates and assumptions used in the preparation of the company 's consolidated financial statements . the impact and any associated risks on the company 's business that are related to these policies are also discussed throughout this “ management 's discussion and analysis of financial condition and results of operations ” where such policies affect reported and expected financial results . revenue recognition net sales and related volume incentive expenses are recorded when persuasive evidence of an arrangement exists , collectability is reasonably assured , the amount is fixed and determinable , and title and risk of loss have passed . the amount of the volume incentive is determined based upon the amount of qualifying purchases in a given month . amounts received for undelivered merchandise are recorded as deferred revenue . from time to time , the company 's u.s. operations extend short-term credit associated with product promotions . in addition , for certain of the company 's international operations , the company offers credit terms consistent with industry standards within the country of operation . payments to independent managers and distributors for sales incentives or rebates are recorded as a reduction of revenue . payments for sales incentives and rebates are calculated monthly based upon qualifying sales . membership fees are deferred and amortized as revenue over the life of the membership , primarily one year . prepaid event registration fees are deferred and recognized as revenues when the related event is held . a reserve for product returns is recorded based upon historical experience . the company allows independent managers or distributors to return the unused portion of products within ninety days of purchase if they are not satisfied with the product . in some of the company 's markets , the requirements to return product are more restrictive . sales returns for the years 2016 , 2015 and 2014 , were $ 1.4 million , $ 1.2 million , and $ 1.5 million , respectively . investments the company 's available-for-sale investment portfolio is recorded at fair value and consists of various securities such as state and municipal obligations , u.s. government security funds , short-term deposits and various equity securities . these investments are valued using ( a ) quoted prices for identical assets in active markets or ( b ) from significant inputs that are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset . the company 's trading portfolio is recorded at fair value and consists of various marketable securities that are valued using quoted prices in active markets . for equity securities , when assessing whether a decline in fair value below the company 's cost basis is other-than-temporary , the company considers the fair market value of the security , the length of time and extent to which market value has been less than cost , the financial condition and near-term prospects of the issuer as well as specific events or circumstances that may influence the operations of the issuer , and the company 's intent and ability to hold the investment for a sufficient time in 32 order to enable recovery of the cost . new information and the passage of time can change these judgments . where the company has determined that it lacks the intent and ability to hold an equity security to its expected recovery , the security 's decline in fair value is deemed to be other-than-temporary and is recorded within earnings as an impairment loss . inventories inventories are stated at the lower-of-cost-or-market , using the first-in , first-out method . the components of inventory cost include raw materials , labor and overhead . to estimate any necessary obsolescence or lower-of-cost-or-market adjustments , various assumptions are made in regard to excess or slow-moving inventories , non-conforming inventories , expiration dates , current and future product demand , production planning and market conditions . the company built its inventories for china in anticipation of receiving its direct selling license , which it has not received yet . as a result of the delay and heightened uncertainty regarding receiving a direct selling license in china , the company recorded a $ 1.7 million write-down of inventory that is expected to expire . self-insurance liabilities similar to other manufacturers and distributors of products that are ingested , the company faces an inherent risk of exposure to product liability claims in the event that , among other things , the use of its products results in injury . the company has accrued an amount that it believes is sufficient to cover probable and reasonably estimable liabilities related to product liability claims based on the company 's history of such claims . story_separator_special_tag however , there can be no assurance that these estimates will prove to be sufficient , nor can there be any assurance that the ultimate outcome of any litigation for product liability will not have a material negative impact on the company 's business prospects , financial position , results of operations or cash flows . the company self-insures for certain employee medical benefits . the recorded liabilities for self-insured risks are calculated using actuarial methods and are not discounted . the liabilities include amounts for actual claims and claims incurred but not reported . actual experience , including claim frequency and severity as well as health care inflation , could result in actual liabilities being more or less than the amounts currently recorded . property , plant and equipment property , plant and equipment are recorded at cost less accumulated depreciation and amortization . depreciation is computed using the straight-line method over the estimated useful lives of the related assets . estimated useful lives for buildings range from 20 to 50 years ; building improvements range from 7 to 10 years ; machinery and equipment range from 2 to 10 years ; computer software and hardware range from 3 to 10 years ; and furniture and fixtures range from 2 to 5 years . leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the related assets . maintenance and repairs are expensed as incurred and major improvements are capitalized . the company has made a significant investment in its information systems of approximately $ 46.8 million as of december 31 , 2016. the company intends on implementing the new system during 2017 , and will amortize the asset over 10 years . the company will also reduce its capitalization of internal development costs which were $ 2.1 million , $ 4.7 million and $ 5.1 million during 2016 , 2015 and 2014 , respectively . impairment of long-lived assets the company reviews its long-lived assets , such as property , plant and equipment and intangible assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . it may use an estimate of future undiscounted net cash flows of the related assets or groups of assets over their remaining lives in measuring whether the assets are recoverable . an impairment loss is calculated by determining the difference between the carrying values and the fair values of these assets . during the year ended december 31 , 2016 , the company reclassified one of its properties in utah as held-for-sale and recorded an impairment on the asset of $ 0.2 million . due to the continual currency devaluation of the venezuelan bolivar , as of september 30 , 2014 , the company incurred a $ 2.9 million impairment charge to write down the value of its fixed assets in venezuela to $ 0 , which is included in the results from discontinued operations . during the year ended december 31 , 2015 , the company received $ 1.3 million in net proceeds from the sales of its fixed assets in venezuela , which is included in the results from discontinued operations . 33 incentive trip accrual the company accrues for expenses associated with its direct sales program , which rewards independent managers and distributors with paid attendance for incentive trips , including company conventions and meetings . expenses associated with incentive trips are accrued over qualification periods as they are earned . it specifically analyzes incentive trip accruals based on historical and current sales trends as well as contractual obligations when evaluating the adequacy of the incentive trip accrual . actual results could generate liabilities more or less than the amounts recorded . the company accrued incentive trip costs of approximately $ 5.1 million and $ 4.8 million at december 31 , 2016 and 2015 , respectively , which are included in accrued liabilities in the consolidated balance sheets . contingencies the company is involved in certain legal proceedings . when a loss is considered probable in connection with litigation or non-income tax contingencies and when such loss can be reasonably estimated , the company records its best estimate within a range related to the contingency . if there is no best estimate , the company records the minimum of the range . as additional information becomes available , the company assesses the liability related to the contingency and revises the estimates . revision in estimates of the liabilities could materially affect the company 's results of operations in the period of adjustment . the company 's contingencies are discussed in further detail in note 14 , “ commitments and contingencies ” , of the notes to consolidated financial statements , in item 8 , part 2 of this report . income taxes the company 's income tax expense , deferred tax assets and liabilities , and contingent reserves reflect management 's best assessment of estimated future taxes to be paid . the company is subject to income taxes in both the united states and numerous foreign jurisdictions . significant judgments and estimates are required in determining the company 's consolidated income tax expense . deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense . in evaluating the company 's ability to recover its deferred tax assets , management considers all available positive and negative evidence , including scheduled reversals of deferred tax liabilities , projected future taxable income , tax planning strategies and recent financial operations . in projecting future taxable income , the company develops assumptions including the amount of future state , federal and foreign pretax operating income , the reversal of temporary differences , and the implementation of feasible and prudent tax planning strategies . these assumptions require significant judgment about the forecasts of future taxable income , and are consistent with the plans and estimates that the company is using to manage the underlying businesses .
| throughout the last five years , foreign currency exchange rates have fluctuated significantly . see item 7a . quantitative and qualitative disclosures about market risk . year ended december 31 , 2016 , as compared to the year ended december 31 , 2015 net sales the following table summarizes the changes in the company 's net sales by operating segment with a reconciliation to net sales , excluding the impact of currency fluctuations , for the fiscal years ended december 31 , 2016 and 2015 ( dollar amounts in thousands ) . 36 replace_table_token_15_th consolidated net sales for the year ended december 31 , 2016 , was $ 341.2 million compared to $ 324.7 million in 2015 , or an increase of approximately 5.1 percent . the increase was primarily related to the pre-opening product sales through hong kong , continued growth in synergy korea and japan , and moderate growth in the company 's nsp us market . growth in these markets was offset by declines in the synergy europe and north american markets , as well as declines in the nsp latin america and nsp russia , central and eastern europe markets for the year ended december 31 , 2016 . excluding the unfavorable impact of foreign currency exchange rate fluctuations , the company 's consolidated net sales for the year ended december 31 , 2016 would have increased by 5.8 percent , from 2015 . nsp americas net sales related to nsp americas for the year ended december 31 , 2016 , was $ 175.9 million compared to $ 179.2 million for 2015 , a decrease of 1.8 percent . in local currency , net sales decreased by 0.7 percent compared to 2015 . fluctuations in foreign exchange rates had a $ 2.0 million unfavorable impact on net sales for the year ended december 31 , 2016 . active independent managers within nsp americas totaled approximately 6,400 and 6,500 at december 31 , 2016 and 2015 , respectively . active independent distributors and
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