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tsr is driven by the change in our share price and the dividends we pay [ tsr = ( change in stock price + dividends ) / beginning stock price ] . we focus on four key sources of tsr : revenue growth , margin expansion , dividends , and share repurchases . historically , our primary objective was profitable growth . going forward , we intend to generate higher tsr through a balanced approach that employs all four sources of tsr . in 2008 , dividends and stock buybacks largely drove our tsr ; during 2009 , we benefited significantly from margin improvement ; and within a few years we expect that modest 33 part ii annual sales growth will also contribute to tsr . beginning in 2008 , we introduced tsr-based incentives for senior executives and modified business unit bonuses to give more importance to achieving higher returns on the assets under their direct control . for the two-year period ended december 31 , 2009 , our tsr performance places us within the top 4 % of the s & p 500 companies . we narrowed our focus and eliminated ( during 2008 and 2009 ) approximately 15 % of our portfolio through the divestiture of the aluminum products segment and five additional business units ( one divestiture remains ) . we also narrowed the scope of the store fixtures unit to focus primarily on the metals part of the fixtures industry , in alignment with leggett 's core competency of producing steel and steel-related products . these activities were largely complete by the end of 2008 , and resulted in charges that impacted our operating results ( primarily in 2007 and 2008 ) . those charges are discussed on page 37 under the section titled asset impairments and restructuring-related charges. we have implemented a more rigorous strategic planning process to assess our business units and help guide future decisions regarding business unit roles , capital allocation priorities , and new areas in which to grow . we review the portfolio classification of each unit on an annual basis to determine its appropriate role ( grow , core , fix , or divest ) . this review includes criteria such as competitive position , market attractiveness , business unit size , and fit within our overall objectives , as well as financial indicators such as ebitda growth , operating cash flows , and return on assets . to remain in the portfolio , business units are expected to consistently generate after-tax returns in excess of our cost of capital . business units that fail to consistently attain minimum return goals will be moved to the fix or divest categories . the majority of our business units are categorized as core . a much smaller percentage are categorized as grow ; consequently , we recognize as a strategic imperative the need to expand the grow category by improving i ) our success rate at developing innovative new products and ii ) our abilities to identify new growth platforms . a few small business units are considered fix , and must improve their performance within a reasonable time frame ( with some latitude given them due to the weak economy ) . finally , a few small business units ( and portions of business units ) are considered non-strategic , and will likely be divested as the m & a market recovers and allows for reasonable sales prices . the strategic changes have increased available cash . we expect to continue returning much of this cash to shareholders through dividends and share repurchases . customers we serve a broad suite of customers , with no single one representing over 6 % of our sales . many are companies whose names are widely recognized ; they include most manufacturers of furniture and bedding , a variety of other manufacturers , and many major retailers . 34 part ii major factors that impact our business many factors impact our business , but those that generally have the greatest impact are market demand , raw material cost trends , and competition . market demand market demand ( including product mix ) is impacted by several economic factors , with consumer confidence being most significant . other important factors include disposable income levels , employment levels , housing turnover , and interest rates . all these factors influence consumer spending on durable goods , and therefore affect demand for our components and products . some of these factors also influence business spending on facilities and equipment , which impacts approximately one-quarter of our sales . demand weakness in the majority of our markets during 2009 led to lower unit orders , utilization levels , sales and earnings . several factors , including weak global economies , a depressed housing market , and low consumer confidence contributed to conservative spending habits by consumers around the world . short lead times in most of our markets allow for limited visibility into future demand trends ; however , we currently expect demand to stabilize at these lower levels . given our balance sheet strength , operating cash flow and access to credit , we expect to be able to endure an extended downturn in market demand with no material impact to our financial position or liquidity . activities completed over the past few years ( including the divestiture of businesses under our strategic plan , closure of certain underperforming and underutilized facilities , elimination of sales with unacceptable margins , and other cost reduction initiatives ) improved our cost position in advance of the late 2008 economic contraction , and we continued to tightly constrain spending in 2009. we face decisions about further facility consolidation but have chosen to retain excess capacity because we believe that eventually market demand will improve . with our currently low utilization levels , we should be able to readily accommodate that demand improvement when it occurs . raw material costs in many of our businesses , we enjoy a cost advantage from buying large quantities of raw materials . story_separator_special_tag this purchasing leverage is a benefit that many of our competitors generally do not have . still , our costs can vary significantly as market prices for raw materials ( many of which are commodities ) fluctuate . purchasing arrangements vary across the company . we typically have short-term commitments from our suppliers ; accordingly , our raw material costs generally move with the market . in certain of our businesses , we have longer-term purchase contracts with pricing terms that provide stability under reasonable market conditions . however , when commodities experience extreme inflation , vendors do not always honor those contracts . our ability to recover higher costs ( through selling price increases ) is crucial . when we experience significant increases in raw material costs , we typically implement price increases to recover the higher costs . conversely , when costs decrease significantly , we generally pass those lower costs through to our customers . the timing of our price increases or decreases is a critical factor ; we typically experience a lag in recovering higher costs , so we also expect to realize a lag as costs decline . 35 part ii steel is our principal raw material and at various times in past years we have experienced extreme cost fluctuations in this commodity . in most cases , the major changes ( both increases and decreases ) were passed through to customers via selling price adjustments . steel costs increased significantly in 2008 and we implemented price increases to recover these higher costs . market prices for steel began to decrease in late 2008 , but with the precipitous drop in demand late in the year and our inability to cancel or return higher priced earlier purchases , we entered 2009 with high-cost steel in inventory . as steel costs decreased in 2009 , we implemented selective price reductions ; however at the lower commodity cost levels , we enhanced our margins . as a producer of steel rod , we are also impacted by volatility in metal margins ( the difference in the cost of steel scrap and the market price for steel rod ) . the increase in scrap costs in late 2009 and early 2010 has resulted in currently lower metal margins in the steel market and in our rod producing operation . while pricing trends in the steel market are difficult to predict , we expect the lower metal margins to continue in 2010. our other raw materials include woven and non-woven fabrics , foam scrap , and chemicals . we have experienced changes in the cost of these materials in recent years , and typically pass them through to our customers . when we raise our prices to recover higher raw material costs , this sometimes causes customers to modify their product designs and replace higher cost components with lower cost components . we experienced this de-contenting effect in our residential furnishings and industrial materials segments in recent years . as our customers changed the quantity and mix of components in their finished goods to address steel and chemical inflation , our profit margins were negatively impacted . we are responding by developing new products ( including new types of mattress innersprings and boxsprings ) that enable our customers to reduce their total costs , and in certain instances , provide higher margin and profit contribution for our operations . competition many of our markets are highly competitive with the number of competitors varying by product line . in general , our competitors tend to be smaller , private companies . we believe we gain competitive advantage in our global markets through low cost operations , significant internal production of key raw materials , manufacturing expertise and product innovation , higher quality products , extensive customer service capabilities , and financial strength . many of our competitors , both domestic and foreign , compete primarily on the basis of price . our success has stemmed from the ability to remain price competitive , while delivering product quality , innovation , and customer service . we continue to face pressure from foreign competitors as some of our customers source a portion of their components and finished products from asia . in instances where our customers move production of their finished products overseas , our operations must be located nearby to supply them efficiently . we currently operate 10 facilities in china . in recent years we experienced increased competition in the u.s. from foreign bedding component manufacturers . we reacted to this competition by selectively adjusting prices , 36 part ii and by developing new proprietary products that help our customers reduce total costs . the increased price competition for bedding components was partially due to lower wire costs in china . certain foreign manufacturers also benefit from more lenient regulatory climates related to safety and environmental matters . in late 2007 , we filed an antidumping suit related to innerspring imports from china , south africa and vietnam . we saw a distinct decline in unfair imports during 2008 after the antidumping investigations began . as a result , we regained market share and performance in our bedding group improved . the investigations were brought to a favorable conclusion in early 2009. the current antidumping duty rates on innersprings from these countries are significant , ranging from 116 % to 234 % , and should remain in effect for at least another four years . imported innersprings from these countries are now supposed to be sold at fair prices , however the duties on certain innersprings are being evaded by various means including shipping the goods through a third country and misclassifying the actual country of origin . leggett , along with several u.s. manufacturers of steel wire products with active antidumping and antidumping/countervailing duty orders , formed a coalition and are working with members of congress , the u.s. department of commerce , and u.s. customs and border protection to seek stronger enforcement of existing antidumping and or countervailing duty orders .
| replace_table_token_12_th 42 part ii sales from continuing operations decreased 4 % versus 2007 , primarily reflecting weak market demand and our decision to exit specific sales volume with unacceptable profit margins ( primarily in our store fixtures business ) . these declines were partially offset by inflation-related price increases and market share gains . our u.s. bedding components business gained market share in 2008 as a result of : i ) bedding manufacturers shifting innerspring purchases from international to domestic sources ; ii ) the deverticalization of a strong regional bedding manufacturer ( they now buy components from us that they previously produced for themselves ) ; and , iii ) increased demand for innerspring mattresses , rather than premium-priced , non-innerspring products . we experienced significant inflation in steel costs during 2008 , and in response , we implemented price increases to recover the higher costs . the magnitude of our selling price increases varied by product line depending on steel content , but in our major residential and industrial businesses , prices increased substantially . by late 2008 , steel costs began to decrease . full-year earnings from continuing operations were higher than in 2007 , primarily due to : non-recurrence of 2007 goodwill impairment charges related to our fixture & display group ( $ 120 million ) non-recurrence of 2007 tax items ( $ 12 million ) adjustments to valuation allowances related to potential foreign tax benefits lower interest expense several factors negatively impacted earnings . the most significant were : unit volume declines ( down roughly 10 % for the year ) higher restructuring-related charges and asset impairments ( $ 19 million ) reduced production levelswith the significant pull-back in demand late in the year , we cut production ( even below depressed demand levels ) and reduced inventories lifo impact all of our segments use the first-in , first-out ( fifo ) method for valuing inventory . in our consolidated financials , an adjustment is made at the corporate level ( i.e . outside the segments ) to convert about 60 % of our inventories to the last-in , first-out ( lifo ) method . these are primarily our domestic , steel-related inventories . significant steel cost increases during the year , along with
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for the year ended december 31 , 2016 , the company realized a gain on foreign currency of $ 14 thousand as compared to a loss of $ 118 thousand for the year ended december 31 , 2015. the gain for the year ended december 31 , 2016 , was primarily due to exchange rate fluctuations in the british pound and the euro . revaluation of contingent consideration in connection with the london acquisition , the company recorded contingent consideration of $ 171 thousand in 2015. the payment of this consideration was based upon london achieving certain benchmarks for the years ending 2015 and 2016. in december 31 , 2015 , based on london not meeting its benchmark , the company revalued and reduced the contingent consideration by $ 104 thousand . in september 30 , 2016 , the company increased the contingent consideration by $ 30 thousand based on london 's expectation of meeting its benchmark for 2016. the contingent consideration of $ 0.1 million was paid in january 2017. interest expense the company incurred interest expense of $ 81 thousand for the year ended december 31 , 2016 , primarily as a result of interest associated with a term loan to fund the purchase of 400,000 shares of common stock from lorex investment ag ( “ lorex ” ) . the term loan bears interest at 4.5 % per annum and is payable in monthly payments of interest only until november , 2016 , followed by 47 equal monthly payments of principal and interest computed on a 60-month amortization schedule and a final payment of principal and interest due on october 24 , 2020. unconsolidated affiliate wilhelmina owns a non-consolidated 50 % interest in wilhelmina kids & creative management llc , a new york city-based modeling agency that specialized in representing child models . the company incurred losses for the years ended december 31 , 2016 and 2015 , attributable to its pro rata ownership interest in kids . on december 9 , 2016 , the owners of kids agreed to dissolve wilhelmina kids & creative management llc and ceased related business operations of kids . 13 income taxes generally , the company 's combined effective tax rate is high relative to reported net income as a result of certain amounts of amortization expense , stock based compensation , and corporate overhead not being deductible and income being attributable to certain states in which it operates . in recent years , the majority of taxes being paid by the company were state taxes , not federal taxes . the company operates in four states which have relatively high tax rates : california , new york , illinois , and florida . the company 's combined ( federal and state ) effective tax rate would have been even higher in prior years if it were not for federal net operating loss carryforwards available to offset current federal taxable income . as of december 31 , 2016 , the company had federal income tax loss carryforwards of $ 1.4 million . in 2009 , the company recognized an asset impairment charge of $ 0.8 million related to lowered expected cash flows from a revenue interest in ascendant , an asset management company . no related charge was taken for tax purposes . as of december 31 , 2016 , wilhelmina does not anticipate any further cash payments related to the revenue interest in ascendant . accordingly , the company expects to reflect a bad debt deduction of $ 0.8 million on its 2016 federal and state income tax returns . income taxes were high in 2016 despite lower pretax income due to the deferred tax impact of the termination of stock options previously granted to the company 's former chief executive officer and additional taxes owed at the conclusion of a 2014 new york state tax audit . wilhelmina anticipates that the company 's effective tax rate will return to a level that is more consistent with historic rates in future periods . net income net income decreased by 93.7 % for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015 , primarily due to the recruiting , legal , increased depreciation , and income tax expenses described above . liquidity and capital resources the company 's cash balance increased to $ 5.7 million at december 31 , 2016 from $ 4.6 million at december 31 , 2015. the cash balances increased primarily as a result of $ 2.9 million net cash provided by operating activities . the cash provided by operating activities was partially offset by $ 1.6 million of cash used in investing activities , primarily attributable to purchases of property and equipment to upgrade the company 's accounting and reporting software , as well as $ 0.1 million of cash used in financing activities attributable to the repurchase of common stock from lorex net of loan proceeds . the company 's primary liquidity needs are for working capital associated with performing services under its client contracts . generally , the company incurs significant operating expenses with payment terms shorter than its average collections on billings . amegy bank credit agreement the company has a credit agreement with amegy bank which provides a $ 4.0 million revolving line of credit and previously provided up to a $ 3.0 million term loan which could be drawn through october 24 , 2016. the revolving line of credit is subject to a borrowing base derived from 80 % of eligible accounts receivable ( as defined ) and the company 's minimum net worth covenant of $ 20 million . the revolving line of credit bears interest at prime plus 0.50 % payable monthly . as of december 31 , 2016 , the company had a $ 0.2 million irrevocable standby letter of credit outstanding under the revolving line of credit . the revolving line of credit presently expires on october 24 , 2017. story_separator_special_tag for the year ended december 31 , 2016 , the company realized a gain on foreign currency of $ 14 thousand as compared to a loss of $ 118 thousand for the year ended december 31 , 2015. the gain for the year ended december 31 , 2016 , was primarily due to exchange rate fluctuations in the british pound and the euro . revaluation of contingent consideration in connection with the london acquisition , the company recorded contingent consideration of $ 171 thousand in 2015. the payment of this consideration was based upon london achieving certain benchmarks for the years ending 2015 and 2016. in december 31 , 2015 , based on london not meeting its benchmark , the company revalued and reduced the contingent consideration by $ 104 thousand . in september 30 , 2016 , the company increased the contingent consideration by $ 30 thousand based on london 's expectation of meeting its benchmark for 2016. the contingent consideration of $ 0.1 million was paid in january 2017. interest expense the company incurred interest expense of $ 81 thousand for the year ended december 31 , 2016 , primarily as a result of interest associated with a term loan to fund the purchase of 400,000 shares of common stock from lorex investment ag ( “ lorex ” ) . the term loan bears interest at 4.5 % per annum and is payable in monthly payments of interest only until november , 2016 , followed by 47 equal monthly payments of principal and interest computed on a 60-month amortization schedule and a final payment of principal and interest due on october 24 , 2020. unconsolidated affiliate wilhelmina owns a non-consolidated 50 % interest in wilhelmina kids & creative management llc , a new york city-based modeling agency that specialized in representing child models . the company incurred losses for the years ended december 31 , 2016 and 2015 , attributable to its pro rata ownership interest in kids . on december 9 , 2016 , the owners of kids agreed to dissolve wilhelmina kids & creative management llc and ceased related business operations of kids . 13 income taxes generally , the company 's combined effective tax rate is high relative to reported net income as a result of certain amounts of amortization expense , stock based compensation , and corporate overhead not being deductible and income being attributable to certain states in which it operates . in recent years , the majority of taxes being paid by the company were state taxes , not federal taxes . the company operates in four states which have relatively high tax rates : california , new york , illinois , and florida . the company 's combined ( federal and state ) effective tax rate would have been even higher in prior years if it were not for federal net operating loss carryforwards available to offset current federal taxable income . as of december 31 , 2016 , the company had federal income tax loss carryforwards of $ 1.4 million . in 2009 , the company recognized an asset impairment charge of $ 0.8 million related to lowered expected cash flows from a revenue interest in ascendant , an asset management company . no related charge was taken for tax purposes . as of december 31 , 2016 , wilhelmina does not anticipate any further cash payments related to the revenue interest in ascendant . accordingly , the company expects to reflect a bad debt deduction of $ 0.8 million on its 2016 federal and state income tax returns . income taxes were high in 2016 despite lower pretax income due to the deferred tax impact of the termination of stock options previously granted to the company 's former chief executive officer and additional taxes owed at the conclusion of a 2014 new york state tax audit . wilhelmina anticipates that the company 's effective tax rate will return to a level that is more consistent with historic rates in future periods . net income net income decreased by 93.7 % for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015 , primarily due to the recruiting , legal , increased depreciation , and income tax expenses described above . liquidity and capital resources the company 's cash balance increased to $ 5.7 million at december 31 , 2016 from $ 4.6 million at december 31 , 2015. the cash balances increased primarily as a result of $ 2.9 million net cash provided by operating activities . the cash provided by operating activities was partially offset by $ 1.6 million of cash used in investing activities , primarily attributable to purchases of property and equipment to upgrade the company 's accounting and reporting software , as well as $ 0.1 million of cash used in financing activities attributable to the repurchase of common stock from lorex net of loan proceeds . the company 's primary liquidity needs are for working capital associated with performing services under its client contracts . generally , the company incurs significant operating expenses with payment terms shorter than its average collections on billings . amegy bank credit agreement the company has a credit agreement with amegy bank which provides a $ 4.0 million revolving line of credit and previously provided up to a $ 3.0 million term loan which could be drawn through october 24 , 2016. the revolving line of credit is subject to a borrowing base derived from 80 % of eligible accounts receivable ( as defined ) and the company 's minimum net worth covenant of $ 20 million . the revolving line of credit bears interest at prime plus 0.50 % payable monthly . as of december 31 , 2016 , the company had a $ 0.2 million irrevocable standby letter of credit outstanding under the revolving line of credit . the revolving line of credit presently expires on october 24 , 2017.
| the company analyzes revenue by reviewing the mix of revenues generated by the different “ boards ” ( each a specific division of the fashion model management operations which specializes by the type of model it represents ( women , men , artist , showroom , curve , celebrity , etc . ) ) by geographic locations and from significant clients . wilhelmina has three primary sources of revenue : ( i ) revenues from principal relationships where the gross amount billed to the client is recorded as revenue when earned and collectability is reasonably assured ; ( ii ) revenues from agent relationships where commissions paid by models as a percentage of their gross earnings are recorded as revenue when earned and collectability is reasonably assured ; and ( iii ) separate service charges , paid by clients in addition to the booking fees , which are calculated as a percentage of the models ' booking fees and are recorded as revenues when earned and collectability is reasonably assured . see “ critical accounting policies - revenue recognition. ” gross billings are an important business metric that ultimately drive revenues , profits and cash flows . wilhelmina provides professional services . therefore , salary and service costs represent the largest part of the company 's operating expenses . salary and service costs are comprised of payroll and related costs and travel , meals and entertainment ( “ t & e ” ) to deliver the company 's services and to enable new business development activities . 11 analysis of consolidated statements of operations for the years ended december 31 , 2016 and 2015 replace_table_token_2_th * not meaningful service revenues the company 's service revenues fluctuate in response to its clients ' willingness to spend on advertising and the company 's ability to have the desired talent available . the decrease of 1.5 % in total service revenues for the year ended december 31 , 2016 when compared to the year ended december 31 , 2015 was primarily due to a decrease in bookings during the fourth quarter of 2016. the decrease in core model bookings in united states was partially offset by an increase in core model bookings in london . license fees and other income license fees and other income include management and administrative
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the petrolatina acquisition was funded through a combination of existing cash , gross proceeds of $ 173.5 million from the subscription receipts offering 49 noted below , available borrowings under our existing revolving credit facility and $ 130.0 million of borrowings under a bridge loan facility . on november 25 , 2016 , we submitted winning bids totaling a combined $ 30.4 million for two blocks which ecopetrol offered as part of an asset disposition process . our winning bids were on the santana and nancy-burdine-maxine blocks , which are located in the putumayo basin . ecopetrol will transfer ownership of the blocks ' assets , contracts , permits and licenses , as well as 100 % ownership of ecopetrol 's rights and obligations in respect of the oil and gas assets , to us once the agencia nacional de hidrocarburos ( national hydrocarbons agency ) grants approval and the conditions of the assignment agreement are met . we intend to finance the $ 30.4 million purchase price with borrowings under our revolving credit facility . the following table summarizes the acquisitions we completed during the year ended december 31 , 2016 : petrolatina petroamerica pgc total net purchase price ( net of working capital acquired ) ( $ 000s ) $ 525,000 $ 72,234 $ 19,388 $ 616,622 debt and equity offerings during april 2016 , we issued $ 115 million aggregate principal amount of 5.00 % convertible senior notes due 2021 in a private placement to qualified institutional buyers . net proceeds from the sale of the notes were $ 109.1 million , after deducting the initial purchasers ' discount and the offering expenses . the notes bear interest at a rate of 5.00 % per year . on july 8 , 2016 , we issued approximately 57.8 million subscription receipts in a private placement to eligible purchasers at a price of $ 3.00 per subscription receipt for gross proceeds of approximately $ 173.5 million or net proceeds after share issuance costs of $ 165.8 million . the proceeds were used to partially fund the petrolatina acquisition . each subscription receipt entitled the holder to automatically receive one common share of gran tierra upon closing of the petrolatina acquisition upon the satisfaction of certain conditions , which occurred on august 23 , 2016. on november 16 , 2016 , the borrowing base on our revolving credit facility was increased from $ 185.0 million , with $ 160.0 million readily available and $ 25.0 million subject to the consent of all lenders , to $ 250 million readily available . availability under the revolving credit facility is determined by the reserves-based borrowing base determined by the lenders . t he borrowing base will be re-determined no later than may 2017. on november 29 , 2016 , we issued approximately 43.3 million shares of common stock at a public offering price of $ 3.00 per share , for aggregate gross proceeds of approximately $ 130.0 million . the proceeds were used to repay borrowings outstanding under our revolving credit facility . colombian peace deal on september 26 , 2016 , the colombian government and the farc signed a peace agreement and , on november 30 , 2016 , the peace agreement was ratified by colombia 's government . pursuant to the peace agreement , the farc agreed to demobilize its troops and urban militia members and to hand over its weapons to a united nations mission within 180 days . once demobilized and disarmed , the farc can become a legal political party . under the peace agreement , the farc will be guaranteed at least five seats in the senate and another five seats in the house of representatives in 2018 congressional elections , even if they do n't get enough votes for those seats . 50 highlights replace_table_token_11_th 51 replace_table_token_12_th all probable and possible reserves associated with the bretaña field on block 95 in peru were reclassified as contingent resources in a report with an effective date of january 31 , 2015. these reserves are excluded from the table above . ( 1 ) sales volumes represent production nar adjusted for inventory changes . non-gaap measures operating netback , ebitda , adjusted ebitda and funds flow from continuing operations are non-gaap measures which do not have any standardized meaning prescribed under gaap . management views operating netback , ebitda and adjusted ebitda as financial performance measures and funds flow from continuing operations as a liquidity measure . investors are cautioned that these measures should not be construed as alternatives to net loss or other measures of financial performance or liquidity as determined in accordance with gaap . our method of calculating these measures may differ from other companies and , accordingly , may not be comparable to similar measures used by other companies . each non-gaap financial measure is presented along with the corresponding gaap measure so as not to imply that more emphasis should be placed on the non-gaap measure . ( 2 ) operating netback as presented is oil and gas sales net of royalties and operating and transportation expenses . management believes that netback is a useful supplemental measure for management and investors to analyze financial performance and provides an indication of the results generated by our principal business activities prior to the consideration of other income and expenses . ( 3 ) ebitda , as presented , is net loss adjusted for depletion , depreciation and accretion ( “ dd & a ” ) expenses , asset impairment , interest expense , income tax recovery or expense and loss from discontinued operations , net of income taxes . adjusted ebitda is ebitda adjusted for gain on acquisition and foreign exchange gains . management uses these financial measures to analyze performance and income or loss generated by our principal business activities prior to the consideration of how non-cash items affect that income or loss , and believes that these financial measures are also useful supplemental information for investors to analyze performance and our financial results . story_separator_special_tag a reconciliation from net loss to ebitda and adjusted ebitda is as follows : replace_table_token_13_th ( 4 ) funds flow from continuing operations , as presented , is net cash provided by operating activities of continuing operations adjusted for net change in assets and liabilities from operating activities and cash settlement of asset retirement obligation . management uses this financial measure to analyze liquidity and cash flows generated by our principal business activities prior to the consideration of how changes in assets and liabilities from operating activities and cash settlement of asset retirement obligation affect those cash flows , and believes that this financial measure is also useful supplemental information for investors to analyze our liquidity and financial results . a reconciliation from net cash provided by operating activities to funds flow from continuing operations is as follows : 52 replace_table_token_14_th story_separator_special_tag the percentage of oil volumes we sold in colombia using each transportation method for the three years ended december 31 , 2016 : replace_table_token_21_th transportation expenses for the year ended december 31 , 2016 , were $ 31.8 million , or $ 3.62 per boe , compared with $ 40.2 million , or $ 6.03 per boe , in 2015 . on a per boe basis , transportation expenses decrease d by 40 % . the decrease in transportation expenses per boe was primarily due to a lower percentage of volumes sold using pipelines , as noted in the table above , and the use of alternative transportation routes , which had lower costs per boe than the routes used in 2015. transportation expenses for the year ended december 31 , 2015 , were $ 40.2 million , or $ 6.03 per boe , compared with $ 24.2 million , or $ 3.58 per boe , in 2014 . on a per boe basis , transportation expenses increase d by 68 % . the increase in transportation expenses per boe was primarily due to the alternative transportation routes used during periods of ota pipeline disruptions . during 2015 , we used new alternative transportation routes which carried higher transportation costs , but higher realized prices compared with other delivery points . operating expenses for the year ended december 31 , 2016 , were $ 86.9 million , or $ 9.92 per boe , compared with $ 75.6 million , or $ 11.34 per boe in 2015 . on a per boe basis , operating expenses decrease d by 13 % . the decrease in operating expenses per boe in 2016 was primarily due to colombian operating cost savings , partially offset by the effect of the weakening of the u.s. dollar against local currencies in south america . workover expenses increase d by $ 0.38 per boe to 57 $ 2.60 per boe compared with the prior year . excluding workover expenses , operating costs decrease d by $ 1.80 per boe to $ 7.32 per boe . operating expenses for the year ended december 31 , 2015 , were $ 75.6 million , or $ 11.34 per boe , compared with $ 89.8 million , or $ 13.28 per boe , in 2014 . operating expenses per boe decrease d in 2015 primarily due to colombian operating cost savings and the effect of the strengthening of the u.s. dollar against local currencies in south america . in brazil , in the year ended december 31 , 2015 , we incurred $ 1.7 million , of one-time penalties relating to alleged non-compliance with certain requirements regarding the health and safety management system , identified during a safety and operational audit conducted by the anp in early 2015. dd & a expenses replace_table_token_22_th dd & a expenses for the year ended december 31 , 2016 , decreased to $ 139.5 million ( $ 15.92 per boe ) from $ 176.4 million ( $ 26.47 per boe ) in 2015 , and from $ 185.9 million ( $ 27.49 per boe ) in 2014 . on a per boe basis , the decrease s in both years were due to lower costs in the depletable base and increased proved reserves at year end . asset impairment we follow the full cost method of accounting for our oil and gas properties . under this method , the net book value of properties on a country-by-country basis , less related deferred income taxes , may not exceed a calculated “ ceiling ” . the ceiling is the estimated after tax future net revenues from proved oil and gas properties , discounted at 10 % per year . in calculating discounted future net revenues , oil and natural gas prices are determined using the average price during the 12 months period prior to the ending date of the period covered by the balance sheet , calculated as an unweighted arithmetic average of the first-day-of-the month price for each month within such period for that oil and natural gas . that average price is then held constant , except for changes which are fixed and determinable by existing contracts . therefore , ceiling test estimates are based on historical prices discounted at 10 % per year and it should not be assumed that estimates of future net revenues represent the fair market value of our reserves . in accordance with gaap , we used an average brent price of $ 42.92 per bbl for the purposes of the december 31 , 2016 ceiling test calculations ( december 31 , 2015 - $ 54.08 per bbl ) . 58 replace_table_token_23_th in the year ended december 31 , 2016 , ceiling test impairment losses in our colombia cost center and inventory impairment losses were primarily due to lower oil prices and because the acquisitions of petrolatina and petroamerica were initially added into the cost base at fair value . these acquired assets were then subjected to a prescribed u.s. gaap ceiling test , which is not a fair value test , and which , as noted above , uses constant commodity pricing that averages prices during the preceding 12 months .
| oil and gas sales volumes for the year ended december 31 , 2015 , decrease d by 1 % to 18,260 boepd compared with 18,523 boepd in 2014 . during the year ended december 31 , 2015 , an oil inventory increase accounted for 1,229 bopd of reduced sales compared with an oil inventory increase in 2014 which accounted for 760 bopd of reduced sales . 55 operating netbacks replace_table_token_18_th 56 replace_table_token_19_th ( 1 ) operating netback is a non-gaap measure which does not have any standardized meaning prescribed under gaap . refer to non-gaap measures disclosure above regarding this measure . oil and gas sales for the year ended december 31 , 2016 , increase d to $ 289.3 million from $ 276.0 million in 2015 primarily as a result of the effect of increased sales , partially offset by decrease d average realized oil prices . oil and gas sales for the year ended december 31 , 2015 , decrease d to $ 276.0 million from $ 559.4 million in 2014 as a result of the combined effect of decrease d sales and realized oil prices . the following table shows the effect of changes in realized price and sales volumes on our oil and gas sales for the three years ended december 31 , 2016 : replace_table_token_20_th average realized prices decrease d by 20 % to $ 33.00 per boe for the year ended december 31 , 2016 , from $ 41.41 per boe for 2015 , and decrease d by 50 % to $ 41.41 per boe for the year ended december 31 , 2015 , from $ 82.74 per boe for 2014 . the realized price decrease s were commensurate with decrease d in benchmark oil prices . average brent oil prices for the year ended december 31 , 2016 , decrease d by 15 % compared with 2015 , and decrease d by 47 % compared with 2014 . additionally , beginning july 1 , 2014 , the port operations fee component of the ota pipeline pricing structure increased
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variances in costs recognized from period to period primarily reflect increases and decreases in production or activity levels on individual contracts and , therefore , result largely from the same factors that drive variances in revenues . operating earnings and margins in the defense groups are driven by changes in volume , performance or contract mix . performance refers to changes in profitability based on revisions to estimates at completion on individual contracts . these revisions result from increases or decreases to the estimated value of the contract , the estimated costs to complete or both . therefore , changes in costs incurred in the period compared with prior periods do not necessarily impact profitability . it is only when total estimated costs at completion on a given contract change without a corresponding change in the value of that contract that the profitability of that contract may be impacted . contract mix refers to changes in the volume of higher- vs. lower-margin 26 work . additionally , higher or lower margins can be inherent in the contract type ( e.g. , fixed-price/cost-reimbursable ) or type of work ( e.g. , development/production ) . consolidated overview review of 2012 vs. 2013 replace_table_token_10_th our revenues were essentially flat in 2013 compared with 2012 despite a challenging business environment that included a 16-day partial u.s. government shutdown . we experienced lower volume in our combat systems business as a result of decreased u.s. army spending and delays in international orders . this was largely offset by higher revenues in our aerospace group from increased deliveries of g650 and g280 aircraft . revenues increased slightly in our marine systems and information systems and technology groups in 2013 . operating costs were lower in 2013 due to several discrete charges in 2012 , most significantly a $ 2 billion goodwill impairment recorded in the information systems and technology group . these charges are discussed below in conjunction with our business groups ' operating results . operating earnings and margins increased significantly in 2013 due to improved operating performance . review of 2011 vs. 2012 replace_table_token_11_th our revenues decreased in 2012 compared with 2011 due to lower volume in the information systems and technology group 's mobile communication systems business and on several european wheeled vehicle contracts in the combat systems group . these decreases were partially offset by higher revenues in the aerospace group due to increased deliveries of g650 aircraft . operating costs increased in 2012 due to the discrete charges referenced above , resulting in lower operating earnings and margins . 27 story_separator_special_tag style= '' font-family : inherit ; font-size:12pt ; font-weight : bold ; '' > review of 2012 vs. 2013 replace_table_token_17_th the increase in the marine systems group 's revenues in 2013 consisted of the following : navy ship construction $ ( 150 ) navy ship engineering , repair and other services 178 commercial ship construction 92 total increase $ 120 the group 's u.s. navy ship-construction programs include virginia-class submarines , ddg-1000 and ddg-51 destroyers , and mobile landing platform ( mlp ) auxiliary support ships . the decrease in 2013 construction revenues is due to the completion of the t-ake combat-logistics ship program in late 2012. partially offsetting this decrease , revenues increased on the virginia-class program , primarily due to long-lead material for the initial boats on the next block of submarines . revenues were higher on engineering and repair programs for the navy in 2013 due to increased submarine overhaul and repair work . commercial ship construction revenues increased as work commenced on contracts for jones act ships secured in late 2012 and 2013. operating earnings and margins decreased in 2013 due to the completion of the mature , higher-margin t-ake program in 2012. excluding the impact of this program , operating margins improved in 2013 . review of 2011 vs. 2012 replace_table_token_18_th revenues in the marine systems group decreased slightly in 2012 as lower navy ship construction revenues were largely offset by higher revenues on engineering and repair programs for the navy . decreased navy ship construction revenues on the virginia-class and the t-ake programs were partially offset by an increase on the mlp and ddg programs . higher revenues on navy engineering and repair programs were driven by the acquisition of two east coast surface-ship repair operations and higher volume on the ohio-class replacement engineering program . despite the decline in revenues , the marine systems group 's operating earnings increased in 2012 . increases in the t-ake profit rate contributed $ 53 to the operating earnings growth , approximately 70 basis points of margin expansion , as the program continued to experience favorable cost performance through construction and delivery of the final ship . 31 2014 outlook we expect the marine systems group 's 2014 revenues to increase 2.5 percent from 2013 with operating margins approximating 9.5 percent . information systems and technology review of 2012 vs. 2013 replace_table_token_19_th the increase in the information systems and technology group 's revenues in 2013 consisted of the following : mobile communication systems $ 232 information technology ( it ) solutions and mission support services 189 intelligence , surveillance and reconnaissance ( isr ) systems ( 170 ) total increase $ 251 revenues increased in 2013 in the mobile communication systems business due to higher volume on key programs that received significant production awards in late 2012 or 2013 , including the warfighter information network-tactical ( win-t ) , handheld , manpack and small form-fit ( hms ) and common hardware systems-4 ( chs-4 ) programs . the it services business added more than 8,000 employ ees throughout the year to meet commercial wireless customers ' accelerated schedules for it infrastructure services and to start work on a contract to provide contact-center services for the centers for medicare & medicaid services , resulting in increased revenues in 2013 . revenues decreased in 2013 across the isr business driven by lower u.s. defense spending and a slower-than-expected transition to related follow-on work . story_separator_special_tag the information systems and technology group 's operating earnings and margins increased in 2013 due to several discrete charges taken in 2012 discussed below . excluding these charges , operating margins decreased slightly in 2013 primarily due to growth in the lower-margin it services business and performance challenges in the group 's u.k. business . the u.k. business was consolidated into our north american mobile communication systems business in 2013. review of 2011 vs. 2012 replace_table_token_20_th the information systems and technology group 's revenues were down in 2012 compared with 2011 , driven primarily by lower revenues in the mobile communication systems business . revenues in this business were impacted unfavorably by slowed defense spending and protracted u.s. customer acquisition cycles . this resulted in lower revenues in 2012 on key programs including win-t and chs , and in encryption and ruggedized hardware products . in addition , more than 10 percent of the decline in the group 's revenues 32 was due to lower volume on the u.k.-based bowman communication system program , which was fielded successfully and moved into maintenance and long-term support . operating earnings and margins decreased significantly in 2012 compared with 2011 driven by the negative impact of four discrete charges : $ 2 billion goodwill impairment resulting from a decline in the estimated fair value of the group caused by topline pressure from slowed defense spending and the threat of sequestration , coupled with margin compression due to a shift in the group 's contract mix impacting projected cash flows ; $ 110 of intangible asset impairments on several assets in our optical products business , most significantly the contract and program intangible asset , as a result of competitive losses and delays in 2012 indicative of lower overall demand caused by the economic downturn ; $ 58 write-down of substantially all of the remaining ruggedized hardware inventory based on anticipated remaining demand for products that ceased production in 2012 ; and $ 26 for cost growth associated with the demonstration phase of the u.k. specialist vehicle ( sv ) program . 2014 outlook we expect 2014 revenues in the information systems and technology group to decrease nearly 20 percent from 2013 , largely due to award delays and slowed defense spending on major production programs in the mobile communication systems business . operating margins are expected to be in the low-8 percent range . corporate corporate results consist primarily of compensation expense for stock options . corporate operating costs totaled $ 77 in 2011 , $ 69 in 2012 and $ 96 in 2013 . we expect 2014 corporate operating costs of approximately $ 85 . other information product and service revenues and operating costs review of 2012 vs. 2013 replace_table_token_21_th the decrease in product revenues in 2013 consisted of the following : 33 military vehicle production $ ( 1,218 ) weapons systems and munitions production ( 430 ) aircraft manufacturing and outfitting 1,123 other , net 112 total decrease $ ( 413 ) in 2013 , military vehicle production revenues decreased on several programs , including the stryker , abrams and mrap programs . weapons systems and munitions production revenues decreased due to lower u.s. army spending on axles , hydra-70 rockets , guns and ammunition . offsetting these decreases , aircraft manufacturing and outfitting revenues increased due to additional deliveries of the new g650 and g280 aircraft . product operating costs were lower in 2013 compared with 2012 . discrete charges in 2012 are discussed below . excluding these charges , the decrease in product operating costs was primarily due to lower volume . no other changes were individually significant . replace_table_token_22_th the increase in service revenues in 2013 consisted of the following : ship engineering and repair $ 178 other , net ( 60 ) total increase $ 118 ship engineering and repair revenues increased in 2013 due to increased submarine overhaul and repair work . service operating costs were lower in 2013 compared with 2012 due to the intangible asset impairment in 2012 discussed below . excluding this impairment , service operating costs increased primarily due to higher volume . no other changes were individually significant . replace_table_token_23_th 34 review of 2011 vs. 2012 replace_table_token_24_th the decrease in product revenues in 2012 consisted of the following : mobile communication products $ ( 1,177 ) european vehicle production ( 636 ) ship construction ( 404 ) aircraft manufacturing and outfitting 791 other , net ( 230 ) total decrease $ ( 1,656 ) in 2012 , mobile communication products revenues decreased due to slowed defense spending and protracted u.s. customer acquisition cycles . lower european vehicle production revenues were largely due to several contracts nearing completion and the revenue impact of the termination of the contract to provide pandur vehicles to the portuguese government . ship construction revenues decreased due to the completion of the t-ake combat-logistics ship program and timing of activity on the virginia-class submarine program . aircraft manufacturing and outfitting revenues were higher due to increased deliveries of g650 aircraft . product operating costs were lower in 2012 compared with 2011 . as shown below , the decrease in product operating costs was primarily due to lower volume . discrete charges discussed in conjunction with the combat systems and information systems and technology 2012 business groups ' operating results included $ 110 of intangible asset impairments on several assets in our optical products business , $ 89 related to the termination of the contract to provide pandur vehicles to the portuguese government , $ 58 of ruggedized hardware inventory write-downs for products that ceased production in 2012 and $ 32 for cost growth associated with the demonstration phase of the sv program for the u.k. ministry of defence . the 2011 intangible asset impairment in jet aviation 's completions business is discussed in conjunction with the aerospace business group 's operating results . no other changes were individually significant .
| review of 2011 vs. 2012 replace_table_token_14_th the aerospace group 's revenues and operating earnings increased in 2012 primarily due to increased green deliveries of g650 aircraft , which began in the fourth quarter of 2011. losses in jet aviation 's completions business in 2011 included a $ 111 impairment of the completions business intangible asset and $ 78 of project losses , while 2012 was negatively impacted by a $ 191 impairment of the maintenance business intangible assets . during 2011 and 2012 , jet aviation 's completions and maintenance businesses suffered from an increasingly competitive marketplace and performance issues . 2014 outlook with continued growth in deliveries of newer gulfstream aircraft models , we expect an increase of approximately 11 percent in the group 's revenues in 2014 compared with 2013 . operating margins are expected to be around 17 percent . combat systems review of 2012 vs. 2013 replace_table_token_15_th the decrease in the combat systems group 's revenues in 2013 consisted of the following : u.s. military vehicles $ ( 1,389 ) weapons systems and munitions ( 439 ) european military vehicles ( 44 ) total decrease $ ( 1,872 ) 29 in 2013 , revenues were down as a result of decreased u.s. army spending , in part due to sequestration and the government shutdown . this impacted u.s. military vehicle programs , including stryker , abrams and mine-resistant , ambush-protected ( mrap ) , and weapons systems and munitions , including axles , hydra-70 rockets , guns and ammunition . in addition , revenues in the group 's european military vehicles business were down slightly due to final vehicle deliveries in 2012 on duro and eagle wheeled vehicle contracts for the swiss and german governments , respectively . in response to decreased customer spending and to align our business with anticipated future demand , we implemented cost reduction initiatives in 2013 throughout the group . we reduced headcount by more than 25 percent in our u.s. and european military
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our management reviews a number of key performance indicators to assist in determining how to allocate resources and run our day-to-day operations . these indicators include ( 1 ) actual prior quarterly sales trends , ( 2 ) projected sales for the next four quarters , ( 3 ) research and development progress as measured against internal project plan objectives , ( 4 ) budget to actual financial expenditure results , ( 5 ) inventory levels ( both our own and our distributors ' ) , and ( 6 ) short term and long term projected cash flows of the business . critical accounting policies and estimates our financial statements are based upon the application of significant accounting policies , many of which require us to make significant estimates and assumptions ( see note 2 to the consolidated financial statements ) . we believe that the following are some of the more material judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations . inventories inventories are stated at the lower of cost ( computed on a first-in , first-out method ) or market value and include allocations of labor and overhead . we regularly review slow-moving and excess inventories , and write 11 down inventories to net realizable value if the ultimate expected proceeds from the disposals of excess inventory are less than the carrying cost of the inventory . accounts receivable accounts receivable are stated at the amount we expect to collect from the outstanding balances . we continuously monitor collections from customers , and we maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues that we have identified . historically , we have not experienced significant losses related to our accounts receivable . collateral is not generally required . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances might be required . warranty and preventative maintenance costs we warranty our products against manufacturing defects under normal use and service during the warranty period . we obtain similar warranties from a majority of our suppliers . we evaluate the estimated future unrecoverable costs of warranty and preventative maintenance services for our installed base of renalguard consoles and single-use sets on a quarterly basis and adjust our warranty reserve accordingly . we consider all available evidence , including historical experience and information obtained from supplier audits . valuation of convertible notes and warrant liabilities the valuation of our convertible notes and our warrant liabilities as derivative instruments utilizes certain estimates and judgments that affect the fair value of the instruments . fair values are estimated by utilizing valuation models that consider current and expected stock prices , volatility , dividends , forward yield curves and discount rates . such amounts and the recognition of such amounts are subject to significant estimates that may change in the future . revenue recognition we recognize revenue when the following basic revenue recognition criteria have been met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services rendered ; ( 3 ) the price to the buyer is fixed or determinable ; and ( 4 ) collectability is reasonably assured . determination of criteria ( 3 ) and ( 4 ) are based on management 's judgments regarding the fixed nature of the price to the buyer charged for products delivered or services rendered and collectability of the sales price . we assess credit worthiness of customers based upon prior history with the customer and assessment of financial condition . our shipping terms are customarily free on board ( fob ) shipping point . we record all other product revenue , including sales of renalguard consoles and single-use sets at the time of shipment , if all other revenue recognition criteria have been met . 12 story_separator_special_tag style= '' font-size:10.0pt ; '' > · we may never be successful in establishing a broad distribution channel for renalguard outside the u.s. , and any distribution channel we may establish may never generate sufficient sales for us to attain profitability ; 15 · if we are required to change our pricing models to compete successfully , our margins and operating results may be adversely affected ; · we commenced our u.s. pivotal clinical trial in 2012 to study renalguard , which is necessary to obtain fda pre-market approval to market renalguard in the u.s. this study will take us a significant amount of time and money to complete and will require us to raise additional capital in the future . we can provide no assurance that we will be able to complete this study or , if we are able to complete it , that renalguard will be shown to be safe or effective in preventing cin , or that the degree of any positive safety and efficacy results will be sufficient to either obtain fda approval or otherwise successfully market our product . furthermore , the completion of a u.s. pivotal clinical trial is dependent upon many factors , some of which are not entirely within our control , including , but not limited to , our ability to successfully recruit investigators , the availability of patients meeting the inclusion criteria of our clinical study , the competition for these particular study patients amongst other clinical trials being conducted by other companies at these same study sites , the ability of the sites participating in our study to successfully enroll patients in our trial , and proper data gathering on the part of the investigating sites . story_separator_special_tag should a u.s. pivotal clinical trial take longer than we expect , our competitive position relative to existing preventative measures , or relative to new devices , drugs or therapies that may be developed could be seriously harmed and our ability to successfully fund the completion of the trial and bring renalguard to market may be adversely affected ; · our renalguard system has only had limited testing in a clinical setting in the united states and we may need to modify it substantially in the future for it to be commercially acceptable in the broader market ; · any potential future modifications required to make renalguard commercially acceptable for the broader market may result in substantial additional costs and or market introduction delays ; · rapid technological change in the medical device industry could make our products obsolete and requires substantial research and development expenditures and responsiveness to customer needs . we expect to continue to face substantial competition from different treatment modalities and if we do not compete effectively with these alternatives our market share may never grow and could decline ; · an inability to obtain third party reimbursement for renalguard could materially affect future demand for our product . we know of no existing medicare coverage or other third party reimbursement that currently would be available in the u.s. to either hospitals or physicians that would help defray the additional cost that would result from the future purchase and or use of our renalguard system . we also can provide no assurance that we will ever be able to obtain medicare coverage or other third party reimbursement for the use of renalguard , which could materially and adversely affect the potential future demand for our product ; · securing patent protection over our intellectual property ideas in the field of cin prevention is , we believe , critical to our plans to successfully differentiate and market our renalguard system and grow our future revenues . however , we can provide no assurance as to how strong our issued patents will prove to be . furthermore we can provide no assurance that we will be successful in securing any additional patent protection for our intellectual property ideas in this field or that our efforts to obtain patent protection will not prove more difficult , and therefore more costly , than we are otherwise expecting . finally , even if we are successful in securing patent protection for some of our pending patent applications , or for additional intellectual property ideas in this field , we can not predict when in the future any such potential patents may be issued , how strong such additional patent protection will prove to be , or whether these patents will be issued in a timely enough fashion to afford us any commercially meaningful advantage in marketing our renalguard system against other potentially competitive devices ; · we are exposed to risks associated with outsourcing activities , which could result in supply shortages that could affect our ability to meet customer needs ; · if we deliver systems with defects , our credibility may be harmed , sales and market and regulatory approvals acceptance of our systems may decrease and we may incur liabilities associated with those defects ; · if we require additional capital in the future , it may not be available , or if available , may not be on terms acceptable to us ; · we are exposed to various risks related to the regulatory environment for medical devices . compliance with medical device health and safety regulations may be very costly , and the failure to comply could result in liabilities , fines and cessation of our business ; · our share price will fluctuate based upon a number of factors including , but not limited to : · actual or anticipated fluctuations in our results of operations ; · changes in estimates of our future results of operations by us or securities analysts ; 16 · announcements of technological innovations or new products or services by us or our competitors ; · changes affecting the medical device industry ; · announcements of significant acquisitions , strategic partnerships , joint ventures or capital commitments by us or our competitors ; · additions or departures of key technical or management personnel ; · issuances of debt or equity securities ; · significant lawsuits , including patent or stockholder litigation ; · changes in the market valuations of similar companies ; · sales of our common stock by us or our stockholders in the future ; · dilution caused by the conversion of convertible debt currently outstanding or which may be issued to our current secured lender and its assignees as well as the exercise of warrants issued to this lender , as well as by the exercise of employee stock options or the issuance of shares on the vesting of restricted stock units ; · trading volume of our common stock ; and · other events or factors that may directly or indirectly affect the value or perceived value of our business and or prospects , including the risk factors identified in this prospectus . · we have pledged all of our assets to our secured debtholders . we are not currently permitted , nor do we currently intend , to pay any cash dividends on our common stock in the foreseeable future and therefore our shareholders may not be able to receive a return on their shares unless they sell them at an amount greater than the price paid for such shares ; · our secured debtholders may be able to exert significant control over the company through restrictive covenants contained in such debt agreements or through the conversion to our equity securities of the convertible debt and warrants issued and or issuable to these debtholders ; · sales of a substantial number of shares of our common stock in the public market could cause our stock
| other expense in february 2011 , the company entered into a securities purchase agreement and a 5 % senior secured convertible debenture agreement as described in note 10 of the consolidated financial statements . as a result of this transaction , interest expense on the convertible notes of $ 396,000 was recorded in 2011. in addition , financing costs associated with convertible note of $ 530,000 was recorded during 2011. the company recorded other expense of $ 808,000 during 2011 as a result of a fair value adjustment related to the warrant liabilities . the company recorded other expense of $ 1,895,000 during 2011 as a result of a fair value adjustment related to the convertible notes . net loss in 2011 , our net loss increased to $ 5,758,000 due to increased clinical trial costs and other expense related to the fair value adjustments of our convertible notes and warrant liabilities .. discontinued operations on november 5 , 2010 , we entered into an agreement to sell our tmr business to novadaq . this transaction was approved by our shareholders at a special meeting on january 31 , 2011 and the transaction closed on february 1 , 2011. as discussed in note 9 to our consolidated financial statements , the operating results of these operations , including those related to prior periods , have been reclassified from continuing operations to discontinued operations in our condensed consolidated financial statements for both 2010 and 2011. liquidity and capital resources we compete in the highly regulated and competitive medical device market place where products can take significant time to develop , gain regulatory approval and then introduce to distributors and end users . we have incurred recurring quarterly operating losses over the past few years as we have worked to bring our renalguard system through development and initial commercialization efforts outside the united states . we expect such operating losses will continue until such time , if ever ,
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beginning in 2007 , fpl experienced an increase in inactive accounts ( accounts with installed meters without corresponding customer names ) and in low-usage customers ( customers using less than 200 kwh per month ) , which have contributed to the decline in retail customer growth and non-weather related usage per retail customer . in 2009 , inactive accounts and low-usage customers continued to increase much of the year but declined slightly in the fourth quarter . fpl is unable to predict whether or when growth in customers and non-weather related customer usage might return to previous trends . 30 nextera energy resources is in the competitive energy business with the majority of its operating revenues derived from wholesale electricity sales . nextera energy resources ' strategy is , among other things , to continue to maintain its leadership position in wind , accelerate growth in solar development , continue to expand its transmission capability , grow its supply-related and non-asset based businesses , and to develop its natural gas infrastructure business . nextera energy resources ' supply-related business includes full energy and capacity requirements services and retail operations , and the non-asset based business includes power and gas marketing and trading operations . nextera energy resources seeks to expand its portfolio primarily through wind and solar development and acquisitions where economic prospects are attractive . the recovery act includes , among other things , provisions that allow companies building wind facilities the option to choose among three investment cost recovery mechanisms : ( i ) ptcs which were extended for wind facilities through 2012 , ( ii ) itcs of 30 % of the cost for qualifying wind facilities placed in service prior to 2013 , or ( iii ) an election to receive a cash grant of 30 % of the cost of qualifying wind facilities placed in service in 2009 or 2010 , or if construction began prior to december 31 , 2010 and the wind facility is placed in service prior to 2013. an election to receive a cash grant of 30 % , in lieu of the 30 % investment tax credit allowable under present law , also applies to the cost of qualifying solar facilities placed in service in either 2009 or 2010 , or if construction began prior to december 31 , 2010 and the solar facility is placed in service prior to 2017. in 2009 , nextera energy resources added approximately 1,170 mw of wind generation to its portfolio , of which 985 mw were constructed and 185 mw were from three operating wind projects purchased in the fourth quarter of 2009. nextera energy resources expects to add approximately 1,000 mw of new wind generation in 2010 and 1,000 mw to 1,500 mw in each of 2011 and 2012. in addition to wind expansion , nextera energy resources is considering several solar development opportunities in the u.s. , as well as in europe . the wind and solar expansions are subject to , among other things , continued public policy support , support for the construction and availability of sufficient transmission facilities and capacity , continued market demand , supply chain expansion and access to capital at reasonable cost and on reasonable terms . nextera energy resources ' market is diversified by region as well as by fuel source . see item 2 - generating facilities . nextera energy resources sells a large percentage of its expected output to hedge against price volatility . consequently , if nextera energy resources ' plants do not perform as expected , nextera energy resources could be required to purchase power at potentially higher market prices to meet its contractual obligations . nextera energy resources ' energy marketing and trading business is focused primarily on managing commodity price risk and extracting maximum value from its assets . the u.s. congress , the epa and certain states and regions are considering several legislative and regulatory proposals that would establish new regulatory requirements and reduction targets for ghg emissions . the economic and operational impact of these or any similar legislation and or regulation on fpl group and fpl depends on a variety of factors , including , but not limited to , the allowed emissions , whether the permitted emissions will be allocated or auctioned , the cost to reduce emissions or buy allowances in the marketplace and the availability of offsets and mitigating factors to moderate the costs of compliance . if and until legislation is enacted and implementing regulations are adopted , the economic and operational impact ( either positive or negative ) on fpl group and fpl can not be determined but could be material . in the case of fpl , increased costs associated with compliance with new environmental regulations are generally recoverable from customers , while the recovery of such increased costs for nextera energy resources would depend on market prices for electricity . see item 1 - environmental matters . results of operations fpl group and nextera energy resources segregate into two categories unrealized mark-to-market gains and losses on energy derivative transactions which are used to manage commodity price risk . the first category , referred to as trading activities , represents the net unrealized effect of actively traded positions entered into to take advantage of market price movements and to optimize the value of generation assets and related contracts . the second category , referred to as non-qualifying hedges , represents the net unrealized effect of derivative transactions entered into as economic hedges but which do not qualify for hedge accounting and the ineffective portion of transactions accounted for as cash flow hedges . in january 2010 , fpl group discontinued hedge accounting for its cash flow hedges related to energy contract derivative instruments , which could result in increased volatility in the non-qualifying hedge category . story_separator_special_tag at fpl , substantially all changes in the fair value of energy derivative transactions are deferred as a regulatory asset or liability until the contracts are settled , and , upon settlement , any gains or losses are passed through the fuel clause or the capacity clause . fpl group 's management uses earnings excluding certain items ( adjusted earnings ) internally for financial planning , for analysis of performance , for reporting of results to the board of directors and as inputs in determining whether performance targets are met for performance-based compensation under fpl group 's employee incentive compensation plans . fpl group also uses adjusted earnings when communicating its earnings outlook to investors . adjusted earnings exclude the unrealized mark-to-market effect of non-qualifying hedges and other than temporary impairment ( otti ) losses on securities held in nextera energy resources ' nuclear decommissioning funds , net of the reversal of previously recognized otti losses on securities sold and losses on securities where price recovery was deemed unlikely ( collectively , otti reversals ) . fpl group 's management believes adjusted earnings provide a more meaningful representation of the company 's fundamental earnings power . although the excluded amounts are properly included in the determination of net income in accordance with generally accepted accounting principles , management believes that the amount and or nature of such items make period to period comparisons of operations difficult and potentially confusing . adjusted earnings do not represent a substitute for net income , as prepared in accordance with generally accepted accounting principles . 31 story_separator_special_tag amily : arial , sans-serif '' > for the year ended december 31 , 2009 , a 0.2 % decrease in the average number of customer accounts reduced retail base revenues by approximately $ 8 million while a 0.3 % increase in usage per retail customer , reflecting favorable weather conditions partly offset by other factors , increased retail base revenues by approximately $ 30 million . customer usage in 2009 reflects one less day of sales in 2009 , as 2008 was a leap year . base rate increases resulting from wcec units nos . 1 and 2 commencing commercial operation in 2009 increased retail base revenues by approximately $ 68 million . see overview for a discussion of fpl 's customer growth , non-weather related usage and the january 2010 rate ruling . for the year ended december 31 , 2008 , a 0.3 % increase in the average number of customer accounts increased retail base revenues by approximately $ 9 million while a 2.7 % decrease in usage per retail customer , reflecting weather conditions and other factors , decreased retail base revenues by approximately $ 95 million . partly offsetting the usage decrease was an extra day of sales in 2008 , as it was a leap year . in addition , a base rate increase resulting from turkey point unit no . 5 commencing commercial operation in 2007 increased retail base revenues by approximately $ 28 million . the increase in revenues from other cost recovery clauses and pass-through costs in 2009 is primarily due to additional revenues associated with the fpsc 's nuclear cost recovery rule and higher conservation and environmental clause revenues . the fpsc 's nuclear cost recovery rule provides for the recovery of prudently incurred pre-construction costs and carrying charges ( equal to a pretax afudc rate ) on construction costs for new nuclear capacity through levelized charges under the capacity clause . in 2009 , fpl began recovering pre-construction costs associated with the development of two additional units at the turkey point site and carrying charges ( equal to a pretax afudc rate ) on construction costs associated with the addition of approximately 400 mw of baseload capacity at its existing nuclear units . the same rule provides for the recovery of construction costs , once the new capacity goes into service , through a base rate increase . see overview for a discussion of activities related to the development of two additional units at the turkey point site . 33 revenues from fuel and other cost recovery clauses and pass-through costs , such as franchise fees , revenue taxes and storm-related surcharges , are largely a pass through of costs . such revenues also include a return allowed to be recovered through the cost recovery clauses on certain assets , primarily solar , environmental and nuclear capacity additions . in 2009 , 2008 and 2007 , cost recovery clauses contributed $ 41 million , $ 25 million and $ 23 million , respectively , to fpl 's net income . the increase in 2009 cost recovery clause results is primarily due to a return related to additional solar , environmental and nuclear capacity expenditures , partly offset by lower interest earned on fuel clause underrecoveries . the increase in 2008 cost recovery clause results is primarily due to a return related to environmental expenditures and higher interest earned on fuel clause underrecoveries , partly offset by the absence of interest earned on fpl 's unrecovered balance of the storm reserve deficiency , which balance was collected upon the issuance of the storm-recovery bonds in 2007. in 2010 , it is expected that cost recovery clauses will contribute higher earnings for fpl as a result of additional solar , environmental and nuclear capacity expenditures . underrecovery or overrecovery of such cost recovery clause and pass-through costs can significantly affect fpl group 's and fpl 's operating cash flows . fluctuations in fuel cost recovery revenues are primarily driven by changes in fuel and energy charges which are included in fuel , purchased power and interchange expense in the consolidated statements of income , as well as by changes in energy sales .
| the change in unrealized mark-to-market activity is primarily attributable to changes in forward power and natural gas prices , as well as the reversal of previously recognized unrealized mark-to-market gains or losses as the underlying transactions were realized . as a general rule , a gain ( loss ) in the non-qualifying hedge category is offset by decreases ( increases ) in the fair value of related physical asset positions in the portfolio or contracts , which are not marked to market under generally accepted accounting principles . in 2009 , 2008 and 2007 , nextera energy resources recorded $ 36 million , $ 82 million and $ 6 million , respectively , of after-tax otti losses on securities held in its nuclear decommissioning funds . in 2009 and 2008 , nextera energy resources had approximately $ 23 million and $ 6 million , respectively , of after-tax otti reversals ; there were no such otti reversals in 2007. as a result of the spent fuel settlement agreement ( see item i - fpl operations - nuclear operations and item i - nextera energy resources - nuclear operations ) , fpl group reduced its property , plant and equipment balances by $ 107 million ( $ 83 million for fpl ) and operating expenses by $ 15 million ( $ 12 million for fpl ) and increased fpl group 's operating revenues by $ 9 million . the spent fuel settlement agreement increased fpl group 's 2009 net income by approximately $ 16 million ( $ 9 million for fpl ) . the spent fuel settlement agreement permits fpl and nextera energy resources to make annual filings to recover certain spent fuel storage costs incurred by fpl and nextera energy resources which will be payable by the u.s. government on an annual basis . the amount received from the u.s. government related to property , plant and equipment is included in cash flows from investing activities on fpl group 's and fpl 's consolidated statements of cash flows . additional payments from the u.s. government are pending . fpl and nextera energy resources will continue to pay fees to the u.s. government 's nuclear waste fund .
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as of december 31 , 2017 , approximately $ 2.6 billion , or 48.2 % , of our mbs portfolio was in its contractual fixed-rate period or were fixed-rate mbs and approximately $ 2.8 billion , or 51.8 % , was in its contractual adjustable-rate period , or were floating rate mbs with interest rates that reset monthly . our arm-mbs in their contractual adjustable-rate period primarily include mbs collateralized by hybrids for which the initial fixed-rate period has elapsed , such that the interest rate will typically adjust on an annual or semiannual basis . premiums arise when we acquire an mbs at a price in excess of the aggregate principal balance of the mortgages securing the mbs ( i.e. , par value ) . conversely , discounts arise when we acquire an mbs at a price below the aggregate principal balance of the mortgages securing the mbs or when we acquire residential whole loans at a price below their aggregate principal balance . premiums paid on our mbs are amortized against interest income and accretable purchase discounts on these investments are accreted to interest income . purchase premiums , which are primarily carried on our agency mbs and certain crt securities , are amortized against interest income over the life of each security using the effective yield method , adjusted for actual prepayment activity . an increase in the prepayment rate , as measured by the cpr , will typically accelerate the amortization of purchase premiums , thereby reducing the internal rate of return ( or irr ) /interest income earned on these assets . cpr levels are impacted by , among other things , conditions in the housing market , new regulations , government and private sector initiatives , interest rates , availability of credit to home borrowers , underwriting standards and the economy in general . in particular , cpr reflects the conditional repayment rate ( or crr ) , which measures voluntary prepayments of mortgages collateralizing a particular mbs , and the conditional default rate ( or cdr ) , which measures involuntary prepayments resulting from defaults . cprs on agency mbs and legacy non-agency mbs may differ significantly . for the year ended december 31 , 2017 , our agency mbs portfolio experienced a weighted average cpr of 15.5 % , and our legacy non-agency mbs portfolio experienced a weighted average cpr of 17.5 % . for the year ended december 31 , 2016 , our agency mbs portfolio experienced a weighted average cpr of 14.4 % , and our legacy non-agency mbs portfolio experienced a weighted average cpr of 15.6 % . over the last consecutive eight quarters , ending with december 31 , 2017 , the monthly weighted average cpr on our agency and legacy non-agency mbs portfolios ranged from a high of 18.4 % experienced during the month ended july 31 , 2017 to a low of 11.3 % , experienced during the month ended february 29 , 2016 , with an average cpr over such quarters of 15.7 % . our method of accounting for non-agency mbs purchased at significant discounts to par value , requires us to make assumptions with respect to each security . these assumptions include , but are not limited to , future interest rates , voluntary prepayment rates , default rates , mortgage modifications and loss severities . as part of our non-agency mbs surveillance process , we track and compare each security 's actual performance over time to the performance expected at the time of purchase or , if we have modified our original purchase assumptions , to our revised performance expectations . to the extent that actual performance or our expectation of future performance of our non-agency mbs deviates materially from our expected performance parameters , we may revise our performance expectations , such that the amount of purchase discount designated as credit discount may be increased or decreased over time . nevertheless , credit losses greater than those anticipated or in excess of the recorded purchase discount could occur , which could materially adversely impact our operating results . 37 it is our business strategy to hold our residential mortgage assets as long-term investments . on at least a quarterly basis , excluding investments for which the fair value option has been elected or for which specialized loan accounting is otherwise applied , we assess our ability and intent to continue to hold each asset and , as part of this process , we monitor our mbs , crt securities and msr related assets that are designated as afs for otti . a change in our ability and or intent to continue to hold any of these securities that are in an unrealized loss position , or a deterioration in the underlying characteristics of these securities , could result in our recognizing future impairment charges or a loss upon the sale of any such security . at december 31 , 2017 , we had net unrealized gains on our non-agency mbs of $ 623.7 million , comprised of gross unrealized gains of $ 624.2 million and gross unrealized losses of $ 453,000 and net unrealized losses of $ 19.7 million on our agency mbs , comprised of gross unrealized losses of $ 43.1 million and gross unrealized gains of $ 23.4 million . at december 31 , 2017 , we did not intend to sell any securities in our portfolio that are designated as afs and that were in an unrealized loss position , and we believe it is more likely than not that we will not be required to sell those securities before recovery of their amortized cost basis , which may be at their maturity . we rely primarily on borrowings under repurchase agreements to finance our residential mortgage assets . our residential mortgage investments have longer-term contractual maturities than our borrowings under repurchase agreements . story_separator_special_tag even though the majority of our investments have interest rates that adjust over time based on short-term changes in corresponding interest rate indices ( typically following an initial fixed-rate period for our hybrids ) , the interest rates we pay on our borrowings will typically change at a faster pace than the interest rates we earn on our investments . in order to reduce this interest rate risk exposure , we may enter into derivative instruments , which at december 31 , 2017 were comprised of swaps . our swap derivative instruments are designated as cash-flow hedges against a portion of our current and forecasted libor-based repurchase agreements . our swaps do not extend the maturities of our repurchase agreements ; they do , however , lock in a fixed rate of interest over their term for the notional amount of the swap corresponding to the hedged item . during 2017 , we did not enter into any new swaps and had swaps with an aggregate notional amount of $ 350.0 million and a weighted average fixed-pay rate of 0.58 % amortize and or expire . at december 31 , 2017 , we had swaps designated in hedging relationships with an aggregate notional amount of $ 2.6 billion with a weighted average fixed-pay rate of 2.04 % and a weighted average variable interest rate received of 1.50 % . recent market conditions and our strategy at december 31 , 2017 , our residential mortgage asset portfolio , which includes mbs , residential whole loans , crt securities and msr related assets was approximately $ 9.7 billion compared to $ 11.5 billion at december 31 , 2016 . during the year ended december 31 , 2017 we purchased , through certain entities established to acquire the loans , for approximately $ 1.0 billion , residential whole loans with an unpaid principal balance of approximately $ 1.3 billion . in addition , we acquired approximately $ 727.3 million of rpl/npl mbs , $ 405.6 million of msr related assets , $ 60.1 million of legacy non-agency mbs and $ 238.8 million of crt securities . at december 31 , 2017 , $ 3.5 billion , or 36.3 % of our residential mortgage asset portfolio , was invested in non-agency mbs . during the year ended december 31 , 2017 , the fair value of our non-agency mbs holdings decreased by $ 2.2 billion . the primary components of the change during the year in these non-agency mbs include $ 3.0 billion of principal repayments and other principal reductions and the sale of non-agency mbs with a fair value of $ 103.9 million partially offset by $ 787.4 million of purchases ( at a weighted average purchase price of 99 % of par ) , and an increase reflecting non-agency mbs price changes of $ 145.1 million . at december 31 , 2017 , $ 2.8 billion , or 29.0 % of our residential mortgage asset portfolio , was invested in agency mbs . during the year ended 2017 , the fair value of our agency mbs decreased by $ 913.8 million . this was due to $ 855.3 million of principal repayments , $ 31.3 million of premium amortization and $ 39.2 million in net unrealized losses partially offset by $ 12.0 million of asset purchases . at december 31 , 2017 , our total recorded investment in residential whole loans was $ 2.2 billion or 22.9 % of our residential mortgage asset portfolio . of this amount , $ 908.5 million is presented as residential whole loans , at carrying value and $ 1.3 billion as residential whole loans , at fair value in our consolidated balance sheets . for the year ended december 31 , 2017 , we recognized approximately $ 36.2 million of income on residential whole loans held at carrying value in interest income on our consolidated statements of operations , representing an effective yield of 5.93 % ( excluding servicing costs ) . in addition , we recorded a net gain on residential whole loans held at fair value of $ 90.0 million in other income , net in our consolidated statements of operations for the year ended december 31 , 2017 . during the year ended december 31 , 2017 , we completed two loan securitization transactions . as a part of the transactions , we sold residential whole loans with an aggregate unpaid principal balance of $ 620.9 million ( including $ 193.3 million of loans at carrying value and $ 296.5 million of loans at fair value ) to two entities which we consolidate as variable interest entities ( or 38 vies ) . in connection with the transactions , third-party investors purchased $ 382.8 million face amount of senior and mezzanine bonds ( or senior bonds ) with a weighted average fixed coupon of 3.12 % . as a result of the transactions , we acquired $ 127.0 million face amount of rated and non-rated certificates issued by the securitization vehicle , and received $ 382.8 million in cash , excluding expenses , accrued interest , and underwriting fees . certain of the senior bonds sold in connection with one of our securitization transactions contain a contractual coupon step-up feature whereby the coupon increases by 300 basis points at 36 months from issuance if the bond is not redeemed before such date . at december 31 , 2017 our total investment in msr related assets was $ 492.1 million . during the year ended december 31 , 2017 we acquired $ 405.6 million of msr related assets and had $ 141.0 million of principal repayments on term notes backed by msr related collateral . we also acquired $ 238.8 million of crt securities , bringing our total investment in these securities to $ 664.4 million . during 2017 our crt portfolio increased in value , with unrealized gains recognized in net income on this portfolio for the year of $ 27.7 million . at december 31 , 2017 , our crt portfolio was in an overall unrealized gain position of $ 56.3 million .
| million , primarily due to lower average amounts invested in these securities and higher funding costs , partially offset by higher yields earned on legacy non-agency mbs . this decrease was partially offset by higher net interest income on residential whole loans at carrying value , rpl/npl mbs and crt securities of approximately $ 10.9 million , primarily due to higher average balances and yields on rpl/npl mbs and crt securities and higher average balances of residential loans at carrying value . in addition , net interest income also included $ 13.9 million of interest expense associated with residential whole loans at fair value , reflecting an $ 8.9 million increase in borrowing costs related to these investments compared to 2015 , consistent with the overall growth of this asset class during 2016. coupon interest income received from residential whole loans at fair value is presented as a component of the total income earned on these investment and therefore is included in other income , net interest income . the following table presents certain quarterly information regarding our net interest spread and net interest margin for the quarterly periods presented : replace_table_token_23_th ( 1 ) reflected the difference between the yield on average interest-earning assets and average cost of funds . ( 2 ) reflected annualized net interest income divided by average interest-earning assets . 58 the following table presents the components of the net interest spread earned on our agency mbs , legacy non-agency mbs and rpl/npl mbs for the quarterly periods presented : replace_table_token_24_th ( 1 ) reflected annualized interest income on mbs divided by average amortized cost of mbs . ( 2 ) reflected annualized interest expense divided by average balance of repurchase agreements and other advances , including the cost of swaps allocated based on the proportionate share of the overall estimated weighted average portfolio duration and securitized debt . agency cost of funding included 65 , 62 , 63 , 65 , 74 , 74 , 70 and 78 basis points and
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this could in turn have a negative impact on our business based on , but not limited to , the following : · difficulty in collecting rent ; rent adjustments . when consumers decrease their spending , our tenants typically experience decreased revenues and cash flows . this makes it more difficult for some of our local and regional tenants to pay their rent obligations , which is the primary source of our revenues . our tenants ' decreased cash flows may be even more pronounced if they are unable to obtain financing to operate their businesses . such decreases or , if granted , deferrals in tenants ' rent obligations could negatively affect our cash flows . · termination of leases . if our tenants find it difficult to meet their rental obligations , they may be forced to terminate their leases with us . during 2013 , tenants at some of our properties terminated their leases with us . in some cases , we were able to secure replacement tenants at rental rates comparable to or greater than the rates of the terminated tenants . in other cases , we were not able to do so . 45 · tenant bankruptcies . the number of bankruptcies by u.s. businesses has decreased from the historically high levels experienced during recent years . while we have seen a decrease over the past year in tenant bankruptcies , there is no assurance that this decrease will continue . · decrease in demand for retail space . demand for retail space at our shopping centers and at our development and redevelopment projects continued to improve in 2013 , most notably from national and regional retailers . demand from local , small shop merchants has increased at a slower pace , reflecting the difficulty such potential tenants have securing financing for working capital and expansion plans . while our leasing activity remained high and the overall leased percentage of our retail shopping centers increased in 2013 , overall demand for retail space may not continue and may decline in the future until job growth , consumer confidence , and the general economy stabilize for an extended period of time . financing strategy ; 2014 debt maturities our ability to obtain financing on satisfactory terms and to refinance borrowings as they mature is affected by the condition of the economy in general and by instability of the financial markets in particular . our 2014 debt maturities , excluding annual principal payments , total $ 86 million and consist of property-level debt or construction loans . we are pursuing financing alternatives to enable us to repay , refinance , or extend the maturity date of these loans . based on our favorable experience with refinancing of property-level debt and the improvements in the lending environment over the last couple of years , we believe we will be able to satisfactorily address our 2014 debt maturities ; however , we can not provide assurances about our ability to do so . failure to comply with our obligations under these various property-level loan agreements could cause an event of default , which , among other things , could result in the loss of title to assets securing such loans , the acceleration of principal and interest payments , termination of the debt facilities , exposure to the risk of foreclosure , or charges to our earnings . we believe we have good relationships with a number of banks and other financial institutions that will allow us to continue our strategy of refinancing our borrowings with the existing lenders or replacement lenders . however , it is imperative that we identify alternative sources of financing and other capital in the event we are not able to refinance these loans on satisfactory terms , or at all . if we are not able to refinance or extend these loans , our financial condition and liquidity could be adversely impacted . it is also important for us to obtain additional financing in order to complete our in-process development and redevelopment projects . throughout the year , we strengthened our balance sheet through the acquisition of thirteen unencumbered retail properties . these acquisitions significantly increased the value of the company 's unencumbered property pool and created additional liquidity . in addition , we increased our flexibility by expanding the borrowing capacity on our term loan from $ 125 million to $ 230 million . this enabled us to free up availability on our unsecured revolving credit facility along with reducing our borrowing costs and further staggering our debt maturities . in february , we amended our $ 200 million unsecured revolving credit agreement by , among other things , extending its maturity date to february 26 , 2018 , which maturity date may be extended for an additional year at our option , subject to certain conditions , and reducing the borrowing rate . as of december 31 , 2013 , we had a combined $ 69 million of available liquidity in the form of availability under our unsecured revolving credit facility ( $ 51 million ) and on-hand cash and cash equivalents ( $ 18 million ) . in addition , there are five unencumbered assets that would provide approximately $ 135 million of additional borrowing capacity under the unsecured revolving credit if they were contributed to the unencumbered property pool and the accordion feature was exercised . obtaining new financing is also important to our business due to the capital needs of our existing development and redevelopment projects . as of december 31 , 2013 , the unfunded amount of the total estimated projects costs of our development and redevelopment projects under construction was approximately $ 61 million . story_separator_special_tag while we believe we will have access to sufficient funding to be able to complete these projects through a combination of existing construction loans and uses of our available liquidity ( which , as noted above , was $ 69 million as of december 31 , 2013 ) , adverse market conditions may make it more costly and difficult to raise additional capital , if necessary . 46 summary of critical accounting policies and estimates our significant accounting policies are more fully described in note 2 to the accompanying consolidated financial statements . as disclosed in note 2 , the preparation of financial statements in accordance with u.s. generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . we believe that the following discussion addresses our most critical accounting policies , which are those that are most important to the compilation of our financial condition and results of operations and require management 's most difficult , subjective , and complex judgments . capitalization of certain pre-development and development costs we incur costs prior to vertical construction and for certain land held for development , including acquisition contract deposits as well as legal , engineering , cost of internal resources and other external professional fees related to evaluating the feasibility of developing a shopping center or other project . these pre-development costs are capitalized and included in construction in progress in the accompanying consolidated balance sheets . if we determine that the completion of a development project is no longer probable , all previously incurred pre-development costs are immediately expensed . we also capitalize costs such as construction , interest , real estate taxes , and the costs of personnel directly involved with the development of our properties . as a portion of a development property becomes operational , we expense a pro rata amount of related costs . impairment of investment properties management reviews both operational and development projects , land parcels and intangible assets for impairment on at least a quarterly basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable . the review for possible impairment requires management to make certain assumptions and estimates and requires significant judgment . impairment losses for investment properties and intangible assets are measured when the undiscounted cash flows estimated to be generated by the investment properties during the expected holding period are less than the carrying amounts of those assets . impairment losses are recorded as the excess of the carrying value over the estimated fair value of the asset . our impairment review for land and development properties assumes we have the intent and the ability to complete the developments or projected uses for the land parcels . if we determine those plans will not be completed or our assumptions with respect to operating assets are not realized , an impairment loss may be appropriate . management does not believe any investment properties , development assets , or land parcels were impaired as of december 31 , 2013. depreciation may be accelerated for a redevelopment project including partial demolition of existing structure after the asset is assessed for impairment . operating properties held for sale include only those properties available for immediate sale in their present condition and for which management believes it is probable that a sale of the property will be completed within one year , amongst other factors . operating properties are carried at the lower of cost or fair value less estimated costs to sell . depreciation and amortization are suspended during the held-for-sale period . the company has classified the 50 th & 12 th investment property as held for sale as of december 31 , 2013. our operating properties have operations and cash flows that can be clearly distinguished from the rest of our activities . the operations reported in discontinued operations include those operating properties that were sold or were considered held-for-sale and for which operations and cash flows can be clearly distinguished . the operations from these properties are eliminated from ongoing operations , and we will not have a continuing involvement after disposition . when material , current and prior period operating results are reclassified to reflect the operations of these properties as discontinued operations . 47 purchase accounting we measure identifiable assets acquired , liabilities assumed , and any non-controlling interests in an acquiree at fair value on the acquisition date , with goodwill being the excess value over the net identifiable assets acquired . in making estimates of fair values for the purpose of allocating purchase price , a number of sources are utilized , including information obtained as a result of pre-acquisition due diligence , marketing and leasing activities . a portion of the purchase price is allocated to tangible assets and intangibles , including : · the fair value of the building on an as-if-vacant basis and to land determined either by comparable market data , real estate tax assessments , independent appraisals or other relevant data ; · above-market and below-market in-place lease values for acquired properties are based on the present value ( using an interest rate which reflects the risks associated with the leases acquired ) of the difference between ( i ) the contractual amounts to be paid pursuant to the in-place leases and ( ii ) management 's estimate of fair market lease rates for the corresponding in-place leases , measured over the remaining non-cancelable term of the leases . any below-market renewal options are also considered in the in-place lease values . the capitalized above-market and below-market lease values are amortized as a reduction of or addition to rental income over the remaining non-cancelable terms of the respective leases .
| 49 development activities during the years ended december 31 , 2013 , 2012 and 2011 , the following significant development properties became operational or partially operational : property name msa economic occupancy date 1 owned gla delray marketplace delray beach , fl march 2013 255,554 holly springs towne center raleigh , nc march 2013 207,589 1 represents the date in which we started receiving rental payments under tenant leases or ground leases at the property or the tenant took possession of the property , whichever was sooner . property acquisition activities during 2013 , 2012 and 2011 , we acquired the properties below . replace_table_token_20_th 1 the properties acquired were : · beechwood promenade in athens , georgia ; · burt store promenade in punta gorda , florida ; · hunter 's creek promenade in orlando , florida ; · lakewood promenade in jacksonville , florida ; · northdale promenade in tampa , florida ; · kingwood commons in houston , texas ; · portofino shopping center in houston , texas ; · clay marketplace in birmingham , alabama ; and · trussville promenade in birmingham , alabama 50 operating property disposition activities during 2013 , 2012 and 2011 , we sold or disposed of the operating properties listed in the table below . in addition , our 50 th and 12 th operating property was sold on january 7 , 2014 and was classified as held for sale as of december 31 , 2013. the operating results of the consolidated properties are reflected as discontinued operations in the accompanying consolidated statements of operations . replace_table_token_21_th 1 we held a 50 % interest in this unconsolidated joint venture . in november 2011 , the joint venture sold this property for $ 17.5 million , resulting in a total gain on sale of $ 8.3 million . we used our share of the net proceeds to pay down borrowings under our unsecured revolving credit facility . our share of the gain on sale was $ 4.3 million , including related tax effects . redevelopment activities during 2013 , 2012 and 2011 , the following properties were in various stages of redevelopment : replace_table_token_22_th 51 1 transition date represents the date the property was transitioned to our operating portfolio upon the substantial completion of redevelopment activities . 2 la
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, 2017 , and ( x ) eliminating the deduction for income attributable to domestic production activities . as required under u.s. gaap , the effects of tax law changes are recognized in the period of enactment . accordingly , we have recorded incremental income tax expense in the amount of $ 874 million associated with the tax act during the year ended december 31 , 2017. change in presentation during the first quarter of 2017 , we restructured our regions to combine the north america and latin america regions into one region which is now reflected as the americas . accordingly , we now report net sales in the following three geographic regions : the americas , europe , middle east and africa ( `` emea '' ) , and asia pacific ( `` ap '' ) . we have updated all periods presented to reflect this change in presentation . 2017 financial results ended 2017 with a record backlog position of $ 9.6 billion , up 15 % compared to 2016 net sales were $ 6.4 billion in 2017 compared to $ 6.0 billion in 2016 and grew in every region operating earnings were $ 1.3 billion in 2017 , compared to $ 1.1 billion in 2016 recorded an $ 874 million tax expense due to u.s. tax reform loss from continuing operations was $ 155 million , or $ 0.95 per diluted common share in 2017 , compared to earnings of $ 560 million , or $ 3.24 per diluted common share in 2016 operating cash flow increased $ 181 million to $ 1.3 billion in 2017 returned $ 790 million of capital in the form of $ 483 million in share repurchases and $ 307 million in dividends in 2017 and invested $ 298 million in acquisitions increased our quarterly dividend by 11 % to $ 0.52 per share in november 2017 financial results for our two segments in 2017 in the products segment , net sales were $ 3.8 billion in 2017 , an increase of $ 123 million , or 3 % , compared to $ 3.6 billion in 2016 . on a geographic basis , net sales increased in every region , compared to 2016 . operating earnings were $ 914 million in 2017 , compared to $ 734 million in 2016 . operating margin increased in 2017 to 24.2 % from 20.1 % in 2016 . in the services segment , net sales were $ 2.6 billion in 2017 , an increase of $ 219 million , or 9 % , compared to $ 2.4 billion in 2016 . on a geographic basis , net sales increased in every region , compared to 2016 . managed & support services grew 12 % primarily driven by the acquisitions of airwave , spillman technologies , interexport and kodiak networks . operating earnings were $ 368 million in 2017 , compared to $ 333 million in 2016 . operating margin increased in 2017 to 14.1 % from 13.9 % in 2016 . looking forward entering 2018 , we believe we are well-positioned to compete moving forward . we have a broad , compelling products and services portfolio specifically tailored for our mission-critical communications customer base that spans many layers of governments , public safety , and first responders , as well as commercial and industrial customers in a number of key verticals . as we add new products , features , and software upgrades , we ensure our solutions are interoperable and backward-compatible , enabling customers to confidently invest for their future needs while allowing them to utilize their prior investment in our technology . supplementing our traditional core business is our investment in our managed & support services business and software solutions in the command center . as communication networks have become increasingly complex , software-centric , and data-driven , we have shifted our offerings to align with this technology trend in serving our customers . we expect to continue to see growing demand for our managed & support services going forward . these services offerings help customers manage , support , and upgrade their networks as well as utilize features , applications , and data in new ways , including predictive policing , proactive support , or smarter response strategies . we expect our overall revenue mix to continue to shift towards software and services over time . we expanded our software solutions and services portfolios in 2017 with the acquisitions of kodiak networks and interexport , respectively . 26 another key technology trend complementing our existing business is the expanded use of broadband lte by our customers . we have been proactively investing in next-generation public safety broadband solutions for years , as we believe public safety lte solutions are the next-generation tool for our public safety first-responder customers . we believe our expertise in both public and private networks makes us uniquely qualified to provide these public safety broadband solutions to this customer base . we have now won the four largest public safety lte network installations awarded to date and expect lte sales to represent a larger portion of our revenue in the coming years . we remain committed to driving shareholder value with revenue growth , operating leverage , cash flow generation , and efficient capital deployment . our framework for efficient capital deployment of cash flow from operations consists of approximately : ( i ) 50 % for acquisitions or share repurchases , ( ii ) 30 % for dividends , and ( iii ) 20 % for investments in the business through capital expenditures . we expect to continue a balanced approach in allocating capital through this framework . our share repurchase program has approximately $ 1.7 billion of authority available as of december 31 , 2017 . 27 story_separator_special_tag charges during 2017 , primarily related to a valuation allowance of $ 471 million against u.s. foreign tax credit carryforwards and income tax expense of $ 366 million from the remeasurement of our deferred tax balances at the lower federal tax rate of 21 % . story_separator_special_tag excluding the income tax effects from the tax act , our effective tax rate was lower than the current u.s. federal statutory rate of 35 % . our effective tax rate in 2016 was lower than the u.s. statutory tax rate of 35 % primarily due to lower tax rates on non-u.s. income . our effective tax rate will change from period to period based on non-recurring events , such as the settlement of income tax audits , changes in valuation allowances , changes in tax laws , and the tax impact of significant unusual or extraordinary items , as well as recurring factors including changes in the geographic mix of income and effects of various global income tax strategies . 29 earnings ( loss ) from continuing operations attributable to motorola solutions , inc. after taxes , we had a loss from continuing operations attributable to motorola solutions , inc. of $ 155 million , or $ 0.95 per diluted share , in 2017 , compared to earnings of $ 560 million , or $ 3.24 per diluted share , in 2016 . the decrease in earnings from continuing operations in 2017 , as compared to 2016 , was driven by an increase in income tax expense primarily related to an $ 874 million charge for the implementation of the tax act . results of operations— 2016 compared to 2015 net sales net sales were $ 6.0 billion in 2016 , up $ 343 million , or 6 % , compared to $ 5.7 billion in 2015 . the increase in net sales is reflective of growth in every region . emea grew on services sales , partially offset by lower products sales . the increase in emea services sales was due to expansion of our managed & support services , primarily from the acquisition of airwave which provided $ 462 million of net sales during the year ended december 31 , 2016 . the americas grew on products sales , partially offset by lower services sales . the decrease in the americas services sales was primarily due to macroeconomic pressures in latin america . ap grew on both services and products sales . gross margin gross margin was $ 2.9 billion , or 47.5 % of net sales in 2016 , compared to $ 2.7 billion , or 47.7 % of net sales in 2015 . selling , general and administrative expenses sg & a expenses decreased 2 % to $ 1.0 billion , or 16.6 % of net sales in 2016 , compared to $ 1.0 billion , or 17.9 % of net sales in 2015 . the decrease in sg & a expenditures is primarily due to cost savings initiatives , including headcount reductions , partially offset by higher incentive compensation and acquisitions costs . research and development expenditures r & d expenditures decreased 11 % to $ 553 million , or 9.2 % of net sales in 2016 , compared to $ 620 million , or 10.9 % of net sales in 2015 . the decrease in r & d expenditures is primarily due to : ( i ) cost savings initiatives , including headcount reductions , and ( ii ) the movement of employees to lower cost work sites . other charges we recorded net other charges of $ 249 million in 2016 , compared to net charges of $ 84 million in 2015 . the charges in 2016 included : ( i ) $ 113 million of charges relating to the amortization of intangibles , ( ii ) $ 97 million of net reorganization of business charges , including a $ 17 million building impairment and a $ 3 million impairment on our corporate aircraft , ( iii ) $ 26 million of losses on settlements within a non-u.s. pension plan , and ( iv ) $ 13 million of transaction fees on the acquisition of airwave . the charges in 2015 included : ( i ) $ 108 million of net reorganization of business charges , including a $ 31 million impairment of our corporate aircraft which was sold and ( ii ) $ 8 million of charges relating to the amortization of intangibles , partially offset by a $ 32 million non-u.s. pension curtailment gain . the net reorganization of business charges are discussed in further detail in the “ reorganization of businesses ” section . net interest expense net interest expense was $ 205 million in 2016 compared to $ 173 million in 2015 . the increase in net interest expense in 2016 compared to 2015 was a result of higher outstanding debt balances throughout 2016 . gains ( losses ) on sales of investments and businesses , net net losses on sales of investments and businesses were $ 6 million in 2016 , compared to net gains on sales of investments and businesses of $ 107 million in 2015 . the net losses in 2016 consisted primarily of : ( i ) a $ 19 million loss on the sale of an investment in united kingdom treasury securities and ( ii ) a $ 7 million loss from the sale of our malaysia manufacturing operations , partially offset by $ 20 million of gains on the sales of equity investments . the net gains in 2015 were related to the sales of equity investments . other net other expense was $ 12 million in 2016 , compared to $ 11 million in 2015 .
| the charges in 2017 included : ( i ) $ 151 million of charges relating to the amortization of intangibles , ( ii ) $ 48 million of losses on settlements within a non-u.s. pension plan , ( iii ) $ 33 million of net reorganization of business charges , ( iv ) $ 9 million of asset impairments , and ( v ) $ 1 million of charges for acquisition related transaction fees , partially offset by a $ 47 million gain on legal settlements . the charges in 2016 included : ( i ) $ 113 million of charges relating to the amortization of intangibles , ( ii ) $ 97 million of net reorganization of business charges , including a $ 17 million building impairment and a $ 3 million impairment of our corporate aircraft , ( iii ) $ 26 million of losses on settlements within a non-u.s. pension plan , and ( iv ) $ 13 million of transaction fees on the acquisition of airwave . the net reorganization of business charges are discussed in further detail in the “ reorganization of businesses ” section . net interest expense net interest expense was $ 201 million in 2017 compared to $ 205 million in 2016 . the decrease in net interest expense in 2017 compared to 2016 was a result of lower outstanding debt throughout 2017 , due to the $ 675 million term loan outstanding throughout 2016 , which was repaid at the end of 2016 . gains ( losses ) on sales of investments and businesses , net net gains on sales of investments and businesses were $ 3 million in 2017 , compared to net losses on sales of investments and businesses of $ 6 million in 2016 . the net gains in 2017 were primarily related to the sales of various equity investments . the net losses in 2016 consisted primarily of a $ 19 million loss on the sale of an investment in united kingdom treasury securities and a
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we believe these promising data further support bavituximab 's potential to treat her2-negative mbc . in fiscal year 2016 , we plan to expand our focus in chemotherapy combinations that show synergies with bavituximab by initiating a phase ii/iii open-label trial of either docetaxel or paclitaxel ( physician 's choice ) with or without bavituximab in patients with locally advanced or metastatic her2 negative-mbc . the new trial is based upon the consistently positive clinical experience in three prior clinical studies of bavituximab and docetaxel or paclitaxel in advanced breast cancer , including the aforementioned her2 negative-mbc phase i clinical data . 43 bavituximab in advanced liver cancer this phase i/ii ist was designed to assess bavituximab combined with sorafenib in up to 48 patients with advanced liver cancer ( “ hepatocellular carcinoma ” or “ hcc ” ) . patient enrollment was completed in september 2014. in november 2014 , interim data from a translational sub-study consisting of six patients who consented to a biopsy in the phase ii portion of the study was presented at the society for immunotherapy of cancer 's 29 th annual meeting and associated programs ( “ sitc ” ) . half of the patients evaluated showed that bavituximab can increase tumor-fighting immune cells in patients following one cycle of treatment , consistent with what we have reported from multiple preclinical models . in january 2015 , top-line clinical data presented at the asco gastrointestinal cancers symposium showed that the combination of bavituximab and sorafenib was associated with an improved time to progression of 6.7 months , a disease-specific survival of 8.7 months , a disease control rate of 58 % ( 22 out of 38 patients ) and a 4-month progression-free survival of 62 % . two patients ( 5 % ) achieved a partial response according to recist and the trial 's secondary endpoint of median overall survival was 6.2 months . in addition , the combination of bavituximab and sorafenib was well-tolerated in patients with advanced hcc . we believe these favorable trends continue to highlight the potential immunotherapeutic synergies of bavituximab and sorafenib and warrant further clinical evaluation . bavituximab in front-line rectal adenocarcinoma this ongoing phase i ist is designed to assess bavituximab in combination with capecitabine and radiation therapy in up to 18 patients with stage ii or iii rectal adenocarcinoma . the primary endpoint is to determine the safety , feasibility and tolerability with a standard platform of capecitabine and radiation therapy . secondary endpoints include overall response rate and pathological complete response ( pcr ) rate in patients . this trial continues to enroll and dose patients . bavituximab in advanced melanoma this ongoing phase ib ist is designed to assess bavituximab in combination with ipilimumab in up to 24 patients with advanced melanoma . the primary endpoint is to determine safety , feasibility and tolerability . secondary endpoints include measurements of disease control rate and overall survival . this trial continues to enroll and dose patients . ps-targeting molecular imaging program ( pgn650 ) in addition to bavituximab , we believe our ps-targeting platform may have broad potential for the imaging and diagnosis of multiple diseases , including cancer . ps-targeting antibodies are able to target diseases that present ps on the surface of distressed cells , which we believe is present in multiple disease settings . in oncology , ps is a molecule usually located inside the membrane of healthy cells , but “ flips ” and becomes exposed on the outside of cells that line tumor blood vessels , creating a specific target for the imaging of multiple solid tumor types . our initial clinical candidate is pgn650 , a first-in-class ps-targeting f ( ab ' ) 2 fully human monoclonal antibody fragment joined to the positron emission tomography ( “ pet ” ) imaging radio-isotope iodine-124 that represents a potential new approach to imaging cancer . in preclinical studies , pgn650 accumulates in tumor vasculature and provides exceedingly clear in vivo tumor images . our initial goal for the pgn650 program is to further validate the broad nature of the ps-targeting platform in the clinic . our current pgn650 clinical trial evaluating pgn650 imaging in multiple solid tumor types was filed under an exploratory ind with the fda and will enroll up to 12 patients . patients receive an imaging dose followed by three pet images . this trial continues to enroll and dose patients and interim data presented in june 2015 at the society of nuclear medicine and molecular imaging annual meeting demonstrated that 124i-pgn650 is safe and dosimetry estimates are acceptable for human imaging . 44 integrated biomanufacturing subsidiary in addition to our clinical research and development efforts , we operate a wholly-owned biomanufacturing subsidiary , avid bioservices , inc. ( “ avid ” ) , a contract manufacturing organization that provides fully integrated current good manufacturing practices ( “ cgmp ” ) services from cell line development to commercial cgmp biomanufacturing for us and its third-party customers . in addition to generating revenue from third-party customers , avid is strategically integrated with us to manufacture our clinical drug supply of bavituximab while also preparing for the potential commercial launch of bavituximab . contract manufacturing revenue generated by avid , has historically been derived from a small customer base . during fiscal years 2015 , 2014 and 2013 , avid 's total revenue generated from third-party customers amounted to $ 26,744,000 , $ 22,294,000 , and $ 21,333,000 , respectively , of which 79 % , 91 % and 81 % was derived from halozyme therapeutics , inc. , respectively . during december 2014 , we announced expansion plans that could more than double avid 's current manufacturing capacity to support the potential commercial manufacturing of bavituximab while also providing sufficient additional capacity to meet the anticipated growth of avid 's business . the new facility is located within an existing 40,000 square foot warehouse located adjacent to our current headquarters in tustin , california and was designed to accommodate multiple single-use bioreactors up to 2,000 liter scale . story_separator_special_tag the new manufacturing facility is expected to be operational in the near term . story_separator_special_tag style= '' font-family : symbol '' > · the uncertainty of obtaining regulatory approval to commence any future clinical trials ; · the uncertainty of the ultimate number of patients to be treated in any current or future clinical trial ; · the uncertainty of the rate at which patients are enrolled into any current or future clinical trial . any delays in clinical trials could significantly increase the cost of the trial and would extend the estimated completion dates ; · the uncertainty of terms related to potential future partnering or licensing arrangements ; · the uncertainty of protocol changes and modifications in the design of our clinical trials , which may increase or decrease our future costs ; and · the uncertainty of our ability to raise additional capital to support our future research and development efforts beyond february 2016. selling , general and administrative expenses year ended april 30 , 2015 compared to the year ended april 30 , 2014 : selling , general and administrative ( “ sg & a ” ) expenses consist primarily of payroll and related expenses , including share-based compensation expense ( non-cash ) , for personnel in executive , finance , accounting , business development , legal , human resources , information technology , and other internal support functions . in addition , sg & a expenses include corporate and patent legal fees , audit and accounting fees , investor relation expenses , non-employee director fees , insurance expense , and other expenses relating to our general management , administration , and business development activities . the increase in sg & a expenses of $ 1,417,000 ( or 8 % ) during the year ended april 30 , 2015 compared to the prior year was primarily due to increases in payroll and related expenses of $ 469,000 , share-based compensation expense of $ 404,000 ( non-cash ) , and non-employee director fees of $ 334,000. the increase in payroll and related expenses was primarily attributed to compensation increases associated with annual merit increases , increased health insurance benefit costs and increased employee headcount , offset by a decrease in severance expense incurred in the prior year associated with a former employee . the increase in share-based compensation expense ( non-cash ) was primarily related to the amortization of the fair value of stock options granted to employees and non-employee directors under our routine annual broad-based grants of stock option awards . the increase in non-employee director fees was directly related to the current year increase in annual cash retainer fees paid to our non-employee directors as a result of their increased time commitments associated with the oversight of our operations . we expect sg & a expenses in fiscal year 2016 to increase in comparison to fiscal year 2015 as we continue to increase our infrastructure to support our clinical development activities and our commercial manufacturing business . year ended april 30 , 2014 compared to the year ended april 30 , 2013 : the increase in sg & a expenses of $ 4,140,000 ( or 32 % ) during the year ended april 30 , 2014 compared to fiscal year 2013 was primarily due to increases in share-based compensation expense of $ 1,635,000 ( non-cash ) , payroll and related expenses of $ 1,305,000 , and legal fees of $ 649,000. the increase in share-based compensation expense ( non-cash ) was primarily related to the amortization of the fair value of stock options under a non-routine broad based grant during december 2012 and a routine annual broad based grant during may 2013. the increase in payroll and related expenses was primarily attributed to compensation increases associated with annual merit increases , bonuses , and increased employee headcount combined with an increase in severance expense associated with a former employee . the increase in legal fees is primarily attributable to general corporate legal matters combined with an increase in legal fees associated with certain lawsuits described in this annual report under part i , item 3 , “ legal proceedings. ” these increases in sg & a expenses were further supplemented with incremental fiscal year 2014 increases in non-employee director fees , travel and related expenses , insurance expense and other corporate related expenses . 48 interest and other income year ended april 30 , 2015 compared to the year ended april 30 , 2014 : the decrease in interest and other income of $ 207,000 during the year ended april 30 , 2015 compared to fiscal year 2014 was due to a $ 35,000 increase in interest income , offset by a $ 242,000 decrease in other income . year ended april 30 , 2014 compared to the year ended april 30 , 2013 : the increase in interest and other income of $ 27,000 during the year ended april 30 , 2014 compared to fiscal year 2013 was due to increases in interest income and other income of $ 14,000 and $ 13,000 , respectively . loss on early extinguishment of debt the loss on early extinguishment of debt of $ 1,696,000 in fiscal year 2013 is related to a term loan we entered into during august 2012 that was subsequently repaid in full and terminated in september 2012 under an event of default ( as described in note 3 to the accompanying audited consolidated financial statements ) .
| based on our existing license agreements , we do not expect license revenue to be a significant source of revenue in fiscal year 2016. cost of contract manufacturing year ended april 30 , 2015 compared to the year ended april 30 , 2014 : the increase in cost of contract manufacturing of $ 2,483,000 ( or 19 % ) during the year ended april 30 , 2015 compared to prior year was directly related to the current year increase in contract manufacturing revenue combined with an increase in the write-off of unusable work-in process inventory . in addition , our gross margin on contract manufacturing revenues for fiscal years 2015 and 2014 remained in-line at 42 % and 41 % , respectively . year ended april 30 , 2014 compared to the year ended april 30 , 2013 : the increase in cost of contract manufacturing of $ 515,000 ( or 4 % ) during the year ended april 30 , 2014 compared to fiscal year 2013 was directly related to the fiscal year 2014 increase in contract manufacturing revenue . in addition , our gross margin on contract manufacturing revenues for fiscal years 2014 and 2013 remained consistent during each of the fiscal years at 41 % . research and development expenses research and development expenses primarily include ( i ) payroll and related costs , including share-based compensation ( non-cash ) , associated with research and development personnel , ( ii ) costs related to clinical trials and preclinical testing , ( iii ) costs to develop and manufacture our product candidates , including raw materials and supplies , product testing , depreciation , and facility related expenses , ( iv ) expenses for research services provided by universities and contract laboratories , including sponsored research funding , and ( v ) other research and development expenses . research and development expenses are charged to expense as incurred when these expenditures relate to our research and development efforts and have no alternative future uses . for the years ended april 30 , 2015 , 2014 and 2013 , approximately 98 % , 94 % and 86 % , respectively , of our total research and development expenses related to our ps-targeting platform , which includes our
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in alabama , the decline in gas tax revenue receipts related to reductions in fuel purchased by motorists in recent months has been largely offset by an increase in the fuel tax that became effective in late 2019. the extent to which our operations may be impacted by the covid-19 pandemic will depend on future developments , which are highly uncertain and can not be accurately predicted , including new information that may emerge concerning the severity of the pandemic and actions by government authorities to contain the outbreak or mitigate its impact . furthermore , the impacts of a potential worsening of economic conditions and the continued disruptions to , and volatility in , the financial markets remain unknown . 25 how we assess performance of our business revenues we derive our revenues predominantly by providing construction products and services for both public and private infrastructure projects , with an emphasis on highways , roads , bridges , airports and commercial and residential sites . our projects represent a mix of federal , state , municipal and private customers . we also derive revenues from the sale of hma , aggregates , and liquid asphalt cement to customers . revenues derived from projects are recognized as performance obligations are satisfied over time ( formerly known as the percentage-of-completion method ) , measured by the relationship of total cost incurred compared to total estimated contract costs ( cost-to-cost input method ) . changes in job performance , job conditions and estimated profitability , including those arising from contract penalty provisions and final contract settlements , may result in revisions to estimated costs and income , and are recognized in the period in which the revisions are determined . revenues derived from the sale of hma , aggregates , and liquid asphalt cement are recognized when the risks associated with ownership have passed to the customer . gross profit gross profit represents revenues less cost of revenues . cost of revenues consists of all direct and indirect costs associated with construction contracts , including raw materials , labor , equipment costs , depreciation , lease expenses , subcontract costs and other expenses at our hma plants , aggregate mining facilities , and liquid asphalt cement terminal . our cost of revenues is directly affected by fluctuations in commodity prices , primarily liquid asphalt and diesel fuel . from time to time , when appropriate , we limit our exposure to changes in commodity prices by entering into forward purchase commitments . in addition , our public infrastructure contracts often provide for price adjustments based on fluctuations in certain commodity-related product costs . these price adjustment provisions are in place for most of our public infrastructure contracts , and we seek to include similar provisions in our private contracts . depreciation , depletion and amortization property , plant and equipment are initially recorded at cost or , if acquired as a business combination , at fair value . depreciation on property , plant and equipment is computed on a straight-line basis over the estimated useful life of the asset . amortization expense is the periodic expense related to leasehold improvements and intangible assets . leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term . our intangible assets were recognized as a result of certain acquisitions and are generally amortized on a straight-line basis over the estimated useful lives of the assets . quarry reserves are depleted in accordance with the units-of-production method as aggregate is extracted , using the initial allocation of cost based on proven and probable reserves . general and administrative expenses general and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate offices . these expenses consist primarily of salaries and personnel costs for our administration , finance and accounting , legal , information systems , human resources and certain managerial employees . general and administrative expenses also include acquisition expenses , audit , consulting and professional fees , stock-based compensation expense , travel , insurance , office space rental costs , property taxes and other corporate and overhead expenses . gain on sale of equipment , net in the normal course of business , we sell construction equipment for various reasons , including when the cost of maintaining the asset exceeds the cost of replacing it . the gain or loss on the sale of equipment reflects the difference between the carrying value at the date of disposal and the net consideration received from the sale of equipment during the period . interest expense , net interest expense , net primarily represents interest incurred on our long-term debt , such as the term loan and the revolving credit facility , as well as the changes in fair values of interest swap agreements and amortization of deferred debt issuance costs . these amounts are partially offset by interest income earned on short-term investments of cash balances in excess of our current operating needs . 26 other key performance indicators — adjusted ebitda and adjusted ebitda margin adjusted ebitda represents net income before , as applicable from time to time , ( i ) interest expense , net , ( ii ) provision ( benefit ) for income taxes , ( iii ) depreciation , depletion and amortization of long-lived assets , ( iv ) equity-based compensation expense , ( v ) loss on the extinguishment of debt and ( vi ) certain management fees and expenses . adjusted ebitda margin represents adjusted ebitda as a percentage of revenues for each period . these metrics are supplemental measures of our operating performance that are neither required by , nor presented in accordance with , gaap . these measures have limitations as analytical tools and should not be considered in isolation or as an alternative to net income or any other performance measure derived in accordance with gaap as an indicator of our operating performance . story_separator_special_tag we present adjusted ebitda and adjusted ebitda margin because management uses these measures as key performance indicators , and we believe that securities analysts , investors and others use these measures to evaluate companies in our industry . our calculation of adjusted ebitda and adjusted ebitda margin may not be comparable to similarly named measures reported by other companies . potential differences may include differences in capital structures , tax positions and the age and book depreciation of intangible and tangible assets . the following table presents a reconciliation of net income , the most directly comparable measure calculated in accordance with gaap , to adjusted ebitda and the calculation of adjusted ebitda margin for the periods presented ( in thousands , except percentages ) : replace_table_token_1_th ( 1 ) reflects fees and reimbursement of certain out-of-pocket expenses under a management services agreement with suntx capital partners , the company 's controlling stockholder ( see note 17 - related parties to the consolidated financial statements included elsewhere in this report ) . 27 results of operations — fiscal year ended september 30 , 2020 compared to fiscal year ended september 30 , 2019 the following table sets forth selected financial data for the fiscal years ended september 30 , 2020 ( “ fiscal 2020 ” ) and september 30 , 2019 ( “ fiscal 2019 ” ) ( in thousands , except percentages ) : replace_table_token_2_th revenues . revenues for fiscal 2020 increased $ 2.5 million , or 0.3 % , to $ 785.7 million from $ 783.2 million for fiscal 2019. revenues in markets we served on september 30 , 2019 decreased by $ 47.1 million during fiscal 2020 , primarily due to a reduction in the number of projects available for bid in certain of our markets , including north carolina , and our resulting efforts to manage our backlog and effectively utilize our workforce in light of the uncertainties caused by the covid-19 pandemic . the decrease was offset by a $ 49.6 million increase in total revenue attributable to acquisitions that we completed during or subsequent to fiscal 2019. gross profit . gross profit for fiscal 2020 increased $ 4.2 million , or 3.6 % , to $ 122.2 million from $ 118.0 million for fiscal 2019. the higher gross profit was the result of an increase in gross profit margin to 15.6 % for fiscal 2020 from 15.1 % for fiscal 2019 , primarily due to efficient utilization of our plants and equipment , and the contribution from the liquid asphalt terminal , which we acquired during fiscal 2019 and allows us to purchase liquid asphalt at wholesale prices , thereby reducing our cost of revenues . story_separator_special_tag $ 55.3 million primarily as a result of : net income of $ 43.1 million , including $ 31.2 million of depreciation , depletion and amortization of long-lived assets ; contracts receivable including retainage , net increasing by $ 20.6 million as a result of higher overall revenues ; and inventory increasing by $ 8.8 million , of which $ 6.5 million related to our acquisition and operation of the liquid asphalt terminal and other acquisitions during fiscal 2019 . 29 investing activitie s during fiscal 2020 , cash used in investing activities was $ 79.4 million , of which $ 30.2 million related to acquisitions completed in the period and $ 52.6 million of which was invested in property , plant and equipment , which included $ 11.5 million for the buyout of equipment leases , and was partially offset by $ 3.0 million of proceeds from the sale of equipment . during fiscal 2019 , cash used in investing activities was $ 60.2 million , $ 24.7 million of which related to acquisitions completed in the period and $ 42.5 million of which was invested in property , plant and equipment , which was partially offset by $ 4.5 million of proceeds from the sale of equipment . financing activities during fiscal 2020 , cash provided by financing activities was $ 41.9 million . we received $ 72.3 million from proceeds on long-term debt , net of debt issuance costs and discounts , which was offset by $ 30.4 million of principal payments on long-term debt . during fiscal 2019 , cash used in financing activities was $ 13.6 million , primarily due to principal payments on long-term debt of $ 13.0 million during the period . credit agreement we and each of our subsidiaries are parties to the credit agreement , which provides for the term loan and the revolving credit facility . at september 30 , 2020 and 2019 , we had $ 92.9 million and $ 44.7 million , respectively , of principal outstanding under the term loan , $ 0.0 million and $ 5.0 million , respectively , of principal outstanding under the revolving credit facility , and availability of $ 39.3 million and $ 14.4 million , respectively , under the revolving credit facility , including reduction for outstanding letters of credit . the obligations of our subsidiaries under the term loan and the revolving credit facility are secured by a first priority security interest in substantially all of our assets . the credit agreement requires the company to satisfy certain financial covenants , including a minimum fixed charge coverage ratio of 1.20-to-1.00 and a maximum consolidated leverage ratio of 2.75-to-1.00 , subject to certain adjustments . at september 30 , 2020 and 2019 , our fixed charge coverage ratio was 2.85-to-1.00 and 4.04-to-1.00 , respectively , and our consolidated leverage ratio was 1.08-to-1.00 and 0.66-to-1.00 , respectively . from time to time , the company has entered into interest rate swap agreements to hedge against the risk of changes in interest rates . these interest rate swap agreements do not meet the criteria for hedge accounting treatment in accordance with gaap .
| our effective tax rate decreased to 24.0 % for fiscal 2020 , from 24.4 % for fiscal 2019. our lower effective tax rate was the result of filing an amended consolidated state return , as a result of which the company recorded an amended return benefit of $ 0.4 million related to the utilization of net operating loss carryforwards and a corresponding release of a valuation allowance . earnings from investment in joint venture . during fiscal 2020 and 2019 , we earned $ 0.6 million and $ 1.3 million of pre-tax income , respectively , from our 50 % interest in the earnings of a joint venture that we entered into with a third party in november 2017 for the sole purpose of performing a construction project for aldot . net income . net income decreased $ 2.8 million , or 6.5 % , to $ 40.3 million for fiscal 2020 compared to $ 43.1 million for fiscal 2019. this decrease in net income was primarily a result of higher general and administrative expenses and additional interest expense during fiscal 2020 , and was substantially offset by higher gross profit . general and administrative expenses for fiscal 2020 increased $ 5.9 million , or 9.4 % , to $ 68.6 million from $ 62.7 million for fiscal 2019. adjusted ebitda and adjusted ebitda margin . adjusted ebitda and adjusted ebitda margin were $ 98.4 million and 12.5 % , respectively , for fiscal 2020 , compared to $ 92.3 million and 11.8 % , respectively , for fiscal 2019. the increase in adjusted ebitda primarily resulted from the increase in gross profit , depreciation , depletion and amortization of long-lived assets for fiscal 2020 compared to fiscal 2019 , partially offset by an increase in general and administrative expense and interest expense , net . the increase in the adjusted ebitda margin was primarily the result of increased depreciation , depletion and amortization of long-lived assets . for a description of adjusted ebitda and adjusted ebitda margin , as well as a reconciliation of adjusted ebitda to net income , see “ how we assess performance of our business. ” inflation and price changes inflation had an immaterial impact on our results of operations for fiscal 2020 and
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the fiscal 2016 sales decrease of $ 150.9 million compared to fiscal 2015 was primarily driven by a $ 74.2 million impact of foreign currency translation and a decline in the company 's first-fit portions of the engine and industrial segments . fiscal 2016 sales decreased $ 92.8 million in the engine products segment and $ 58.1 million in the industrial products segment . unfavorable foreign currency exchange rates decreased sales in the engine products and industrial products segments by $ 43.4 million and $ 30.8 million , respectively . in addition to the impacts of foreign currency , the engine products segment experienced a decline in the off-road product business driven by a continued weakness in the global agricultural , mining and construction equipment markets with decreased build rates in all regions . the industrial products segment experienced it 's most significant sales decrease in the gas turbine systems business . historically , gts sales were driven by large systems and , as a result , the company 's shipments and revenues fluctuated from period to period . beginning in fiscal 2016 , the company made a strategic shift in the gts business to be more selective in bidding of large projects and shifting the strategy to grow the gts replacement part business . in contrast to fiscal 2015 , the company experienced more typical seasonality in fiscal 2016 with sales improving the second half of the year . backlog at august 31 , 2016 , the backlog of orders expected to be delivered within 90 days was $ 323.0 million . the 90-day backlog at august 31 , 2015 , was $ 331.0 million . the backlog of orders expected to be delivered within 90 was increased 3.0 % for the engine products segment and increased 1.6 % for the industrial products segment . backlog is one of many indicators of business conditions in the company 's markets . however , it is not always indicative of future results for a number of reasons , including short lead times in the company 's replacement parts businesses and the timing of the receipt of orders in many of the company 's engine oem and industrial markets . cost of sales the principal raw materials that the company uses are steel , filter media , and petroleum-based products including plastics , rubber , and adhesives . purchased raw materials represent approximately 60 % to 65 % of the company 's cost of goods sold . of that amount , steel , including fabricated parts , represents approximately 20 % . filter media represents approximately 20 % and the remainder is primarily made up of petroleum-based products and other raw material components . the cost the company paid for steel during fiscal 2016 varied by grade , but in aggregate , decreased during the fiscal year . the steel costs decrease was largely related to the decline in market prices but was also affected by continuous improvement efforts . the company 's cost of filter media also varies by type and decreased slightly year over year . the cost of petroleum-based products were also down in relation to lower costs for petrochemicals and continuous improvement efforts . the company anticipates a moderately favorable impact from commodity prices in fiscal 2017 , as compared to fiscal 2016 , specifically for petroleum-based products . on an ongoing basis , the company enters into selective supply arrangements with certain of its suppliers that allow the company to reduce volatility in its costs . the company strives to recover or offset all material cost increases through selective price increases to its customers and the company 's continuous improvement cost reduction initiatives , which include material substitution , process improvement , and product redesigns . gross margin gross margin for the year ended july 31 , 2016 was 34.0 % , or a 0.1 point decrease from 34.1 % in the prior year . the gross margin percentage was flat year over year with favorable impacts from restructuring actions offset by lower fixed cost absorption due to a decrease in sales . gross margin for fiscal 2015 was 34.1 % , or a 1.4 point decrease from 35.5 % in the year ended july 31 , 2014 . the decrease in gross margin was driven primarily by lower fixed cost absorption due to a decrease in sales and the negative mix impacts from 13 more gts and ifs project shipments . restructuring and asset impairment charges of $ 8.4 million also negatively impacted gross margin in fiscal 2015 . operating expenses operating expenses for the year ended july 31 , 2016 were $ 480.6 million or 21.6 % of net sales , as compared to $ 520.3 million or 21.9 % in the prior fiscal year . the decrease in operating expenses as a percentage of sales was primarily driven by expense savings from previous restructuring actions combined with the company 's efforts to control expenses in fiscal 2016 compared to fiscal 2015. restructuring and asset impairment charges included in operating expenses were $ 10.4 million in fiscal 2016. operating expenses for fiscal 2015 were $ 520.3 million or 21.9 % of net sales , as compared to $ 522.1 million or 21.1 % in the year ended july 31 , 2014 . the decrease in operating expenses was primarily due to a reduction in incentive compensation expense accruals . restructuring included in operating expenses were $ 8.5 million and included severance costs related to a reduction in workforce of $ 4.6 million and the company recorded a $ 3.9 million lump sum pension settlement . non-operating items interest expense for the year ended july 31 , 2016 was $ 20.7 million , an increase of $ 5.5 million from $ 15.2 million in fiscal 2015 . the increase was due to $ 150.0 million of debt issued in april 2015 that was outstanding for all of fiscal 2016 . other income , net was $ 3.9 million in fiscal 2016 compared to $ 15.5 million in the prior fiscal year . story_separator_special_tag the decrease in other income , net for fiscal 2016 was primarily driven by $ 6.8 million of higher losses on foreign exchange compared to fiscal 2015. interest expense was $ 15.2 million for fiscal 2015 , an increase of $ 5.0 million from $ 10.2 million in the prior year . the increase was due to $ 150.0 million debt issued in april 2015 , as well as higher balances on the company 's revolving line of credit . other income , net totaled $ 15.5 million in fiscal 2015 , up from $ 15.2 million in the prior year . income taxes the effective tax rate for fiscal 2016 was 25.9 % compared to 27.9 % during the year ended july 31 , 2015 . the effective tax rate in the current year was favorably impacted by the settlement of tax audits and the mix of earnings between tax jurisdictions . the effective tax rate for the year ended july 31 , 2015 was 27.9 % , unchanged from the prior fiscal year . the effective tax rate in fiscal 2015 was favorably impacted by the reinstatement of the research and experimentation credit in the u.s. for calendar year 2014 , non-recurring tax costs associated with foreign dividend distributions recorded during the prior year and an increase in tax benefits from international operations . the effective tax rate in fiscal 2014 was favorably impacted by the settlement of a tax audit and the remeasurement of certain deferred tax assets due to a change in tax rates in certain foreign jurisdictions . net earnings for the year ended july 31 , 2016 , net earnings was $ 190.8 million as compared to $ 208.1 million in fiscal 2015 , a decrease of $ 17.3 million or 8.3 % . diluted net earnings was $ 1.42 per share , a decrease of 4.7 % from diluted net earnings of $ 1.49 for the year ended july 31 , 2015 . net earnings for the year ended july 31 , 2015 was $ 208.1 million , a decrease of $ 52.1 million or 20.0 % , from fiscal 2014 net earnings of $ 260.2 million . diluted net earnings per share in fiscal 2015 was $ 1.49 compared to $ 1.76 for the year ended july 31 , 2014 , a decrease of 15.3 % . although net earnings excluding foreign currency translation is not a measure of financial performance under gaap , the company believes that it is useful in understanding its financial results and provides a comparable measure for understanding the operating results of the company between different fiscal periods . the following is a reconciliation to the most comparable gaap financial measure of this non-gaap financial measure for the years ended july 31 , 2016 , 2015 and 2014 ( in millions ) : replace_table_token_12_th 14 restructuring activities the company has taken numerous actions to align its operating and manufacturing cost structure with current and projected customer and end-market demand . fiscal 2016 actions in the first quarter of fiscal 2016 , the company took actions to further align its operating and manufacturing cost structure with current and projected customer and end-market demand . these actions consisted of one-time termination benefits from restructuring the salaried and production workforce in all geographic regions and in both reportable segments . total charges related to this action were initially expected to be $ 7.2 million . these actions have been completed and resulted in a total pre-tax charge of $ 6.2 million during the year ended july 31 , 2016 . in the third quarter of fiscal 2016 , the company took additional actions consistent with the purpose of the first quarter actions discussed above . total charges related to this action were initially expected to be $ 5.5 million . these actions have been completed and resulted in a total pre-tax charge of $ 4.1 million during the year ended july 31 , 2016 . in the fourth quarter of fiscal 2016 , the company took additional actions including the closure of the company 's hong kong location . these actions , consisting of lease termination costs and one-time termination benefits have been completed and resulted in a total pre-tax charge of $ 3.5 million during the year ended july 31 , 2016 , which was in line with expectations . fiscal 2015 actions in fiscal 2015 , actions taken by the company included : rebalancing and reducing the current salaried and production workforce globally , closing a production facility in grinnell , iowa and the write-off of a partially completed facility in xuzhou , china . for these actions , the company recorded pre-tax restructuring and impairment charges of $ 13.0 million for the year ended july 31 , 2015 . in addition , during the year ended july 31 , 2015 , the company recorded a $ 3.9 million charge related to a lump-sum settlement of its u.s. pension plan . the company recorded an additional $ 2.3 million related to these actions during the year ended july 31 , 2016. restructuring charges for the above actions are summarized as follows ( in millions ) : replace_table_token_13_th ( 1 ) expenses span both fiscal years due to shutdown of grinnell , iowa facility . restructuring charges for the above actions by segment are summarized as follows ( in millions ) : replace_table_token_14_th restructuring charges are summarized in the table below by statement of earnings line item ( in millions ) : replace_table_token_15_th 15 as the restructuring charges were mainly incurred and paid in the same period , there was no material liability balance as of july 31 , 2016 or 2015 . total savings from the fiscal 2016 actions are estimated to result in approximately $ 40 million of annual pre-tax savings . the savings are a result of reduction in workforce and therefore , the savings are expected to commence immediately and will allow the company to address its level of profitability and also invest in other strategic initiatives .
| million , or 14.3 % . these decreases were driven by a continued weakness in the global agricultural , mining and construction equipment markets with decreased build rates in all regions and the negative impacts of foreign currency translation . 16 worldwide sales of on-road products were $ 127.2 million , a decrease of 8.1 % from fiscal 2015. in constant currency , sales decreased $ 8.5 million , or 6.1 % . growth in apac and continued strength of medium-duty production was not enough to offset the revenue decreases associated with the slowing production of class 8 trucks in north america , resulting in a steeper-than-expected decline in this business . worldwide sales of aftermarket products were $ 951.5 million , a decrease of 3.0 % from fiscal 2015. in constant currency , sales increased $ 2.7 million , or 0.3 % . the primary driver of the sales decrease from fiscal 2015 was foreign currency with sales in local currency remaining relatively flat compared to prior year . worldwide sales of aerospace and defense products were $ 96.0 million , a decrease of 7.6 % from fiscal 2015. in constant currency , sales decreased $ 6.3 million , or 6.1 % . these decreases were due to aerospace commercial slow down while defense ground vehicle has remained relatively flat . the decline in commercial aerospace is primarily in rotary-wing aircraft reflecting a slowdown in oil exploration resulting in fewer flight hours . many defense platforms have been delayed due to funding . fiscal 2016 engine product 's earnings before income taxes were $ 163.5 million , or 11.8 % of engine products ' sales , a decrease from 12.6 % of sales in fiscal 2015. the percentage earnings decrease was driven by lower cost absorption due to a decrease in production volumes and the impact of foreign currency translation . fiscal 2015 compared to fiscal 2014 for the year ended july 31 , 2015 , net sales for the engine products segment were $ 1,484.1 million
| 16,391 |
business overview we were organized under the laws of the state of nevada on may 7 , 2008 under the name “ claridge ventures , inc. ” with an initial focus on the acquisition and exploration of mineral properties in the state of nevada . on august 6 , 2013 , we affected a 1 for 4 reverse split of its common stock and changed our name to “ indo global exchange ( s ) pte . ltd ” . we have two wholly-owned subsidiaries : international global exchange ( aust ) pty ltd and pt griyamatahari bali . international global exchange ( aust ) pty ltd is based in australia and was set up for the purpose of entering into the introducing broker agreement with halifax . pt griyamatahari bali is based in indonesia and was set up to allow us to operate in indonesia under indonesia law . on september 23 , 2013 ( the “ closing date ” ) , we closed an asset purchase transaction ( the “ transaction ” ) with indo global exchange pte . ltd. , a company organized under the laws of singapore ( “ indo global ” ) and the shareholders of indo global ( “ selling shareholders ” ) pursuant to an amended and restated asset purchase agreement ( the “ purchase agreement ” ) . in accordance with the terms of the purchase agreement , on the closing date , the company issued 43,496,250 shares of its common stock ( the “ shares ” ) directly to the selling shareholders in exchange for certain assets of indo global ( the “ assets ” ) including , rights to enter into certain agreements and certain intellectual property . the company did not acquire any plant and equipment , and any other business and operational assets of indo global as part of the assets , and the company did not hire any employees of indo global . indo global continues as an independent company , operating in singapore after the transaction . we plan to operate as a business to consumers , and business to business , to provide services to customers that enable the consumer to access , monitor and manage their investment interests and execute trades when participating in the global financial markets . we will act as the administrator for the client and will monitor any developments on transactions that occur in the accounts of each client as part of our account management system . 19 we are currently in discussions with potential local partners within indonesia to maximize our business potential and distribution reach . we have entered into introducing broker agreements with halifax , axitrader and fxpro to be our execution and clearing partners . we have also entered in to a client referral relationship and services agreement with todohakot and have entered into an agreement with richard jackson to act as services provider to allow access to his trading signals . we also have a referral services agreement with kina securities . we will also have the ability to affiliate with other financial institutions such as banks , financial planners and others in the financial services market . we believe we are in a unique position to capitalize on the indonesian market and gain a first move advantage to deliver a transparent and customer focused trading solution . our primary focus will be local middle to high income individuals and businesses within indonesia whom we may describe as high net worth ( those with assets over usd $ 100,000 ) estimated at approximately 4.9 million individuals . there are approximately 247 million people in indonesia , which makes it the 4th most populous country in the world and 2 % of the population is described as high net worth ; this represents our initial target market . once established in the indonesian market , we plan to expand to the philippines and malaysia . we have not generated any revenue from business operations to date , and to date , we have been unable to raise additional funds to implement our operations . limited operating history ; need for additional capital there is limited historical financial information about us upon which to base an evaluation of our performance . we can not guarantee we will be successful in our business operations . our business is subject to risks inherent in the establishment of a new business enterprise , including limited capital resources and possible cost overruns due to price and cost increases in services and products . to become profitable and competitive , we have to establish agreements with established service providers and or businesses to enable us to offer these venues to our clientele . we have no assurance that future financing will be available to us on acceptable terms . if financing is not available on satisfactory terms , we may be unable to continue , develop or expand our operations . equity financing could result in additional dilution to our existing stockholders . we anticipate that we will need to meet our ongoing cash requirements through the generation of revenue and equity and or debt financing . we estimate that our expenditures over the next 12 months will be approximately $ 869,000 as described in the table below . these estimates may change significantly depending on the nature of our future business activities and our ability to raise capital . replace_table_token_2_th 20 story_separator_special_tag cash flow from financing activities during the year ended july 31 , 2014 , the company has net cash received of $ 237,671 from financing activities compared with $ 15,000 in financing activities for the same period in 2013. the increased cash from financing activities are because of increased subscriptions during the year ended july 31 , 2014 compared to the same period last year . off-balance sheet arrangements we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on story_separator_special_tag business overview we were organized under the laws of the state of nevada on may 7 , 2008 under the name “ claridge ventures , inc. ” with an initial focus on the acquisition and exploration of mineral properties in the state of nevada . on august 6 , 2013 , we affected a 1 for 4 reverse split of its common stock and changed our name to “ indo global exchange ( s ) pte . ltd ” . we have two wholly-owned subsidiaries : international global exchange ( aust ) pty ltd and pt griyamatahari bali . international global exchange ( aust ) pty ltd is based in australia and was set up for the purpose of entering into the introducing broker agreement with halifax . pt griyamatahari bali is based in indonesia and was set up to allow us to operate in indonesia under indonesia law . on september 23 , 2013 ( the “ closing date ” ) , we closed an asset purchase transaction ( the “ transaction ” ) with indo global exchange pte . ltd. , a company organized under the laws of singapore ( “ indo global ” ) and the shareholders of indo global ( “ selling shareholders ” ) pursuant to an amended and restated asset purchase agreement ( the “ purchase agreement ” ) . in accordance with the terms of the purchase agreement , on the closing date , the company issued 43,496,250 shares of its common stock ( the “ shares ” ) directly to the selling shareholders in exchange for certain assets of indo global ( the “ assets ” ) including , rights to enter into certain agreements and certain intellectual property . the company did not acquire any plant and equipment , and any other business and operational assets of indo global as part of the assets , and the company did not hire any employees of indo global . indo global continues as an independent company , operating in singapore after the transaction . we plan to operate as a business to consumers , and business to business , to provide services to customers that enable the consumer to access , monitor and manage their investment interests and execute trades when participating in the global financial markets . we will act as the administrator for the client and will monitor any developments on transactions that occur in the accounts of each client as part of our account management system . 19 we are currently in discussions with potential local partners within indonesia to maximize our business potential and distribution reach . we have entered into introducing broker agreements with halifax , axitrader and fxpro to be our execution and clearing partners . we have also entered in to a client referral relationship and services agreement with todohakot and have entered into an agreement with richard jackson to act as services provider to allow access to his trading signals . we also have a referral services agreement with kina securities . we will also have the ability to affiliate with other financial institutions such as banks , financial planners and others in the financial services market . we believe we are in a unique position to capitalize on the indonesian market and gain a first move advantage to deliver a transparent and customer focused trading solution . our primary focus will be local middle to high income individuals and businesses within indonesia whom we may describe as high net worth ( those with assets over usd $ 100,000 ) estimated at approximately 4.9 million individuals . there are approximately 247 million people in indonesia , which makes it the 4th most populous country in the world and 2 % of the population is described as high net worth ; this represents our initial target market . once established in the indonesian market , we plan to expand to the philippines and malaysia . we have not generated any revenue from business operations to date , and to date , we have been unable to raise additional funds to implement our operations . limited operating history ; need for additional capital there is limited historical financial information about us upon which to base an evaluation of our performance . we can not guarantee we will be successful in our business operations . our business is subject to risks inherent in the establishment of a new business enterprise , including limited capital resources and possible cost overruns due to price and cost increases in services and products . to become profitable and competitive , we have to establish agreements with established service providers and or businesses to enable us to offer these venues to our clientele . we have no assurance that future financing will be available to us on acceptable terms . if financing is not available on satisfactory terms , we may be unable to continue , develop or expand our operations . equity financing could result in additional dilution to our existing stockholders . we anticipate that we will need to meet our ongoing cash requirements through the generation of revenue and equity and or debt financing . we estimate that our expenditures over the next 12 months will be approximately $ 869,000 as described in the table below . these estimates may change significantly depending on the nature of our future business activities and our ability to raise capital . replace_table_token_2_th 20 story_separator_special_tag cash flow from financing activities during the year ended july 31 , 2014 , the company has net cash received of $ 237,671 from financing activities compared with $ 15,000 in financing activities for the same period in 2013. the increased cash from financing activities are because of increased subscriptions during the year ended july 31 , 2014 compared to the same period last year . off-balance sheet arrangements we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on
| there can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures . financing may not be available in amounts or on terms acceptable to us , if at all . any failure by us to raise additional funds on terms favorable to us , or at all , could limit our ability to expand business operations and could harm our overall business prospects . in addition , we can not be assured of profitability in the future . 21 if we are not able to raise sufficient funds to fully implement our startup business plan for the next year as anticipated , we will scale our business development in line with available capital . our primary priority will be to retain our reporting status with the sec which means that we will first ensure that we have sufficient capital to cover our legal and accounting expenses . once these costs are accounted for , in accordance with how much financing we are able to secure , we will focus on market awareness , and servicing costs as well as marketing and advertising to social media marketing websites . we will likely not expend funds on the remainder of our planned activities unless we have the required capital . our total expenditures over the next twelve months are anticipated to be approximately $ 869,000. our cash on hand as of july 31 , 2014 and 2013 are $ 0. we have cash saved under related parties ' names and it amounted to $ 9,633 and $ 0 as of july 31 , 2014 and 2013 , respectively . we do not have sufficient cash on hand to fund our operations for the next twelve months . we also require additional financing . cash flow from operating activities during the year period ended july 31 , 2014 , the company used $ 236,860 of cash for operating activities compared with $ 15,000
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the qvc group is primarily focused on our video operating businesses . following the reattribution , the qvc group has attributed to it the remainder of our businesses and assets , including our wholly-owned subsidiary qvc and our 38 % interest in hsn , inc. as well as cash in the amount of approximately $ 422 million ( at december 31 , 2014 ) , including subsidiary cash . discontinued operations on august 27 , 2014 , liberty completed the tripadvisor holdings spin-off . tripadvisor holdings is comprised of liberty 's former 22 % economic and 57 % voting interest in tripadvisor as well as buyseasons , liberty 's former wholly-owned subsidiary , and a corporate level net debt balance of $ 350 million . in connection with the tripadvisor holdings spin-off during august 2014 , tripadvisor holdings drew down $ 400 million in margin loans and distributed approximately $ 350 million to liberty . this transaction has been recorded at historical cost due to the pro rata nature of the distribution . following the completion of the tripadvisor holdings spin-off , liberty and tripadvisor holdings operate as separate , publicly traded companies , and neither has any stock ownership , beneficial or otherwise , in the other . the consolidated financial statements of liberty have been prepared to reflect tripadvisor holdings as discontinued operations . accordingly , the assets and liabilities , revenue , costs and expenses , and cash flows of the businesses , assets and liabilities owned by tripadvisor holdings at the time of the tripadvisor holdings spin-off have been excluded from the respective captions in the accompanying consolidated balance sheets , statements of operations , comprehensive earnings and cash flows in such consolidated financial statements . strategies and challenges qvc . qvc 's goal is to become the preeminent global multimedia shopping community for people who love to shop , and to offer a shopping experience that is as much about entertainment and enrichment as it is about buying . qvc 's objective is to provide an integrated shopping experience that utilizes all forms of media including television , the internet and mobile devices . in 2015 , qvc intends to employ several strategies to achieve these goals and objectives . among these strategies are to ( i ) extend the breadth , relevance and exposure of the qvc brand ; ( ii ) source products that represent unique quality and value ; ( iii ) create engaging presentation content in televised programming , mobile and online ; ( iv ) leverage customer loyalty and continue multi-platform expansion ; and ( v ) create a compelling and differentiated customer experience . in addition , qvc expects to expand globally by leveraging its existing systems , infrastructure and skills in other countries around the world . internationally , beyond the main qvc channels , qvc-germany and qvc-u.k also broadcast pre-recorded shows on additional channels that offer viewers access to a broader range of qvc programming options . these channels include qvc beauty & style and qvc plus in germany and qvc beauty , qvc extra and qvc style in the u.k. qvc 's future net revenue growth will primarily depend on international expansion , sales growth from e-commerce and mobile platforms , additions of new customers from households already receiving qvc 's television programming and increased spending from existing customers . qvc 's future net revenue may also be affected by ( i ) the willingness of cable ii- 7 television and direct-to-home satellite system operators to continue carrying qvc 's programming service ; ( ii ) qvc 's ability to maintain favorable channel positioning , which may become more difficult due to governmental action or from distributors converting analog customers to digital ; ( iii ) changes in television viewing habits because of personal video recorders , video-on-demand and internet video services ; and ( iv ) general economic conditions . the prolonged economic uncertainty in various regions of the world in which our subsidiaries and affiliates operate could adversely affect demand for qvc 's products and services since a substantial portion of qvc 's revenue is derived from discretionary spending by individuals , which typically falls during times of economic instability . global financial markets continue to experience disruptions , including increased volatility and diminished liquidity and credit availability . if economic and financial market conditions in the u.s. or other key markets , including europe and japan , remain uncertain , persist , or deteriorate further , qvc 's customers may respond by suspending , delaying , or reducing their discretionary spending . a suspension , delay or reduction in discretionary spending could adversely affect revenue . accordingly , qvc 's ability to increase or maintain revenue and earnings could be adversely affected to the extent that relevant economic environments remain weak or decline . such weak economic conditions may also inhibit qvc 's expansion into new european and other markets . qvc is currently unable to predict the extent of any of these potential adverse effects . ii- 8 results of operations—consolidated general . we provide in the tables below information regarding our consolidated operating results and other income and expense , as well as information regarding the contribution to those items from our principal reportable segment and the digital commerce businesses ( included in the qvc group results through the date of reattribution and in the ventures group thereafter ) . the `` corporate and other '' category consists of those assets or businesses which we do not disclose separately . for a more detailed discussion and analysis of the financial results of the principal reporting segment , see `` results of operations - businesses '' below . story_separator_special_tag 11 share of earnings ( losses ) of affiliates . the following table presents our share of earnings ( losses ) of affiliates : replace_table_token_7_th the share of earnings ( losses ) of affiliates for the years ended december 31 , 2014 and 2013 were relatively flat based on the operating results of the equity affiliates . story_separator_special_tag the decrease in share of earnings between december 31 , 2013 and 2012 was the decrease in operating results of expedia . the change in the other category for the ventures group is primarily related to alternative energy investments that generally operate at a loss but provide favorable tax attributes recorded through the income tax ( expense ) benefit line item in the consolidated statement of operations . realized and unrealized gains ( losses ) on financial instruments . realized and unrealized gains ( losses ) on financial instruments are comprised of changes in the fair value of the following : replace_table_token_8_th the changes in these accounts are due primarily to market factors and changes in the fair value of the underlying stocks or financial instruments to which these relate . the significant change in other derivatives was the forward sale contract entered into on 12 million expedia common shares that was entered into and settled during the year ended december 31 , 2012. gains ( losses ) on transactions , net . the gain on transactions during the year ended december 31 , 2014 is due to the ftd transaction . the gain on transactions during the year ended december 31 , 2012 is due to a gain on the sale of expedia shares during the year . income taxes . our effective tax rate for the years ended december , 31 2014 , 2013 and 2012 was 30.9 % , 24.8 % and 31.5 % , respectively . the effective tax rate is less than the u.s. federal tax rate of 35 % during all years presented primarily due to tax credits derived from our alternative energy investments . the effective tax rate during 2013 was further impacted by a change in the corporate effective state rate for outstanding deferred tax liabilities and assets at liberty due to a change in the apportionment of income to various states ii- 12 net earnings . we had net earnings of $ 626 million , $ 580 million and $ 1,591 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . the change in net earnings was the result of the above-described fluctuations in our revenue , expenses and other gains and losses . liquidity and capital resources as of december 31 , 2014 substantially all of our cash and cash equivalents are invested in u.s. treasury securities , other government securities or government guaranteed funds , aaa rated money market funds and other highly rated financial and corporate debt instruments . the following are potential sources of liquidity : available cash balances , cash generated by the operating activities of our wholly-owned subsidiaries ( to the extent such cash exceeds the working capital needs of the subsidiaries and is not otherwise restricted ) , net proceeds from asset sales , monetization of our public investment portfolio , outstanding debt facilities , debt and equity issuances , and dividend and interest receipts . during the year , there were no changes to our corporate debt credit ratings or our consolidated subsidiaries ' debt credit ratings . liberty and qvc are in compliance with their debt covenants as of december 31 , 2014. as of december 31 , 2014 , liberty 's liquidity position consisted of the following : replace_table_token_9_th to the extent that the company recognizes any taxable gains from the sale of assets , we may incur tax expense and be required to make tax payments , thereby reducing any cash proceeds . additionally , we have borrowing capacity of $ 1.5 billion under the qvc credit facility at december 31 , 2014. as of december 31 , 2014 , qvc had approximately $ 208 million of cash and cash equivalents held in foreign subsidiaries . ii- 13 additionally , our operating businesses have generated , on average , more than $ 1 billion in annual cash provided by operating activities over the prior three years and we do not anticipate any significant reductions in that amount in future periods . replace_table_token_10_th qvc group during the year ended december 31 , 2014 , the qvc group uses of cash were primarily the refinancing of certain debt obligations of approximately $ 3.6 billion and the repurchase of series a liberty interactive common stock of $ 785 million . pending the public announcement of the digital commerce businesses reattribution , liberty was blacked out from the buyback of series a liberty interactive common stock during a portion of the fourth quarter of 2014. approximately $ 1 billion of cash was reattributed from the qvc group to the ventures group in connection with the digital commerce companies reattribution . additionally , the qvc group had approximately $ 226 million of capital expenditures during the year . these uses of cash were funded by cash provided by operating activities and additional borrowings of debt as part of the refinancing activities . the projected uses of qvc group cash are the cost to service outstanding debt , approximately $ 2 90 million in interest payments on qvc and corporate level debt , anticipated capital improvement spending of approximately $ 200 million and the continued buyback of liberty interactive common stock under the approved share buyback program . hsni has declared a special dividend in the first quarter of 2015. we expect to receive approximately $ 200 million in cash from the dividend of which approximately $ 54 million will be passed through to the hsni exchangeable bond holders . ventures group during the year ended december 31 , 2014 , the ventures group uses of cash were primarily the net purchases of short term and long term marketable securities and the refinancing of certain debt obligations . these uses of cash for the ventures group were funded by cash provided by operating activities ( including intergroup tax payments from the qvc group ) , the cash included in the reattribution of the digital commerce businesses , discussed above , and the sale of certain investments which was done on a tax neutral basis in conjunction with the retirement of certain debt obligations .
| consolidated adjusted oibda increased $ 52 million and $ 15 million for the years ended december 31 , 2014 and 2013 , respectively , as compared to the corresponding prior year periods . see `` results of operations - businesses '' below for a more complete discussion of the results of operations of certain of our subsidiaries . stock-based compensation . stock-based compensation includes compensation related to ( 1 ) options and stock appreciation rights ( `` sars '' ) for shares of our common stock that are granted to certain of our officers and employees , ( 2 ) phantom stock appreciation rights ( `` psars '' ) granted to officers and employees of certain of our subsidiaries pursuant to private equity plans and ( 3 ) amortization of restricted stock grants . we recorded $ 108 million , $ 118 million and $ 91 million of stock compensation expense for the years ended december 31 , 2014 , 2013 and 2012 , respectively . the decrease of $ 10 million in stock-based compensation during 2014 was primarily attributable to slightly fewer options being granted in recent years which resulted in less stock-based compensation expense being recognized . the increase of $ 27 million in stock-based compensation during 2013 was primarily attributable to the additional recognition of stock-based compensation related to the one-time exchange offer in 2012 ( `` 2012 option exchange '' ) , as more fully described in note 14 , in the accompanying consolidated financial statements . as of december 31 , 2014 , the total unrecognized compensation cost related to unvested liberty equity awards was approximately $ 80 million . such amount will be recognized in our consolidated statements of operations over a weighted average period of approximately 2.0 years . operating income . our consolidated operating income increased $ 52 million and decreased $ 27 million for the years ended december 31 , 2014 and 2013 , respectively , as compared to the corresponding prior year periods . see `` results of operations - businesses '' below for a more complete discussion of the results of operations of certain of our subsidiaries . ii- 10 other income and expense
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on a geographic basis , net revenue increased in the americas , offset by declines experienced in emea and apac . the increase in the americas driven primarily by an increase in gross shipments of our home security camera , home wireless and broadband gateways products , partially offset by a decrease in gross shipments of our mobile and multimedia products . the decline in emea was driven primarily by a reduction in gross shipments of broadband gateways , home wireless products and switches , partially offset by an increase in gross shipments of home security camera products . the decline in apac was driven primarily by a reduction in gross shipments of mobile , home wireless , network storage products and switches , partially offset by an increase in gross shipments of our home security camera and broadband gateway products . similar to emea , apac net revenue was constrained by weakening foreign currencies compared to the u.s. dollar . looking forward , we expect growth in our retail business unit mainly driven by gaining additional market share for cable gateway , wifi high end router and extender products , and home security camera products , and by entering new product category in the smart home market . we expect growth in our commercial business unit driven by the sales of our 11 ac wlan products and web-managed poe and 10gig switches . we expect our service provider business unit revenue to further decline in 2016 as we continue to remain focused on improving profitability . we also expect to incur restructuring charges of between $ 1.5 million and $ 2.5 million during the first fiscal quarter of 2016 , as part of a plan to realign and redeploy our resources to maximize our efforts in product lines of the service provider business unit and supporting functions to match the reduced revenue outlook and to concentrate resources on long-term and profitable accounts . critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america and pursuant to the rules and regulations of the u.s. securities and exchange commission ( `` sec '' ) . the preparation of these financial statements requires management to make assumptions , judgments and estimates that can have a significant impact on the reported amounts of assets , liabilities , revenues and expenses . we base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances . actual results could differ significantly from these estimates . these estimates may change as new events occur , as additional information is obtained and as our operating environment changes . on a regular basis we evaluate our assumptions , judgments and estimates and make changes accordingly . we also discuss our critical accounting estimates with the audit committee of the board of directors . note 1 , the company and summary of significant accounting policies , of the notes to consolidated financial statements of this annual report on form 10-k describes the significant accounting policies used in the preparation of the consolidated financial statements . we have listed below our critical accounting policies that we believe to have the greatest potential impact on our consolidated financial statements . historically , our assumptions , judgments and estimates relative to our critical accounting policies have not differed materially from actual results . revenue recognition revenue from product sales is generally recognized at the time the product is shipped provided that persuasive evidence of an arrangement exists , title and risk of loss has transferred to the customer , the selling price is fixed or determinable and collection of the related receivable is reasonably assured . currently , for some of our customers , title passes to the customer upon delivery to the port or country of destination , upon their receipt of the product , or upon the customer 's resale of the product . at the end of each fiscal quarter , we estimate and defer revenue related to product where title has not transferred . the revenue continues to be deferred until such time that title passes to the customer . we assess collectability based on a number of factors , including general economic and market conditions , past transaction history with the customer , and the creditworthiness of the customer . if we determine that collection is not reasonably assured , then revenue is deferred until receipt of the payment from the customer . we have product offerings with multiple elements . our multiple-element product offerings include networking hardware with embedded software , various software subscription services , and support , which are considered separate units of accounting . in general , the networking hardware with embedded software is delivered up front , while the subscription services and support are delivered over the subscription and support period . we allocate revenue to the software deliverables and the non-software deliverables ( including software deliverables which function together with hardware deliverables to provide the product 's essential functionality ) based upon their relative selling price . revenue allocated to each unit of accounting is then recognized when persuasive evidence of an arrangement exists , title and risk of loss has transferred to the customer , the selling price is fixed or determinable and collection of the related receivable is reasonably assured . when applying the relative selling price method , we determine the selling price for each deliverable using vendor-specific objective evidence ( `` vsoe '' ) of fair value of the deliverable , or when vsoe of fair value is unavailable , its best estimate of selling price ( “ esp ” ) , as we have determined it is unable to establish third-party evidence of selling price for the deliverables . story_separator_special_tag in determining 38 vsoe , we require that a substantial majority of the selling prices for a deliverable sold on a stand-alone basis fall within a reasonably narrow pricing range , generally evidenced by approximately 80 % of such historical stand-alone transactions falling within +/-15 % of the median price . we determine esp for a deliverable by considering multiple factors including , but not limited to , market conditions , competitive landscape , internal costs , gross margin objectives and pricing practices . the objective of esp is to determine the price at which we would transact a sale if the deliverable were sold on a stand-alone basis . the determination of esp is made through consultation with and formal approval by our management , taking into consideration the go-to-market strategy . we have not made any material changes in the accounting methodology we use to estimate deferred revenue related to product where title has not transferred . we do not believe there will be a material change in the future estimates or assumptions used in our estimate of deferred revenue . allowances for warranty obligations , returns due to stock rotation , sales incentives and doubtful accounts our standard warranty obligation to our direct customers generally provides for a right of return of any product for a full refund in the event that such product is not merchantable or is found to be damaged or defective . at the time revenue is recognized , an estimate of future warranty returns is recorded to reduce revenue in the amount of the expected credit or refund to be provided to our direct customers . at the time we record the reduction to revenue related to warranty returns , we include within cost of revenue a write-down to reduce the carrying value of such products to net realizable value . our standard warranty obligation to end-users provides for replacement of a defective product for one or more years . factors that affect the warranty obligation include product failure rates , material usage , and service delivery costs incurred in correcting product failures . the estimated cost associated with fulfilling the warranty obligation to end-users is recorded in cost of revenue . because our products are manufactured by third-party manufacturers , in certain cases we have recourse to the third-party manufacturer for replacement or credit for the defective products . we give consideration to amounts recoverable from our third-party manufacturers in determining our warranty liability . our estimated allowances for product warranties can vary from actual results and we may have to record additional revenue reductions or charges to cost of revenue , which could materially impact our financial position and results of operations . in addition to warranty-related returns , certain distributors and retailers generally have the right to return product for stock rotation purposes . upon shipment of the product , we reduce revenue for an estimate of potential future stock rotation returns related to the current period product revenue . we analyze historical returns , channel inventory levels , current economic trends and changes in customer demand for our products when evaluating the adequacy of the allowance for sales returns , namely stock rotation returns . our estimated allowances for returns due to stock rotation can vary from actual results and we may have to record additional revenue reductions , which could materially impact our financial position and results of operations . we accrue for sales incentives as a marketing expense if we receive an identifiable benefit in exchange and can reasonably estimate the fair value of the identifiable benefit received ; otherwise , it is recorded as a reduction of revenues . our estimated provisions for sales incentives can vary from actual results and we may have to record additional expenses or additional revenue reductions dependent on the classification of the sales incentive . we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we regularly perform credit evaluations of our customers ' financial condition and consider factors such as historical experience , credit quality , age of the accounts receivable balances , and geographic or country-specific risks and economic conditions that may affect a customer 's ability to pay . the allowance for doubtful accounts is reviewed quarterly and adjusted if necessary based on our assessments of our customers ' ability to pay . if the financial condition of our customers should deteriorate or if actual defaults are higher than our historical experience , additional allowances may be required , which could have an adverse impact on operating expenses . valuation of inventory we value our inventory at the lower of cost or market , cost being determined using the first-in , first-out method . we continually assess the value of our inventory and will periodically write down its value for estimated excess and obsolete inventory based upon assumptions about future demand and market conditions . on a quarterly basis , we review inventory quantities on hand and on order under non-cancelable purchase commitments , including consignment inventory , in comparison to our estimated forecast of product demand for the next nine months to determine what inventory , if any , are not saleable . our analysis is based on the demand forecast but takes into account market conditions , product development plans , product life expectancy and other factors . based on this analysis , we write down the affected inventory value for estimated excess and obsolescence charges . at the point of loss recognition , a new , lower cost basis for that inventory is established , and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis . as demonstrated during prior years , demand for our products can fluctuate significantly .
| the decrease was primarily attributable to a reduction in gross shipments driven , in part , by continued decline in european service provider gross shipment as we restructured our service provider business for profitability instead of gross shipment growth . the decrease in apac net revenue for the year ended december 31 , 2015 compared to the prior year was driven primarily by a reduction in gross shipments of mobile , home wireless , network storage products and switches , partially offset by an increase in gross shipments of our home security camera and broadband gateway products . similar to emea , apac net revenue was constrained by weakening foreign currencies compared to the u.s. dollar . 2014 vs 2013 the decrease in americas net revenue for the year ended december 31 , 2014 compared to the prior year was driven primarily by a reduction in sales of our home wireless , multimedia , home security camera products and switches , partially offset by an increase in sales of our mobile products and broadband gateways . net revenue for mobile products increased for the year ended december 31 , 2014 as a result of the aircard acquisition which was completed on april 2 , 2013. in contrast to 2013 , the positive effect of the acquisition is included in our results of the entire year ended december 31 , 2014. in our retail and distribution channels , we managed our inventory levels at our u.s. retail partners to be more aligned with historic levels , which contributed to the decline in the americas net revenue for the year ended december 31 , 2014 compared to the prior year . the increase in emea net revenue for the year ended december 31 , 2014 compared to the prior year was driven primarily by an increase in sales of our switches and broadband gateways , partially offset by a reduction in sales of our mobile products . the increase
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the apartment communities we acquired in la jolla , atlanta , and boston had average revenues per home of $ 2,400 , $ 2,100 , and $ 2,200 , respectively , at the the dates of their acquisition , which represented revenues per apartment home of approximately 164 % , 265 % , and 119 % , respectively , of the local market averages . during the year ended december 31 , 2013 , we also broke ground on the one canal street development , a 12 -story apartment community in boston , massachusetts . we expect to invest approximately $ 190.0 million over the next two and one-half years to construct 310 luxury apartment homes and approximately 22,000 square feet of commercial space . the development will be funded in part by a $ 114.0 million construction loan and in part by proceeds from the sales of lower rated apartment communities in less desirable submarkets . through december 31 , 2013 , we have incurred approximately $ 15.9 million of costs related to this development . our leverage strategy seeks to balance our desire to increase financial returns with the inherent risks of leverage and we have set leverage targets of debt and preferred equity to adjusted ebitda of less than 7.0x and adjusted ebitda coverage of interest and preferred dividends of greater than 2.5x . we also focus on the ratios of debt to adjusted ebitda and adjusted ebitda coverage of interest . debt , as used in these ratios , represents our proportionate share of debt , net of our proportionate share of cash and restricted cash and our investment in the subordinate tranches of a securitization that holds certain of our property debt , and preferred equity represents aimco 's preferred stock and the aimco operating partnership 's preferred op units . adjusted ebitda is calculated by adding to our pro forma funds from operations , which is calculated on an proportionate basis , our proportionate share of interest expense , taxes , depreciation and amortization related to non-real estate assets , non-cash stock-based compensation , and dividends and distributions on our preferred equity instruments . interest , as used in these ratios , represents our proportionate share of interest expense , excluding debt prepayment penalties and amortization of deferred financing costs , and reduced by interest income we receive on our investment in the subordinate tranches of a securitization that holds certain of our property debt . our leverage ratios for the trailing twelve month and annualized three month periods ended december 31 , 2013 and 2012 , are presented below : replace_table_token_7_th we expect future leverage reduction from earnings growth and from regularly scheduled property debt amortization funded from retained earnings . we also expect to increase our financial flexibility by expanding our pool of unencumbered apartment communities . as of december 31 , 2013 , this pool included seven consolidated apartment communities , which we expect to hold beyond 2014 , with an estimated fair value of approximately $ 380.0 million . during 2013 , we increased this pool by approximately $ 312.0 million , and we expect to further expand this pool in 2014. in june 2013 , one of the rating agencies completed its initial review of our creditworthiness and outlined the factors that may have a positive impact on our ratings . these factors are : growing the unencumbered asset pool to more than $ 500 million ( based on a stressed 8 % cap italization rate , as directed by the rating agency ) with asset quality consistent with the overall portfolio ; sustaining leverage , defined by the rating agency as the ratio of net debt to recurring operating ebitda , below 7.5x ; and sustaining a fixed charge coverage ratio , also as defined by the rating agency , above 2.0x . our stated leverage targets are in line with , or more conservative than , those indicated by the rating agency . in addition , through our normal course of refinancing activity as loans mature , we have the opportunity to grow our unencumbered pool by $ 150 to $ 200 million per year . in addition to lowering the cost of borrowings under our credit agreement , an investment-grade rating may lower the cost of any future preferred equity issuance , provide additional flexibility for sources of capital and provide other intangible benefits . at december 31 , 2013 , approximately 96 % of our leverage consisted of property-level , non-recourse , long-dated debt and 3 % consisted of perpetual preferred equity , a combination which helps to limit our refunding and re-pricing risk . the weighted average maturity of our property-level debt was 8.2 years , with 1.9 % of our unpaid principal balance maturing during 2014 and , on average , 7.8 % of our unpaid principal balance maturing per year from 2015 through 2017. approximately 97 % of our property-level debt is fixed-rate , which provides a hedge against increases in interest rates , capitalization rates and inflation . 21 at december 31 , 2013 , the estimated fair value of our consolidated property debt totaled $ 4.5 billion ( $ 4.3 billion on a proportionate basis ) , as compared to a carrying value of $ 4.3 billion ( $ 4.2 billion on a proportionate basis ) . during the year ended december 31 , 2013 , the estimated weighted average market rate for our property debt increased by approximately 60 basis points , which decreased the estimated mark to market adjustment for our property debt at december 31 , 2013 , by approximately $ 115 million . additionally , capitalization rates were relatively flat during 2013 and the net operating income of our retained portfolio of apartment communities increased during 2013 , which increased the estimated fair value of our apartment communities . the combination of these factors resulted in an increase in our net asset value ( defined below ) . story_separator_special_tag although our primary sources of leverage are property-level , non-recourse , long-dated , fixed-rate , amortizing debt and perpetual preferred equity , we also have a senior secured credit agreement with a syndicate of financial institutions , which we refer to as our credit agreement . the credit agreement provides for $ 600.0 million of revolving loan commitments , which we use for working capital and other short-term purposes . borrowings under the credit agreement bear interest at a rate set forth on a pricing grid , which varies based on our leverage . as of december 31 , 2013 , we had $ 50.4 million of outstanding borrowings under our credit agreement , and we had the capacity to borrow $ 505.0 million , net of the outstanding borrowings and $ 44.6 million for undrawn letters of credit backed by the credit agreement . the credit agreement matures in september 2017 , and may be extended for an additional one-year period , subject to certain conditions . under the credit agreement , we have agreed to debt service and fixed charge coverage covenants , as well as other covenants customary to similar revolving credit arrangements . for the twelve month period ended december 31 , 2013 , our debt service and fixed charge coverage ratios were 1.77x and 1.72x , respectively , compared to covenants of 1.50x and 1.30x , respectively , and ratios of 1.65x and 1.50x , respectively , for the twelve month period ended december 31 , 2012 . we expect to remain in compliance with these covenants during 2014. the fixed charge coverage covenant will increase in 2015 to 1.40x . key financial indicators the key financial indicators that we use in managing our business and in evaluating our financial condition and operating performance are : net asset value and adjusted funds from operations . in addition to these indicators , we also use pro forma funds from operations ; free cash flow , free cash flow internal rate of return , same store property operating results , proportionate property net operating income , financial coverage ratios , and leverage as shown on our balance sheet to evaluate our operating performance and financial condition . net asset value is the estimated fair value of our assets , net of liabilities , noncontrolling interests and preferred equity . adjusted funds from operations and pro forma funds from operations are defined and further described below under the funds from operations and adjusted funds from operations heading , and proportionate property net operating income is defined and further described below under the results of operations – real estate operations heading . free cash flow represents net operating income less spending for capital replacements and free cash flow internal rate of return represents the rate of return generated by the free cash flow from the apartment community and the proceeds from its eventual sale , and is a common benchmark used in the real estate industry for relative comparison of real estate valuations . the key macro-economic factors and non-financial indicators that affect our financial condition and operating performance are : household formations ; rates of job growth ; single-family and multifamily housing starts ; interest rates ; and availability and cost of financing . results of operations because our operating results depend primarily on income from our apartment communities , the supply of and demand for apartments influences our operating results . additionally , the level of expenses required to operate and maintain our apartment communities and the pace and price at which we redevelop , acquire and dispose of our apartment communities affect our operating results . the following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying consolidated financial statements in item 8. overview 2013 story_separator_special_tag > replace_table_token_8_th for the year ended december 31 , 2013 , as compared to 2012 , our conventional segment 's proportionate property net operating income increased $ 30.7 million , or 6.3 % . for the year ended december 31 , 2013 , as compared to 2012 , conventional same store proportionate property net operating income increased by $ 22.9 million , or 5.1 % . this increase was primarily attributable to a $ 30.1 million , or 4.4 % , increase in rental and other property revenues due to higher average revenues ( approximately $ 61 per effective home ) , comprised of increases in rental rates , utility reimbursements , and other fees including parking . rental rates on new leases transacted during the year ended december 31 , 2013 , were 1.5 % higher than expiring lease rates , and renewal rates were 5.1 % higher than expiring lease rates . these increases in revenue were partially offset by a 20 basis point decrease in average daily occupancy . the increase in conventional same store rental and other property revenues was partially offset by a $ 7.2 million , or 3.0 % , increase in property operating expenses , primarily due to increases in real estate taxes , insurance costs , utilities and administrative expenses , partially offset by decreases in personnel and related costs . our other conventional proportionate property net operating income increased by $ 7.8 million , or 20.9 % , during the year ended december 31 , 2013 , as compared to 2012 , primarily due to a $ 4.3 million increase in net operating income resulting from conventional apartment communities we acquired in 2012 and 2013. other conventional net operating income also increased by $ 3.5 million due to apartment homes at our redevelopment apartment communities that have been completed and an increase in occupancy at one of our communities in new york city . as of december 31 , 2012 , as defined by our segment performance metrics , our conventional same store portfolio and our other conventional portfolio consisted of 124 and 31 apartment communities with 44,960 and 5,199 apartment homes , respectively .
| in addition to the changes in net income attributable to aimco and the aimco operating partnership described above , the amounts of net income attributable to aimco common stockholders and net income attributable to the aimco operating partnership 's common unitholders increased by approximately $ 47.1 million during the year ended december 31 , 2013 , as compared to the year ended december 31 , 2012 , due to a reduction in preferred stock dividends and preferred unit distributions and related costs resulting from the redemption of $ 600.9 million of preferred securities during 2012 . 2012 compared to 2011 net income attributable to aimco and net income attributable to the aimco operating partnership increased by $ 189.5 million and $ 200.8 million , respectively , during the the year ended december 31 , 2012 , as compared to the year ended december 31 , 2011 . the increase in income for aimco and the aimco operating partnership was principally due to an increase in the net operating income and a decrease in interest expense of our apartment communities in continuing operations , an increase in income from discontinued operations , primarily due to an increase in gains on dispositions , and an increase in gains on dispositions of interests in unconsolidated real estate . the following paragraphs discuss these and other items affecting the results of operations of aimco and the aimco operating partnership in more detail . property operations as described under the preceding executive overview heading , our owned real estate portfolio consists primarily of conventional apartment communities , and we also operate a portfolio of affordable apartment communities . our conventional and affordable property operations comprise our reportable segments . in accordance with accounting principles generally accepted in the united states of america , or gaap , we consolidate certain apartment communities in which we hold an insignificant economic interest and in some cases we do not consolidate other apartment communities in which we have a significant economic interest . due to the diversity of our economic ownership interests in our apartment communities , our chief operating decision maker emphasizes as a key measurement of segment
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the purpose of these incentives and allowances is generally to help defray the costs incurred by the company for stocking , advertising , promoting and selling the vendor 's products . these allowances generally relate to short term arrangements with vendors , often relating to a period of a month or less , and are negotiated on a purchase-by-purchase or transaction-by-transaction basis . whenever possible , vendor discounts and allowances that relate to buying and merchandising activities are recorded as a component of item cost in inventory and recognized in merchandise costs when the item is sold . due to system constraints and the nature of certain allowances , it is sometimes not practicable to apply allowances to the item cost of inventory . in those instances , the allowances are applied as a reduction of merchandise costs using a rational and systematic methodology , which results in the recognition of these incentives when the inventory related to the vendor consideration received is sold . vendor allowances applied as a reduction of merchandise costs totaled $ 126.7 mi llion , $ 121.9 million and $ 114.3 million for the fiscal years ended september 27 , 2014 , september 28 , 2013 and september 29 , 2012 , respectively . vendor advertising allowances that represent a reimbursement of specific identifiable incremental costs of advertising the vendor 's specific products are recorded as a reduction to the related expense in the period that the related expense is incurred . vendor advertising allowances recorded as a reduction of advertising expense totaled $ 14.8 million , $ 1 4.5 million , and $ 13 . 2 million for the fiscal years ended september 2 7 , 201 4 , september 2 8 , 201 3 and september 29 , 201 2 , respectively . 19 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 . uncertain tax positions despite the company 's belief that its tax positions are consistent with applicable tax laws , the company believes that certain positions are likely to be challenged by taxing authorities . settlement of any challenge can result in no change , a complete disallowance , or some partial adjustment reached through negotiations or litigation . significant judgment is required in evaluating the company 's tax positions . the company 's positions are evaluated in light of changing facts and circumstances , such as the progress of its tax audits as well as evolving case law . income tax expense includes the impact of provisions for and changes to uncertain tax positions as the company considers appropriate . s ettlement of any particular position with taxing authorities could result in the use or receipt of cash . r esolution could also result in a change to income tax expense at the time of resolution . story_separator_special_tag % for the year ended september 28 , 201 3 . the increase in grocery segment gross profit dollars was primarily due to the higher sales volume . grocery segment gross profit as a percentage of total sal es ( excluding gasoline ) increased 36 basis points in fiscal 2014 compared with fiscal 2013 . the gross margin increase was broad based across most products , except for gasoline . the mix of grocery sales in favor of higher margin products also has a positive impact on gross profit and gross margin . gross profit for the company 's milk processing subsidiary for the year ended september 2 7 , 201 4 in creased 3.2 % compared with the year ended september 2 8 , 201 3 . gross profit a s a percentage of sales was 10.3 % fo r fiscal 2014 compared with 10.7 % for fiscal 2013 . 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 . the milk processing segment is a manufacturing process ; therefore , the costs mentioned above as well as purchasing and receiving costs , production costs , inspection costs , warehousing costs , internal transfer costs , and other costs of distribution incurred by the milk processing segment are included in the cost of sales line item , while these items are included in operating and administrative expenses for the grocery segment . operating and administrative expenses . operating and admini strative expenses increased $ 16.1 million , or 2.3 % , to $ 722.6 million for the year ended september 27 , 2014 , from $ 706.5 million for the year ended september 2 8 , 2013 . as a percentage of sales , operating and a dministrative expenses were 18 . 8 % for the fiscal year ended septe mber 27 , 2014 and 18.9 % for th e fiscal year ended september 28 , 2013 . excluding gasoline , which does not have significant direct operating expenses , the ratio of oper ating expenses to sales was 22.3 % fo r fiscal 2014 compared with 22.1 % for fiscal 2013 . a breakdown of the major increases ( decreases ) in operating and administrative expenses is as follows : replace_table_token_14_th salaries and wages increased due to the addition of labor hours required for the increased sales volume , including new stores opened during fiscal 2013 and 2014. bank charges increased due to higher fees charged for debit and credit card transactions , and a higher volume of such transactions in the company 's stores and fuel centers . utilities and fuel increased as a result of increased internal freight activity and the transition of additional store space to perishable items . story_separator_special_tag depreciation and amortization increased as a result of the company 's capital expenditures for smaller remodeling projects that contain capital assets with shorter useful lives -compared with real restate . insurance expense de creased due to favorable claims experience under the company 's self - insurance programs . 22 gain from sale or disposal of assets . gain from sale or disposal of assets totaled $ 0 . 8 million for fiscal 2014 compared with gains of $ 4.3 million for fiscal 201 3 . during fiscal 2013 , the company sold a former store property for $ 7.5 million and recognized a pre-tax gain of $ 3.9 million . there were no other significant sale or disposal transactions during fiscal 201 4 or 2013 . other income , net . other income , n et totaled $ 3.0 million and $ 2.9 million for the fiscal years ended september 2 7 , 201 4 and september 2 8 , 201 3 , respectively . other income consists primarily of sales of waste paper and packaging . interest expense . interest expense decreased $ 12.5 million for the year ended september 2 7 , 2014 to $ 46.6 million from $ 59.1 million for the year ended september 2 8 , 201 3. total debt was $ 937.3 million at the end of fiscal 2014 compared with $ 912.5 million at the end of fiscal 201 3 . interest expense decreased due to the refinancing of existing debt at lower rates during the third quarter of fiscal 2013 . loss on early extinguishment of debt . in connection with the fiscal 2013 early payoff of the $ 575.0 million senior notes due 2017 , the company paid $ 27.8 million in debt extinguishment costs and expensed $ 15.3 million of unamortized loan costs . income taxes . income tax expense as a percentage of pre-tax income was 35.5 % for the 201 4 fiscal year compared with 20.8 % for the 201 3 fiscal year . the in crease in the effective tax rate is primarily attributable to tax credits in fiscal 2013 representing a greater percentage of pre-tax income . net income . net income totaled $ 51.4 million for the fiscal year ended september 2 7 , 201 4 compared with net income of $ 20.8 million for the fiscal year ended september 2 8 , 201 3 . basic and diluted earnings per share for class a common stock were $ 2.36 and $ 2.28 , respectively , for the fiscal year ended september 2 7 , 201 4 compared with $ 0 .8 9 and $ 0 . 87 , respectively , for the fiscal year ended september 2 8 , 201 3 . basic and diluted earnings per share for class b common stock were each $ 2.14 for the fiscal year ended sep tember 27 , 2014 compared with $ 0 . 85 of basic and diluted earnings per share for the fiscal year ended september 2 8 , 201 3 . fiscal year ended september 28 , 2013 compared to the fiscal year ended september 29 , 2012 the company achieved record sales for the 49 th consecutive year for the fiscal year ended september 28 , 2013. total and comparable store sales increased , both with and without the inclusion of gasoline sales , and the extra 53 rd week in fiscal 2012. during the third quarter of fiscal 2013 , the company accomplished a significant refinancing that included replacement of existing senior notes with a ten year term at a lower interest rate . the company extended the terms and improved other features of both its $ 175 million line of credit facility and its 2010 credit facility to construct an addition to its distribution facility . net income for the fiscal year ended september 28 , 2013 was $ 20.8 million , compared with $ 43.4 million for the fiscal year ended september 29 , 2012. in conjunction with the refinancing discussed above , the company incurred $ 43.1 million of pre-tax debt extinguishment costs . excluding these costs , net income for fiscal 2013 would have been higher than fiscal 2012 , even though fiscal 2012 contained 53 weeks compared with 52 weeks of fiscal 2013. net sales . net sales for the fiscal year ended september 28 , 2013 increased 0.5 % to $ 3.74 billion , compared with $ 3.72 billion for the fiscal year ended september 29 , 2012. excluding gasoline and the effect of the 53 rd week in fiscal 2012 , net sales increased 2.1 % . in fiscal years with 53 weeks , such as fiscal 2012 , management analyzes annual comparable store sales for the 52 weeks of fiscal 2013 with the corresponding 52 calendar weeks of fiscal 2012. on this basis , grocery segment comparable store sales increased 2.1 % , including gasoline and 1.8 % excluding gasoline . the number of customer transactions ( excluding gasoline ) increased 1.7 % , while the average transaction size ( excluding gasoline ) was essentially unchanged . comparing fiscal 2013 with fiscal 2012 , gasoline gallons sold increased , per gallon prices were lower and gasoline gross profit was lower . 23 sales by product category for the fiscal years ended september 28 , 2013 and september 29 , 2012 , respectively , were as follows : replace_table_token_15_th the grocery category includes grocery , dairy and frozen foods . the non-foods category includes alcoholic beverages , tobacco , pharmacy , health and video . the perishables category includes meat , produce , deli and bakery . changes in grocery segment sales for the fiscal year ended september 28 , 2013 are summarized as follows ( in thousands ) : replace_table_token_16_th during fiscal 2012 and 2013 , the company devoted the majority of its grocery segment capital expenditures to improvements in the configuration and appearance of a number of its stores .
| replace_table_token_11_th 20 fiscal year ended september 27 , 201 4 compared to the fiscal year ended september 2 8 , 201 3 the company achieved record sales for the 50 th consecutive year for the fiscal year ended september 2 7 , 201 4 . total and comparable store sales increased , both with and without the inclusion of gasoline sales . net income for th e fiscal year ended september 27 , 2014 was $ 51.4 million , compared with $ 20.8 million for th e fiscal year ended september 28 , 2013 . in fiscal year 2013 , the company incurred $ 43.1 million of pre-tax debt extinguishment costs in conjunction with significant refinancing transactions that resulted in lower financing costs in fiscal 2014 . 2014 pre-tax income increased 15 . 0 % after adding back debt extinguishment costs to 2013 pre-tax income . net sales . net sales for the fiscal year ended september 27 , 2014 increased 2.6 % to $ 3.84 billion , compared with $ 3.74 billion for th e fiscal year ended september 28 , 201 3 . c omp arable store sales increased 1.9 % , including gasoline and 0.9 % excluding gasoline . the number of customer transactions ( e xcluding gasoline ) de creased 0 .2 % , while the average transaction size ( excluding gasoline ) increased 1.3 % . comparing fiscal 201 4 with fiscal 201 3 , gasoline gallons sold increased , per gallon prices were slightly lower and gasoline gross profit was lower . sales by product category for the fiscal years ended september 2 7 , 201 4 and september 2 8 , 201 3 , respectively , were as follows : replace_table_token_12_th the grocery category includes grocery , dairy and frozen foods . the non-foods category includes alcoholic beverages , tobacco , pharmacy , health and video . the perishables category includes meat , produce , deli and bakery . changes in grocery segment sales for the fiscal year ended september 2 7 , 201 4 are summarized as follows ( in thousands ) : replace_table_token_13_th during fiscal 201 3 and 201 4 , the company
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26 at december 31 , 2013 , we employed 319 people . we strive to maintain a work environment that fosters professionalism , excellence , integrity , diversity and cooperation among our employees worldwide . business environment economic and global financial market conditions can materially affect our financial performance . in addition , revenues and net income in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year to year and quarter to quarter . see “ risk factors. ” our advisory revenues were $ 287.0 million in the year ended december 31 , 2013 compared to $ 291.5 million in the year ended december 31 , 2012 , which represents a decrease of 2 % . at the same time , worldwide completed m & a volume for 2013 decreased 1 % from 2012 and the number of worldwide completed m & a transactions decreased by 10 % , while worldwide announced m & a volume decreased 3 % and the number of worldwide announced m & a transactions decreased 8 % ( 1 ) . while the general level of global transaction activity remained relatively weak in 2013 , with a small further decline in completed transaction volume and a larger decline in the number of completed transactions , our business proved to be resilient , and our sources of revenue proved to be diverse , allowing us to again achieve all four of the primary objectives on which we have historically focused . our market share increased again , as our advisory revenues for the year were down only 2 % , while our large bank competitors experienced a greater aggregate decline of 7 % in advisory revenues for the year . since 2008 , we have solidly outpaced that group , with our 32 % cumulative advisory revenue increase over that period compared to a decline of 32 % in aggregate large bank advisory revenues in the same period . and , in the past three of those years we accomplished that despite keeping our headcount flat . our compensation ratio rose slightly this year , but was offset by a decline in our non-compensation costs , resulting in a repeat of last year 's 25 % pretax margin , which again was the best among our closest peers by a large margin . in 2013 , our tax rate declined to the level it was prior to the financial crisis because we returned to generating more revenue from lower taxed foreign sources . finally , we not only continued to maintain our strong dividend level but repurchased sufficient shares to bring our share count to a level slightly lower than a year ago , all while maintaining a balance sheet with no net debt . while we continue to expect m & a activity over time to rebound toward its historic levels , we continue to focus on building a truly global business . in that regard , our european revenues increased approximately 50 % in 2013 as compared to 2012 despite market statistics showing a further decline in transaction activity in that region . we also had small gains in canadian and japanese client revenue . while australian revenue declined , we were pleased to advise on several u.s. to australia cross-border transactions in recent months , and we aim to build on that cross-border advisory capability . although our brazilian presence is in its very early days , we are already encouraged by the development of our team and the level of client assignments there . further , while remaining solely focused on client advisory work , we continue to focus on increasing the breadth of our advisory activities . on the corporate advisory side , we continue to develop our advisory capabilities by industry sector , and believe we are still in the early stages of that process . in addition , we are pleased by our progress in the capital advisory ( fund placement ) business , which grew in 2013 and we believe has significant further potential still to be developed . additionally , we continue to focus on managing our business in a disciplined manner . in the past few years we have entered new regions and upgraded our team while maintaining a flat headcount and flat non-compensation costs , resulting in repeatedly strong pre-tax profit margins . in 2013 , we advised on transactions for the first time for such leading companies around the world as actavis , inc. , ameren corporation , danone sa , dentsu inc. , hitachi , ltd. , japan tobacco inc. and supervalu inc. we also advised on new transactions in all major markets for clients for whom we had previous engagements such as at & t inc. , elders limited , glaxosmithkline llc , inchcape plc , inergy , l.p. , kinder morgan energy partners , linn energy , llc , lion pty ltd. , meadwestvaco corporation , suncorp group limited and tesco plc . by geographic region in 2013 , our advisory revenues were relatively well dispersed throughout our global locations . north america , and specifically our merger and acquisition activities in this region , where we generated in excess of 56 % of our revenues , remained our largest contributor in 2013 . most of our other 2013 advisory revenues were generated in europe , where we derived approximately 29 % of our revenues and in australia , where we derived approximately 12 % of our revenues , which is a decline from strong prior years ' levels but consistent with m & a market trends in that region . as compared to 2012 , declines in north american and australian revenues in 2013 were offset by an increase in european revenues , where we advised on a number of large transactions . ( 1 ) source : global m & a completed and announced transaction volume for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 . story_separator_special_tag source : thompson financial as of february 21 , 2014 . 27 by industry in 2013 , improved performance in the consumer and retail , healthcare and financial services sectors generally offset a decline in activity in the technology , industrial and energy sectors . further , we generated 11 % of our advisory revenue from our capital advisory business , which primarily provides capital raising advice for private equity and real estate funds compared to 9 % in 2012. after a significant increase in headcount from the time of our ipo through 2010 , our headcount has remained relatively constant since then . during the past three years our compensation and benefits expense , which we measure as a percentage of revenues , have ranged from 53 % to 55 % of revenues . in 2013 , our ratio of compensation and benefits expense to revenues was 54 % and while significantly below our closest peers , it was still above our historic levels and policy goal of maintaining a ratio not to exceed 50 % . our non-compensation costs over the past three years have remained relatively consistent in absolute dollars consistent with our stable headcount and disciplined control over both fixed and variable costs . as a percentage of revenues , our non-compensation costs have ranged from 21 % to 22 % over the past three years , and were 21 % in 2013 . our pre-tax margin over the past three years has ranged from 23 % to 25 % , and was 25 % in 2013 . over the 10 year period since our ipo , our pre-tax margin ranged from 21 % to 44 % and as transaction activity rebounds , we will seek to return towards the higher end of our historic pre-tax margin range . our historically strong profit margin and operating cash flow has allowed us to maintain an attractive dividend policy while also allowing us to repurchase a significant number of shares of our common stock . our annual dividend payout has been $ 1.80 per common share since 2008. in 2013 , we repurchased 853,870 shares of our common stock in open market repurchases and , in addition , repurchased from employees 226,505 restricted stock units at the time of vesting to settle tax liabilities . in aggregate in 2013 , we repurchased 1,080,375 shares of our common stock and common stock equivalents at an average price of $ 51.28 for a total purchase cost of $ 55.4 million . our board has authorized up to $ 75 million of additional share repurchases in 2014. we generally experience significant variations in revenues during each quarterly period . these variations can generally be attributed to the fact that our revenues are usually earned in large amounts throughout the year upon the successful completion of a transaction or restructuring or closing of a fund , the timing of which is uncertain and is not subject to our control . as a result , our quarterly results vary and our results in one period may not be indicative of our results in any future period . story_separator_special_tag clients . in 2013 , we earned approximately 10 % of our total revenues from our single largest client engagement ( advice to coventry health care , inc. in connection with its sale to aetna ) . there were no clients in 2012 that accounted for 10 % or more of our total revenues . 2012 versus 2011 . advisory revenues were $ 291.5 million for the year ended december 31 , 2012 compared to $ 302.8 million for the year ended december 31 , 2011 , which represents a decrease of 4 % . the decrease in our 2012 advisory revenues , as compared to 2011 , resulted from a slight change in the mix of our advisory assignments and resulting transactions , with fewer $ 1 million or greater revenue clients nearly offset by having more $ 10 million or greater revenue clients . prominent advisory assignments completed in 2012 include : the acquisition by boyd gaming corporation of peninsula gaming , llc ; the sale of deltek , inc. to thoma bravo , llc ; the sale by the hartford financial services group , inc. of its retirement plans group to massachusetts mutual life insurance company ; the representation of inergy , l.p. on the sale of its retail propane assets to suburban propane partners , l.p. ; the sale of ista pharmaceuticals to bausch & lomb inc. ; the representation of lonmin plc on the refinancing of its balance sheet and associated rights offering ; the sale by norwest equity partners of its portfolio company , becker underwood , to basf ag ; the acquisition by redprairie of jda software group , inc. ; the capital raise by siris capital group , llc ; and the acquisition by superior energy services , inc. of complete production services , inc. during 2012 , our capital advisory group served as global placement agent on behalf of private equity and real estate funds for six final closings of the sale of limited partnership interests in such funds and two secondary market sales of limited partnership interests , achieving similar results to 2011 . 30 we earned advisory revenues from 160 different clients in each of 2012 and 2011 . of this group of clients , 48 % were new to us in 2012 , compared to 36 % in 2011 . we earned $ 1 million or more from 66 clients in 2012 , down 11 % compared to 74 in 2011 . the ten largest fee-paying clients contributed 36 % and 35 % to our total revenues in 2012 and 2011 , respectively , and none of the top ten largest fee-paying clients in 2012 had in any prior year been among our ten largest fee-paying clients . we did not have any client in 2012 or 2011 that accounted for 10 % or more of our total revenue .
| while fees payable upon the successful conclusion of a transaction generally represent the largest portion of our advisory fees , we also earn on-going retainer and strategic advisory fees , and fees payable upon the commencement of an engagement or upon the achievement of certain milestones , such as the announcement of a transaction or the rendering of a fairness opinion and , in our capital advisory business , upon our client 's acceptance of capital commitments , including before the final closing of the fund . we do not allocate our advisory revenue by type of advice rendered ( m & a , financing advisory and restructuring , strategic advisory or other ) because of the complexity of the assignments for which we earn revenue and because a single transaction can encompass multiple types of advice . for example , a restructuring assignment can involve , and in some cases end successfully in , a sale of all or part of the financially distressed client . likewise , an acquisition assignment can relate to a financially distressed target involved in or considering a restructuring . finally , an m & a assignment can develop from a relationship that we had on a prior restructuring assignment , and vice versa . we do , however , separately allocate capital advisory revenue . 2013 versus 2012 . advisory revenues were $ 287.0 million for the year ended december 31 , 2013 compared to $ 291.5 million for the year ended december 31 , 2012 , which represents a decrease of 2 % . the slight decrease in our 2013 advisory revenues , as compared to 2012 , resulted from a decrease in announcement and opinion fees and retainer fees , largely offset by an increase in fees from completed assignments , which were generally larger in scale than the prior year , and greater fund placement fees . prominent advisory assignments completed in 2013 include : the acquisition by actavis , inc. of warner chilcott plc ; the sale of aegis group plc to dentsu inc. ; the acquisition by asml holding nv of cymer , inc. ; the capital raising for cerberus institutional real estate partners iii , l.p. ; the sale of coventry health care , inc. to aetna ; 29 the
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as mentioned above , on november 1 , 2017 , we acquired jimmy choo for a total transaction value of $ 1.447 billion . jimmy choo has a rich history as a leading global luxury house , renowned for its glamorous and fashion-forward footwear , and is an excellent complement to the michael kors brand . in addition , on december 31 , 2018 we completed the acquisition of versace , which is one of the leading international fashion design houses and a symbol of italian luxury worldwide , for an aggregate purchase price of approximately $ 2.005 billion , including an equity investment made by the versace family at acquisition . we believe that these combinations significantly strengthen our future growth opportunities , while also increasing both product and geographic diversification . however , there are risks associated with new acquisitions and the anticipated benefits of acquisitions on our financial results may not be in line with our expectations . we also intend to continue to increase our international presence and global brand recognition by growing our existing international operations , through acquisitions , the formation of various joint ventures with international partners and continuing with our international licensing arrangements . we feel this is an efficient method for continued penetration into the global luxury goods market , especially for markets where we have yet to establish a substantial presence . in addition , our growth strategy includes assuming direct control of certain licensed international operations to better manage our growth opportunities in the related regions . see note 4 to the accompanying consolidated financial statements for additional information regarding our recent acquisitions . channel shift and demand for our accessories and related merchandise . our performance is affected by trends in the luxury goods industry , as well as shifts in demographics and changes in lifestyle preferences . although the overall consumer spending for personal luxury products has recently increased , consumer shopping preferences have continued to shift from physical stores to on-line shopping . we currently expect that this trend will continue in the foreseeable future . we continue to adjust our operating strategy to the changing business environment . we have made significant progress toward our previously announced plan to close between 100 and 125 of our michael kors retail stores at an expected total one-time cost of approximately $ 100 - $ 125 million , in order to improve the profitability of our michael kors retail store fleet . as of march 30 , 2019 , we closed at total of 100 stores and recorded restructuring charges of $ 41 million and $ 53 million in fiscal 2019 and fiscal 2018 , respectively . we anticipate finalizing the remainder of the planned store closures under the retail fleet optimization plan by the end of fiscal 2020. collectively , we continue to anticipate ongoing annual savings of approximately $ 60 million as a result of the store closures and lower depreciation and amortization associated with the impairment charges recorded once these initiatives are completed . foreign currency fluctuation . our consolidated operations are impacted by the relationships between our reporting currency , the u.s. dollar , and those of our non-u.s. subsidiaries whose functional/local currency is other than the u.s. dollar , particularly the euro , the british pound , the chinese renminbi , the japanese yen , the korean won and the canadian dollar , among others . we continue to expect volatility in the global foreign currency exchange rates , which may have a negative impact on the reported results of certain of our non-u.s. subsidiaries in the future , when translated to u.s. dollars . disruptions in shipping and distribution . our operations are subject to the impact of shipping disruptions as a result of changes or damage to our distribution infrastructure , as well as due to external factors . any future disruptions in our shipping and distribution network could have a negative impact on our results of operations . costs of manufacturing and tariffs . our industry is subject to volatility in costs related to certain raw materials used in the manufacturing of our products . this volatility applies primarily to costs driven by commodity prices , which can increase or decrease dramatically over a short period of time . in addition , our costs may be impacted by tariffs imposed on our products and increased duties due to changes in trade terms . on may 10 , 2019 , the u.s. increased the tariff rate from 10 % to 25 % on $ 200 million of imports of select product categories from china . president trump also announced the potential to expand these tariffs to cover all products entering the u.s. from china including ready-to-wear , footwear and men 's products . if the u.s. follows through on its further proposed china tariffs , or if additional tariffs or trade restrictions are implemented by other countries , the cost of our products could increase which could adversely affect our business . these factors may have a material impact on our revenues , results of operations and cash flows to the extent they occur . we use commercially reasonable efforts to mitigate these effects by sourcing our products as efficiently as possible . in addition , manufacturing labor costs are also subject to degrees of volatility based on local and global economic conditions . we use commercially reasonable efforts to source from localities that suit our manufacturing standards and result in more favorable labor driven costs to our products . 31 u.s. tax reform . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act . the tax act includes significant changes to the u.s. corporate income tax system including , among other things , lowering u.s. statutory federal tax rate and implementing a territorial tax system . the u.s. statutory federal tax rate has been decreased to 21 % for fiscal 2019 and thereafter . story_separator_special_tag the tax act also added many new provisions , including changes to bonus depreciation , limits on the deductions for executive compensation and interest expense , a tax on global intangible low-taxed income , the base erosion anti-abuse tax and a deduction for foreign derived intangible income . in december 2017 , the securities and exchange commission issued staff accounting bulletin 118 to provide guidance for companies that would allow for a measurement period of up to one year after the enactment date of the tax act to finalize the recording of the related tax impacts . subsequently , as a result of finalizing its full fiscal 2018 operating results , the issuance of new interpretive guidance , and other analyses performed , the company finalized its accounting related to the impacts of the tax act and recorded immaterial measurement period adjustments in fiscal 2019 . segment information prior to the fourth quarter of fiscal 2019 , we organized our business into four reportable segments : mk retail , mk wholesale , mk licensing and jimmy choo . as a result of our acquisition of versace , effective beginning in the fourth quarter of fiscal 2019 , we realigned our reportable segments according to the new structure of our business . as a result , we now operate in three reportable segments , which are as follows : versace the versace business was acquired and consolidated beginning on december 31 , 2018. we generate revenue through the sale of versace luxury ready-to-wear , accessories , footwear and home furnishings through directly operated versace boutiques throughout north america ( united states and canada ) , emea ( europe , middle east and africa ) and certain parts of asia , as well as through versace outlet stores and e-commerce sites . in addition , revenue is generated through wholesale sales to distribution partners ( including geographic licensing arrangements ) , multi-brand department stores and specialty stores worldwide , as well as through product license agreements in connection with the manufacturing and sale of jeans , fragrances , watches , jewelry and eyewear . jimmy choo the jimmy choo business was acquired and consolidated beginning on november 1 , 2017. we generate revenue through the sale of jimmy choo luxury goods to end clients through directly operated jimmy choo stores throughout the americas ( united states , canada and latin america ) , emea and certain parts of asia , through our e-commerce sites , as well as through wholesale sales of luxury goods to distribution partners ( including geographic licensing arrangements that allow third parties to use the jimmy choo tradename in connection with retail and or wholesale sales of jimmy choo branded products in specific geographic regions ) , multi-brand department stores and specialty stores worldwide . in addition , revenue is generated through product licensing agreements , which allow third parties to use the jimmy choo brand name and trademarks in connection with the manufacturing and sale of fragrances , sunglasses and eyewear . michael kors the michael kors brand was launched over 35 years ago and is the foundation to our global fashion luxury group . we generate sales of michael kors products through four primary michael kors retail store formats : “ collection ” stores , “ lifestyle ” stores ( including concessions ) , outlet stores and e-commerce , through which we sell our products , as well as licensed products bearing our name , directly to the end consumer throughout the americas , europe and certain parts of asia . our michael kors e-commerce business includes e-commerce sites in the u.s. , canada , certain parts of europe , china , south korea and japan . we also sell michael kors products directly to department stores , primarily located across the americas and europe , to specialty stores and travel retail shops in the americas , europe and asia , and to our geographic licensees in certain parts of emea , asia and brazil . in addition , revenue is generated through product and geographic licensing arrangements , which allow third parties to use the michael kors brand name and trademarks in connection with the manufacturing and sale of products , including watches , jewelry , fragrances and beauty , and eyewear , as well as through geographic licensing arrangements , which allow third parties to use the michael kors tradename in connection with the retail and or wholesale sales of our michael kors branded products in specific geographic regions , such as brazil , the middle east , south africa , eastern europe , certain parts of asia and australia . 32 unallocated expenses in addition to the reportable segments discussed above , we have certain corporate costs that are not directly attributable to our brands and , therefore , are not allocated to segments . such costs primarily include certain administrative , corporate occupancy , information systems expenses , including enterprise resource planning ( “ erp ” ) system implementation costs . in addition , certain other costs are not allocated to segments , including restructuring and other charges ( including transaction and transition costs related to our recent acquisitions ) and impairment costs . the new segment structure is consistent with how we plan and allocate resources , manage our business and assess our performance . all prior period segment information has been recast to reflect the realignment of our segment reporting structure on a comparable basis .
| our gross margin benefited 20 basis points from the inclusion of jimmy choo from the november 1 , 2017 acquisition date to march 31 , 2018 . the remaining increase in the michael kors gross profit margin was primarily driven by a favorable channel mix due to a higher proportion of retail sales , as well as favorable geographic mix of sales during fiscal 2018 , as compared to fiscal 2017 . 45 total operating expenses total operating expenses increased $ 139 million , or 7.1 % , to $ 2.110 billion during fiscal 2018 , compared to 1.971 billion for fiscal 2017 . our operating expenses included a net unfavorable foreign currency impact of approximately $ 38 million . total operating expenses as a percentage of total revenue increased to 44.7 % in fiscal 2018 , compared to 43.9 % in fiscal 2017 . the components that comprise total operating expenses are detailed below . selling , general and administrative expenses selling , general and administrative expenses increased $ 226 million , or 14.7 % , to $ 1.767 billion during fiscal 2018 , compared to $ 1.541 billion for fiscal 2017 , including a net unfavorable foreign currency impact of $ 32 million . the increase in selling , general and administrative expenses was primarily due to the following : incremental costs of $ 135 million associated with our newly acquired jimmy choo business , which has been consolidated into our operations beginning on november 1 , 2017 ; an increase of $ 48 million in retail store and overhead costs ( excluding newly acquired businesses ) , primarily comprised of increased occupancy costs of $ 26 million , advertising costs of $ 13 million and compensation-related costs of $ 7 million ; incremental expenses of approximately $ 22 million due to the inclusion of the greater china business acquired on may 31 , 2016 for the full year in fiscal 2018 ; and an increase of $ 32 million in corporate expenses . these increases were partially offset
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the analysis usually occurs when a 55 loan has been classified as substandard or placed on nonaccrual status . if the market value less costs to sell ( “ market value ” ) of the impaired loan is less than the recorded investment in the loan , impairment is recognized by establishing a specific reserve in the alll for the loan or by adjusting an existing reserve amount . the amount of the specific reserve is computed using current appraisals , listed sales prices , and other available information less costs to complete , if any , and costs to sell the property . this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events differ from predictions . in addition , specific reserves may be created upon a loan 's restructuring , based on a discounted cash flow analysis , comparing the present value of the anticipated repayments under the restructured terms to the outstanding principal balance of the loan . our board of directors ' internal asset review committee reviews and recommends for approval the allowance for loan losses on a quarterly basis , and any related provision or recapture of provision for loan losses , and the full board of directors approves the provision or recapture after considering the committee 's recommendations . the allowance is increased by the provision for loan losses which is charged against current period earnings . when analysis of the loan portfolio warrants , the allowance is decreased and a recapture of provision of loan losses is included in current period earnings . we believe that the alll is a critical accounting estimate because it is highly susceptible to change from period‑to‑period requiring management to make assumptions about probable losses inherent in the loan portfolio . the impact of an unexpected large loss could deplete the allowance and potentially require increased provisions to replenish the allowance , thereby reducing earnings . for additional information see item 1a . “ risk factors – our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio , ” in this form 10-k. valuation of oreo . real estate properties acquired through foreclosure or by deed-in-lieu of foreclosure are recorded at the lower of cost or fair value less estimated costs to sell . fair value is generally determined by management based on a number of factors , including third-party appraisals of fair value in an orderly sale . accordingly , the valuation of oreo is subject to significant external and internal judgment . if the carrying value of the loan at the date a property is transferred into oreo exceeds the fair value less estimated costs to sell , the excess is charged to the alll . management periodically reviews oreo values to determine whether the property continues to be carried at the lower of its recorded book value or fair value , net of estimated costs to sell . any further decreases in the value of oreo are considered valuation adjustments and are charged to noninterest expense in the consolidated income statements . expenses and income from the maintenance and operations and any gains or losses from the sales of oreo are included in noninterest expense . deferred taxes . deferred tax assets arise from a variety of sources , the most significant being expenses recognized in our financial statements but disallowed in the tax return until the associated cash flow occurs , and write-downs in the value of assets for financial statement purposes that are not deductible for tax purposes until the asset is sold or deemed worthless . when warranted , we record a valuation allowance to reduce our deferred tax assets to the amount that can be recognized in line with the relevant accounting standards . the level of deferred tax asset recognition is influenced by management 's assessment of our historic and future profitability profile . at each balance sheet date , existing assessments are reviewed and , if necessary , revised to reflect changed circumstances . in a situation where income is less than projected or recent losses have been incurred , the relevant accounting standards require convincing evidence that there will be sufficient future tax capacity . for additional information regarding our deferred taxes , see note 13 of the notes to consolidated financial statements contained in item 8. other-than-temporary impairments on the market value of investments . declines in the fair value of available‑for‑sale or held-to-maturity investments below their cost that is deemed to be other-than-temporary results in a reduction in the carrying amount of such investments to their fair value . a charge to earnings and an establishment of a new cost basis for the investment is made . unrealized investment losses are evaluated at least quarterly to determine whether such declines should be considered other-than-temporary and therefore be subject to immediate loss recognition . although these evaluations involve significant judgment , an unrealized loss in the fair value of a debt security is generally deemed to be temporary when the fair value of the investment security is below the carrying value primarily due to changes in interest rates and there has not been significant deterioration in the financial condition of the issuer . other factors that may be considered in determining whether a decline in the value of a debt security is other-than-temporary include ratings by recognized rating agencies ; the extent and duration of an unrealized loss position ; actions of commercial banks or other lenders relative to the continued extension of credit facilities to the issuer of the security ; the financial condition , capital strength and near-term prospects of the issuer and recommendations of investment advisers or market analysts . therefore , deterioration of market conditions could result in impairment losses recognized within the investment portfolio . fair value . fasb asc 820 , fair value measurements and disclosures , establishes a hierarchical disclosure framework associated with the level of pricing observability utilized in measuring financial instruments at fair value . story_separator_special_tag the degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability . financial 56 instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value . conversely , financial instruments rarely traded or not quoted will generally have little or no pricing observability and a higher degree of judgment utilized in measuring fair value . pricing observability is impacted by a number of factors , including the type of financial instrument , whether the financial instrument is new to the market and not yet established and the characteristics specific to the transaction . see note 7 of the notes to consolidated financial statements contained in item 8 for additional information about the level of pricing transparency associated with financial instruments carried at fair value . derivatives and hedge accounting . the bank recognizes its interest rate swap as a cash flow hedge derivative instrument , and as such , reports the fair value as an asset or liability . fair value is based on dealer quotes , pricing models , discounted cash flow methodologies or similar techniques for which the determination of fair value may require significant management judgment or estimation . the derivative is marked to its fair value through other comprehensive income . the gain or loss on the derivative is reclassified into earnings in the same income statement line item that is used to present the earnings effect of the hedged item . intangible assets . the company incurred goodwill and a core deposit intangible asset through the branch acquisition during 2017. these assets were booked at fair value at the time of the acquisition . goodwill is evaluated annually for impairment , with any impairment recognized as noninterest expense . the core deposit intangible is amortized into noninterest expense . comparison of financial condition at december 31 , 2018 and december 31 , 2017 assets . the following table details the changes in the composition of our assets at december 31 , 2018 from december 31 , 2017 . replace_table_token_28_th the $ 42.2 million increase in total assets during 2018 was primarily a result of utilizing growth in deposits , partially offset by a decrease in fhlb advances , to grow our loan portfolio by $ 34.2 million and our investments available-for-sale by $ 9.9 million . interest-earning deposits with banks . our interest-earning deposits with banks , consisting primarily of funds held at the federal reserve bank of san francisco , remained relatively steady during 2018 , increasing by $ 1.9 million at december 31 , 2018 from december 31 , 2017. these funds fluctuate based on our funding needs . investments available-for-sale . our investments available-for-sale increased by $ 9.9 million , or 7.5 % , during 2018. the growth in our deposits outpaced the growth in loans , therefore available funds were invested in higher interest-earning securities to enhance our interest income . during the year , we purchased $ 37.0 million of securities with an expected yield of 3.67 % , partially offset by sales of $ 5.5 million of securities . the restructure of our available-for-sale investments in december 2017 and additional sales and purchases throughout 2018 resulted in an increase the average yield on these assets to 2.92 % for 2018 from 2.61 % in 2017. securities purchased in 2018 included $ 21.7 million in fixed rate and $ 15.3 million in variable rate securities , comprised 57 of $ 11.9 million in u.s. government agency bonds , $ 17.0 million in mortgage-backed securities , $ 6.0 million in corporate bonds and $ 2.1 million in municipal bonds . the sales of investments available-for-sale generated a net loss o f $ 20,000 f or the year ended december 31 , 2018. we also received calls or partial calls and proceeds at maturity during 2018 of $ 11.7 million . in addition to the purchase and call activity , we received principal repayments of $ 7.1 million on our investments available-for-sale during 2018. the effective duration of our securities portfolio increased t o 3.00 % a t december 31 , 2018 as compared to 2.90 % at december 31 , 2017 partially due to longer-term securities purchased during the year as part of our restructuring of this portfolio . effective duration is a measure that attempts to quantify the anticipated percentage change in the value of an investment ( or portfolio ) in the event of a 100 basis point change in market yields . since the bank 's portfolio includes securities with embedded options ( including call options on bonds and prepayment options on mortgage-backed securities ) , management believes that effective duration is an appropriate metric to use as a tool when analyzing the bank 's investment securities portfolio , as effective duration incorporates assumptions relating to such embedded options , including changes in cash flow assumptions as interest rates change . loans receivable . net loans receivable increased by $ 34.2 million during 2018 to $ 1.02 billion . the most significant increase occurred in one-to-four family residential loans , with a $ 63.3 million , or 22.7 % increase . in addition , commercial real estate loans increased by $ 12.0 million , or 3.3 % . commercial real estate and one‑to‑four family residential loans continue to be the largest concentrations in our loan portfolio at 33.3 % and 30.5 % , respectively , of total loans . business and consumer loans also grew during 2018 with increases of $ 7.4 million and $ 3.8 million , respectively . partially offsetting these increases , construction/land loans decreased by $ 42.3 million and multifamily loans decreased by $ 15.5 million as payoffs outpaced originations in these categories . during 2018 , we supplemented our loan originations by purchasing $ 19.9 million in performing one-to-four family and commercial real estate loans from other financial institutions .
| million at december 31 , 2017. originations of construction/land loans decreased to $ 118.2 million in 2018 from $ 138.6 million in 2017 , contributing to the decrease in this loan portfolio to $ 195.3 million at december 31 , 2018 as compared to $ 237.6 million at december 31 , 2017. however , we anticipate that construction/land lending will increase in 2019 and continue to be a strong element of our total loan portfolio in future periods . we will continue to take a disciplined approach in our construction/land lending by concentrating our efforts on residential loans to builders known to us , including multifamily loans to developers with proven success in this type of construction . these loans typically mature in six to eighteen months and funding is usually not fully disbursed at origination , therefore the impact to net loans receivable is generally minimal in the short term . at december 31 , 2018 , construction/land loans net of lip was $ 108.9 million , a 25.2 % decrease from $ 145.6 million at december 31 , 2017. we have also geographically expanded our loan portfolio through loan purchases or loan participations of commercial and multifamily real estate loans that are outside of our primary market area . through our efforts to geographically diversify our loan portfolio with direct loan originations , loan participations , or loan purchases , our portfolio includes $ 128.3 million of loans to borrowers or secured by properties located in 23 other states , including concentrations in california , utah , arizona and oregon of $ 39.5 million , $ 16.2 million , $ 14.6 million and $ 11.9 million , respectively at december 31 , 2018. net income for the year ended december 31 , 2018 , was $ 14.9 million , or $ 1.43 per diluted share , compared to $ 8.5 million , or $ 0.81 per diluted share , for the year ended december 31 , 2017. the significant contributor to this increase was the $ 4.0 million recapture
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cost of services revenue has been impacted during 2017 by increases in the pace of professional services activity due to customer requirements and project 38 deadlines , higher than anticipated costs associated with delivery of professional services for which project pricing is typically set at the outset of the project , charges related to cost overruns on service projects and inefficiencies associated with delays resulting from third party dependencies and incremental costs to rework . cost of revenue also includes fixed expenses related to our internal operations , which could impact our cost of revenue as a percentage of revenue if there are large fluctuations in revenue . cost of revenue has a direct impact on gross profit and gross margin . during 2017 , our gross profit and gross margin continued to be negatively impacted by an increase in our services revenue , which carried negative gross margin associated with our turnkey network improvement projects , as a mix of total revenue . we have continued to incur higher costs related to our professional services business for turnkey network improvement projects , largely associated with projects initiated in 2016. overall , our gross profit and gross margin fluctuate based on timing of factors such as new product introductions or upgrades to existing products , changes in customer mix , changes in the mix of products demanded and sold ( and any related write-downs of existing inventory ) , increases in mix of revenue towards professional services , increases in mix of revenue from channel sales rather than direct sales or other unfavorable customer or product mix , shipment volumes and any related volume discounts , changes in our product and services costs , pricing decreases or discounts , customer rebates and incentive programs due to competitive pressure . to the extent that deferred costs related to the professional services portion of turnkey projects is determined to be unrecoverable , we incur a charge to cost of services revenue in the period such cost is determined to be unrecoverable . in connection with our recoverability assessment as of december 31 , 2017 , we did not have any write downs of our deferred costs . see the risk factor titled “ an increase in revenue mix towards services will adversely affect our gross margin ” above in the “ risk factors ” section of this annual report on form 10-k. our operating expenses have fluctuated based on the following factors : changes in headcount and personnel costs which comprise a significant portion of our operating expenses , timing of variable compensation expenses due to fluctuations in order volumes , timing of research and development expenses including investments in innovative solutions , such as next generation solutions and new customer segments , prototype builds and outsourced development projects , fluctuations in stock-based compensation expenses due to timing of equity grants or other factors affecting vesting , changes in acquisition-related expenses and timing of litigation-related costs . during 2017 , our total operating expenses increased due to an increase in headcount and outside contractors , primarily for research and development and , to a lesser extent , as a result of restructuring charges incurred during 2017 . in march 2017 , we adopted a restructuring plan to realign our business to increase focus towards investments in software defined access and cloud products and to reduce the expense structure in our traditional systems business , for which we incurred pre-tax restructuring charges of $ 4.2 million during 2017 . our net loss was $ 83.0 million in 2017 , $ 27.4 million in 2016 and $ 26.3 million in 2015 . since our inception , we have incurred significant losses , and as of december 31 , 2017 , we had an accumulated deficit of $ 667.4 million . further , as a result of the fluctuations described above and a number of other factors , many of which are outside our control , our annual operating results fluctuate from period to period . comparing our operating results on a period-to-period basis may not be meaningful , and you should not rely on our past results as an indication of our future performance . product line divestiture in february 2018 , we sold our outdoor cabinet product line to clearfield , inc. for $ 10.4 million in cash and the assumption by clearfield of related product warranty liabilities and open purchase order commitments with our contract manufacturer . the divestiture of this non-strategic product line reflects our continued focus on execution on our platforms and business strategy . see note 15 , “ subsequent events ” of notes to consolidated financial statements included in this annual report on form 10-k. critical accounting policies and estimates our financial statements are prepared in accordance with u.s. gaap . these accounting principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements , as well as the reported amounts of revenue and expenses during the periods presented . we base our estimates , assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances . to the extent there are material differences between these estimates and actual results , our financial statements may be affected . we evaluate our estimates , assumptions and judgments on an ongoing basis . we believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of our financial statements . revenue recognition we derive revenue primarily from the sale of access and premise systems , services and cloud and software platforms . revenue is recognized when all of the following criteria have been met : 39 persuasive evidence of an arrangement exists . we generally rely upon sales agreements and customer purchase orders as evidence of an arrangement . delivery has occurred . we use the shipping terms of the arrangement or evidence of customer acceptance to verify delivery or performance . sales price is fixed or determinable . story_separator_special_tag we assess whether the sales price is fixed or determinable based on the payment terms and whether the sales price is subject to refund or adjustment . payment terms to customers can range from net 30 up to net 180 days . collectability is reasonably assured . we assess collectability based primarily on creditworthiness of customers and their payment histories . revenue from installation and training services is recognized as the services are completed . revenue from post-sales software support and extended warranty services are deferred and recognized ratably over the period during which the services are to be performed . in instances where substantive acceptance provisions are specified in the customer agreement , revenue is deferred until the acceptance criteria have been met . from time to time , we offer customers sales incentives , which include volume rebates and discounts . these amounts are estimated on a quarterly basis and recorded as a reduction of revenue . we enter into arrangements with certain of our customers who receive government supported loans and grants from the rus to finance capital spending . under the terms of a rus equipment contract that includes installation services , the customer does not take possession and control and title does not pass until formal acceptance is obtained from the customer . under this type of arrangement , we do not recognize revenue until we have received formal acceptance from the customer . for rus arrangements that do not involve installation services , we recognize revenue when all of the revenue recognition criteria as described above have been met . our products contain both software and non-software components that function together to deliver the products ' essential functionality . when we enter into sales arrangements that consist of multiple deliverables of our product and service offerings , we allocate the total consideration of the arrangement to each separable deliverable based on their relative selling price . we limit the amount allocable to delivered elements to the amount that is not contingent upon the delivery of additional items or meeting specified performance conditions , and we recognize revenue on each deliverable in accordance with our revenue policy . the determination of selling price for each deliverable is based on a selling price hierarchy , which is vendor-specific objective evidence , or vsoe , if available , third-party evidence , or tpe , if vsoe is not available , or estimated selling price , or esp , if neither vsoe nor tpe is available . vsoe of selling price is based on the price charged when the element is sold separately . in determining vsoe , we generally require that a substantial majority of the selling prices of an element fall within a narrow range when each element is sold separately . we have established vsoe for our training and post-sales software support services based on the normal pricing practices of these services when sold separately . tpe of selling price is established by evaluating whether there are similar competitor products or services that are sold in stand-alone sales transaction to similarly situated customers . generally , our marketing strategy differs from that of our peers and our offerings contain a significant level of customization and differentiation such that the comparable pricing of products with similar functionality can not be obtained . additionally , as we are unable to reliably determine what similar competitor products ' selling prices are on a stand-alone basis , we are not typically able to determine tpe . esp is established considering multiple factors including , but not limited to geographies market conditions , competitive landscape , internal costs , gross margin objectives , characteristics of targeted customers and pricing practices . the determination of esp is made through consultation with and formal approval by management , taking into consideration the go-to-market strategy . see “ recent accounting pronouncements not yet adopted – revenue from contracts with customers ” below . stock-based compensation stock-based awards are recorded at fair value as of the grant date and recognized to expense over the employee 's requisite service period ( generally the vesting period ) , which we have elected to amortize on a straight-line basis . we value restricted stock units , or rsus , and employee stock purchase right under nonqualified employee stock purchase plan , or nonqualified espp , at the closing market price of our common stock on the date of grant . stock-based compensation expense associated with performance restricted stock units , or prsus , with graded vesting features and which contain both a performance and a service condition is measured based on the closing market price of our common stock on the date of grant , and is recognized , net of forfeitures , as expense over the requisite service period using the graded vesting attribution method . compensation expense is only recognized if we have determined that it is probable that the performance condition will be met . we reassess the probability of vesting at each reporting period and adjusts compensation expense based on this probability assessment . stock-based compensation expense associated with performance-based stock options with graded vesting features and which contain both a performance and a service condition is measured based on fair value of stock option estimated at the grant date 40 using the black-scholes option valuation model , and is recognized , net of forfeitures , as expense over the requisite service period using the graded vesting attribution method . we estimate the fair value of stock options and employee stock purchase rights under our amended and restated employee stock purchase plan , or espp , at the grant date using the black-scholes option-pricing model .
| we believe that the divestiture of our cabinet product line in february 2018 reduces our operational complexity as we focus on deployments of our platform products to capitalize on the revenue growth opportunity as our industry transforms . we had one customer that accounted for more than 10 % of our total revenue in 2017 and 2015 and two customers that each accounted for more than 10 % of our total revenue in 2016 . see note 1 to the consolidated financial statements set forth in this report for more details on concentration of revenue for the periods presented . 2016 compared to 2015 : the increase in revenue during 2016 compared with 2015 resulted from stronger bookings and shipments as customer demand increased . this was led by higher demand from our larger domestic customers for both products and services with the increase in services associated with our turnkey network improvement projects . the increase in revenue was partially offset by lower demand from our international markets and lower revenue derived from contracts funded by the broadband stimulus programs under the arra as we completed and closed our existing contracts . the extended date for completion of projects funded under the broadband initiatives program , which is administered by the rus , ended on july 31 , 2015. cost of revenue , gross profit and gross margin the following table sets forth our cost of revenue ( in thousands , except for percentages ) : replace_table_token_5_th 2017 compared to 2016 : the increase in cost of revenue of $ 79.9 million during 2017 as compared to 2016 was primarily attributable to an increase in cost of services revenue by $ 72.7 million , as we experienced higher levels of service activities , as well as higher costs attributed to rework , delays , unanticipated costs and overruns ( including third party costs ) for our turnkey network improvement projects . our cost of product revenue increased by $
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we expect to begin clinical development of vx-241 in the first half of 2016. acute spinal cord injury we are developing vx-210 , a drug candidate for the treatment of acute spinal cord injury , that we exclusively licensed from bioaxone biosciences , inc. vx-210 is designed to inhibit a protein known as rho that blocks neural regeneration after injury . we expect to initiate a phase 2b/3 clinical trial in the first half of 2016 to evaluate the efficacy and safety of vx-210 in patients with certain acute cervical spinal cord injuries . research we plan to continue investing in our research programs and fostering scientific innovation in order to identify and develop transformative medicines . we believe that pursuing research in diverse areas allows us to balance the risks inherent in drug development and may provide drug candidates that will form our pipeline in future years . drug discovery and development discovery and development of a new pharmaceutical product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise and can take 10 to 15 years or more . potential drug candidates are subjected to rigorous evaluations , driven in part by stringent regulatory considerations , designed to generate information concerning efficacy , side-effects , proper dosage levels and a variety of other physical and chemical characteristics that are important in determining whether a drug candidate should be approved for marketing as a pharmaceutical product . most chemical compounds that are investigated as potential drug candidates never progress into development , and most drug candidates that do advance into development never receive marketing approval . because our investments in drug candidates are subject to considerable risks , we closely monitor the results of our discovery , research , clinical trials and nonclinical studies and frequently evaluate our drug development programs in light of new data and scientific , business and commercial insights , with the objective of balancing risk and potential . this process can result in abrupt changes in focus and priorities as new information becomes available and as we gain additional understanding of our ongoing programs and potential new programs , as well as those of our competitors . 51 if we believe that data from a completed registration program support approval of a drug candidate , we submit an nda to the fda requesting approval to market the drug candidate in the united states and seek analogous approvals from comparable regulatory authorities in foreign jurisdictions . to obtain approval , we must , among other things , demonstrate with evidence gathered in nonclinical studies and well-controlled clinical trials that the drug candidate is safe and effective for the disease it is intended to treat and that the manufacturing facilities , processes and controls for the manufacture of the drug candidate are adequate . the fda and foreign regulatory authorities have substantial discretion in deciding whether or not a drug candidate should be granted approval based on the benefits and risks of the drug candidate in the treatment of a particular disease , and could delay , limit or deny regulatory approval . if regulatory delays are significant or regulatory approval is limited or denied altogether , our financial results and the commercial prospects for the drug candidate involved will be harmed . regulatory compliance our marketing of pharmaceutical products is subject to extensive and complex laws and regulations . we have a corporate compliance program designed to actively identify , prevent and mitigate risk through the implementation of compliance policies and systems , and through the promotion of a culture of compliance . among other laws , regulations and standards , we are subject to various u.s. federal and state laws , and comparable foreign laws pertaining to health care fraud and abuse , including anti-kickback and false claims statutes , and laws prohibiting the promotion of drugs for unapproved or off-label uses . anti-kickback laws make it illegal for a prescription drug manufacturer to solicit , offer , receive or pay any remuneration to induce the referral of business , including the purchase or prescription of a particular drug . false claims laws prohibit anyone from presenting for payment to third-party payors , including medicare and medicaid , claims for reimbursed drugs or services that are false or fraudulent , claims for items or services not provided as claimed , or claims for medically unnecessary items or services . we expect to continue to devote substantial resources to maintain , administer and expand these compliance programs globally . reimbursement sales of our products depend , to a large degree , on the extent to which our products are covered by third-party payors , such as government health programs , commercial insurance and managed health care organizations . we dedicate substantial management and other resources in order to obtain and maintain appropriate levels of reimbursement for our products from third-party payors , including governmental organizations in the united states and ex-u.s. markets . following the fda 's july 2015 approval of orkambi in the united states , we are engaging in discussions with numerous commercial insurers and managed health care organizations , along with government health programs that are typically managed by authorities in the individual states . following the european commission 's november 2015 approval of orkambi in europe , we are working to obtain government reimbursement for orkambi on a country-by-country basis , because in many foreign countries patients are unable to access prescription pharmaceutical products that are not reimbursed by their governments . consistent with our experience with kalydeco when it was first approved , we expect reimbursement discussions in ex-u.s. markets may take a significant period of time . 52 story_separator_special_tag style= '' line-height:120 % ; padding-left:48px ; padding-bottom:8px ; text-align : left ; text-indent:24px ; '' > the proportion of initiated patients who remain on treatment ; and the compliance rate for patients who remain on treatment . story_separator_special_tag initially , we expect that our ex-u.s. orkambi net product revenues will be primarily from germany due to the time it will take to complete the reimbursement discussions in other european countries following orkambi 's european approval in the fourth quarter of 2015. incivek net product revenues were $ 18.0 million , $ 24.1 million and $ 466.4 million in 2015 , 2014 and 2013. we have withdrawn incivek from the market . we may continue to recognize insignificant incivek revenues in 2016 as we adjust our incivek reserves for rebates , chargebacks and discounts . 54 royalty revenues our royalty revenues were $ 24.0 million , $ 40.9 million and $ 156.6 million in 2015 , 2014 and 2013 , respectively . since the beginning of 2014 , our royalty revenues have consisted of ( i ) revenues related to a cash payment we received in 2008 when we sold our rights to certain hiv royalties and ( ii ) revenues related to certain third-party royalties payable by our collaborators on sales of hiv drugs and telaprevir that also result in corresponding royalty expenses . in 2013 , we received significant royalties from janssen nv based on incivo ( telaprevir ) net product sales . our rights to receive royalties on incivo sales ended at the beginning of 2014 , and janssen nv currently has a fully-paid license to market incivo in its territories , subject to the continued payment of certain third-party royalties . collaborative revenues replace_table_token_7_th ( 1 ) 2015 includes $ 2.9 million of revenues related to variable interest entities consolidated for accounting purposes . our collaborative revenues have fluctuated significantly on an annual basis and may continue to fluctuate in the future . in 2015 , we did not have significant collaborative revenues . in 2014 , the majority of our collaborative revenues related to $ 35.0 million in payments we received from janssen inc. related to our outlicense of vx-787 . in 2013 , we recognized $ 203.4 million in janssen nv collaborative revenues , which were primarily attributable to a $ 152.0 million payment we received pursuant to our amendment to the janssen nv collaboration agreement . these collaborative revenues also included the acceleration of the remaining deferred revenues related to the up-front payment we received from janssen nv in 2006. operating costs and expenses replace_table_token_8_th cost of product revenues our cost of product revenues includes the cost of producing inventories that corresponded to product revenues for the reporting period , plus the third-party royalties payable on our net sales of our products . pursuant to our agreement with cystic fibrosis foundation therapeutics incorporated , or cfft , our tiered third-party royalties on sales of kalydeco and orkambi , calculated as a percentage of net sales , range from the single digits to the sub-teens . our cost of product revenues increased in 2015 as compared to 2014 due primarily to increased net product revenues . our cost of product revenues decreased in 2014 as compared to 2013 due primarily to decreased net product revenues and the charges incurred in 2013 for excess and obsolete incivek inventories . we expect our cost of product revenues to increase in 2016 as compared to 2015 due to increased net product revenues . 55 royalty expenses royalty expenses include third-party royalties payable upon net sales of telaprevir by our collaborators in their territories and expenses related to a subroyalty payable to a third party on net sales of an hiv protease inhibitor sold by glaxosmithkline . royalty expenses do not include royalties we pay to cfft on sales of kalydeco and orkambi , which instead are included in cost of product revenues . royalty expenses in 2015 decreased by $ 13.9 million , or 65 % , as compared to 2014 , primarily as a result of decreased incivo ( telaprevir ) sales by our collaborator janssen nv . our royalty expenses with respect to telaprevir and the hiv protease inhibitor are offset by corresponding royalty revenues . research and development expenses replace_table_token_9_th our research and development expenses include internal and external costs incurred for research and development of our drugs and drug candidates . we do not assign our internal costs , such as salary and benefits , stock-based compensation expense , laboratory supplies and other direct expenses and infrastructure costs , to individual drugs or drug candidates , because the employees within our research and development groups typically are deployed across multiple research and development programs . these internal costs are significantly greater than our external costs , such as the costs of services provided to us by clinical research organizations and other outsourced research , which we allocate by individual program . all research and development costs for our drugs and drug candidates are expensed as incurred . over the past three years , we have incurred $ 2.7 billion in research and development expenses associated with drug discovery and development . the successful development of our drug candidates is highly uncertain and subject to a number of risks . in addition , the duration of clinical trials may vary substantially according to the type , complexity and novelty of the drug candidate and the disease indication being targeted . the fda and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products , typically requiring lengthy and detailed laboratory and clinical testing procedures , sampling activities and other costly and time-consuming procedures . data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activities . data obtained from these activities also are susceptible of varying interpretations , which could delay , limit or prevent regulatory approval . the duration and cost of discovery , nonclinical studies and clinical trials may vary significantly over the life of a project and are difficult to predict . therefore , accurate and meaningful estimates of the ultimate costs to bring our drug candidates to market are not available .
| million gain reflected in other items , net was primarily due to a benefit from income taxes we recorded related to the vx-222 impairment charge . the income ( loss ) from discontinued operations in 2014 and 2013 related to a collaboration with alios that was terminated in 2014. in 2016 , we expect that our net income ( loss ) will be largely dependent on the level of orkambi net product revenues . earnings per share in 2015 , 2014 and 2013 , net loss attributable to vertex was $ 2.31 , $ 3.14 and $ 1.98 , respectively , per diluted share . in 2015 , 2014 and 2013 , net loss from continuing operations attributable to vertex was $ 2.31 , $ 3.14 and $ 2.24 , respectively , per diluted share . common shares outstanding our shares of outstanding common stock increased from 241.8 million shares on december 31 , 2014 to 246.3 million shares on december 31 , 2015 due to our issuance in 2015 of approximately 4.5 million shares of common stock pursuant to our employee equity programs . our shares of outstanding common stock increased from 233.8 million shares on december 31 , 2013 to 241.8 million shares on december 31 , 2014 due to our issuance in 2014 of approximately 8.0 million shares of common stock issued pursuant to our employee equity programs . 53 stock-based compensation stock-based compensation expense was $ 231.0 million , $ 177.5 million and $ 126.8 million in 2015 , 2014 and 2013 , respectively . our stock-based compensation expense has been increasing due to the increase in our stock price and the associated increase in the grant-date fair value of equity awards . revenues replace_table_token_5_th product revenues , net replace_table_token_6_th our total net product revenues increased by 105 % in 2015 as compared to 2014 due to net product revenues from orkambi , which was approved by
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we were required to pay the senior note holders make-whole payments totaling $ 21.1 million for the early retirement of these notes . in addition , we wrote off deferred financing fees totaling $ 1.1 million relating to the senior secured notes , term loan , and revolving credit facility . the refinancing met the requirements of a debt extinguishment for accounting purposes and the loss on extinguishment of debt of $ 22.3 million , inclusive of the make-whole payments and write-off of deferred financing fees , is reflected in interest expense . on december 13 , 2017 , we repriced our senior secured term loan from 475 basis points to 400 basis points over libor . in connection with the repricing , we incurred debt financing costs of $ 0.8 million which were capitalized as deferred financing fees . equity offering on december 19 , 2017 , we completed a public offering of 1,900,000 shares of our common stock which resulted in net proceeds to us of approximately $ 34.0 million after deducting underwriters ' fees , commissions and transaction expenses . the net proceeds are currently being held as cash and cash equivalents for use in general corporate purposes including as possible consideration for future acquisitions . our growth strategies and outlook we continue to invest in our people , facilities and technology in an effort to achieve the following objectives and maintain our premier position within the specialty foodservice distribution market : sales and service territory expansion ; operational excellence and high customer service levels ; expanded purchasing programs and improved buying power ; product innovation and new product category introduction ; operational efficiencies through system enhancements ; and operating expense reduction through the centralization of general and administrative functions . our growth has allowed us to improve upon our organization 's infrastructure , open new distribution facilities and pursue selective acquisitions . over the last several years , we have increased our distribution capacity to approximately 1.3 million square feet in 23 distribution facilities at december 29 , 2017 . from the second half of fiscal 2013 through the end of fiscal 2017 , we have invested significantly in acquisitions , infrastructure and management . key factors affecting our performance due to our focus on menu-driven independent restaurants , fine dining establishments , country clubs , hotels , caterers , culinary schools , bakeries , patisseries , chocolatiers , cruise lines , casinos and specialty food stores , our results of operations are materially impacted by the success of the food-away-from-home industry in the united states and canada , which is materially impacted by general economic conditions , weather , discretionary spending levels and consumer confidence . when economic conditions deteriorate , our customers ' businesses are negatively impacted as fewer people eat away-from-home and those who 36 do spend less money . as economic conditions begin to improve , our customers ' businesses historically have likewise improved , which contributes to improvements in our business . similarly , the direct-to-consumer business of our allen brothers subsidiary is significantly dependent on consumers ' discretionary spending habits , and weakness or uncertainty in the economy could lead to consumers buying less from allen brothers . volatile food costs may have a direct impact upon our profitability . prolonged periods of product cost inflation may have a negative impact on our profit margins and results of operations to the extent we are unable to pass on all or a portion of such product cost increases to our customers . in addition , product cost inflation may negatively impact consumer discretionary spending decisions within our customers ' establishments , which could adversely impact our sales . conversely , our profit levels may be negatively impacted during periods of product cost deflation even though our gross profit as a percentage of sales may remain relatively constant . however , some of our products , particularly certain of our protein items , are priced on a cost plus a dollar markup , which helps mitigate the negative impact of deflation . given our wide selection of product categories , as well as the continuous introduction of new products , we can experience shifts in product sales mix that have an impact on net sales and gross profit margins . this mix shift is most significantly impacted by the introduction of new categories of products in markets that we have more recently entered , the shift in product mix resulting from acquisitions , as well as the continued growth in item penetration on higher velocity items such as dairy products . the foodservice distribution industry is fragmented but consolidating , and we have supplemented our internal growth through selective strategic acquisitions . we believe that the consolidation trends in the foodservice distribution industry will continue to present acquisition opportunities for us , which may allow us to grow our business at a faster pace than we would otherwise be able to grow the business organically . performance indicators in addition to evaluating our income from operations , our management team analyzes our performance based on net sales growth , gross profit and gross profit margin . net sales growth . our net sales growth is driven principally by changes in volume and , to a lesser degree , changes in price related to the impact of inflation in commodity prices and product mix . in particular , product cost inflation and deflation impacts our results of operations and , depending on the amount of inflation or deflation , such impact may be material . for example , inflation may increase the dollar value of our sales , and deflation may cause the dollar value of our sales to fall despite our unit sales remaining constant or growing . gross profit and gross profit margin . story_separator_special_tag our gross profit and gross profit as a percentage of net sales , or gross profit margin , are driven principally by changes in volume and fluctuations in food and commodity prices and our ability to pass on any price increases to our customers in an inflationary environment and maintain or increase gross profit margin when our costs decline . our gross profit margin is also a function of the product mix of our net sales in any period . given our wide selection of product categories , as well as the continuous introduction of new products , we can experience shifts in product sales mix that have an impact on net sales and gross profit margins . this mix shift is most significantly impacted by the introduction of new categories of products in markets that we have more recently entered , impact of product mix from acquisitions , as well as the continued growth in item penetration on higher velocity items such as dairy products . key financial definitions net sales . net sales consist primarily of sales of specialty products , center-of-the-plate proteins and other food products to independently-owned restaurants and other high-end foodservice customers , which we report net of certain group discounts and customer sales incentives . net sales also include sales by our allen brothers subsidiary that are direct-to-consumers . cost of sales . cost of sales include the net purchase price paid for products sold , plus the cost of transportation necessary to bring the product to our distribution facilities . our cost of sales may not be comparable to other similar companies within our industry that include all costs related to their distribution network and protein processing costs in their costs of sales rather than as operating expenses . operating expenses . our operating expenses include warehousing , processing and distribution expenses ( which include salaries and wages , employee benefits , facility and distribution fleet rental costs and other expenses related to warehousing , processing and delivery ) and selling , general and administrative expenses ( which include selling , insurance , administrative , wage and benefit expenses , share-based compensation expense and changes in the fair value of our contingent earn-out liabilities ) . 37 interest expense . interest expense consists primarily of interest on our outstanding indebtedness and , as applicable , the amortization or write-off of deferred financing fees . story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; '' > gross profit gross profit increased approximately 12.1 % to $ 301.2 million for the fifty-three weeks ended december 30 , 2016 from $ 268.7 million for the fifty-two weeks ended december 25 , 2015 primarily due to the increased sales volumes discussed above . gross profit margin decreased approximately 42 basis points to 25.3 % in fiscal 2016 from 25.7 % in fiscal 2015. this decrease in gross profit margin related to the higher mix of protein sales in fiscal 2016 due to the acquisition of del monte in the second quarter of 2015 and the relative performance of del monte and allen brothers during the period . gross profit margins decreased approximately 34 basis points in the company 's specialty division and 23 basis points in the protein division compared to margins in the fifty-two weeks ended december 25 , 2015. operating expenses total operating expenses increased by approximately 11.2 % to $ 254.0 million for the fifty-three weeks ended december 30 , 2016 from $ 228.3 million for the fifty-two weeks ended december 25 , 2015. as a percentage of net sales , operating expenses decreased 52 basis points to 21.3 % for fiscal 2016 from 21.8 % for fiscal 2015. the increase in our operating expenses is largely attributable to the acquisitions of del monte and mt food which accounted for year-on-year increases of $ 12.2 million and $ 5.2 million , respectively , higher warehousing and distribution costs of $ 4.6 million and $ 3.4 million , respectively , due to increased sales levels , the impact of the 53rd week in fiscal 2016 of approximately $ 4.8 million and increased amortization expense of $ 2.0 million , partially offset by the reduction in the fair value of earn-out obligations of $ 10.0 million in 2016 . 39 operating income operating income increased approximately 16.9 % to $ 47.2 million for the fifty-three weeks ended december 30 , 2016 compared to $ 40.4 million for the fifty-two weeks ended december 25 , 2015. as a percentage of net sales , operating income was 4.0 % in fiscal 2016 compared to 3.9 % in fiscal 2015. the increase in operating income as a percentage of sales was driven primarily from the reduction in operating expenses as a percentage of sales discussed above . other expense total other expense increased $ 28.9 million to $ 41.6 million for the fiscal year ended december 30 , 2016 , from $ 12.7 million for the fiscal year ended december 25 , 2015. this increase was primarily due to the refinancing of the company 's debt on june 22 , 2016. as part of the refinancing , the company retired its previous revolving credit facility , term loan and senior secured notes . the company was required to pay the senior note holders make-whole payments totaling $ 21.1 million for the early retirement of these notes . in addition , the company wrote off deferred financing fees totaling $ 1.1 million relating to the senior secured notes , term loan , and revolving credit facility .
| this increase in gross profit margin related to the approximately 22 basis points increase in the company 's specialty division margin , partially offset by an approximate 41 basis points decrease in the protein division margin compared to margins in the fifty-three weeks ended december 30 , 2016 . operating expenses total operating expenses increased by approximately 13.5 % to $ 288.3 million for the fifty-two weeks ended december 29 , 2017 from $ 254.0 million for the fifty-three weeks ended december 30 , 2016 . as a percentage of net sales , operating expenses increased 80 basis points to 22.1 % for fiscal 2017 from 21.3 % for fiscal 2016 . the increase in our operating expense ratio is largely attributable to the impact of prior year gains upon the reduction of the company 's earn-out liabilities , 80 basis points , and higher distribution costs , 19 basis points . operating income operating income decreased approximately 12.9 % to $ 41.1 million for the fifty-two weeks ended december 29 , 2017 38 compared to $ 47.2 million for the fifty-three weeks ended december 30 , 2016 . as a percentage of net sales , operating income was 3.2 % in fiscal 2017 compared to 4.0 % in fiscal 2016 . the decrease in operating income as a percentage of sales was driven primarily by the increase in operating expenses discussed above . other expense total other expense decreased $ 18.8 million to $ 22.7 million for the fiscal year ended december 29 , 2017 , from $ 41.6 million for the fiscal year ended december 30 , 2016 . this decrease was primarily due to the prior year $ 22.3 million debt extinguishment loss associated with the company 's debt refinancing in june 2016. this decrease is partially offset by increased interest expense due to higher levels of debt associated with that refinancing . provision for income taxes our effective income tax rate was 22.0 % and 46.7 % for the fiscal years ended december 29 , 2017 and december 30 , 2016 , respectively . the decrease in effective tax rate in fiscal 2017 is due primarily to the impacts of the tax act which created an income tax benefit of $ 3.6
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the increase to $ 175 million was used to fund the one-time special dividend of $ 68.1 million , as well as the ongoing quarterly dividend , working capital , capital expenditures , and other general corporate purposes . the loans under the facility will bear interest equal to the eurodollar rate plus an applicable margin ranging from 2.5 % to 4.0 % or the base rate plus an applicable margin ranging from 1.5 % to 3.0 % . 2013 outlook our execution plan to grow comparable store sales includes : build traffic by : launching everyday value combos leveraging our strength in bagels driving frequency through increased coffee focus building awareness around lunch accelerating our in-store experience build average check through bulk bagels , catering , and new signature sandwich lines 26 build brand awareness with a balanced approach of grass roots and mass marketing : local brand activation directional outdoor television test digital marketing/social media we expect our catering channel will continue to benefit from our online ordering system , an outsourced and expanded call center , focus on online and digital marketing , and an optimized menu . new support for catering will include expanding our sales force , focusing our marketing search engine , managing outlier markets and penetrating the lunch daypart . our approach to enhancing corporate margins will extend and build on the initiatives that we have already started , namely , aggressively managing the sourcing of our commodities , utilizing new packaging to drive cost advantages , further rationalize our distribution network , and negotiate favorable contracts with our vendors . our emphasis on acceleration of unit growth will continue to focus on a franchise first growth model , asset light unit economics , penetration into new key channels and opportunistic refranchising and acquisition efforts . our unit growth plan for 2013 considers our long-term annual unit growth objective of +10 % , or 60 to 80 system-wide openings for 2013. this includes the openings of 15 to 20 company-owned restaurants , 15 to 20 franchised restaurants and 30 to 40 licensed restaurants . we see refranchising our units as an opportunity to attract high quality franchisees that will support our accelerated growth initiatives . the airport channel is key for us in terms of securing success . highlights of our airport program in 2012 and our plans for 2013 include : average unit volume of $ 2.0 million in 2012 . +1.7 % comparable sales growth in 2012. total airport units of 11 in 2012. awarded dallas/fort worth airport ( terminal e ) for potential opening in the second quarter of 2013. in february 2013 , we opened a location in terminal a. awarded two locations in san diego airport for potential opening in 2013. awarded atlanta ( terminal d ) for potential opening in the second quarter of 2013. we expect to spend between $ 20 million and $ 22 million in capital expenditures in 2013 which includes the opening of company-owned restaurants and the relocation of additional company-owned restaurants . we also intend to deploy our capital into areas such as installing drive-thru lanes and adding new exterior signage . as we move into 2013 , we continue to have a robust pipeline of existing franchise development agreements and new license locations . we will continue to host discovery days for potential franchisees as well as expand our license footprint . thus far in fiscal 2013 , we have opened three licensed units and two franchised units , including the entry into montana , our 40 th state where we have operations . as of february 25 , 2013 , we have 28 development agreements in place for 136 total restaurants , 34 of which have already opened . based upon the development agreements , we expect the remaining 102 new restaurants will open on various dates through 2021. we expect to enter into 10 to 12 new agreements for a total of 60 to 70 new units , bringing our remaining total pipeline to 162 to 172 additional new units . we expect our free cash flow will continue to be robust and we are comfortable with our financial ability to have the financial resources to execute on our 2013 plan including the servicing of our elevated level of debt . 27 use of non-gaap financial information in addition to the results reported in accordance with accounting principles generally accepted in the united states of america ( gaap ) included in this filing , we have provided certain non-gaap financial information , including non-gaap total revenues excluding the extra week in fiscal 2011 ; adjusted earnings before interest , taxes , depreciation and amortization , series z modifications , restructuring expenses , strategic alternative expenses , write-off of debt issuance costs , and other operating expenses/income ( adjusted ebitda ) ; net income adjusted for the extra 53 rd week in fiscal 2011 , restructuring expenses , strategic alternatives expense , incremental interest expense on additional credit facility borrowings and other operating expenses/income ( adjusted net income ) ; earnings per share adjusted for the extra 53 rd week in fiscal 2011 , restructuring expenses , strategic alternatives expense , incremental interest expense on additional credit facility borrowings and other operating expenses/income ( adjusted net income per share ) ; and free cash flow , which we define as net cash provided by operating activities less net cash used in investing activities . management believes that the presentation of this non-gaap financial information provides useful information to investors because this information may allow investors to better evaluate our ongoing business performance and certain components of our results . in addition , the board uses this non-gaap financial information to evaluate the performance of the company and its management team . this information should be considered in addition to the results presented in accordance with gaap , and should not be considered a substitute for the gaap results . story_separator_special_tag not all of the aforementioned items defining adjusted ebitda occur in each reporting period , but have been included in our definitions of these terms based on historical activity . we have reconciled the non-gaap financial information to the nearest gaap measure on pages 30 , 35 , 36 and 43. we include in this report information on system-wide comparable store sales percentages . in fiscal 2011 , we modified the method by which we determine restaurants included in our comparable store sales percentages to include those restaurants in operation for a full six fiscal quarters . previously , comparable store sales percentages were based on restaurants that had been in operation for thirteen months . this methodology modification did not have a material impact on previously reported amounts , and therefore previously reported amount have not been restated . system-wide comparable store sales percentages refer to changes in sales of our restaurants , whether operated by the company or by franchisees and licensees , in operation for six fiscal quarters including those restaurants temporarily closed for an immaterial amount of time . some of the reasons restaurants may be temporarily closed include remodeling , relocations , road construction , rebuilding related to site-specific catastrophes and natural disasters . franchise and license comparable store sales percentages are based on sales of franchised and licensed restaurants , as reported by franchisees and licensees . management reviews the increase or decrease in comparable store sales to assess business trends . comparable store sales exclude permanently closed locations . when we intend to relocate a restaurant , we consider that restaurant to be temporarily closed for up to twelve months after it ceases operations . if a suitable relocation site has not been identified by the end of twelve months , we consider the restaurant to be permanently closed . until that time , we include the restaurant in our open store count , but exclude its sales from our comparable store sales . as of january 1 , 2013 , there are seven stores that we intend to relocate , and are thus considered to be temporarily closed . we use company-owned store sales , franchise and license sales and the resulting system-wide sales information internally in connection with restaurant development decisions , planning , and budgeting analyses . we believe system-wide comparable store sales information is useful in assessing consumer acceptance of our brands ; facilitates an understanding of our financial performance and the overall direction and trends of sales and operating income ; helps us appreciate the effectiveness of our advertising and marketing initiatives ; and provides information that is relevant for comparison within the industry . comparable store sales percentages are non-gaap financial measures , which should not be considered in isolation or as a substitute for other measures of performance prepared in accordance with gaap , and may not be equivalent to comparable store sales as defined or used by other companies . we do not record franchise or license restaurant sales as revenues . however , royalty revenues are calculated based on a percentage of franchise and license restaurant sales , as reported by the franchisees or licensees . 28 results of operations for fiscal 2012 as compared to fiscal 2011 story_separator_special_tag already opened . based upon the development agreements , we expect the remaining 102 new restaurants will open on various dates through 2021. thus far in fiscal 2013 , we have opened three licensed units and two franchised units , including the entry into montana , our 40 th state where we have operations . corporate support replace_table_token_14_th * * not meaningful our total general and administrative expenses increased $ 2.8 million , or 7.6 % , primarily due to an increase of $ 3.0 million in variable incentive compensation . our performance incentive compensation increased from fiscal 2011 as we reached a higher bonus threshold in fiscal 2012 than we did in fiscal 2011. we expect general and administrative expenses for fiscal 2013 to be approximately $ 11.0 million per quarter . depreciation and amortization expenses increased $ 0.4 million , or 2.3 % . the increase is due to approximately $ 24.0 million in capital asset expenditures since fiscal 2011. these additions included the construction and outfitting of 15 new company-owned stores , the relocation of 6 stores , the implementation of new pos systems and the replacement of older equipment . based on our current planned purchases of capital assets , our existing base of assets and our projections for new purchases of fixed assets , we believe depreciation expense for fiscal 2013 will be in the range of $ 20.0 million to $ 22.0 million . 33 pre-opening expenses , which include rent , wages , marketing , food and other restaurant operating costs , increased $ 0.9 million due to eleven more store openings in fiscal 2012. we opened fifteen company-owned stores in fiscal 2012 compared to four company-owned stores in fiscal 2011. we incurred an additional $ 0.5 million of restructuring expenses in fiscal 2012 related to our plan to close our five commissaries . all of our commissaries were closed by the end of the first quarter 2012. restructuring expenses in fiscal 2011 included charges related to the initiation of our plan to close our commissaries and the completion of our plan to restructure the organization to align with our franchise and license growth model . on may 3 , 2012 , we announced that our board authorized a review of strategic alternatives , including a possible business combination or sale of the company , to maximize value for all stockholders . on december 6 , 2012 , we announced that our board had completed its review and elected to recapitalize the company by amending our existing credit facility and declared a one-time special cash dividend of $ 4.00 per share payable to holders of record of the company 's common stock as of the close of business on december 17 , 2012. the payment date of the dividend was december 27 , 2012. we expensed $ 3.7
| adjusted net income increased $ 3.3 million , or 25.2 % to $ 16.4 million , or $ 0.95 adjusted earnings per diluted share , compared to adjusted net income of $ 13.1 million , or $ 0.78 adjusted earnings per diluted share , on a comparable 52-week basis . adjusted ebitda increased 11.7 % primarily due to improved revenue and cost saving initiatives . our board authorized a review of strategic alternatives to maximize value for all stockholders . this review was initiated in may and culminated in december with a recapitalization of the company , including the payment of a one-time special cash dividend of $ 4.00 per share of common stock totaling $ 68.1 million on december 27 , 2012 . 29 consolidated results fiscal 2012 vs fiscal 2011 replace_table_token_9_th * * not meaningful our income from operations decreased by $ 0.3 million in 2012 to $ 24.2 million primarily as a result of the non-recurring strategic alternatives review process we undertook in 2012 and an additional $ 0.8 million in income from operations resulting from the 53 rd week in fiscal 2011 , primarily offset by improved margins in fiscal 2012. total revenues increased by $ 3.4 million to $ 427.0 million , primarily the result of increased revenue from our company-owned stores . the extra 53 rd week in 2011 contributed an additional $ 7.3 million in revenue . system-wide comparable stores were +1.0 % for fiscal 2012 which we attribute to strong check growth of +4.2 % , reflecting price and product mix favorability . our catering business continues to be a strong revenue generator , as evidenced by an increase in catering sales of 17.3 % over fiscal 2011. to build same store sales , we focus on building traffic by leveraging our strengths , growing average check and building brand awareness through various marketing initiatives . net income decreased for fiscal 2012 primarily due to the extra 53 rd week in 2011 , which contributed net income of $ 0.5 million , and $ 3.7 million ( $ 2.2 million , net of tax ) in non-recurring strategic alternatives expenses , partially offset by improved margins . 30 company-owned restaurant operations replace_table_token_10_th
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in may 2011 , we acquired radian6 for a total purchase consideration of approximately $ 336.6 million , net of cash acquired . radian6 is a cloud application vendor that provides customers with social media monitoring , measurement and engagement solutions . we acquired radian6 for its developed technology , assembled workforce , expected synergies and expanded market opportunities when integrating radian6 's social solution technology with our current product offerings . in september 2011 , we acquired assistly for a total purchase consideration of approximately $ 58.7 million . assistly is a cloud-based provider of customer service solutions . we acquired assistly for its developed help desk application technology in order to expand our customer service market opportunities in the small and emerging business market . in order to expand our mobile and social consulting services , in december 2011 , we acquired model metrics , a cloud computing professional services company , for a total purchase consideration of approximately $ 66.7 million . we expect marketing and sales costs , which were 52 percent of our total revenues for fiscal 2012 and 48 percent for the same period a year ago , to continue to represent a substantial portion of total revenues in the future as we seek to add and manage more paying subscribers , and build greater brand awareness . fiscal year our fiscal year ends on january 31. references to fiscal 2012 , for example , refer to the fiscal year ended january 31 , 2012 . 34 sources of revenues we derive our revenues from : ( 1 ) subscription fees from customers accessing our enterprise cloud computing services ; ( 2 ) support revenues from customers purchasing additional support beyond the standard support that is included in the basic subscription fees ; ( 3 ) professional services , which include consulting services such as process mapping and project management , and implementation services including systems integration , technical architecture and development , and data conversion ; and ( 4 ) other revenue , which consists primarily of training fees . subscription and support revenues accounted for approximately 94 percent of our total revenues during fiscal 2012. subscription revenues are driven primarily by the number of paying subscribers , varying service types , the price of our service and service renewal rates . we define a customer as a separate and distinct buying entity ( e.g. , a company , a distinct business unit of a large corporation , a partnership , etc . ) that has entered into a contract to access our enterprise cloud computing services . we define a subscription as a unique user account purchased by a customer for use by its employees or other customer-authorized users , and we refer to each such user as a subscriber. the number of paying subscriptions at each of our customers ranges from one to hundreds of thousands . none of our customers accounted for more than five percent of our revenues during fiscal 2012 , 2011 , or 2010. subscription and support revenues are recognized ratably over the contract terms beginning on the commencement dates of each contract . the typical subscription and support term is 12 to 24 months , although terms range from one to 60 months . our subscription and support contracts are non-cancelable , though customers typically have the right to terminate their contracts for cause if we materially fail to perform . we generally invoice our customers in advance , in annual or quarterly installments , and typical payment terms provide that our customers pay us within 30 days of invoice . amounts that have been invoiced are recorded in accounts receivable and in deferred revenue , or in revenue depending on whether the revenue recognition criteria have been met . in general , we collect our billings in advance of the subscription service period . professional services and other revenues consist of fees associated with consulting and implementation services and training . our consulting and implementation engagements are typically billed on a time and materials basis . we also offer a number of training classes on implementing , using and administering our service that are billed on a per person , per class basis . our typical professional services payment terms provide that our customers pay us within 30 days of invoice . in determining whether professional services can be accounted for separately from subscription and support revenues , we consider a number of factors , which are described in critical accounting policies and estimates revenue recognition below . prior to february 1 , 2011 , the deliverables in multiple-deliverable arrangements were accounted for separately if the delivered items had standalone value and there was objective and reliable evidence of fair value for the undelivered items . if the deliverables in a multiple-deliverable arrangement could not be accounted for separately , the total arrangement fee was recognized ratably as a single unit of accounting over the contracted term of the subscription agreement . a significant portion of our multiple-deliverable arrangements were accounted for as a single unit of accounting because we did not have objective and reliable evidence of fair value for certain of our deliverables . additionally , in these situations , we deferred the direct costs of a related professional service arrangement and amortized those costs over the same period as the professional services revenue was recognized . in october 2009 , the financial accounting standards board ( fasb ) issued accounting standards update no . 2009-13 , revenue recognition ( topic 605 ) , multiple-deliverable revenue arrangementsa consensus of the fasb emerging issues task force ( asu 2009-13 ) which amended the previous multiple-deliverable arrangements accounting guidance . pursuant to the new guidance , objective and reliable evidence of fair value of the deliverables to be delivered is no longer required in order to account for deliverables in a multiple-deliverable arrangement separately . instead , arrangement consideration is allocated to deliverables based on their relative selling price . story_separator_special_tag in the first quarter of fiscal 2012 , we adopted this new accounting guidance on a prospective basis . we applied the new accounting guidance to those multiple-deliverable arrangements entered into or materially modified on or after february 1 , 2011 which is the beginning of our fiscal year . 35 seasonal nature of deferred revenue and accounts receivable deferred revenue primarily consists of billings to customers for our subscription service . over 90 percent of the value of our billings to customers is for our subscription and support service . we generally invoice our customers in either quarterly or annual cycles . there is a disproportionate weighting towards annual billings in the fourth quarter , primarily as a result of large enterprise account buying patterns . currently , there is greater operational discipline around annual invoicing , for both new business and renewals . occasionally , we bill customers for their multi-year contract on a single invoice which results in an increase in noncurrent deferred revenue . our fourth quarter has historically been our strongest quarter for new business and renewals . the year on year compounding effect of this seasonality in both billing patterns and overall new and renewal business causes the value of invoices that we generate in the fourth quarter for both new business and renewals to increase as a proportion of our total annual billings . accordingly , the sequential quarterly changes in accounts receivable and the related deferred revenue during the first three quarters of our fiscal year are not necessarily indicative of the billing activity that occurs in the fourth quarter as displayed below : replace_table_token_6_th unbilled deferred revenue the deferred revenue balance on our consolidated balance sheet does not represent the total contract value of annual or multi-year , non-cancelable subscription agreements . unbilled deferred revenue was over $ 2.2 billion as of january 31 , 2012 and over $ 1.5 billion as of january 31 , 2011. unbilled deferred revenue represents future billings under our subscription agreements that have not been invoiced and , accordingly , are not recorded in deferred revenue . we expect that the amount of unbilled deferred revenue will change from quarter to quarter for several reasons , including the specific timing and duration of large customer subscription agreements , varying billing cycles of subscription agreements , the specific timing of customer renewals , foreign currency fluctuations , the timing of when unbilled deferred revenue is to be recognized as revenue , and changes in customer financial circumstances . for multi-year subscription agreements billed annually , the associated unbilled deferred revenue is typically high at the beginning of the contract period , zero just prior to renewal , and increases if the agreement is renewed . low unbilled deferred revenue attributable to a particular subscription agreement is often associated with an impending renewal and may not be an indicator of the likelihood of renewal or future revenue from such customer . accordingly , we expect that the amount of aggregate unbilled deferred revenue will change from year-to-year depending in part upon the number and dollar amount of subscription agreements at particular stages in their renewal cycle . such fluctuations are not a reliable indicator of future revenues . 36 cost of revenues and operating expenses cost of revenues . cost of subscription and support revenues primarily consists of expenses related to hosting our service and providing support , the costs of data center capacity , depreciation or operating lease expense associated with computer equipment and software , allocated overhead and amortization expense associated with capitalized software related to our services and acquired developed technologies . we allocate overhead such as rent and occupancy charges based on headcount . employee benefit costs and taxes are allocated based upon a percentage of total compensation expense . as such , general overhead expenses are reflected in each cost of revenue and operating expense category . cost of professional services and other revenues consists primarily of employee-related costs associated with these services , including stock-based expenses , the cost of subcontractors and allocated overhead . the cost of providing professional services is significantly higher as a percentage of the related revenue than for our enterprise cloud computing subscription service due to the direct labor costs and costs of subcontractors . we intend to continue to invest additional resources in our enterprise cloud computing services . for example , we plan to open additional data centers and expand our current data centers in the future . additionally , as we acquire new businesses and technologies , the amortization expense associated with this activity will be included in cost of revenues . the timing of these additional expenses will affect our cost of revenues , both in terms of absolute dollars and as a percentage of revenues , in the affected periods . research and development . research and development expenses consist primarily of salaries and related expenses , including stock-based expenses , the costs of our development and test data center and allocated overhead . we continue to focus our research and development efforts on adding new features and services , integrating acquired technologies , increasing the functionality and enhancing the ease of use of our enterprise cloud computing services . our proprietary , scalable and secure multi-tenant architecture enables us to provide all of our customers with a service based on a single version of our application . as a result , we do not have to maintain multiple versions , which enables us to have relatively lower research and development expenses as compared to traditional enterprise software companies . we expect that in the future , research and development expenses will increase in absolute dollars as we improve and extend our service offerings , develop new technologies and integrate acquired businesses and technologies . marketing and sales . marketing and sales expenses are our largest cost and consist primarily of salaries and related expenses , including stock-based expenses , for our sales and marketing staff , including commissions , payments to partners , marketing programs and allocated overhead .
| the increase in professional services and other revenues was due primarily to the improved utilization of existing headcount and a benefit from the prospective adoption of the new revenue accounting guidance for multiple-deliverable arrangements . revenues in europe and asia pacific accounted for $ 726.3 million , or 32 percent of total revenues , for fiscal 2012 , compared to $ 522.1 million , or 32 percent of total revenues , during the same period a year ago , an increase of $ 204.1 million , or 39 percent . the increase in revenues outside of the americas was the result of the increasing acceptance of our service , our focus on marketing our services internationally and improved renewal rates . additionally , the value of the u.s. dollar relative to foreign currencies contributed to a slight increase in u.s. dollar revenues outside of the americas for fiscal 2012 as compared to the same period a year ago . the foreign currency impact had the effect of increasing our aggregate revenues by $ 36.9 million compared to the same period a year ago . as part of our overall growth , we expect the percentage of our revenue generated outside of the americas to increase as a percentage of our total revenues worldwide . cost of revenues . replace_table_token_14_th cost of revenues was $ 488.9 million , or 22 percent of total revenues , during fiscal 2012 , compared to $ 323.8 million , or 20 percent of total revenues , during the same period a year ago , an increase of $ 165.1 million . the increase in absolute dollars was primarily due to an increase of $ 20.4 million in employee-related costs , an increase of $ 5.3 million in stock based expenses , an increase of $ 39.8 million in service delivery costs , primarily due to our efforts to increase data center capacity , an increase of $ 68.3 million in depreciation and amortization expenses , $ 44.6 million of which related to the amortization of purchased intangible
| 16,404 |
our managing partners ' economic interests are instead represented by their indirect beneficial ownership , through holdings , of 47.79 % of the limited partner interests in the apollo operating group . ( 3 ) through brh holdings , l.p. , our managing partners indirectly beneficially own through estate planning vehicles , limited partner interests in holdings . ( 4 ) holdings owns 53.52 % of the limited partner interests in each apollo operating group entity . the aog units held by holdings are exchangeable for class a shares . our managing partners , through their interests in brh and holdings , beneficially own 47.79 % of the aog units . our contributing partners , through their ownership interests in holdings , beneficially own 5.73 % of the aog units . ( 5 ) brh holdings gp , ltd. is the sole member of agm management , llc , our manager . the management of apollo global management , llc is vested in our manager as provided in our operating agreement . ( 6 ) represents 46.48 % of the limited partner interests in each apollo operating group entity , held through the intermediate holding companies . apollo global management , llc , also indirectly owns 100 % of the general partner interests in each apollo operating group entity . each of the apollo operating group partnerships holds interests in different businesses or entities organized in different jurisdictions . our structure is designed to accomplish a number of objectives , the most important of which are as follows : we are a holding company that is qualified as a partnership for u.s. federal income tax purposes . our intermediate holding companies enable us to maintain our partnership status and to meet the qualifying income exception . we have historically used multiple management companies to segregate operations for business , financial and other reasons . going forward , we may increase or decrease the number of our management companies or partnerships within the apollo operating group based on our views regarding the appropriate balance between ( a ) administrative convenience and ( b ) continued business , financial , tax and other optimization . business environment as a global investment manager , we are affected by numerous factors , including the condition of financial markets and the economy . price fluctuations within equity , credit , commodity , foreign exchange markets , as well as interest rates , which may be volatile and mixed across geographies , can significantly impact the valuation of our funds ' portfolio companies and related income we may recognize . in terms of equity markets , 2016 was a more positive year compared to the mixed backdrop in 2015. in the u.s. , the s & p 500 index increased 9.5 % during 2016 following a slight decrease of 0.7 % in 2015. outside the u.s. , global equity markets rose for the first time in three years as measured by the msci all country world ex usa index , which increased 3.6 % during 2016 after falling 1.4 % in 2015. conditions in the credit markets also have a significant impact on our business , and in 2016 , many indices posted strong returns . the bofaml hy master ii index rose 17.5 % in 2016 following a decrease of 4.6 % in 2015. in addition , the s & p/lsta leveraged loan index rose 10.2 % in 2016 following a slight decrease of 0.7 % in 2015. benchmark interest rates finished the year on a slightly positive note as investors expect the federal reserve to raise short-term rates three times in 2017 , after raising rates again in december . the u.s. 10-year treasury yield rallied 85 basis points in the fourth quarter to finish the year up 18 basis points at 2.45 % . foreign exchange rates can materially impact the valuations of our investments that are denominated in currencies other than the u.s. dollar . relative to the u.s. dollar , the euro depreciated 3.2 % in 2016 after depreciating 10.2 % in 2015 , while the british pound depreciated 16.3 % in 2016 largely due to the brexit referendum , after depreciating 5.4 % in 2015. commodities generally saw price increases in both the fourth quarter and full year ended december 31 , 2016. the price of crude oil appreciated by 11.4 % during the fourth quarter and 45.0 % for the full year . in terms of economic conditions in the u.s. , the bureau of economic analysis reported real gdp increased at an annual rate of 1.6 % in 2016 , lower than the 2.6 % growth experienced in 2015 , primarily due to a decrease in investments and government spending . as of january 2017 , the international monetary fund estimated that the u.s. economy will expand by 2.3 % in 2017. additionally , the u.s. unemployment rate continued to decline in 2016 , ending the year at 4.7 % , a decrease from 5.0 % at the end of 2015. regardless of the market or economic environment at any given time , apollo relies on its contrarian , value-oriented approach to consistently invest capital on behalf of its fund investors by focusing on opportunities that management believes are - 81 - often overlooked by other investors . as such , apollo 's global integrated investment platform deployed $ 3.5 billion and $ 15.9 billion of capital through the funds it manages during the fourth quarter of 2016 and full year ended december 31 , 2016 , respectively . this represented the highest level of capital deployment activity in a calendar period to date . we believe apollo 's expertise in credit and its focus on nine core industry sectors , combined with 26 years of investment experience , has allowed apollo to respond quickly to changing environments . apollo 's core industry sectors include chemicals , manufacturing and industrial , natural resources , consumer and retail , consumer services , business services , financial services , leisure , and media and telecom and technology . story_separator_special_tag apollo believes that these attributes have contributed to the success of its private equity funds investing in buyouts and credit opportunities during both expansionary and recessionary economic periods . in general , institutional investors continue to allocate capital towards alternative investment managers for more attractive risk-adjusted returns in a low interest rate environment , and we believe the business environment remains generally accommodative to launch new products and pursue attractive strategic growth opportunities . as such , apollo had $ 6.6 billion and $ 34.8 billion of capital inflows during the fourth quarter of 2016 and full year ended december 31 , 2016 , respectively . while apollo continues to attract capital inflows , it also continues to generate realizations for fund investors . apollo returned $ 1.7 billion and $ 5.4 billion of capital and realized gains to the investors in the funds it manages during the fourth quarter of 2016 full year ended december 31 , 2016 , respectively . managing business performance we believe that the presentation of economic income , or ei , supplements a reader 's understanding of the economic operating performance of each of our segments . economic income ei has certain limitations in that it does not take into account certain items included under u.s. gaap . ei represents segment income before income tax provision excluding transaction-related charges arising from the 2007 private placement and any acquisitions . transaction-related charges include equity-based compensation charges , the amortization of intangible assets , contingent consideration and certain other charges associated with acquisitions . in addition , segment data excludes non-cash revenue and expense related to equity awards granted by unconsolidated related parties to employees of the company , compensation and administrative related expense reimbursements from unconsolidated related parties , as well as the assets , liabilities and operating results of the funds and vies that are included in the consolidated financial statements . we believe the exclusion of the non-cash charges related to the 2007 reorganization for equity-based compensation provides investors with a meaningful indication of our performance because these charges relate to the equity portion of our capital structure and not our core operating performance . economic net income represents ei adjusted to reflect income tax provision on ei that has been calculated assuming that all income is allocated to apollo global management , llc , which would occur following an exchange of all aog units for class a shares of apollo global management , llc . the economic assumptions and methodologies that impact the implied income tax provision are similar to those methodologies and certain assumptions used in calculating the income tax provision for apollo 's consolidated statements of operations under u.s. gaap . we believe that ei is helpful for an understanding of our business and that investors should review the same supplemental financial measure that management uses to analyze our segment performance . this measure supplements and should be considered in addition to and not in lieu of the results of operations discussed below in “ —overview of results of operations ” that have been prepared in accordance with u.s. gaap . see note 16 to the consolidated financial statements for more details regarding management 's consideration of ei . ei may not be comparable to similarly titled measures used by other companies and is not a measure of performance calculated in accordance with u.s. gaap . we use ei as a measure of operating performance , not as a measure of liquidity . ei should not be considered in isolation or as a substitute for net income or other income data prepared in accordance with u.s. gaap . the use of ei without consideration of related u.s. gaap measures is not adequate due to the adjustments described above . management compensates for these limitations by using ei as a supplemental measure to u.s. gaap results , to provide a more complete understanding of our performance as management measures it . a reconciliation of ei to its most directly comparable u.s. gaap measure of income before income tax provision can be found in the notes to our consolidated financial statements . economic income for the years ended december 31 , 2015 and 2014 includes a recast of salary , bonus and benefits due to management 's change in allocation methodology among the segments during the year ended december 31 , 2016. all prior periods have been recast to conform to the current presentation . the impact to the combined segments total economic income for all periods presented was zero . the impact of this change to ei for each segment for the years ended december 31 , 2015 and 2014 is reflected in note 16 to the consolidated financial statements . - 82 - fee related earnings fee related earnings ( “ fre ” ) is derived from our segment reported results and refers to a component of ei that is used as a supplemental measure to assess whether revenues that we believe are generally more stable and predictable in nature , primarily consisting of management fees , are sufficient to cover associated operating expenses and generate profits . fre is the sum across all segments of ( i ) management fees , ( ii ) advisory and transaction fees , ( iii ) carried interest income earned from a publicly traded business development company we manage and ( iv ) other income , net excluding gains ( losses ) arising from the reversal of a portion of the tax receivable agreement liability , less ( y ) salary , bonus and benefits , excluding equity-based compensation and ( z ) other associated operating expenses . distributable earnings distributable earnings ( “ de ” ) , as well as de after taxes and related payables are derived from our segment reported results , and are supplemental non-u.s. gaap measures to assess performance and the amount of earnings available for distribution to class a shareholders , holders of rsus that participate in distributions and holders of aog units .
| - 117 - liquidity and capital resources historical although we have managed our historical liquidity needs by looking at deconsolidated cash flows , our historical consolidated statements of cash flows reflect the cash flows of apollo , as well as those of the consolidated apollo funds . the primary cash flow activities of apollo are : generating cash flow from operations ; making investments in apollo funds ; meeting financing needs through credit agreements ; and distributing cash flow to equity holders and non-controlling interests . primary cash flow activities of the consolidated apollo funds and vies are : raising capital from their investors , which have been reflected historically as non-controlling interests of the consolidated subsidiaries in our financial statements ; using capital to make investments ; generating cash flow from operations through distributions , interest and the realization of investments ; distributing cash flow to investors ; and issuing debt to finance investments ( clos ) . while primarily met by cash flows generated through fee income and carried interest income received , working capital needs have also been met ( to a limited extent ) through borrowings as described in note 11 to the consolidated financial statements . we determine whether to make capital commitments to our funds in excess of our minimum required amounts based on a variety of factors , including estimates regarding our liquidity resources over the estimated time period during which commitments will have to be funded , estimates regarding the amounts of capital that may be appropriate for other funds that we are in the process of raising or are considering raising , and our general working capital requirements . cash flows significant amounts from our consolidated statements of cash flows for the years ended december 31 , 2016 , 2015 and 2014 are summarized and discussed within the table and corresponding commentary below : replace_table_token_38_th operating activities our net cash provided by ( used in ) operating activities was $ 615.3 million , $ 582.7 million and $ ( 372.9 ) million during the years ended december 31 , 2016 , 2015 and 2014 , respectively . these amounts were primarily driven by : net income of $ 970.3 million , $ 350.5 million
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the following table summarizes information on assets , liabilities and members ' equity of our equity method investment in clih : ( dollars in thousands ) april 30 , 2017 may 1 , 2016 total assets $ 2,258 $ - total liabilities $ 46 $ - total members ' equity $ 2,212 $ - 28 segment assets segment assets consist of accounts receivable , inventory , property , plant and equipment , investment in an unconsolidated joint venture , goodwill , a non-compete agreement and customer relationships associated with an acquisition . replace_table_token_10_th as of april 30 , 2017 , accounts receivable and inventory increased $ 3.6 million compared with may 1 , 2016. this included an increase in inventory of $ 2.5 million , as a result of having higher inventory levels to meet expected demand trends for new production introductions , and a $ 1.1 million increase in accounts receivable primarily due to the extension of discount credit terms with certain key customers that occurred in the fourth quarter of fiscal 2017. property , plant & equipment the $ 48.9 million at april 30 , 2017 , represents property , plant and equipment of $ 34.0 million and $ 14.9 million located in the u.s. and canada , respectively . the $ 37.5 million at may 1 , 2016 , represents property , plant , and equipment of $ 24.8 million and $ 12.7 million located in the u.s. and canada , respectively . as of april 30 , 2017 , property , plant , and equipment increased $ 11.4 million compared with may 1 , 2016. this increase is due to capital expenditures of $ 17.6 million that primarily relate to the construction of a new building ( see note 11 of the consolidated financial statements for further details ) and purchases and installation of machinery and equipment , partially offset by depreciation expense of $ 6.2 million for fiscal 2017. investment in unconsolidated joint venture our investment in unconsolidated joint venture represents our fifty percent ownership of clih noted above . non-compete agreement and customer relationships the decreases in carrying values of our non-compete agreement and customer relationships at april 30 , 2017 , compared with may 1 , 2016 , are primarily due to amortization expense in fiscal 2017 . 29 upholstery fabrics segment net sales replace_table_token_11_th our decrease in net sales primarily reflects the soft retail environment for residential furniture that has persisted for most of fiscal 2017 and our strategy to change our product mix to improve our profitability . in spite of the challenging demand trends , we continued to execute our product-driven strategy with a focus on design and innovation . as a result , we have seen positive demand trends for our performance line of highly durable and stain resistant upholstery fabrics . we have also experienced meaningful sales growth in the hospitality segment , which accounted for a higher percentage of overall upholstery fabric net sales in fiscal 2017. the hospitality segment is a key area of focus in our product diversification strategy . our 100 % owned china platform supports our marketing efforts with the manufacturing flexibility to adapt to changing furniture market trends and consumer style preferences . gross profit and operating income replace_table_token_12_th despite the decrease in net sales noted above , our gross profit and operating margins increased in fiscal 2017 compared with the same period a year ago . this trend reflects our strategy to enhance both our customer and product mix to improve our profitability , and lower operating expenses due to more favorable currency exchange rates in china . 30 segment assets segment assets consist of accounts receivable , inventory , and property , plant , and equipment . replace_table_token_13_th accounts receivable & inventory as of april 30 , 2017 , accounts receivable and inventory increased $ 2.5 million compared with may 1 , 2016. this increase was due to an increase in inventory of $ 2.5 million , as a result of customers requiring us to hold higher inventory levels of key products . property , plant & equipment the $ 1.9 million at april 30 , 2017 , represents property , plant , and equipment located in the u.s. of $ 1.2 million and located in china of $ 655,000. the $ 1.6 million at may 1 , 2016 , represents property , plant , and equipment located in the u.s. of $ 893,000 and located in china of $ 671,000. other income statement categories replace_table_token_14_th selling , general and administrative expenses the increase in sg & a expenses for fiscal 2017 compared with fiscal 2016 , was primarily due to higher incentive compensation expense reflecting stronger financial results in relation to pre-established performance targets . the increase was also due to higher inventory warehousing costs , design and sales expenses , and non-recurring plant facility consolidation charges ( approximately $ 560,000 for fiscal 2017 ) associated with our mattress fabrics segment . interest expense interest costs charged to operations were $ 158,000 and $ 58,000 for fiscal 2017 and 2016 , respectively . the interest costs charged to operations were fully offset by interest costs for the construction of qualifying fixed assets that were capitalized and will be amortized over the related assets ' useful lives . 31 interest income interest income increased for fiscal 2017 compared with fiscal 2016. the increase was due to management 's decision at the end of the second quarter of fiscal 2017 to invest approximately $ 31.0 million in investment grade u.s. corporate bonds with maturities primarily ranging from 2 to 2.5 years . the purpose of this investment was to earn a higher rate of return on our excess cash located in the cayman islands . these investments are classified as held-to-maturity as we have the positive intent and ability to hold these investments until maturity . story_separator_special_tag other expense other expense for fiscal 2017 was comparable to fiscal 2016. income taxes effective income tax rate we recorded income tax expense of $ 7.3 million , or 24.7 % of income before income tax expense , in fiscal 2017 compared with income tax expense of $ 11.0 million , or 39.3 % of income before income tax expense , in fiscal 2016. the following schedule summarizes the principal differences between income tax expense at the federal income tax rate and the effective income tax rate reflected in the consolidated financial statements : replace_table_token_15_th in accordance with asc topic 740 , we evaluate our deferred income taxes to determine if a valuation allowance is required . asc topic 740 requires that companies assess whether a valuation allowance should be established based on the consideration of all available evidence using a “ more likely than not ” standard with significant weight being given to evidence that can be objectively verified . since the company operates in multiple jurisdictions , we assess the need for a valuation allowance on a jurisdiction- by-jurisdiction basis , taking into account the effects of local tax law . refer to note 9 located in the notes to the consolidated financial statements for disclosures regarding our assessments of our recorded valuation allowance as of april 30 , 2017 and may 1 , 2016 , respectively . deferred income taxes – undistributed earnings from foreign subsidiaries in accordance with asc topic 740 , we assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our u.s. parent company . asc topic 740 requires that a deferred tax liability should be recorded for undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely . also , we assess the recognition of u.s. foreign income tax credits associated with foreign withholding and income tax payments and whether it is more- likely-than-not that our foreign income tax credits will not be realized . if it is determined that any foreign income tax credits need to be recognized or it is more-likely-than-not our foreign income tax credits will not be realized , an adjustment to our provision for income taxes will be recognized at that time . 32 refer to note 9 located in the notes to the consolidated financial statements for disclosures regarding our assessments of our recorded deferred income tax liability balances associated with our undistributed earnings from our foreign subsidiaries as of april 30 , 2017 and may 1 , 2016 , respectively . uncertainty in income taxes our gross unrecognized income tax benefit of $ 12.2 million at april 30 , 2017 , relates to tax positions for which significant change is reasonably possible within the next year . this amount primarily relates to double taxation under applicable income tax treaties with foreign tax jurisdictions . united states federal and state income tax returns filed by us remain subject to examination for income tax years 2005 and subsequent due to loss carryforwards . canadian federal and provincial ( quebec ) returns filed by us remain subject to examination for income tax years 2013 and subsequent . income tax returns associated with our operations located in china are subject to examination for income tax year 2012 and subsequent . currently , the internal revenue service is examining our u.s. federal income tax returns for fiscal years 2014 through 2016 , and no adjustments have been proposed at this time . we currently expect this examination to be completed during fiscal 2018. during the third quarter of fiscal 2017 , revenue quebec commenced an examination of our canadian provincial ( quebec ) income tax returns for fiscal years 2013 through 2015 , and no adjustments have been proposed at this time . we currently expect this examination to be completed during fiscal 2018. in accordance with asc topic 740 , an unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the reporting period , or is effectively settled through examination , negotiation , or litigation , or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired . if it is determined that any of the above conditions occur regarding our uncertain income tax positions , an adjustment to our unrecognized income tax benefit will be recorded at that time . during the fiscal 2017 , we recognized an income tax benefit of $ 3.4 million for the reversal of an uncertain income tax position associated with certain foreign jurisdictions in which the statute of limitations expired . accordingly , of this $ 3.4 million income tax benefit , $ 2.1 million and $ 1.3 million were treated as discrete events in which the full income tax effects of these adjustments were recorded in the third and fourth quarters , respectively . income taxes paid we reported income tax expense of $ 7.3 million and $ 11.0 million in fiscal 2017 and 2016 , respectively . currently , we are not paying income taxes in the united states as we have an estimated $ 9.0 million in operating loss carryforwards at april 30 , 2017. however , we did have income tax payments of $ 5.5 million in fiscal 2017 and $ 6.7 million in fiscal 2016. our income tax payments are associated with our subsidiaries located in china and canada . 33 2016 compared with 2015 segment analysis mattress fabrics segment replace_table_token_16_th net sales our steady sales growth for fiscal 2016 outperformed overall industry trends . our focus on design and innovation allowed us to create a diversified product mix of products from mattress fabrics to finished cover . as a result , we achieved significant progress in our mattress cover business during fiscal 2016 compared to the same period a year earlier . this has allowed us to reach new customers and additional market segments , especially the internet bedding space .
| liquidity at april 30 , 2017 , our cash and cash equivalents , short-term investments , and long-term investments ( held-to-maturity ) totaled $ 54.2 million compared with $ 42.1 million at may 1 , 2016. this increase from the end of fiscal 2016 was primarily due to net cash provided by operating activities of $ 33.0 million , partially offset by $ 12.9 million in capital expenditures ( of which $ 1.1 million was vendor-financed ) that were mostly associated with our mattress fabric segment , $ 1.1 million in our investment in an unconsolidated joint venture located in haiti , $ 6.3 million in dividend payments , and $ 1.4 million in long- term investment purchases associated with our rabbi trust that funds our deferred compensation plan . our net cash provided by operating activities of $ 33.0 million in fiscal 2017 increased $ 6.2 million compared with $ 26.8 million in fiscal 2016. the increase in our net cash provided by operating activities is primarily due to increased earnings in fiscal 2017. currently , we do not have any borrowings outstanding under our credit agreements . dividend program on june 13 , 2017 , we announced that our board of directors approved the payment of a special cash dividend of $ 0.21 per share and a regular quarterly cash dividend payment of $ 0.08 per share . these dividend payments are payable on july 17 , 2017 , to shareholders of record as of july 3 , 2017. during fiscal 2017 , dividend payments totaled $ 6.3 million , of which $ 2.6 million represented a special cash dividend payment in the first quarter of $ 0.21 per share , and $ 3.7 million represented our regular quarterly cash dividend payments ranging from $ 0.07 to $ 0.08 per share . during fiscal 2016 , dividend payments totaled $ 8.1 million , of which $ 5.0 million represented a special cash dividend payment in the first quarter of $ 0.40 per share , and $ 3.1 million represented our regular quarterly cash dividend payments ranging from $ 0.06 to $ 0.07 per share . future dividend payments are subject to board approval and may be adjusted at the board 's discretion as business needs or market conditions change . common stock repurchases on june 15 , 2016 , we announced that our board of directors approved an authorization for us to acquire up to $ 5.0 million of our common stock . under the common stock repurchase program , shares may be purchased
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29 fair value of contingent obligations management continues to analyze and quantify contingent obligations ( expected earn-out payments ) over the applicable pay-out period . management will assess no less frequently than each reporting period the fair value of contingent obligations . any change in the expected obligation will result in an expense or income recognized in the period in which it is determined the fair market value of the obligation has changed . income taxes income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities . deferred income taxes are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted rates in effect during the year in which the differences are expected to reverse . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . asc topic 740 , “ accounting for income taxes ” clarifies the accounting for uncertainty in income taxes recognized in an enterprise 's financial statements . tax positions shall initially be recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities . such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that has a probability of fifty percent ( 50 % ) or greater of being realized upon ultimate settlement with the tax authority , assuming full knowledge of the position and all relevant facts . recently issued accounting standards in may 2014 , the fasb issued accounting standards update ( “ asu ” ) no . 2014-09 , “ revenue from contracts with customers ” ( “ asu 2014-09 ” ) . asu 2014-09 provides guidance for revenue recognition and affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in topic 605 , “ revenue recognition , ” and most industry-specific guidance . the core principle of asu 2014-09 is the recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services . asu 2014-09 defines a five-step process to achieve this core principle and , in doing so , companies will need to use more judgment and make more estimates than under the current guidance . these may include identifying performance obligations in the contract , estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation . asu 2014-09 is effective for fiscal years beginning after december 15 , 2016 and interim periods therein , using either of the following transition methods : ( i ) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients , or ( ii ) a retrospective approach with the cumulative effect of initially adopting asu 2014-09 recognized at the date of adoption ( which includes additional footnote disclosures ) . early adoption is not permitted . the company is currently evaluating the method and impact the adoption of asu 2014-09 will have on the company 's consolidated financial statements and disclosures . in june 2014 , the fasb issued asu no . 2014-12 , “ compensation - stock compensation ( topic 718 ) : accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period ” ( “ asu 2014-12 ” ) . asu 2014-12 affects entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period . the amendments in asu 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition . asu 2014-12 is effective for fiscal years beginning after december 15 , 2015. early adoption is permitted . the company is currently evaluating the method and impact the adoption of asu 2014-12 will have on the company 's consolidated financial statements and disclosures . in august 2014 , the fasb issued asu 2014-15 , “ disclosure of uncertainties about an entity 's ability to continue as a going concern ” ( “ asu 2014-15 ” ) . asu 2014-15 provides guidance on management 's responsibility in evaluating whether there is substantial doubt about a company 's ability to continue as a going concern and about related footnote disclosures . for each reporting period , management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company 's ability to continue as a going concern within one year from the date the financial statements are issued . the amendments in asu 2014-15 are effective for annual reporting periods ending after december 15 , 2016 , and for annual and interim periods thereafter . early adoption is permitted . the company will adopt the methodologies prescribed by asu 2014-15 by the date required , and does not anticipate that the adoption of asu 2014-15 will have a material effect on its consolidated financial position or results of operations . management does not believe that any other recently issued , but not yet effective , accounting pronouncements , if currently adopted , would have a material effect on the company 's consolidated financial statements . 30 story_separator_special_tag justify '' > interest and finance expense interest and finance expense for the current year decreased by approximately $ 0.24 million to $ 1.49 million , compared to $ 1.73 million in the prior year . story_separator_special_tag this was primarily due to the net $ 0.05 million decrease attributable to lower interest rates in the company 's term debt , partially offset by higher term debt principal balances from financing a portion of the ripka brand acquisition , and a decrease of $ 0.19 million in the current year of interest expense and finance charges from the amortization of debt discounts and deferred finance costs compared with the prior year . provision for income taxes the effective income tax rate for the current year was approximately ( 183.52 % ) , resulting in a $ 0.10 million income tax benefit . the effective income tax rate for the prior year was ( 361.20 % ) which resulted in a $ 1.32 million income tax benefit . during the current year , the company recorded a $ 0.6 million gain on the reduction of contingent obligations related to the acquisition of the isaac mizrahi business . this gain is not subject to tax and was treated as a discrete item . during the prior year , the company recorded a $ 5.12 million gain on the reduction of contingent obligations related to the acquisition of the isaac mizrahi business . this gain is not subject to tax and was treated as a discrete item . additionally , there was an increase in the state income tax rate which was booked to deferred income tax expense and treated as a discrete item during the prior year . discontinued operations the loss from discontinued operations , net , is attributable to the net loss related to our retail operations , as a result of our decision to discontinue our retail stores and focus on e-commerce , which will be a component of our licensing business . the current year loss from discontinued operations , net of $ 1.08 million mainly represents compensation expense , other general and administrative expenses and wind down costs associated with the closing of our retail stores , inclusive of inventory write-downs and impairment of property and equipment , offset by an income tax benefit of $ 0.70 million . the prior year loss from discontinued operations , net of $ 0.16 million mainly represents compensation expense and other general and administrative expenses , offset by the gross margin recognized by the retail stores and an income tax benefit of $ 0.08 million . adjusted earnings before interest depreciation and amortization ( “ ebitda ” ) adjusted ebitda for the current year increased approximately $ 2.86 million to $ 7.01 million from $ 4.15 million for the prior year . adjusted ebitda should not be considered in isolation or as alternatives to net income or any other measure of financial performance calculated and presented in accordance with gaap . given that adjusted ebitda is a financial measure not deemed to be in accordance with gaap and is susceptible to varying calculations , our adjusted ebitda may not be comparable to similarly titled measures of other companies , including companies in our industry , because other companies may calculate adjusted ebitda in a different manner than we calculate these measures . in evaluating adjusted ebitda , you should be aware that in the future we may or may not incur expenses similar to some of the adjustments in this presentation . our presentation of adjusted ebitda does not imply that our future results will be unaffected by these expenses or any unusual or non-recurring items . when evaluating our performance , you should consider adjusted ebitda alongside other financial performance measures , including our net income and other gaap results , and not rely on any single financial measure . the following table is a reconciliation of net ( loss ) income ( our most directly comparable financial measure presented in accordance with gaap ) to adjusted ebitda : replace_table_token_3_th 32 liquidity and capital resources liquidity our principal capital requirements have been to fund working capital needs , and to a lesser extent , capital expenditures . on april 3 , 2014 , we paid $ 12.4 million of cash for the acquisition of the ripka brand , which includes $ 9.0 million of jr term loan proceeds . on december 22 , 2014 , we paid $ 18.5 million of cash for the acquisition of the h halston brands , which includes $ 10.0 million of h term loan proceeds . at december 31 , 2014 and 2013 , our unrestricted cash and cash equivalents were $ 8.53 million and $ 7.46 million , respectively . on december 22 , 2014 , we issued to six accredited investors an aggregate of 1,086,667 shares of our common stock at a purchase price of $ 9.00 per share or gross proceeds of $ 9,780,000 in a private offering . we expect that existing cash and operating cash flows will be adequate to meet our operating needs , debt service obligations and capital expenditure needs , including the debt service under our term loan facilities for the twelve months subsequent to december 31 , 2014. we are dependent on our licensees for most of our revenues , and there is no assurance that the licensees will perform as projected . we do not require significant capital expenditures . we launched an e-commerce platform in may 2014 , for which we incurred $ 0.02 million of capital expenditures in each of the current year and prior year . the company 's contingent obligations ( see note 7 in the consolidated financial statements ) are payable in stock and or cash , at the company 's discretion . payment of these obligations in stock would not affect the company 's liquidity . the im seller note ( see note 7 in the consolidated financial statements ) is payable in cash up to $ 1.5 million beginning in 2015 , of which $ 1.0 million of the cash payment is subject to bank of hapoalim b.m . 's ( “ bhi ” ) approval .
| the company 's operating income from continuing operations was $ 1.44 million in the current year , compared to operating income from continuing operations of $ 2.09 million in the prior year . total revenue s current year total revenues increased approximately $ 7.55 million to $ 20.71 million from $ 13.16 million for the prior year . this was primarily related to increases in net licensing revenues of $ 7.58 million and net sales revenues ( which is comprised of our e-commerce revenues ) of $ 0.13 million , partially offset by a decrease in design and service fees of $ 0.16 million . net licensing revenues for the current year increased by $ 7.58 million , compared with the prior year primarily due to an increase in direct-response television revenues of $ 7.10 million . licensing revenues attributable to the ripka brand , which commenced in april 2014 , and the continuing growth of isaac mizrahi brand were the main contributing factors . we are also focusing on our international expansion . in september 2013 , we commenced marketing our isaac mizrahi brand through direct-response television in canada on tsc . in april 2014 , upon our acquisition of the ripka brand , we launched the ripka brand on tsc in canada . in may 2014 we brought the isaacmizrahilive brand to the united kingdom through qvc . net e-commerce sales were $ 0.13 million as a result of the launch of the e-commerce platform in may 2014. wholesale licensing revenues increased by $ 0.48 million in the current year , compared with the prior year . current year design and service fee revenue decreased by $ 0.16 million , compared with the prior year primarily due to a non-recurring service fees recognized in the prior year . gross profit gross profit for the current year was $ 20.63 million , compared to $ 13.17 million for the prior year . the increase in gross profit is primarily attributable to the increase in revenues . gross profit for the current year of $
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we believe that our existing cash and cash equivalents and short-term deposits will enable us to fund our operating expenses and capital expenditure requirements until at least mid-2022 , as discussed further below under ” — liquidity and capital resources ” 83 change in fiscal year end in november 2019 , after the business combination , we elected to change our fiscal year end from june 30 to december 31. our 2019 fiscal year consists of the year ended december 31 , 2019 , and our 2020 fiscal year consists of the year ended december 31 , 2020. in view of this change , this item 7 , “ management 's discussion and analysis of financial condition and results of operations or md & a , includes a discussion and analysis of our financial statements for fiscal years ended december 31 , 2020 and 2019. components of our consolidated results of operations revenue to date , we have not generated any revenue from product sales and do not expect to generate any revenue from product sales in the near future . if development efforts for our product candidates are successful and result in any necessary regulatory approvals or otherwise lead to any commercialized products or additional license agreements with third parties , we may generate revenue in the future from product sales or payments from collaboration or license agreements with third parties . operating expenses research and development expenses , net research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates . we expense research and development costs as incurred , offset by iia grants and , to a lesser degree , income from research and development collaboration agreements . these expenses include : ● development and operation of our proprietary platform ; ● expenses incurred in connection with the preclinical and clinical development of our product candidates , including under agreements with third parties , such as cros and contract manufacturing organizations , as well as consultants , subcontractors and key opinion leaders providing scientific development services ; ● manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials ; ● license maintenance fees and milestone fees incurred in connection with various license agreements ; ● employee-related expenses , including salaries , related benefits , travel and stock-based compensation expenses for employees engaged in research and development functions , as well as external costs , such as fees paid to outside consultants engaged in such activities ; ● costs related to compliance with regulatory requirements and legal fees relating to patent matters ; and ● depreciation , amortization and other expenses . we recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers . we do not allocate employee costs or facility expenses , including depreciation 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 discovery as well as for managing our preclinical development , process development , manufacturing and clinical development activities . these employees work across multiple programs and , therefore , we do not track their costs by program . 84 the table below summarizes our research and development expenses incurred by program : replace_table_token_1_th research and development activities are central to our business . 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 , particularly as we increase personnel costs , including stock-based compensation , contractor costs and facilities costs , as we continue to advance the development of 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 . general and administrative expenses general and administrative expenses consist primarily of salaries , related benefits , travel and stock-based compensation expenses for personnel in executive , finance , corporate , business development and administrative functions . general and administrative expenses also include legal fees relating corporate and securities matters ; professional fees for accounting , tax and audit services ; insurance costs ; travel expenses ; and facility-related expenses , including rent , as well as operating related costs . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates . we also anticipate that we will continue to incur significant accounting , audit , legal , regulatory , compliance , directors ' and officers ' insurance costs as well as investor and public relations expenses associated with being a public company . we anticipate the additional costs for these services will increase our general and administrative expenses in the future . additionally , if and when we believe a regulatory approval of a product candidate appears likely , we anticipate an increase in payroll and expenses as a result of our preparation for commercial operations , especially as it relates to the sales and marketing of our product candidate . financial expenses , net financial expenses , net consist primarily of income or expenses related to revaluation of foreign currencies and interest income on our bank deposits and money market funds . story_separator_special_tag mid-2022 . story_separator_special_tag in the future we will likely require or desire additional funds to support our operating expenses and capital requirements or for other purposes , such as acquisitions , and may seek to raise such additional funds through public or private equity or debt financings or collaborative agreements or from other sources , as we are doing now with the sale agreement . however , the covid-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets . if the disruption persists and deepens , we could experience an inability to access additional capital , which could in the future negatively affect our capacity to support our operating expenses and capital requirements or to make investments for other purposes , such as acquisitions . we have no commitments to obtain such additional financing and can not assure you that additional financing will be available at all or , if available , that such financing would be obtainable on terms favorable to us and would not be dilutive . our future liquidity and cash requirements will depend on numerous factors , including the introduction of new products as well as the ability to continue to maintain controls over our operating expenditures . 86 cash flows the following table summarizes our cash flows for each of the periods presented : replace_table_token_3_th operating activities during the year ended december 31 , 2020 , operating activities used $ 24.4 million of net cash , primarily due to a net loss of $ 30.1 million and by net cash used by changes in our operating assets and liabilities of $ 0.5 million and non-cash charges of $ 5.2 million . non-cash charges for the year ended december 31 , 2020 mainly consisted of stock-based compensation expenses of $ 2.9 million and depreciation of $ 2.2 million , partially offset by revaluation of contingent liabilities expenses of $ 0.1 million . net changes in our operating assets and liabilities for the year ended december 31 , 2020 consisted primarily of an increase in liabilities relating to operating leases of $ 1.4 million , and an increase in other account payables of $ 1.4 million , partially offset by an increase of $ 1.5 million in other receivables and a decrease in trade account payables of $ 0.8 million . during the year ended december 31 , 2019 , operating activities used $ 17.6 million of net cash , primarily due to a net loss of $ 20.6 million , net cash used by changes in our operating assets and liabilities of $ 2 million and non-cash charges of $ 0.9 million . non-cash charges for the year ended december 31 , 2019 mainly consisted of stock-based compensation expenses of $ 0.9 million and depreciation of $ 0.3 million , partially offset by non-cash revaluation of contingent liabilities expenses of $ 0.3 million . net changes in our operating assets and liabilities for the year ended december 31 , 2019 consisted primarily of an increase in trade account payables of $ 3 million , an increase in other account payables of $ 0.8 million and an increase in operating lease liability of $ 0.1 million , offset by an increase of $ 1.8 million in other receivables . investing activities during the year ended december 31 , 2020 , investing activities used net cash of $ 10.9 million , mainly consisting of investment in short-term deposits of $ 9.9 million and purchases of property and equipment of $ 1.0 million , primarily laboratory equipment and leasehold improvements . during the year ended december 31 , 2019 , investing activities provided net cash provided of $ 19.7 million , mainly consisting of maturities of investments in short-term deposits of $ 21.0 million partially offset by purchase of property and equipment of $ 1.3 million , primarily laboratory equipment and leasehold improvements . we have invested , and plan to continue to invest , our existing cash in short-term investments in accordance with our investment policy . these investments may include money market funds and investment securities consisting of u.s. treasury notes , and high quality , marketable debt instruments of corporations and government sponsored enterprises . we use foreign exchange contracts ( mainly option and forward contracts ) to hedge balance sheet items from currency exposure . these foreign exchange contracts are not designated as hedging instruments for accounting purposes . in connection with these foreign exchange contracts , we recognize gains or losses that offset the revaluation of the balance sheet items also recorded under financial expenses , net . as of december 31 , 2020 , we had outstanding foreign exchange contracts in the amount of approximately $ 1.5 million . as of december 31 , 2019 , we had no outstanding foreign exchange contracts . financing activities during the year ended december 31 , 2020 , financing activities provided net cash provided of $ 0.1 million , consisting of $ 0.075 million due to the business combination , $ 0.1 million from issuance of common stock and $ 0.3 million from exercise of stock options . during the year ended december 31 , 2019 , financing activities provided net cash of $ 61.6 million , consisting of $ 59.7 million due to the recapitalization transaction , $ 1.8 million from issuance of shares and $ 0.1 million from exercise of stock options . 87 government grants and related royalties the government of israel , through the iia , encourages research and development projects by providing grants . we may receive grants from the iia at the rates that range from 20 % to 50 % of the research and development expenses , as prescribed by the research committee of the iia . through december 31 , 2020 , we had received an aggregate of $ 2.7 million in the form of grants from the iia .
| general and administrative expenses were $ 9.3 million for the year ended december 31 , 2020 , compared to $ 8.7 million for the year ended december 31 , 2019. the increase of $ 0.6 million , or 7 % , is primarily due to the following : ● an increase of $ 1.7 million in expenses associated with operating as a public company , such as directors ' and officers ' insurance , filing and legal and accounting expenses ; ● an increase of $ 1.6 million in stock-based compensation and salaries and related expenses , mainly due to the growth in the number of employees ; and ● partially offset by a decrease of $ 2.7 million in expenses associated with the business combination . financial income , net was $ 0.2 million for the year ended december 31 , 2020 , compared to $ 1.6 million for the year ended december 31 , 2019. the decrease of $ 1.4 million , or 90 % , is primarily due to the usd/nis exchange rate differences and the decrease in interest rates on bank deposits and money market funds . liquidity and capital resources since biomx ltd. 's inception in 2015 , we have not generated any revenue from sales of our products 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 common stock and preferred shares , and through the business combination . through december 31 , 2020 , we had received gross cash proceeds of approximately $ 120 million from sales of our common stock and preferred shares . in addition , in 2020 and 2019 we received approximately $ 678 thousand and $ 466 thousand from our collaboration agreements and grants from the iia , respectively . cash in excess of immediate requirements is invested primarily with a view to liquidity and capital preservation . on december 4 , 2020 , we filed a shelf registration statement on form s-3 , which was declared effective by the sec on december 11 , 2020. in addition , on december 4 , 2020 , we entered into the sale agreement , with jefferies , pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $ 50,000,000 from time to time through jefferies . we are not obligated to make any sales of common stock under the sale agreement . from december 23 , 2020 through december 31 , 2020 , we sold an aggregate of 10,176 shares of common stock pursuant to the sale agreement for aggregate gross proceeds of $ 61,776. from january 1 ,
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we believe that there are growth opportunities for our products and services , supported primarily by : applications for many of our products and services in the continuing exploitation and development of shale reservoirs ; increased regulatory requirements governing the abandonment and decommissioning work on aging offshore platforms and wells in the gulf of mexico ; increases in technologically driven deepwater oil and gas well completions in the gulf of mexico ; and increasing international oil and gas exploration and development activities . our fluids division generates revenues and cash flows by manufacturing and marketing clear brine completion fluids ( cbfs ) , additives , cbf and water management services , and associated products and services to the oil and gas industry for use in well drilling , completion , and workover operations in the united states and in certain countries in latin america , europe , asia , the middle east , and africa . the fluids division also provides a broad range of associated services , including : onsite fluids filtration , handling , and recycling ; wellbore cleanup ; and fluid engineering consultation . the fluids division also markets liquid and dry calcium chloride products manufactured at its production facilities or purchased from third-party suppliers to a variety of markets outside the energy industry . fluids division revenues increased $ 48.1 million during 2013 compared to 2012 , due to the continuing growth of the division 's water management services business , increased cbf product sales from increased activity in the gulf of mexico , and increased sales of manufactured products compared to the prior year . although demand for the fluids division 's cbf products is driven primarily by completion activity rather than drilling activity , the increase in the gulf of mexico rig count compared to 2012 reflects the increasing demand for offshore cbf products . demand for the division 's products and services , particularly for its offshore cbf products , has been affected by regulatory restrictions in the past and may continue to be affected by future regulatory restrictions . with the acquisition of the td water transfer assets , we anticipate that the revenues , profitability , and operating cash flows of the fluids division will continue to increase going forward . our production enhancement division consists of two operating segments : the production testing segment and the compressco segment . the production testing segment generates revenues and cash flows by performing after-frac flow back , production well testing , offshore rig cooling , early production facilities , and other associated services . the primary markets served by the production testing segment include many of the major oil and gas producing regions in the united states , mexico , and canada , as well as in certain oil and gas basins in certain regions in south america , africa , europe , the middle east , and australia . the division 's production testing operations are generally driven by the demand for natural gas and oil and the resulting levels of drilling and completion activities in the markets that the production testing segment serves . the production testing segment 's revenues decreased by $ 12.0 million in 2013 compared to 2012 , due to decreased activity by the segment 's primary customers in mexico and south texas and the impact of increasing competition , particularly in north america . our compressco segment generates revenues and cash flows by performing compression-based production enhancement services throughout many of the onshore oil and gas producing regions of the united states , as well as certain basins in mexico and canada , and certain countries in south america , europe , and the asia-pacific region . the compressco segment provides services that are used in both conventional wellhead compression applications and unconventional compression applications , and , in certain circumstances , well monitoring and sand separation services . in certain markets , the compressco segment also sells compressor packages and parts . compressco segment revenues increased $ 11.8 million in 2013 as compared to 2012 , primarily due to increased demand for domestic unconventional compression applications , and the growth of activity in canada and argentina , which more than offset the decreased activity by its primary customer in mexico . in addition , revenues from the sales of compressor packages and parts also increased compared to the prior year . while there are uncertainties in latin america that could affect operations , including the upcoming renewal of certain customer contracts , as well as uncertainties surrounding the domestic price of natural gas which drives demand for a portion of compressco 's domestic services , we expect revenues from the segment will continue to increase . our offshore division consists of two operating segments : offshore services and maritech . offshore services generates revenues and cash flows by performing ( 1 ) downhole and subsea oil and gas well plugging and abandonment services , ( 2 ) decommissioning and certain construction services utilizing heavy lift barges and various cutting technologies with regard to offshore oil and gas production platforms and pipelines , and ( 3 ) conventional and saturated air diving services . the services provided by the offshore services segment are marketed to offshore operators , primarily in the u.s. gulf of mexico . gulf of mexico platform decommissioning and 31 well abandonment activity levels are driven primarily by bsee regulations ; the declining production levels of producing fields ; the age of production platforms and other structures ; oil and natural gas commodity prices ; sales activity of mature oil and gas producing properties ; and overall oil and gas company activity levels . offshore services revenues decreased by $ 10.1 million during 2013 compared to 2012 , due to the continuing challenges in the u.s. gulf of mexico market , including decreased heavy lift , abandonment , and cutting services activity , customer project delays , weather disruptions , and pricing pressures during the past year . story_separator_special_tag we expect that the remaining decommissioning and abandonment work to be performed for maritech will decrease beginning in 2014 , and , thereafter , the offshore services segment is focused on replacing this work with work for third party customers . the sales of substantially all of maritech 's oil and gas producing properties during 2011 and 2012 have essentially removed us from the oil and gas exploration and production business . maritech 's revenues are minimal and are expected to continue to be minimal going forward . maritech 's current operations primarily consist of the ongoing plugging , abandonment , and decommissioning associated with its remaining offshore wells , facilities , and production platforms . we expect to complete the majority of this remaining work during 2014. critical accounting policies and estimates this discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements . we prepared these financial statements in conformity with united states generally accepted accounting principles . in preparing our consolidated financial statements , we make assumptions , estimates , and judgments that affect the amounts reported . we base these estimates on historical experience , available information , and various other assumptions that we believe are reasonable . we periodically evaluate these estimates and judgments , including those related to potential impairments of long-lived assets ( including goodwill ) , the collectability of accounts receivable , and the current cost of future abandonment and decommissioning obligations . “ note b – summary of significant accounting policies ” to the consolidated financial statements contains the accounting policies governing each of these matters . the fair values of portions of our total assets and liabilities are measured using significant unobservable inputs . the combination of these factors forms the basis for our judgments made about the carrying values of assets and liabilities that are not readily apparent from other sources . these judgments and estimates may change as new events occur , as new information is acquired , and as changes in our operating environment are encountered . actual results are likely to differ from our current estimates , and those differences may be material . the following critical accounting policies reflect the most significant judgments and estimates used in the preparation of our financial statements . impairment of long-lived assets the determination of impairment of long-lived assets is conducted periodically whenever indicators of impairment are present . if such indicators are present , the determination of the amount of impairment is based on our judgments as to the future operating cash flows to be generated from these assets throughout their estimated useful lives . if an impairment of a long-lived asset is warranted , we estimate the fair value of the asset based on a present value of these cash flows or the value that could be realized from disposing of the asset in a transaction between market participants . the oil and gas industry is cyclical , and our estimates of the amount of future cash flows , the period over which these estimated future cash flows will be generated , as well as the fair value of an impaired asset , are imprecise . our failure to accurately estimate these future operating cash flows or fair values could result in certain long-lived assets being overstated , which could result in impairment charges in periods subsequent to the time in which the impairment indicators were first present . alternatively , if our estimates of future operating cash flows or fair values are understated , impairments might be recognized unnecessarily or in excess of the appropriate amounts . during 2013 , we recorded long-lived asset impairments of $ 9.6 million . during periods of economic uncertainty , the likelihood of additional material impairments of long-lived assets is higher due to the possibility of decreased demand for our products and services . impairment of goodwill the impairment of goodwill is also assessed whenever impairment indicators are present , but not less than once annually . the annual assessment for goodwill impairment begins with a qualitative assessment of whether it is “ more likely than not ” that the fair value of each reporting unit is less than its carrying value . this qualitative assessment requires the evaluation , based on the weight of evidence , of the significance of all identified events and circumstances for each reporting unit . based on this qualitative assessment , we determined that it was not “ more 32 likely than not ” that the fair values of any of our reporting units were less than their carrying values as of december 31 , 2013. if the qualitative analysis indicates that it is “ more likely than not ” that a reporting unit 's fair value is less than its carrying value , the resulting goodwill impairment test would consist of a two-step accounting test performed on a reporting unit basis . if the carrying amount of the reporting unit exceeds its estimated fair value , an impairment loss is calculated by comparing the carrying amount of the reporting unit 's goodwill to our estimated implied fair value of that goodwill . our estimates of reporting unit fair value , if required , are based on a combination of an income and market approach . these estimates are imprecise and are subject to our estimates of the future cash flows of each business and our judgment as to how these estimated cash flows translate into each business ' estimated fair value . these estimates and judgments are affected by numerous factors , including the general economic environment at the time of our assessment , which affects our overall market capitalization . if we overestimate the fair value of our reporting units , the balance of our goodwill asset may be overstated . alternatively , if our estimated reporting unit fair values are understated , impairments might be recognized unnecessarily or in excess of the appropriate amounts .
| decreases in compensation and other employee related expenses by our offshore services , corporate , and compressco segments were primarily due to cost reduction efforts during late 2012 and early 2013 as well as decreased equity based compensation during 2013 compared to 2012. these administrative cost decreases were largely offset by increased general and administrative costs due to the growth of our fluids division , the acquisitions completed during 2012 by our production testing segment , and approximately $ 1.9 million of employee severance costs during 2013. overall , cost reduction efforts taken by each of our segments are expected to continue to improve profitability during 2014 . 35 consolidated interest expense stayed consistent during 2013 compared to the prior year , as increased interest expense from compressco partners borrowings was largely offset by the impact of the lower interest rate on the 2013 senior notes . consolidated gains on sale of assets increased due to the sale by maritech of one of its remaining oil and gas properties during the third quarter of 2013. consolidated other income increased primarily due to increased earnings from tetra arabia , an unconsolidated limited liability company , and partly offset by decreased foreign currency exchange losses . the consolidated provision for income taxes decreased compared to the prior year due to decreased earnings . divisional comparisons fluids division replace_table_token_10_th the increase in fluids division revenues during 2013 compared to 2012 was primarily due to approximately $ 24.0 million of increased product sales , primarily due to the increased demand for its calcium chloride manufactured products as well as increased sales of brominated products . a portion of these increased manufactured product sales was due to increased demand in selected markets and nonrecurring demand from a single u.s. customer during 2013. in addition , fluids division product sales also reflect the increased demand for its cbf products , as u.s. gulf of mexico drilling and completion activity levels increased in 2013 compared to the prior year . decreased latin
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) net revenues in the fourth fiscal quarter of 2016 decreased versus the prior fiscal quarter , but increased versus the prior year quarter . net revenues for 2016 increased versus 2015 and operating results improved . continued strong orders resulted in an increase in many key financial metrics compared to the prior quarter and the fourth fiscal quarter of 2015. net revenues for the year ended december 31 , 2016 were $ 2.323 billion , compared to net revenues of $ 2.300 billion and $ 2.493 billion for the years ended december 31 , 2015 and 2014 , respectively . net earnings attributable to vishay stockholders for the year ended december 31 , 2016 were $ 48.8 million , or $ 0.32 per diluted share , compared to net loss attributable to vishay stockholders of $ 108.5 million , or $ 0.73 per share for the year ended december 31 , 2015 , and net earnings attributable to vishay stockholders of $ 117.6 million , or $ 0.77 per diluted share , for the year ended december 31 , 2014 . 31 we define adjusted net earnings as net earnings determined in accordance with gaap adjusted for various items that management believes are not indicative of the intrinsic operating performance of our business . we define free cash as the cash flows generated from continuing operations less capital expenditures plus net proceeds from the sale of property and equipment . the reconciliations below include certain financial measures which are not recognized in accordance with gaap , including adjusted net earnings , adjusted earnings per share , and free cash . these non-gaap measures should not be viewed as alternatives to gaap measures of performance or liquidity . non-gaap measures such as adjusted net earnings , adjusted earnings per share , and free cash do not have uniform definitions . these measures , as calculated by vishay , may not be comparable to similarly titled measures used by other companies . management believes that adjusted net earnings and adjusted earnings per share are meaningful because they provide insight with respect to our intrinsic operating results . management believes that free cash is a meaningful measure of our ability to fund acquisitions , repay debt , and otherwise enhance stockholder value through stock repurchases or dividends . net earnings ( loss ) attributable to vishay stockholders for the years ended december 31 , 2016 , 2015 , and 2014 include items affecting comparability . the items affecting comparability are ( in thousands , except per share amounts ) : replace_table_token_5_th * includes add-back of interest on exchangeable notes in periods where the notes are dilutive . although the term `` free cash '' is not defined in gaap , each of the elements used to calculate free cash is presented as a line item on the face of our consolidated statements of cash flows prepared in accordance with gaap . replace_table_token_6_th our results for 2016 represent the effects of a strong business environment , sustained high order volume , our cost reduction programs , and our growth initiatives . our percentage of euro-based sales approximates our percentage of euro-based expenses so the negative foreign currency impact on revenues was substantially offset by the positive impact on expenses . our pre-tax results were consistent with expectations based on our business model . our results for 2015 represent the effects of a weaker business environment in several of our customer end markets versus 2014. our revenue results for the year ended december 31 , 2015 were negatively affected by foreign currency effects , especially from the euro , and the temporary shutdown of our diodes manufacturing facility in tianjin , china . 32 financial metrics we utilize several financial metrics to evaluate the performance and assess the future direction of our business . these key financial measures and metrics include net revenues , gross profit margin , operating margin , segment operating income , end-of-period backlog , and the book-to-bill ratio . we also monitor changes in our inventory turnover and our or publicly available average selling prices ( `` asp '' ) . gross profit margin is computed as gross profit as a percentage of net revenues . gross profit is generally net revenues less costs of products sold , but also deducts certain other period costs , particularly losses on purchase commitments and inventory write-downs . losses on purchase commitments and inventory write-downs have the impact of reducing gross profit margin in the period of the charge , but result in improved gross profit margins in subsequent periods by reducing costs of products sold as inventory is used . gross profit margin is clearly a function of net revenues , but also reflects our cost management programs and our ability to contain fixed costs . operating margin is computed as gross profit less operating expenses as a percentage of net revenues . we evaluate business segment performance on segment operating margin . only dedicated , direct selling , general , and administrative expenses of the segments are included in the calculation of segment operating income . segment operating margin is computed as operating income less items such as restructuring and severance costs , asset write-downs , goodwill and indefinite-lived intangible asset impairments , inventory write-downs , gain or losses on purchase commitments , global operations , sales and marketing , information systems , finance and administrative groups , and other items , expressed as a percentage of net revenues . we believe that evaluating segment performance excluding such items is meaningful because it provides insight with respect to intrinsic operating results of the segment . operating margin is clearly a function of net revenues , but also reflects our cost management programs and our ability to contain fixed costs . end-of-period backlog is one indicator of future revenues . we include in our backlog only open orders that we expect to ship in the next twelve months . story_separator_special_tag if demand falls below customers ' forecasts , or if customers do not control their inventory effectively , they may cancel or reschedule the shipments that are included in our backlog , in many instances without the payment of any penalty . therefore , the backlog is not necessarily indicative of the results to be expected for future periods . an important indicator of demand in our industry is the book-to-bill ratio , which is the ratio of the amount of product ordered during a period as compared with the product that we ship during that period . a book-to-bill ratio that is greater than one indicates that our backlog is building and that we are likely to see increasing revenues in future periods . conversely , a book-to-bill ratio that is less than one is an indicator of declining demand and may foretell declining revenues . we focus on our inventory turnover as a measure of how well we are managing our inventory . we define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory ( computed using each fiscal quarter-end balance ) for this same period . a higher level of inventory turnover reflects more efficient use of our capital . pricing in our industry can be volatile . using our and publicly available data , we analyze trends and changes in average selling prices to evaluate likely future pricing . the erosion of average selling prices of established products is typical for semiconductor products . we attempt to offset this deterioration with ongoing cost reduction activities and new product introductions . our specialty passive components are more resistant to average selling price erosion . all pricing is subject to governing market conditions . 33 the quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business . the following table shows net revenues , gross profit margin , operating margin , end-of-period backlog , book-to-bill ratio , inventory turnover , and changes in asp for our business as a whole during the five fiscal quarters beginning with the fourth fiscal quarter of 2015 through the fourth fiscal quarter of 2016 ( dollars in thousands ) : replace_table_token_7_th _ ( 1 ) operating margin for the fourth fiscal quarter of 2015 and the first , second , third , and fourth fiscal quarters of 2016 includes $ 9.8 million , $ 6.5 million , $ 4.5 million , $ 1.2 million and $ 7.1 million , respectively , of restructuring and severance expenses ( see note 4 to our consolidated financial statements ) . operating margin for the fourth fiscal quarter of 2016 includes $ 79.3 million of pension settlement charges ( see note 11 to our consolidated financial statements ) . operating margin for the third fiscal quarter of 2016 includes $ 1.6 million of intangible asset impairment charges ( see note 3 to our consolidated financial statements ) . see `` financial metrics by segment '' below for net revenues , book-to-bill ratio , and gross profit margin broken out by segment . revenues for the fourth fiscal quarter of 2016 decreased versus the third fiscal quarter of 2016 , partially due to currency effects . order levels recovered in 2016 and sustained a high level throughout the year . the continued strong order level increased the backlog and book-to-bill ratio . our average selling prices continue to decline primarily due to our commodity semiconductor products and the effects of growing our resistors & inductors business in asia . gross profit margin decreased versus the prior fiscal quarter , but increased versus the fourth fiscal quarter of 2015. the fluctuations are primarily volume-driven with decreasing average selling prices burdening each period . gross profit margins for the periods prior to the second fiscal quarter of 2016 were negatively impacted by additional depreciation associated with our mosfets cost reduction program . the book-to-bill ratio increased to 1.11 in the fourth fiscal quarter of 2016 from 1.04 in the third fiscal quarter of 2016. the book-to-bill ratios for distributors and original equipment manufacturers ( `` oem '' ) were 1.16 and 1.04 , respectively , versus ratios of 1.10 and 0.98 , respectively , during the third fiscal quarter of 2016 . 34 financial metrics by segment the following table shows net revenues , book-to-bill ratio , gross profit margin , and segment operating margin broken out by segment for the five fiscal quarters beginning with the fourth fiscal quarter of 2015 through the fourth fiscal quarter of 2016 ( dollars in thousands ) : replace_table_token_8_th 35 acquisition activity as part of our growth strategy , we seek to expand through targeted acquisitions of other manufacturers of electronic components that have established positions in major markets , reputations for product quality and reliability , and product lines with which we have substantial marketing and technical expertise . this includes exploring opportunities to acquire targets to gain market share , penetrate different geographic markets , enhance new product development , round out our existing product lines , or grow our high margin niche market businesses . acquisitions of passive components businesses would likely be made to strengthen and broaden our position as a specialty product supplier ; acquisitions of discrete semiconductor businesses would be made to increase market share and to generate synergies . to limit our financial exposure , we have implemented a policy not to pursue acquisitions if our post-acquisition debt would exceed 2.5x our pro forma earnings before interest , taxes , depreciation , and amortization ( `` ebitda '' ) . for these purposes , we calculate pro forma ebitda as the adjusted ebitda of vishay and the target for vishay 's four preceding fiscal quarters , with a pro forma adjustment for savings which management estimates would have been achieved had the target been acquired by vishay at the beginning of the four fiscal quarter period .
| royalty revenues , included in net revenues on the consolidated statements of operations , were $ 0.3 million , $ 3.3 million , and $ 4.5 million , for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . the decrease is due to the expiration of certain licensing agreements . gross profit and margins gross profit margins for the year ended december 31 , 2016 were 24.5 % , as compared to 23.6 % for the year ended december 31 , 2015. the increase is primarily due to higher volume , cost savings from our restructuring programs , and lower metals and materials prices . gross profit margins for the year ended december 31 , 2015 were 23.6 % , as compared to 24.5 % for the year ended december 31 , 2014. the decrease was due primarily to lower volume and lower average selling prices . 45 segments analysis of revenues and gross profit margins for our segments is provided below . mosfets net revenues of the mosfets segment were as follows ( dollars in thousands ) : replace_table_token_13_th changes in mosfets segment net revenues were attributable to the following : replace_table_token_14_th gross profit margins for the mosfets segment were as follows : replace_table_token_15_th the mosfets segment experienced another decrease in its revenues in 2016 versus the prior year . net revenues were negatively impacted by declining selling prices , with only small offsetting volume increases in 2016 and a volume decrease in 2015. with the exception of the business with our asian distributors , we experienced a decrease in net revenues in all other regions and sales channels . the increase in business with asian distributors is mostly attributable to our integrated circuit ( `` ic '' ) products . the gross profit margin of 2016 has been negatively impacted by the recognition of expenses incurred on inventory produced last year due to the restructuring program that was sold this year . despite this negative impact and lower average selling prices , the gross profit percentage of 2016 increased slightly versus prior year due to cost reductions from our restructuring program and foreign currency effects . the gross profit margins for 2015 and 2014 were negatively impacted by additional depreciation associated
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due to the geographic concentration of our oil and natural gas properties in the williston basin , we believe the primary sources of opportunities , challenges and risks related to our business for both the short and long-term are : commodity prices for oil and natural gas ; transportation capacity ; 44 availability and cost of services ; and availability of qualified personnel . our revenue , profitability and future growth rate depend substantially on factors beyond our control , such as economic , political and regulatory developments as well as competition from other sources of energy . oil and natural gas prices historically have been volatile and may fluctuate widely in the future . sustained periods of low prices for oil or natural gas could materially and adversely affect our financial position , our results of operations , the quantities of oil and natural gas reserves that we can economically produce and our access to capital . prices for oil and natural gas can fluctuate widely in response to relatively minor changes in the global and regional supply of and demand for oil and natural gas , as well as market uncertainty , economic conditions and a variety of additional factors . since the inception of our oil and natural gas activities , commodity prices have experienced significant fluctuations . we enter into crude oil sales contracts with purchasers who have access to crude oil transportation capacity , utilize derivative financial instruments to manage our commodity price risk and enter into physical delivery contracts to manage our price differentials . in an effort to improve price realizations from the sale of our oil and natural gas , we manage our commodities marketing activities in-house , which enables us to market and sell our oil and natural gas to a broader array of potential purchasers . due to the availability of other markets and pipeline connections , we do not believe that the loss of any single oil or natural gas customer would have a material adverse effect on our results of operations or cash flows . please see item 1. businessmarketing , transportation and major customers. our quarterly average net realized oil prices and average price differentials are shown in the table below . replace_table_token_19_th ( 1 ) realized oil prices do not include the effect of realized derivative contract settlements . ( 2 ) price differential compares realized oil prices to wti crude oil index prices . changes in commodity prices may also significantly affect the economic viability of drilling projects as well as the economic valuation and economic recovery of oil and gas reserves . oil prices have increased significantly since 2009. the higher commodity prices , as well as continued successes in the application of completion technologies in the bakken formation , caused the active drilling rig count in the williston basin to increase to approximately 195 rigs at december 31 , 2012. although additional williston basin transportation takeaway capacity was added in recent years , production also increased due to the elevated drilling activity . the increased production coupled with delays in rail car arrivals and commissioning of rail loading facilities caused price differentials at times to be at the high-end of the historical average range of approximately 10 % to 15 % of the wti crude oil index price in the first half of 2012. in the third quarter of 2012 , differentials began to narrow , primarily due to transportation capacity additions , including expanded rail infrastructure and pipeline expansions , outpacing production growth . in the fourth quarter of 2012 , these price differentials continued to narrow , and at some points crude oil produced in the williston basin sold at a premium to wti crude oil index prices as a result of additional transportation capacity additions which had access to the east and west coast refineries . our large concentrated acreage position potentially provides us with a multi-year inventory of drilling projects and requires some forward planning visibility for obtaining services . our ability to develop and hold our existing undeveloped leasehold acreage is primarily dependent upon having access to drilling rigs and completion services . to ensure access to drilling rigs , we have entered into fixed-term drilling rig contracts for periods of up to three years and currently have nine drilling rigs under contract . in order to ensure the availability of completion services and the timely fracture stimulation of newly drilled wells , we formed ows in june 2011 to provide well services on our operated wells , in addition to entering into fracturing service contracts with third party companies . story_separator_special_tag /font > replace_table_token_21_th ( 1 ) for the years ended december 31 , 2011 and 2010 , lease operating expenses exclude marketing , transportation and gathering expenses to conform such amounts to current year classifications . ( 2 ) during 2010 , we recorded $ 8.7 million in stock-based compensation expense associated with c units and discretionary stock awards granted . stock-based compensation expense related to the amortization of restricted stock and performance share units is included in general and administrative expenses on the consolidated statement of operations . see note 9 to our audited consolidated financial statements . year ended december 31 , 2012 compared to year ended december 31 , 2011 lease operating expenses . lease operating expenses increased $ 22.2 million to $ 54.9 million for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. this increase was primarily due to the costs associated with operating an increased number of producing wells and associated produced fluid volumes as a result of our 2012 well completions . increased costs primarily related to workovers , chemical treatments , equipment rental and fresh water injections , which have improved operational performance and minimized downtime in our wells . story_separator_special_tag these cost increases were partially offset by salt water disposal activity and lower operating costs related to improved weather conditions as compared to the first half of 2011. the unit operating costs decreased from $ 8.36 for the year ended december 31 , 2011 to $ 6.68 for the year ended december 31 , 2012 , primarily due to our increase in production of 110 % outpacing our overall net increase in costs of 68 % . well services operating expenses . the $ 11.8 million in well services operating expenses represents third-party working interests ' share of fracturing service costs incurred by ows for fracturing jobs completed in 2012. there were no well services operating expenses in 2011 because ows did not commence fracturing activity until the first quarter of 2012 . 48 marketing , transportation and gathering expenses . marketing , transportation and gathering expenses includes all of our marketing , transportation and gathering for our oil production as well as bulk oil purchase costs . the $ 7.9 million increase period over period , or $ 0.79 increase per boe , is primarily attributable to increased oil transportation costs related to opm , which did not commence operations until late in the third quarter of 2011 , combined with a $ 1.4 million cost for bulk oil purchases made by opm in the first quarter of 2012 , partially offset by a $ 0.7 million non-cash valuation adjustment on our oil pipeline imbalances . excluding this pipeline imbalance adjustment and bulk oil purchase costs , our marketing , transportation and gathering expenses on a per boe basis would have been $ 1.04 for the year ended december 31 , 2012. production taxes . our production taxes for the years ended december 31 , 2012 and 2011 were 9.4 % and 10.2 % , respectively , as a percentage of oil and natural gas sales . the 2012 production tax rate was lower than the 2011 production tax rate because of the increased weighting of oil revenues in montana , which has lower incentivized production tax rates on certain new wells for the first twelve months of production . depreciation , depletion and amortization ( dd & a ) . dd & a expense increased $ 131.8 million to $ 206.7 million for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. the increase in dd & a expense for the year ended december 31 , 2012 was primarily a result of our production increases from our 2012 well completions . the dd & a rate for the year ended december 31 , 2012 was $ 25.14 per boe compared to $ 19.16 per boe for the year ended december 31 , 2011. the higher dd & a rate was a result of increased well costs in 2012 , which outpaced the increase in associated reserves . the increased well costs were a result of increases in service costs in the williston basin during 2011 and the first half of 2012 and the addition of infrastructure assets , primarily our salt water disposal systems . impairment of oil and gas properties . no impairment of proved oil and natural gas properties was recorded for the years ended december 31 , 2012 and 2011. during the years ended december 31 , 2012 and 2011 , we recorded non-cash impairment charges of $ 3.6 million each year for unproved properties due to leases that expired during the period and periodic assessments of unproved properties . as of december 31 , 2012 , we recorded a $ 1.8 million impairment charge related to acreage expiring in 2013 as a result of a periodic assessment because there were no plans to drill or extend the leases prior to their expiration . in determining the amount of non-cash impairment charges for such periods , we considered the application of the factors described under critical accounting policies and estimatesimpairment of proved properties and critical accounting policies and estimatesimpairment of unproved properties. general and administrative . our general and administrative expenses increased $ 27.8 million for the year ended december 31 , 2012 from $ 29.4 million for the year ended december 31 , 2011. of this increase , approximately $ 20.3 million was due to the impact of our organizational growth on employee compensation and $ 6.7 million was due to the amortization of our restricted stock awards and performance share units ( psus ) . as of december 31 , 2012 , we had 281 full-time employees compared to 146 full-time employees as of december 31 , 2011. derivatives . as a result of our derivative activities , we incurred a $ 6.5 million net cash settlement gain for the year ended december 31 , 2012 and a $ 3.8 million net cash settlement loss for the year ended december 31 , 2011. in addition , as a result of forward oil price changes , we recognized non-cash unrealized mark-to-market derivative gains of $ 27.6 million and $ 5.4 million during the years ended december 31 , 2012 and 2011 , respectively . interest expense . interest expense increased $ 40.5 million to $ 70.1 million for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. the increase was due to the interest related to our senior unsecured notes issued in february and november 2011 and july 2012. for the years ended december 31 , 2012 and 2011 , we incurred no borrowings under our revolving credit facility . we capitalized $ 3.3 million and $ 3.1 million of interest costs for the years ended december 31 , 2012 and 2011 , respectively , which will be amortized over the life of the related assets . income tax expense . income tax expense for the years ended december 31 , 2012 and 2011 was recorded at 37.6 % and 37.1 % of pre-tax net income , respectively .
| we expect to increase the gross operated oil production that will flow on these systems to over 80 % by mid-year 2013 with the implementation of gathering connections in our east nesson project area . in 2012 , we entered into new two-way and three-way collar options , swaps and put spreads , all of which settle monthly based on the wti crude oil index price . as of december 31 , 2012 , we had a total notional amount of 7,223,500 barrels that settle in 2013 , 2,775,500 barrels that settle in 2014 and 201,500 barrels that settle in 2015. on july 2 , 2012 , we issued $ 400.0 million of 6.875 % senior unsecured notes due january 15 , 2023. the issuance of these notes resulted in net proceeds to us of approximately $ 392.4 million , which we continue to use to fund our exploration , development and acquisition program and for general corporate purposes . on october 2 , 2012 , we entered into our seventh amendment to our revolving credit facility . in connection with this amendment , the semi-annual redetermination of our borrowing base was completed , which resulted in an increase to the borrowing base of our revolving credit facility from $ 500 million to $ 750 million . however , we elected to have the lenders ' aggregate commitment remain at $ 500 million , which we may increase in the future to $ 750 million by increasing the commitment of one or more lender ( s ) . at december 31 , 2012 , we had $ 239.3 million of cash , cash equivalents and short-term investments . we had no outstanding borrowings and had $ 2.2 million of outstanding letters of credit under our revolving credit facility . our 2013 capital expenditure budget is $ 1,020 million , an 11 % decrease from our 2012 capital expenditures of $ 1,148.6 million . the 2013 budget consists of : $ 897 million of drilling and completion capital for operated and non-operated wells ( including expected savings from services provided by ows ) ; $ 43 million for constructing infrastructure to support production in our core project areas , primarily related
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a significant portion of our water and sewer utility charges are re-billed to our residents . we reclassify these amounts to reflect the utility expenses associated with our same site portfolio net of recovery . the following tables reflect certain financial and other information for our same site communities as of and for the years ended december 31 , 2015 and 2014 : replace_table_token_18_th replace_table_token_19_th ( 1 ) excludes 18 properties that were disposed during 2015 ( refer to note 2 to our consolidated financial statements ) . ( 2 ) occupancy % includes mh and annual/seasonal rv sites , and excludes recently completed but vacant expansion sites and transient rv sites . ( 3 ) occupancy % for 2014 has been adjusted to reflect incremental growth year over year from filled expansion sites and the conversion of transient rv sites to annual / seasonal rv sites .. ( 4 ) monthly base rent pertains to annual rv sites and excludes transient rv sites . ( 5 ) occupancy reflects current year gains from expansion sites and the conversion of transient rv guests to annual/seasonal rv contracts as vacant in 2014. the 9.1 % growth in noi is primarily due to increased revenues of $ 22.1 million partially offset by a $ 3.7 million increase in expenses . income from real property revenue consists of mh and rv site rent , and miscellaneous other property revenues . the 7.6 % growth in income from real property was due to a combination of factors . revenue from our mh and rv portfolio increased $ 18.3 million due to average rental rate increases of 3.3 % a 2.7 % increase in occupancy and the increased number of occupied home sites . additionally , other revenues increased $ 1.8 million primarily due to increases in month to month fees , utilities income , trash income and cable television royalties . 39 sun communities , inc. property operating expenses increased approximately $ 3.7 million , or 4.2 % , compared to 2014. of that increase , supplies and repair expense increased $ 0.6 million primarily related to higher landscaping and tree trimming . utilities increased $ 0.8 million primarily as a result of increased electric and trash removal costs . legal , taxes , and insurance expenses increased $ 0.6 million primarily related to increased property and casualty insurance . home sales and rentals we purchase new homes and acquire pre-owned and repossessed manufactured homes , generally located within our communities , from lenders , dealers , and former residents to lease or sell to current and prospective residents . the following table reflects certain financial and statistical information for our home sales program for the years ended december 31 , 2015 and 2014 ( in thousands , except for average selling prices and statistical information ) : replace_table_token_20_th home sales gross profit increased $ 2.1 million on new home sales and increased $ 5.3 million on pre-owned home sales . the increased profit on new and pre-owned home sales is primarily due to increases in volume of both new and pre-owned home sales during the year . 40 sun communities , inc. the following table reflects certain financial and other information for our rental program as of and for the years ended december 31 , 2015 and 2014 ( in thousands , except for statistical information ) : replace_table_token_21_th ( 1 ) the renter 's monthly payment includes the site rent and an amount attributable to the leasing of the home . the site rent is reflected in the real property operations segment . for purposes of management analysis , the site rent is included in the rental program revenue to evaluate the incremental revenue gains associated with implementation of the rental program , and assess the overall growth and performance of rental program and financial impact to our operations . the 18.5 % growth in noi is primarily a result of increased rental income throughout the year . while the number of occupied rentals as of december 31 , 2015 , reflects a decline due to the 20 disposed communities during 2015 , the rental income associated with the majority of those communities was earned through november . we renew approximately 60 % of our rental home leases primarily at current market rates or above existing rates . the $ 1.7 million increase in operating and maintenance expenses was primarily a result of a $ 1.3 million increase in repair and refurbishment expenses , of which $ 0.7 million was due to increased refurbishment costs related to occupant turnover and $ 0.5 million was due to increased repair costs on occupied home rentals . in addition , insurance and personal property and use taxes increased by $ 0.4 million . 41 sun communities , inc. other income statement items the following table summarizes other income and expenses for the years ended december 31 , 2015 and 2014 ( amounts in thousands ) : replace_table_token_22_th ancillary revenues , net increased during the year ended december 31 , 2015 , by $ 1.8 million , from the year ended december 31 , 2014 , primarily due to increased vacation rental income of $ 1.7 million . interest income increased during the year ended december 31 , 2015 , by $ 1.5 million , from the year ended december 31 , 2014 , primarily due to an increase in interest income from collateralized receivables of $ 1.5 million related to an increase in our note portfolio . brokerage commissions and other revenues increased during the year ended december 31 , 2015 , by $ 1.2 million , from the year ended december 31 , 2014 , primarily due to an increase in the number of brokered homes sold . story_separator_special_tag real property general and administrative expenses increased during the year ended december 31 , 2015 , by $ 8.5 million , from the year ended december 31 , 2014 , primarily due to increased expenses related to salaries , wages and related taxes of $ 3.5 million as a result of our acquisitions and increased headcount year over year , increased deferred compensation of $ 2.2 million , increased training , travel , and office expenses of $ 0.9 million , increased expenses for software support and maintenance , director fees , and regulatory fees of $ 0.7 million , increased consulting costs of $ 0.5 million , increased corporate insurance of $ 0.4 million , and increased other miscellaneous expenses of $ 0.3 million . home sales and rentals general and administrative expenses increased during the year ended december 31 , 2015 , by $ 3.8 million , from the year ended december 31 , 2014 , primarily due to increased expenses related to salaries , wages , and related taxes of $ 2.5 million , increased commissions on home sales of $ 1.0 million , and increased advertising expenses of $ 0.3 million . depreciation and amortization expenses increased during the year ended december 31 , 2015 , by $ 43.9 million , from the year ended december 31 , 2014 , primarily a result of additional depreciation and amortization of $ 33.3 million primarily related to our newly acquired properties ( see note 2 in our consolidated financial statements ) , an additional $ 4.6 million related to depreciation on investment property for use in our rental program , an additional $ 1.6 million related to depreciation on investment property for our vacation rental property , and an additional $ 4.4 million related to the amortization of in-place leases and promotions . asset impairment charge of $ 0.8 million during the year ended december 31 , 2014 , was a result of an impairment loss recorded on a long-lived asset for our mh and rv community in la feria , texas during 2014. we did not recognize any impairment charge during the year ended december 31 , 2015 . 42 sun communities , inc. interest expense on debt , including interest on mandatorily redeemable preferred op units , increased during the year ended december 31 , 2015 , by $ 33.9 million , from the year ended december 31 , 2014 , primarily as a result of a $ 25.2 million increase in mortgage interest due to the acquisition of the all and berger properties , increased interest on miscellaneous other long-term debt of $ 15.6 million , increased interest expense associated with our secured borrowing arrangements of $ 1.5 million , and increased other interest expenses of $ 0.5 million primarily related to deferred financing costs . the increases in interest expense were partially offset by $ 8.9 million of mark to market adjustments on assumed debt . gain on disposition of properties , net increased during the year ended december 31 , 2015 , by $ 107.7 million to $ 125.4 million from $ 17.7 million for the year ended december 31 , 2014 , primarily as a result of the sale of 20 properties during the year ended december 31 , 2015 , compared to the sale of 10 properties during the year ended december 31 , 2014 ( see note 2 in our consolidated financial statements ) . gain on settlement of $ 4.5 million in 2014 is the result of a settlement reached with the selling entities of 10 rv communities that we acquired in february 2013. the settlement was related to various warranties , representations , and indemnities included in the agreements under which we acquired the rv communities , including a covenant made by the sellers related to the 2012 revenue of the acquired properties . no such gain was recorded in 2015. distributions from affiliate increased during the year ended december 31 , 2015 , by $ 6.3 million , from the year ended december 31 , 2014 , as we received a $ 7.5 million distribution from origen in 2015 as part of its dissolution . preferred stock redemption costs increased during the year ended december 31 , 2015 , by $ 4.3 million , from the year ended december 31 , 2014 , as a result of a repurchase agreement with certain holders of the company 's series a-4 preferred stock ( see note 9 in our consolidated financial statements ) . 43 sun communities , inc. comparison of the years ended december 31 , 2014 and 2013 real property operations – total portfolio the following tables reflect certain financial and other information for our total portfolio as of and for the years ended december 31 , 2014 and 2013 : replace_table_token_23_th replace_table_token_24_th ( 1 ) occupied sites and occupancy % include mh and annual rv sites and excludes transient rv sites , which are included in total developed sites . ( 2 ) monthly base rent pertains to annual rv sites and excludes transient rv sites . the 14.4 % growth in real property noi was primarily due to $ 14.5 million from newly acquired properties and $ 14.8 million from same site properties as detailed below . 44 sun communities , inc. real property operations – same site the same site information in this comparison of the years ended december 31 , 2014 and 2013 includes all properties which we have owned and operated continuously since january 1 , 2013. replace_table_token_25_th replace_table_token_26_th ( 1 ) occupied sites and occupancy % include mh and annual rv sites , and excludes transient rv sites . ( 2 ) occupancy % includes mh and annual/seasonal rv sites , and excludes recently completed but vacant expansion sites and transient rv sites . ( 3 ) occupancy % for 2014 has been adjusted to reflect incremental growth year over year from filled expansion sites and the conversion of transient rv sites to annual / seasonal rv sites .
| 33 sun communities , inc. acquisition and disposition activity : during the past three years , we have completed acquisitions of 90 properties with over 33,184 sites located in high growth areas and retirement and vacation destinations such as florida , california , and eastern coastal areas such as old orchard beach , maine ; cape may , new jersey ; chesapeake bay , virginia ; and cape cod , massachusetts . the following graph depicts our acquisitions during 2015 and 2014 : during 2015 , we completed 38 acquisitions consisting of 34 mh communities , and 4 rv communities . the following table is a list of our acquisitions for 2015 , excluding the second phase of the all acquisition : replace_table_token_14_th during 2014 , we announced our acquisition of the all properties for a purchase price of $ 1.3 billion , which is our largest acquisition to date . the all portfolio includes 59 mh communities comprised of over 19,000 sites . this acquisition provides us with a portfolio of large , well-located high-quality communities with attractive amenities and potential for occupancy and rent growth . it increased our overall geographic diversification and the size of our age-restricted portfolio with additional exposure in the sought after florida and arizona markets . approximately 56 % of the communities are located in florida and 73 % are considered age-restricted , adding significant growth to our existing highly-stable , age-restricted portfolio . the acquisition was completed in two phases . we acquired 33 properties , which we operate as 32 communities , in november 2014 , and we acquired the remaining 26 properties in january 2015. we continue to experience an active pipeline of acquisition opportunities and will seek to enhance the growth of the company through continued selective acquisitions . we continually review the properties in our portfolio to ensure that they fit our business objectives . during 2015 , we sold 17 mh and 3 mh and rv combined communities for gross proceeds of $ 224.5 million , which were primarily located in lower growth markets and no longer meet our strategic objectives . a gain of $ 125.4 million is recorded in `` gain on disposition of properties , net '' in our consolidated statements of operations . 34 sun communities , inc. the number of disposal properties by state for our mh communities and rv communities during 2015 and 2014 are shown below : expansion activity : we have
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you should review the “ risk factors ” set forth in this annual report on form 10-k for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a pharmaceutical company dedicated to the development of best-in-class therapeutics that improve and extend the lives of patients with cancer . our initial focus is on the development of tesetaxel , an investigational , orally administered chemotherapy agent that belongs to a class of drugs known as taxanes , which are widely used in the treatment of cancer . tesetaxel has several potential therapeutic advantages over currently available taxanes , including : oral administration with a low pill burden and a patient-friendly dosing regimen ; a formulation that does not contain solubilizing agents that are known to cause hypersensitivity ( allergic ) reactions ; and improved activity against chemotherapy-resistant tumors . tesetaxel has been generally well tolerated in clinical studies and has demonstrated robust single-agent antitumor activity in two multicenter , phase 2 studies in patients with locally advanced or metastatic breast cancer ( “ mbc ” ) . we are conducting a multinational , multicenter , randomized , phase 3 study in mbc , known as contessa , and we expect to report top-line results from this study in 2020. our goal for tesetaxel is to develop an effective chemotherapy choice for patients that provides quality-of-life advantages over current alternatives . on december 6 , 2017 , we converted from a delaware limited liability company to a delaware corporation by filing a certificate of conversion with the delaware secretary of state , and we changed our name from “ odonate therapeutics , llc ” to “ odonate therapeutics , inc. ” ( the “ conversion ” ) . as a result of the conversion , the membership interests of odonate therapeutics , llc were converted into shares of odonate therapeutics , inc. prior to the conversion , we formed a holding company named odonate holdings , llc ( “ odonate holdings ” ) to own odonate therapeutics , llc . following the conversion , odonate holdings distributed its interest in odonate therapeutics , inc. to prior members of odonate therapeutics , llc , but retained record title to the 2,931,402 shares of common stock underlying outstanding incentive units previously granted to employees , officers , directors and consultants by odonate management holdings , llc and 154,285 shares of common stock beneficially owned by tang capital partners , lp . all common stock and per share amounts for all periods presented in this annual report on form 10-k have been adjusted retroactively , where applicable , to reflect the conversion . on december 11 , 2017 , we closed our initial public offering ( “ ipo ” ) of 6,250,000 shares of common stock at a public offering price of $ 24.00 per share . on january 10 , 2018 , the underwriters in the ipo purchased 441,073 shares of common stock in connection with the exercise of their option to purchase additional shares of common stock . the aggregate gross proceeds from the ipo were $ 160.6 million , and the net proceeds were $ 147.3 million after deducting underwriting discounts and commissions and offering costs . components of our results of operations research and development expense research and development expenses consist primarily of costs associated with the development of our product candidates and include salaries , benefits , travel and other related costs , including equity-based compensation expenses , for personnel engaged in research and development functions ; expenses incurred under agreements with contract research organizations ( “ cros ” ) , investigative sites and consultants that conduct our preclinical and clinical studies ; manufacturing development and scale-up expenses and the cost of acquiring and manufacturing clinical study materials and commercial materials , 67 including manufacturing registration and validation batches ; payments to consultants engaged in the development of our product candidates , including equity-based compensation , travel and other expenses ; costs related to compliance with quality and regulatory requirements ; and research and development facility-related expens es , which include direct and allocated expenses , and other related costs . research and development expenses are charged to operations as incurred when these expenditures relate to our research and development efforts and have no alternative future uses . payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received . all of our research and development expenses to date have been incurred in connection with tesetaxel . we expect our research and development expenses to increase for the foreseeable future as we advance tesetaxel through clinical development , including the conduct of our ongoing phase 3 study , contessa . general and administrative expense general and administrative expenses consist primarily of salaries , related benefits , travel , equity-based compensation expense and facility-related expenses for personnel in finance and administrative functions . general and administrative expenses also include professional fees for legal , patent , consulting , accounting and audit services and other related costs . we anticipate that our general and administrative expenses will increase in the future as we build our infrastructure to support our continued research and development of tesetaxel . we also anticipate increased expenses related to accounting , legal and regulatory-related services associated with maintaining compliance with exchange listing and the u.s. securities and exchange commission ( “ sec ” ) requirements , director and officer insurance premiums and other costs associated with being a public company . story_separator_special_tag story_separator_special_tag be required to delay , limit , reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidate even if we would otherwise prefer to develop and market such product candidate ourselves . contractual obligations and commitments we enter into contracts in the normal course of business with cros , contract development and manufacturing organizations and other service providers and vendors . these contracts generally provide for termination on notice and , therefore , are cancelable contracts and not included in the table of contractual obligations and commitments . in 2013 , we licensed rights to tesetaxel in all major markets from daiichi sankyo company , limited ( “ daiichi sankyo ” ) , the original inventor of the product . under the daiichi sankyo license agreement , we are obligated to use commercially reasonable efforts to develop and commercialize tesetaxel in the following countries : france , germany , italy , spain , the united kingdom and the u.s. we are required to make aggregate future milestone payments of up to $ 31.0 million , contingent on attainment of certain regulatory milestones . additionally , we will pay daiichi sankyo a tiered royalty that ranges from the low to high single digits , depending on annual net sales of tesetaxel . 70 a summary of our contractual obligations and commitments as of december 31 , 2017 is set forth below ( in thousands ) : payments due by period less than 1 year 1 to 3 years 3 to 5 years more than 5 years total amounts committed milestone payments ( 1 ) - - - - $ 31,000 ( 1 ) represents potential aggregate future milestone payment amounts to daiichi sankyo . the actual amount and timing of these payments are uncertain , as the payments are contingent on future events . off-balance sheet arrangements during the periods presented , we did not have , nor do we currently have , any off-balance sheet arrangements as defined under the rules of the sec . jumpstart our business startups act we are an emerging growth company , as defined in the jumpstart our business startups act of 2012 ( “ jobs act ” ) . under this act , emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the jobs act until such time as those standards apply to private companies . we have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and , therefore , will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . however , we also intend to rely on other exemptions provided by the jobs act , including without limitation , not being required to comply with the auditor attestation requirements of section 404 ( b ) of the sarbanes-oxley act of 2002 , as amended . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in accordance with generally accepted accounting principles in the u.s. ( “ gaap ” ) . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported expenses during the reporting periods . these items are monitored and analyzed by us for changes in facts and circumstances , and material changes in these estimates could occur in the future . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . changes in estimates are reflected in reported results for the period in which they become known . actual results may differ materially from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in the notes to our audited financial statements elsewhere in this annual report on form 10-k , we believe that the following accounting policies related to accrued expenses and equity-based compensation are most critical to understanding and evaluating our reported financial results . accrued expense s as part of the process of preparing our financial statements , we are required to estimate our accrued expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses 71 as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and mak e adjustments if necessary . examples of estimated accrued expenses include costs associated with conducting our development and regulatory activities , including fees paid to third-party professional consultants and service providers , and costs to develop a nd manufacture clinical study materials . we base our accrued expenses on our estimates of the services received and efforts expended pursuant to our contractual arrangements .
| as of december 31 , 2017 and december 31 , 2016 , we had an accumulated deficit of $ 39.3 million and $ 6.5 million , respectively . substantially all of our operating losses resulted from expenses incurred in connection with advancing tesetaxel through development activities and general and administrative costs associated with our operations . to date , we have funded our operations through the sale of equity securities . since our inception , we have raised $ 238.1 million in net proceeds from the sale of equity securities . the following table sets forth a summary of the net cash flow activity for each of the periods set forth below : replace_table_token_6_th 69 net cash used in operating activities was $ 25.9 million and $ 1.7 million for the years ended december 31 , 2017 and 2016 , respectively . net cash used in operating activities was the result of our net loss and change in working capital , partially offset by non-cash contributions for expenses by an affiliate of a significa nt stockholder , equity-based compensation and depreciation expense . net cash used in investing activities was $ 0.1 million for the year ended december 31 , 2017. net cash used in investing activities was the result of purchases of property and equipment . no cash was used in investing activities for the year ended december 31 , 2016. net cash provided by financing activities was $ 221.5 million and $ 4.2 million for the years ended december 31 , 2017 and 2016 , respectively . for the year ended december 31 , 2017 , net cash provided by financing activities was the result of our sale of common stock in our ipo for net proceeds of $ 137.5 million and , prior to our ipo , our sale of common stock in private financings for net proceeds of $ 84.0 million . for the year ended december 31 , 2016 , net cash provided
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whether in the home , physician office , ambulatory infusion center or other alternate sites of care , we provide products , services and condition-specific clinical management programs tailored to improve the care of individuals with complex health conditions such as gastrointestinal abnormalities , hiv/aids , cancer , iron overload , multiple sclerosis , organ transplants , bleeding disorders , rheumatoid arthritis , immune deficiencies and congestive heart failure . our business is currently reported under two segments : infusion/home health services and pharmacy services . these two segments reflect how our chief operating decision maker reviews our results in terms of allocating resources and assessing operating and financial performance . the infusion/home health services segment provides services consisting of home infusion therapy , respiratory therapy and the provision of durable medical equipment products and services . infusion services include the dispensing and administering of infusion-based drugs , which typically require additional nursing and clinical management services , equipment to administer the correct dosage and patient training designed to improve patient outcomes . home infusion services also include the dispensing of self-injectible therapies . home health services include the provision of skilled nursing services and therapy visits , private duty nursing services , hospice services , rehabilitation services and medical social services to patients primarily in their home . since the acquisition of critical homecare solutions holdings , inc. ( `` chs '' ) in march , 2010 , we have implemented certain managed care contracts across the integrated infusion/home health services segment . the contracted rates have reduced reimbursement levels compared to the out-of-network reimbursement levels received prior to june , 2010 , when we began the process of moving certain out-of-network payors under national contracts . on a year-over-year basis , the contracts have reduced net revenue per patient in certain therapies and drug classes and , correspondingly , our gross profit margin and segment adjusted ebitda , as defined below . however , the contract relationship allows greater access to more insured lives . we have seen sequential and year-over-year volume trends increase from these contracted relationships . over the next year , we anticipate there will be continued growth in patient volume related to these contracts , with the opportunity to improve product mix in order to mitigate the impact to gross margin . the pharmacy services segment consists of our traditional and specialty pharmacy mail operations , community pharmacies and integrated pbm services , which includes discount cash card programs . these segment operations are designed to offer customers and patients cost-effective delivery of traditional and specialty pharmacy products and services . the services also 41 include care management programs customized to each patient 's care plan in coordination with the patient 's physician . on a comparative basis , the infusion/home health services segment has historically maintained a higher gross margin as a percent of revenue than the pharmacy services segment . however , due to costs associated with the management of the large number of care professionals involved in delivering services , the infusion/home health services segment also operates at a higher operating expense to revenue ratio . in the fourth quarter of 2010 , we commenced a strategic assessment of our business and operations . this assessment focused on expanding revenue opportunities and lowering corporate overhead , including workforce and benefit reductions and facility rationalization . salaries and benefits decreased by $ 7.7 million during the year ended december 31 , 2011 compared to the prior year as a result of the execution of the strategic assessment and related restructuring plan . the full impact of the salaries and benefits reductions are expected to be realized in 2012. we have also recognized cost savings in other areas of the business , such as rent and other facility costs . in addition to addressing corporate overhead , the strategic assessment examined our market strengths and opportunities and compared our position to that of our competitors . as a result of the assessment , we focused our growth on investments in the infusion/home health services segment and elected to pursue offers for a large portion of our pharmacy services segment . as a result , on february 1 , 2012 , subsequent to the fiscal year-end , the company entered into a community pharmacy and mail business purchase agreement ( the “ asset purchase agreement ” ) by and among walgreen co. and certain subsidiaries ( collectively , the “ buyers ” ) and the company and certain subsidiaries ( collectively , the `` sellers '' ) with respect to the sale of certain assets , rights and properties ( the “ pharmacy services asset sale ” ) relating to the sellers ' traditional and specialty pharmacy mail and community retail pharmacy store operations . pursuant to the terms of the asset purchase agreement , we will receive a total purchase price of approximately $ 170.0 million at closing , including the value of inventories on hand attributable to the operations subject to the pharmacy services asset sale . an additional $ 60.0 million of purchase price may be payable based on events related directly or indirectly to the retention of certain business by the buyers included in the pharmacy services asset sale . the purchase price excludes all accounts receivable and working capital liabilities relating to the operations subject to the pharmacy services asset sale having dates of service prior to the closing date of the pharmacy services asset sale , which were carried at approximately $ 55.0 million of net assets based on the consolidated balance sheets as of december 31 , 2011 , and will be retained by us . the pharmacy services asset sale and the other transactions contemplated by the asset purchase agreement are subject to various closing conditions , including the accuracy of representations and warranties and compliance with covenants , receipt of certain contractual consents , receipt of regulatory approvals and other customary closing conditions . during the first quarter of 2012 , the transaction received anti-trust clearance under the hart-scott-rodino act . story_separator_special_tag the operations subject to the pharmacy services asset sale represent a significant portion of the net asset value and revenue in the pharmacy services segment and less than half of the segment adjusted ebitda of that segment . the proposed transaction would include the sale of 30 community pharmacy locations and certain asset of three traditional and specialty mail service operations , which constitute all of our operations in the community pharmacy and mail order lines of business . the carrying value of the net assets subject to the pharmacy services asset sale was approximately $ 58.8 million at december 31 , 2011. assuming the pharmacy services asset sale is consummated , we intend to explore strategic alternatives to maximize stockholder value going forward , including deploying the proceeds of the pharmacy services asset sale and our other assets in seeking business acquisition opportunities . options that we may consider include reducing the revolving credit facility , redeeming a portion of the unsecured notes and reinvesting certain proceeds in the infusion/home health services segment , subject to the terms of our revolving credit facility and the indenture governing our the senior unsecured notes . if we consummate the pharmacy services asset sale discussed above , we expect to undertake a further strategic assessment of our business and operations in order to align our corporate structure with our remaining business operations . as part of these efforts , we may incur significant charges such as the write-down of certain long−lived assets , employee severance , other restructuring type charges , potential cash bonus payments and potential accelerated payments of certain of our contractual obligations , which may impact our future consolidated financial statements . 42 the operating results of the traditional and specialty pharmacy mail operations and community pharmacies for the years ended december 31 , 2011 , 2010 and 2009 are summarized below ( in thousands ) : replace_table_token_5_th regulatory matters update approximately 22 % of revenue for the year ended december 31 , 2011 was derived directly from medicare , state medicaid programs or other government payors . also , we provide services to beneficiaries of medicare , medicaid and other government-sponsored healthcare programs through managed care entities . medicare part d , for example , is administered through managed care entities . in the normal course of business , the company and our customers are subject to legislative and regulatory changes impacting the level of reimbursement received from the medicare and state medicaid programs . state medicaid programs in 2011 , increased medicaid spending , combined with slow state revenue growth , led many states to institute measures aimed at controlling spending growth . spending cuts have taken many forms including reducing eligibility and benefits , eliminating certain types of services , and provider reimbursement reductions . in addition , some states are moving beneficiaries to managed care programs in an effort to reduce costs . no single state medicaid program represents greater than 2 % of our consolidated revenue for the year ended december 31 , 2011 and no individual state medicaid reimbursement reduction to us as a provider is expected to have a material effect on our consolidated financial statements . we are continually assessing the impact of the state medicaid reimbursement cuts as states propose , finalize and implement various cost-saving measures . we did incur a 4.25 % reimbursement cut in 2011 from tenncare , the state of tennessee medicaid program , for certain home health services , and we will incur a second 4.25 % tenncare rate cut in the infusion/home health services segment effective january 1 , 2012. we also incurred a 2 % reimbursement cut from the new york medicaid program in 2011. changes to medi-cal , the state of california 's medicaid program , were approved by the centers for medicare and medicaid services ( “ cms ” ) in october , 2011. these changes generally reduce rates by approximately 10 % , with many of the reductions retroactive to june 1 , 2011. the impact of these changes can not be predicted with certainty because they are the subject of a number of lawsuits . preliminary injunctions have been issued that temporarily block the state from implementing the rate reductions , but we can not predict whether the court will ultimately determine to issue permanent injunctions . other states have announced plans to cut reimbursements in 2012 but none have been finalized . given the reimbursement pressures , we continue to improve operational efficiencies and reduce costs to mitigate the impact on results of operations where possible . in some cases , reimbursement rate reductions may result in negative operating results , and we would likely exit some or all services where rate reductions result in unacceptable returns to our shareholders . medicare federal efforts to reduce medicare spending are expected to continue in 2012. congress first passed the patient protection and affordable care act ( `` ppaca '' ) , and the health care and education reconciliation act of 2010 , which amended ppaca . in august 2011 , congress passed a deficit reduction agreement that created a super committee that was tasked with proposing legislation by november 23 , 2011. because the super committee did not act , automatic medicare cuts will go into effect . it is not possible to estimate at this time how such cuts would affect our results of operations , but we do expect reimbursement pressures to continue . thus far , we have been impacted by cms rule revisions which reduced reimbursement rates applicable to the home health division of our business . in november 2010 , the cms issued a final rule to update and revise medicare home health rates for calendar year 2011. the final rule decreased the reimbursement base rate for 2011 by 5.22 % .
| product revenue increased $ 54.3 million , or 4.5 % , primarily due to revenue from new managed care contracts , growth in the oncology , rheumatoid arthritis and multiple sclerosis therapies and industry-wide drug inflation . service revenue increased $ 51.3 million , or 78.6 % , due primarily to an increase in discount cash card programs sales . cost of revenue and gross profit . cost of revenue for the year ended december 31 , 2011 was $ 1.5 billion compared to $ 1.4 billion for the same period in 2010. gross profit for the year ended december 31 , 2011 was $ 312.3 million compared to $ 260.4 million for the same period in 2010 , an increase of $ 51.9 million , or 19.9 % . gross profit as a percentage of revenue increased to 17.2 % in the year ended december 31 , 2011 from 15.9 % in the year ended december 31 , 2010. the increase in gross profit and in gross profit as a percentage of revenue was the result of the acquisition of chs , which favorably impacted gross margin rates , and growth in discount cash card program volumes . since the acquisition of chs , we have implemented certain managed care contracts across the integrated infusion/home health services segment . the contracted rates have reduced reimbursement levels compared to the out-of-network reimbursement levels received prior to june , 2010 , when we began the process of moving certain out-of-network payors under national contracts . on a year-over-year basis , the contracts have reduced net revenue per patient in certain therapies and drug classes and , correspondingly , our gross profit margin . however , the contract relationship allows greater access to more insured lives . we have seen sequential and year-over-year volume trends increase from these contracted relationships . over the next year , we anticipate there will be continued growth in patient volume related to these contracts , with the opportunity to improve product mix in order to mitigate the impact to gross margin . selling , general and administrative expenses . selling , general and administrative expenses ( `` sg & a '' ) for
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for more information on the litigation with gn netcom , refer to note 9 , commitments and contingencies , of the accompanying notes to the consolidated financial statements . ( gain ) loss from litigation settlements replace_table_token_7_th during fiscal year 2019 , we incurred immaterial losses from litigation . during fiscal year 2018 we recognized immaterial gains from litigation . during fiscal year 2017 we recorded a $ 4.9 million litigation charge related to discovery sanctions ordered by the court in the gn netcom litigation . this charge was partially offset by immaterial gains from unrelated matters . for more information regarding on-going litigation , refer to note 9 , commitments and contingencies , of the accompanying notes to the consolidated financial statements . restructuring and other related charges replace_table_token_8_th during fiscal year 2019 restructuring and other related charges increased , due primarily to restructuring actions initiated during fiscal year 2019 subsequent to the acquisition . for more information regarding restructuring activities , refer to note 11 , restructuring and other related charges , of the accompanying notes to the consolidated financial statements . during fiscal year 2018 restructuring and other related charges ( credits ) increased , due to additional restructuring actions taken during the first quarter of fiscal year 2018 as part of our ongoing efforts to reduce costs and focus on improving profitability . these restructuring actions included a reduction-in-workforce , charges to terminate a lease before the end of its contractual term and a loss on the sale of our clarity division . for more information regarding these restructuring activities , refer to note 11 , restructuring and other related charges ( credits ) , of the accompanying notes to the consolidated financial statements . 43 during fiscal year 2017 we recorded a net favorable adjustment resulting from changes to the estimates related to our restructuring actions recorded in fiscal year 2016. the favorable adjustment was partially offset by additional restructuring charges of approximately $ 1.3 million related to an action in fourth quarter of fiscal year 2017. the restructuring action taken in the fourth quarter of fiscal year 2017 , while immaterial to consolidated results , was initiated to reduce the cost of our design and manufacturing processes , specifically in our consumer product lines , as part of a broader strategic effort to improve our cost structure and consolidated profitability in subsequent fiscal years . interest expense replace_table_token_9_th the increase in interest expense in fiscal year 2019 compared to fiscal year 2018 was primarily due to interest incurred on the term loan facility and amortization of debt issuance costs . refer to note 10 , debt , of the accompanying notes to the consolidated financial statements . interest expense of $ 29.3 million and $ 29.2 million for fiscal years 2018 and 2017 , respectively , was primarily related to the 5.50 % senior notes and included $ 1.5 million in amortization of debt issuance costs for both fiscal years . other non-operating income and ( expense ) , net replace_table_token_10_th during fiscal year 2019 other non-operating income and ( expense ) , net increased primarily due to the gain on sale of two strategic investments . during fiscal year 2018 other non-operating income and ( expense ) , net increased slightly primarily due to favorable changes in foreign currency exchange rates and an increase in interest income from higher average yields on our investment portfolio which were mostly offset by a loss of $ 1.2 million on the sale of our long-term investments . income tax expense replace_table_token_11_th the effective tax rate for fiscal 2019 was lower than that in the previous year due to the prior year 's $ 79.7 million tax expense related to a one-time deemed repatriation of accumulated foreign subsidiary unremitted earnings ( hereafter , the `` toll charge '' ) required by the tax cuts and jobs act ( h.r . 1 ) ( `` the tax act '' ) . in addition to the toll charge , the tax act includes several changes to the internal revenue code , including , among other things , a permanent reduction in the corporate income tax rate from 35 % to 21 % and applying new taxes on certain foreign source earnings . the effective tax rate for fiscal 2018 was higher than that in the previous year due primarily to the toll charge . 44 during fiscal 2019 , we finalized our computation of the toll charge in accordance with staff accounting bulletin sab 118 ( “ sab 118 ” ) , which addressed concerns about reporting entities ' ability to timely comply with the requirements to recognize the effects of the tax act . during fiscal 2018 , the company recorded a provisional toll charge of $ 79.7 million . during fiscal 2019 , the toll charge computation was finalized resulting in a tax benefit of $ 0.8 million . during fiscal 2018 , the company recorded a provisional expense of $ 5.0 million related to state income taxes and foreign withholding taxes for unrepatriated foreign earnings through the tax act 's enactment date . during fiscal 2019 , the computation of transitional state and foreign withholding taxes was completed resulting in the recognition of a tax benefit of $ 3.2 million . the effect of the sab 118 measurement period adjustments to the effective tax rates for the year ended march 30 , 2019 was ( 2.1 ) % . our effective tax rate for fiscal 2017 , 2018 , and 2019 differs from the statutory rate due to the impact of foreign operations taxed at different statutory rates , income tax credits , state taxes , the tax act , and other factors . our future tax rate could be impacted by a shift in the mix of domestic and foreign income , tax treaties with foreign jurisdictions , changes in tax laws in the u.s. or internationally , or a change in estimate of future taxable income , which could result in a valuation allowance being required . story_separator_special_tag financial condition operating cash flow ( in millions ) investing cash flow ( in millions ) financing cash flow ( in millions ) we use cash provided by operating activities as our primary source of liquidity . we expect that cash provided by operating activities will fluctuate in future periods as a result of a number of factors , including fluctuations in our revenues , the timing of product shipments during the quarter , accounts receivable collections , inventory and supply chain management , and the timing and amount of tax and other payments . operating activities compared to fiscal year 2018 , net cash provided by operating activities during fiscal year 2019 decreased primarily as a result of cash paid for acquisition and integration costs , restructuring activities , interest payments on long-term debt , and tax payments . the decrease was partially offset by higher cash collections from customers as a result of increased revenue . compared to fiscal year 2017 , net cash provided by operating activities during fiscal year 2018 decreased primarily as a result of lower net income after adjusting for non-cash items and higher payouts in the first quarter of fiscal year 2018 related to fiscal year 2017 variable compensation than payouts during the prior year period , due to better achievements against corporate targets in fiscal year 2017. investing activities net cash used for investing activities during fiscal year 2019 increased from the prior fiscal year primarily due to the acquisition which closed on july 2 , 2018. refer to note 4 , acquisition . this decrease was partially offset by the proceeds from the sales and maturities of investments . we anticipate our capital expenditures in fiscal year 2020 will be approximately $ 40 million to $ 50 million , pertaining to costs associated with new information technology ( `` it '' ) investments , capital investment in our manufacturing capabilities , including tooling for new products , and facilities upgrades . 45 net cash used for investing activities during fiscal year 2018 decreased from the prior fiscal year due to an increase in proceeds from the sales and maturities of debt securities , net of new investment purchases . this increase was partially offset by lower capital expenditures . we will continue to evaluate new business opportunities and new markets ; as a result , our future growth within the existing business or new opportunities and markets may dictate the need for additional facilities and capital expenditures to support that growth . financing activities net cash provided by financing during fiscal year 2019 increased from the prior fiscal year as a result of the proceeds received from the term loan facility which were partially offset by repayment of long-term debt , dividend payments , and repurchases of common stock during the fiscal year . net cash used for financing activities during fiscal year 2018 increased from the prior fiscal year primarily due to an increase in cash used for common stock repurchases driven by a lower average stock price which was partially offset by higher net proceeds from stock-based compensation plans . liquidity and capital resources our primary sources of liquidity as of march 31 , 2019 , consisted of cash , cash equivalents , and short-term investments , cash we expect to generate from operations , and a $ 100 million revolving credit facility . at march 31 , 2019 , we had working capital of $ 252.9 million , including $ 215.8 million of cash , cash equivalents , and short-term investments , compared to working capital of $ 774.2 million , including $ 660.0 million of cash , cash equivalents , and short-term investments at march 31 , 2018 . the decrease in working capital at march 31 , 2019 compared to march 31 , 2018 resulted from the impact of the acquisition during the fiscal year . our cash and cash equivalents as of march 31 , 2019 consist of bank deposits with third party financial institutions . cash balances are held throughout the world , including substantial amounts held outside of the u.s. as of march 31 , 2019 , of our $ 215.8 million of cash , cash equivalents , and short-term investments , $ 66.4 million was held domestically while $ 149.5 million was held by foreign subsidiaries , and approximately 69 % was based in usd-denominated instruments . during the quarter ended june 30 , 2018 , we sold most of our short-term investments to generate cash used to fund the acquisition which was finalized on july 2 , 2018. as of march 31 , 2019 , our remaining investments were composed of mutual funds . on july 2 , 2018 , we completed the acquisition of all of the issued and outstanding shares of capital stock of polycom . the acquisition was consummated in accordance with the terms and conditions of the previously announced purchase agreement , dated march 28 , 2018 , among the company , triangle and polycom . at the closing of the acquisition , plantronics acquired polycom for approximately $ 2.2 billion with the total consideration consisting of ( 1 ) 6.4 million shares of our common stock ( the `` stock consideration '' ) , resulting in triangle , which was polycom 's sole shareholder , owning approximately 16.0 % of plantronics following the acquisition and ( 2 ) $ 1.7 billion in cash ( the `` cash consideration '' ) . the consideration paid at closing was also subject to working capital , tax and other adjustments . we financed the cash consideration by using available cash-on-hand and funds drawn from our new term loan facility which is described further below . portions of the stock consideration and the cash consideration were each deposited into separate escrow accounts to secure certain indemnification obligations of triangle pursuant to the purchase agreement . in connection with the acquisition , we entered into a credit agreement with wells fargo bank , national association , as administrative agent , and the lenders party thereto ( the “ credit agreement ” ) .
| international net revenues for fiscal year 2019 increased from the prior fiscal year due to the acquisition and increased sales of our uc & c products and consumer products , which were partially offset by the unfavorable impact of fluctuations in foreign exchange rates . as a percentage of total net revenues , u.s. net revenues decreased in fiscal year 2018 from fiscal year 2017 due to a decline in sales of our consumer headset and core enterprise headset products which were partially offset by increased sales of our uc & c products . international net revenues for fiscal year 2018 increased from the prior fiscal year due to increased sales of our uc & c products and the favorable impact of fluctuations in foreign exchange rates which were partially offset by lower sales of our consumer products . 41 cost of revenues and gross profit cost of revenues consists primarily of direct manufacturing and contract manufacturer costs , warranty costs , freight duties , excess and obsolete inventory costs , royalties , and overhead expenses . replace_table_token_4_th compared to the prior fiscal year , gross profit as a percentage of net revenues decreased in fiscal year 2019 , due primarily to $ 114.4 million of amortization of purchased intangibles , $ 84.8 million of deferred revenue fair value adjustment , and $ 30.4 million of amortization of the inventory step-up associated with the acquisition ; refer to note 4 , acquisition . other unfavorable items were cost increases on commodity components driven by industry capacity shortages and a product mix with higher gaming and stereo revenues within our consumer headsets product category , which carries lower margins . these increased costs were partially offset by reductions in the cost of materials . compared to fiscal year 2017 , gross profit as a percentage of net revenues increased in fiscal year 2018 primarily due to product cost reductions , the strengthening of foreign currencies relative to the us dollar which favorably impacted margins on our international product sales , and a favorable product mix shift away from our consumer product category which carries lower
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for more than 350 combined years , we have been brewing high-quality , innovative products 30 with the purpose of delighting the world 's beer drinkers and goal to be the first choice for our consumers and customers . our success depends on our ability to make our products available to meet a wide range of consumer segments and occasions . in 2014 , our net income from continuing operations attributable to mcbc declined in 2014 compared to 2013 , however , we grew underlying after-tax earnings , free cash flow and ebitda , and exceeded our targets for cost savings , cash generation and significantly reduced our outstanding debt . weak consumer demand continued across our largest markets , but we continued to focus on building a stronger brand portfolio , delivering value-added innovation , strengthening our core brand positions and increasing our share in the above-premium segment . we also continued to improve our sales execution and revenue management capabilities , increase the efficiency of our operations , implement common systems and focus on generating higher returns for our invested capital , managing our working capital and delivering a greater return on investment for our shareholders . excluding the impact of foreign currency changes and the loss of the modelo brands in canada following the termination of our molson modelo inc. ( `` mmi '' ) joint venture , all of our segments achieved improved underlying profit performance in 2014 versus 2013. we grew our global above-premium volume , net pricing and sales mix , and maintained market share in europe despite a poor economy and floods in some of our highest-share markets . our craft portfolio drove growth from doom bar in the u.k. , creemore springs in canada and blue moon in the u.s. , u.k. and our international markets . our emerging cider portfolio delivered strong growth , led by molson canadian cider and strongbow in canada , smith & forge hard cider in the u.s. and carling british cider in europe . volume challenges included coors light performance in canada and the u.s. , however , coors light worldwide volume grew nearly 2 % on the strength of its performance in europe and mci . 2014 financial highlights : net income from continuing operations attributable to mcbc of $ 513.5 million , or $ 2.76 per diluted share , decreased 9.2 % from a year ago , primarily due to a $ 124.4 million increase in net special charges versus the prior year , driven by increased impairments of intangible assets in 2014 , partially offset by termination fee income associated with our mmi joint venture in canada . additionally , underlying after-tax income of $ 768.5 million , or $ 4.13 per diluted share , increased 5.7 % and underlying ebitda increased 0.1 % compared to 2013 , primarily due to an increase in underlying income in europe and the u.s. , partially offset by lower underlying income in canada . our underlying income excludes special and other non-core gains , losses and expenses that net to a $ 317.4 million pretax charge , as explained below . worldwide beer volume for mcbc in 2014 decreased 1.3 % compared to 2013 , primarily due to lower volumes in the u.s. and canada , partially offset by increased volumes from mci . additionally , consolidated net sales decreased 1.4 % compared to 2013 , driven by negative impacts of changes in foreign currency exchange rates and lower volumes in canada , partially offset by positive sales mix in europe . we generated cash flow from operating activities of $ 1,272.6 million , representing an 8.9 % increase from $ 1,168.2 million in 2013 and a 29.4 % increase from $ 983.7 million in 2012 . underlying free cash flow in 2014 was $ 956.7 million , compared to $ 892.0 million in 2013 , representing an increase of 7.3 % . these increases in operating cash flow and underlying free cash flow are driven by increased distributions from our investment in millercoors , as well as lower cash paid for pension contributions , capital expenditures , interest and taxes , along with higher underlying income , after considering non-cash impairments and other non-cash add-backs . these increases were partially offset by a decreased benefit from changes in net working capital . we decreased our total outstanding debt balances by $ 613.4 million during the year , primarily due to the repayment of our outstanding commercial paper borrowings and borrowings on our euro credit facility , as well as the final repayment of the amounts initially withheld from the repayment of the 500 million convertible note , partially offset by increased balances on our overdraft facility . additionally , the net underfunded position of our pension and other postretirement benefit plans , excluding those of millercoors and other equity method investments , increased by $ 91.1 million , primarily driven by the decrease in the weighted-average discount rates used , as well as decreased employer contributions and updates to published mortality tables . this increase was partially offset by changes in foreign exchange rates and the performance of our plan assets exceeding the expected return for our funded plans . we also repaid our remaining outstanding cross currency swaps for approximately $ 65.2 million . regional financial highlights : in our canada segment , we drove positive pricing and sales mix , achieved significant cost savings , and invested in improving the efficiency of our brewery network . our income from continuing operations before income taxes in canada increased in 2014 compared to 2013 by 12.0 % to $ 406.8 million , due to income received from the termination of our mmi joint venture , recorded within special items . our underlying pretax income decreased by 7.1 % to $ 365.0 million , due to unfavorable foreign currency movements and the impact 31 of terminating our mmi joint venture in the first quarter of 2014 , which had a combined negative pretax profit impact of approximately $ 35 million . story_separator_special_tag in the u.s. , millercoors grew net sales per hectoliter and increased the percent of sales in above premium , while working to restore growth to coors light and miller lite . in the fourth quarter of 2014 , miller lite increased sales to retail for the first time since 2007 , benefiting from a redesign based on the brand 's authenticity and heritage . in 2014 , the above premium segment continued to grow with higher-margin brands like redd 's , blue moon and leinenkugel 's summer shandy . our 2014 equity income in millercoors increased 4.2 % to $ 561.8 million , while underlying equity income in millercoors increased 2.8 % to $ 562.4 million compared to 2013 , primarily driven by higher net pricing , favorable brand mix and cost savings , partially offset by commodity and brewery inflation and lower fixed cost absorption . in our europe segment , although consumer demand remained weak , our business delivered higher net sales and underlying pretax earnings . additionally , despite the weak economy and significant flooding in some of our highest share markets , we maintained market share across the region versus the prior year on the strength of our core brands , above-premium portfolio and innovation . in addition to the core brand performances mentioned below , our craft and above-premium brands performed well , with cobra , coors light , doom bar and staropramen outside the czech republic leading the growth . in 2014 we reported a loss from continuing operations before income taxes of $ 111.9 million , versus income from continuing operations of $ 34.3 million in 2013 . the decrease from 2013 is attributable to an impairment charge of $ 360.0 million recognized in 2014 related to indefinite-lived intangible brand assets compared to an impairment charge of $ 150.9 million in 2013. underlying income of $ 242.7 million increased by 13.8 % , compared to $ 213.3 million in 2013 , due to higher net sales , as well as lower supply chain costs and lower general and administrative expenses , partially offset by the negative impact of a mix shift toward higher-cost products and packages and increased marketing investments . in our mci segment , we drove significant growth in terms of volume , net sales and gross profit in 2014 , despite the continuing challenges in ukraine and russia . our 2014 loss from continuing operations before income taxes increased by 12.7 % to $ 13.3 million , driven by a gain classified as specials items recognized on the sale of our mc si'hai joint venture in china during the fourth quarter of 2013 , along with an increase in marketing investment behind our brands versus 2013. we reduced our underlying pretax loss by 17.9 % versus 2013 , as a result of strong top-line growth and cost control . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in the fourth quarter of 2012 , the serbian government increased statutory corporate income tax rates from 10 % to 15 % , effective january 1 , 2013. as a result of the impact of the rate change on differences between the book basis and tax basis of intangible and other assets purchased in the acquisition , we increased our deferred tax liability by , and recognized income tax expense of , $ 38.3 million . ( 7 ) the effect of noncontrolling interest on the adjustments used to arrive at underlying income , a non-gaap measure , is calculated based on our ownership percentage of our subsidiaries from which each adjustment arises . this adjustment relates to the goodwill impairment charge in our mc si'hai joint venture , for which we subsequently sold our ownership interest in 2013 . ( 8 ) the effect of taxes on the adjustments used to arrive at underlying net income , a non-gaap measure , is calculated based on applying the underlying full-year effective tax rate to underlying earnings , excluding special and non-core items . the effect of taxes on special and non-core items is calculated based on the statutory tax rate applicable to the item being adjusted for in the jurisdiction from which each adjustment arises . additionally , the adjustment for 2014 includes an income tax benefit of $ 16.2 million recognized in the first quarter of 2014 related to the release of an 34 income tax reserve recorded in conjunction with the initial purchase accounting for the acquisition and is related to the settlement of certain local country regulatory matters associated with pre-acquisition periods . the following table highlights summarized components of our consolidated statements of operations for the years ended december 31 , 2014 , december 31 , 2013 , and december 29 , 2012 , and provides a reconciliation of `` underlying ebitda '' , a non-gaap measure , to its nearest u.s. gaap measure . see part ii-item 8 financial statements and supplementary data , “ consolidated statements of operations ” for additional details of our u.s. gaap results . replace_table_token_14_th n/m = not meaningful ( 1 ) includes adjustments to non-gaap underlying income within the table above related to special and non-core items . ( 2 ) represents adjustments to remove amounts related to interest , depreciation and amortization included in the adjustments to non-gaap underlying income above , as these items are added back as adjustments to net income attributable to mcbc from continuing operations . ( 3 ) adjustments to our equity income from millercoors , which include our proportionate share of millercoors ' interest , income tax , depreciation and amortization , special items , and amortization of the difference between the mcbc contributed cost basis and proportionate share of the underlying equity in net assets of millercoors . worldwide beer volume worldwide beer volume ( including adjacencies , such as cider ) is composed of our financial volume , royalty volume and proportionate share of equity investment str . financial volume represents owned beer brands sold to unrelated external customers within our geographical markets , net of returns and allowances .
| replace_table_token_13_th n/m = not meaningful ( 1 ) see part ii—item 8 financial statements and supplementary data , note 8 , `` special items '' of the notes to the consolidated financial statements ( `` notes '' ) for additional information . special items for the year ended december 31 , 2014 includes accelerated amortization expense of $ 4.9 million and accelerated depreciation expense of $ 4.0 million , which are included in our adjustments to arrive at underlying ebitda in the table below . ( 2 ) see `` results of operations '' , `` united states segment '' under the sub-heading `` special items `` in this section for additional information . there were no tax effects related to our share of millercoors special items in 2014 , 2013 or 2012 . ( 3 ) in connection with the acquisition of starbev in 2012 ( `` acquisition '' ) , we recognized fees in marketing , general and administrative expenses of $ 10.7 million and $ 40.2 million in 2013 and 2012 , respectively , of which $ 2.3 million was recorded as depreciation expense in 2013. concurrent with the announcement of the acquisition , we entered into a bridge loan agreement , which we terminated upon the closing of our issuance of the $ 1.9 billion senior notes . in connection with the issuance and subsequent termination of the bridge loan , we incurred debt fees of $ 13.0 million in the second quarter of 2012 recorded as other expense . additionally , in advance of our issuance of the $ 1.9 billion senior notes , we systematically removed a portion of our interest rate market risk in the second quarter of 2012 by entering into standard pre-issuance u.s. treasury interest rate hedges ( `` treasury locks '' ) . this resulted in an increase in the certainty of our yield to maturity when issuing the notes during which we recognized a cash loss of $ 39.2 million on settlement of the treasury locks recorded as interest expense . further , we used the proceeds from our issuance of the $ 1.9 billion senior notes to 33 purchase
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in any given period , our net sales depend heavily upon the end-market demand for the goods in which the products we manufacture for customers are used , the inventory levels maintained by our customers and in some cases , allocation of demand for manufacturing services among selected qualified suppliers . within our standard products group , net sales are driven by design wins in which we are selected by an electronics original equipment manufacturer ( oem ) or other potential customer to supply its demand for a particular product . a customer will often have more than one supplier designed in to multi-source components for a particular product line . once we have design wins and the products enter into mass production , we often specify the pricing of a particular product for a set period of time , with periodic discussions and renegotiations of pricing with our customers . in any given period , our net sales depend heavily upon the end-market demand for the goods in which our products are used , the inventory levels maintained by our customers and in some cases , allocation of demand for components for a particular product among selected qualified suppliers . in contrast to completely fabless semiconductor companies , our internal manufacturing capacity provides us with greater control over manufacturing costs and the ability to implement process and production improvements for our internally manufactured products , which can favorably impact gross profit margins . our internal manufacturing capacity also allows for better control over delivery schedules , improved consistency over product quality and reliability and improved ability to protect intellectual property from misappropriation on these products . however , having internal manufacturing capacity exposes us to the risk of under-utilization of manufacturing capacity that results in lower gross profit margins , particularly during downturns in the semiconductor industry . our products and services require investments in capital equipment . analog and mixed-signal manufacturing facilities and processes are typically distinguished by the design and process implementation expertise rather than the use of the most advanced equipment . many of these processes also tend to migrate more slowly to smaller geometries due to technological barriers and increased costs . for example , some of our products use high-voltage technology that requires larger geometries and that may not migrate to smaller geometries for several years , if at all . as a result , our manufacturing base and strategy do not require substantial investment in leading edge process equipment for those products , allowing us to utilize our facilities and equipment over an extended period of time with moderate required capital investments . in addition , we are less likely to experience significant industry overcapacity , which can cause product prices to decline significantly . in general , we seek to invest in manufacturing capacity that can be used for multiple high-value applications over an 48 extended period of time . in addition , we outsource manufacturing of those products which do require advanced technology and 12-inch wafer capacity . we believe this capital investment strategy enables us to optimize our capital investments and facilitates more diversified product and service offerings . since 2007 , we have designed and manufactured active matrix organic light emitting diodes ( amoled ) display driver ics in our internal manufacturing facilities . recently , as we expanded our design capabilities to products that require lower geometries unavailable at our existing manufacturing facilities , we began outsourcing manufacturing of certain amoled display driver ics to an external foundry . this additional source of manufacturing is an increasingly important part of our supply chain management , accounting for a growing portion of our revenue . by outsourcing manufacturing of advanced amoled products to external foundries , we are able to dynamically adapt to the changing customer requirements and address growing markets without substantial capital investments by us . both at the internal and external foundries , we apply our unique amoled process patents as well as other intellectual property , proprietary process design kits and custom design-flow methodologies . our success going forward will depend upon our ability to adapt to future challenges such as the emergence of new competitors for our products and services or the consolidation of current competitors . additionally , we must innovate to remain ahead of , or at least rapidly adapt to , technological breakthroughs that may lead to a significant change in the technology necessary to deliver our products and services . we believe that our established relationships and close collaboration with leading customers enhance our awareness of new product opportunities , market and technology trends and improve our ability to adapt and grow successfully . in our foundry services group , we strive to maintain competitiveness by offering high-value added processes , high-flexibility and excellent service by tailoring existing standard processes to meet customers ' design needs and porting customers ' own process technologies into our fabrication facilities . recent developments in december 2014 , we announced that our board of directors had adopted a plan to close our 6-inch fab . during the fourth quarter of 2015 , we received an $ 8.2 million deposit for sale of machinery in conjunction with the planned closure of our 6-inch fab . according to this plan , the 6-inch fab was closed on february 29 , 2016. during the first quarter of 2016 , we completed all procedures necessary to sell all machineries in our closed 6-inch fab and recognized a $ 7.8 million restructuring gain from this related deposit of $ 8.2 million , net of certain direct selling costs . on april 4 , 2016 , we commenced the program , which was available to certain manufacturing employees , including our 6-inch fab employees , through april 29 , 2016. as of april 29 , 2016 , 169 employees elected to resign under the terms of the program , from which we expect to save approximately $ 8 million in spending per year . story_separator_special_tag we paid approximately $ 8 million for severance benefits , which are required by law and had already been fully accrued in our financial statements , in a lump sum during the second quarter of 2016. beginning in may 2016 , we also began to pay a portion of the $ 4.2 million in aggregate other termination benefits under the program , which are being paid in equal monthly installments over twelve months . we recorded the $ 4.2 million charge related to the full amount of these other termination benefits payable under the program during the second quarter of 2016. as of december 21 , 2016 , we entered into a purchase and sale agreement to sell a building located in cheongju , south korea . the building has historically been used to house the 6-inch fab and became vacant upon the closure of the fabrication facility . as of december 31 , 2015 , the building was fully impaired . we received proceeds of $ 18.2 million , including a $ 1.7 million value-added tax , for the sale of the building on december 26 , 2016. we are obligated to perform certain removal construction work that is expected to be completed by the end of march 2017. accordingly , we recorded $ 18.2 million as restricted cash in our consolidated balance sheets as of december 31 , 2016 . 49 restatement in january 2014 , our audit committee commenced an independent investigation that resulted in the restatement of certain financial statements for prior periods . as a result of the restatement , we have incurred substantial external accounting , legal and other related costs associated with the restatement and certain litigation and other regulatory investigations and actions related thereto . we incurred restatement related costs of $ 7.0 million , primarily attributable to certain litigation , for the year ended december 31 , 2016 , compared to $ 12.4 million and $ 40.9 million for the years ended december 31 , 2015 and 2014 , respectively . on december 10 , 2015 , we entered into a memorandum of understanding with the plaintiffs ' representatives to settle the class action litigation , as defined and detailed in item 3. legal proceedings in this report , for an aggregate settlement payment of $ 23.5 million . this settlement payment was fully funded by insurance proceeds that were received in the first quarter of 2016 and disbursed from the escrow account , previously recorded as restricted cash , in the third quarter of 2016. on january 22 , 2016 , we entered into a stipulation of settlement with the plaintiffs in the shareholder derivative actions , as described in item 3. legal proceedings in this report , for an aggregate payment of $ 3.0 million from our insurance proceeds that were received in the first quarter of 2016 and recorded in the escrow account . in october 2016 , the court approved the settlement of the shareholder derivative actions for $ 3.0 million , which included $ 0.75 million awarded to plaintiffs ' counsel . upon the expiration of the appeals period , $ 2.25 million was disbursed from the escrow account , previously recorded as restricted cash , in december 2016. the remaining restricted cash related to insurance proceeds of $ 3.1 million was also released in december 2016. segments we report our financial results in two operating segments : foundry services group and standard products group . we identified these segments based on how we allocate resources and assess our performance . foundry services group : our foundry services group provides specialty analog and mixed-signal foundry services to fabless semiconductor companies and idms that serve consumer , computing , communication , industrial , automotive and iot applications . we manufacture wafers based on our customers ' product designs . we do not market these products directly to end customers but rather supply manufactured wafers and products to our customers to market to their end customers . we offer approximately 466 process flows to our foundry services customers . we also often partner with key customers to jointly develop or customize specialized processes that enable our customers to improve their products and allow us to develop unique manufacturing expertise . our foundry services target customers who require differentiated , specialty analog and mixed-signal process technologies such as high voltage complementary metal-oxide-semiconductor ( cmos ) , non-volatile memory or bipolar-cmos-dmos ( bcd ) . these customers typically serve the consumer , computing , communication , industrial , automotive and iot applications . our foundry services group business represented 39.8 % , 45.9 % and 51.6 % of our net sales for the fiscal years ended december 31 , 2016 , 2015 and 2014 , respectively . gross profit from our foundry services group business was $ 69.4 million , $ 66.2 million and $ 75.7 million for the fiscal years ended december 31 , 2016 , 2015 and 2014 , respectively . standard products group : our standard products group includes our display solutions and power solutions business lines . our display solutions products include source and gate drivers and timing controllers that cover a wide range of flat panel displays used in ultra high definition ( uhd ) , high definition ( hd ) , light emitting diode ( led ) , 3d and oled televisions and displays , notebooks and mobile communications and entertainment devices . our display solutions products support the industry 's most advanced display technologies , such as active matrix organic light emitting diodes ( amoleds ) , and low temperature polysilicons ( ltps ) , as well as high-volume display technologies such as thin film transistors ( tft ) . since 2007 , we have designed and manufactured amoled display driver ic products . our current portfolio of amoled solutions address a wide range of resolutions ranging from hd to wide quad high 50 definition ( wqhd ) for applications including smartphones , tvs , and other mobile devices .
| net sales from our display solutions business line were $ 282.0 million for the year ended december 31 , 2016 , a $ 74.5 million , or 35.9 % , increase from $ 207.5 million for the year ended december 31 , 2015. the increase in sales was primarily attributable to higher sales of mobile amoled display driver ic ; partially offset by revenue decrease in large display products mainly due to reduced demand for source drivers . net sales from our power solutions business line were $ 131.5 million for the year ended december 31 , 2016 , a $ 3.3 million , or 2.5 % , decrease from $ 134.8 million for the year ended december 31 , 2015. the decrease in sales was primarily due to the reduction of low contribution margin mosfet products as part of our product portfolio optimization process . all other . all other net sales were $ 0.6 million for the year ended december 31 , 2016 and december 31 , 2015 , respectively . gross profit total gross profit was $ 156.2 million for the year ended december 31 , 2016 compared to $ 134.9 million for the year ended december 31 , 2015 , a $ 21.4 million , or 15.8 % , increase . gross profit as a percentage of net sales for the year ended december 31 , 2016 increased to 22.7 % compared to 21.3 % for the year ended december 31 , 2015. the increase in gross profit as a percentage of net sales was due to both our foundry services group and standard products group segments as described below . foundry services group . gross profit from our foundry services group segment was $ 69.4 million for the year ended december 31 , 2016 , a $ 3.2 million , or 4.9 % , increase compared to $ 66.2 million for the year ended december 31 , 2015. gross profit as a percentage of net sales for the year ended december 31 , 2016 increased to 25.3 % compared to 22.8 % for the year ended december 31 , 2015. the increase in gross profit as a
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as of the end of the fourth quarter of fiscal 2011 , we reported that 27 % of our revenue had come from the targeted verticals . amendment to rights agreement on april 26 , 2011 , our board of directors adopted an amendment ( the “ amendment ” ) to our rights agreement , dated as of april 27 , 2001 as amended ( the “ rights plan ” ) . the board reviewed the necessity of the provision of the rights plan adopted to preserve the value of our deferred tax assets , including our net operating loss carry forwards , with respect to our ability to fully use these tax benefits to offset future income which may be limited if we experience an “ ownership change ” for purposes of section 382 of the internal revenue code of 1986 as a result of ordinary buying and selling of our common stock . our board determined that it was in our stockholders ' best interest to extend the term of the rights plan and the amendment was adopted to extend the term of the rights plan from april 27 , 2011 to april 30 , 2012. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > ( dollars in thousands ) : replace_table_token_4_th cost of product revenue includes costs of raw materials , amounts paid to third-party contract manufacturers , costs related to warranty obligations , charges for excess and obsolete inventory , royalties under technology license agreements , and internal costs associated with manufacturing overhead , including management , manufacturing engineering , quality assurance , development of test plans , and document control . we outsource substantially all of our manufacturing and supply chain management operations , and we conduct quality assurance , manufacturing engineering , document control and distribution at our facility in santa clara , california . accordingly , a significant portion of our cost of product revenue consists of payments to our primary contract manufacturer , alpha networks , located in hsinchu , taiwan . in addition , we oem our wireless product line from motorola . product gross profit in fiscal 2011 increased as compared to fiscal 2010 primarily due to increased revenue offset by higher material cost and a $ 5.4 million charge associated with the write-down of inventory from our strategic realignment . product gross profit in fiscal 2010 decreased as compared to fiscal 2009 primarily due to a $ 17.7 million decrease in sales volume driven by supply chain constraints in the first quarter of fiscal 2010 offset by a $ 1.1 million recovery of warranty expense incurred in the third quarter of fiscal 2010 from our outside design manufacturer and lower operating costs of $ 0.7 million due to cost controls . our cost of service revenue consists primarily of labor , overhead , repair and freight costs and the cost of spares used in providing support under customer service contracts . service gross profit in fiscal 2011 remained flat as compared to fiscal 2010 as revenue and costs were relatively unchanged from the prior year . service gross profit in fiscal 2010 increased as compared to fiscal 2009 primarily due to lower return material authorization costs of $ 1.6 million and cost savings in professional services . operating expenses the following table presents operating expenses and operating income ( in thousands , except percentages ) : 30 replace_table_token_5_th the following table highlights our operating expenses and operating income as a percentage of net revenues : replace_table_token_6_th sales and marketing expenses sales and marketing expenses consist of salaries , commissions and related expenses for personnel engaged in marketing and sales functions , as well as trade shows and promotional expenses . sales and marketing expenses increased in fiscal 2011 as compared to fiscal 2010 primarily due to $ 3.2 million higher salary and benefits expense resulting from increased headcount , $ 2.3 million higher commissions due to increased revenue , and $ 0.6 million increase in new marketing initiatives to improve brand awareness . sales and marketing expenses decreased in fiscal 2010 as compared to fiscal 2009 primarily due to lower salaries and benefits expenses of $ 1.1 million due to lower headcount and lower rent expense of $ 1.2 million due to the consolidation of sales offices worldwide , offset by $ 0.4 million increase in commissions due to mix of commissions based on large deals and $ 0.3 million in travel expenses due to year-end sales meetings . research and development expenses research and development expenses consist primarily of salaries and related personnel expenses , consultant fees and prototype expenses related to the design , development , and testing of our products . research and development expenses remained flat in fiscal 2011 as compared to fiscal 2010 primarily due to a $ 3.5 million increase in engineering project expenses offset by a $ 2.4 million decrease in salaries and benefits due to a reduction in headcount , a $ 0.5 million decrease in professional fees related to development work , and a $ 0.6 million decrease in stock-based compensation expense . research and development expenses decreased in fiscal 2010 as compared to fiscal 2009 primarily due to lower salaries and benefits expenses of $ 6.7 million due to lower headcount and lower engineering project expenses of $ 2.7 million due to discontinuation of several engineering projects , offset by a $ 0.5 million increase in stock-based compensation expense . we expense all research and development expenses as incurred . general and administrative expenses general and administrative expenses decreased in fiscal 2011 as compared to fiscal 2010 primarily due to a $ 1.7 million 31 decrease in litigation expenses . story_separator_special_tag general and administrative expenses decreased in fiscal 2010 as compared to fiscal 2009 primarily due to lower professional fees of $ 2.9 million and lower salaries and benefits expense of $ 1.4 million due to lower headcount , offset by an increase in share-based compensation expense of $ 0.9 million . restructuring charge , net of reversal during fiscal 2011 , 2010 and 2009 , we recorded restructuring charges of $ 3.8 million , $ 4.2 million , and $ 2.2 million , respectively . in fiscal 2011 , we commenced a strategy to focus on growing revenue in specific market verticals and on improving operational effectiveness . as part of the strategy , we reduced headcount by 139 and incurred total restructuring charges of $ 4.2 million , of which $ 1.0 million and $ 3.2 million were recognized in the third and fourth quarter of fiscal 2011 , respectively . we anticipate recognizing another $ 0.3 million in early fiscal 2012 related to the transition of certain employees impacted by the headcount reduction . during the fourth quarter of fiscal 2011 , the lease term for the excess leased facilities ended . we recognized a restructuring reversal of $ 0.4 million related to the true up of operating and rent expenses . charges in fiscal 2010 were : $ 4.6 million related to a restructuring of the organization from a business unit organization to a functional organization . in connection with the restructuring , we had a reduction in force ( `` rif '' ) and terminated 8 % of our workforce . total termination benefits were $ 4.1 million . the rif was executed and completed in the second quarter of fiscal 2010. in addition , we eliminated certain redundant engineering projects in conjunction with the reorganization . we incurred $ 0.5 million related to the discontinued engineering projects . $ 0.2 million increase in facilities operating expenses related to one of our restructured facilities . $ 0.5 million reversal of restructuring expense due to higher projected sublease receipt from a sublease renewal arrangement . $ 0.1 million reversal of restructuring expense related to the settlement of employment termination benefits incurred in the third fiscal quarter of 2009. charges in fiscal 2009 were : $ 0.8 million related to our termination of 1 % of our workforce , exiting a leased facility where the terminated employees worked and the write-off of impaired assets as part of our strategic plan . this restructuring was completed by the end of the third quarter of fiscal 2009 . $ 1.9 million related to a rif of a further 5 % of our workforce to reduce operating costs and realign our organization in the current competitive operating environment . the rif was executed in the third quarter of fiscal 2009 and was completed by the end of the fourth quarter of fiscal 2009. these charges were offset by a reversal of $ 0.5 million of restructuring expense due to higher than projected sublease receipt from a sublease renewal arrangement . litigation settlement on october 20 , 2010 , we settled a lawsuit related to certain real property leases it entered into in june 2000. total settlement award was $ 5.0 million , of which $ 3.8 million was paid in the second quarter of fiscal 2011 , $ 0.3 million was paid in the third quarter of fiscal 2011 , and $ 0.2 million was paid in the fourth quarter of fiscal 2011. certain payments have become delinquent from one of the defendants , and we expect the remaining amounts will be paid in fiscal 2012. on april 8 2011 , we filed a stipulation of settlement in the consolidated shareholder derivative actions entitled in re extreme networks , inc. , shareholder derivative litigation . as part of the settlement , and if the settlement is ultimately accepted by the court , we have agreed to pay the plaintiff 's counsel for their service in the action in the amount of $ 3.5 million , of which $ 2.7 million will be reimbursed to us by our directors and officer insurer . we recorded a $ 3.5 million payable and $ 2.7 million receivable on the balance sheet in the second quarter of fiscal 2011. in addition , we recorded a net expense of $ 0.8 million in the consolidated statement of operations for fiscal 2011 under litigation settlement . on july 15 , 2011 , a final order and judgment was made in the shareholder derivative lawsuit , whereby we agreed to pay a settlement of $ 3.5 million to the plaintiffs which was paid on july 27 , 2011. on august 24 , 2011 , we were reimbursed $ 2.7 million from our directors and officers insurer . interest income 32 interest income was $ 1.3 million in fiscal 2011 , $ 1.5 million in fiscal 2010 and $ 3.4 million in fiscal 2009 , representing a decrease of $ 0.2 million in fiscal 2011 from fiscal 2010 , and a decrease of $ 1.9 million in fiscal 2010 from fiscal 2009 . the decrease in interest income in fiscal 2011 from fiscal 2010 was due to a decrease in the average interest yield from 1.6 % in fiscal 2010 to 1.2 % in fiscal 2011. the decrease in interest income in fiscal 2010 from fiscal 2009 was due to a decrease in average funds available for investment and a decline in average interest yield from 2.4 % in fiscal 2009 to 1.6 % in fiscal 2010. interest expense interest expense was $ 0.1 million for each fiscal year 2011 , 2010 and 2009 . interest expense in fiscal 2011 and fiscal 2010 were primarily related to interest amortization of technology agreements .
| net revenue the following table presents net product and service revenue for the fiscal years 2011 , 2010 and 2009 ( dollars in thousands ) : 28 replace_table_token_2_th product revenue increased in fiscal 2011 as compared to fiscal 2010 primarily due to growth in our asia pacific region and select strategic partners such as ericsson ab , which accounted for 11 % of our overall business , as well as increasing stability in the emea market . in the first quarter of fiscal 2010 , we experienced supply constraint issues which resulted in the loss of business . product revenue decreased in fiscal 2010 as compared to fiscal 2009 primarily due to the global economic downturn and competitive pricing . in addition , in the first quarter of fiscal 2010 , we experienced supply constraint issues which resulted in the loss of business . service revenue was flat in fiscal 2011 as compared to fiscal 2010 primarily due to the reduction of maintenance revenue for end-of-life products , offset by growth in new value-added services , coupled with maintenance service contracts attached to increased product sales service revenue decreased in fiscal 2010 as compared to fiscal 2009 primarily due to a reduction in renewals of service maintenance agreements for products which are entering end of support life . we operate in three regions : north america , which includes the united states , canada , mexico , and central america ; emea , which includes europe , middle east , africa and south america ; and apac which includes asia pacific and japan . the following table presents the total net revenue geographically for the fiscal years 2011 , 2010 and 2009 ( dollars in thousands ) : replace_table_token_3_th revenue in north america remained consistent in fiscal 2011 as compared to fiscal 2010 primarily due to slow economic recovery and organizational structure changes in the united states , offset by growth in mexico and central america for several large strategic deals .
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however , we expect that one or more companies may begin registration programs evaluating potential all-oral combination regimens for the treatment of genotype 1 hcv infection in 2012. while the development and regulatory timelines for these drug candidates are highly subjective and subject to change , we believe that substantial additional clinical data regarding these drug candidates and potential all-oral treatment regimens will become available in 2012 and 2013 and that one or more all-oral treatment regimens could enter the market as early as 2014 or 2015. kalydeco ( ivacaftor ) is a treatment for patients with cf six years of age or older who have a specific genetic mutation that is referred to as the g551d mutation . as with other marketed therapies for orphan diseases such as cf , we believe that we will be able to obtain adequate reimbursement for kalydeco in the united states . in addition , we are focused on obtaining approval and adequate reimbursement for ivacaftor in europe and plan to seek approval for ivacaftor in a number of other countries , including canada and australia . we believe that the number of patients with cf who have the g551d mutation in the cftr gene is approximately 1,200 in the united states and 1,000 in europe . we are planning to conduct three additional clinical trials to evaluate kalydeco as a monotherapy in additional patient populations , including patients younger than six years of age and patients with other mutations in the cftr gene . these clinical trials are subject to many of the same risks and uncertainties as the clinical trials for our drug candidates . even if these clinical trials are successful , we do not expect we would obtain approval for the use of kalydeco in additional populations until 2013 or later . in addition to the factors described above , approved drugs continue to be subject to , among other things , numerous regulatory risks , post-approval safety monitoring and risks related to supply chain disruptions . as a result , it is difficult to predict future revenues that will be generated from sales by us of incivek and kalydeco and by janssen of incivo . drug development discovery and development of a new pharmaceutical product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise and can take 10 to 15 years or more . potential drug candidates are subjected to rigorous evaluations , driven in part by stringent regulatory considerations , designed to generate information concerning efficacy , side-effects , proper dosage levels and a variety of other physical and chemical characteristics that are important in determining whether a drug candidate should be approved for marketing as a pharmaceutical product . most chemical compounds that are investigated as potential drug candidates never progress into development , and most drug candidates that do advance into development never receive marketing approval . because our investments in drug candidates are subject to considerable 59 risks , we closely monitor the results of our discovery research , clinical trials and nonclinical studies , and frequently evaluate our drug development programs in light of new data and scientific , business and commercial insights , with the objective of balancing risk and potential . this process can result in relatively abrupt changes in focus and priority as new information becomes available and we gain additional understanding of our ongoing programs and potential new programs as well as those of our competitors . if we believe the data from a completed registration program support approval of a drug candidate , we submit a new drug application to the united states food and drug administration , or fda , requesting approval to market the drug candidate in the united states . we also may seek analogous approvals from comparable regulatory authorities in foreign jurisdictions , such as a marketing authorization application in the european union . to obtain approval , we must , among other things , demonstrate with evidence gathered in nonclinical studies and well-controlled clinical trials that the drug candidate is safe and effective for the disease it is intended to treat and that the manufacturing facilities , processes and controls for the manufacture of the drug candidate are adequate . the fda and foreign regulatory authorities have substantial discretion in deciding whether or not a drug candidate should be granted approval based on the benefits and risks of the drug candidate in the treatment of a particular disease , and could delay , limit or deny regulatory approval . if regulatory delays are significant or regulatory approval is limited or denied altogether , our financial results and the commercial prospects for the drug candidate involved will be harmed . drug supply we require a supply of incivek and kalydeco for sale in north america and will require a supply of ivacaftor for international sales if we are successful in obtaining marketing approval outside the united states . we rely on an international network of third parties to manufacture and distribute our products and for supplies of compounds for clinical trials , and we expect that we will continue to rely on third parties to provide these manufacturing services for the foreseeable future . third-party contract manufacturers , including some in china , supply us with raw materials , and contract manufacturers in the european union and the united states convert these raw materials into drug substance and convert the drug substance into final dosage form . establishing and managing this global supply chain requires a significant financial commitment and the creation and maintenance of numerous third-party relationships . although we believe we effectively manage the business relationships with companies in our supply chain , we do not have complete control over their activities . also , while we believe we can effectively forecast demand for incivek , we have limited flexibility to adjust our supply in response to changes in demand , due to the significant lead times required to manufacture incivek . story_separator_special_tag regulatory compliance our marketing of pharmaceutical products , which began in may 2011 , is subject to extensive and complex laws and regulations . we have a corporate compliance program designed to actively identify , prevent and mitigate risk through the implementation of compliance policies and systems and the promotion of a culture of compliance . among other laws , regulations and standards , we are subject to various federal and state laws pertaining to health care fraud and abuse , including anti-kickback and false claims statutes , and laws prohibiting the promotion of drugs for unapproved , or off-label , uses . anti-kickback laws make it illegal for a prescription drug manufacturer to solicit , offer , receive or pay any remuneration in exchange for , or to induce , the referral of business , including the purchase or prescription of a particular drug . false claims laws prohibit anyone from presenting for payment to third-party payors , including medicare and medicaid , claims for reimbursed drugs or services that are false or fraudulent , claims for items or services not provided as claimed or claims for medically unnecessary items or services . we expect to continue to devote substantial resources to maintain , administer and expand these compliance programs globally . 60 story_separator_special_tag style= '' padding:0pt ; position : relative ; width:62 % ; margin-left:10 % ; '' > replace_table_token_14_th our research and development expenses include internal and external costs incurred for research and development of our drugs and drug candidates . we do not assign our internal costs , such as salary and benefits , stock-based compensation expense , laboratory supplies and infrastructure costs , to individual drugs or drug candidates , because the employees within our research and development groups typically are deployed across multiple research and development programs . these internal costs are significantly greater than our external costs , such as the costs of services provided to us by clinical 63 research organizations and other outsourced research , which we do allocate by individual program . all research and development costs for our drugs and drug candidates are expensed as incurred . to date , we have incurred in excess of $ 4.7 billion in research and development expenses associated with drug discovery and development . the successful development of our drug candidates is highly uncertain and subject to a number of risks . in addition , the duration of clinical trials may vary substantially according to the type , complexity and novelty of the drug candidate and the disease indication being targeted . the fda and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products , typically requiring lengthy and detailed laboratory and clinical testing procedures , sampling activities and other costly and time-consuming procedures . data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activities . data obtained from these activities also are susceptible to varying interpretations , which could delay , limit or prevent regulatory approval . the duration and cost of discovery , nonclinical studies and clinical trials may vary significantly over the life of a project and are difficult to predict . therefore , accurate and meaningful estimates of the ultimate costs to bring our drug candidates to market are not available . over the three year period ended december 31 , 2011 , costs related to telaprevir have represented the largest portion of our development costs . we expect to continue to incur development costs related to the conduct of additional clinical trials to support potential supplemental applications for telaprevir and ivacaftor . our drug candidates are still in early and mid-stage clinical development and , as a result , any estimates regarding development and regulatory timelines for these drug candidates are highly subjective and subject to change . we can not make a meaningful estimate when , if ever , these drug candidates , including vx-222 and those we in-licensed from alios biopharma , inc. , or alios , will generate revenues and cash flows . research expenses replace_table_token_15_th over the past three years we have maintained a substantial investment in research activities resulting in a 15 % increase in research expenses in 2011 as compared to 2010 and a 9 % increase in research expenses in 2010 as compared to 2009. we expect to continue to invest in our research programs in an effort to identify additional drug candidates . 64 development expenses replace_table_token_16_th our total development expenses have been affected by the variable level of drug supply costs , which include costs of raw materials and work in process that are incurred before we begin capitalizing inventories for a drug candidate and costs of manufacturing services that we provided our collaborators through our third-party manufacturing network . with the approval of incivek and kalydeco , we expect drug supply costs to decrease significantly in 2012 because we began capitalizing telaprevir drug supply costs in 2011 and expect to capitalize ivacaftor drug supply costs in 2012. our development expenses , excluding our drug supply costs , increased by $ 74.4 million , or 19 % , in , 2011 as compared to 2010 and by $ 27.8 million , or 8 % , in 2010 compared to 2009 , principally due to increases in headcount and the expansion of our development efforts as we completed the registration program for telaprevir and ivacaftor , prepared the regulatory filings needed to obtain approval for these products and continued the development of our other drug candidates . we expect our development expenses to increase in 2012 as compared to 2011 because of additional clinical trials we expect to conduct to evaluate all-oral treatment regimens for hcv infection , kalydeco , both as monotherapy and in combination with vx-809 and vx-661 , vx-509 , vx-765 and vx-787 , and post-marketing commitment clinical trials of incivek .
| net income ( loss ) attributable to vertex per diluted share our net income attributable to vertex was $ 0.14 per diluted share in 2011 as compared to a net loss attributable to vertex of ( $ 3.77 ) per diluted share in 2010 and ( $ 3.71 ) per diluted share in 2009. revenues replace_table_token_11_th product revenues , net we began recognizing net product revenues from sales of incivek in the united states in the second quarter of 2011 and will begin recognizing net product revenues from sales of kalydeco in the united states in the first quarter of 2012. we expect that our net product revenues will increase in 2012 in comparison to 2011 as we recognize incivek net product revenues for a full fiscal year and begin to recognize kalydeco net product revenues . 61 royalty revenues our royalty revenues increased by $ 19.8 million in 2011 as compared to 2010 due to $ 20.3 million of revenues recognized in 2011 from sales of incivo by janssen for which there were no comparable revenues in 2010. we expect that our royalty revenues related to incivo will increase in 2012 as compared to 2011. we recognized royalty revenues related to sales by glaxosmithkline of an hiv protease inhibitor that was discovered and developed pursuant to our collaboration with glaxosmithkline of $ 29.7 million , $ 30.2 million and $ 28.3 million in 2011 , 2010 and 2009 , respectively . we sold our rights to these hiv royalties in 2008 for a one-time cash payment of $ 160.0 million . collaborative revenues our collaborative revenues have fluctuated significantly on an annual basis . this variability has been due to , among other things : the achievement of significant milestone revenues in 2011 ; the 2009 amendment of our collaboration agreement with mitsubishi tanabe , which provided for an up-front payment that is being recognized over the expected period of performance under that contract ; the 2011 amendment to our collaboration agreement with the cystic fibrosis foundation therapeutics incorporated , or cfft , which began providing us additional research and development support in 2011 ; and variable revenues we have received from services we provided to janssen and mitsubishi tanabe through our third-party manufacturing network . the table presented below is a summary of revenues from collaborative arrangements for 2011 , 2010
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this increase was primarily due to our higher average number of active fleets in 2018. this increase was partially offset by an increase in the portion of customers who provided their own proppant and a decrease in the costs for materials used in the fracturing process in the second half of 2018 , when compared to the same period in 2017. depreciation for our service equipment in 2018 increased by $ 0.3 million from 2017 . 37 total costs of revenue as a percentage of total revenue decreased by 2.1 percentage points from 74.0 % in 2017 to 71.9 % in 2018. this change was primarily due to an increase in the average pricing for our services in 2018 when compared to 2017. total costs of revenue in 2017 increased by $ 476.0 million from 2016. this increase was primarily due to an increase in our costs of revenue , excluding depreciation , which were partially offset by a decrease in the depreciation expense for our service equipment . costs of revenue , excluding depreciation , in 2017 increased by $ 499.3 million from 2016 , due to our higher number of active fleets , increased number of stages completed during 2017 , and increased costs for materials used in the fracturing process . depreciation for our service equipment in 2017 decreased by $ 23.3 million from 2016. this decrease was the result of asset disposals and certain assets becoming fully depreciated . additionally , we generally refurbish our equipment as it approaches the end of its useful life , rather than replacing it by purchasing new equipment . the cost of refurbishing our equipment is significantly lower than the cost of purchasing new equipment . as more of our fleets became comprised of refurbished assets in recent years , our depreciation correspondingly declined . total costs of revenue as a percentage of total revenue decreased by 40.5 percentage points from 114.5 % in 2016 to 74.0 % in 2017. this change was primarily due to increased pricing for our services and increased stages completed per active fleet in 2017. these factors were partially offset by increased costs for materials used in the fracturing process . selling , general and administrative expense selling , general and administrative ( “ sg & a ” ) expense in 2018 increased by $ 6.9 million from 2017. this increase was primarily due to stock-based compensation expense incurred in 2018. we incurred $ 3.7 million of expense to cash-settle all remaining unvested awards from our 2014 long term incentive plan , which vested upon the completion of our ipo . we also incurred $ 15.2 million of non-cash expense related to rsu awards granted in 2018. these increases were partially offset by decreased cash-based incentive compensation expense in 2018. selling , general and administrative expense in 2017 increased by $ 16.6 million from 2016. this increase was primarily due to increased incentive compensation related to our improved operating results in 2017 and increased employee-related costs due to our increased overall headcount in 2017. depreciation and amortization the following table summarizes our depreciation and amortization : replace_table_token_7_th ( 1 ) related to service equipment included in “ property , plant , and equipment , net ” on our consolidated balance sheets discussed under the “ costs of revenue ” heading of this discussion and analysis . ( 2 ) related to all long-lived assets other than service equipment included in “ property , plant , and equipment , net ” on our consolidated balance sheet . depreciation and amortization in 2018 decreased by $ 1.9 million from 2017. this decrease was primarily due to asset disposals and certain assets , other than service equipment , becoming fully depreciated . depreciation and amortization in 2017 decreased by $ 26.0 million from 2016. this decrease was primarily due to a decrease in depreciation for our service equipment as previously discussed . the remaining decrease was primarily due to asset disposals and certain assets becoming fully depreciated . 38 impairments and other charges the following table summarizes our impairments and other charges : replace_table_token_8_th supply commitment charges : we incur supply commitment charges when our purchases of proppant from certain suppliers are less than the minimum purchase commitments in our supply contracts . according to the accounting guidance for firm purchase commitments , future charges that are considered likely are also required to be recorded in the current period . we recorded aggregate charges under these supply contracts of $ 19.2 million , $ 1.2 million and $ 2.5 million in 2018 , 2017 and 2016 , respectively . these charges related to actual purchase shortfalls incurred , as well as forecasted purchase shortfalls that are expected to be incurred and settled in future periods . approximately $ 12 million of our 2018 supply commitment charges relate to estimated losses under these contracts for 2019. these purchase shortfalls are due to our customers choosing to provide their own proppant , our customers ' desire to purchase sand from sand mines closer to their operating areas , increased purchase commitments in 2019 , and low activity levels in 2016. a significant majority of our contracted proppant is for sand types that are mined primarily in the midwestern united states ( “ northern white ” sand ) . since we executed these contracts , customer demand for sand has shifted away from northern white sand and towards lower-cost sand that is available from sand mines closer in proximity to our customers ' operating locations . we are in discussions with our vendors to modify our supply contracts to better align with our customers ' volume requirements , preferred sand types , and preferred sand mine locations . estimated losses related to these supply contracts contain uncertainties , such as future customer demand , future customer sand preferences , the legal defenses available to us , and the outcome of our ongoing vendor discussions . these uncertainties require us to use judgment to quantify the amount of these estimates . actual results could materially differ from our estimate . story_separator_special_tag while we have successfully worked with our vendors to minimize charges related to these purchase commitments in the past , if we do not meet the minimum purchase commitments in the future and we are unable to adjust or avoid our contracted amounts , we may incur additional supply commitment charges in future periods . impairment of assets : during 2016 , we recorded asset impairments of $ 7.0 million related to service equipment and real property that we no longer use and identified to sell . lease abandonment charges : during 2016 , we vacated certain leased facilities to consolidate our operations . in 2017 and 2016 , we recognized expense of $ 0.6 million and $ 2.0 million , respectively , in connection with these actions . employee severance costs : during 2016 , we incurred employee severance costs of $ 0.8 million in connection with our corporate and operating restructuring initiatives . at december 31 , 2016 , we had paid substantially all severance payments owed to former employees . loss on disposal of assets , net during 2017 and 2016 , we sold a number of surplus pieces of property and equipment . in 2017 , we received $ 4.1 million of proceeds and recognized a $ 1.4 million net gain on the sale of these assets . in 2016 , we received $ 23.5 39 million of proceeds and recognized a $ 1.3 million net loss on the sale of these assets . in february 2016 , we sold substantially all of our remaining sand transportation equipment and related inventory . we received $ 8.0 million of proceeds and recognized a $ 0.3 million gain on this sale . gain on insurance recoveries in january 2017 , a fire destroyed certain equipment in one of our fleets . these assets were insured at values greater than their carrying values . we received $ 4.2 million of insurance recovery proceeds for these assets , which exceeded their carrying values by $ 2.9 million . in january 2016 , a fire at one of our job sites in oklahoma destroyed substantially all of the equipment in one of our fleets . these assets were insured at values greater than their carrying values . we received $ 19.0 million of insurance recovery proceeds for these assets , which exceeded their carrying values by $ 15.1 million . interest expense , net interest expense , net of interest income , in 2018 decreased by $ 37.4 million from 2017. this decrease was primarily due to a lower average debt balance in 2018 , after the repayment of $ 622.1 million of aggregate principal amount of long-term debt . interest expense , net of interest income , in 2017 decreased by $ 0.8 million from 2016. this decrease was primarily due to a lower average long-term debt balance , which was partially offset by higher average interest rates in 2017 for our senior floating rate notes due june 2020. gain ( loss ) on extinguishment of debt , net in 2018 , we repaid $ 310.0 million of aggregate principal amount of term loan . we recognized a loss on debt extinguishment of $ 2.7 million . in 2018 , we repaid all $ 290.0 million remaining principal amount of our floating rate senior notes due in 2020 using cash on hand and proceeds received from our ipo . we recognized a loss on this debt extinguishment of $ 8.3 million . in 2018 , we repurchased $ 22.1 million of aggregate principal amount of 2022 senior notes in the qualified institutional market . we recognized a gain on debt extinguishment of $ 1.2 million . in 2017 , we repaid $ 60.0 million of aggregate principal amount of our senior floating rate notes due june 2020. we recognized a loss on debt extinguishment of $ 1.8 million . in 2017 , we also repurchased $ 17.3 million of aggregate principal amount of senior notes due may 2022 in the qualified institutional market . we recognized a gain on debt extinguishment of $ 0.4 million . in the third quarter of 2016 , we completed a tender offer and subsequent purchases in the qualified institutional market for a portion of our long-term debt in which we repurchased $ 90.7 million of aggregate principal amount of long-term debt and recorded a gain on debt extinguishment of $ 52.3 million . income tax expense income tax expense was $ 2.0 million and $ 1.6 million in 2018 and 2017 , respectively . these amounts consisted of state margin taxes accounted for as income taxes and income taxes for states that limit the deduction of net operating loss carryforwards . in 2012 , we recorded a valuation allowance to reduce our net deferred tax assets to zero . we continue to provide a valuation allowance against all deferred tax assets in excess of our deferred tax liabilities . as a result , we did not record any u.s. federal or other state income tax expense or benefit related to our income or losses in 2018 , 2017 or 2016. see note 11 — “ income taxes ” in notes to our consolidated financial statements included elsewhere in this annual report on form 10-k for more information regarding our income taxes and valuation allowance . 40 liquidity and capital resources sources of liquidity at december 31 , 2018 , we had $ 177.8 million of cash and cash equivalents . as of february 28 , 2019 , we had $ 106.1 million available for borrowings under our revolving credit facility . we believe that our cash and cash equivalents , cash provided by operations , and the availability under our revolving credit facility will be sufficient to fund our operations and capital expenditures for at least the next 12 months . in february 2018 , we entered into a $ 250 million asset-based revolving credit facility .
| in addition , the well designs being drilled have longer lateral lengths and e & p companies have used increasing amounts of sand in each well that they hydraulically fracture . the combination of these factors increased the aggregate demand for hydraulic fracturing services over this period to record levels . the prices that we are able to charge for our services is affected by the supply of hydraulic fracturing equipment that is available in the market to meet customer demand . in the downturn of 2016 , the excess supply of equipment in the market drove our prices down . in 2017 , a severe shortage of equipment drove our prices up . the market imbalance in 2017 prompted both existing and new competitors to deploy additional equipment into the market . this increasing supply of active equipment , combined with certain e & p companies reducing their completions activity 35 for operational reasons or to better match capital expenditures with their cash flows , caused the supply of equipment to exceed the demand for equipment in the second half of 2018. as a result , the pricing for our services declined in the second half of 2018 and we expect it to decline further in the first quarter of 2019. while we believe demand will remain strong , the supply of equipment in the market has also increased to record levels . in response to this increasingly competitive market environment , we remain disciplined with respect to our number of active fleets and we remain focused on optimizing our utilization and profitability . we reduced our active fleet count from 28 fleets in the second quarter of 2018 to 19 fleets at the end of the fourth quarter of 2018 because certain fleets did not meet our utilization and profitability targets . in 2019 , we expect for e & p activity levels to remain strong and for us to have continued profitability and cash generation . based on discussions with our customers , we anticipate activating one or two fleets in the first quarter of 2019. we will continue
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qualified pension plan contributions decreased $ 21.6 million in 2013 from 2012 , as we did not make a qualified pension plan contribution in 2013. partially offsetting these increases were : cash paid to employees , suppliers and others increased $ 29.4 million in 2013 from 2012. net cash outflows related to income taxes increased $ 20.0 million . net cash paid in taxes in 2013 was $ 20.1 million compared to $ 0.1 million in 2012. year ended december 31 , 2012 compared to year ended december 31 , 2011 net cash from operating activities in 2012 increased $ 2.6 million from 2011 : cash received from customers increased $ 22.8 million , primarily due to increased sales and cash received by wood products , partially offset by decreased sales and cash received in our resource and real estate segments . partially offsetting increased cash from customers were : cash contributions to our qualified pension plans increased $ 12.2 million in 2012 from 2011. the qualified pension plan contribution in 2013 was $ 21.6 million compared to $ 9.4 million in 2011. net cash outflows related to income taxes in 2012 was $ 0.1 million compared to a net cash inflow in 2011 of $ 6.0 million . cash paid to employees , suppliers and others increased $ 3.4 million in 2012 from 2011. net cash flows from investing activities net cash used for investing activities was $ 12.0 million in 2013 , compared to $ 8.6 million in 2012. net cash provided by investing activities was $ 4.5 million in 2011. in 2013 , we used $ 23.7 million for capital expenditures partially offset by $ 10.8 million provided by short-term investments . in 2012 , we used $ 29.2 million for capital expenditures , which was partially offset by the $ 21.8 million we borrowed against our coli plan to fund our 2012 qualified pension contributions . in 2011 , the decrease in short-term investments of $ 22.3 million was partially offset by $ 16.9 million used for capital expenditures . we anticipate that we will spend $ 28 million for capital expenditures in 2014. our capital spending is primarily related to reforestation expenditures , logging road construction , high-return discretionary projects and routine general replacement projects for our wood products manufacturing facilities . net cash flow from financing activities net cash used for financing activities was $ 89.6 million in 2013 , $ 62.2 million in 2012 and $ 79.7 million in 2011. in 2013 , net cash used for financing activities was primarily attributable to paying our quarterly distribution to shareholders of $ 51.9 million and the redemption of $ 36.7 million of debt . net cash used for financing activities in 2012 was primarily attributable to paying our quarterly cash distributions to stockholders of $ 50.0 million and the maturity and redemption of $ 21.7 million of debt , partially offset by the issuance of $ 12.0 million of term loans . net cash used for financing activities in 2011 was primarily attributable to paying our quarterly cash distributions to stockholders of $ 73.9 million and the maturity and redemption of $ 5.0 million of medium-term notes . 2013 form 10-k / 35 unsecured credit agreement our current unsecured credit agreement , which expires on december 11 , 2017 , provides for a revolving line of credit of up to $ 250 million , including a $ 40 million subfacility for letters of credit and a $ 15 million subfacility for swing line loans . usage under either or both subfacilities reduces availability under the revolving line of credit . subject to certain conditions and agreement of the lenders , the bank credit facility may be increased by up to an additional $ 100 million . as of december 31 , 2013 , there were no borrowings outstanding under the revolving line of credit , and approximately $ 1.9 million of the letter of credit subfacility was being used to support several outstanding letters of credit . available borrowing capacity at december 31 , 2013 was $ 248.1 million . we may use the funds borrowed under the credit agreement , among other things , to refinance existing indebtedness , fund working capital needs and capital expenditures , and for other general corporate purposes , including acquisitions . the agreement governing our bank credit facility contains certain covenants that limit our ability and that of our subsidiaries to create liens , merge or consolidate , dispose of assets , incur indebtedness and guarantees , repurchase or redeem capital stock and indebtedness , make certain investments or acquisitions , enter into certain transactions with affiliates or change the nature of our business . the bank credit facility also contains financial maintenance covenants establishing a minimum interest coverage ratio , a minimum timberland coverage ratio and a maximum leverage ratio . we will be permitted to pay distributions to our stockholders under the terms of the bank credit facility so long as we remain in pro forma compliance with the financial maintenance covenants . the table below sets forth the financial covenants in the bank credit facility and our status with respect to these covenants as of december 31 , 2013 : covenant requirement actual ratio at december 31 , 2013 minimum interest coverage ratio 3.00 to 1.00 6.09 to 1.00 minimum timberland coverage ratio 3.00 to 1.00 5.94 to 1.00 maximum leverage ratio 5.00 to 1.00 * 2.29 to 1.00 * commencing january 1 , 2015 , the maximum leverage ratio will decrease to 4.50 to 1.00. the interest coverage ratio is our twelve months ended ebitdda , which we define as net income adjusted for interest expense , provision for income taxes , depreciation , depletion and amortization , the basis of real estate sold and non-cash equity compensation expense , divided by interest expense for the same period . story_separator_special_tag the timberland coverage ratio is the value of our timberlands divided by our total funded indebtedness , which consists of our long-term debt , including current installments on long-term debt , plus the total amount outstanding under the letter of credit subfacility . the leverage ratio is our total funded indebtedness divided by our twelve months ended ebitdda , both as computed in the other covenant calculations above . term loans in december 2012 , we entered into a $ 12 million term loan to fund two timberland acquisitions . the term loan consists of two $ 6 million tranches , with rates of 2.95 % on the 2017 maturity and 3.70 % on the 2020 maturity . the term loan contains the same covenants and restrictions as those in our unsecured credit agreement . senior notes in 2009 , we sold $ 150 million aggregate principal amount of 7.5 % senior notes . the terms of the notes limit our ability and the ability of any subsidiary guarantors to borrow money , pay dividends , redeem or repurchase capital stock , enter into sale and leaseback transactions , and create liens . with respect to the limitation on dividends and the repurchase of our capital stock , these restricted payments are permitted as follows : we may use 100 % of our funds available for distribution , or fad , for the period january 1 , 2010 through the end of the quarter preceding the payment date , less cumulative restricted payments previously made from fad during that period , to make restricted payments . our cumulative fad less our dividends paid was $ 55.7 million at december 31 , 2013. if our cumulative fad , less cumulative restricted payments previously made from fad , is insufficient to cover a restricted payment , then we are permitted to make payments from a basket amount , which was approximately $ 90.1 million at december 31 , 2013 . 36 / potlatch corporation if our cumulative fad less our aggregate restricted payments made from fad is insufficient to cover a restricted payment and we have depleted the basket , we may still make a restricted payment , so long as , after giving effect to the payment , our ratio of indebtedness to earnings before interest , taxes , depreciation , depletion , amortization and basis of real estate sold , or ebitdda , from continuing operations for the preceding four full fiscal quarters does not exceed 4.25 to 1.00. fad , as defined in the indenture governing the senior notes , is earnings from continuing operations , plus depreciation , depletion and amortization , plus basis of real estate sold , and minus capital expenditures . for purposes of this definition , capital expenditures exclude all expenditures relating to direct or indirect timberland purchases in excess of $ 5 million . future cash requirements based on our outlook for 2014 and taking into account planned harvest activities , we expect to fund a majority of our 2014 annual cash distributions using the cash flows from our reit-qualifying timberland operations and from cash and short-term investments on hand at december 31 , 2013. the rules with which we must comply to maintain our status as a reit limit our ability to use dividends from potlatch trs for the payment of stockholder distributions . in particular , at least 75 % of our gross income for each taxable year as a reit must be derived from sales of our standing timber and other types of real estate income . no more than 25 % of our gross income may consist of dividends from potlatch trs and other non-qualifying types of income . this requirement may limit our ability to receive dividends from potlatch trs and may impact our ability to fund distributions to stockholders using cash flows from potlatch trs . credit ratings the major debt rating agencies routinely evaluate our debt and our access to capital , and our cost of borrowing can increase or decrease depending on our credit rating . in april 2013 , moody 's upgraded our debt rating to investment grade 'baa3 ' from 'ba1 ' , with a stable outlook . in april 2013 , standard & poor 's upgraded our corporate credit and senior unsecured ratings to 'bb+ ' from 'bb ' , and in december 2013 affirmed our 'bb+ ' rating , with a stable outlook . contractual obligations the following table summarizes our contractual obligations as of december 31 , 2013 : replace_table_token_14_th 1 see note 10 : debt in the notes to consolidated financial statements . 2 amounts presented for interest payments assume that all long-term debt outstanding as of december 31 , 2013 will remain outstanding until maturity . 3 see note 15 : commitments and contingencies in the notes to consolidated financial statements . 4 purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on the company and that specify all significant terms , including : fixed or minimum quantities to be purchased ; fixed , minimum or variable price provisions ; and the approximate timing of the transaction . purchase obligations exclude arrangements that the company can cancel without penalty . 5 other obligations includes current liabilities , as well as qualified pension contributions , supplemental pension payments and payments for other postretirement employee benefit obligations . see note 11 : accounts payable and accrued liabilities and note 14 : savings plans , pension plans and other postretirement employee benefits in the notes to consolidated financial statements for additional detail . 2013 form 10-k / 37 off-balance sheet arrangements we currently are not a party to off-balance sheet arrangements that would require disclosure under this section .
| in 2012 , we recorded a $ 0.1 million charge related to write-downs of two of our real estate development projects . interest expense , net . net interest expense decreased in 2013 from 2012 primarily due to the early redemption of $ 36.7 million of debt in 2013. income tax provision . our effective tax rate for 2013 was 16.4 % compared to 28.3 % in 2012. the decrease resulted primarily from proportionately higher operating income in the reit . 2013 form 10-k / 29 business segment results comparing 2013 with 2012 resource segment replace_table_token_7_th revenues increased in 2013 over 2012 due to increased prices , primarily for sawlogs in idaho , and the incremental harvest volumes provided by land acquisitions in arkansas in late 2012. increased prices accounted for $ 22.0 million of the revenue variance , while the increase in total harvest volume accounted for $ 8.6 million of the variance . in our northern region , sawlog prices and volume increased due to stronger demand . an oversupply of residuals and chips in the northwest market resulted in lower pulpwood prices , which led us to minimize pulpwood production . in our southern region , both sawlog and pulpwood volumes increased . sawlog prices increased due primarily to a shift in product mix related to increased demand for higher priced hardwoods . pulpwood prices increased as a result of slightly improved demand for both pine and hardwood pulpwood . expenses for the segment increased $ 6.5 million , or 4 % , in 2013 over 2012 , primarily due to higher logging and hauling costs , from increased per-unit costs as well as volume , and higher depletion expense from increased harvest volumes . 30 / potlatch corporation wood products segment replace_table_token_8_th revenues for the segment increased in 2013 over 2012 as lumber prices increased , but were partially offset by a small decrease in shipments . expenses for the segment increased $ 23.2 million , or
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without this impact , nii would have increased by $ 3,210,000 , or 11.9 % , in 2017 compared to 2016. management 's asset liability sensitivity measurements continue to show a benefit to both margin and nii given further federal reserve rate increases . actual results over the past year have confirmed the asset sensitivity of the corporation 's balance sheet . management expects that any federal reserve rate increases in 2018 would further improve both margin and nii . 34 enb financial corp management 's discussion and analysis the extended extremely low federal funds rate has enabled management to reduce the cost of funds on overnight borrowings and allowed lower interest rates paid on deposits , reducing the corporation 's interest expense . it was only after the third 25-basis point fed rate increase in march of 2017 that the corporation raised some deposit rates minimally . while the low prime rate reduced the yield on the corporation 's loans for many years , the rate increases through december of 2017 did act to boost interest income and help improve the corporation 's margin . with a higher prime rate and elevated treasury rates , higher asset yields should be possible throughout 2018. due to the increasing number of variable rate loans in the corporation 's loan portfolio , the 25 basis point increase in the prime rate at the end of 2015 , 2016 , and in march , june , and december of 2017 , did cause nii to increase progressively . security yields will generally fluctuate more rapidly than loan yields based on changes to the u.s. treasury rates and yield curve . with higher treasury rates in 2017 compared to 2016 , security reinvestment has been occurring at slightly higher yields and amortization has slowed resulting in higher yields . the corporation 's loan yield has begun to increase as the variable rate portion of the loan portfolio is repricing higher with each federal reserve rate movement . the vast majority of the corporation 's commercial prime-based loans are priced at the prime rate , currently at 4.50 % . the pricing for the most typical five-year fixed rate commercial loans is currently very similar to the prime rate . previously , any increases in variable rate loans acted to bring down overall loan yield . now with the rates being very similar it is much more beneficial to the corporation to grow the variable rate loans in a period of rising rates . an element of the corporation 's prime-based commercial loans is priced above the prime rate based on the level of credit risk of the borrower . management does price a portion of consumer variable rate loans above the prime rate , which also helps to improve loan yield . both commercial and consumer prime-based pricing continues to be driven largely by local competition . mid-term and long-term interest rates on average were higher in 2017 compared to 2016. the average rate of the 10-year u.s. treasury was 2.33 % in 2017 compared to 1.84 % in 2016 , and it stood at 2.40 % on december 31 , 2017 , compared to 2.45 % at december 31 , 2016. the slope of the yield curve has been compressed throughout most of 2016 and 2017 , with a difference of 90 basis points between the fed funds rate of 1.50 % and the 10-year u.s. treasury as of december 31 , 2017 , compared to 170 basis points as of december 31 , 2016. the slope of the yield curve has fluctuated many times in the past two years with the 10-year u.s. treasury yield as high as 2.62 % in 2017 and 2.60 % in 2016 , and as low as 2.05 % in 2017 and 1.37 % in 2016. because the yield curve is still relatively flat , management was not able to increase loan rates to improve yield , but security yields have improved as a result of slightly higher investment rates and lower amortization on existing bonds . the non-recurring sub-agency amortization of $ 1,681,000 for the year-to-date period in 2016 , negatively affected security yield resulting in artificially low yields during 2016 and higher yields during 2017. with higher long-term rates in 2018 and the likelihood of further fed rate increases , the corporation 's asset yield is projected to increase throughout 2018. while it is becoming increasingly difficult to achieve savings on the corporation 's overall cost of funds , the corporation has been able to maintain relatively low offering rates on longer-term time deposits . these interest rates are still below the interest rates that existed four or five years ago . rollover of these longer time deposits to lower rates has caused a slight decrease in interest expense from 2016 to 2017. generally , it was the longer-term time deposits repricing at lower rates that helped to achieve interest expense reductions on total deposits , as the savings account rate has not changed , and there were very limited rate increases for select interest bearing demand deposit accounts . it is anticipated that deposit interest rate increases may need to be implemented beginning in early 2018. management selectively repriced some time deposit rates higher after the march 2017 federal reserve rate increase , but the time deposits repricing to lower rates offset any increased interest expense for those that were selectively priced higher . borrowing costs , and the wholesale borrowing curves that they are based on , generally follow the direction and slope of the u.s. treasury curve . however , these curves can be quicker to rise and slower to fall as the providers of these funds seek to protect themselves from rate movements . story_separator_special_tag the corporation was able to refinance some borrowings at lower rates in 2016 but lower-priced borrowings matured in 2017 with no ability to refinance at lower rates , so the yield on borrowings increased slightly during 2017 and will likely continue to do so moving into 2018. management currently anticipates that the overnight interest rate and prime rate will remain at the current levels until march of 2018 with the possibility of a 0.25 % rate increase at that time . it is likely that mid and long-term u.s. treasury rates will increase slowly throughout the first quarter of 2018 as the market anticipates an additional federal reserve rate movement . this would allow management to achieve higher earnings on new higher yielding securities and allow for the ability to price new loans at higher market rates . however , it is also possible that even after a federal reserve rate increase , the yield curve could flatten , making it more difficult for management to lend out or reinvest at higher interest rates out further on the yield curve . additionally , any additional federal reserve rate increases would have a greater effect on the repricing of the corporation 's liabilities as the cost of money 35 enb financial corp management 's discussion and analysis increases and more marketplace competition returns . management anticipates that more deposit rate increases will need to be made to remain competitive in the market while maturing borrowings would also likely reprice to higher rates . the following table provides an analysis of year-to-year changes in net interest income by distinguishing what changes were a result of average balance increases or decreases and what changes were a result of interest rate increases or decreases . rate/volume analysis of changes in net interest income ( taxable equivalent basis , dollars in thousands ) replace_table_token_9_th in 2017 , the corporation 's nii on an fte basis increased by $ 5,082,000 , an 18.5 % increase over 2016. total interest income on an fte basis for 2017 increased $ 4,967,000 , or 16.3 % , from 2016 , while interest expense decreased $ 115,000 , or 3.8 % , from 2016 to 2017. the fte interest income from the securities portfolio increased by $ 2,934,000 , or 39.9 % , while loan interest income increased $ 1,750,000 , or 7.7 % . during 2017 , additional loan volume added $ 1,140,000 to net interest income , and higher yields primarily due to the multiple prime rate increases throughout the year caused a $ 610,000 increase , resulting in a net increase of $ 1,750,000. higher balances in the securities portfolio caused an increase of $ 799,000 in net interest income , while higher yields on securities caused a $ 2,135,000 increase , resulting in a net increase of $ 2,934,000. the corporation recorded non-recurring accelerated amortization on u.s. sub-agency securities during 2016 in the amount of $ 1,681,000 , which was responsible for the lower yields on securities in 2016. the average balance of interest bearing liabilities increased by 3.3 % during 2017 , driven by the growth in deposit balances . the shift between time deposit balances and demand and savings accounts resulted in a more favorable net interest income . lower balances of higher cost deposits contributed to savings of $ 94,000 on deposit costs while lower interest rates on all deposit groups caused $ 44,000 of savings , resulting in total savings of $ 138,000 . 36 enb financial corp management 's discussion and analysis out of all the corporation 's deposit types , interest-bearing demand deposits reprice the most rapidly , as nearly all accounts are immediately affected by rate changes . the corporation increased demand deposit interest expense by $ 51,000 due to higher rates and by $ 20,000 due to higher balances . time deposit balances decreased resulting in a $ 126,000 reduction to expense , and time deposits repricing to lower interest rates reduced interest expense by an additional $ 94,000 , causing a net reduction of $ 220,000 in time deposit interest expense . even with the low rate environment , the corporation was successful in increasing balances of other deposit types . as 2017 progressed and interest rates remained low , the corporation was able to continue to reprice time deposits maturing at lower interest rates thereby reducing the cost of these funds . the average balance of outstanding borrowings decreased by $ 3.8 million , or 5.1 % , from december 31 , 2016 , to december 31 , 2017. the decrease in total borrowings decreased interest expense by $ 46,000. the increase in interest rates increased interest expense by $ 69,000 , as long-term borrowings at lower rates matured and were replaced with new advances at slightly higher rates . the aggregate of these amounts was an increase in interest expense of $ 23,000 related to total borrowings . the following table shows a more detailed analysis of net interest income on an fte basis shown with all the major elements of the corporation 's balance sheet , which consists of interest earning and non-interest earning assets and interest bearing and non-interest bearing liabilities . additionally , the analysis provides the net interest spread and the net yield on interest earning assets . the net interest spread is the difference between the yield on interest earning assets and the interest rate paid on interest bearing liabilities . the net interest spread has the deficiency of not giving credit for the non-interest bearing funds and capital used to fund a portion of the total interest earning assets . for this reason , management emphasizes the net yield on interest earning assets , also referred to as the net interest margin ( nim ) . the nim is calculated by dividing net interest income on an fte basis into total average interest earning assets . the nim is generally the benchmark used by analysts to measure how efficiently a bank generates nii .
| when notification was received on march 11 , 2016 for the cobank bonds and on april 26 , 2016 for the agribank bonds , management had to accelerate the amortization of the premium to the much earlier call dates of april 15 , 2016 and july 15 , 2016 , respectively . this caused management to expense an additional $ 1.7 million of amortization to the later july 15 , 2016 call date than would have been experienced had the bond premiums continued to amortize to the original maturity dates . there was no accelerated amortization recorded in 2017 , therefore the $ 1.7 million reduction in amortization expense was primarily responsible for the $ 2.7 million increase in interest on securities available for sale and partially contributed to the larger $ 4.9 million increase in net interest income . the corporation 's net interest margin increased in 2017 to 3.46 % from 3.12 % in 2016 , driven primarily by increases in asset yield and smaller decreases in funding costs . loan yields increased as a result of three federal reserve rate moves in 2017 , lifting the yields on the corporation 's variable rate loans . this coupled with volume growth in the loan portfolio , increased loan interest income by $ 1.7 million , or 7.7 % . the corporation 's non-interest income decreased by $ 823,000 , or 7.4 % , from 2016 to 2017. gains on securities transactions were only $ 675,000 in 2017 , compared to $ 2,370,000 in 2016 , resulting in the lower non-interest income . gains on the sale of mortgages were up by $ 203,000 , or 13.4 % , and all other areas of non-interest income were up in total by $ 669,000 , or 9.2 % , from 2016 to 2017. the financial services industry uses two primary performance measurements to gauge performance : return on average assets ( roa ) and return on average equity ( roe ) . roa measures how efficiently a bank generates income based on the amount of assets or size of a company . roe measures the efficiency of a company
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during 2014 , north american tank car demand remained near record levels and freight car demand improved materially throughout the year , leading to attractive lease rates and lease terms . during the year , the renewal rate change of the lease price index ( the `` lpi '' , see definition below ) increased 38.8 % , compared to an increase of 34.5 % in 2013 , and 25.6 % in 2012. in addition to general market strength , the lpi was favorably impacted by coal car renewals at materially improved rates . lease terms on renewals for cars in the lpi averaged 66 months in 2014 , compared to 62 months in 2013 , and 60 months in 2012. during 2014 , an average of approximately 105,800 railcars , excluding boxcars , were on lease , compared to 106,200 in 2013 , and 105,500 in 2012. in 2011 , we entered into a purchase agreement with trinity rail group , llc ( `` trinity '' ) for 12,500 railcars through mid-2016 , which was the largest such commitment in our history . under this agreement , we have taken delivery of approximately 7,900 railcars as of december 31 , 2014 , and expect to take delivery of 2,200 railcars in 2015. in 2014 , we entered into a new long-term supply agreement with trinity to take effect upon the scheduled expiration of the current railcar supply agreement in 2016. under the terms of this agreement , we may order up to 8,950 newly built railcars over a four-year period from march , 2016 through march , 2020. in 2015 , we expect an increase in segment profit as a result of higher lease revenue , partially offset by increased maintenance expense and higher depreciation . leases for approximately 17,000 railcars in our term lease fleet and approximately 6,000 boxcars will expire in 2015. to the extent available , we plan to pursue additional investment opportunities , but the timing and size of such opportunities will largely be dictated by factors beyond our immediate control . 29 the following table shows rail north america 's segment results for the years ended december 31 ( in millions ) : replace_table_token_9_th the following table shows the components of rail north america 's lease revenue for the years ended december 31 ( in millions ) : replace_table_token_10_th lease price index our lpi is an internally-generated business indicator that measures lease rate pricing on renewals for our north american railcar fleet , excluding the boxcar fleet . we calculate the index using the weighted average lease rate for a group of railcar types that we believe best represents our overall north american fleet , excluding boxcars . the average renewal lease rate change is reported as the percentage change between the average renewal lease rate and the average expiring lease rate , weighted by fleet composition . the average renewal lease term is reported in months and reflects the average renewal lease term of railcar types in the lpi , weighted by fleet composition . 30 rail north america fleet data the following table shows fleet activity for rail north america railcars , excluding boxcars , for the years ended december 31 : replace_table_token_11_th 31 the following table shows fleet statistics for rail north america boxcars for the years ended december 31 : replace_table_token_12_th the following table shows fleet activity for rail north america locomotives for the years ended december 31 : replace_table_token_13_th 32 segment profit in 2014 , segment profit was $ 321.0 million , compared to $ 231.6 million in 2013. the increase was primarily driven by higher lease rates and more cars on lease , including the boxcar fleet , partially offset by higher maintenance expense and depreciation expense . the results in 2014 , compared to 2013 , were also favorably impacted by a change in depreciation implemented during the year . effective january 1 , 2014 , we revised the depreciable lives of our north american railcars based on a review of the current economic lives and usage of various railcar types . in aggregate , the average depreciable life of the fleet increased approximately 2.2 years . this change had a positive $ 21.9 million impact on segment profit for 2014. in 2013 , segment profit was $ 231.6 million , compared to $ 209.3 million in 2012 , primarily due to higher lease revenue and asset remarketing income , partially offset by increased maintenance expense . revenues in 2014 , lease revenue increased $ 105.2 million , primarily due to the impact of the boxcar fleet and higher lease rates . other revenue increased $ 5.2 million , primarily due to higher repair revenue in the current year . in 2013 , lease revenue increased $ 45.0 million , primarily because of higher lease rates and more cars on lease compared to 2012. other revenue increased $ 6.8 million , primarily due to higher repair revenue in 2013. expenses in 2014 , maintenance expense increased $ 37.3 million , primarily due to costs associated with the boxcar fleet . excluding boxcars , maintenance expense was still higher than in prior year as a result of the expected increase in compliance costs and repairs . depreciation expense increased $ 13.3 million , primarily due to incremental depreciation from new investments , including the boxcar fleet , partially offset by the impact of the accounting policy change in estimated useful lives of the railcar fleet implemented as of january 1 , 2014. operating lease expense decreased $ 20.7 million due to the purchase of railcars previously on operating leases in each year . other operating expense increased $ 3.5 million , primarily due to higher switching and freight costs . in 2013 , maintenance expense increased $ 26.8 million , due to increased compliance maintenance and higher costs of repairs . depreciation expense increased $ 9.0 million , primarily due to fleet additions . operating lease expense decreased $ 2.1 million , due to the 2013 and 2012 acquisitions of railcars previously leased in on operating leases . story_separator_special_tag other income ( expense ) in 2014 , net gain on asset dispositions increased $ 4.6 million , primarily due to higher gains on cars sold , partially offset by lower scrapping gains . net interest expense decreased $ 7.6 million , driven by lower average rates and the impact of prepayments of higher cost debt more than offsetting a higher average debt balance . other expense decreased $ 2.6 million , primarily due to higher penalties associated with the early repayment of debt and costs associated with early buyout option leases in 2013 compared to 2014. share of affiliates ' earnings decreased $ 2.4 million , primarily due to higher gains at our southern capital affiliate in 2013. in 2013 , net gain on asset dispositions increased $ 9.1 million , primarily due to sales of approximately 1,700 more railcars . in 2012 , net gain on asset dispositions included an $ 11.1 million fee on the early termination of a residual value guarantee . net interest expense increased $ 4.1 million due to higher debt balances in 2013. other expense increased $ 4.7 million , primarily due to termination costs associated with the early buyout of an operating lease and the prepayment of certain secured debt issuances . share of affiliates ' earnings increased $ 3.8 million , primarily due to gains on dispositions of railcars from our southern capital affiliate . investment volume during 2014 , investment volume was $ 810.6 million compared to $ 502.4 million in 2013 , and $ 465.9 million in 2012 . investments in 2014 included the purchase of the boxcar fleet of approximately 18,500 boxcars for approximately $ 340 million and approximately 3,570 additional railcars , compared to 4,520 railcars in 2013 , and 4,470 railcars in 2012 . 33 north american rail regulatory matters on july 23 , 2014 , the pipeline and hazardous materials safety administration of the us department of transportation ( “ phmsa ” ) issued a notice of proposed rulemaking ( the “ nprm ” ) intended to improve the safety of trains that transport large volumes of flammable liquids , primarily crude and ethanol . in addition to proposed rail operating requirements and standards for the classification of mined gases and liquids , the nprm proposed new design standards for tank cars operating in “ high hazard flammable trains ” ( “ hhft ” ) , which are trains that include 20 or more carloads of any type of flammable liquid . under the proposed rules , newly built tank cars for use in hhft service would have to comply with the new standards beginning on october 1 , 2015. the nprm requested public comments on three different options for the new tank car standards , which vary primarily based on differences in tank thickness , braking systems , and design of top fitting protection . the nprm also proposed standards for modifications to existing tank cars in hhft service intended to ensure that their performance meets the same standards applicable to newly built cars . under the nprm , existing tank cars in hhft service would have to be modified or removed from that service between october , 2017 , and october , 2020 , depending on the type of commodity carried by such cars . the nprm was published in the federal register on august 1 , 2014 , and the public comment period expired on september 30 , 2014. gatx participated in the rulemaking process through the railway supply institute , a rail industry trade association which submitted comments on the nprm . while we can not predict the content of the final rules , the us department of transportation is projecting that final rules will be issued in the second quarter of 2015. on july 2 , 2014 , transport canada ( `` tc '' ) adopted regulations requiring that newly built tank cars ordered on or after july 15 , 2014 , and used to transport certain dangerous goods , including all types of crude oil and ethanol , comply with the design standards voluntarily adopted by the rail industry in 2011. in addition , on july 18 , 2014 , tc announced it is conducting a review that may result in further changes to the design standards for newly built cars used to transport flammable liquids in canada , as well as standards and schedule for modifying existing cars used in such service . in this regard , tc announced that it intends to coordinate with phmsa to establish standards for the entire north american fleet of tank cars in flammable liquids service . tc is expected to issue its final rule during the first half of 2015. we are currently assessing the changes to tank car design standards proposed by phmsa and tc and evaluating their potential impact on our tank car fleet in flammable liquids service . we have a fleet of more than 126,000 railcars in north america , including approximately 13,600 tank cars currently used to transport flammable liquids , of which approximately 4,900 are moving crude oil and ethanol . we will continue to be an active participant in the rulemaking process and the promulgation of final rules by phmsa and tc . until phmsa and tc release final rules establishing the new tank car standards , we will be unable to assess how any new regulations that phmsa and tc may ultimately adopt will impact gatx or what changes may be required to our tank cars in flammable liquids service , including the number of cars that could be repurposed or retired and the scope and cost of any retrofit program . rail international segment summary weak economic conditions in europe during 2014 made it challenging to place certain newly built railcars on lease . this has led to accelerated replacement and scrapping of older cars in the fleet .
| in connection with this disposition we recognized an impairment loss of $ 14.8 million , which is reflected in share of affiliates ' earnings . in 2013 , we reversed $ 1.1 million of the loss due to higher than expected proceeds from the asset sales . this joint venture is in the process of being liquidated . portfolio management 's total asset base was $ 813.3 million at december 31 , 2014 compared to $ 856.9 million at december 31 , 2013 , and $ 797.4 million at december 31 , 2012 . the estimated net book value equivalent of assets managed by portfolio management for third parties was $ 64.1 million at december 31 , 2014 . in 2015 , we expect the rrpf affiliates to continue to produce strong operating results and benefit from gains from engine sales . in addition , we anticipate another solid year from the inland marine operations . however , the ocean-going vessels will likely continue to be negatively affected by inconsistent demand and vessel overcapacity in the international shipping markets . the following table shows portfolio management 's segment results for the years ended december 31 ( in millions ) : replace_table_token_17_th 40 segment profit in 2014 , segment profit was $ 68.2 million , compared to $ 74.4 million in 2013. the decrease was driven by lower asset remarketing income and lower aggregate net operating income from our marine operations , primarily from our ocean-going vessels , which include the norgas vessels and six chemical parcel tankers ( `` nordic vessels '' ) . in 2013 , segment profit was $ 74.4 million , compared to $ 50.2 million in 2012. the increase was driven by higher marine net operating income which includes the norgas vessels that are now wholly owned , higher rrpf affiliates ' earnings , and the absence of the enerven impairment , partially offset by lower lease revenues . revenues in 2014 , lease revenue decreased $ 2.2 million , primarily due to the sale of leases throughout the prior and current year . marine operating revenue increased $ 11.7 million , primarily due to higher inland marine
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we believe players choose to pay for virtual goods for the same reasons they are willing to pay for other forms of entertainment . they enjoy the additional playing time or added convenience , the ability to personalize their own game boards , the satisfaction of leveling up and the opportunity for sharing creative expressions . we believe players are more likely to purchase virtual goods when they are connected to and playing with their friends , whether those friends play for free or also purchase virtual goods . in may 2010 , we entered into an addendum to facebook 's standard terms and conditions requiring us to transition our payment method to facebook credits , facebook 's proprietary payment method , as the primary means of payment within our games played through facebook . we began migrating to facebook credits in july 2010 , and in april 2011 , we completed this migration . under this addendum , facebook remits to us an amount equal to 70 % of the face value of facebook credits purchased by our players for use in our games . we recognize revenue net of amounts retained by facebook . prior to this addendum , we used third-party payment processors and paid these processors service fees ranging from 2 % to 10 % of the purchase price of our virtual goods which were recorded in cost of revenue . players can purchase facebook credits from facebook , directly through our games or through game cards purchased from retailers and distributors . on platforms other than facebook , players purchase our virtual goods through various widely accepted payment methods offered in the games , including credit cards , paypal , apple itunes accounts and direct wires . players can purchase game cards from retailers and distributors for use on these platforms . advertising . advertising revenue primarily includes branded virtual goods and sponsorships , engagement ads and offers , mobile ads and display ads . we generally report our advertising revenue net of amounts due to advertising agencies and brokers . revenue growth will depend largely on our ability to attract and retain players and more effectively monetize our player base through the sale of virtual goods and advertising . we intend to do this through the launch of new games , enhancements to current games and expansion into new markets and distribution platforms . 34 key metrics we regularly review a number of metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends in our business , prepare financial projections and make strategic decisions . key financial metrics bookings . bookings is a non-gaap financial measure that is equal to revenue recognized during the period in addition to the change in deferred revenue during the period . bookings , as opposed to revenue , is the fundamental top-line metric we use to manage our business , as we believe it is a better indicator of the sales activity in a given period . over the long term , the factors impacting our bookings and revenue are the same . however , in the short term , there are factors that may cause revenue to exceed or be less than bookings in any period . adjusted ebitda . adjusted ebitda is a non-gaap financial measure that we calculate as net income ( loss ) , adjusted for ( provision for ) / benefit from income taxes ; other income ( expense ) , net ; interest income ; gain ( loss ) from legal settlements ; depreciation and amortization ; stock-based compensation and change in deferred revenue . we believe that adjusted ebitda provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors . for a reconciliation of net income ( loss ) to adjusted ebitda , see the section titled non-gaap financial measures included in item 6. selected consolidated financial data of this annual report on form 10-k. key operating metrics we manage our business by tracking several operating metrics : daus , which measures daily active users of our games , maus , which measures monthly active users of our games , muus , which measures monthly unique users of our games , mups , which measure monthly unique payers in our games , and abpu , which measures our average daily bookings per average dau , each of which is recorded by our internal analytics systems . daus . we define daus as the number of individuals who played one of our games during a particular day . under this metric , an individual who plays two different games on the same day is counted as two daus . similarly , an individual who plays the same game on two different platforms ( e.g. , web and mobile ) or on two different social networks on the same day would be counted as two daus . average daus for a particular period is the average of the daus for each day during that period . we use dau as a measure of audience engagement . maus . we define maus as the number of individuals who played a particular game in the 30-day period ending with the measurement date . under this metric , an individual who plays two different games in the same 30-day period is counted as two maus . similarly , an individual who plays the same game on two different platforms ( e.g. , web and mobile ) or on two different social networks in a 30-day period would be counted as two maus . average maus for a particular period is the average of the maus at each month-end during that period . we use mau as a measure of total game audience size . muus . we define muus as the number of unique individuals who played any of our games on a particular platform in the 30-day period ending with the measurement date . story_separator_special_tag an individual who plays more than one of our games in a given 30-day period would be counted as a single muu . however , because we can not always distinguish unique individuals playing across multiple platforms , an individual who plays any of our games on two different platforms ( e.g. , web and mobile ) in a given 30-day period may be counted as two muus in the event that we do not have data that allows us to de-duplicate the player . because many of our players play more 35 than one game in a given 30-day period , muus are always lower than maus in any given time period . average muus for a particular period is the average of the muus at each month-end during that period . we use muu as a measure of total audience reach across our network of games . mups . we define mups as the number of unique players who made a payment at least once during the applicable month through a payment method for which we can quantify the number of unique payers , including mobile payers . mups does not include payers who use certain smaller web-based payment methods for which we can not quantify the number of unique payers . if a player made a payment in our games on two separate platforms ( e.g . facebook and google+ ) in a period , the player would be counted as two unique payers in that period . monthly unique payers are presented as a quarterly average of the three months in the applicable quarter . average bookings per user ( abpu ) . we define abpu as ( i ) our total bookings in a given period , divided by ( ii ) the number of days in that period , divided by , ( iii ) the average daus during the period . we believe that abpu provides useful information to investors and others in understanding and evaluating our results in the same manner as our management and board of directors . we use abpu as a measure of overall monetization across all of our players through the sale of virtual goods and advertising . our business model for social games is designed so that , as there are more players that play our games , social interactions increase and the more valuable the games and our business becomes . all engaged players of our games help drive our bookings and , consequently , both online game revenue and advertising revenue . virtual goods are purchased by players who are socializing with , competing against or collaborating with other players , most of whom do not buy virtual goods . accordingly , we primarily focus on bookings , daus and abpu , which together we believe best reflect the economic value of all of our players . replace_table_token_6_th n/a means data is not available . our user metrics are impacted by several factors that cause them to fluctuate on a quarterly basis . beginning in early 2010 , facebook changed its policies for application developers regarding use of its communication channels . these changes limited the level of communication among users about applications on the facebook platform , which we believe contributed to a decline in our number of players throughout 2010. in addition , beginning with the third quarter of 2010 , our bookings and revenue growth rates were negatively impacted due to our adoption of facebook credits as the primary payment method on facebook . we account for facebook credits net of amounts retained by facebook . our daus , maus and muus all increased in the three months ended march 31 , 2011 , primarily due to the launch of cityville in december 2010 , the addition of new content to existing games and the launch of several mobile initiatives . in the third and fourth quarters of 2011 , daus declined compared to the first two quarters of the year , mainly due to a decline in players of our more mature games . however , during that six-month same period we saw an increase in maus and abpu as we continued to expand our reach as a result of new game launches and improve our monetization as a result of both new game launches and increased bookings from advertising . future growth in audience and engagement will depend on our ability to retain current players , attract new players , launch new games and expand into new markets and distribution platforms . 36 our operating metrics may not correlate directly to quarterly bookings or revenue trends in the short term . for instance , revenue has grown every quarter since our inception , including in quarters where dau , mau and muu did not grow . other metrics although certain mobile payer data for the third and fourth quarters of 2011 became available to us in the fourth quarter of 2011 , the table below shows quarterly unique payers excluding mobile payers in all periods presented in order to present a payer metric that excludes mobile payer data for all periods . the following table presents certain bookings and estimated quarterly unique payer data for the last eight quarters : replace_table_token_7_th ( 1 ) quarterly unique payer bookings represents the amount of bookings that we received through payment methods for which we can quantify the number of unique payers and excludes mobile payers for all periods presented . also excluded are bookings from advertising , and certain smaller web-based payment methods . ( 2 ) quarterly unique payers represents the aggregate number of unique players who made a payment at least once during the quarter through a payment method for which we can quantify the number of unique payers . it does not include payers who use mobile platforms and payers who use certain smaller web-based payment methods . if a player made a payment in our games on two separate platforms ( e.g .
| 40 in 2011 , farmville , frontierville , zynga poker , mafia wars and cityville were our top revenue-generating games and comprised 27 % , 15 % , 15 % , 13 % and 13 % , respectively , of our online game revenue . in 2010 , mafia wars , farmville and zynga poker were our top revenue-generating games and comprised 28 % , 30 % and 20 % , respectively , of online game revenue . no other game generated more than 10 % of online game revenue during either year . consumable virtual goods accounted for 29 % and 37 % of online game revenue in 2011 and 2010 , respectively . revenue from consumable virtual goods accounted for 19 % of the increase in online game revenue in 2011. durable virtual goods accounted for 71 % and 63 % of online game revenue in 2011 and 2010 , respectively . revenue from durable virtual goods accounted for 81 % of the increase in online game revenue in 2011. the estimated weighted-average life of durable virtual goods for bookings was 15 months for 2011 compared to 18 months for 2010. in addition , in 2011 cumulative changes in our estimated weighted-average life of durable virtual goods for various games resulted in a net increase in revenue of $ 53.9 million in 2011 , which is the result of adjusting the remaining recognition period of deferred revenue generated in prior periods at the time of the change in estimate . advertising revenue increased $ 51.6 million in 2011 , due to a $ 26.0 million increase in revenue from in-game offers , sponsorships and engagement ads , and a $ 25.6 million increase in revenue from other advertising activity . revenue from in-game offers , sponsorships and engagement ads increased in part due to a higher level of in-game offers during 2011 , reflecting in part the fact that we discontinued certain in-game offers in the fourth quarter of 2009 and resumed and gradually increased in-game offers during the year ended december 31 , 2010 but did not have in-game offers for the
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revenue recognition in may 2014 , the financial accounting standards board ( fasb ) issued a comprehensive new standard which amends revenue recognition principles . we adopted the new standard on january 1 , 2018 by applying the modified retrospective method to all contracts that were not completed as of that date . under the new guidance , revenue is recognized when a customer obtains control of promised goods or services , in an amount that reflects the consideration expected to be received in exchange for those goods or services . revenue is recognized through a five-step process : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) a performance obligation is satisfied . the company only applies the five-step model to contracts when it is probable that the company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer . at contract inception , the company assesses the goods or services promised within each contract , and determines those that are performance obligations . revenue is recognized for the applicable performance element when each distinct performance obligation is satisfied . while results for reporting periods beginning after january 1 , 2018 are presented under the new guidance , prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period . the accounting policy for revenue recognition for periods prior to january 1 , 2018 is described in note 1 of the notes to the consolidated financial statements included in our annual report on form 10-k for the year ended december 31 , 2017. nature of products our principal source of revenue is product sales . our contracts with customers generally contain a single performance obligation and we recognize revenue from product sales when we have satisfied our performance obligation by transferring control of the product to our customers . control of the product generally transfers to the customer upon delivery . in certain countries , we sell to distributors on a consignment basis and record revenue when control of the product transfers to the customer upon sale to the end user . our customers are primarily comprised of distributors , pharmacies , hospitals , hospital buying groups , and other healthcare providers . in some cases , we may also sell to governments and government agencies . in addition to sales in countries where our products are commercially available , we have also recorded revenue on sales for patients receiving treatment through named-patient programs . the relevant authorities or institutions in those countries have agreed to reimburse for product sold on a named-patient basis where our products have not received final approval for commercial sale . revenue is recognized at the amount to which we expect to be entitled in exchange for the sale of our products . this amount includes both fixed and variable consideration and excludes amounts that are collected from customers and remitted to governmental authorities , such as value-added taxes in foreign jurisdictions . shipping and handling costs associated with outbound freight after control of a product has transferred to our customers are accounted for as a fulfillment cost and are included in operating expenses . the cost for any shipping and handling activities ( including customs clearance activities ) associated with transactions for which revenue has been recognized are accrued if not completed before the respective period end . the timing between the recognition of revenue for product sales and the receipt of payment is not significant . our standard credit terms , which vary based on the country of sale , generally range from 30 to 120 days and all arrangements generally are payable within one year of the transfer of the product . we do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between the transfer of the promised good to the customer and receipt of payment will be one year or less . 62 we evaluate the creditworthiness of customers on a regular basis . the length of time from sale to receipt of payment in certain countries exceeds our credit terms . in countries in which collections from customers extend beyond normal payment terms , we seek to collect interest . we record interest on customer receivables as interest income when collected . subsequent adjustments for further declines in credit rating are recorded as bad debt expense as a component of selling , general and administrative expense . we also use judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables if and when collection becomes doubtful , and we also assess on an ongoing basis whether collectibility is probable at the time of sale . as of december 31 , 2018 and december 31 , 2017 , allowances on receivables were not material . variable consideration we pay distribution fees to our distributors and offer rebates and or discounts , or enter into volume-based reimbursement arrangements with certain customers . we reduce the transaction price on our sales for these amounts . for variable amounts , we estimate the amount of consideration to which we expect to be entitled based on all available historic , current and forecast information . we primarily use the expected value method to estimate variable payments and , in limited circumstances , will apply the most likely method based on the type of variable consideration and what method better predicts the amount of consideration we expect to be entitled to . consideration that is received from a customer that we expect will need to be refunded in the future is recorded as a refund liability to the customer within accrued expenses . story_separator_special_tag actual amounts of consideration ultimately received or refunded may differ from our estimates , and such difference may be material . if actual results in the future vary from our estimates , we adjust these estimates , which would affect net product sales and earnings in the period such variances become known , and such variances may be material . variability in the transaction price for our products pursuant to our contracts with customers primarily arises from the following : discounts and rebates : we offer discounts and rebates to certain distributors and customers under our arrangements . in many cases , these amounts are fixed at the time of sale and the transaction price is reduced accordingly . we also provide for rebates under certain governmental programs , including medicaid in the u.s. and other programs outside the u.s. , which are payable based on actual claim data . we estimate these rebates based on an analysis of historical claim patterns and estimates of customer mix to determine which sales will be subject to rebates and the amount of such rebates . we update our estimates and assumptions each period and record any necessary adjustments , which may have an impact on revenue in the period in which the adjustment is made ( and such impact may be material ) . generally , the length of time between product sale and the processing and reporting of the rebates is three to six months . volume-based arrangements : we have entered into volume-based arrangements with governments in certain countries and other customers in which reimbursement is limited to a contractual amount . under this type of arrangement , amounts billed in excess of the contractual limitation are repaid to the customer as a rebate . we estimate incremental discounts resulting from these contractual limitations , based on forecasted sales during the limitation period , and we apply the discount percentage to product shipments as a reduction of revenue . our calculations related to these arrangements require estimation of sales during the limitation period , and adjustments in these estimates may have a material impact in the period in which these estimates change . we have provided balances and activity in the rebates payable account for the years ended december 31 , 2018 , 2017 and 2016 as follows : replace_table_token_3_th current provisions relating to sales in the current year increased by $ 41.6 in 2018 compared to 2017 and $ 79.2 in 2017 compared to 2016 . the increase in 2018 was primarily due to increased unit volumes in the u.s. which were subject to rebates as well as increases in rebate rates in the u.s. on certain product sales . the increase in 2017 was attributable to increased unit volumes in the u.s. and europe , which were subject to rebates , as well as to increases in rebate rates in certain geographical regions and on certain product sales as compared to the prior year . distribution & other fees : we pay distribution and other fees to certain customers in connection with the sales of our products . we record distribution and other 63 fees paid to our customers as a reduction of revenue , unless the payment is for a distinct good or service from the customer and we can reasonably estimate the fair value of the goods or services received . if both conditions are met , we record the consideration paid to the customer as an operating expense . these costs are typically known at the time of sale , resulting in minimal adjustments subsequent to the period of sale . product returns : our contracts with customers generally provide for returns only if the product is damaged or defective upon delivery . we assess our sales transactions and arrangements with customers and monitor inventory within our sales channels to determine whether a provision for returns is warranted and a resulting adjustment to the transaction price is necessary . this assessment is based on historical experience and assumptions as of the date of sale and changes in these estimates could have an impact in the period in which the change occurs ( and such impact may be material ) . because of factors such as the price of our products , the limited number of patients , the short period from product sale to patient infusion and limited contractual return rights , our customers often carry limited inventory . the amount of variable consideration included in the transaction price is constrained by the amount that is probable will not result in a significant reversal of revenue . we consider our experience with similar transactions and expectations regarding the contract in estimating the amount of variable consideration to which we expect to be entitled , and determining whether the estimated variable consideration should be constrained . we do not have any material constraints on the variable consideration included within the transaction price of our current revenue arrangements . we continue to monitor economic conditions , including volatility associated with international economies and the associated impacts on the financial markets and our business . for additional information related to our concentration of credit risk associated with certain international accounts receivable balances , refer to the “ financial condition , liquidity and capital resources ” and “ quantitative and qualitative disclosures about market risk ” sections below . contingent liabilities we are currently involved in various claims and legal proceedings . on a quarterly basis , we review the status of each significant matter and assess its potential financial exposure . if the potential loss from any claim , asserted or unasserted , or legal proceeding is considered probable and the amount can be reasonably estimated , we accrue a liability for the estimated loss . because of uncertainties related to claims and litigation , accruals are based on our best estimates based on available information .
| the increase in net product sales for fiscal year 2018 , as compared to fiscal year 2017 , was partially offset by price decreases of 3.9 % due , in part , to a price change in turkey resulting from a formalized reimbursement agreement , subsequent to marketing authorization , in the third quarter of 2018. in addition , rebates in the u.s. and reimbursement agreements outside the u.s. for our metabolic products also contributed to this decrease in net product sales . the components of the increase in revenues for the year ended december 31 , 2017 as compared to the same period in 2016 are as follows : the increase in net product sales for fiscal year 2017 as compared to fiscal year 2016 was primarily due to an increase in unit volumes of 16.8 % due to increased demand globally for soliris therapy for patients with pnh and ahus and increased sales of strensiq and kanuma during 2017 . 71 cost of sales cost of sales includes manufacturing costs , actual and estimated royalty expenses associated with sales of our products , and amortization of licensing rights . the following table summarizes cost of sales for the years ended december 31 , 2018 , 2017 and 2016 : cost of sales ● cost of sales as a percentage of net product sales cost of sales for the year ended december 31 , 2018 and december 31 , 2017 included asset related charges of $ 5.8 and $ 152.1 , respectively , associated with the closure of the arimf facility announced in the third quarter of 2017 ( this facility was sold in 2018 ) . these charges primarily relate to accelerated depreciation and the impairment of manufacturing assets . exclusive of the items mentioned above , cost of sales as a percentage of net product sales were 8.9 % , 8.5 % and 8.4 % for the years ended december 31 , 2018 , 2017 and 2016 , respectively . research and development expense < div
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on november 4 , 2014 voters in haddonfield , new jersey , arnold , missouri and russiaville , indiana approved referendums for us to purchase their water and or wastewater assets . following regulatory approval and financial close , these three acquisitions will add approximately 19,000 customers to the company 's regulated footprint . additionally , in february , 2015 our illinois subsidiary entered into an agreement to purchase the city of mt . vernon 's water and wastewater systems , which serves about 6,600 customer connections . continuing improvement in o & m efficiency ratio for our regulated businesses we continued to improve on our o & m efficiency ratio during 2014. our o & m efficiency ratio was 36.7 % for the year ended december 31 , 2014 compared to 38.5 % and 40.7 % for the years ended december 31 , 2013 and 2012 , respectively . the improvement in our 2014 o & m efficiency ratio in 2014 was principally attributable to the increase in our regulated businesses ' revenues as well as a decrease in adjusted o & m expenses compared to the same period in 2013. our o & m efficiency ratio ( a non-gaap measure ) is defined as our regulated operation and maintenance expense divided by regulated operating revenues , where both o & m expense and operating revenues are adjusted to eliminate purchased water expense . we also excluded from operating revenues and o & m expenses the impact from weather and the west virginia freedom industries chemical spill . additionally , from the o & m expenses , we exclude the allocable portion of non-o & m support services cost , mainly depreciation and general taxes that are reflected in the regulated businesses segment as o & m costs but for consolidated financial reporting purposes are categorized within other lines in the statement of operations . management believes that this calculation better reflects the regulated businesses segment 's o & m efficiency ratio . we evaluate our operating performance using this measure , as it is the primary measure of the efficiency of our regulated operations . this information is intended to enhance an investor 's overall understanding of our operating performance . o & m efficiency ratio is not a measure defined under gaap and may not be comparable to other companies ' operating measures or deemed more useful than the gaap information provided elsewhere in this report . the following table provides a reconciliation between operation and maintenance expense and operating revenues , as determined in accordance with gaap , and to those amounts utilized in the calculation of our o & m efficiency ratio for the years ended december 31 , 2014 , 2013 and 2012 : 35 regulated o & m efficiency ratio ( a non-gaap measure ) replace_table_token_8_th * note calculation assumes purchased water revenues approximate purchased water expenses . addressing regulatory lag in 2014 , additional annualized revenues from general rate cases amounting to $ 43.7 million , including step increases totaling $ 5.7 million , became effective . also , in 2014 , we were granted $ 34.6 million in additional annualized revenues , assuming constant sales volume , from infrastructure charges in several of our states . on november 21 , 2014 , we reached a stipulation and settlement agreement related to our rate case with the indiana office of the utility consumers counselor . this agreement was submitted to the indiana utility regulatory commission for consideration . on january 28 , 2015 , the puc issued their order which provides additional annualized revenues totaling $ 5.1 million effective as of january 29 , 2015. on february 19 , 2014 , the company , the office of ratepayer advocate and other intervenors submitted an amended settlement of $ 24.0 million that includes a test year 2015 revenue requirement increase of $ 12.7 million from the july 2013 filing date . the settlement also provides for escalation and attrition adjustments in 2016 and 2017 of $ 5.0 million and $ 6.3 million , respectively . the agreement is pending regulatory approval and is subject to change . on october 29 , 2014 , our tennessee subsidiary filed for additional annualized revenues from infrastructure charges in the amount of $ 2.4 million , as adjusted . in the fourth quarter of 2014 , we filed two general rate cases . on november 14 , 2014 , our kentucky subsidiary filed a general wastewater rate case requesting an additional $ 0.1 million in annualized revenues . on december 19 , 2014 , our maryland subsidiary filed a general rate case requesting an additional $ 0.8 million in annualized revenues . 36 on january 9 , 2015 , our new jersey subsidiary filed a general rate case requesting additional annualized revenues of $ 66.2 million . additionally , annualized revenues of $ 9.4 million and $ 6.4 million resulting in infrastructure charges in our new jersey and illinois subsidiaries , respectively , became effective in 2015. in total , as of february 20 , 2015 , we are awaiting final orders in four states requesting additional annualized revenues of approximately $ 91.1 million , for general rate cases , and the $ 2.4 million in additional annualized revenues in tennessee for infrastructure charges . other matters west virginia event on january 9 , 2014 , a chemical storage tank owned by freedom industries , inc. leaked 4-methylcyclohexane methanol , or mchm , and pph/diphh , a mix of polyglycol ethers , into the elk river near the wvawc treatment plant in charleston , west virginia . as a result of this event , income after income taxes for the twelve months ended december 31 , 2014 was reduced by $ 7.0 million or $ 0.04 per share . see part i , item 3 , “ legal proceedings ” in this report for information regarding litigation and an investigation by the public service commission of west virginia relating to the freedom industries chemical spill . story_separator_special_tag the company and wvawc believe that wvawc has responded appropriately to , and has no responsibility for , the freedom industries chemical spill , and the company , wvawc and other company affiliates have valid , meritorious defenses to the lawsuits . nevertheless , an adverse outcome in one or more of the lawsuits could have a material adverse effect on our financial condition , results of operations , cash flows , liquidity and reputation . moreover , wvawc and the company are unable to predict the outcome of the ongoing government investigations or any legislative initiatives that might affect water utility operations . 2015 and beyond our future results are anchored on five central themes with customers at the center of all we do . these five central themes are : customers · our focus continues to concentrate on our customers by achieving customer satisfaction and service quality targets . in addition , we will continue to balance our infrastructure investment needs with the affordability impact on customer bills . safety · our focus continues on driving safety in everything that we do . our safety focus includes safety of employees , customers and the public . we have made safety a core value of our company . people · our focus on employees and our culture is paramount to our success going forward . we intend to focus on ensuring we have strong relationships with our union represented employees , effective training and development and diversity of our workforce . growth · we expect to invest $ 6 billion over the next five years , with $ 1.2 billion in 2015 , as follows : § capital investment to improve infrastructure in our regulated businesses of $ 5.2 billion , with $ 1.1 billion expected in 2015 . § growth from acquisitions in our regulated businesses to expand our water and wastewater customer base of $ 540 million . § growth in our market-based businesses from new core growth , expanded markets and new offerings , and evaluate potential opportunities to assist the shale industry in the delivery of water to support their processes . we have estimated strategic capital of $ 230 million . technology & operational efficiency · continued commitment to operational efficiency , technology innovation and environmental stewardship . we intend to continue to modernize our infrastructure and focus on operational efficiencies , while bolstering a culture of continuous improvement . we have set a goal to achieve an o & m efficiency ratio equal to or below 34 % by 2020. in regards to 37 environmental sustainability , we are committed to maximizing our protection of the environment , reducing our carbon and waste footprints and water lost through leakage . we are committed to operating our business responsibly and managing our operating and capital costs in a manner that benefits our customers and produces value for our shareholders . we are committed to an ongoing strategy that leverages processes and technology innovation to make ourselves more effective and efficient . 38 consolidated results of operations the following table sets forth our consolidated statement of operations data for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_9_th ( a ) amounts may not sum due to rounding . 39 comparison of consolidated results of operations for the years ended december 31 , 2014 and 2013 operating revenues . consolidated operating revenues for the year ended december 31 , 2014 increased $ 132.4 million , or 4.6 % , compared to the same period in 2013. this increase is the result of higher revenues in our regulated businesses of $ 80.4 million , which was mainly attributable to rate increases , incremental revenues from surcharges and balancing accounts and acquisitions partially offset by reduced consumption in 2014. also contributing to the higher revenue was a $ 52.1 million increase in our market-based operations segment . the primary drivers were incremental revenue from contract growth in hos , and for our military contracts , price redeterminations and increased construction project activity with the largest increase due to the fort polk wastewater treatment plant project awarded in late 2013. for further information see the respective “ operating revenues ” discussions within the “ segment results. ” operation and maintenance . consolidated operation and maintenance expense for the year ended december 31 , 2014 increased $ 60.8 million , or 4.7 % , compared to 2013. the increase is primarily due to an increase in our market-based operations segment of $ 48.8 million principally as a result of incremental costs related to the increased activity under our military contracts , corresponding with the increased revenue . also , our regulated businesses ' costs increased by $ 6.1 million principally due to increased production costs , uncollectible expense , maintenance expenses and costs associated with the freedom industries chemical spill in west virginia partially offset by lower employee-related costs . for further information see the respective “ operation and maintenance ” discussions within the “ segment results. ” depreciation and amortization . depreciation and amortization expense increased by $ 17.4 million , or 4.3 % , for the year ended december 31 , 2014 compared to the same period in the prior year as a result of additional utility plant placed in service , including our customer information and enterprise asset management systems that were placed into service during the second and fourth quarters of 2013. other income ( expenses ) . other expenses decreased by $ 47.6 million , or 14.0 % , for the year ended december 31 , 2014 compared to the same period in the prior year .
| ( 5 ) the new rates provided additional annualized revenues of $ 2.3 million in 2012 and $ 4.3 million in 2011 for jurisdictional customers , and $ 0.3 million in 2013 and $ 0.5 million in 2011 for non-jurisdictional customers , which are not subject to commission approval . ( 6 ) effective date of new rates was april 18 , 2014. the increase included approximately $ 2.7 million of interim rates that were effective may 10 , 2013 . ( 7 ) amount includes a $ 3.0 million increase effective april 1 , 2012 , with the remainder of $ 1.4 million and $ 1.2 million becoming effective april 1 , 2013 and april 1 , 2014 , respectively . the effective dates for the more significant increases granted in 2012 were january 1 , 2012 , april 1 , 2012 , may 1 , 2012 and october 1 , 2012 for our california , missouri , new jersey , and illinois subsidiaries , respectively . 42 as previously noted , an increasing number of states are permitting rates to be adjusted outside of a general rate case for certain costs , such as mechanisms that permit a return on capital investments to replace aging infrastructure . the following table details additional annualized revenues authorized through infrastructure surcharge mechanisms which were granted in 2014 , 2013 and 2012. as these surcharges are typically rolled into the new base rates and therefore are reset to zero when new base rates are effective , certain of these charges may also be reflected in the total general rate case amounts awarded in the table above if the order date was following the infrastructure surcharge filing date : replace_table_token_12_th ( 1 ) quarterly filings made with puc . $ 6.7 million , $ 3.7 million , $ 2.9 million and $ 6.5 million effective october 1 , 2013 , july 1 , 2013 , april 1 , 2013 and january 1 , 2013 , respectively . no infrastructure charges in 2014 as a result of general rate case effective january 1 , 2014 utilized forecasted test year and therefore qualifying infrastructure improvements already reflected in rates . ( 2 ) semi-annual filings made with the puc . $ 7.4 million , $ 10.1 million and $ 4.0 million effective july 1 , 2014 ,
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series d cumulative preferred stock has no maturity date , and we are not required to redeem the shares at any time . series d cumulative preferred stock is redeemable at our option for cash ( on or after november 20 , 2023 ) , in whole or from time to time in part , at a redemption price of $ 25.00 per share plus accrued and unpaid dividends , if any , at the redemption date . series d cumulative preferred stock may be converted into shares of our common stock , at the option of the holder , in certain limited circumstances such as a change of control . each share of series d cumulative preferred stock is convertible into a maximum 5.12295 shares of our common stock . the actual number is based on a formula as defined in the series d cumulative preferred stock agreement ( unless the company exercises its right to redeem the series d cumulative preferred shares for cash , for a limited period upon a change in control ) . the necessary conditions to convert the series d cumulative preferred stock to common stock have not been met as of period end . therefore , series d cumulative preferred stock will not impact our earnings per share . series d cumulative preferred stock quarterly dividends are set at the rate of 8.25 % of the $ 25.00 liquidation preference ( equivalent to an annual dividend rate of $ 2.0625 per share ) . the first dividend on the series d cumulative preferred stock sold in this offering was paid on january 15 , 2019 in the amount of $ 0.2349 per share . in general , series d cumulative preferred stock holders have no voting rights . on january 15 , 2019 , the company acquired a 100 % interest in the170-room ritz-carlton , lake tahoe located in truckee , california for $ 103.3 million , a 3.4-acre undeveloped land parcel for $ 8.4 million , and capital reserves of $ 8.3 million . the company also completed the financing of a $ 54 million mortgage loan secured by the ritz-carlton , lake tahoe . the mortgage loan is interest-only , bears interest at libor + 2.10 % , and has a five-year term . in conjunction with the transaction , the company entered into the enhanced return funding program agreement and amendment no . 1 to the fifth amended and restated advisory agreement ( the “ erfp agreement ” ) with ashford inc. the amended and restated advisory agreement was also amended to name ashford inc. and its subsidiaries as the company 's sole and exclusive provider of asset management , project management and other services offered by ashford inc. or any of its subsidiaries . the independent members of our board of directors and the independent members of the board of directors of ashford inc. , with the assistance of separate and independent legal counsel , engaged to negotiate the erfp agreement on behalf of ashford inc. and braemar , respectively . the erfp agreement generally provides that ashford llc will provide funding to facilitate the acquisition of properties by braemar op that are recommended by ashford llc , in an aggregate amount of up to $ 50 million ( subject to increase to up to $ 100 million by mutual agreement ) . each funding will equal 10 % of the property acquisition price and will be made either at the time of the property acquisition or at any time generally within the two-year period following the date of such acquisition , in exchange for ff & e for use at the acquired property or any other property owned by braemar op . the initial term of the erfp agreement is two years ( the “ initial term ” ) , unless earlier terminated pursuant to the terms of the erfp agreement . at the end of the initial term , the erfp agreement shall automatically renew for successive one-year periods ( each such period a “ renewal term ” ) unless either ashford inc. or braemar provides written notice to the other at least sixty days in advance of the expiration of the initial term or renewal term , as applicable , that such notifying party intends not to renew the erfp agreement . as a result of the ritz-carlton , lake tahoe acquisition , braemar is entitled to receive $ 10.3 million from ashford llc in the form of future purchases of hotel ff & e at braemar hotel properties that will be leased to us by ashford llc rent free . on january 22 , 2019 , the company refinanced its existing mortgage loan of approximately $ 187 million with a final maturity date in november 2021 with a new $ 195 million mortgage loan that is interest only , bears interest at a rate of libor + 1.70 % 80 and has a five-year term . the mortgage loan is secured by the same two hotels : the capital hilton and hilton la jolla torrey pines . these two hotels are held in a joint venture in which we have a 75 % equity interest . on february 6 , 2019 , we invested an additional $ 156,000 in openkey , which investment was approved by the independent members of our board of directors . key indicators of operating performance we use a variety of operating and other information to evaluate the operating performance of our business . these key indicators include financial information that is prepared in accordance with gaap as well as other financial measures that are non-gaap measures . in addition , we use other information that may not be financial in nature , including statistical information and comparative data . we use this information to measure the operating performance of our individual hotels , groups of hotels and or business as a whole . story_separator_special_tag we also use these metrics to evaluate the hotels in our portfolio and potential acquisitions to determine each hotel 's contribution to cash flow and its potential to provide attractive long-term total returns . these key indicators include : occupancy-occupancy means the total number of hotel rooms sold in a given period divided by the total number of rooms available . occupancy measures the utilization of our hotels ' available capacity . we use occupancy to measure demand at a specific hotel or group of hotels in a given period . adr-adr means average daily rate and is calculated by dividing total hotel rooms revenues by total number of rooms sold in a given period . adr measures average room price attained by a hotel and adr trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels . we use adr to assess the pricing levels that we are able to generate . revpar-revpar means revenue per available room and is calculated by multiplying adr by the average daily occupancy . revpar is one of the commonly used measures within the hotel industry to evaluate hotel operations . revpar does not include revenues from food and beverage sales or parking , telephone or other non-rooms revenues generated by the property . although revpar does not include these ancillary revenues , it is generally considered the leading indicator of core revenues for many hotels . we also use revpar to compare the results of our hotels between periods and to analyze results of our comparable hotels ( comparable hotels represent hotels we have owned for the entire period ) . revpar improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs . revpar improvements attributable to increases in adr are generally accompanied by increases in limited categories of operating costs , such as management fees and franchise fees . revpar changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than changes that are driven primarily by changes in adr . for example , an increase in occupancy at a hotel would lead to additional variable operating costs ( including housekeeping services , utilities and room supplies ) and could also result in increased other operating department revenue and expense . changes in adr typically have a greater impact on operating margins and profitability as they do not have a substantial effect on variable operating costs . occupancy , adr and revpar are commonly used measures within the lodging industry to evaluate operating performance . revpar is an important statistic for monitoring operating performance at the individual hotel level and across our entire business . we evaluate individual hotel revpar performance on an absolute basis with comparisons to budget and prior periods , as well as on a regional and company-wide basis . adr and revpar include only rooms revenue . rooms revenue comprised approximately 66 % of our total hotel revenue for the year ended december 31 , 2018 and is dictated by demand ( as measured by occupancy ) , pricing ( as measured by adr ) and our available supply of hotel rooms . we also use ffo , affo , ebitdare , adjusted ebitdare and hotel ebitda as measures of the operating performance of our business . see “ non-gaap financial measures. ” principal factors affecting our results of operations the principal factors affecting our operating results include overall demand for hotel rooms compared to the supply of available hotel rooms , and the ability of our third-party management companies to increase or maintain revenues while controlling expenses . demand . the demand for lodging , including business travel , is directly correlated to the overall economy ; as gdp increases , lodging demand typically increases . historically , periods of declining demand are followed by extended periods of relatively strong demand , which typically occurs during the growth phase of the lodging cycle . following the recession that commenced in 2008 , the lodging industry has experienced improvement in fundamentals , including demand , which has continued through 2018 . we believe that industry fundamentals continue to show growth albeit at a slower pace . 81 supply . the development of new hotels is driven largely by construction costs , the availability of financing and expected performance of existing hotels . short-term supply is also expected to be below long-term averages . while the industry is expected to have supply growth below historical averages , we may experience supply growth , in certain markets , in excess of national averages that may negatively impact performance . we expect that our adr , occupancy and revpar performance will be impacted by macroeconomic factors such as national and local employment growth , personal income and corporate earnings , gdp , consumer confidence , office vacancy rates and business relocation decisions , airport and other business and leisure travel , new hotel construction , the pricing strategies of competitors and currency fluctuations . in addition , our adr , occupancy and revpar performance are dependent on the continued success of the marriott , hilton and sofitel brands . revenue . substantially all of our revenue is derived from the operation of hotels . specifically , our revenue is comprised of : rooms revenue-occupancy and adr are the major drivers of rooms revenue . rooms revenue accounts for the substantial majority of our total revenue . food and beverage revenue-occupancy and the type of customer staying at the hotel are the major drivers of food and beverage revenue ( i.e. , group business typically generates more food and beverage business through catering functions when compared to transient business , which may or may not utilize the hotel 's food and beverage outlets or meeting and banquet facilities ) . other hotel revenue-occupancy and the nature of the property are the main drivers of other ancillary revenue , such as telecommunications , parking and leasing services . hotel operating expenses .
| during 2018 , we experienced a 34 basis point in crease in occupancy and a 6.7 % in crease in room rates . rooms revenue from our nine comparable hotel properties decreased $ 8.7 million due a one basis point decrease in occupancy and lower room rates of 1.8 % . rooms revenue decreased ( i ) $ 16.6 million at the ritz-carlton , st. thomas due to the negative impact caused by hurricanes irma and maria ( during 2018 approximately 83 rooms were in service until december when the available rooms was reduced to 59 during the hotel renovation ) ; ( ii ) $ 16.8 million at the plano marriott legacy town center as a result of its sale on november 1 , 2017 ; ( iii ) $ 8.7 million at the tampa renaissance as a result of its sale on june 1 , 2018 ; and ( iv ) $ 3.1 million at the capital hilton as a result of 1.7 % lower room rates and a 511 basis point decrease in occupancy due to a renovation during 2018 and the presidential inauguration that occurred in 2017. these decreases were partially offset by increases of ( i ) $ 17.3 million at the ritz-carlton , sarasota as a result of its acquisition on april 4 , 2018 ; ( ii ) $ 9.6 million at the park hyatt beaver creek as a result of its acquisition on march 31 , 2017 ; ( iii ) $ 4.0 million at the hotel yountville as a result of its acquisition on may 11 , 2017 ( 2018 results were negatively impacted by the napa wildfires ) ; ( iv ) $ 4.9 million at the san francisco courtyard downtown as a 84 result of 5.7 % higher room rates and a 673 basis point increase in occupancy at the hotel due to its renovation in 2017 ; ( v ) $ 1.8 million at the philadelphia courtyard as a result of 5.3 % higher room rates and a 109 basis point increase in occupancy at the hotel
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as a result of the continued weakness in the company 's core office markets , the company intends to expand its holdings in the multi-family rental sector , which it believes has traditionally been a more stable product type . the remaining portion of this management 's discussion and analysis of financial condition and results of operations should help the reader understand our : · recent transactions ; · critical accounting policies and estimates ; · results of operations for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011 ; · results of operations for the year ended december 31 , 2011 as compared to the year ended december 31 , 2010 and · liquidity and capital resources . recent transactions acquisitions roseland transaction on october 23 , 2012 , the company acquired the real estate development and management businesses ( the “ roseland business ” ) of roseland partners , l.l.c . ( “ roseland partners ” ) , a premier multi-family rental community developer and manager based in short hills , new jersey , and the roseland partners ' interests , principally through unconsolidated joint venture interests in various entities which , directly or indirectly , own or have rights with respect to various residential and or commercial properties or vacant land ( collectively , the “ roseland assets ” ) . the roseland assets consisted primarily of interests in : six operating multi-family properties totaling 1,769 apartments , one condo-residential property totaling three units and four commercial properties totaling approximately 212,000 square feet ; 13 in-process development projects , which included nine multi-family properties totaling 2,149 apartments , two garages totaling 1,591 parking spaces and two retail properties totaling approximately 35,400 square feet ; and land parcels or options in land parcels which may support approximately 5,980 apartments , approximately 736,000 square feet of commercial space , and a 321-key hotel . the locations of the properties extend from new jersey to massachusetts with the majority of the properties located in new jersey . the company acquired the roseland assets and roseland business for aggregate purchase consideration of up to approximately $ 134.6 million , subject to adjustment , which included : 48 · approximately $ 115 million in cash which was financed by the company primarily through borrowings under its unsecured revolving credit facility and available cash ; and · up to an additional $ 15.6 million in cash that may be paid to roseland partners pursuant to certain earn-outs , which are based upon the achievement of operational milestones of the roseland assets and roseland business during the three years following the closing date . the purchase consideration is subject to adjustment upon the failure to achieve a certain level of fee revenue , during the 33-month period following the closing date . also , at the closing , approximately $ 34 million in cash of the purchase price was deposited in escrow to secure certain of the indemnification obligations of roseland partners and its affiliates . for the year ended december 31 , 2012 , included in general and administrative expense was approximately $ 5.8 million of transaction costs related to the roseland transaction . alterra on january 17 , 2013 , the company signed an agreement ( the “ alterra agreement ” ) to acquire alterra at overlook ridge ia and ib . on january 18 , 2013 , pursuant to the alterra agreement , the company completed the acquisition of alterra at overlook ridge ia , a 310-unit multi-family property located in revere , massachusetts , for approximately $ 61.3 million in cash . the purchase price for the property was financed primarily through borrowings under the company 's unsecured revolving credit facility . also pursuant to the alterra agreement , the company agreed to acquire alterra at overlook ridge ib , a 412-unit multi-family property in revere , massachusetts , for approximately $ 88 million in cash and expects an early april 2013 closing when the loan that currently encumbers the property opens for prepayment . on january 18 , 2013 , the company posted a letter of credit deposit in the amount of approximately $ 22 million ( which was issued using the company 's unsecured revolving credit facility ) related to the alterra at overlook ridge 1b closing , which is subject to certain conditions set forth in the alterra agreement . property sales , held for sale and impairments on july 25 , 2012 , the company sold its 47,700 square foot office property located at 95 chestnut ridge road in montvale , new jersey for net sales proceeds of approximately $ 4.0 million ( with no gain from the sale ) . the company previously recognized a valuation allowance of $ 0.5 million on this property at march 31 , 2012. on november 7 , 2012 , the company sold its three office buildings totaling 222,258 square feet located at strawbridge drive in moorestown , new jersey for net sales proceeds of approximately $ 19.4 million with a loss of approximately $ 0.1 million from the sale . the company previously recognized a valuation allowance of $ 1.6 million on these properties at june 30 , 2012. at december 31 , 2012 , the company identified as held for sale its 248,400 square foot office building located at 19 skyline drive in hawthorne , new york . the company determined that the carrying amount of this property was not expected to be recovered from estimated sales proceeds and accordingly recognized a valuation allowance of $ 7.1 million at december 31 , 2012. also at december 31 , 2012 , the company identified as held for sale its 204,057 square foot office building located at 55 corporate drive in bridgewater , new jersey . the two properties held for sale at december 31 , 2012 carried an aggregate book value of $ 60.9 million , net of accumulated depreciation of $ 16.8 million and a valuation allowance of $ 7.1 million . story_separator_special_tag at december 31 , 2012 , in light of recent discussions to dispose of its interest , the company determined that certain rights to participate in a future development venture , which related to a mixed use development project in east rutherford , new jersey , were not expected to be recovered from estimated net proceeds from its eventual disposition . accordingly , the company recorded an impairment charge of $ 6.3 million , to reduce the carrying value from $ 11.9 million to the estimated recoverable amount of $ 5.6 million at december 31 , 2012. these rights are included in deferred charges , goodwill and other assets , as of december 31 , 2012. the company also recorded an impairment charge on another rental property investment of $ 0.5 million related to an office property in newark , new jersey . the company 's office property located at 9200 edmonston road in greenbelt , maryland , aggregating 38,690 square feet , is collateral for a mortgage loan scheduled to mature on may 1 , 2013 with a balance of $ 4.3 million at december 31 , 2012. at december 31 , 2012 , the company estimated that the carrying value of the property may not be recoverable over its anticipated holding period . in order to reduce the carrying value of the property to its estimated fair market value , the company recorded an impairment charge of $ 3.0 million at december 31 , 2012. also at december 31 , 2012 , as a result of management 's current intentions regarding a potential disposition , the company estimated that the carrying value of the company 's two office properties located at 16 and 18 sentry parkway west in blue bell , pennsylvania , aggregating 188,103 square feet , may not be recoverable over their anticipated holding periods . in order to reduce the carrying value of the two properties to their estimated fair market values , the company recorded an impairment charge of $ 8.4 million at december 31 , 2012 . 49 critical accounting policies and estimates the financial statements have been prepared in conformity with generally accepted accounting principles . the preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reported period . these estimates and assumptions are based on management 's historical experience that are believed to be reasonable at the time . however , because future events and their effects can not be determined with certainty , the determination of estimates requires the exercise of judgment . the company 's critical accounting policies are those which require assumptions to be made about matters that are highly uncertain . different estimates could have a material effect on the company 's financial results . judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions and circumstances . rental property : rental properties are stated at cost less accumulated depreciation and amortization . costs directly related to the acquisition , development and construction of rental properties are capitalized . pursuant to the company 's adoption of asc 805 , business combinations , effective january 1 , 2009 , acquisition-related costs are expensed as incurred . capitalized development and construction costs include pre-construction costs essential to the development of the property , development and construction costs , interest , property taxes , insurance , salaries and other project costs incurred during the period of development . interest capitalized by the company for the years ended december 31 , 2012 , 2011 and 2010 was $ 4.3 million , $ 1.1 million and $ 1.9 million , respectively . ordinary repairs and maintenance are expensed as incurred ; major replacements and betterments , which improve or extend the life of the asset , are capitalized and depreciated over their estimated useful lives . fully-depreciated assets are removed from the accounts . the company considers 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 ( as distinguished from activities such as routine maintenance and cleanup ) . if portions of a rental project are substantially completed and occupied by tenants , or held available for occupancy , and other portions have not yet reached that stage , the substantially completed portions are accounted for as a separate project . the company allocates costs incurred between the portions under construction and the portions substantially completed and held available for occupancy , primarily based on a percentage of the relative square footage of each portion , and capitalizes only those costs associated with the portion under construction . properties are depreciated using the straight-line method over the estimated useful lives of the assets . the estimated useful lives are as follows : leasehold interests remaining lease term buildings and improvements 5 to 40 years tenant improvements the shorter of the term of the related lease or useful life furniture , fixtures and equipment 5 to 10 years upon acquisition of rental property , the company estimates the fair value of acquired tangible assets , consisting of land , building and improvements , and identified intangible assets and liabilities assumed , generally consisting of the fair value of ( i ) above and below market leases , ( ii ) in-place leases and ( iii ) tenant relationships . the company allocates the purchase price to the assets acquired and liabilities assumed based on their fair values . the company records goodwill or a gain on bargain purchase ( if any ) if the net assets acquired/liabilities assumed exceed the purchase consideration of a transaction .
| 54 year ended december 31 , 2012 compared to year ended december 31 , 2011 replace_table_token_12_th 55 the following is a summary of the changes in revenue from rental operations and property expenses in 2012 as compared to 2011 divided into same-store properties and roseland ( dollars in thousands ) : replace_table_token_13_th base rents for the same-store properties decreased $ 4.1 million , or 0.7 percent , for 2012 as compared to 2011 , due primarily to a decrease in occupancy in 2012 as compared to 2011. escalations and recoveries from tenants for the same-store properties decreased $ 10.8 million , or 11.7 percent , for 2012 over 2011 , due primarily to lower property expenses ( including the effect of real estate tax appeal proceeds ) in 2012 as compared to 2011. other income for the same-store properties increased $ 5.5 million , or 43.0 percent , due primarily to an increase in lease breakage fees recognized in 2012 as compared to 2011. real estate taxes on the same-store properties increased $ 7.5 million , or 8.7 percent , for 2012 as compared to 2011. the change in real estate taxes principally results from tax appeal proceeds , net of associated professional fees , decreasing by approximately $ 7.1 million , or 66.5 percent from 2011 to 2012. real estate taxes , without the effect of net tax appeal proceeds , did not increase significantly in 2012 compared to 2011. utilities for the same-store properties decreased $ 9.0 million , or 12.5 percent , for 2012 as compared to 2011 , due primarily to lower rates in 2012 as compared to 2011. operating services for the same-store properties decreased $ 4.9 million , or 4.2 percent , due primarily to a decrease in snow removal costs of $ 5.6 million in 2012 as compared to 2011. construction services revenue increased $ 1.5 million , or 12.4 percent , in 2012 as compared to 2011 , due primarily to increased construction contracts in 2012. real estate services revenues increased by $ 3.6 million , or 68.7 percent , for 2012 as compared to 2011 , due primarily to the effects of roseland in 2012. direct construction costs increased $ 1.2 million , or 10.4 percent , in 2012 as compared to 2011 , due primarily to increased construction contracts in 2012. general and administrative expenses increased by $ 12.4 million , or 35.1 percent , for 2012 as compared to 2011 due primarily to $ 5.8 million in transaction costs incurred in 2012 in connection with the roseland transaction and $ 3.2 million in costs incurred in 2012 for roseland operations during the period subsequent to the company 's acquisition . additionally , professional fees increased $ 1.1 million and salaries and related expenses increased $ 0.3 million for 2012 as compared to 2011. depreciation and amortization decreased by $ 1.0 million , or 0.5 percent , for 2012 over 2011. this
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foreign exchange had a favourable impact on total revenues in 2018 primarily due to the fluctuations of the euro exchange rate relative to the u.s. dollar . revenues decreased $ 155.8 million , or 14 % , in 2017 compared to 2016. this decrease was primarily due to lower revenues from inventory sales , partially offset by an increase in service revenues . the lower revenue from inventory sales is as a result of the fluctuations in this revenue stream as discussed above , and the growth in service revenues was due to the acquisition . foreign exchange had a favourable impact on total revenues in 2018 primarily due to the fluctuations of the euro and canadian dollar exchange rates relative to the u.s. dollar . geographic analysis the distribution of our revenues is determined by the location in which the sale occurred , or in the case of online sales , where the legal entity earning the revenues is incorporated . the following table presents our total revenues on a geographic basis . replace_table_token_6_th 2018 performance growth in the u.s. over the comparative period was primarily due to the acquisition , partial fee harmonization , and higher revenues from inventory sales . in canada , the growth over the comparative period was primarily due to partial fee harmonization , improved price performance on at-risk deals , growth of rbfs , and higher revenues from inventory sales . in europe , the growth over the comparative period was primarily due to higher revenue from inventory sales , partial fee harmonization , and the acquisition . the increase in inventory sales was driven by macroeconomic conditions in parts of europe creating a more favourable supply environment . other regions include australia , mexico , and countries representing the middle east . the increase in this region over the comparative period was primarily due to higher revenue from inventory sales from the middle east , and partial fee harmonization . 2017 performance the proportion of revenue earned declined in the u.s. and in canada , while europe grew during 2017 compared to 2016. the decrease in the u.s. and in canada was primarily driven by lower revenue from inventory sales . the growth in europe was primarily due to the performance of our live on site auction activities sold in spain , sourced from outside europe and an increase in revenues from mascus . ritchie bros. 34 costs of services costs of services are comprised of expenses incurred in direct relation to conducting auctions , earning online marketplace revenues , and earning other fee revenues . direct expenses include direct labour , buildings and facilities charges , and travel , advertising and promotion costs . costs of services incurred to earn online marketplace revenues in addition to the costs listed above also include inspection costs . inspections are generally performed at the seller 's physical location . the cost of inspections includes payroll costs and related benefits for the company 's employees that perform and manage field inspection services , the related inspection report preparation and quality assurance costs , fees paid to contractors who perform field inspections , related travel and incidental costs for the company 's inspection service organization , and office and occupancy costs for its inspection services personnel . costs of earning online marketplace revenues also include costs for the company 's customer support , online marketplace operations , logistics , and title and lien investigation functions . costs of services increased $ 25.9 million , or 19 % , in 2018 compared to 2017. this increase was primarily due to the acquisition and the incremental costs required to support the growth of our service revenues . costs of services increased $ 19.9 million , or 18 % , in 2017 compared to 2016. this increase is primarily due to costs associated with the growth in our inspection and appraisal activities because of the acquisition . cost of inventory sold cost of inventory sold includes the purchase price of assets sold for the company 's own account and is determined using a specific identification basis . costs of inventory sold increased $ 67.8 million , or 22 % , in 2018 compared to 2017. this increase was primarily due to the change in our revenue from inventory sales . costs of inventory sold decreased $ 206.9 million , or 40 % , in 2017 compared to 2016. this increase is primarily due to the decrease in revenue from inventory sales during the same period . revenue from inventory sales as a percent of total revenues decreased from 51 % in 2016 to 36 % in 2017. selling , general and administrative ( “ sg & a ” ) expenses 2018 performance sg & a expenses increased $ 59.4 million , or 18 % , during 2018 compared to 2017. this increase is primarily due to the acquisition , continued investments in talent to support growth of our business and initiatives , share unit expenses , and increased overhead costs to support govplanet 's non-rolling stock contract with the defense logistics agency . the acquisition drove increases in employee compensation , technology support costs , and additional advertising to promote our online marketplace sales . of the $ 8.8 million increase in our share unit expenses in 2018 , $ 3.3 million related to mark-to-market costs driven by growth in our share price over the comparative period and $ 2.2 million related to the incremental compensation costs from the modifications of our share unit plans . foreign exchange had an unfavourable impact on sg & a expenses in 2018 primarily due to the fluctuations of the euro exchange rate relative to the u.s. dollar . 2017 performance sg & a expenses increased $ 39.7 million , or 14 % , during 2017 compared to 2016. this increase is primarily due to post-acquisition increased headcount , travel costs , and search engine fees associated with our online marketplace channel , as well as merit increases and higher commitment and other bank fees attributable to our new credit facility . story_separator_special_tag this increase in sg & a expenses from 2016 to 2017 was partially offset by a decrease in share unit expense . foreign exchange rates had an unfavourable impact on sg & a expenses in 2017. foreign exchange ( gain ) loss we conduct global operations in many different currencies , with our presentation currency being the u.s. dollar . in 2018 , approximately 50 % of our revenues and 53 % of our operating expenses were denominated in currencies other than the u.s. dollar , compared to 44 % and 53 % , respectively , in 2017 and 48 % and 58 % , respectively , in 2016. we recognized $ 0.2 million of transactional foreign exchange gains in 2018 , $ 2.6 million of losses in 2017 , and $ 1.4 million of losses in 2016. foreign exchange losses and gains are primarily the result of settlement of non-functional currency-denominated monetary assets and liabilities . ritchie bros. 35 u.s. dollar exchange rate comparison the following table presents the variance in select foreign exchange rates over the comparative reporting periods : replace_table_token_7_th acquisition-related costs acquisition-related costs consist of operating expenses directly incurred as part of a business combination , due diligence and integration planning – including those related to the acquisition – and continuing employment costs that are recognized separately from our business combinations . business combination , due diligence , and integration operating expenses include advisory , legal , accounting , valuation , and other professional or consulting fees , and travel and securities filing fees . acquisition-related costs in 2018 totalled $ 5.1 million and primarily included costs incurred for severance and retention . labour reductions subsequent to the acquisition were part of our cost control measures to eliminate duplicative positions , planned as part of our synergy targets . this compares to $ 38.3 million of acquisition related expenses for 2017 , of which $ 34.7 million was associated with the acquisition . ironplanet acquisition-related costs for 2017 included costs incurred for acquisition and finance structure advisory fees , legal fees related to the regulatory approval process and closing of the transaction , stock option compensation expenses resulting from accelerated vesting of options assumed as part of the acquisition , severance and retention costs that followed the acquisition in the resulting corporate reorganization , and various integration costs . impairment loss there were no impairment losses in 2018 , compared to 2017 where we recognized an $ 8.9 million impairment loss on certain technology assets . operating income 2018 performance operating income increased $ 77.7 million , or 72 % , in 2018 compared to 2017. this was driven by higher total revenues combined with lower acquisition-related costs , as well as an impairment loss in the prior year . foreign exchange rates did not have a significant impact on operating income in 2018. adjusted operating income ( non-gaap measure ) increased $ 52.9 million , or 40 % , to $ 186.7 million in 2018 compared to $ 133.8 million in 2017. primarily for the same reasons noted above , operating income margin , which is our operating income divided by revenues , increased 470 bps to 15.8 % in 2018 compared to 11.1 % in 2017. agency proceeds adjusted operating income rate ( non-gaap measure ) increased 370 bps to 25.6 % in 2018 from 21.9 % in 2017 . 2017 performance operating income decreased $ 28.3 million , or 21 % , in 2017 compared to 2016. this decrease was primarily due to the higher sg & a expenses , acquisition-related costs , costs of services , and d & a expenses . these increases were partially offset by the revenue increase and lower impairment loss over the same comparative period . foreign exchange rates did not have a significant impact on operating income in 2017. adjusted operating income ( non-gaap measure ) decreased $ 30.2 million , or 18 % , to $ 133.8 million in 2017 compared to $ 164.0 million in 2016. primarily for the same reasons noted above , operating income margin , which is our operating income divided by revenues , decreased 90 bps to 11.1 % in 2017 compared to 12.0 % in 2016. agency proceeds adjusted operating income rate ( non-gaap measure ) decreased 700 bps to 21.9 % in 2017 from 28.9 % in 2016. ritchie bros. 36 interest expense interest expense increased $ 6.2 million , or 16 % , in 2018 compared to 2017. this increase was primarily due to : · a full year of indebtedness incurred to finance the acquisition compared to seven months in 2017 ; · the acceleration of the accretion of deferred debt issue costs resulting from the reduction of our syndicated credit facility and voluntary repayment of term loans during 2018 ; and · an increase in variable short-term interest over the comparative period . the increase was partially offset by the reduction in interest expense resulting from our $ 80.0 million voluntary prepayment of the term loan in 2018. as at december 31 , 2018 , our long-term debt was $ 711.3 million compared to $ 812.9 million as at december 31 , 2017. interest expense increased $ 32.7 million , or 588 % , in 2017 compared to 2016. this increase was primarily due to indebtedness to finance the acquisition . other income other income increased $ 3.6 million , or 44 % , in 2018 compared to 2017. this was primarily due to gain on the sale of an equity accounted for investment .
| the demand was particularly strong within the us construction market with robust momentum throughout 2018. despite these market headwinds , we generated gtv growth of 11 % . this was led by positive year-over-year growth in live industrial auctions and strong growth in our online marketplaces . online channels accelerated in 2018 following the acquisition of ironplanet in 2017 , setting new featured weekly online sales records in the second quarter , and again in the fourth quarter . · ritchie bros. conducted 568 auctions in 2018 , including 348 live , onsite ritchie bros. auctioneers events and 220 ironplanet and govplanet online events . as part of our strategy to fully leverage our multichannel capabilities and consolidate auctions to create larger , more significant multi-day events , we closed five live auction sites and optimized our overall auction calendar . these efforts led to fewer overall live industrial auctions , but more significant events in 2018 resulting in 65 % of live industrial auctions posting year-over-year growth across major geographies including a six-day us $ 278-million orlando event in february and several other record-breaking auctions . · online bidding continued to gain momentum in 2018 , with the percentage of online buyers reaching 59 % of winning bids made through an online channel . · our organizational focus on improving sales execution and generating growth through new customer acquisition and earning additional share of wallet with existing customers made solid strides . our strategic accounts group generated both record growth in the second quarter and double-digit growth in 2018 , led by new customer growth . · we successfully completed major planned aspects of our ironplanet integration in 2018 and launched project mars , an internal platform that unifies our live and online auction operations such as bidder registrations , title searches and equipment inspection and taxonomy specs . several modules have already been built and deployed , with implementation expected to continue in 2019 and expected to conclude in 2020. ritchie bros. 31 · we implemented the u.s. government defense logistics agency non-rolling stock surplus contract and added a second weekly govplanet online
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at december 30 , 2012 , the key indicators of the markets ' performance , the dow jones industrial average , s & p 500 , and the nasdaq closed 7.3 % , 13.4 % , and 15.9 % higher than their december 31 , 2011 closing prices , respectively . as a participant in the financial services industry , we are subject to complicated and extensive regulation of our business . the recent economic and political environment has led to legislative and regulatory initiatives , both enacted and proposed , that could substantially intensify the regulation of the financial services industry and may significantly impact us . on july 21 , 2010 , the dodd-frank act was signed into law . the dodd-frank act will have a broad impact on the financial services industry and will impose significant new regulatory and compliance requirements , including the designation of certain financial companies as systemically significant , the imposition of increased capital , leverage , and liquidity requirements , and numerous other provisions designed to improve supervision and oversight of , and strengthen safety and soundness within , the financial services sector . the expectation is that this new legislation will significantly restructure and increase regulation in the financial services industry , which could increase our cost of doing business , change certain business practices , and alter the competitive landscape . 33 story_separator_special_tag attributable to a decline in fixed income institutional brokerage revenues , which was negatively impacted by the challenging market conditions present during throughout 2011. in addition to the items impacting our commissions and principal transactions , as described above , a portion of the increase in commissions and corresponding decrease in principal transactions was attributable to a change in classification of certain equity trades that were recorded as principal transactions during the year ended december 31 , 2010 that are now being recorded as commission revenues as a result of regulatory changes . asset management and service fees asset management and service fees include fees for asset-based financial services provided to individuals and institutional clients . investment advisory fees are charged based on the value of assets in fee-based accounts . asset management and service fees are affected by changes in the balances of client assets due to market fluctuations and levels of net new client assets . for the year ended december 31 , 2011 , asset management and service fee revenues increased 18.5 % to $ 228.8 million from $ 193.2 million in 2010. the increase is primarily a result of an increase in the value of assets in fee-based accounts and the number of managed accounts from december 31 , 2010 , as a result of market performance , offset by a reduction in fees for money-fund balances due to the waiving of fees by certain fund managers . in addition , asset management and service fee revenues for the year ended december 31 , 2011 were positively impacted by the addition of the twpg asset management business starting on july 1 , 2010. see assets in fee-based accounts included in the table in results of operations global wealth management. investment banking investment banking revenues include : ( i ) capital raising revenues representing fees earned from the underwriting of debt and equity securities , and ( ii ) strategic advisory fees related to corporate debt and equity offerings , municipal debt offerings , mergers and acquisitions , private placements and other investment banking advisory fees . 36 for the year ended december 31 , 2011 , investment banking revenues decreased 8.5 % , to $ 199.6 million from $ 218.1 million in 2010. the decrease is primarily attributable to a decrease in capital raising and advisory fees as a result of the challenging market conditions that existed during 2011. capital raising revenues decreased 8.3 % to $ 124.6 million for the year ended december 31 , 2011 from $ 135.9 million in 2010. for the year ended december 31 , 2011 , equity capital raising decreased 9.6 % to $ 98.0 million from $ 108.4 million in 2010. for the year ended december 31 , 2011 , fixed income capital raising revenues decreased 2.9 % to $ 26.6 million from $ 27.5 million in 2010. strategic advisory fees decreased 8.8 % to $ 74.9 million for the year ended december 31 , 2011 from $ 82.2 million in 2010. other income for the year ended december 31 , 2011 , other income decreased 0.6 % to $ 19.7 million from $ 19.9 million in 2010. the decrease is primarily attributable to lower investment gains recognized during 2011 , offset by an increase in mortgage banking fee income due to the increase in loan originations at stifel bank . 37 net interest income the following tables present average balance data and operating interest revenue and expense data , as well as related interest yields for the periods indicated ( in thousands , except rates ) : replace_table_token_7_th * see distribution of assets , liabilities , and shareholders ' equity ; interest rates and interest rate differential table included in results of operations global wealth management for additional information on stifel bank 's average balances and interest income and expense . year ended december 31 , 2012 compared with year ended december 31 , 2011 net interest income net interest income is the difference between interest earned on interest-earning assets and interest paid on funding sources . net interest income is affected by changes in the volume and mix of these assets and liabilities , as well as by fluctuations in interest rates and portfolio management strategies . for the year ended december 31 , 2012 , net interest income increased 19.1 % to $ 76.4 million from $ 64.1 million in 2011. for the year ended december 31 , 2012 , interest revenue increased 22.7 % to $ 109.8 million from $ 89.5 million in 2011 , principally as a result of a $ 17.9 million increase in interest revenue generated from the interest-earning assets of stifel bank . story_separator_special_tag the average interest-earning assets of stifel bank increased to $ 2.9 billion during the year ended december 31 , 2012 compared to $ 1.9 billion in 2011 at weighted average interest rates of 2.60 % and 2.94 % , respectively . for the year ended december 31 , 2012 , interest expense increased 31.7 % to $ 33.4 million from $ 25.3 million in 2011. the increase is primarily attributable to the interest expense associated with our $ 325.0 million senior notes , offset by a reduction in interest expense on $ 47.5 million of our debentures to stifel financial capital trusts whose interest rates switched from fixed rate of 6.8 % per year to a floating rate equal to the three-month libor plus 1.85 % per annum during 2012 . 38 year ended december 31 , 2011 compared with year ended december 31 , 2010 net interest income for the year ended december 31 , 2011 , net interest income increased to $ 64.1 million from $ 52.1 million in 2010. for the year ended december 31 , 2011 , interest revenue increased 37.0 % to $ 89.5 million from $ 65.3 million in 2010 , principally as a result of an $ 21.8 million increase in interest revenue generated from the interest-earning assets of stifel bank and a $ 2.1 million increase in interest revenue from customer margin borrowing . the average interest-earning assets of stifel bank increased to $ 1.9 billion during the year ended december 31 , 2011 compared to $ 1.3 billion in 2010 at weighted average interest rates of 2.94 % and 2.72 % , respectively . the average margin balances of stifel nicolaus increased to $ 456.2 million during the year ended december 31 , 2011 compared to $ 385.0 million in 2010 at weighted average interest rates of 4.09 % and 4.29 % , respectively . for the year ended december 31 , 2011 , interest expense increased 91.9 % to $ 25.3 million from $ 13.2 million in 2010. the increase is primarily attributable to an increase in interest expense on interest-bearing liabilities of stifel bank and increased interest expense paid on borrowings from our unsecured line of credit during the year ended december 31 , 2011 , offset by a reduction in interest expense on the $ 35.0 million cumulative trust preferred security offered by stifel financial capital trust ii whose interest rate switched from a fixed rate of 6.38 % per year to a floating rate equal to the three-month london interbank offered rate ( libor ) plus 1.70 % on an annual basis beginning on september 30 , 2010. see net interest income table above for more details . for a further discussion of interest expense see net interest income stifel bank below . non-interest expenses the following table presents consolidated non-interest expenses for the periods indicated ( in thousands , except percentages ) : replace_table_token_8_th year ended december 31 , 2012 compared with year ended december 31 , 2011 except as noted in the following discussion of variances , the underlying reasons for the increase in non-interest expenses can be attributed principally to our continued expansion and increased administrative overhead to support the growth in our segments . compensation and benefits compensation and benefits expenses , which are the largest component of our expenses , include salaries , bonuses , transition pay , benefits , amortization of stock-based compensation , employment taxes and other employee-related costs . a significant portion of compensation expense is comprised of production-based variable compensation , including discretionary bonuses , which fluctuates in proportion to the level of business activity , increasing with higher revenues and operating profits . other compensation costs , including base salaries , stock-based compensation amortization , and benefits , are more fixed in nature . for the year ended december 31 , 2012 , compensation and benefits expense increased 13.7 % , or $ 123.5 million , to $ 1.02 billion from $ 900.4 million in 2011 the increase in compensation and benefits expense is primarily attributable to the following : 1 ) increased variable compensation as a result of increased revenue production and profitability ; 2 ) increased fixed compensation for the additional administrative support staff ; 3 ) additional incentive compensation associated with our investment in knight capital group , inc. ; and 4 ) an increase in deferred compensation expense as a result of the acceleration of the vesting period for unit grants awarded to newly retirement-eligible employees during the first quarter of 2012 . 39 compensation and benefits expense as a percentage of net revenues was 63.5 % for the year ended december 31 , 2012 compared to 63.6 % for the year ended december 31 , 2011. for the year ended december 31 , 2012 , transition pay , principally in the form of upfront notes , signing bonuses and retention awards in connection with our continuing expansion efforts , was $ 80.9 million ( 5.0 % of net revenues ) , compared to $ 70.9 million ( 5.0 % of net revenues ) in 2011. the upfront notes are amortized over a five to ten year period . occupancy and equipment rental for the year ended december 31 , 2012 , occupancy and equipment rental expense increased 6.8 % to $ 130.2 million from $ 121.9 million during the year ended december 31 , 2011. the increase is primarily due to the increase in rent and depreciation expense due primarily to an increase in office locations . as of december 31 , 2012 , we have 340 locations compared to 320 at december 31 , 2011. communications and office supplies communications expense includes costs for telecommunication and data transmission , primarily for obtaining third-party market data information . for the year ended december 31 , 2012 , communications and office supplies expense increased 7.1 % to $ 80.9 million from $ 75.6 million in 2011. the increase is primarily attributable to increased telecommunications costs as a result of the growth of the business .
| investment banking investment banking revenues include : ( i ) capital raising revenues representing fees earned from the underwriting of debt and equity securities , and ( ii ) strategic advisory fees related to corporate debt and equity offerings , municipal debt offerings , mergers and acquisitions , private placements and other investment banking advisory fees . for the year ended december 31 , 2012 , investment banking revenues increased 43.6 % , to $ 286.6 million from $ 199.6 million in 2011. the increase in investment banking revenues is primarily attributable to an increase in capital raising revenues , which is primarily attributable to improved equity capital markets , strong public finance activity aided by our acquisition of stone & youngberg in october 2011 and an increase in advisory fees as a result of an increase in m & a activity . capital raising revenues increased 52.8 % to $ 190.5 million for the year ended december 31 , 2012 from $ 124.6 million in 2011. for the year ended december 31 , 2012 , fixed income capital raising revenues increased 107.6 % to $ 55.4 million from $ 26.6 million in 2011. for the year ended december 31 , 2012 , equity capital raising increased 37.9 % to $ 135.1 million from $ 98.0 million in 2011. strategic advisory fees increased 28.2 % to $ 96.1 million for the year ended december 31 , 2012 from $ 74.9 million in 2011 . 35 asset management and service fees asset management and service fees include fees for asset-based financial services provided to individuals and institutional clients . investment advisory fees are charged based on the value of assets in fee-based accounts . asset management and service fees are affected by changes in the balances of client assets due to market fluctuations and levels of net new client assets . for the year ended december 31 , 2012 , asset management and service fee revenues increased 12.7 % to $ 258.0 million from $ 228.8 million in 2011. the increase is primarily a result of an increase in the value of assets in fee-based accounts and the number of managed accounts from december 31 , 2011 , as a result of market performance . see assets in fee-based accounts included in the table
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the fda has agreed that this new trial may qualify as a pivotal study with achievement of a persuasive clinical effect and addressing fda requirements , including clinical and statistical factors , an adequately sized safety database , and cmc parameters . 68 we initiated a phase 1b clinical trial of ser-287 in december 2015 and expect results from this study in the second half of 2017. we initiated a phase 1b clinical study of ser-262 in july 2016 and expect results from this study in the second half of 2017. our expenses may increase substantially in connection with our ongoing and planned activities , particularly as we : continue the clinical development of ser-109 , our lead product candidate ; based on feedback received from the fda , we plan to initiate a new phase 2 ser-109 clinical study ; continue the clinical development of ser-262 to be used following antibiotic treatment of primary cdi to prevent an initial recurrence of cdi ; continue the clinical development of ser-287 for the treatment of uc ; conduct research and continue pre-clinical development of additional ecobiotic® microbiome therapeutics , including ser-155 to improve clinical outcomes following allo-hsct due to infections and gvhd and ser-301 , our synthetic ibd product candidate ; make strategic investments in manufacturing capabilities , including potentially planning and building a small-scale commercial manufacturing facility ; maintain and augment our intellectual property portfolio and opportunistically acquire complementary intellectual property ; begin to build the infrastructure necessary to support potential commercialization of our product candidates ; and seek to obtain regulatory approvals for our product candidates . 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 . furthermore , we expect to continue to incur additional costs associated with operating as a public company . as a result , we will need additional financing to support our continuing operations . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of public or private equity or debt financings or other sources , which may include collaborations with third parties . adequate additional financing may not be available to us on acceptable terms , or at all . our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we will need to generate significant revenue to achieve profitability , and we may never do so . in january 2016 , we entered into a collaboration and license agreement , or the license agreement , with nestec ltd. , or nhs , for the development and commercialization of certain of our product candidates in development for the treatment and management of cdi and ibd , including uc and crohn 's disease . the license agreement will support the development of our portfolio of products for cdi and ibd in markets outside of the united states and canada , or the licensed territory , and is expected to provide substantial financial support for our ongoing research and development . we have retained full commercial rights to our entire portfolio of product candidates with respect to the united states and canada , where we plan to build our own commercial organization . under the license agreement , we granted to nhs an exclusive , royalty-bearing license to develop and commercialize , in the licensed territory , certain products based on our microbiome technology that are being developed for the treatment of cdi and ibd , including ser-109 , ser-262 , ser-287 and ser-301 , or , collectively , the nhs collaboration products . we also granted to nhs a non-exclusive license to export , develop and make nhs collaboration products in the licensed fields worldwide solely for commercialization in the licensed fields and in the licensed territory . in exchange for the license , nhs made an upfront cash payment of $ 120 million to us in february 2016. nhs has also agreed to pay us tiered royalties , at percentages ranging from the high single digits to high teens , of net sales of nhs collaboration products in the licensed territory . additionally , nhs has agreed to pay us up to $ 660 million for the achievement of certain development and regulatory milestones and up to an aggregate of $ 1.125 billion for the achievement of certain commercial milestones related to the sales of nhs collaboration products . we received a $ 10.0 million milestone payments in 2016 associated with the planned initiation of a phase 1b study for ser-262 in cdi . the full potential value of the up-front payment and milestone payments payable by nhs is over $ 1.9 billion , assuming all products receive regulatory approval and are successfully commercialized . nhs is also obligated to pay some of the costs related to our clinical trials . see “ —liquidity and capital resources. ” we expect that our existing cash , cash equivalents and investments , will enable us to fund our operating expenses and capital expenditure requirements through 2018. see “ —liquidity and capital resources. ” 69 financial operations overview revenue to date we have not generated any revenues from the sale of products . our revenues from collaborations have been derived from the license agreement . operating expenses our operating expenses since inception have consisted primarily of research and development activities and general and administrative costs . story_separator_special_tag research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts , and the development of our product candidates , which include : expenses incurred under agreements with third parties , including contract research organizations , or cros , that conduct research , pre-clinical activities and clinical trials on our behalf as well as contract manufacturing organizations that manufacture drug products for use in our pre-clinical and clinical trials ; salaries , benefits and other related costs , including stock-based compensation expense , for personnel in our research and development functions ; costs of outside consultants , including their fees , stock-based compensation and related travel expenses ; the cost of laboratory supplies and acquiring , developing and manufacturing pre-clinical study and clinical trial materials ; costs related to compliance with regulatory requirements ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we expense research and development costs as incurred . we recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our financial statements as prepaid or accrued research and development expenses . all costs associated with the license agreement are recorded in research and development expense in the consolidated statements of operations and comprehensive loss . our primary focus of research and development since inception has been on our microbiome therapeutics platform and the subsequent development of ser-109 , ser-262 , ser-287 , ser-301 and ser-155 . our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs , such as fees paid to investigators , consultants and cros in connection with our pre-clinical studies and clinical trials and regulatory fees . we do not allocate employee-related costs and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under development and , as such , are classified as costs of our microbiome therapeutics platform research , along with external costs directly related to our microbiome therapeutics platform . the table below summarizes our research and development expenses incurred on our platform and by product development program . replace_table_token_5_th 70 research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will continue to increase in the foreseeable future as we advance the clinical development of ser-287 and ser-262 , continue to discover and develop additional product candidates , including ser-155 and ser-301 , and pursue later stages of clinical development of our product candidates . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in our executive , finance , corporate and business development and administrative functions . general and administrative expenses also include legal fees relating to patent and corporate matters ; professional fees for accounting , auditing , tax and consulting services ; insurance costs ; travel expenses ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we anticipate that our general and administrative expenses may increase in the future if we increase our headcount to support the expected growth in our research and development activities and the potential commercialization of our product candidates . we also may incur increased expenses associated with being a public company , including increased costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance costs and investor and public relations costs . other income ( expense ) , net interest income interest income consists of interest earned on our cash , cash equivalents and investments . interest expense interest expense consists of amortization of purchased premiums and discounts associated with our investments . during the years ended december 31 , 2015 and 2014 , interest expense consisted of interest at the stated rate on borrowings under our loan and security agreement , amortization of deferred financing costs and interest expense related to the accretion of debt discount associated with ( 1 ) the fair value of preferred stock warrant we issued in connection with the loan and security agreement and ( 2 ) a final payment due at maturity . there was no such interest expense recorded for these items in 2016 as we held no preferred stock warrants or debt during the year ended december 31 , 2016. revaluation of preferred stock warrant liability revaluation of preferred stock warrant liability consists of the net gain or loss associated with the change in the fair value of our preferred stock warrant liability . in connection with the loan and security agreement , we issued a warrant for the purchase of our series a-2 convertible preferred stock , which we believe is a financial instrument that may have required a transfer of assets because of the redemption feature of the underlying stock . therefore , we classified this warrant as a liability that we re-measured to fair value at each reporting period , and we recorded the changes in the fair value as a component of other income ( expense ) , net . upon the listing of our common stock on the nasdaq on june 26 , 2015 , the preferred stock warrant became a warrant to purchase common stock .
| increase in travel costs of $ 0.3 million ; an increase of $ 11.6 million in expenses related to our ser-109 program , due primarily to an increase in clinical trial costs of $ 7.1 million in connection with our phase 2 clinical study , an increase in other consulting costs of $ 0.4 million , an increase in laboratory consumables and supplies of $ 2.2 million , an increase in sequencing costs of $ 0.9 million , and an increase in conference costs of $ 0.5 million ; an increase of $ 3.7 million in expenses of our ser-262 program primarily driven by an increase in clinical trial costs of $ 1.4 million , an increase in contract manufacturing costs of $ 0.9 million , an increase in animal studies costs of $ 0.1 million , an increase in other consulting costs of $ 0.2 million , and an increase in lab consumables and supplies of $ 1.0 million ; these increase are due primarily to the initiation of our phase 1b clinical study in july 2016 ; and an increase of $ 2.6 million in expenses of our ser-287 program primarily driven by an increase in clinical trial costs of $ 2.2 million , an increase in lab consumables and supplies of $ 0.6 million , offset in part due to a decrease in other consulting costs of $ 0.2 million . these increase are due primarily to the initiation of a phase 1b clinical trial in december 2015. we expect that our research and development expenses may increase in the foreseeable future as we advance the clinical development of ser-109 , ser-287 and ser-262 , and continue to discover and develop additional product candidates , including ser-301 and ser-155 , and pursue later stages of clinical development of our product candidates . general and administrative expenses replace_table_token_10_th general and administrative expenses were $ 32.6 million for the year ended
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monthly interest expense increased from the period of february 2 through december 3 1 , 2017 to the year ended december 3 1 , 2018 primarily due to an increase in debt , including new equipment financing agreements to support our growth , and write-off of unamortized debt issue costs amounting to $ 6.4 million from the modification of our revolving credit facility . replace_table_token_5_th revenues . revenues increased by $ 204.6 million , or 69.4 % , to $ 499.4 million for the combined year ended december 31 , 2017 from $ 294.8 million for the year ended december 31 , 2016 . $ 142.5 million of this increase was due to a 44.5 % increase in average revenue per hydraulic fracturing fleet in service . $ 62.1 million of this increase was due to an increase in the average number of hydraulic fracturing fleets in service from 7.3 to 8.5 fleets as a result of the increase in the drilling activity in our markets . 40 cost of services , excluding depreciation and amorti zation . cost of services , excluding depreciation and amortization , increased by $ 159.9 million , or 61 .0 % , to $ 422.2 million for the combined year ended december 31 , 2017 from $ 262.3 million for the year ended december 31 , 2016 . $ 53 . 7 million of this increa se was due to the increase in our average number of hydraulic fracturing fleets in service . $ 106 . 2 million of this increase was due to a 3 7.3 % increase in average cost per hydraulic fracturing fleet in service , which primarily resulted from higher fleet ut ilization and associated increases in expenditures for materials , labor , maintenance , and fuel . cost of services , excluding depreciation and amortization , as a percentage of revenues decreased from 89.0 % to 84.5 % over this period , primarily due to increase d pricing and increased efficiency that resulted from an increase in fleet utilization . depreciation and amortization . depreciation and amortization was $ 92.4 million , $ 4.9 million and $ 66.1 million for the period of february 2 through december 31 , 2017 , the period of january 1 through february 1 , 2017 , and the year ended december 31 , 2016 , respectively . monthly depreciation and amortization decreased from the year ended december 31 , 2016 to the period of january 1 through february 1 , 2017 primarily due to asset disposals and certain assets becoming fully depreciated . monthly depreciation and amortization increased from the period of january 1 through february 1 , 2017 to the period of february 2 through december 31 , 2017 due to the amortization expense on the intangible assets recorded in purchase accounting , additional depreciation expense resulting from the revaluation of property and equipment in purchase accounting and the addition of two hydraulic fracturing fleets during the year . selling , general and administrative expenses . selling , general and administrative expenses increased by $ 11.1 million , or 113.3 % , to $ 18.9 million for the combined year ended december 31 , 2017 from $ 9.8 million for the year ended december 31 , 2016. restructuring and transaction related costs of $ 6.1 million and $ 2.1 million were included in selling , general and administrative expenses for the combined year ended december 31 , 2017 and the year ended december 31 , 2016 , respectively . unit-based compensation of $ 3.0 million and $ 0 was included in selling , general and administrative expenses for the combined year ended december 31 , 2017 and the year ended december 31 , 2016 , respectively . excluding restructuring and transaction related costs and unit-based compensation , selling , general and administrative expenses increased by $ 3.1 million over these periods due to increased head count and bonuses to support the expansion and increased utilization of our hydraulic fracturing fleets , partially offset by a decrease in professional fees associated with litigation and debt amendments . impairment loss on intangible assets . on april 6 , 2017 , we amended a customer contract to release two fleets for redeployment to contracts with more favorable terms , which resulted in the recognition of an impairment loss on order backlog of $ 20.2 million . the intangible asset for order backlog was originally established in the accounting for the restructuring . loss on disposal of assets . loss on disposal of assets was $ 12.0 million , $ 0.2 million and $ 6.6 million for the period of february 2 through december 31 , 2017 , the period of january 1 through february 1 , 2017 , and the year ended december 31 , 2016 , respectively , which was primarily driven by differences in operating conditions of our hydraulic fracturing equipment such as wellbore pressure and rate of barrels pumped per minute that impact the timing of disposals and amount of gain or loss recognized . interest expense , net . interest expense , net , was $ 23.0 million , $ 4.1 million and $ 45.4 million for the period of february 2 through december 31 , 2017 , the period of january 1 through february 1 , 2017 , and the year ended december 31 , 2016 , respectively . monthly interest expenses increased from the year ended december 31 , 2016 to the period of january 1 through february 1 , 2017 primarily due to increasing levels of interest-bearing obligations during this period . monthly interest expense decreased from the period of january 1 through february 1 , 2017 to the period of february 2 through december 31 , 2017 due to the reduction of debt resulting from the restructuring , partially offset by interest on the financing of two new hydraulic fracturing fleets . story_separator_special_tag 41 liquidity and capital resources our primary sources of liquidity and capital resources are cash on the balance sheet , cash flow generated from operating activities , borrowings under bank credit agreements and availability under our revolving credit facility . we believe that our current cash position , cash generated through operations , and our financing arrangements will be sufficient to satisfy the anticipated cash requirements associated with our existing operations for at least the next twelve months . replace_table_token_6_th net cash provided by ( used in ) operating activities . net cash provided by ( used in ) operating activities primarily represents the results of operations exclusive of non-cash expenses , including depreciation , amortization , interest , impairment losses , gains and losses on disposal of assets , and share-based compensation , and the impact of changes in operating assets and liabilities . net cash provided by operating activities was $ 83.0 million for the year ended december 31 , 2018 , an increase of $ 38.5 million from the prior corresponding period . the primary driver of the increase in cash provided by operating activities was an increase in revenue , as drilling activity in our markets and demand for our services increased . net cash used in investing activities . net cash used in investing activities primarily relates to the purchase of property and equipment , partially offset by insurance proceeds to replace damaged equipment . net cash used in investing activities was $ 139.6 million for the year ended december 31 , 2018 , $ 53.6 million of which related to maintaining and supporting the hydraulic fracturing equipment and $ 86.0 million of which related to growth . the investment spend for the year ended december 31 , 2018 relates to the addition of one hydraulic fracturing fleet that we placed into service in the fourth quarter of 2018 , payments for new hydraulic fracturing fleets to be placed in service in 2019 , and maintaining and supporting the hydraulic fracturing equipment . net cash provided by financing activities . net cash provided by financing activities primarily relates to proceeds from our revolving credit facility , long-term debt , notes payable , and the issuance of class a common stock in connection with the transaction , offset by repayments of amounts under equipment financing arrangements , notes payable , revolver , long-term debt , and principal payments under the finance lease obligations . net cash provided by financing activities was $ 79.7 million for the year ended december 31 , 2018. during this period , we received proceeds of $ 56.0 million from our revolving credit facility , $ 40.0 million from long-term debt , $ 7.3 million from notes payable , and in connection with the transaction , net proceeds of $ 243.9 million from issuance of class a common stock . we also repaid $ 49.8 million of debt under our revolving credit facility , $ 4.2 million of debt under notes payable , $ 23.0 million of debt under equipment financing arrangements , $ 9.6 million of principal under finance lease obligations , and $ 163.9 million of term loan debt to related parties during this period . capital expenditures . our business requires continual investments to upgrade or enhance existing property and equipment and to ensure compliance with safety and environmental regulations . capital expenditures primarily relate to maintenance capital expenditures and growth capital expenditures . maintenance capital expenditures include expenditures needed to maintain and to support our current operations . growth capital expenditures include expenditures to generate incremental distributable cash flow . capital expenditures for growth initiatives are discretionary . we classify maintenance capital expenditures as expenditures required to maintain or supplement existing hydraulic fracturing fleets . we budget maintenance capital expenditures based on historical run rates and current maintenance schedules . growth capital expenditures relate to adding additional hydraulic fracturing fleets and are based on quotes obtained from equipment manufacturers and our estimate for the timing of placing orders , disbursing funds and receiving the equipment . 42 we continuously evaluate our capital expenditures and the amount we ultimately spend will depend on a number of factors , including expected industry activity levels and company initiatives . we intend to fund the majority of our capital expenditures , contractual obligations and working capital needs with cash on hand , cash generated from operations and other financing sources . debt agreements first lien credit agreement on december 14 , 2018 , our subsidiary , u.s. well services , llc , entered into a third amendment ( the “ amendment ” ) to that certain amended and restated senior secured credit agreement , dated february 2 , 2017 by and among u.s. well services , llc , as borrower , usws holdings and the company as guarantors , and a syndicate of lenders ( the “ first lien lenders ” ) and u.s. bank national association , as administrative and collateral agent ( as amended , the “ first lien credit agreement ” ) . the amendment , among other things , extended the maturity date from february 2 , 2020 to may 31 , 2020 and permits the borrower to incur the debt under the second lien term loan ( as defined below ) . the amendment was accounted for as debt modification , resulting in debt issue costs write-off of $ 0.4 million . the first lien credit agreement has a borrowing capacity of $ 65.0 million . borrowings under the first lien credit agreement bear interest at a per annum rate equal to libor plus 6 % . the first lien credit agreement contains various covenants , including , but not limited to , limitations on the incurrence of indebtedness , permitted investments , liens on assets , making distributions , transactions with affiliates , merger , consolidations , dispositions of assets and other provisions customary in similar types of arrangements .
| 5 to 9 . 7 fleets as a result of the increase in the drilling activity in our markets . cost of services , excluding depreciation and amortization . cost of services , excluding depreciation and amortization , increased by $ 110.9 million , or 26.3 % , to $ 533.0 million for the year ended december 31 , 2018 from $ 422.2 million for the combined year ended december 31 , 2017. of this increase , $ 61.1 million was primarily due to the increase in our average number of hydraulic fracturing fleets in service as discussed above . additionally , $ 49.7 million of this increase was due to an 11.0 % increase in average cost per hydraulic fracturing fleet in service , which primarily resulted from higher fleet utilization and associated increases in expenditures for materials , labor , maintenance , and fuel . cost of services , excluding depreciation and amortization , as a percentage of revenues decreased from 84.5 % to 82.2 % over this period , primarily due to increased efficiency that resulted from an increase in fleet utilization . depreciation and amortization . depreciation and amortization was $ 108.4 million , $ 92.4 million and $ 4.9 million for the year ended december 31 , 2018 , the period of february 2 through december 31 , 2017 and the period of january 1 through february 1 , 2017 , respectively . monthly depreciation and amortization increased from the period of january 1 through february 1 , 2017 to the period of february 2 through december 31 , 2017 due to the amortization expense on the intangible assets recorded in purchase accounting and additional depreciation expense resulting from the revaluation of property and equipment in purchase accounting . monthly depreciation and amortization increased from the period of february 2 through december 31 , 2017 to the year ended december 31 , 2018 primarily due to the addition of one hydraulic fracturing fleet in the fourth quarter in 2018 and full-year depreciation
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net income our majority non-controlling share of net income for the year ended december 31 , 2019 was $ 16,276 versus a loss of ( $ 171 ) for the year ended december 31 , 2018. adjusted ebitda our majority non-controlling share of adjusted ebitda for the year ended december 31 , 2019 was $ 20,558 versus ( $ 14 ) for the year ended december 31 , 2018. the increase is related to increases in sales . notes : ( 1 ) the gaap treatment of our equity earning of our joint venture ( pure sunfarms ) is different than under ifrs . under gaap the emerald shares held in escrow and not fully paid for by emerald are not considered issued pursuant to the gaap concept of hypothetical liquidation ' . as a result , under gaap , our ownership percentage for all of 2017 , january through march of 2018 and march through december of 2019 was higher than its economic interest of 50 % ( 53.5 % effective november 19 , 2019 ) . accordingly , for those periods with a higher deemed ownership percentage , we received a higher allocation of profits and losses during the periods in which there were outstanding escrow shares . the effective profit and loss allocation on a weighted average basis in 2019 were 57.9 % , in 2018 was 52.2 % and in 2017 was 87.5 % . story_separator_special_tag margin-bottom:0pt ; font-size:10pt ; font-family : times new roman '' > cost of sales cost of sales for the year ended december 31 , 2018 decreased ( $ 3,750 ) , or ( 3 % ) , to $ 140,683 from $ 144,433 for the year ended december 31 , 2017 , primarily due to no tomato production from the delta 3 facility ( $ 5,371 ) and a decrease in costs in texas due to a decrease in pounds sold from the texas facilities partially offset by an increase of 6 % in contract sales costs . selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2018 decreased ( $ 767 ) , or ( 5 % ) , to $ 14,108 from $ 14,875 for the year period ended december 31 , 2017. the decrease is due to legal costs occurred in the year ended december 31 , 2017 during formation of the joint venture . stock compensation expenses stock compensation expenses for the year ended december 31 , 2018 was $ 1,454 which was a slight decrease from $ 1,519 for the year ended december 31 , 2017. interest expense interest expense for the year ended december 31 , 2018 increased $ 99 to $ 2,794 from $ 2,695 for the year period ended december 31 , 2017. the increase is due to interest rate increases partially offset by a decrease in the outstanding debt balances . share of loss from joint ventures our share of loss from its joint venture for the year ended december 31 , 2018 was ( $ 171 ) from ( $ 468 ) for the year ended december 31 , 2017. the decreased loss is primarily attributed to the joint venture 's commencing selling operation in october 2018. this income was able to offset most of the salaries and other administrative costs . for information regarding the results of operations from our joint ventures , see reconciliation of u.s. gaap results to proportionate results below . income taxes ( recovery ) income tax recovery for the year ended december 31 , 2018 was a recovery of $ 2,300 compared to a recovery of $ 763 for the year ended december 31 , 2017. the increased income tax recovery is due lower gross profit from operations . gain on sale of assets no gains were recognized in 2018. the company recognized for the year period ended december 31 , 2017 a loss of ( $ 8 ) related to a write-off of an asset from our texas facility . 44 net income ( loss ) net income ( loss ) for the year ended december 31 , 2018 decreased to a loss of ( $ 7,515 ) from the loss of ( $ 4,757 ) for the year ended december 31 , 2017. the increased ( loss ) is due to a decrease in net sales caused by the loss of the delta 3 facility and production shortfalls in texas which were partially offset by a decrease in the cost of sales . the production shortfall in texas increases the cost per pound of tomatoes sold as fixed costs are expensed over less pounds . adjusted ebitda adjusted ebitda for the year period ended december 31 , 2018 decreased ( $ 3,812 ) to $ 2,638 from $ 6,450 for the year period ended december 31 , 2017 , primarily as a result of an increase in income loss from consolidated entities . see the reconciliation of adjusted ebitda to net income in non-gaap measuresreconciliation of net earnings to adjusted ebitda . liquidity and capital resources capital resources the company expects to provide or obtain adequate financing to maintain and improve its property , plant and equipment , to fund working capital produce needs and invest in the joint venture for the foreseeable future from cash flows from operations , and , as needed , from additional borrowings under the credit facilities ( as defined below ) or additional equity financing . as described below , we are currently not in compliance with the covenants of our credit facilities and have had to obtain waivers from our lenders , and we are currently in discussions to amend or enter into new credit facilities in the second quarter of 2020 . ( in thousands of u.s. dollars unless otherwise noted ) maximum outstanding december 31 , 2019 operating loan c $ 13,000 $ 2,000 term loan $ 31,306 $ 31,306 vfce loan c $ 1,526 c $ 1,526 the company has a term loan financing agreement with a canadian creditor ( the fcc loan ) . story_separator_special_tag this non-revolving variable rate term loan has a maturity date of may 1 , 2021 and a balance of $ 31,306 as at december 31 , 2019 ( december 31 , 2018 $ 34,385 ) . the outstanding balance is repayable by way of monthly installments of principal and interest based on an amortization period of 15 years , with the balance and any accrued interest to be paid in full on may 1 , 2021. as at december 31 , 2019 , borrowings under the fcc loan were subject to an interest rate of 6.391 % ( december 31 , 2018 7.082 % ) , which is determined based on our debt to ebitda ratio and the applicable libor rate . our company is also party to a variable rate line of credit agreement with bmo that has a maturity date of may 31 , 2021 ( the operating loan and together with the fcc loan , the credit facilities ) . the operating loan is subject to margin requirements stipulated by the bank based on produce sales . as at december 31 , 2019 , $ 2,000 was drawn on the operating loan ( december 31 , 2018 $ 2,000 ) , which is available to a maximum of c $ 13,000 , less outstanding letters of credit of us $ 150 and c $ 38. as security for the fcc loan , the company has provided promissory notes , a first mortgage on the vff-owned greenhouse properties ( excluding the delta 3 and delta 2 greenhouse facilities ) and general security agreements over its assets . in addition , the company has provided full recourse guarantees and has granted security therein . the carrying value of the assets and securities pledged as collateral as at december 31 , 2019 was $ 146,377 ( december 31 , 2018 $ 101,263 ) . as security for the operating loan , the company has provided promissory notes and a first priority security interest over its accounts receivable and inventory . in addition , the company has granted full recourse guarantees and security therein . the carrying value of the assets pledged as collateral as at december 31 , 2019 was $ 24,915 ( december 31 , 2018 - $ 36,248 ) . 45 the borrowings are subject to certain positive and negative covenants , which include debt coverage ratios . as at december 31 , 2019 , the company received a waiver for its annual debt service coverage and debt to ebitda covenants under its term loan for the year ended december 31 , 2019 and was in compliance with all of its other credit facility covenants under its credit facilities . accrued interest payable on the credit facilities and loans as at december 31 , 2019 was $ 162 ( december 31 , 2018 $ 184 ) and these amounts are included in accrued liabilities in the consolidated statements of financial position . on february 13 , 2019 , the joint venture entered into a credit agreement with bmo , as agent and lead lender , and fcc , as lender , in respect of a c $ 20,000 secured non-revolver term loan ( the psf credit facility ) . at december 31 , 2019 the outstanding amount on the loan was c $ 19,000. the psf credit facility , which matures on february 7 , 2022 , is secured by the delta 3 greenhouse facility and contains customary financial and restrictive covenants . the company is not a party to the psf credit facility but has guaranteed up to c $ 10 in connection with the psf credit facility . the company closed equity offerings on october 22 , 2019 and march 24 , 2020. the october 22 , 2019 public offering raised c $ 26,934 ( net proceeds ) through the issuance of 3,059,000 common shares at a price of c $ 9.40 per common share . the march 24 , 2020 public offering raised c $ 10,711 ( net proceeds ) through the issuance of 3,593,750 common shares at a price of c $ 3.20 per common share . summary of cash flows replace_table_token_7_th operating activities for the year ended december 31 , 2019 , cash flows from operating activities before changes in non-cash working capital , totalled ( $ 19,902 ) ( 2018 $ 1,527 ) . the decrease in cash flows from operating activities is due to a decrease in sales and an increase in cost of sales for the year ended december 31 , 2019. investing activities for the year ended december 31 , 2019 , cash flow from investing activities consisted of ( $ 14,507 ) in note to joint venture , ( $ 2,287 ) in capital expenditures and ( $ 96 ) investment in our joint ventures ( 2018 $ 10,462 in note to joint venture and $ 3,093 in net capital expenditures ) . the joint venture notes made for the year ended december 31 , 2019 was $ 13,323 to vf hemp and $ 1,184 to avggh and for the year ended december 31 , 2018 $ 10,873 to pure sunfarms . financing activities for the year ended december 31 , 2019 , the cash provided by financing activities primarily consisted of the issuance of common shares of $ 34,226 , proceeds from the exercise of share options and warrants of $ 674 , debt payments of , net ( $ 3,423 ) , and payments on capital lease obligations of ( $ 90 ) ( 2018 proceeds from the issuance of common shares of $ 23,492 , proceeds from the exercise of share options of $ 283 , offset by net term debt payments of ( $ 706 ) , and payments on capital lease obligations of ( $ 71 ) ) .
| pepper prices increased 7 % and pepper pounds increased 8 % over the comparable period in 2018. cucumber prices decreased ( 7 % ) and cucumber pieces decreased ( 13 % ) for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. cost of sales cost of sales for the year ended december 31 , 2019 increased $ 11,230 , or 8 % , to $ 151,913 from $ 140,683 for the year ended december 31 , 2018 , due to an increase in the 2019 contract sales cost of 11 % versus 2018 and an increase in the cost per pound of our own grown product in texas due to decreased volume and higher labor costs . the increase in labor cost is due to the utilization of higher hourly rate contract laborers versus vff employees for the 2018/2019 crop as compared to prior years . the decrease in our own production volume is primarily due to ongoing plant disease pressure at our texas facilities and a clean-out in one of our facilities ( which did not occur in the last three years ) . 42 selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2019 increased $ 2,654 , or 19 % , to $ 16,762 from $ 14,108 for the year period ended december 31 , 2018. the increase is due to public company costs such as investor relations , legal , listing fees and incremental costs of converting to full u.s. gaap and u.s. reporting compliance . stock compensation expenses stock compensation expenses for the year ended december 31 , 2019 was $ 4,714 from $ 1,454 for the year ended december 31 , 2018. the incremental increase in stock compensation is primarily related to the vesting of performance share grants in 2019 that were earned in relation to developments in pure sunfarms , as well as the incremental cost of issuing higher valued stock options . interest expense interest expense , for the year ended december 31 , 2019 decreased $ 180 to $ 2,614 from $ 2,794 for the year period ended december 31 , 2018. the decrease is due to lower debt balances . share of income from joint ventures our share of income from its joint ventures for the year ended december 31 , 2019 was $ 13,777 compared to a loss of ( $ 171 ) for the year ended december 31 , 2018. the increase in income is primarily attributed to the joint venture having selling operations for the entire year ended december 31 , 2019 whereas it started
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copies of documents filed with the sec are available free of charge at the sec 's website at www.sec.gov and or from peoples ' website – www.peoplesbancorp.com under the `` investor relations '' section . the following discussion and analysis of peoples ' consolidated financial statements is presented to provide insight into management 's assessment of the financial results and condition for the periods presented . this discussion and analysis should be read in conjunction with the audited consolidated financial statements and notes thereto , as well as the ratios and statistics , contained elsewhere in this form 10-k. summary of significant transactions and events the following is a summary of transactions or events that have impacted or are expected by management to impact peoples ' results of operations or financial condition : ◦ at the close of business on october 24 , 2014 , peoples completed the acquisition of north akron and its full service offices in akron , cuyahoga falls , munroe and norton , ohio . under the terms of the merger agreement , peoples paid $ 7,655 of consideration per share of north akron common stock , or $ 20.1 million , of which 80 % was paid in peoples ' common shares and the remaining 20 % in cash . the acquisition added $ 111.5 million of loans and $ 108.1 million of deposits at the acquisition date , after purchase accounting adjustments . ◦ on august 7 , 2014 , peoples announced the completion of the sale of 1,847,826 common shares at $ 23.00 per share to institutional investors through a private placement ( the `` private equity issuance '' ) . peoples received net proceeds of $ 40.2 million from the sale , and intends to use the proceeds , in part , to fund the cash consideration for the nb & t acquisition . ◦ on august 4 , 2014 , peoples entered into the nb & t agreement . the nb & t agreement calls for nb & t to merge into peoples and for nb & t 's wholly-owned subsidiary , the national bank and trust company , which operates 22 full-service branches in southwest ohio , to merge into peoples bank . under the terms of the nb & t agreement , shareholders of nb & t will receive 0.9319 of peoples ' common shares and $ 7.75 in cash for each share of nb & t . the nb & t transaction is expected to be completed during the first quarter of 2015 , pending adoption of the nb & t agreement by the shareholders of both nb & t and peoples , the satisfaction of various closing conditions , including 29 the accuracy of the representations and warranties of each party ( subject to certain exceptions ) , the performance in all material respects by each party of its obligations under the nb & t agreement , and other conditions customary for transactions of this type . ◦ at the close of business on august 22 , 2014 , peoples completed the acquisition of ohio heritage and its six full service offices in coshocton , newark , heath , mount vernon and new philadelphia , ohio . under the terms of the merger agreement , peoples paid $ 110.00 of consideration per share of ohio heritage common stock , or $ 37.7 million , of which 85 % was paid in peoples ' common shares and the remaining 15 % in cash . the acquisition added $ 175.8 million of loans and $ 174.9 million of deposits at the acquisition date , after purchase accounting adjustments . ◦ at the close of business on may 30 , 2014 , peoples completed the acquisition of midwest and its full service offices in wellston and jackson , ohio . under the terms of the merger agreement , peoples paid $ 65.50 of consideration per share of midwest common stock , or $ 12.6 million , of which 50 % was paid in cash and the remaining 50 % in peoples ' common shares . the acquisition added $ 58.7 million of loans and $ 77.9 million of deposits at the acquisition date , after purchase accounting adjustments . ◦ in 2014 , peoples incurred $ 5.1 million of acquisition-related expenses , compared to $ 1.5 million in 2013 and $ 641,000 in 2012 , which were primarily fees for legal costs , other professional services , deconversion costs and write-offs associated with assets acquired . ◦ during 2013 , peoples took steps to reduce its investment in bank-owned life insurance ( `` boli '' ) contracts and redeploy the funds in order to enhance long-term shareholder return . peoples received proceeds of $ 43.1 million during 2013 as a result of the liquidation of boli contracts , while the remaining cash surrender value of approximately $ 6.6 million was recorded as a receivable at december 31 , 2013. peoples received the remaining cash surrender value in the first quarter of 2014 , in accordance with the terms of the boli policies ( collectively , the `` boli surrender '' ) . the boli surrender caused peoples to incur a $ 2.2 million federal income tax liability in 2013 for the gain associated with the policies surrendered . ◦ peoples periodically has taken actions to reduce interest rate exposure within the investment portfolio and the entire balance sheet , which have included the sale of low-yielding investment securities and repayment of high-cost borrowings . these actions included the sale of $ 68.8 million of investment securities , primarily low or volatile yielding residential mortgage-backed securities , during the first quarter of 2013. some of the proceeds from these investment sales were reinvested in securities during the first quarter with the remaining reinvested early in the second quarter of 2013 . story_separator_special_tag ◦ as described in note 11 of the notes to the consolidated financial statements , peoples incurred settlement charges of $ 1.4 million during 2014 due to the aggregate amount of lump-sum distributions to participants in peoples ' defined benefit pension plan exceeding the threshold for recognizing such charges during the period . settlement charges of $ 270,000 and $ 835,000 were recognized during 2013 and 2012 , respectively . ◦ on september 17 , 2012 , peoples introduced its new brand as part of a company-wide brand revitalization . the brand is peoples ' promise , which is a guarantee of satisfaction and quality . peoples incurred costs throughout 2013 associated with the brand revitalization , including marketing due to advertisements , and depreciation expense for new assets related to the $ 5 million branch renovation project . ◦ peoples ' net interest income and net interest margin are impacted by changes in market interest rates based upon actions taken by the federal reserve board either directly or through its open market committee . these actions include changing the target federal funds rate ( the interest rate at which banks lend money to each other ) , discount rate ( the interest rate charged to banks for money borrowed from the federal reserve bank ) and longer-term market interest rates ( primarily u.s. treasury securities ) . longer-term market interest rates also are affected by the demand for u.s. treasury securities . the resulting changes in the yield curve slope have a direct impact on reinvestment rates for peoples ' earning assets . ◦ the federal reserve board has maintained its target federal funds rate at a historically low level of 0 % to 0.25 % since december 2008 and has maintained the discount rate at 0.75 % since december 2010. the federal reserve board has indicated the possibility that these short-term rates could start to be raised as early as 2015 . ◦ from late 2008 until year-end 2014 , the federal reserve board took various actions to lower longer-term market interest rates as a means of stimulating the economy – a policy commonly referred to as “ quantitative easing ” . these actions included the buying and selling of mortgage-backed and other debt securities through its open market operations . in december 2013 , the federal reserve board announced plans to taper its quantitative easing efforts . 30 as a result , the slope of the u.s. treasury yield curve has fluctuated significantly . substantial flattening occurred in late 2008 , in mid-2010 and early third quarter of 2011 through 2012 , while moderate steepening occurred in the second half of 2009 , late 2010 and mid-2013 . the curve has remained relatively steep since mid-2013 , primarily as a reaction to the federal reserve board 's announcement of a reduction in monthly asset purchases and generally improving economic conditions . the curve flattened gradually throughout 2014 , primarily in response to the slowing global economy , geopolitical uncertainty and lower yields on sovereign debt throughout the world . the impact of these transactions , where material , is discussed in the applicable sections of this management 's discussion and analysis of financial condition and results of operations . critical accounting policies the accounting and reporting policies of peoples conform to us gaap and to general practices within the financial services industry . a summary of significant accounting policies is contained in note 1 of the notes to the consolidated financial statements . while all of these policies are important to understanding the consolidated financial statements , certain accounting policies require management to exercise judgment and make estimates or assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . these estimates and assumptions are based on information available as of the date of the consolidated financial statements ; accordingly , as this information changes , the consolidated financial statements could reflect different estimates or assumptions . management has identified the accounting policies described below as those that , due to the judgments , estimates and assumptions inherent in the policies , are critical to an understanding of peoples ' consolidated financial statements and management 's discussion and analysis of financial condition and results of operations . income recognition interest income on loans and investment securities is recognized by methods that result in level rates of return on principal amounts outstanding , including yield adjustments resulting from the amortization of loan costs and premiums on investment securities and accretion of loan fees and discounts on investment securities . since mortgage-backed securities comprise a sizable portion of peoples ' investment portfolio , a significant increase in principal payments on those securities could impact interest income due to the corresponding acceleration of premium amortization or discount accretion . peoples discontinues the accrual of interest on a loan when conditions cause management to believe collection of all or any portion of the loan 's contractual interest is doubtful . such conditions may include the borrower being 90 days or more past due on any contractual payments or current information regarding the borrower 's financial condition and repayment ability . all unpaid accrued interest deemed uncollectable is reversed , which would reduce peoples ' net interest income . interest received on nonaccrual loans is included in income only if principal recovery is reasonably assured . allowance for loan losses in general , determining the amount of the allowance for loan losses requires significant judgment and the use of estimates by management . peoples maintains an allowance for loan losses based on a quarterly analysis of the loan portfolio and estimation of the losses that are probable of occurrence within the loan portfolio .
| accretion income from acquisitions added approximately 12 basis points to net interest margin in 2014 compared to 4 basis points in 2013. the decrease in net interest margin during 2013 was largely a result of the low interest rate environment , which put downward pressure on asset yields . total non-interest income , which excludes gains and losses on investment securities , asset disposals and other transactions , increased 8 % in 2014 compared to 2013 . during 2014 , insurance income grew 11 % , or $ 1.4 million , trust and investment income increased 8 % , or $ 0.6 million , and electronic banking income was up 8 % , or $ 0.5 million . the key driver of the increase in insurance income was additional performance-based commissions received due to the improved quality of the book of business and increased production with the insurance carriers . mortgage banking income has slowed as refinancing activity has declined , leading to a reduction of $ 0.5 million in 2014 and $ 1.1 million in 2013. total non-interest income was up 6 % in 2013 compared to 2012 , as insurance income and trust and investment income grew 24 % and 16 % , respectively . total other expense increased 25 % , or $ 16.7 million , for the year ended december 31 , 2014 , as a result of acquisition-related costs , higher salaries and employee benefits due to additional employees and increased electronic banking expense . acquisition-related expenses included in other expenses during 2014 were $ 4.8 million compared to $ 1.4 million in 2013 and $ 569,000 in 2012. also during 2014 , the board of directors granted a one-time stock award of unrestricted common shares to all full-time and part-time employees who did not already participate in the equity plans , which resulted in expense of $ 298,000. in 2013 , salaries and employee benefits increased due to a higher number of employees primarily because of acquisitions . at december 31 , 2014 , total assets were up 25 % to $ 2.57 billion versus $ 2.06 billion at year-end 2013 , with the acquisitions completed during 2014 adding approximately $
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the new c code described as “ c9122 mometasone furoate , sinus implant , 10 micrograms ” , took effect on july 1 , 2020. pass-through status lasts for three years and allows us to place sinuva in the asc and hospital settings . moreover , in january 2021 , cms approved a revised coding application for our propel family of products and established a separate code for propel , s1091 “ stent , non-coronary , temporary , with delivery system ( propel ) ” . cms also made updates to the current sinuva j-code to j7402 “ mometasone furoate sinus implant , ( sinuva ) , 10 micrograms. ” the new propel and sinuva codes are scheduled to take effect april 1 , 2021. prior to october 1 , 2019 , reimbursement submissions to cover the cost of sinuva were reported to payors using the unassigned healthcare common procedure coding system ( “ hcpcs ” ) code j3490 . our vensure navigable and stand-alone balloon offerings are used to access and treat the frontal , sphenoid sinus and maxillary ostia in adults using a trans-nasal approach . the vensure navigation balloon is intended for use in conjunction with the cube navigation system during sinus procedures when surgical navigation or image-guided surgery may be necessary to locate and displace bone , or cartilaginous tissue surrounding the drainage pathways of the frontal , maxillary , and sphenoid sinuses to facilitate dilation of the sinus ostia . our cube navigation system is an innovative virtual guidance platform for high precision ent and ent related skull-base surgeries . the system 's unique photo registration technology , virtueye , enhances the user 's navigation experience and improves pre-surgery efficiency . this novel 3d-imaging technology mitigates common tactile tracing errors by collecting thousands of patient reference points in one camera shot . the entire photo registration process can be achieved in under 30 seconds without touching the patient . we also continue to perform research and development activities and clinical trials in order to expand our portfolio of products and improve our existing products . we plan to initiate the expand study in the second quarter of 2021 , which will assess the vensure balloon and propel contour 's collective ability to improve healing and patency rates through localized drug delivery post-balloon dilation , as well as other outcomes . the primary endpoint will be evaluated at 30 days . in order to expand our global reach , we also plan to make clinical and regulatory investments in order to expand propel in europe . our propel open registry trial is in place to fulfill eu medical device regulation ( “ mdr ” ) requirements and collect local data in order to support our commercial efforts . other clinical trials initiated in the past include our investigational ascend drug-coated sinus balloon study initiated in december 2018. impact of the covid-19 pandemic prior to the covid-19 pandemic , our efforts to enhance commercial execution and improve market access infrastructure were beginning to yield benefits as sales until the end of february 2020 were consistent with our expectations . however , sales declined towards the end of the first quarter and throughout the second quarter as the various covid-19 restrictions were implemented and remained in effect . however , we began to see meaningful change in the business environment towards the end of may with increased procedure volumes as select areas of the country emerged from shelter-in-place orders and restrictions on elective medical procedures were eased . this trend continued in june and throughout the remainder of 2020 as we continued to see improvements in the elective procedure market . our business has been and will be impacted by patients ' decisions to undergo sinus surgeries and as ent asc and office procedure volumes begin to recover . we continue to remain flexible in our approach to continuing our operations in light of rapidly developing laws and restrictions surrounding the covid-19 pandemic . while the second half of 2020 provided an improving business environment , the covid-19 pandemic may continue to create severe disruptions and volatility in global capital markets and increase economic uncertainty and instability . the impact of this on the global economy has been and may continue to be severe and may impact our operations and financial results . components of our results of operations revenue 47 our revenue has been derived almost exclusively from the sales of our propel family of products , with limited sales of sinuva beginning in march 2018 , as well as sales of cube and vensure products beginning in the fourth quarter of 2020 with the acquisition of fiagon . while performance until the end of february 2020 was relatively consistent with our expectations , our revenue substantially declined toward the end of the first quarter and throughout the second quarter as the various covid-19 restrictions were implemented . with the return of outpatient procedures and a focus on office-based procedures , we began to see an increase in our performance and a positive upward trend toward the end of the second quarter and throughout the remainder of 2020. while our business has been and may continue to be impacted by hospitals suspending elective surgical procedures and reduced ent office visits for an extended period of time , we anticipate revenue growth in 2021 , based on the increased elective procedure volumes and enrollment trends in the fourth quarter . once the disruption from the covid-19 pandemic subsides , we expect our revenue to increase as we continue to expand our sales , marketing and reimbursement efforts in order to increase usage of our products . we also expect revenue from our propel family of products to fluctuate from quarter to quarter due to seasonal variations in the volume of sinus surgery procedures performed , which has been impacted historically by factors including the status of patient healthcare insurance plan deductibles and the seasonal nature of allergies which can impact sinus-related symptoms . story_separator_special_tag revenue from sinuva is recognized net of estimated product sales discounts , rebates , returns and other allowances as a reduction of revenue in the same period the related revenue is recognized . we will adjust these estimates if actual allowances vary from our estimates , which would affect revenue in the period such variances become known . our revenue is almost entirely derived from within the united states and no single customer accounted for more than 10 % of our revenue during the years ended december 31 , 2020 , 2019 and 2018. cost of sales and gross profit we manufacture our propel family of products and sinuva in our facility in menlo park , california . cube navigation equipment and instruments are manufactured in hennigsdorf , germany , and vensure sinus dilation balloons are procured from a third-party manufacturer . cost of sales consists primarily of manufacturing overhead costs , material costs , direct labor and other direct costs such as shipping costs . a significant portion of our cost of sales currently consists of manufacturing overhead costs . these overhead costs include compensation , including stock-based compensation and other operating expenses associated with the cost of quality assurance , material procurement , inventory control , facilities , information technology , equipment and operations supervision and manufacturing and warehouse management . once the disruption from the covid-19 pandemic subsides , we expect cost of sales to increase in absolute dollars again primarily as , and to the extent , our revenue grows , or we make additional improvements in our manufacturing capabilities . our gross margin has been and will continue to be affected by a variety of factors , including manufacturing costs and average selling prices . toward the end of the first quarter and throughout the second quarter of 2020 , manufacturing costs were negatively impacted by the mandatory shelter-in-place order in effect in san mateo county , california , which prevented us from using our manufacturing facility , as well as our decision to suspend production until the third quarter of 2020. production resumed during the third quarter of 2020 , but below normal capacity . idle facility costs are charged to cost of goods sold in the period incurred . manufacturing cost will change as our production volume and product mix changes . the per unit allocation of our manufacturing overhead costs may increase and our gross margin may decline as , and to the extent , production volume decreases . selling , general and administrative expenses selling , general and administrative , or sg & a , expenses consist primarily of compensation for personnel , including stock-based compensation , related to selling , marketing , finance , market access , reimbursement , business development , legal and human resource functions as well as costs related to any post-market studies . additional sg & a expenses include commissions , training , travel expenses , promotional activities , conferences , trade shows , professional services fees , audit compliance expenses , insurance costs and general corporate expenses including allocated facilities and information technology expenses . research and development expenses research and development , or r & d , expenses consist primarily of compensation for personnel , including stock-based compensation , related to product development , regulatory affairs , clinical and medical affairs , and allocated facilities and information technology expenses . r & d expenses also may include expenses for clinical studies related to clinical trial design , site reimbursement , data management , travel expenses and the cost of manufacturing products for clinical trials . finally , r & d expenses also include expenses related to the development of products and technologies such as consulting services and supplies . 48 interest expense interest expense consists primarily of the interest expense , accretion expense of debt discounts and purchase obligations , and amortization of debt issuance costs associated with our convertible notes , and imputed interest on deferred payments for the acquisition of fiagon . other income ( expense ) , net other income ( expense ) , net consists primarily of interest earned on our cash and cash equivalents , changes in the fair value of embedded derivatives , and the effects of foreign exchange , including changes in the fair value of foreign currency forward contracts . provision for income tax benefit provision for income tax benefit consists of an estimate of federal , state and foreign income taxes based on enacted federal , state and foreign tax rates , as adjusted for allowable credits , deductions , uncertain tax positions , changes in deferred tax assets and liabilities and changes in tax law . due to the level of historical losses , we maintain a valuation allowance against u.s. federal and state deferred tax assets as we have concluded it is more likely than not that these deferred tax assets will not be realized . story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > sg & a expenses decreased by $ 9.9 million , or 9 % , to $ 98.6 million during the year ended december 31 , 2020 , compared to $ 108.5 million during the year ended december 31 , 2019. the decrease in sg & a expenses was primarily due to decreases in headcount and related expenses as a result of cost reduction measures initiated in the first quarter of 2020 , in addition to lower sales commissions from reduced sales , partially offset by transaction costs associated with the acquisition and integration of fiagon o f $ 4.0 million , whic h consisted largely of professional fees . our spending in the first quarter of 2020 reflected normal business activities while certain spending decreased in the second and third quarter of 2020 as a result of a reduction in demand and the impact of the cost reduction measures put in place in the first quarter of 2020. we expect cost control measures to remain in place until the current crisis subsides .
| based on current elective procedure volumes and enrollment trends , as well as the acquisition of fiagon , we expect revenue growth in 2021. while we can not predict the extent or duration of the impact of the covid-19 pandemic on our financial and operating results , we believe that a recovery in procedures will continue , and that most patients will return for treatment . cost of sales and gross margin cost of sales increased by $ 8.5 million , or 39 % , to $ 30.3 million during the year ended december 31 , 2020 , compared to $ 21.8 million during the year ended december 31 , 2019. the increase in cost of sales in 2020 was primarily due to the unfavorable impact of higher per unit manufacturing costs and $ 6.1 million of idle facility costs , partially offset by decreases in headcount as a result of cost reduction measures initiated in the first quarter of 2020. also , the increase was attributable to $ 0.8 million in additional charges related to excess and obsolete inventory in response to the estimated impact of the covid-19 pandemic . the increase s were partially offset by lower propel unit sales . gross margin for the year ended december 31 , 2020 , decreased to 62 % , compared to 80 % for the year december 31 , 2019. while the gross margin for our products through the end of february 2020 was relatively consistent with our expectations , the decrease in gross margin during the remainder of 2020 was attributable to the unfavorable impact of higher per unit manufacturing costs as well as the charges related to the impact of covid-19 . the amount of these charges was approximately $ 6.9 million , representing an effect on our gross margin of approximately 9 percentage-points for the year ended december 31 , 2020. our gross margin recovered in the second half of the year as we resumed production and generated revenue . as a result of the increase in procedure volumes and enrollments during the fourth quarter , we anticipate that there will be sequential revenue growth in 2021 from
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such factors include , among others , our ability to maintain liquidity , our maintenance of patent protection , the impact of current and future court decisions regarding current litigation , our ability to maintain favorable third party manufacturing and supplier arrangements and relationships , foreign trade risk , our ability to quickly increase capacity in response to an increase in demand , our ability to access the market , our ability to maintain or lower production costs , our ability to continue to finance research and development as well as operations and expansion of production , the impact of larger market players , specifically bd , in providing devices to the safety market , and other factors referenced in item 1a . risk factors . given these uncertainties , undue reliance should not be placed on forward-looking statements . overview we have been manufacturing and marketing our products since 1997. safety syringes comprised 93.0 % of our sales in 2016. we also manufacture and market the blood collection tube holder , iv safety catheter , and vanishpoint ® blood collection set . we currently provide other safety medical products in addition to safety products utilizing retractable technology . one such product is the patient safe ® syringe , which is uniquely designed to reduce the risk of bloodstream infections associated with catheter hub contamination . in the second quarter of 2016 , we began selling a new product , the easypoint ® needle . easypoint ® needles made up 4.5 % of revenues in 2016. the easypoint ® is a retractable needle that can be used with luer lock syringes , luer slip syringes , and prefilled syringes to give injections . the easypoint ® needle can also be used to aspirate fluids and collect blood . according to a december 2016 press release from zion market research , prefilled syringes play an important role in the injectable drug delivery devices market and the compound annual growth rate is expected to be approximately 9.5 % between 2016 and 2021. the global market size for prefilled syringes was approximately 4.1 billion units ( $ 3.5 billion ) in 2015. a march 2016 article published in medical design technology details the benefits of the easypoint ® needle as well as the existing vanishpoint ® syringe . the article states , for the first time , clinicians will be able to change needles and have the safety of automated needle retraction. the article is available on the resource center link on our website at www.retractable.com . historically , unit sales have increased in the latter part of the year due , in part , to the demand for syringes during the flu season . our products have been and continue to be distributed nationally and internationally through numerous distributors . although we have made limited progress in some areas , such as the alternate care market , our volumes are not as high as they should be given the nature and quality of our products and the federal and state legislation 16 requiring the use of safe needle devices . the alternate care market is composed of facilities that provide long-term nursing and out-patient surgery , emergency care , physician services , health clinics , and retail pharmacies . we continue to pursue various strategies to have better access to the hospital market , as well as other markets , including attempting to gain access to the market through our sales efforts , our innovative technology , introduction of new products , and , when necessary , litigation . we have reported in the past that our progress is limited principally due to the practices engaged in by bd , the dominant maker and seller of disposable syringes . we initiated a lawsuit in 2007 against bd . as previously reported , on december 2 , 2016 , the fifth circuit court of appeals overturned a district court judgment that had previously awarded us $ 340 million in antitrust damages from bd , but affirmed a finding of false advertising liability against bd and remanded the case to the eastern district of texas for a redetermination as to the amount of damages to which we are entitled . the eastern district of texas trial date is may 11 , 2017. our petition for certiorari to the u.s. supreme court was denied on march 20 , 2017. we have taken steps to reduce our future litigation expenses and expect such expenses to be significantly less in 2017. in 2014 , the company took steps to decrease non-litigation legal costs by approximately $ 1.1 million . in 2014 and 2015 , the company reduced its workforce to further cut costs . in the future , if such cost cutting measures prove insufficient , we may reduce other operating expenses , reduce the workforce , reduce the salaries of officers as well as other employees , and or defer royalty payments . some increases in compensation were made in 2016 and 2017. the consolidated appropriations act , 2016 ( pub . l. 114-113 ) , signed into law on december 18 , 2015 , includes a two year moratorium on the 2.3 % medical device excise tax imposed by internal revenue code section 4191. thus , the medical device excise tax was suspended beginning on january 1 , 2016 and ending on december 31 , 2017. the impact of this tax was $ 360,000 in 2015. we reevaluated several compensation strategies in late 2016 and early 2017. see compensation discussion and analysis . we also approved three of our executive officers to purchase shares directly from the company . story_separator_special_tag thomas j. shaw exercised a portion of such right on january 12 , 2017 , buying two million shares at market price for an aggregate purchase price of $ 1.78 million . in april 2016 , mr. shaw exercised an option for one million shares for an aggregate exercise price of $ 810,000. we exchanged 728 thousand shares of our common stock for 200 thousand shares of our series iv class b convertible preferred stock as of november 30 , 2015 pursuant to an agreement with a shareholder . such shareholder agreed to waive all unpaid dividends in arrears associated with the tendered preferred stock , equaling $ 3.1 million . future dividend requirements of $ 200 thousand per year are avoided as a result of this transaction . product purchases from our chinese manufacturers have enabled us to increase manufacturing capacity with little capital outlay and have provided a competitive manufacturing cost . in 2016 , our primary chinese manufacturer produced approximately 86.3 % of our vanishpoint ® syringes . in the event that we become unable to purchase products from our chinese manufacturers , we would need to find an alternate manufacturer for the blood collection set , iv catheter , patient safe ® syringe , 0.5ml insulin syringe , 0.5ml autodisable syringe , and 2ml , 5ml , and 10ml syringes and we would increase domestic production for the 1ml and 3ml syringes . in 1995 , we entered into a license agreement with thomas j. shaw for the exclusive right to manufacture , market , and distribute products utilizing automated retraction technology . this technology is the subject of various patents and patent applications owned by mr. shaw . the license agreement generally provides for quarterly payments of a 5 % royalty fee on gross sales . with increased volumes , our manufacturing unit costs have generally tended to decline . factors that could affect our unit costs include increases in costs by third party manufacturers , changing production volumes , costs of petroleum products , and transportation costs . increases in such costs may not be recoverable through price increases of our products . 17 story_separator_special_tag /font > earnings per share were positively affected by our acquisition of 200,000 shares of iv class b convertible preferred stock . under the guidelines of asc 260-10-s99-2 , effect on the calculation of earnings per share for the redemption or induced conversion of preferred stock , we reflected the gain on extinguishment of this preferred stock in net income per common stockholder used to calculate earnings per share . cash flow from operations was a negative $ 3.3 million for 2015 due primarily to the loss from operations and changes in working capital , namely increased inventories and other current assets , mitigated by a decrease in accounts receivable and an increase in accounts payable . liquidity and capital resources at the present time , management does not intend to publicly raise equity capital . due to the funds received from prior litigation , we have sufficient cash reserves and intend to rely on operations , cash reserves , and debt financing , when available , as the primary ongoing sources of cash . our ability to obtain additional funds through loans is uncertain . we can not predict any recovery of damages in our litigation against bd at this time . the ultimate outcome of this suit could have a material effect on our financial condition . historical sources of liquidity we have historically funded operations primarily from the proceeds from revenues , private placements , litigation settlements , and loans . internal sources of liquidity margins and market access to routinely achieve positive or break even quarters , we need increased access to hospital markets which has been difficult to obtain . we will continue to attempt to gain access to the market through our sales efforts , innovative technology , the introduction of new products , and , when necessary , litigation . we continue to focus on methods of upgrading our manufacturing capability and efficiency in order to reduce costs . fluctuations in the cost and availability of raw materials and inventory and our ability to maintain favorable manufacturing arrangements and relationships could result in the need to manufacture all ( as opposed to 21.6 % ) of our products in the u.s. this could temporarily increase unit costs as we ramp up domestic production . the mix of domestic and international sales affects the average sales price of our products . generally , the higher the ratio of domestic sales to international sales , the higher the average sales price will be . typically , large international sales of vanishpoint ® products are shipped directly from china to the customer . purchases of product manufactured in china usually decrease the average cost of manufacture for all units . the number of units produced by us versus manufactured in china can have a significant effect on the carrying costs of inventory as well as cost of sales . we will continue to evaluate the appropriate mix of products manufactured domestically and those manufactured in china to achieve economic benefits as well as to maintain our domestic manufacturing capability . 19 fluctuations in the cost of oil ( since our products are petroleum based ) and transportation and the volume of units purchased from our chinese manufacturers may have an impact on the unit costs of our product . increases in such costs may not be recoverable through price increases of our products . reductions in oil prices may not quickly affect petroleum product prices . seasonality historically , unit sales have increased during the flu season . cash requirements due to funds received from prior litigation , we have sufficient cash reserves and intend to rely on operations , cash reserves , and debt financing , when available , as the primary ongoing sources of cash . we have taken steps to decrease our
| a non-recurring recognition of $ 7,724,826 received from bd in the second quarter of 2015 pursuant to a patent infringement case had a significant impact on 2015 income . recognizing this payment also significantly decreased 2015 current liabilities on the balance sheets . in 2015 , earnings per share was positively affected by our acquisition of 200,000 shares of iv class b convertible preferred stock . under the guidelines of asc 260-10-s99-2 , effect on the calculation of earnings per share for the redemption or induced conversion of preferred stock , we reflected the gain on extinguishment of this preferred stock in net income per common stockholder used to calculate earnings per share . this accounting treatment had the effect of increasing the income applicable to common shareholders by $ 2.3 million in 2015 which had a material effect on the determination of earnings per share for that year . the loss from operations was $ 3.2 million in 2015 compared to an operating loss of $ 3.6 million in 2016. cash flow from operations was a negative $ 795 thousand for 2016 due to our net loss , mitigated by noncash expense consisting principally of depreciation , impairment of assets , share based compensation , and reduced working capital . comparison of year ended december 31 , 2015 and year ended december 31 , 2014 domestic sales accounted for 77.9 % and 80.1 % of the revenues in 2015 and 2014 , respectively . domestic revenues decreased 16.7 % principally due to reduced flu demand . domestic unit sales decreased 17.6 % . domestic unit sales were 67.0 % of total unit sales for 2015. international revenues decreased from $ 6.9 million in 2014 to $ 6.5 million in 2015 , primarily due to more restrictive qualification requirements by the company . overall unit sales decreased 11.9 % . our international orders may be subject to significant fluctuation over time . such orders may fluctuate due to health initiatives at various times as well as economic conditions . cost of manufactured product decreased $
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this product expansion , as well as the success of brand extensions with the ladies ' swim line and salt life lager , continue to broaden the brand 's audience and lifestyle positioning . 15 we remain uniquely positioned to compete and grow profitably in today 's dynamic retail environment . we are continuously focused on building our foundational capabilities and expertise to best serve our existing customers , while also attracting new customers . the diversification of our customer base and expansion of our sales channels , including the launch of our full service , vertically-integrated distributor model , remain key pillars of our success and fuels the growth we see ahead for our dtg2go and activewear businesses . we also enter the next fiscal year with strong momentum in our salt life lifestyle and brand with refreshed ecommerce and direct-to-consumer platforms . story_separator_special_tag of expense related to the new tax legislation , the adjusted effective tax rate is a benefit of 1.7 % in fiscal year 2018. see note 9—income taxes for more information . we benefit from having income in foreign jurisdictions that are either exempt from income taxes or have tax rates that are lower than those in the united states . net earnings attributable to shareholders in fiscal year 2019 was $ 8.2 million , or $ 1.17 per diluted share , compared with net earnings in the prior year of $ 1.3 million , or $ 0.18 per diluted share . adjusting for the $ 2.2 million expense , net of tax , in fiscal year 2019 associated with the resolution of the sports authority bankruptcy litigation as well as $ 0.7 million of income , net of tax , associated with a favorable settlement of a commercial litigation matter , our adjusted net earnings for fiscal year 2019 were approximately $ 9.7 million and $ 1.38 per diluted share . in fiscal year 2018 , after adjusting for the $ 10.7 million expense due to the new tax legislation , our adjusted net earnings were approximately $ 12.0 million and $ 1.62 per diluted share . non-gaap financial measures we provide all information required in accordance with gaap , but we believe that evaluating our ongoing operating results may be difficult if limited to reviewing only gaap financial measures . in an effort to provide investors with additional information regarding the company 's results , we also provide non-gaap information that management believes is useful to investors . we discuss adjusted net earnings attributable to shareholders and earning per share as performance measures because management uses these measures in evaluating the company 's underlying performance on a consistent basis across periods . we also believe these measures are frequently used by securities analysts , investors and other interested parties in the evaluation of the company 's ongoing performance . these non-gaap measures have limitations as analytical tools , and securities analysts , investors and other interested parties should not consider any of these non-gaap measures in isolation or as a substitute for analysis of the company 's results as reported under gaap . these non-gaap measures may not be comparable to similarly titled measures used by other companies . the tables below reconcile net income and earnings per diluted share to adjusted net income and adjusted earnings per diluted share , ( in thousands except per share data ) : replace_table_token_3_th 17 liquidity and capital resources operating cash flows cash provided by operating activities in fiscal year 2019 was $ 9.4 million compared to $ 21.2 million for fiscal year 2018. the decrease from the prior year is due to an increase in accounts receivable from the sales growth and timing of those sales occurring during the fourth quarter of fiscal year 2019 as well as increasing our inventory positions in order to better service our customers with a broad offering of products . investing cash flows cash used in investing activities in fiscal year 2019 and 2018 was $ 11.5 million and $ 14.9 million , respectively . cash outflows for capital expenditures during fiscal year 2019 and 2018 were $ 6.1 and $ 5.8 million , respectively . capital expenditures in both periods primarily related machinery and equipment , including investments in our digital print business . there were $ 8.4 million in expenditures financed under capital lease arrangements and $ 3.1 million in unpaid expenditures as of september 28 , 2019. in addition , property , plant , and equipment of $ 3.4 million was acquired as part of the ssi acquisition during fiscal year 2019. investing activities for fiscal year 2018 included $ 5.8 million of proceeds from the sale of fixed assets . equipment of $ 5.0 million was acquired as part of the dtg2go acquisition . subsequently , a capital lease arrangement was entered into to finance the purchase of the equipment . during fiscal year 2018 , investing cash flows included $ 1.9 million in proceeds received from the sale of a business . we expect to spend approximate ly $ 25 million to $ 28 million in c apital expenditures in fiscal year 2020 , primarily on distribution expansion , manufacturing equipment , information technology , and direct-to-consumer investments including additional salt life retail store openings . we anticipate that approximately $ 12 million of planned fiscal year 2020 capital expenditures will be invested in the expansion of our clinton , tennessee distribution center to support the growth within the delta group segment business . financing activities cash provided by financing activities was $ 2.2 million in fiscal year 2019 compared to cash used by financing activities of $ 6.4 million in fiscal year 2018. we utilized the cash proceeds from our credit facility in both fiscal years to fund our investments in property , plant , and equipment as well as our operations . in fiscal year 2019 , we repurchased $ 2.7 million of our common stock compared to $ 9.0 million in the prior year . story_separator_special_tag future liquidity and capital resources see note 8 – long-term debt to the consolidated financial statements for discussion of our various financing arrangements , including the terms of our revolving u.s. credit facility . based on our current expectations , we believe that our credit facility should be sufficient to satisfy our foreseeable working capital needs , and that the cash flow generated by our operations and funds available under our credit facility should be sufficient to service our debt payment requirements , to satisfy our day-to-day working capital needs and to fund our planned capital expenditures . any material deterioration in our results of operations , however , may result in our loss of the ability to borrow under our revolving credit facility and to issue letters of credit to suppliers , or may cause the borrowing availability under our facility to be insufficient for our needs . availability under our credit facility is primarily a function of the levels of our accounts receivable and inventory , as well as the uses of cash in our operations . a significant deterioration in our accounts receivable or inventory levels could restrict our ability to borrow additional funds or service our indebtedness . moreover , our credit facility includes a financial covenant that if the availability under our credit facility falls below the amounts specified in our credit agreement , our fixed charge coverage ratio ( “ fccr ” ) ( as defined in our credit agreement ) for the preceding 12-month period must not be less than 1.1 to 1.0. although our availability at september 28 , 2019 , was above the minimum thresholds specified in our credit agreement , a significant deterioration in our business could cause our availability to fall below such thresholds , thereby requiring us to maintain the minimum fccr specified in our credit agreement . as of september 28 , 2019 , our fccr was above the minimum threshold specified in our credit agreement . derivative instruments from time to time , we may purchase cotton option contracts to economically hedge the risk related to market fluctuations in the cost of cotton used in our operations . we do not receive hedge accounting treatment for these derivatives . as such , the realized gains and losses associated with them were recorded within cost of goods sold on the consolidated statement of operations . there were no material option agreements that were outstanding at september 28 , 2019 . 18 we may use derivatives , including cotton option contracts , to manage our exposure to movements in commodity prices . we do not designate our options as hedge instruments upon inception . accordingly , we mark to market changes in the fair market value of the options in cost of sales in the consolidated statements of operations . there were no raw material option agreements outstanding at september 28 , 2019 or september 29 , 2018. changes in the derivatives ' fair values are deferred and are recorded as a component of accumulated other comprehensive income ( “ aoci ” ) , net of income taxes , until the underlying transaction is recorded . when the hedged item affects income , gains or losses are reclassified from aoci to the consolidated statements of operations as interest income/expense . any ineffectiveness in our hedging relationships is recognized immediately in the consolidated statement of operations . the changes in fair value of the interest rate swap agreements resulted in aoci loss , net of taxes , of $ 1.1 million for fiscal year 2019 , and an aoci gain , net of taxes , of $ 0.2 million for fiscal year 2018. off-balance sheet arrangements as of september 28 , 2019 , we did not have any off-balance sheet arrangements that were material to our financial condition , results of operations or cash flows as defined by item 303 ( a ) ( 4 ) of regulation s-k promulgated by the sec other than the letters of credit , operating leases , and purchase obligations . we have disclosed operating lease commitments in note 10—leases , and letters of credit and purchase obligations in note 15—commitments and contingencies . dividends and purchases of our own shares pursuant to the terms of our credit facility , we are allowed to make cash dividends and stock repurchases if ( i ) as of the date of the payment or repurchase and after giving effect to the payment or repurchase , we have availability on that date of not less than 15 % of the lesser of the borrowing base or the commitment , and average availability for the 30-day period immediately preceding that date of not less than 15 % of the lesser of the borrowing base or the commitment ; and ( ii ) the aggregate amount of dividends and stock repurchases after may 10 , 2016 , does not exceed $ 10 million plus 50 % of our cumulative net income ( as defined in the amended credit agreement ) from the first day of the third quarter of fiscal year 2016 to the date of determination . at september 28 , 2019 , and september 29 , 2018 , t here was $ 16.1 mi llion and $ 14.7 million , respectively , of retained earnings free of restrictions to make cash dividends or stock repurchases . our board of directors did not declare , nor were any dividends paid , during fiscal years 2019 and 2018. any future cash dividend payments will depend upon our earnings , financial condition , capital requirements , compliance with loan covenants and other relevant factors . as of september 28 , 2019 , our board of directors had authorized management to use up to $ 60.0 million to repurchase stock in open market transactions under our stock repurchase program . during fiscal years 2019 and 2018 , we purchased 141,501 shares and 463,974 shares , respectively , of our common stock for a total cost of $ 2.7 million and $ 9.0 million , respectively .
| overall gross margin for fiscal year 2019 was 19.7 % , down from prior year margin of 20.7 % , driven by the impact in the first half of the year of higher raw material prices and other inflationary cost increases , costs associated with product changes in the funtees business , and the impact of acquisition and integration activities . these headwinds were partially offset by improved selling prices and favorable product mix . note that our gross margins may not be comparable to those of other companies because some companies include costs related to their distribution network in cost of goods sold , and we exclude these costs from gross profit and instead include them in selling , general and administrative expenses . delta group segment gross margins were 16.8 % compared to the 17.9 % in the prior year and were impacted by the items noted above in the first half of fiscal year 2019. during the second half of fiscal year 2019 , delta group gross margins improved to 18.4 % . salt life group segment gross margins remained relatively flat at 46.7 % in fiscal year 2019 as the result of higher margins associated with the growth in direct-to-consumer sales channels , offset by lower margins associated with the growth of salt life lager . fiscal year 2019 selling , general and administrative expenses were $ 70.2 million , or 16.3 % of sales , compared to $ 67.0 million , or 16.9 % of sales , in fiscal year 2018. the 60 basis point decrease in selling , general and administrative expenses is due to leveraging fixed costs with higher sales volumes , partially offset by higher distribution costs related to investments to expand facilities and improve service to our customers . other income includes profits related to our honduran equity method investment , valuation changes in our contingent consideration related to the previously acquired salt life and dtg2go businesses , and other matters such as litigation-related settlements . in fiscal year 2019 , we recognized a discrete gain of $ 1.3 million from the settlement of a commercial litigation matter . this matter related to a claim salt life previously filed with bp
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we expect this trend to continue in 2013. our complementary services revenues include special project work , customer termination and permanent withdrawal fees , data restoration projects , fulfillment services , consulting services , technology services and product sales ( including specially designed storage containers and related supplies ) . our secure shredding revenues include the sale of recycled paper ( included in complementary services revenues ) , the price of which can fluctuate from period to period , adding to the volatility and reducing the predictability of that revenue stream . we recognize revenue when the following criteria are met : persuasive evidence of an arrangement exists , services have been rendered , the sales price is fixed or determinable and collectability of the resulting receivable is reasonably assured . storage rental and service revenues are recognized in the month the respective storage rental or service is provided , and customers are generally billed on a monthly basis on contractually agreed-upon terms . amounts related to future storage rental or prepaid service contracts for customers where storage rental fees or services are billed in advance are accounted for as deferred revenue and recognized ratably over the applicable storage rental or service period or when the service is performed . revenue from the sales of products , which is included as a component of service revenues , is recognized when products are shipped and title has passed to the customer . revenues from the sales of products have historically not been significant . cost of sales ( excluding depreciation and amortization ) consists primarily of wages and benefits for field personnel , facility occupancy costs ( including rent and utilities ) , transportation expenses ( including vehicle leases and fuel ) , other product cost of sales and other equipment costs and supplies . of these , wages and benefits and facility occupancy costs are the most significant . trends in total wages and benefits in dollars and as a percentage of total consolidated revenue are influenced by changes in headcount and compensation levels , achievement of incentive compensation targets , workforce productivity and variability in costs associated with medical insurance and workers compensation . trends in facility occupancy costs are impacted by the total number of facilities we occupy , the mix of properties we own versus properties we occupy under operating leases , fluctuations in per square foot occupancy costs , and the levels of utilization of these properties . 33 the expansion of our international and secure shredding businesses has impacted the major cost of sales components . our international operations are more labor intensive than our operations in north america and , therefore , labor costs are a higher percentage of segment revenue than in our north american operations . our secure shredding operations incur lower facility costs and higher transportation costs as a percentage of revenues compared to our core physical businesses . selling , general and administrative expenses consist primarily of wages and benefits for management , administrative , information technology , sales , account management and marketing personnel , as well as expenses related to communications and data processing , travel , professional fees , bad debts , training , office equipment and supplies . trends in total wage and benefit dollars and as a percentage of total consolidated revenue are influenced by changes in headcount and compensation levels , achievement of incentive compensation targets , workforce productivity and variability in costs associated with medical insurance . the overhead structure of our expanding international operations , as compared to our north american operations , is more labor intensive and has not achieved the same level of overhead leverage , which may result in an increase in selling , general and administrative expenses , as a percentage of consolidated revenue , as our international operations become a more meaningful percentage of our consolidated results . our depreciation and amortization charges result primarily from the capital-intensive nature of our business . the principal components of depreciation relate to storage systems , which include racking , building and leasehold improvements , computer systems hardware and software , and buildings . amortization relates primarily to customer relationship acquisition costs and is impacted by the nature and timing of acquisitions . our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues and expenses incurred by our entities outside the u.s. it is difficult to predict the future fluctuations of foreign currency exchange rates and how those fluctuations will impact our consolidated statement of operations . due to the expansion of our international operations , some of these fluctuations have become material on individual balances . however , because both the revenues and expenses are denominated in the local currency of the country in which they are derived or incurred , the impact of currency fluctuations on our operating income and operating margin is partially mitigated . in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations , we compare the percentage change in the results from one period to another period in this report using constant currency presentation . the constant currency growth rates are calculated by translating the 2010 results at the 2011 average exchange rates and the 2011 results at the 2012 average exchange rates . 34 the following table is a comparison of underlying average exchange rates of the foreign currencies that had the most significant impact on our u.s. dollar-reported revenues and expenses : replace_table_token_9_th replace_table_token_10_th non-gaap measures adjusted operating income before depreciation , amortization , intangible impairments , and reit costs ( `` adjusted oibda '' ) adjusted oibda is defined as operating income before depreciation , amortization , intangible impairments , ( gain ) loss on disposal/write-down of property , plant and equipment , net , and reit costs ( as defined below ) . adjusted oibda margin is calculated by dividing adjusted oibda by total revenues . story_separator_special_tag we use multiples of current or projected adjusted oibda in conjunction with our discounted cash flow models to determine our overall enterprise valuation and to evaluate acquisition targets . we believe adjusted oibda and adjusted oibda margin provide our current and potential investors with relevant and useful information regarding our ability to generate cash flow to support business investment . these measures are an integral part of the internal reporting system we use to assess and evaluate the operating performance of our business . adjusted oibda does not include certain items that we believe are not indicative of our core operating results , specifically : ( 1 ) ( gain ) loss on disposal/write-down of property , plant and equipment , net ; ( 2 ) intangible impairments ; ( 3 ) reit costs ; ( 4 ) other expense ( income ) , net ; ( 5 ) income ( loss ) from discontinued operations , net of tax ; ( 6 ) gain ( loss ) on sale of discontinued operations , net of tax and ( 7 ) net income ( loss ) attributable to noncontrolling interests . adjusted oibda also does not include interest expense , net and the provision ( benefit ) for income taxes . these expenses are associated with our capitalization and tax structures , which we do not consider when evaluating the operating profitability of our core operations . finally , adjusted oibda does not include depreciation and amortization expenses , in order to eliminate the impact of capital investments , which we evaluate by comparing capital expenditures to incremental revenue generated and as a percentage of total revenues . adjusted oibda and adjusted oibda margin should be considered in addition to , but not as a substitute for , other measures of financial performance reported in accordance with accounting principles generally accepted in the unites states of america ( `` gaap '' ) , such as operating or net income ( loss ) or cash flows from operating activities from continuing operations ( as determined in accordance with gaap ) . 35 reconciliation of adjusted oibda to operating income , income from continuing operations and net income ( loss ) ( in thousands ) : replace_table_token_11_th ( 1 ) includes costs associated with our 2011 proxy contest , the work of the special committee and the proposed reit conversion ( `` reit costs '' ) . adjusted earnings per share from continuing operations ( `` adjusted eps '' ) adjusted eps is defined as reported earnings per share from continuing operations excluding : ( 1 ) ( gain ) loss on disposal/write-down of property , plant and equipment , net ; ( 2 ) intangible impairments ; ( 3 ) reit costs ; ( 4 ) other expense ( income ) , net ; and ( 5 ) the tax impact of reconciling items and discrete tax items . we do not believe these excluded items to be indicative of our ongoing operating results , and they are not considered when we are forecasting our future results . we believe adjusted eps is of value to our current and potential investors when comparing our results from past , present and future periods . 36 reconciliation of adjusted epsfully diluted from continuing operations to reported epsfully diluted from continuing operations : replace_table_token_12_th critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with gaap . the preparation of these financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended . on an ongoing basis , we evaluate the estimates used . we base our estimates on historical experience , actuarial estimates , current conditions and various other assumptions that we believe to be reasonable under the circumstances . these estimates form the basis for making judgments about the carrying values of assets and liabilities and are not readily apparent from other sources . actual results may differ from these estimates . our critical accounting policies include the following , which are listed in no particular order : revenue recognition our revenues consist of storage rental revenues as well as service revenues and are reflected net of sales and value added taxes . storage rental revenues , which are considered a key driver of financial performance for the storage and information management services industry , consist primarily of recurring periodic rental charges related to the storage of materials or data ( generally on a per unit basis ) . service revenues include charges for related core service activities and a wide array of complementary products and services . included in core service revenues are : ( 1 ) the handling of records , including the addition of new records , temporary removal of records from storage , refiling of removed records and the destruction of records ; ( 2 ) courier operations , consisting primarily of the pickup and delivery of records upon customer request ; ( 3 ) secure shredding of sensitive documents ; and ( 4 ) other recurring services , including dms , which relate to physical and digital records , and recurring project revenues . our complementary services revenues include special project work , customer termination and permanent withdrawal fees , data restoration projects , fulfillment services , consulting services , technology services and product sales ( including specially designed storage containers and related supplies ) . our secure shredding revenues include the sale of recycled paper ( included in complementary services revenues ) , the price of which can fluctuate from period to period , adding to the volatility and reducing the predictability of that revenue stream .
| ( 2 ) our internal revenue growth rate represents the weighted average year-over-year growth rate of our revenues after removing the effects of acquisitions , divestitures and foreign currency exchange rate fluctuations . we calculate internal revenue growth in local currency for our international operations . our consolidated storage rental revenues increased $ 50.1 million , or 3.0 % , to $ 1,733.1 million for the year ended december 31 , 2012 and $ 84.3 million , or 5.3 % , to $ 1,683.0 million for the year ended december 31 , 2011 , in comparison to the years ended december 31 , 2011 and 2010 , respectively . the growth rate for the year ended december 31 , 2012 consists of internal revenue growth of 3.0 % . net acquisitions/divestitures contributed 1.3 % of the increase in reported storage rental revenues in 2012 over 2011. foreign currency exchange rate fluctuations decreased our storage rental revenue growth rate for the year ended december 31 , 2012 by approximately 1.4 % . our consolidated storage rental revenue growth in 2012 was driven by sustained storage rental internal growth of 2.1 % and 6.1 % in our north american business and international business segments , respectively . global records management net volumes in 2012 increased by 1.8 % over the ending volume at december 31 , 2011 . 44 the growth rate for the year ended december 31 , 2011 consists of internal revenue growth of 3.1 % . net acquisitions/divestitures contributed 0.8 % of the increase in reported storage rental revenues in 2011 over 2010. foreign currency exchange rate fluctuations added approximately 1.4 % to our storage rental revenue growth rate for the year ended december 31 , 2011. our consolidated storage rental revenue growth in 2011 was driven by continued solid storage rental growth in the international business segment and consistent volume and price increases in our north american business segment . consolidated service revenues , consisting of core and complementary services , decreased $ 59.6 million , or 4.5 % , to $ 1,272.1 million for the year ended december 31 , 2012 from $ 1,331.7 million for the year ended december 31 , 2011. service revenue
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future lease payments aggregate $ 132,274 as at february 28 , 2017 and include the following future amounts payable : year ended february 2018 $ 113,378 february 2019 18,896 total $ 132,274 f-19 note 9 – geographic information as of february 28 , 2017 , and february 29 , 2016 , the company had two reportable diverse geographical concentrations , the united states and canada . information related to these operating segments , net of eliminations , consists of the following for the periods below : replace_table_token_15_th replace_table_token_16_th replace_table_token_17_th replace_table_token_18_th f-20 note 10 – subsequent events employment agreement d. jennifer rhee on march 17 , 2017 , we entered into an employment agreement ( the “ rhee employment agreement ” ) with an effective date of april 3 , 2017 with d. jennifer rhee , our chief financial officer . pursuant to the rhee employment agreement , ms. rhee receives an annual base salary of $ 300,000 for her first two years of employment . the rhee employment agreement also requires that ms. rhee participate in our employee benefit programs and provide for other customary benefits . subject to approval of our board of directors , ms. rhee may receive a warrant to purchase up to 400,000 shares of our common stock , which warrant vests quarterly , in equal amounts , over 24 months beginning on april 3 , 2017 and a warrant to purchase up to 150,000 shares of our common stock that will vest when certain milestones are achieved . the term of such warrants would be subject to the determination of our board of directors . in the event there is a “ change of control ” ( as such term is defined in the rhee employment agreement ) , the warrants , if issued , shall immediately vest . issuance of common shares on may 4 , 2017 , the board of directors approved the issuance and sale of 1,123,266 shares of the corporation 's common stock , par value $ .0001 per share at an offering price of $ 5.25 per share , for gross proceeds of $ 5,897,188 . as of the filing date , the company had received total proceeds which will be used for working capital and general corporate purposes principally . the shares issued to investors were not registered under the securities act of 1933 , as amended ( the “ act ” ) , in reliance upon the private offering safe harbor provision of rule 506 of regulation d. the following table sets forth the condensed consolidated balance sheet of the company as of february 28 , 2017 on an as reported basis and on an unaudited pro forma basis , after giving effect to the sale of the shares : replace_table_token_19_th the company performed an evaluation of subsequent events through the date of filing of these financial statements with the sec , noting no other items requiring disclosure . f-21 item 9. changes in and disagreements with accountants on financial disclosure none . item 9a . controls and procedures disclosure controls and procedures under the supervision and with the participation of our management , including our chief executive officer and the chief financial officer , we are responsible for conducting an evaluation of the effectiveness of the design and operation of our internal controls and procedures , as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the exchange act , as of the end of the fiscal year covered by this report . disclosure controls and procedures means that the material information required to be included in our sec reports is recorded , processed , summarized and reported within the time periods specified in sec rules and forms relating to our company , including any consolidating subsidiaries , and was made known to us by others within those entities , particularly during the period when this report was being prepared . based on this evaluation , our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective as of february 28 , 2017. management 's annual report story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report . our business develops technology and processes to promote the regeneration and reuse of materials to sustain a circular economy . currently , the focus of our business is on the depolymerizing waste pet plastics and converting them into valuable chemicals , ready to be reintroduced into the manufacturing of virgin pet plastic . our proprietary technology breaks down pet into its base chemicals , pta and meg , at a recovery rate of over 90 % and under normal atmospheric pressure and at room temperature . depolymerization presents two unique advantages in recycling resin-based products : ( i ) the ability to return a recovered resin to virgin-resin-like quality , and ( ii ) the potential to recover a valuable feedstock from products that are economically challenging to recycle . when plastic is mechanically recycled , even small levels of contamination can compromise the performance of the resin . however , because depolymerization breaks down plastics into monomer form , all contamination is removed . our unique depolymerization process can be applied to all sorts of post-consumer pet , including degraded , colored or heavily contaminated pet that is not currently recyclable . we are a development-stage company and have never generated any revenues . our depolymerization technology must be scaled-up before we can commercialize the technology and generate any revenues . we intend to sell depolymerized loop-branded pet resin to sustainably focused customers . during january 2016 , we announced the successful completion of a pilot plant facility in montreal , canada with a production capacity of 2.5 metric tons per day of high purity pta and meg . 13 plan of story_separator_special_tag future lease payments aggregate $ 132,274 as at february 28 , 2017 and include the following future amounts payable : year ended february 2018 $ 113,378 february 2019 18,896 total $ 132,274 f-19 note 9 – geographic information as of february 28 , 2017 , and february 29 , 2016 , the company had two reportable diverse geographical concentrations , the united states and canada . information related to these operating segments , net of eliminations , consists of the following for the periods below : replace_table_token_15_th replace_table_token_16_th replace_table_token_17_th replace_table_token_18_th f-20 note 10 – subsequent events employment agreement d. jennifer rhee on march 17 , 2017 , we entered into an employment agreement ( the “ rhee employment agreement ” ) with an effective date of april 3 , 2017 with d. jennifer rhee , our chief financial officer . pursuant to the rhee employment agreement , ms. rhee receives an annual base salary of $ 300,000 for her first two years of employment . the rhee employment agreement also requires that ms. rhee participate in our employee benefit programs and provide for other customary benefits . subject to approval of our board of directors , ms. rhee may receive a warrant to purchase up to 400,000 shares of our common stock , which warrant vests quarterly , in equal amounts , over 24 months beginning on april 3 , 2017 and a warrant to purchase up to 150,000 shares of our common stock that will vest when certain milestones are achieved . the term of such warrants would be subject to the determination of our board of directors . in the event there is a “ change of control ” ( as such term is defined in the rhee employment agreement ) , the warrants , if issued , shall immediately vest . issuance of common shares on may 4 , 2017 , the board of directors approved the issuance and sale of 1,123,266 shares of the corporation 's common stock , par value $ .0001 per share at an offering price of $ 5.25 per share , for gross proceeds of $ 5,897,188 . as of the filing date , the company had received total proceeds which will be used for working capital and general corporate purposes principally . the shares issued to investors were not registered under the securities act of 1933 , as amended ( the “ act ” ) , in reliance upon the private offering safe harbor provision of rule 506 of regulation d. the following table sets forth the condensed consolidated balance sheet of the company as of february 28 , 2017 on an as reported basis and on an unaudited pro forma basis , after giving effect to the sale of the shares : replace_table_token_19_th the company performed an evaluation of subsequent events through the date of filing of these financial statements with the sec , noting no other items requiring disclosure . f-21 item 9. changes in and disagreements with accountants on financial disclosure none . item 9a . controls and procedures disclosure controls and procedures under the supervision and with the participation of our management , including our chief executive officer and the chief financial officer , we are responsible for conducting an evaluation of the effectiveness of the design and operation of our internal controls and procedures , as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the exchange act , as of the end of the fiscal year covered by this report . disclosure controls and procedures means that the material information required to be included in our sec reports is recorded , processed , summarized and reported within the time periods specified in sec rules and forms relating to our company , including any consolidating subsidiaries , and was made known to us by others within those entities , particularly during the period when this report was being prepared . based on this evaluation , our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective as of february 28 , 2017. management 's annual report story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report . our business develops technology and processes to promote the regeneration and reuse of materials to sustain a circular economy . currently , the focus of our business is on the depolymerizing waste pet plastics and converting them into valuable chemicals , ready to be reintroduced into the manufacturing of virgin pet plastic . our proprietary technology breaks down pet into its base chemicals , pta and meg , at a recovery rate of over 90 % and under normal atmospheric pressure and at room temperature . depolymerization presents two unique advantages in recycling resin-based products : ( i ) the ability to return a recovered resin to virgin-resin-like quality , and ( ii ) the potential to recover a valuable feedstock from products that are economically challenging to recycle . when plastic is mechanically recycled , even small levels of contamination can compromise the performance of the resin . however , because depolymerization breaks down plastics into monomer form , all contamination is removed . our unique depolymerization process can be applied to all sorts of post-consumer pet , including degraded , colored or heavily contaminated pet that is not currently recyclable . we are a development-stage company and have never generated any revenues . our depolymerization technology must be scaled-up before we can commercialize the technology and generate any revenues . we intend to sell depolymerized loop-branded pet resin to sustainably focused customers . during january 2016 , we announced the successful completion of a pilot plant facility in montreal , canada with a production capacity of 2.5 metric tons per day of high purity pta and meg . 13 plan of
| in addition , we have been working with future customers and other key stakeholders to ensure that the loop branded pet resin meets customers ' needs and specifications once commercial production begins . 14 liquidity and capital resources at february 28 , 2017 , we had a cash balance of $ 0.9 million and a working capital balance of $ 0.3 million . during the year ended february 28 , 2017 , we used $ 2.9 million in operations and purchased capital equipment of $ 0.5 million . we raised funds of $ 4.0 million through the sale of additional common stock and exercise of warrants for a net increase in its cash position of $ 0.6 million . subsequent to february 28 , 2017 , we raised an additional $ 5.9 million from the sale of our common stock . we believe we have sufficient funds to continue our operations at least through the end of fiscal year 2018 ; however , we will require additional financing through either debt or equity to transition from pilot scale to full scale commercial manufacturing . off-balance sheet arrangements as of february 28 , 2017 , we did not have any off-balance sheet arrangements as defined in the rules and regulations of the sec . critical accounting policies use of estimates the preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as 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 . we have used estimates to determine the depreciable life of property and equipment which affects our depreciation and amortization charge for the year . we have also used estimates in determining the useful life of our intangible assets as well as whether there was any impairment to the carrying
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the inability to obtain acceptable levels of sales , initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross profit and results of operations . operating income ( loss ) — our management views operating income as a key indicator of our performance . the key drivers of operating ( loss ) income are net revenue , gross profit , our ability to control selling , general , and administrative expenses , and our level of capital expenditures for a reasonable period of time . in light of store closures and disruptions from covid-19 , our operating income may not be comparable this year versus last year . cash flow and liquidity — our management evaluates cash flow from operations , investing and financing activities in determining the sufficiency of our cash position and capital allocation strategies . cash flow has historically been sufficient to cover our uses of cash . our management believes that cash flow will be sufficient to fund anticipated capital expenditures , dividends , and working capital requirements for the next twelve months . covid-19 the spread of covid-19 , which was declared a pandemic by the world health organization in march 2020 , caused state and municipal public officials to mandate jurisdiction-wide curfews , including “ shelter-in-place ” and closures of most non-essential businesses , as well as other measures to mitigate the spread of the virus . the covid-19 pandemic remains highly volatile and continues to evolve on a daily basis . see part i , item 1a . risk factors herein for additional discussion regarding risks to our business associated with the covid-19 pandemic . commencing in early march 2020 , we experienced a significant reduction in customer traffic and demand resulting from the continued spread of covid-19 and government actions to combat it . in response , we closed our stores to the public after the close of business on march 17 , 2020 ; however , we continued to operate our digital business . these actions significantly impacted our consolidated results for fiscal 2020. beginning may 2 , 2020 , we started to re-open stores and call back furloughed employees where state and local governments had lifted stay-at-home orders . as of january 30 , 2021 , nearly all of our stores have re-opened and remain open . however , our consolidated results of operations continued to be significantly impacted by reduced customer traffic in re-opened store locations , partially offset by continued growth in e-commerce . since the first day that stores were closed to the public , our digital sales growth has accelerated , significantly exceeding our expectations . in order to support online demand and utilize in-store inventory , we continued to leverage our store network for buy-online/ship-from-store capabilities , where possible . online sales represented 45 % of our revenues for fiscal 2020. despite our strength in digital sales , we have historically generated the majority of our revenue through stores . as a result , we do not believe that our results for fiscal 2020 are directly comparable to the same period in fiscal 2019. the safety and health of our associates and customers remains a paramount concern . in march 2020 , we hired a medical consultant to advise us on health and safety and to ensure we are following centers for disease control guidance and market practice for associate and customer in all of our locations . we instituted a work-from-home plan in mid-march 2020 ahead of stay-at-home orders . we continue to take various precautions in our stores , which include sanitation stations and masks for all customers to provide a safe and secure environment . plexiglas health guard partitions have also been installed at the registers along with the implementation of enhanced cleaning routines and protocols . 28 further , we continue to take precautionary measures and adjust our operational needs due to the impact of covid-19 . since march 2020 , the company has taken the following actions to preserve our financial strength : the deferred payment of the first quarter fiscal 2020 cash dividend and suspension of our second , third , and fourth quarter dividends as well as our share repurchase program ; temporary furloughs of store , field and corporate associates that began on april 5 , 2020 , largely reflecting the continued uncertainty around the duration of store closures ; reductions to operating expenses , which included suspended merit increases for associates , a hiring freeze and other cost saving initiatives ; a convertible notes issuance and credit facility borrowings ; cuts to inventory receipts to align with lower demand due to store closures ; and planned reductions to capital expenditures across stores , information technology and other projects . in addition , we have had productive discussions with our vendors to reduce purchases and extend payment terms , as well as with our landlords regarding the extension of payment terms and rent concessions . as of january 30 , 2021 , we had approximately $ 850.5 million in cash and cash equivalents , which includes the proceeds from our convertible notes issuance , discussed in greater detail below and in note 9 to the consolidated financial statements . we expect to be able to fund our future cash requirements through current cash holdings and available liquidity . taking into account the measures described above , we believe that our current liquidity would enable us to continue operations beyond fiscal 2021 , if necessary , even if the majority of our retail locations were forced to close during the duration of that period . the unpredictability of the trajectory of the covid-19 pandemic has significantly diminished visibility into the future operating environment , and we are unable to accurately predict the impact that the covid-19 pandemic will have on our consolidated operations and financial results going forward . story_separator_special_tag we are monitoring the ongoing developments as the covid-19 vaccines are being distributed and administered , and will take further actions that are in the best interests of our associates and customers , as needed . for further information about the risks associated with the covid-19 pandemic , see “ risk factors ” in part i , item 1a of this form 10-k. critical accounting policies and estimates our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) , which require us to make estimates and assumptions that may affect the reported financial condition and results of operations should actual results differ from these estimates and assumptions . we base our estimates and assumptions on the best available information and believe them to be reasonable for the circumstances . we believe that of our significant accounting policies , the following involve a higher degree of judgment and complexity . refer to note 2 to the consolidated financial statements for a complete discussion of our significant accounting policies . management has reviewed these critical accounting policies and estimates with the audit committee of our board of directors . revenue recognition . in accordance with accounting standard codification ( “ asc ” ) topic 606 , revenue from contracts with customers ( “ asc 606 ” ) , we record revenue for store sales upon the purchase of merchandise by customers . the company 's e-commerce operation records revenue upon the estimated customer receipt date of the merchandise . shipping and handling revenues are included in total net revenue . sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the company 's consolidated balance sheets . revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions . the company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales . the sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined using historical average return percentages . revenue is not recorded on the issuance of gift cards . a current liability is recorded upon issuance , and revenue is recognized when the gift card is redeemed for merchandise . additionally , the company recognizes revenue on unredeemed gift cards based on an estimate of the amounts that will not be redeemed ( “ gift card breakage ” ) , determined through historical redemption trends . gift card breakage revenue is recognized in proportion to actual gift card redemptions as a component of total net revenue . 29 the company recognizes royalty revenue generated from its license or franchise agreements based upon a percentage of merchandise sales by the licensee/franchisee . this revenue is recorded as a component of total net revenue when earned . merchandise inventory . merchandise inventory is valued at the lower of average cost or net realizable value , utilizing the retail method . average cost includes merchandise design and sourcing costs and related expenses . the company records merchandise receipts when control of the merchandise has transferred to the company . we review our inventory in order to identify slow-moving merchandise and generally use markdowns to clear merchandise . additionally , we estimate a markdown reserve for future planned markdowns related to current inventory . if inventory exceeds customer demand for reasons of style , seasonal adaptation , changes in customer preference , lack of consumer acceptance of fashion items , competition , or if it is determined that the inventory in stock will not sell at its currently ticketed price , additional markdowns may be necessary . these markdowns may have a material adverse impact on earnings , depending on the extent and amount of inventory affected . we estimate an inventory shrinkage reserve for anticipated losses for the period between the last physical count and the balance sheet date . the estimate for the shrinkage reserve is calculated based on historical percentages and can be affected by changes in merchandise mix and changes in actual shrinkage trends . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our inventory shrinkage reserve . however , if actual physical inventory losses differ significantly from our estimate , our operating results could be adversely affected . during fiscal 2020 , the company focused on inventory optimization , which remains an ongoing priority . asset impairment . in accordance with asc 360 , property , plant , and equipment ( “ asc 360 ” ) , we evaluate the value of leasehold improvements , store fixtures , and operating lease right-of-use assets associated with retail stores . we evaluate long-lived assets for impairment at the individual retail store level , which is the lowest level at which individual cash flows can be identified . impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the projected undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts . when events such as these occur , the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded separately as a component of operating ( loss ) income . our impairment loss calculations require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values . the significant assumption used in our projected undiscounted cash flows analyses is revenue growth rates . additionally , significant assumptions utilized in our fair value analyses include the aforementioned assumption , as well as market participant real estate assumptions and discount rate . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses .
| non-gaap information is provided as a supplement to , not as a substitute for , or as superior to , measures of financial performance prepared in accordance with gaap . we believe that this non-gaap information is useful as an additional means for investors to evaluate our operating performance , when reviewed in conjunction with our gaap financial statements and provides a higher degree of transparency . these amounts are not determined in accordance with gaap and , therefore , should not be used exclusively in evaluating our business and operations . the table below reconciles the gaap financial measure to the non-gaap financial measure discussed above . earnings per share for the fiscal year ended january 30 , 2021 net loss per diluted share - gaap basis $ ( 1.26 ) add : impairment , restructuring and covid-19 related charges ( 1 ) 1.20 add : convertible debt ( 2 ) 0.06 net income per diluted share - non-gaap basis $ ( 0.00 ) ( 1 ) $ 279.8 million of pre-tax impairment , restructuring and covid-19 related charges , which include : - $ 249.2 million of long-lived impairment charges - $ 26.9 million of incremental covid-19 related expenses - $ 3.7 million of restructuring charges including corporate and field severance ( 2 ) amortization of the non-cash discount on the company 's convertible notes earnings per share for the fiscal year ended february 1 , 2020 net income per diluted share - gaap basis < p
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cvs ferrari , srl ( cvs ) located near milan , italy designs and manufactures a range of reach stackers and associated lifting equipment for the global container handling market , that are sold through a broad dealer network . on november 30 , 2013 , cvs purchased the assets of valla spa . valla manufactures and markets a line of precision pick and carry cranes from 2 to 90 tons , using electric , diesel and hybrid power . its crane offer wheeled or tracked , fixed or swing boom configurations , with dozens of special applications designed specifically to meet the needs of its customers . on august 19 , 2013 , manitex sabre , inc. ( sabre ) acquired the assets of sabre manufacturing , llc , which is located in knox , indiana . sabre manufactures a comprehensive line of specialized mobile tanks for liquid and solid storage and containment solutions with capacities from 8,000 to 21,000 gallons . its mobile tanks will be sold to specialized independent tank rental companies and through the company 's existing dealer network . the tanks are used in a variety of end markets such as petrochemical , waste management and oil and gas drilling . asv segment on december 19 , 2014 , the company acquired 51 % of a.s.v. , inc. from terex corporation ( terex ) . in connection with the acquisition , asv was converted to an llc and its name was changed to a.s.v. , llc ( asv ) . asv located in grand rapids , minnesota manufactures a line of high quality compact rubber tracked and skid steer loaders . the asv products will be distributed through the terex distribution channels as well as through manitex and other independent dealers . asv 's financial results are included in the company 's consolidated results beginning on december 20 , 2014. equipment distribution segment the equipment distribution segment comprises the operations of crane & machinery ( c & m ) , a division of manitex international , inc. the segment markets products used primarily for infrastructure development and commercial construction applications that include road and bridge construction , general contracting , roofing , scrap handling and sign construction and maintenance . c & m is a distributor of terex rough terrain and truck cranes , and supplies repair parts for a wide variety of medium to heavy duty construction equipment and sells domestically and internationally , predominately to end users , including the rental market . it also provides crane equipment repair services in the chicago area . c & m uses the trade name , north american equipment exchange to market previously-owned construction and heavy equipment , both domestically and internationally and provides a wide range of used lifting and construction equipment of various ages and condition , and also has the capability to refurbish equipment to the customers ' specification . c & m operates as the north american sales organization for our italian based pm knuckle boom cranes and valla pick and carry crane products . economic conditions the overall market for construction equipment continues to improve but has not returned to pre-2008 levels . a very significant portion of the company 's revenues has been attributed to demand from niche market segments , particularly the north american energy sector . in our annual report on form 10-k/a for the year ended december 31 , 2013 , we stated that , there had been a softening in the demand for our products which was related to the energy sector and that the company believed that the current decrease in demand from the energy sector was temporary . this softness continued through much of the first quarter , which together with slower construction market demand caused a decrease in revenues from our existing products which was more than offset by additional revenues related to our acquisitions . towards the end of the first quarter , the company received significant new orders , which increased our backlog to $ 100 million from $ 77 million at december 31 , 2013. during the second , third and fourth quarters of 2014 order intake remained at a level consistent with our 28 output and the backlog at december 31 , 2014 was $ 107 million . although order remained level , the demand for cranes with higher lifting capacity , which are often used by the energy sector , declined at the end of the second quarter . the decline in demand for cranes with higher capacity was offset by cranes with lower lifting capacity and other product , both of which have lower margins . crude oil prices fell sharply during the fourth quarter of 2014 and remain in the fifty dollar per barrel range . the lower oil price for now will continue to weaken demand for our products in the energy sector . this will be mitigated by increases in sales into new markets , which the company expects will come from sales into pm 's distribution channels . the degree of success will depend on how quickly the company is able to place its existing products into the pm distribution channels . additionally , pm revenues in the united states may also increase benefiting from manitex 's distribution network . the company believes that the north american energy sector over time will continue to grow and in turn will drive future demand for our products . additionally , the market for container handling equipment in europe , cvs 's historical market , overall continued to be weak . cvs has , however , been able to offset this effect by expanding their sales effort into other international markets and were able to secure an increase in orders in q2 and q3 of 2014. factors affecting revenues and gross profit the company derives most of its revenue from purchase orders from dealers and distributors . the demand for the company 's products depends upon the general economic conditions of the markets in which the company competes . story_separator_special_tag the company 's sales depend in part upon its customers ' replacement or repair cycles . adverse economic conditions , including a decrease in commodity prices , may cause customers to forego or postpone new purchases in favor of repairing existing machinery . additionally , our manitex liftking subsidiary revenues are impacted by the timing of orders received for military forklifts and residential housing starts . cvs revenues are impacted in part by the timing of contract awards related to major port projects . gross profit varies from period to period . factors that affect gross profit include product mix , production levels and cost of raw materials . margins tend to increase when production is skewed towards larger capacity cranes , special mission oriented vehicles , specialized carriers and heavy material transporters . 29 the following table sets forth certain financial data for the three years ended december 31 , 2014 , 2013 and 2012 : story_separator_special_tag year ended december 31 , 2013 of $ 10.2 million . year ended december 31 , 2013 compared to year ended december 31 , 2012 financial results include the results for sabre and valla from their respective dates of acquisition which are august 19 , 2013 and november 30 , 2013 , respectively . net income for the year ended december 31 , 2013 , net income was $ 10.2 million , which consists of revenue of $ 245.1 million , cost of sales of $ 198.6 million , research and development costs of $ 2.9 million , sg & a costs of $ 26.0 million , interest expense of $ 2.9 million , foreign currency transaction loss of $ 0.1 million , other expense of $ 0.1 million and income tax expense of $ 4.3 million . for the year ended december 31 , 2012 , net income was $ 8.1 million , which consists of revenue of $ 205.2 million , cost of sales of $ 164.8 million , research and development costs of $ 2.5 million , sg & a costs of $ 23.5 million , interest expense of $ 2.5 million , foreign currency transaction loss of $ 0.1 million and income tax expense of $ 3.8 million . net revenue and gross profit for the year ended december 31 , 2013 , net revenue and gross profit were $ 245.1 million and $ 46.5 million , respectively . gross profit as a percent of sales was 19.0 % for the year ended december 31 , 2013. for the year ended december 31 , 2012 net revenue and gross profit were $ 205.2 million and $ 40.5 million , respectively . gross profit as a percent of sales was 19.7 % for the year ended december 31 , 2012. the revenue increase between 2012 and 2013 was approximately 19.4 % of which 14.2 % is attributed to an increase in revenues from crane products , 5.1 % is attributed to an increase in revenues from container handling equipment products , 3.5 % is attributed to sales from companies acquired in 2013 , partially offset by a decrease of other products which had the effect of decreasing revenues 3.4 % . the increase in crane product revenues is principally attributed to an increase in production capacity which allowed the company to reduce its backlog and to more aggressively market cranes with lower lifting capacity . the increase in revenues from the sale of container handling equipment is attributed to an increase in sales to markets outside europe , which has historically been the largest market for this equipment and is attributed to shipments of tractors to south africa during the first part of the year and an increase in sales to latin america in the second half of the year . the sale of the tractors was related to a large tender order that was awarded to cvs in 2012. the increase in latin american revenues is a benefit from obtaining new dealers in latin america in 2013. the decrease in other products revenues is attributed to the timing of military orders and a decrease in special trailer revenues . gross profit as a percent of net revenues decreased 0.7 % to 19.0 % for the year ended december 31 , 2013 from 19.7 % for the comparable 2012 period . the slight decrease in margin percent is principally attributed to product mix , including the favorable impact of increased sales of crane products which generally have higher margins which was more than offset by an increase in chassis sales which are sold with only a nominal market up and the 32 effect that the decrease in parts sales as a percent of total revenues . part sales , which have significantly higher margins , decreased from 16 % to 15 % of total revenues from 2012 to 2013. a decrease in volumes for military and special trailer also contributed to the decrease in the gross margin percent . research and development research and development for the year ended december 31 , 2013 was $ 2.9 million compared to $ 2.5 million for the comparable period in 2012. the increase in research and development expense reflects our continued commitment to develop and introduce new products that gives the company a competitive advantage . selling , general and administrative expense selling , general and administrative expense for the year ended december 31 , 2013 was $ 26.0 million compared to $ 23.5 million for the comparable period in 2012. selling general and administrative expense as a percent of revenue for year ended december 31 , 2013 was 10.6 % a decrease of 0.9 % from the 11.5 % for the comparable period in 2012. the increase in selling , general and administrative expense is $ 2.5 million of which approximately $ 1.0 million are either selling , general and administrative expenses at companies acquired in 2013 or costs directly associated with the acquisitions . excluding the impact of acquisitions , selling , general and administrative expenses increased by approximately $ 1.5 million .
| 2014 revenues increased $ 19.0 million or 7.8 % from 2013 to $ 264.1 million , including $ 2.3 million from the asv jv that commenced operations in mid-december of 2014. excluding asv , 2014 revenues increased 6.8 % , driven substantially by growth in container handling equipment , material handling equipment and equipment distribution revenues that grew year over year by 20 % , 14 % and 24 % respectively . crane revenues decreased in line with the reduction in our largest market , the boom and truck crane market that was down almost 8 % year over year and shipments of larger tonnage cranes being down approximately 19 % reflecting a softer oil and gas market . our cvs container handling products benefited from a modest strengthening in europe as well as expansion and improved distribution into overseas markets . gross profit as a percent of net revenues decreased 0.7 % to 18.3 % for the year ended december 31 , 2014 from 19.0 % for the comparable 2013 period . the slight decrease in margin percent is principally attributed to product mix , including the unfavorable impact of decreased sales of crane products which generally have higher margins and the effect that the decrease in parts sales as a percent of total revenues . part sales , which have significantly higher margins , decreased from 15 % to 11 % of total revenues from 2013 to 2014. research and development research and development for the year ended december 31 , 2014 was $ 2.6 million compared to $ 2.9 million for the comparable period in 2013. the company 's research and development spending continues to reflect our continued commitment to develop and introduce new products that gives the company a competitive advantage . selling , general and administrative expense selling , general and administrative expense for the year ended december 31 , 2014 was $ 31.8 million compared to $ 26.0 million for the comparable period in 2013. selling general and administrative expense as a percent of revenue for year ended december 31 , 2014 was 12.0 % an increase of 1.4 %
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in the disclosure statement , the debtors estimated a 98.9 % to 100 % distribution on allowed general unsecured claims . we have approximately $ 12 million of such claims filed with the court , which includes 100 % of our pre-petition claims . the total claims filed exceed the book value of our exposure and we expect to receive all amounts due . in april 2019 , for one of our plants , the company entered into a settlement agreement with the third party bankruptcy administrator related to outstanding claims . the agreement amount of approximately $ 8.1 million represented 100 % of those outstanding claims for such plant . the balance of the $ 12 million claims noted above are still outstanding . at time of the bankruptcy case , we were subcontractors on various wec engagements , including one in georgia ( `` v.c . summer '' ) and one in south carolina ( `` plant vogtle '' ) . the ownership of v.c . summer halted work earlier in the year and , during the third quarter of fiscal 2018 , we de-booked $ 11.0 million from backlog related to this project . also during the third quarter of fiscal 2018 , we received a notice of cancellation from wec for the plant vogtle project , which negatively impacted our sales and margin for the second half of fiscal year 2018 by approximately $ 6.1 million and $ 1.2 million , respectively . 18 year ended february 28 , 2018 compared with year ended february 28 , 2017 backlog we ended fiscal 2018 with a backlog of $ 265.4 million , a decrease of $ 52.5 million or 16.5 % as compared to fiscal 2017 . the company 's backlog as of year end pertains to the energy segment 's operations . the book to revenue ratio declined in fiscal 2018 as compared to fiscal 2017 . the book to revenue ratio was 0.92 to 1 for fiscal 2018 and 0.99 to 1 for fiscal 2017 . the following table reflects bookings and shipments for fiscal 2018 and 2017 . backlog table ( in thousands ) replace_table_token_7_th net sales our total net sales for fiscal 2018 decreased by $ 53.1 million , or 6.2 % , as compared to fiscal 2017 . the following table reflects the breakdown of revenue by segment ( in thousands ) : replace_table_token_8_th our energy segment recorded net sales for fiscal 2018 of $ 421.0 million , a decrease of 13.7 % compared to fiscal 2017 net sales of $ 488.0 million . the decrease in net sales for fiscal 2018 was caused by several factors including reduced turnarounds in the u.s. refinery market , continued softness in the petrochemical market , negative impacts from the atlantic hurricane activity , cancellations and delays in the release of several large projects in the u.s. and overseas . in addition , net sales were negatively impacted by the effects on the nuclear market from the westinghouse electric company bankruptcy filed on march 29 , 2017. our metal coatings segment , which consisted of forty-five metal coating facilities as of february 28 , 2018 , generated net sales of $ 389.4 million , a 3.7 % increase from the prior year 's net sales of $ 375.5 million . the increase was attributable to incremental revenues from our acquisitions during the year and increased prices . these increases were partially offset by decreased volumes in steel processed as a result of softness in the solar , petrochemical , and the oil and gas markets . 19 operating income the following table reflects the breakdown of operating income ( loss ) by segment ( in thousands ) : replace_table_token_9_th operating income ( loss ) for the energy segment decreased $ 54.3 million , or 103.4 % , for fiscal 2018 , to a loss of $ ( 1.8 ) million as compared to income of $ 52.6 million for fiscal 2017 . operating margins for this segment were ( 0.4 ) % for fiscal 2018 as compared to 10.8 % for fiscal 2017 . this decrease was attributable to the reduction in refinery turnarounds described above , which typically carry a higher margin , cancellations , margin degradations on certain large projects in the u.s. and overseas and the westinghouse bankruptcy . in addition , for fiscal 2018 , the company recognized an impairment charge of $ 10.5 million related to property , plant and equipment that was retired and a provision for doubtful accounts of $ 2.9 million resulting from an adverse court decision related to certain outstanding accounts receivables . no such charges were recorded in the prior year comparable period . operating income for the metal coatings segment increased $ 5.3 million , or 6.7 % , for fiscal 2018 to $ 84.3 million as compared to $ 79.0 million for the prior year . operating margins were 21.7 % for fiscal 2018 as compared to 21.0 % for fiscal 2017 . excluding the impact of realignment charges of $ 7.3 million incurred in fiscal 2017 , overall margins decreased in fiscal 2018 as a result of lower volumes and increased costs for zinc , partially offset by incremental margin earned from our acquisitions completed during the year . corporate expenses were $ 34.3 million for fiscal 2018 and $ 32.7 million for fiscal 2017 . this increase is attributable to higher spend on professional services and higher employee costs in fiscal 2018 . interest interest expense for fiscal 2018 decreased 5.9 % to $ 13.9 million as compared to $ 14.7 million in fiscal 2017 . this decrease is primarily attributable to more favorable interest rates during fiscal 2018 as a result of our partial or full repayment of certain outstanding debt obligations that were replaced with borrowings that carried lower interest rates . for additional information on outstanding debt , see note 11 to the consolidated financial statements . story_separator_special_tag as of february 28 , 2018 , we had gross outstanding debt of $ 301.3 million compared to $ 272.3 million at the end of fiscal 2017. azz 's debt to equity ratio was 0.53 to 1 at the end of fiscal 2018 compared to 0.51 to 1 at the end of fiscal 2017 . other ( income ) expense , net for fiscal 2018 , a total of $ 3.5 million in expense was recorded to other ( income ) expense , net , which was primarily attributable to the impairment of the non-trade note receivable described above upon the bankruptcy declaration of the note debtor . for fiscal 2017 , we recorded $ 1.1 million of income to other ( income ) expense , net , which was primarily attributable to a reimbursement of legal fees of $ 0.6 million from a lawsuit in fiscal 2016 and net foreign exchange gains . provision for ( benefit from ) income taxes the provision for ( benefit from ) income taxes reflected an effective tax rate of ( 46.2 ) % for fiscal 2018 and 28.2 % for fiscal 2017. the decrease in the effective rate was due primarily to the u.s. tax cuts and jobs act of 2017 , which resulted in a provisional benefit related to the remeasurement of deferred taxes at a lower corporate rate that was offset by a one-time mandatory transition tax on undistributed earnings of foreign affiliates . 20 liquidity and capital resources we have historically met our cash needs through a combination of cash flows from operating activities along with bank and bond market debt . our cash requirements are generally for operating activities , cash dividend payments , capital improvements , debt repayment and acquisitions . we believe that our cash position , cash flows from operating activities and our expectation of continuing availability to draw upon our credit facilities are sufficient to meet our cash flow needs for the foreseeable future . cash flows the following table summarizes our cash flows by category for the periods presented ( in thousands ) : replace_table_token_10_th net cash provided by operating activities for fiscal 2019 was $ 114.7 million compared to $ 78.9 million for fiscal 2018 . the increase in cash provided by operating activities for fiscal 2019 as compared to fiscal 2018 is primarily attributable to the increase in net income and positive impacts from changes in working capital . the increase was also attributable to a decline in non-cash tax benefit accruals which were recorded in fiscal 2018 resulting from the remeasurement of deferred tax liabilities due to the decrease of u.s. corporate tax rates as part of the tax cuts and jobs act of 2017. this decline in non-cash tax benefit accruals was partially offset by lower non-cash impairment charges in fiscal 2019 as compared to fiscal 2018. net cash used in investing activities for fiscal 2019 was $ 32.1 million as compared to $ 73.9 million for fiscal 2018 . the decline in cash used during fiscal 2019 was primarily attributable to decreased acquisition activity and lower capital expenditures . the breakdown of capital spending by segment for fiscal 2019 , 2018 and 2017 can be found in note 12 to the consolidated financial statements . net cash used in financing activities for fiscal 2019 was $ 78.0 million compared to net cash provided by financing activities of $ 3.8 million for fiscal 2018 . the increase in cash used for financing activities during fiscal 2019 was primarily attributable to significantly increased net repayments of borrowings under our revolving credit facility , partially offset by lower principal payments under our other long-term debt agreements . financing and capital 2017 revolving credit facility on march 27 , 2013 , the company entered into a credit agreement ( the “ credit agreement ” ) with bank of america and other lenders . the credit agreement provided for a $ 75.0 million term facility and a $ 225.0 million revolving credit facility that included a $ 75.0 million “ accordion ” feature . the credit agreement is used to provide for working capital needs , capital improvements , dividends , future acquisitions and letter of credit needs . on march 21 , 2017 , the company executed the amended and restated credit agreement ( the “ 2017 credit agreement ” ) with bank of america and other lenders . the 2017 credit agreement amended the credit agreement by the following : ( i ) extending the maturity date until march 21 , 2022 , ( ii ) providing for a senior revolving credit facility in a principal amount of up to $ 450 million , with an additional $ 150 million accordion , ( iii ) including a $ 75 million sublimit for the issuance of standby and commercial letters of credit , ( iv ) including a $ 30 million sublimit for swing line loans , ( v ) restricting indebtedness incurred in respect of capital leases , synthetic lease obligations and purchase money obligations not to exceed $ 20 million , ( vi ) restricting investments in any foreign subsidiaries not to exceed $ 50 million in the aggregate , and ( vii ) including various financial covenants and certain restricted payments relating to dividends and share repurchases as specifically set forth in the 2017 credit agreement . the balance due on the $ 75.0 million term facility under the previous credit agreement was paid in full as a result of the execution of the 2017 credit agreement . the financial covenants , as defined in the 2017 credit agreement , require the company to maintain on a consolidated basis a leverage ratio not to exceed 3.25:1.0 and an interest coverage ratio of at least 3.00:1.0. the 2017 credit agreement will be used to finance working capital needs , capital improvements , dividends , future acquisitions , letter of credit needs and share repurchases .
| the increase in net sales for fiscal 2019 was caused by several positive factors including improved turnarounds in the u.s. refinery market , increased international projects and an uptick in our electrical business . the increase was also attributable to incremental revenues from our fiscal 2019 and fiscal 2018 business acquisitions and was partially offset by continued softness in the nuclear market , which is due in part to the westinghouse bankruptcy discussed below . 16 our metal coatings segment , which consisted of forty-two metal coating facilities as of february 28 , 2019 , generated net sales of $ 440.3 million , a 13.1 % increase from the prior year 's net sales of $ 389.4 million . the increase was a result of higher selling prices and higher volumes of steel processed during the periods driven primarily by improvements in various markets . the increase was also attributable to incremental revenues from our fiscal 2018 acquisitions . operating income the following table reflects the breakdown of operating income ( loss ) by segment ( in thousands ) : replace_table_token_6_th operating income for the energy segment increased $ 33.1 million for fiscal 2019 , to $ 31.3 million as compared to an operating loss of $ 1.8 million for fiscal 2018 . operating margins for this segment were 6.4 % for fiscal 2019 as compared to ( 0.4 ) % for fiscal 2018 . these increases were primarily attributable to the positive factors noted above and improvements in project margins . in addition , for fiscal 2018 , the company recognized an impairment charge of $ 10.5 million , classified within cost of sales , related to property , plant and equipment that was retired and a provision for doubtful accounts of $ 2.9 million , classified within selling , general and administrative , resulting from an adverse court decision related to certain outstanding accounts receivables . no such charges were recorded in fiscal 2019. operating income for
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sale of fiber optics-related assets on march 27 , 2012 , we entered into a master purchase agreement with a subsidiary of sumitomo electric industries , ltd ( sei ) , pursuant to which we agreed to sell certain assets and transfer certain obligations associated with our fiber optics segment . on may 7 , 2012 , we completed the sale of these assets to sei and recorded a gain of approximately $ 2.8 million . this transaction was recorded as a sale of assets since it did not meet the criteria to be considered a component of our business . under the terms of the master purchase agreement , we have agreed to indemnify sei for up to $ 3.4 million of potential claims and expenses for the two-year period following the sale , and we have recorded this amount as a deferred gain on our balance sheet as of september 30 , 2013 as a result of these contingencies . sei paid $ 13.1 million in cash and deposited approximately $ 2.6 million into escrow as security for indemnification obligations and any purchase price adjustments . payment of escrow amounts occurs over a two-year period and is subject to claim adjustments . in total , we deferred approximately $ 4.9 million of the total paid by sei as a gain on sale until the indemnification obligation of $ 3.4 million and $ 1.5 million of purchase price adjustment contingencies are resolved . during the fiscal year ended september 30 , 2013 , we resolved the purchase price contingencies resulting in the reduction of the purchase price by $ 1.1 million . the reduced purchase price is recorded as an offset to the escrow receivable of $ 2.6 million while an additional $ 0.4 million of gain on sale of assets was recognized during the fiscal year ended september 30 , 2013 . there remains a deferred gain of $ 3.4 million related to our indemnification obligation at september 30 , 2013 . see note 1 - description of business in the notes to the consolidated financial statements for additional disclosures related to this asset sale . critical accounting policies the preparation of consolidated financial statements in conformity with u.s. gaap requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities , as of the date of the financial statements , and the reported amounts of revenue and expenses during the reported period . the accounting estimates that require our most significant , difficult , and or subjective judgments include : the valuation of inventory , goodwill , intangible assets , warrants , and stock-based compensation ; assessment of recovery of long-lived assets ; asset retirement obligations and litigation contingencies ; revenue recognition associated with the percentage of completion method ; the allowance for doubtful accounts and warranty accruals ; and , estimation of losses associated with the thailand flood . we develop estimates based on historical experience and on various assumptions about the future that are believed to be reasonable based on the best information available to us . our reported financial position or results of operations may be materially different under changed conditions or when using different estimates and assumptions , particularly with respect to significant accounting policies . in the event that estimates or assumptions prove to differ from actual results , adjustments are made in subsequent periods to reflect more current information . a listing and description of our critical accounting policies includes the following : 43 accounts receivable we regularly evaluate the collectability of our accounts receivable and maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to meet their financial obligations to us . the allowance is based on the age of receivables and a specific identification of receivables considered at risk of collection . we classify charges associated with the allowance for doubtful accounts as sales , general , and administrative expense . if the financial condition of our customers were to deteriorate , impacting their ability to pay us , additional allowances may be required . see note 5 - receivables in the notes to the consolidated financial statements for additional information related to our receivables . inventory inventory is stated at the lower of cost or market , with cost being determined using the standard cost method that includes material , labor , and manufacturing overhead costs , which approximates weighted average cost . we write-down inventory once it has been determined that conditions exist that may not allow the inventory to be sold for its intended purpose or the inventory is determined to be excess or obsolete based on our forecasted future revenue . the charge related to inventory write-downs is recorded as a cost of revenue . the majority of the inventory write-downs are related to estimated allowances for inventory whose carrying value is in excess of net realizable value and on excess raw material components resulting from finished product obsolescence . in most cases where we sell previously written down inventory , it is typically sold as a component part of a finished product . the finished product is sold at market price at the time resulting in higher average gross margin on such revenue . we do not track the selling price of individual raw material components that have been previously written down or written off , since such raw material components usually are only a portion of the finished products and related sales price . we evaluate inventory levels at least quarterly against sales forecasts on a significant part-by-part basis , in addition to determining its overall inventory risk . we have incurred , and may in the future incur charges to write-down our inventory . see note 6 - inventory in the notes to the consolidated financial statements for additional information related to our inventory . goodwill the company 's goodwill of approximately $ 20.4 million is associated with our photovoltaics segment . story_separator_special_tag goodwill represents the excess of the purchase price of an acquired business over the fair value of the identifiable assets acquired and liabilities assumed . as required by asc 350 , intangibles - goodwill and other , we evaluate our goodwill for impairment on an annual basis , or whenever events or changes in circumstances indicate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . pursuant to asc 350 , circumstances that could trigger an interim impairment test include but are not limited to : macroeconomic conditions such as a deterioration in general economic conditions , limitations on accessing capital , fluctuations in foreign exchange rates , or other developments in equity and credit markets ; industry and market considerations such as a deterioration in the environment in which an entity operates , an increased competitive environment , a decline in market-dependent multiples or metrics ( considered in both absolute terms and relative to peers ) , a change in the market for an entity 's products or services , or a regulatory or political development ; cost factors such as increases in raw materials , labor , or other costs that have a negative effect on earnings and cash flows ; overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods ; other relevant entity-specific events such as changes in management , key personnel , strategy , or customers ; contemplation of bankruptcy ; or litigation ; events affecting a reporting unit such as a change in the composition or carrying amount of its net assets , a more-likely-than-not expectation of selling or disposing all , or a portion , of a reporting unit , the testing for recoverability of a significant asset group within a reporting unit , or recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit ; and , if applicable , a sustained decrease in share price ( considered in both absolute terms and relative to peers ) . 44 in performing goodwill impairment testing , we are able to review qualitative factors in accordance with asu 2011-08 to determine if it is more likely than not that the fair value is less than the carrying value . if it is assessed that the fair value is more likely than not less than the carrying value , we then determine the fair value of each reporting unit using a weighted combination of a market-based approach and a discounted cash flow ( dcf ) approach . the market-based approach relies on values based on market multiples derived from comparable public companies . in applying the dcf approach , management forecasts cash flows over the remaining useful life of its primary asset using assumptions of current economic conditions and future expectations of earnings . this analysis requires the exercise of significant judgment , including judgments about appropriate discount rates based on the assessment of risks inherent in the amount and timing of projected future cash flows . the derived discount rate may fluctuate from period to period as it is based on external market conditions . all of these assumptions are critical to the estimate and can change from period to period . updates to these assumptions in future periods , particularly changes in discount rates , could result in different results of goodwill impairment tests . see note 8 - goodwill in the notes to the consolidated financial statements for additional disclosures related to our goodwill . valuation of long-lived assets long-lived assets consist primarily of property , plant , and equipment and intangible assets . because most of our long-lived assets are subject to amortization , we review these assets for impairment in accordance with the provisions of asc 360 , property , plant , and equipment . we review long-lived assets for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . our impairment testing of long-lived assets consists of determining whether the carrying amount of the long-lived asset ( asset group ) is recoverable , in other words , whether the sum of the future undiscounted cash flows expected to result from the use and eventual disposition of the asset ( asset group ) exceeds its carrying amount . the determination of the existence of impairment involves judgments that are subjective in nature and may require the use of estimates in forecasting future results and cash flows related to an asset or group of assets . in making this determination , we use certain assumptions , including estimates of future cash flows expected to be generated by these assets , which are based on additional assumptions such as asset utilization , the length of service that assets will be used in our operations , and estimated salvage values . see note 7 - property , plant , and equipment , net and note 9 - intangible assets in the notes to the consolidated financial statements for additional disclosures related to our long-lived assets . revenue recognition revenue is recognized upon shipment , provided persuasive evidence of a contract exists , the price is fixed , the product meets our customer 's specifications , title and ownership have transferred to the customer , and there is reasonable assurance of collection of the sales proceeds . the majority of our products have shipping terms that are free on board or free carrier alongside ( fca ) shipping point , which means that we fulfill our delivery obligation when the goods are handed over to the freight carrier at our shipping dock . this means the buyer typically bears all costs and risks of loss or damage to the goods from that point . in certain cases , we ship our products cost insurance and freight .
| our enterprise digital product lines were sold to sei in may 2012. our fiber optics segment accounted for 58 % , 59 % and 63 % of our consolidated revenue for the fiscal year s ended september 30 , 2013 , 2012 and 2011 , respectively . 50 photovoltaics revenue : our photovoltaics reporting segment provides products for both space and terrestrial solar power applications . for space solar power applications , we offer high-efficiency multi-junction solar cells , covered interconnect cells ( cics ) , and complete satellite solar panels . for terrestrial power applications , we offer high-efficiency multi-junction solar cells for concentrating photovoltaic ( cpv ) power systems . for the fiscal year ended september 30 , 2013 , revenue from photovoltaics increased approximately 5 % from the prior year primarily due to higher revenues from our space and terrestrial cell products . sales of our satellite solar cells , cics and panel products represent the largest percentage of our total photovoltaics-related revenue . historically , our photovoltaics revenue has fluctuated significantly due to the timing of program completions and product shipments of major orders . for the fiscal year ended september 30 , 2012 , revenue from satellite applications decreased approximately 9 % from the prior year . the decrease was primarily driven by lower volume sales of space solar cell cic products . sales of our satellite solar cells , cics and panel products represent the largest percentage of our total photovoltaics-related revenue . revenue from our terrestrial-related products was not significant as a percentage of total photovoltaics-related revenue . our photovoltaics segment accounted for 42 % , 41 % and 37 % of our consolidated revenue for the fiscal year s ended september 30 , 2013 , 2012 and 2011 , respectively . gross profit : replace_table_token_7_th our cost of revenue consists of raw materials , compensation expense including non-cash stock-based compensation expense , depreciation expense and other manufacturing overhead costs , expenses associated with excess and obsolete inventories , and product warranty costs . historically , our cost
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( dollars in thousands ) replace_table_token_5_th as a percentage of net sales , cost of goods sold increased during fiscal 2011 compared with fiscal 2010 due to the higher proportion of gasoline sales versus inside sales , as gasoline sales occur at higher cost of goods sold percentages . this was partially offset by a higher cost of goods sold percentage on inside sales during fiscal 2010 due to promotional activities associated with the rebannering and grand re-openings of the retained penn traffic supermarkets , price optimization efforts during fiscal 2011 , as well as a higher percentage of private label merchandise sales during fiscal 2011. distribution costs remained consistent during fiscal 2011 compared with fiscal 2010. the decline in distribution costs as a percentage of net sales was primarily driven by the increase in the retail price per gallon on gasoline sales . - 16 - operating expenses the following table includes a comparison of operating expenses for fiscal 2011 and fiscal 2010 . ( dollars in thousands ) replace_table_token_6_th wages , salaries and benefits as a percentage of net sales , the decrease in wages , salaries and benefits during fiscal 2011 compared with fiscal 2010 was largely attributable to the more effective utilization of labor , particularly in the retained penn traffic supermarkets as a result of significant increases in sales levels in these stores . the decrease also reflects the higher proportion of gasoline sales versus inside sales , as gasoline sales require relatively less labor support . these factors were partially offset by lower vacation expense of $ 6.4 million during fiscal 2010 related to a policy change for union associates that modified the period over which vacation time is earned and a $ 1.5 million increase in bonus expense in fiscal 2011 due to improved performance against bonus metrics . selling and general expenses as a percentage of net sales , the decrease in selling and general expenses during fiscal 2011 compared with fiscal 2010 was largely due to a $ 2.7 million decrease in utility costs , primarily attributable to lower commodity costs for electricity . additionally , $ 0.7 million of penn traffic integration costs were classified in selling and general expenses during fiscal 2010 that were not incurred in 2011. we also benefitted from the renegotiation of certain cleaning contracts during fiscal 2011. these positive factors were largely offset by a $ 1.1 million increase in repairs and maintenance expense , and a $ 1.4 million increase in credit and debit card transaction fees due to increases in usage and fee rates . administrative expenses the decrease in administrative expenses during fiscal 2011 compared with fiscal 2010 was primarily attributable to a combined $ 21.7 million of penn traffic integration costs , legal and professional fees related to the penn traffic acquisition and higher legal expenses associated with the ftc 's review of the acquired supermarkets recorded in fiscal 2010. additionally , we experienced a $ 5.1 million decrease in information technology , or it , costs in fiscal 2011 , largely resulting from our renegotiated it services contract . these items were partially offset by a $ 0.9 million increase in depreciation related to recent it equipment capital expenditures , a $ 2.1 million increase in bonus expense due to improved performance against bonus metrics , a $ 0.5 million increase in share-based compensation expense due to stock option forfeitures that reduced our recorded expense during fiscal 2010 , normal wage rate increases and severance expense related to corporate headcount reductions during early 2011. rent expense , net rent expense reflects our rental expense for our supermarkets under operating leases , net of income we receive from various entities that rent space in our supermarkets under subleases . rent expense remained relatively consistent during fiscal 2011 compared with fiscal 2010. depreciation and amortization the decrease in depreciation and amortization during fiscal 2011 compared with fiscal 2010 was largely attributable to a significant amount of assets that became fully depreciated near the conclusion of fiscal 2010 , partially offset by incremental depreciation and amortization of $ 0.7 million associated with assets acquired as part of the penn traffic acquisition , and 2010 and 2011 capital expenditure activity . - 17 - advertising the decrease in advertising during fiscal 2011 compared with fiscal 2010 was due to $ 5.2 million in costs associated with the communication of the penn traffic acquisition to our customers and the promotion of the grand re-openings related to the rebannered supermarkets during fiscal 2010. this was partially offset by investments in additional advertising initiatives during fiscal 2011. impairment charges on june 30 , 2011 , the ftc approved our application to sell three supermarkets acquired as part of the penn traffic acquisition to hometown markets . the sale of these supermarkets closed in late july and early august 2011. as a result of the sale , we recorded a $ 1.9 million impairment within the consolidated statement of operations during fiscal 2011 , representing the excess of the carrying value of assets over the fair value of assets . during november 2011 , we executed an agreement to sell the remaining acquired penn traffic supermarket subject to the final order from the ftc . as a result of the pending sale that closed during january 2012 , we recorded a $ 0.9 million impairment within the consolidated statement of operations during fiscal 2011 , representing the excess of the carrying value of assets over the fair value of assets . bargain purchase the excess of $ 15.7 million of the estimated fair value of penn traffic net assets acquired over the purchase price has been recognized as a gain in the consolidated statement of operations for fiscal 2010. this bargain purchase was attributable to the distressed status of penn traffic due to poor historical operating results , which led to its november 2009 bankruptcy filing . story_separator_special_tag loss on debt extinguishment on january 29 , 2010 , we entered into a $ 25.0 million bridge loan and an $ 11.0 million term loan , and capitalized related financing costs . as both the bridge loan and term loan were repaid in full on february 12 , 2010 with the proceeds from the issuance of the additional $ 75.0 million of senior notes , unamortized costs of $ 0.7 and $ 0.3 million , respectively , were recorded as a loss on debt extinguishment in our consolidated statement of operations for fiscal 2010. interest expense , net the $ 0.5 million increase in interest expense during fiscal 2011 compared with fiscal 2010 was primarily attributable to incremental interest expense related to the $ 75.0 million senior notes issued on february 12 , 2010 that were outstanding for all of fiscal 2011. income tax ( expense ) benefit the income tax expense during fiscal 2011 primarily reflects our income before income taxes , the benefit of federal tax credits , and the reversal of valuation allowance against net deferred tax assets . the overall effective tax rate was 18.2 % . the effective tax rate would have been 38.0 % without the impact of federal tax credits and adjustments to the valuation allowance . the income tax benefit during fiscal 2010 was primarily attributable to the reversal of $ 10.3 million of the valuation allowance established during fiscal 2009. the reversal of the valuation allowance was the result of recording a deferred tax liability that resulted from the bargain purchase associated with the penn traffic acquisition . the timing of taxable income resulting from the amortization of the gain for tax purposes provides sufficient future taxable income to support the future deductibility of the company 's deferred tax assets . the overall effective rate for fiscal 2010 was 25.0 % . the effective tax rate would have been 39.9 % without the impact of adjustments to the valuation allowance , the bargain purchase , and discrete charges . net income ( loss ) our net income ( loss ) improved to net income of $ 5.8 million during fiscal 2011 compared with net loss of $ 27.0 million during fiscal 2010 . - 18 - fiscal 2010 compared with fiscal 2009 story_separator_special_tag costs of $ 0.7 and $ 0.3 million , respectively , were recorded as a loss on debt extinguishment in our consolidated statement of operations for fiscal 2010. in connection with prepayments of $ 20.0 million related to our previous first lien credit agreement during fiscal 2009 , $ 0.8 million of additional debt was forgiven . this amount , net of the write-off of $ 0.3 million of unamortized deferred financing costs , was recorded as a gain on debt extinguishment in our consolidated statement of operations for fiscal 2009. effective october 9 , 2009 , we issued $ 275.0 million of senior notes and simultaneously entered into the $ 70.0 million revolving abl facility . the proceeds from the senior notes and the abl facility were used , in part , to retire the outstanding balances related to our previous first lien credit agreement and warehouse mortgage . in connection with these retirements , we wrote off unamortized deferred financing costs of $ 7.0 million and incurred additional costs of $ 0.3 million , which were recorded as a loss on debt extinguishment in our consolidated statement of operations for fiscal 2009. interest expense , net the $ 13.2 million increase in interest expense during fiscal 2010 compared with fiscal 2009 reflects an $ 18.7 million increase in interest on our outstanding indebtedness as a result of our october 2009 and february 2010 financing activities , as well as an increase of $ 1.3 million attributable to deferred financing fees and bond discount amortization ( net of premium amortization ) . these factors were partially offset by a $ 6.6 million decrease in interest expense related to our interest rate swap that was settled in october 2009. income tax benefit ( expense ) the change from the income tax expense of $ 5.4 million in fiscal 2009 to the income tax benefit of $ 9.0 million in fiscal 2010 is primarily attributable to the higher pre-tax loss in fiscal 2010 , combined with the non-taxability of the bargain purchase related to the penn traffic acquisition . additionally , we established a $ 13.9 million valuation allowance during fiscal 2009 related to our deferred tax assets , compared to an additional valuation allowance of $ 11.9 million during fiscal 2010. the resulting effective tax rate for fiscal 2010 was 25.0 % compared to an effective tax rate for fiscal 2009 of ( 26.5 ) % . deferred income tax assets or liabilities reflect temporary differences between amounts of assets and liabilities , including net operating loss carryforwards , for financial and tax reporting . such amounts are adjusted as appropriate to reflect changes in the tax rates expected to be in effect when the temporary differences reverse . a valuation allowance is established for any deferred income tax asset for which realization is uncertain . based on an assessment of the available positive and negative evidence , including our historical results for the preceding three years , we determined that there are uncertainties relating to our ability to utilize the net deferred tax assets . in recognition of these uncertainties , we have provided a valuation allowance of $ 13.9 million on the net deferred income tax assets as of january 2 , 2010 , representing a charge to income tax expense during fiscal 2009. during fiscal 2010 , we established an additional valuation allowance of $ 11.9 million , with an offsetting charge to income tax expense . if we were to determine that we could realize our deferred tax assets in the future in excess of their net recorded amount , we would make an adjustment to the valuation allowance .
| ( dollars in thousands ) replace_table_token_9_th wages , salaries and benefits as a percentage of net sales , the increase in wages , salaries and benefits for fiscal 2010 compared with fiscal 2009 is largely attributable to investments in labor during the rebannering and re-openings of the retained penn traffic supermarkets , as well as the lower average sales base of these supermarkets . the comparative percentage is also impacted by the fact that none of the acquired penn traffic supermarkets had fuel stations , for which gasoline sales require less labor expense than inside sales . furthermore , we experienced a 10 % year-over-year increase in pension and health and welfare costs , as required by our collective bargaining agreements . selling and general expenses as a percentage of net sales , selling and general expenses increased for fiscal 2010 compared with fiscal 2009 due to $ 0.7 million of penn traffic integration costs included in selling and general expenses during fiscal 2010 , as well as an increase of $ 10.8 million in electricity costs due to the warmer temperatures in 2010 and higher commodity prices . administrative expenses the increase in administrative expenses for fiscal 2010 compared with fiscal 2009 was primarily attributable to a combined $ 22.4 million of penn traffic integration costs , one-time legal and professional fees related to the penn traffic acquisition and non-recurring legal expenses associated with the ftc 's review of the acquired supermarkets . furthermore , we incurred additional labor expense of $ 12.8 million related to 2010 head count additions to accommodate increased corporate activities following the penn traffic acquisition , combined with normal wage rate increases . rent expense as a percentage of net sales , rent expense remained relatively consistent for fiscal 2010 compared with fiscal 2009. depreciation and amortization the increase in depreciation and amortization from fiscal 2010 compared with fiscal 2009 was largely attributable to $ 7.4 million associated with assets acquired from penn traffic , as well as incremental depreciation related to fiscal 2010 and fiscal 2009 capital expenditures . advertising the increase in advertising expenses for fiscal 2010 compared with fiscal 2009 was primarily attributable to $ 5.2 million in
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· the decline in company restaurant revenues is partially offset by increased royalty income derived from the growth in the franchise restaurant base resulting from both traditional development and the conversion of restaurants . as a result , royalty income , which is included as a component of franchise and license revenue , has increased from $ 70.7 million in 2009 to $ 79.2 million in 2011 . · the resulting net reduction in total revenue related to our fgi is generally recovered by the benefits of a lower cost structure related to franchise and license revenues , a decrease in depreciation and amortization from the sale of restaurant related assets to franchisees ( from $ 32.3 million in 2009 to $ 28.0 million in 2011 ) and a reduction in interest expense resulting from the use of proceeds to reduce debt ( from $ 32.6 million in 2009 to $ 20.0 million in 2011 ) . see also `` debt and refinancing and reductions `` below . · initial franchise fees , included as a component of franchise and license revenue , are generally recognized in the period in which a restaurant is sold to a franchisee or when a new unit is opened . these initial fees are completely dependent on the number of restaurants sold to or opened by franchisees during a particular period and , as a result , can cause fluctuations in our total franchise and license revenue from year to year . · occupancy revenues , also included as a component of franchise and license revenue , result from leasing or subleasing restaurants to franchisees . as a result of our fgi , occupancy revenues have increased from $ 43.5 million in 2009 to $ 44.5 million in 2011. additionally , when restaurants are sold and leased or subleased to franchisees , the occupancy costs related to these restaurants moves from costs of company restaurant sales to costs of franchise and license revenue to match the related occupancy revenue . as subleases with franchisees end over time , franchise occupancy revenue and costs could decrease if franchisees enter into direct leases with landlords . · gains on sales of assets are primarily dependent on the number of restaurants sold to franchisees during a particular period , and as a result , can cause fluctuations in net income from year to year . as we near the completion of our fgi , gains on sales of assets will continue to decrease . as a result of the development efforts described above , over the past five years we have transitioned from a portfolio mix of 66 % franchised and 34 % company-operated to a portfolio mix of 88 % franchised and 12 % company-operated . our targeted portfolio mix is 90 % franchised and 10 % company-operated . we anticipate achieving this goal through a combination of new franchise unit growth and the sale of restaurants to franchisees by the end of 2012. we expect that the future growth of the brand will come primarily from the development of franchise restaurants . 15 debt refinancing and reductions interest expense has a significant impact on our net income as a result of our indebtedness . however , over the past several years , we have continued to reduce interest expense through a series of debt repayments using the proceeds generated from our fgi transactions , sales of real estate and cash flow from operations . these repayments resulted in an overall debt reduction of approximately $ 46.7 million during 2009 , $ 15.0 million during 2010 and $ 42.0 million in 2011. during the first quarter of 2011 , we amended our credit facility principally to take advantage of lower interest rates available in the senior secured debt market . interest on our credit facility , as amended , is payable at per annum rates equal to libor plus 375 basis points , with a libor floor of 1.50 % for the term loan and no libor floor for the revolver , compared with an interest rate of libor plus 475 basis points and a libor floor of 1.75 % for both the term loan and the revolver prior to the re-pricing . the combination of lower debt balances and lower overall interest rates on our debt will continue to positively benefit our financial performance on an ongoing basis . share repurchases our credit facility permits the payment of cash dividends and or the purchase of denny 's stock subject to certain limitations . during 2011 , we completed the 3.0 million share stock repurchase program that we began in november 2010. in april 2011 , our board of directors approved an additional share repurchase program authorizing us to repurchase up to 6.0 million shares of our common stock . under the program , we could , from time to time , purchase shares in the open market ( including through pre-arranged stock trading plans in accordance with guidelines specified in rule 10b5-1 under the securities exchange act of 1934 ) or in privately negotiated transactions , subject to market and business conditions . as of december 28 , 2011 , we had repurchased 3.7 million shares of common stock for $ 14.0 million under this 6.0 million share repurchase program . repurchased shares are included as treasury stock in the consolidated balance sheets and the consolidated statements of shareholders ' deficit and comprehensive loss . 16 statements of income replace_table_token_8_th ( a ) costs of company restaurant sales percentages are as a percentage of company restaurant sales . costs of franchise and license revenue percentages are as a percentage of franchise and license revenue . all other percentages are as a percentage of total operating revenue . ( b ) equivalent units are calculated as the weighted-average number of units outstanding during the defined time period . ( c ) same-store sales include sales from restaurants that were open the same period in the prior year . ( d ) prior year amounts have not been restated for 2011 comparable units . story_separator_special_tag 17 2011 compared with 2010 unit activity replace_table_token_9_th of the 62 units opened and relocated during the year ended december 28 , 2011 , eight company-owned units and 15 franchise units represent conversions and openings of restaurants at pilot flying j travel centers . of the 141 units opened and relocated during the year ended december 29 , 2010 , 21 company-owned and 79 franchise units represent conversions and openings of restaurants at pilot flying j travel centers . company restaurant operations during the year ended december 28 , 2011 , we realized a 0.8 % increase in same-store sales , comprised of a 0.6 % increase in guest check average and a 0.2 % increase in guest counts . company restaurant sales decreased $ 12.3 million , or 2.9 % , primarily resulting from a ten equivalent unit decrease in company-owned restaurants , partially offset by the increase in same-store sales for the year . the decrease in equivalent units resulted from the sale of company-owned restaurants to franchisees . total costs of company restaurant sales as a percentage of company restaurant sales increased to 86.9 % from 86.3 % . product costs increased to 24.7 % from 23.9 % primarily due to the impact of increased commodity costs . payroll and benefits costs remained flat at 40.7 % as improved scheduling of restaurant staff was offset by unfavorable workers ' compensation claims development and higher incentive compensation . occupancy costs increased slightly to 6.7 % from 6.6 % . other operating expenses were comprised of the following amounts and percentages of company restaurant sales : replace_table_token_10_th marketing decreased 0.2 percentage points primarily as a result of additional corporate investment in media in the prior year period . franchise operations franchise and license revenue and costs of franchise and license revenue were comprised of the following amounts and percentages of franchise and license revenue for the periods indicated : replace_table_token_11_th 18 royalties increased by $ 6.2 million , or 8.5 % , primarily resulting from the effects of a 98 equivalent unit increase in franchised and licensed units , as compared to the prior year , and a 0.7 % increase in same-store sales . the increase in equivalent units primarily resulted from the conversion of restaurants at pilot flying j travel centers during 2010 and 2011. initial fees decreased by $ 3.5 million , or 52.4 % . the decrease in initial fees resulted from the higher number of restaurants opened by franchisees during the prior year period . the decrease in occupancy revenue of $ 0.3 million , or 0.6 % , is primarily the result of lease expirations and terminations where the franchisees obtained their own leases with the landlords and we are no longer party to the leases . costs of franchise and license revenue decreased by $ 2.6 million , or 5.6 % . the decrease in occupancy costs of $ 0.8 million , or 2.2 % , is primarily the result of lease expirations and terminations as described above . other direct costs decreased by $ 1.9 million , or 14.8 % , primarily resulting from lower opening and training costs related to the higher number of openings by franchisees in the prior year period and the franchise-related costs associated with our super bowl promotion in the prior year , partially offset by a $ 0.5 million franchisee settlement . as a result , costs of franchise and license revenue as a percentage of franchise and license revenue decreased to 35.0 % for the year ended december 28 , 2011 from 37.7 % for the year ended december 29 , 2010. other operating costs and expenses other operating costs and expenses such as general and administrative expenses and depreciation and amortization expense relate to both company and franchise operations . general and administrative expenses were comprised of the following : replace_table_token_12_th the $ 1.4 million increase in share-based compensation expense is primarily due to the issuance of employment inducement awards to certain employees and reductions in the prior year related to forfeitures . other general and administrative expenses decreased $ 1.6 million . this decrease is primarily the result of $ 2.0 million in proxy contest costs incurred during 2010 and a decrease in deferred compensation . these decreases were partially offset by an increase in performance-based compensation and an increase in headcount , including executive positions that were vacant in the prior year period . depreciation and amortization was comprised of the following : replace_table_token_13_th the overall decrease in depreciation and amortization expense was primarily due to the sale of company-owned restaurants to franchisees during 2010 and 2011. operating ( gains ) , losses and other charges , net were comprised of the following : replace_table_token_14_th during the year ended december 28 , 2011 , we recognized gains of $ 3.2 million , primarily resulting from the sale of 30 restaurant operations to nine franchisees , the sale of real estate and the recognition of deferred gains related to a restaurant sold to a franchisee during a prior period . during the year ended december 29 , 2010 , we recognized gains of $ 9.5 million , primarily resulting from the sale of real estate to franchisees and the sale of 24 restaurant operations to 14 franchisees . restructuring charges and exit costs were comprised of the following : replace_table_token_15_th 19 severance and other restructuring charges for the year ended december 29 , 2010 included $ 2.3 million related to the departure of the company 's former chief executive officer . impairment charges of $ 4.1 million for the year ended december 28 , 2011 resulted primarily from the impairment of assets of three underperforming units and two units identified as assets held for sale . impairment charges for the year ended december 29 , 2010 generally related to underperforming or closed restaurants as well as restaurants and real estate identified as held for sale during the period .
| cash flows used in financing activities were $ 67.1 million for the year ended december 30 , 2011 , which included long-term debt payments of $ 46.3 million , stock repurchases of $ 21.6 million , and deferred financing costs of $ 3.4 million , partially offset by proceeds from stock option exercises of $ 4.9 million . our working capital deficit was $ 25.9 million at december 28 , 2011 compared with $ 27.8 million at december 29 , 2010. we are able to operate with a substantial working capital deficit because ( 1 ) restaurant operations and most food service operations are conducted primarily on a cash ( and cash equivalent ) basis with a low level of accounts receivable , ( 2 ) rapid turnover allows a limited investment in inventories , and ( 3 ) accounts payable for food , beverages and supplies usually become due after the receipt of cash from the related sales . credit facility during the first quarter of 2011 , we amended our credit facility principally to take advantage of lower interest rates available in the senior secured debt market . additionally , during the first quarter of 2011 , we used the credit facility 's accordion feature , which allows us to increase the size of the facility by up to $ 25 million subject to lender approval , to increase the amount available under the revolver from $ 50 million to $ 60 million . a commitment fee of 0.625 % is paid on the unused portion of the revolving credit facility . interest on the credit facility is payable at per annum rates equal to libor plus 375 basis points with a libor floor of 1.50 % for the term loan and no libor floor for the revolver . the term loan was originally issued at 98.5 % reflecting an original issue discount ( “ oid ” ) of $ 3.8 million . the oid is being amortized into interest expense over the life of the term loan using the effective interest rate
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as of december 31 , 2012 , our video service was available to approximately 524,000 homes in illinois , texas , pennsylvania , california , kansas and missouri 35 markets . as of december 31 , 2012 , approximately 20 % of the homes in the areas we serve subscribe to our video service . data and internet connections continue to increase as a result of enhanced product and service offerings , such as our voip service and data speeds of up to 50 megabits per second , depending on the geographic market availability . the increase in telephone operations revenues during 2012 was offset in part by an anticipated industry wide trend of a decline in access lines and related use of services . many consumers are choosing to subscribe to alternative communications services and competition for these subscribers continues to increase . progressively , consumers are utilizing over-the-top services to download and watch television shows of interest to them on their computers . competition from wireless providers , competitive local exchange carriers and in some cases cable television providers has increased in recent years in the markets we serve . we have been able to mitigate some of the access line losses through marketing initiatives and product offerings , such as our voip service . other operations segment our other operations segment is comprised of non-core business activities including prison services and business systems . prison services , which operates primarily in illinois , provides local and long-distance telephone service and automated calling service to inmates incarcerated at facilities operated by the illinois department of corrections . on june 27 , 2012 , the illinois department of central management services announced its intent to replace us as the provider of those services with a competitor . we have challenged our competitor 's bid and the state 's decision to accept that bid in a variety of different forums . although we will continue to seek legal recourse to the state 's decision , our business plans and projections assume that our contract with the state of illinois will end during 2013. during 2012 , the prison services contract comprised 82 % of the operating revenues in our other operations , 5 % of consolidated operating revenues and approximately 2 % of consolidated operating income , excluding financing and other transaction fees . business systems sells and supports telecommunications equipment to business customers in texas and illinois . consolidated story_separator_special_tag roman '' size= '' 2 '' style= '' font-size:10.0pt ; '' > video , data and internet revenue increased $ 93.7 million during 2012 compared to 2011 primarily as a result of the acquisition of surewest , which accounted for $ 84.9 million of the annual increase . the increase in revenue was also due to the continued growth in data and video connections , which increased 7 % and 9 % , respectively , as of december 31 , 2012. video , data and internet revenue comprised 35 % of our consolidated revenues in 2012 compared to 22 % in 2011. we expect video , data and internet service revenue to continue to grow as the consumer and business demand for data based services continues to increase . other services other services include revenues from telephone directory publishing , wholesale transport services , billing and collection services and inside wiring service and maintenance . other services revenue increased $ 3.1 million during 2012 compared to 2011. the increase in other services revenue was primarily due to the acquisition of surewest and an increase in transport services , which was offset in part by a decline in directory publishing revenues . telephone operations operating expenses cost of services and products cost of services and products increased $ 54.5 million during 2012 compared to 2011 primarily as a result of the addition of the surewest operations of $ 53.0 million as well as higher costs associated with video programming . video programming costs continue to increase due to the growth in video connections and an increase in costs per program channel . during 2012 , the increase in video programming costs was offset in part by a reduction in access costs due to the decline in access lines and usage . selling , general and administrative costs selling , general and administrative costs increased $ 30.9 million during 2012 compared to 2011 primarily as a result of the addition of the operations for surewest , which accounted for $ 30.1 million of the annual increase . the remaining increase in selling , general and administrative costs was due to an increase in insurance costs and stock compensation expense , which were largely offset by a reduction in bad debt expense , utility costs and legal expenses . 39 transaction/debt refinancing costs in connection with the acquisition of surewest , we incurred $ 20.8 million of transaction related fees which were recognized as a financing and other transaction costs during 2012. in 2011 , we amended our credit agreement and incurred fees of $ 2.6 million , which were recognized as a financing cost during 2011. depreciation and amortization depreciation and amortization expense increased $ 32.3 million during 2012 compared to 2011 , primarily as a result of the acquisition of surewest . excluding the addition of the operations for surewest , which accounted for $ 36.4 million of the current year increase , depreciation and amortization expense decreased $ 4.1 million in 2012 as a result of circuit equipment and other assets becoming fully depreciated during the year . other operations replace_table_token_10_th other operations revenue other operations revenue decreased $ 0.3 million during 2012 compared to 2011. declines in revenue from our equipment system sales and installation business were offset slightly by an in increase in our prison systems business in the current year . other operations operating expenses operating expenses for other operations increased $ 2.5 million in 2012 compared to 2011. as discussed in the overview section above , our contract as service provider to the illinois department of corrections was not renewed . story_separator_special_tag although we will continue to seek legal recourse to the state 's decision , our business plans and projections assume that our contract with the state of illinois will end during 2013. as a result , in 2012 as part of our annual impairment test , we recognized an impairment charge of $ 2.9 million on our goodwill and tradenames associated with the other operations reporting units . non-operating items other income and expense , net interest expense , net of interest income , increased $ 23.2 million during 2012 compared to 2011. in february 2012 , we entered into a temporary $ 350.0 million senior unsecured bridge loan facility ( bridge facility ) to fund the surewest acquisition . during 2012 we incurred $ 4.2 million of amortization related to the financing costs and $ 1.5 million of interest related to ticking fees associated with the bridge facility . in may 2012 , we finalized the financing for the surewest acquisition and entered into a senior note offering ( senior notes ) , effectively replacing our bridge facility . interest expense in 2012 included $ 19.2 million of interest expense related to the senior notes . in december 2012 , we entered into a second amendment and incremental facility agreement ( the second amendment ) to amend our term loan facility . under the terms of the second amendment , we issued incremental term loans in the aggregate amount of $ 515.0 million and used the proceeds in part to pay off the outstanding term loan debt that was due to mature december 31 , 2014. as a result , we incurred a loss on the extinguishment of debt of $ 4.5 million related to the repayment of our outstanding term loan . investment income increased by $ 2.8 million during 2012 compared to 2011 primarily due to higher earnings from our wireless partnership interests . 40 income taxes income taxes decreased $ 13.4 million in 2012 compared to 2011. our effective rate was 18.9 % for 2012 compared to 35.5 % for 2011. the acquisition of surewest on july 2 , 2012 resulted in changes to our unitary state filings and correspondingly our state deferred income taxes . these changes resulted in a net decrease of $ 1.1 million to our net state deferred tax liabilities and a corresponding decrease to our state tax . in addition , we incurred non-deductible transaction costs in relation to the acquisition that resulted in an increase to our tax provision of $ 0.8 million . 2011 versus 2010 segment results of operations telephone operations replace_table_token_11_th telephone operations operating revenue local calling services local calling services revenue decreased $ 6.8 million in 2011 compared to 2010 primarily due to a 4 % decline in local access lines . the number of local access lines in service directly affects the recurring revenue we generate from end users and continues to be impacted by the industry-wide decline in access lines . we expect to continue to experience modest erosion in access lines due to market forces and through our own competing voip product . network access services network access services revenue decreased $ 1.2 million in 2011 compared to 2010 primarily due to a decline in switched access minutes of use as a result of the decline in access lines . these decreases were partially offset by higher special access revenue . subsidies subsidy revenues decreased $ 3.3 million in 2011 compared to 2010 primarily as a result of a reduction in the amount of federal interstate high cost fund support we received , and to a lesser extent , a decrease in federal interstate common line revenue . long-distance services long-distance services revenue decreased $ 2.1 million in 2011 compared to 2010 primarily due to the decline in access lines as described above and the shift in customers moving to unlimited long-distance plans . video , data and internet services video , data and internet revenue increased $ 6.9 million in 2011 compared to 2010. the increase in revenue was due to the continued growth in data and video connections , which increased 7 % and 18 % , respectively , as of december 31 , 2011 compared to 2010 . 41 other services other services revenue decreased $ 0.5 million during 2011 compared to 2010. the decrease in other services revenue was primarily due to a decline in directory publishing revenues , which was offset in part by an increase in transport services . telephone operations operating expenses cost of services and products cost of services and products decreased $ 2.1 million during 2011 compared to 2010 as higher costs associated with video programming were offset by declines in network access costs , pension expense and labor costs due to a reduction in headcount . selling , general and administrative costs selling , general and administrative costs decreased $ 5.0 million during 2011 compared to 2010 primarily due to a decrease in employee labor and benefit expenses . in 2011 , we completed a reorganization that resulted in a reduction in headcount and cost reductions gained through the implementation of operational efficiencies . the decrease in selling , general and administrative costs was also due to lower pension and bad debt expenses as well as a decrease in rent expense due the renegotiated terms on our leases . debt refinancing costs in 2011 , we amended our credit agreement and incurred fees of $ 2.6 million , which were recognized as a financing cost during 2011. depreciation and amortization depreciation and amortization expense increased $ 1.6 million during 2011 compared to 2010 primarily due to an increase in lease expense related to our buildings . other operations replace_table_token_12_th other operations operating revenue other operations revenue decreased $ 2.1 million in 2011 compared to 2010. in 2010 , we sold our cmr and operator services business units , which accounted for $ 4.9 of the annual decline in revenues .
| the surewest operations accounted for $ 133.1 million of the annual increase in operating revenues . the acquisition of surewest provides additional diversification of the company 's revenues and cash flows both geographically and by service type . excluding the addition of the operations for surewest , consolidated operating revenues decreased $ 3.9 million during 2012. revenues related to our traditional wireline telephone business decreased due to the continued decline in access lines , but were partially offset by an increase in video , data and internet revenue as we continue to grow our broadband services . the surewest operations accounted for 296,459 of the total connections at december 31 , 2012. our operating revenues are also impacted by legislative or regulatory changes at the federal and state levels , which could reduce or eliminate the current subsidies revenue we receive . a number of proceedings and recent orders relate to universal service reform , intercarrier compensation and network access charges . there are various ongoing legal challenges to the orders that have been issued . as a result , it is not yet possible to determine fully the impact of the regulatory changes on our operations . operating expenses increased $ 138.4 million due to the acquisition of surewest and the transaction costs directly related to the acquisition as described above . during 2012 , the surewest operations accounted for $ 119.5 million of the year-to-date increases in operating expenses and transaction costs increased $ 18.2 million . 37 operating revenues and expenses by segment are discussed below . reclassifications certain amounts in our 2011 and 2010 consolidated financial statements have been reclassified to conform to the presentation of our 2012 consolidated financial statements . these reclassifications had no effect on total shareholders ' equity , total revenue , income from operations or net income . during 2012 , inventories and the related activity were reclassified from current assets to property , plant and equipment on the consolidated balance sheets and
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interest expense interest expense decreased by $ 0.6 million during fiscal year 2017 primarily due to reduced commitment fee amortization resulting from the senior term note modification and the revolving credit facility amendment in fiscal year 2016. interest expense decreased by $ 0.9 million during fiscal year 2016 primarily due to the lapping of prior year interest for the $ 172.5 million convertible senior notes settled in july 2014. interest expense decreased by $ 12.1 million during fiscal year 2015 primarily due to the settlement of the $ 172.5 million convertible senior notes in july 2014 , partly offset by interest on the $ 120.0 million senior term notes issued in november 2013. interest income and other , net interest income and other , net decreased $ 1.1 million during fiscal year 2017 primarily due to prior year gains on re-franchised salon assets sold , lower foreign currency gains and lapping a prior year insurance recovery . interest income and other , net increased $ 2.5 million during fiscal year 2016 primarily due to lapping a prior year foreign currency loss and an insurance recovery . interest income and other , net was flat during fiscal year 2015 compared to the prior year period . income taxes during fiscal year 2017 , the company recognized income tax expense of $ 9.2 million on $ 6.8 million of loss from continuing operations before income taxes and equity in loss of affiliated companies . the recorded tax expense for fiscal year 2017 is different than would normally be expected primarily due to the impact of the valuation allowance against the majority of our deferred tax assets . approximately $ 7.7 million of the tax expense relates to non-cash tax expense for tax benefits on certain indefinite-lived assets that the company can not recognize for reporting purposes . this non-cash tax expense will continue as long as we have a valuation allowance in place . during fiscal year 2016 , the company recognized income tax expense of $ 9.0 million on $ 12.5 million of income from continuing operations before income taxes and equity in loss of affiliated companies . the recorded tax expense for fiscal year 2016 is different than would normally be expected primarily due to the impact of the valuation allowance against the majority of our deferred tax assets . approximately $ 7.9 million of the tax expense relates to non-cash tax expense for tax benefits on certain indefinite-lived assets that the company can not recognize for reporting purposes . this non-cash tax expense will continue as long as we have a valuation allowance in place . 30 during fiscal year 2015 , the company recognized income tax expense of $ 14.6 million on $ 5.0 million of loss from continuing operations before income taxes and equity in loss of affiliated companies . the recorded tax expense for fiscal year 2015 is different than would be expected primarily due to the establishment of a $ 2.1 million valuation allowance against the majority of the canadian deferred tax assets and $ 8.9 million non-cash tax expense relating to tax benefits on certain indefinite-lived assets that the company can not recognize for reporting purposes . the company is currently paying taxes in canada and certain states in which it has profitable entities . equity in loss of affiliated companies , net of income taxes the loss in affiliated companies , net of income taxes , was $ 0.1 million for fiscal year 2017. the loss in affiliated companies , net of income taxes , of $ 14.8 million for fiscal year 2016 was due to the company recording a $ 13.0 million other than temporary non-cash impairment charge and eeg 's net loss of $ 1.8 million . see note 4 to the consolidated financial statements . the loss in affiliated companies , net of income taxes , of $ 13.6 million for fiscal year 2015 was primarily due to the company recording its portion of eeg 's non-cash deferred tax asset valuation allowance ( $ 6.9 million ) and eeg 's net loss ( $ 2.0 million ) , plus other than temporary non-cash impairment charges ( $ 4.7 million ) . see note 4 to the consolidated financial statements . ( loss ) income from discontinued operations , net of income taxes during fiscal year 2015 , the company recognized $ 0.6 million of legal expenses associated with the trade secret salon concept . see note 1 to the consolidated financial statements . results of operations by segment based on our internal management structure , we report four segments : north american value , north american franchise , north american premium and international salons . see note 13 to the consolidated financial statements . significant results of operations are discussed below with respect to each of these segments . north american value salons replace_table_token_14_th north american value salon revenues decreases in north american value salon revenues were driven by the following : replace_table_token_15_th north american value salon revenues decreased $ 36.0 million in fiscal year 2017 primarily due to the closure of 276 salons , the sale of 94 company-owned salons ( net of buybacks ) to franchisees and the 0.8 % decrease in same-store sales . the same-store sales decrease was due to a 4.8 % decrease in same-store guest visits , partly offset by a 4.0 % increase in average ticket price . partly offsetting the decrease was revenue growth from construction ( net of relocations ) of 39 salons during fiscal year 2017 . 31 north american value salon revenues decreased $ 12.6 million in fiscal year 2016 primarily due to the closure of 137 salons and the sale of 58 company-owned salons ( net of buybacks ) to franchisees . story_separator_special_tag partly offsetting the decrease was the same-store sales increase of 1.3 % and revenue growth from construction ( net of relocations ) of 57 salons during fiscal year 2016. the same-store sales increase was due to a 3.8 % increase in average ticket price , partly offset by a 2.5 % decrease in same-store guest visits . north american value salon revenues decreased $ 30.5 million in fiscal year 2015 primarily due to the closure of 192 salons and the sale of 77 company-owned salons ( net of buybacks ) to franchisees . partly offsetting the decrease was revenue growth from construction ( net of relocations ) of 76 salons during fiscal year 2015 and the same-store sales increase of 0.3 % . the same-store sales increase was due to a 1.8 % increase in average ticket price , partly offset by a 1.5 % decrease in same-store guest visits . north american value salon operating income north american value salon operating income decreased $ 12.6 million during fiscal year 2017 primarily due to minimum wage increases , unfavorable stylist productivity , same-store sales declines and a one-time inventory expense related to salon tools , partly offset by the closure of underperforming salons . north american value salon operating income increased $ 3.9 million during fiscal year 2016 primarily due to the closure of underperforming salons , same-store sales increases , cost savings associated with salon telecom and utilities costs and reduced marketing expenses , partly offset by minimum wage increases and unfavorable stylist productivity . north american value salon operating income increased $ 3.9 million during fiscal year 2015 primarily due to the closure of underperforming salons , lower self-insurance costs , reduced fixed asset impairment charges , reduced marketing expenses , same-store sales increases and a sales and use tax refund , partly offset by minimum wage increases . north american franchise salons replace_table_token_16_th north american franchise salon revenues north american franchise salon revenues decreased $ 0.4 million during fiscal year 2017 due to a $ 0.9 million decrease in franchise product sales , partly offset by a $ 0.5 million increase in royalties and fees . the increase in royalties and fees was primarily due to mix of franchisees opening salons in fiscal year 2017 , which shifted to existing franchisees , who pay lower fees for opening additional salons and lapping franchise termination revenue , mostly offset by higher royalties . during fiscal year 2017 , franchisees constructed ( net of relocations ) and closed 138 and 93 franchise-owned salons , respectively , during fiscal year 2017 and purchased ( net of company buybacks ) 92 salons from the company during the same period . north american franchise salon revenues increased $ 4.5 million during fiscal year 2016 due to a $ 1.7 million increase in franchise product sales and a $ 2.9 million increase in royalties and fees . both of these increases are due to increased franchised locations as during fiscal year 2016 , franchisees constructed ( net of relocations ) and closed 170 and 56 franchise-owned salons , respectively , and purchased ( net of company buybacks ) 58 salons from the company during the same period . in addition , the higher royalties are due to positive same-store sales by the franchisees . north american franchise salon revenues increased $ 3.8 million during fiscal year 2015 due to a $ 0.1 million increase in franchise product sales and a $ 3.8 million increase in royalties and fees . the increase in royalties is due to an increase in franchised locations and positive same-store sales by the franchisees during the fiscal year 2015. franchisees constructed ( net of relocations ) and closed 140 and 72 franchise-owned salons , respectively , during fiscal year 2015 and purchased ( net of company buybacks ) 77 salons from the company during the same period . the higher franchise fees are also due to the increase in franchised locations . 32 north american franchise salon operating income north american franchise salon operating income increased $ 0.3 million during fiscal year 2017 primarily due to the lower bad debt expense and higher margins on product sales due to mix , partly offset by higher incentive costs . north american franchise salon operating income increased $ 3.5 million during fiscal year 2016 primarily due to the increased number of franchised locations and same-store sales increases at franchised locations . north american franchise salon operating income increased $ 0.9 million during fiscal year 2015 primarily due to the increased number of franchised locations and same-store sales increases at franchised locations . north american franchise cash generated from re-franchised salons during fiscal year 2017 , 2016 and 2015 , north american franchise salons generated $ 2.3 , $ 1.7 and $ 3.0 million , respectively , of cash from re-franchising salons ( the sale of company-owned salons to franchisees ) . north american premium salons replace_table_token_17_th north american premium salon revenues decreases in north american premium salon revenues were driven by the following : replace_table_token_18_th north american premium revenues decreased $ 41.9 million during fiscal year 2017 primarily due to the closure of 135 salons and the same-store sales decrease of 5.9 % . the same-store sales decrease was due to a 9.6 % decrease in same-store guest visits , partly offset by a 3.7 % increase in average ticket price . north american premium revenues decreased $ 26.2 million during fiscal year 2016 primarily due to the closure of 67 salons and the same-store sales decrease of 3.8 % . the same-store sales decrease of 3.8 % was due to a 6.5 % decrease in same-store guest visits , partly offset by a 2.7 % increase in average ticket price . north american premium revenues decreased $ 24.3 million during fiscal year 2015 primarily due to the closure of 55 salons and the same-store sales decrease of 3.0 % . the same-store sales decrease was due to a 5.2 % decrease in same-store guest visits , partly offset by a 2.2 % increase in average ticket price .
| decreases in consolidated revenues were driven by the following : replace_table_token_12_th 27 same-store sales by concept by fiscal year are detailed in the table below : replace_table_token_13_th the same-store sales decrease of 1.8 % during fiscal year 2017 was due to a 5.2 % decrease in same-store guest visits , partly offset by a 3.4 % increase in average ticket price . we closed 554 salons ( including 93 franchised salons ) , constructed ( net of relocations ) 41 company-owned salons and acquired one company-owned salon via franchise buyback during fiscal year 2017 ( 2017 net salon count changes ) . the same-store sales increase of 0.2 % during fiscal year 2016 was due to a 3.1 % increase in average ticket price , partly offset by a 2.9 % decrease in same-store guest visits . we closed 297 salons ( including 56 franchised salons ) , constructed ( net of relocations ) 66 company-owned salons and acquired one company-owned salon via franchise buyback during fiscal year 2016 ( 2016 net salon count changes ) . the same-store sales decrease of 0.3 % during fiscal year 2015 was due to a 1.9 % decrease in same-store guest visits , partly offset by a 1.6 % increase in average ticket price . we closed 338 salons ( including 72 franchised salons ) , constructed ( net of relocations ) 91 company-owned salons and did not acquire any company-owned locations during fiscal year 2015 ( 2015 net salon count changes ) . consolidated revenues are primarily comprised of service and product revenues , as well as franchise royalties and fees . fluctuations in these three major revenue categories , operating expenses and other income and expense were as follows : service revenues the $ 75.9 million decrease in service revenues during fiscal year 2017 was primarily due to the 1.4 % decrease in same-store service sales , the 2017 net salon count changes and foreign currency fluctuations . the decrease in same-store service sales was primarily a result of a 4.9 % decrease in same-store guest visits , partly offset
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by actively participating in state-level contracted healthcare programs , we will continue to expand our key account business and build a higher level of contact and relationships with the government and other healthcare industrial insiders . we plan to expand our product portfolio through continued investment in research and development and pursuing attractive opportunities to acquire complementary products and technologies . we will establish an efficient and innovative sleep diagnostic system by developing advanced technologies , continuously strong efforts in research and development of proprietaries and will broaden the market by seeking cooperation with first-class sleep centers in nationwide . we will continue developing sleep respiratory and oxygen therapy business domestically . we will launch a series of product combinations to address the each specific market of oxygen therapy , including emergency treatment , disaster relief and homecare oxygen therapy services . we will continue to expand into overseas markets and establish a distribution network , through distribution agreements , oem partnerships and direct sales force efforts . we will build our brand name by actively participating in international trade shows and other marketing activities . to the extent we have adequate demand for our sleep respiratory and oxygen therapy products abroad , we will continue seeking regulatory approval to sell these products in the united states and europe . results of operations overview for the years ended december 31 , 2012 and 2011 , our total revenues amounted to approximately $ 21.37 million and $ 21.64 million , respectively . our revenues are subject to value added tax ( “ vat ” ) , sales returns and trade discounts . we deduct these amounts from our gross revenues to arrive at our total revenues . our net income attributable to dehaier for the years ended december 31 , 2012 and 2011 was approximately $ 3.21 million and $ 3.10 million , respectively . although revenue decreased slightly , net income attributable to dehaier increased slightly , mainly due to the company 's operating strategy changes that reduced expenses . while we continuously developed our sales channels on traditional medical devices sales , we have also been adjusting our strategy to expand into government procurement projects and the burgeoning respiratory and oxygen homecare market . 16 factors affecting our results of operations – generally we believe the most significant factors that directly or indirectly affect our sales revenues and net income are : the level of acceptance of our products among hospitals and other healthcare facilities ; our ability to price our products at levels that provide favorable margins ; new products introduced by us and our competitors ; our ability to attract and retain distributors and key customers ; our continued investment in research and development activities and our retention of key employees ; changes in china 's macro-economic environment and healthcare-related government policies and legislation ; and global economic conditions . revenues our total revenues are derived from our medical devices and our respiratory and oxygen homecare products and services . in 2012 , our revenues decreased slightly as we saw a weakening in our traditional medical sales due to increased competition in our market . while we have been successful in growing our higher-margin sales in 2012 , we believe that we are still at an early stage in this market and have not yet overcome the traditional market decrease . medical devices ( including related supporting products ) – our proprietary and distributed products we derive revenues in our medical devices product line from the sale of c-arm x-ray systems , anesthesia machines , medical ventilators , general hospital products and related supporting products ( previously defined as technical service products ) . our medical device line is our largest product line and has the most extensive market penetration . we anticipate that we will continue to experience revenue growth in our medical devices line as we further develop our market through the introduction of new advanced product offerings and the participation in favorable government programs . in addition , we have begun to engage in state-level healthcare projects recently . we may procure high-end medical equipment for our clients , which may not necessarily be part of our existing distributed brands portfolio . we refer to these kinds of contracted projects as “ key account business. ” although this business may carry lower margins , the contract value for such business is typically larger and can contribute materially to our revenues . sleep respiratory and oxygen therapy products we derive revenues in our sleep respiratory and oxygen therapy line from sales of oxygen concentrators , cpap devices , and portable sleep diagnostics devices . we anticipate that , on a percentage basis , revenues from sleep respiratory and oxygen therapy product line will increase more rapidly than total revenues in the near term , as we introduce new and more advanced products . we expect to develop our market for sleep respiratory and oxygen therapy market in china and internationally through the use of distributors as well as through our direct sales platform . in addition , we launched the new effective oxygen supplement system in 2012. this system is able to satisfy more demands from a much more detailed and specific market . while we strongly believe in the tremendous growth potential of sleep respiratory and oxygen therapy business in coming years , we are still in the early stage of this business . in 2013 , management will be focusing on laying solid foundation , such as introducing more advanced products and penetrating the market , for sleep respiratory and oxygen therapy business , rather than generating considerable revenue from this business . operating costs and expenses our operating costs and expenses consist of cost of revenues , general and administrative expenses , selling expenses and other expenses . story_separator_special_tag our total operating costs and expenses slightly decreased both as a percentage of our total revenues and in absolute amount for the year ended december 31 , 2012 compared to the same period in 2011 , primarily due to the decrease in spending in the homecare and oxygen therapy clients and international market development . further , our research and development investments and efforts in maintaining capital market relationships contributed to our operating expenses . the following table sets forth the components of our costs and expenses both in u.s. dollar amounts ( in thousands ) and as a percentage of total revenues for the years indicated . 17 replace_table_token_1_th cost of revenues cost of revenues primarily includes finished goods , parts for assembly , wages , handling charges , and other expenses associated with the assembly and distribution of product . general and administrative expenses general and administrative expenses consist primarily of salaries and benefits and related costs for our administrative personnel and management , fees and expenses of our outside advisers , including legal , audit and valuation expenses , expenses associated with our administrative offices and the depreciation of equipment used for administrative purposes . we expect that our general and administrative expenses will increase , both on an absolute basis and as a percentage of revenue , as we hire additional personnel and incur costs related to the anticipated growth of our business . in addition , we expect to continue to incur significant general and administrative expenses as a public company . selling expenses selling expenses consist primarily of compensation and benefits for our sales and marketing staff , expenses for promotional , advertising , travel and entertainment activities , lease payments for our sales offices , and depreciation expenses related to equipment used for sales and marketing activities . going forward , we expect our selling expenses to increase , both on an absolute basis and as a percentage of revenue , as we increase our efforts to promote our products , especially our new respiratory and oxygen homecare products . story_separator_special_tag style= '' page-break-before : always ; margin-top : 6pt ; margin-bottom : 12pt '' > liquidity and capital resources cash flows and working capital as of december 31 , 2012 , we had $ 3,505,330 in cash and cash equivalents . as a result of decreased cash flow associated with intellectual property investment , partially offset by increased cash flow from operating activities , net cash decreased from $ 3,694,486 at december 31 , 2011. we believe that our currently available working capital of $ 28,852,500 , including cash , should be adequate to meet our anticipated cash needs and sustain our current operations for at least 12 months . to the extent we engage in acquisitions in the future , we may need to rely on a variety of sources of funding , including but not limited to operating cash , and debt and or equity financing . operating activities net cash provided by operating activities was $ 1,704,876 for the year ended december 31 , 2012 as compared to $ 3,161,752 used in operating activities for the same period in 2011. the reasons for this change are mainly as follows : ( i ) accounts receivable decreased by $ 344,341 in 2012 , compared with an increase of $ 3,797,045 in 2011. the aggregate decrease in accounts receivable from the beginning of 2011 through the end of 2012 of $ 4,141,386 is attributable to better aging management , which reduced accounts receivable amounts . ( ii ) prepayments and other current assets increased by $ 1,730,704 in 2012 , while in 2011 , it increased by $ 1,413,176. the aggregate increase of $ 3,143,880 in prepayments and other current assets from the beginning of 2011 through the end of 2012 is due to the company 's decision to lock in supply costs by prepaying certain amounts in order to avoid increases in raw material prices . ( iii ) other receivables increased by $ 1,617,781 in 2012 , while in 2011 , other receivables decreased by $ 642,287. this increase of $ 2,260,068 in other receivables from the beginning of 2011 through the end of 2012 represents contract and contract bid deposits to participate in large contracts , which typically have a longer turnover than smaller contracts due to increased completion time . ( iv ) inventories decreased by $ 931,844 in 2012 , while in the 2011 , inventories decreased by $ 842,052. the aggregate decrease in inventories of $ 1,773,896 from the beginning of 2011 through the end of 2012 is mainly because the company improved its inventory management by better matching production cycles with customer orders . investing activities net cash used in investing activities for the year ended december 31 , 2012 was $ 2,726,507 , compared to $ 155,419 for the same period of 2011. the cash used in investing activities in each year was mainly attributable to capital expenditures for the purchase of new equipment . the increase in 2012 was mainly because the company completed software copyright registrations for which it had previously invested in research and development . financing activities we received $ 2.4 million in proceeds from a short-term bank loan in 2012 , which was fully paid during the year , as compared to $ 1.5 million in 2011. contractual obligations and commercial commitments the following table sets forth our contractual obligations as of december 31 , 2012 : replace_table_token_2_th the leased properties are principally located in the prc , and we use such properties for administration and warehouse facilities . the leases are renewable subject to negotiation . short-term borrowings represent short-term loans from two banks , which are due in may 2013 and march 2014 . 20 capital expenditures we made capital expenditures of approximately $ 2.73 million and $ 0.15 million in 2012 and 2011 , respectively , representing 12.73 % and 0.69 % of our total revenues , respectively . our capital expenditures were used to purchase machinery for our assembly line and obtain software copyrights .
| operating expenses our operating expenses decreased by 12.02 % from $ 4.50 million for the fiscal year ended december 31 , 2011 to $ 3.96 million for the fiscal year ended december 31 , 2012. the expenses decreased more than revenues , largely due to our efforts to reduce traveling and marketing expenses by leveraging our increasingly mature distribution network and shifting away from in-person marketing visits when appropriate . we analyzed our operating expenses by general and administrative expenses and selling expenses in the following parts . operating expenses—general and administrative expenses general and administrative expenses consist primarily of salaries and benefits and related costs for our administrative personnel and management , and expenses associated with our research and development , registration of patent and intellectual property rights in china and abroad . our general and administration expenses decreased by 0.82 % from $ 2.62 million for the fiscal year ended december 31 , 2011 to $ 2.60 million for the fiscal year ended december 31 , 2012. this decrease was mainly due to a reduction in r & d expenses . we expect that our general and administration expenses will increase in the near future as a result of business expansion .. operating expenses—selling expense our selling expenses decreased by 27.66 % from $ 1.88 million for the fiscal year ended december 31 , 2011 to $ 1.36 million for the fiscal year ended december 31 , 2012. these selling expense decreases are a result of operating efficiency improvements related to more focused marketing efforts that reduced travel expenses when appropriate . we expect our selling expenses will grow as we invest in strengthening our distribution network , growing relationships with our customers , developing the homecare device market ( in particular our oxygen therapy service initiative ) and driving top-line growth in these areas . operating income as a result of the foregoing , we generated an operating income of approximately $ 4.39 million in 2012 , compared to approximately $ 3.61 million in 2011. operating income increased by 21.46 % largely due to the decrease in selling expenses . taxation our income tax expense was approximately $ 0.86 million
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average realized crude oil selling prices including the impact of hedging were $ 98.48 per barrel in 2013 , $ 86.94 in 2012 and $ 89.99 in 2011. average realized natural gas selling prices were $ 6.64 per mcf in 2013 , $ 6.16 in 2012 and $ 5.96 in 2011. production averaged 336,000 boepd in 2013 , 406,000 boepd in 2012 and 370,000 boepd in 2011. excluding production from assets sold and classified as held for sale , pro forma production was 285,000 boepd in 2013 and 289,000 boepd in 2012. the corporation expects compound average annual production growth of 5 % to 8 % through 2017 , from 2012 pro forma production . the corporation currently expects total worldwide production to average between 305,000 boepd and 315,000 boepd in 2014 , excluding asset sales and any contribution from libya , which has a net 21 production capacity of approximately 25,000 boepd and is shut-in due to civil unrest in the country . pro forma production excluding libya was 270,000 boepd in 2013 and 268,000 boepd in 2012. the following is an update of significant e & p activities during 2013 : in north dakota , net production from the bakken oil shale play averaged 67,000 boepd during 2013 , an increase of 20 % from 56,000 boepd in 2012 despite the transition to pad drilling in the first half of the year and the required shut-ins late in the fourth quarter of 2013 for the expansion of the tioga gas plant which is expected to be operational in the first quarter of 2014. production is expected to average between 80,000 boepd and 90,000 boepd in 2014 , an increase of 19 % to 34 % from 2013. the corporation also increased its peak net production guidance for the bakken to 150,000 boepd in 2018 from prior guidance of 120,000 boepd in 2016 , based upon performance to date and current development spacing based on five middle bakken wells and four three forks wells per 1,280 acre drilling spacing unit ( dsu ) . during 2014 , the corporation plans to pilot test tighter well spacing to determine whether there is additional upside in the estimates for future production and resources . during the year , 168 wells were brought on production bringing the total operated production wells to 722 . in 2014 , the corporation plans to increase the rig count in the bakken to 17 from 14 but expects to maintain capital spending at approximately $ 2.2 billion , which is consistent with 2013 levels . at the valhall field in norway ( hess 64 % ) , net production averaged 23,000 boepd during 2013 , compared with 13,000 boepd during 2012. the field was shut-in during the second half of 2012 and january 2013 to complete a multiyear redevelopment project . full year 2014 net production for valhall is expected to be in the range of 30,000 boepd to 35,000 boepd . in the north malay basin , the project achieved first production from the early production system in october 2013 and net production averaged approximately 30 million cubic feet per day in the fourth quarter . the corporation expects net production to average approximately 40 million cubic feet per day through 2016 until full field development is completed in late 2016. net production is expected to increase to approximately 165 million cubic feet per day in 2017. in december 2013 , the corporation commenced production from its phase three development program at the south arne field ( hess 62 % ) offshore denmark , following the installation of two new wellhead platforms and modifications to existing production facilities . development drilling will continue in 2014. at block a-18 of the joint development area of malaysia/thailand ( jda ) , the corporation successfully installed two new wellhead platforms and progressed a major booster compression project that is expected to be completed in 2015. in the utica shale , 29 wells were drilled , 24 wells were completed and 17 wells were tested across both the corporation 's 100 % owned and joint venture acreage . production test rates in the wet gas area averaged over 2,200 boepd with 47 % liquids . in libya , production from the waha fields was shut-in late august of 2013 and remains shut-in due to civil unrest in the country . for the full year 2013 , libya production averaged 15,000 boepd . in addition , the corporation wrote-off in the fourth quarter two previously capitalized exploration wells in offshore area 54 which resulted in a pre-tax charge of $ 260 million ( $ 163 million after income taxes ) . during the year , the corporation completed drilling its second and third production wells at the tubular bells field , offshore u.s. , and commenced a batch completion program during the fourth quarter of 2013 for the three wells drilled to date . facilities construction is ongoing with offshore installation expected to commence in the first quarter and first oil in the third quarter of 2014 at a net rate of 25,000 boepd . the corporation completed its exploration drilling phase on the deepwater tano cape three points block , offshore ghana that resulted in a total of seven successful exploration wells . the corporation submitted appraisal plans to the ghanaian government and four appraisal areas have been approved to date . story_separator_special_tag a three well appraisal drilling program has been scheduled in the second half of 2014. in the third quarter , the corporation spud its first exploration well on the shakrok block in the kurdistan region of iraq ( hess 80 % ) and plans to begin drilling an exploration well on the dinarta block in the first half of 2014. during 2013 , the e & p segment sold its assets in azerbaijan and russia as well as its interests in the natuna a field , offshore indonesia , the beryl fields in the uk north sea and certain interests onshore in the u.s. , for total proceeds of approximately $ 4.5 billion . asset sales reduced production by approximately 60,000 boepd in 2013 compared to 2012. in january 2014 , the corporation announced it had reached agreement to sell approximately 74,000 acres of its 100 % interest in the utica shale for $ 924 million . approximately two-thirds of these proceeds are expected at the end of the first quarter of 2014 , with the balance to be received in the third quarter of 2014 . 22 downstream businesses the downstream businesses reported income of $ 1,189 million in 2013 and $ 231 million in 2012 and a loss of $ 584 million in 2011. excluding items affecting comparability of earnings between periods on page 31 , the downstream businesses generated income of $ 116 million in 2013 and $ 160 million in 2012 and a loss of $ 59 million in 2011. the downstream businesses comprise the corporation 's retail , energy marketing , terminal , energy trading and refining operations , together with its interests in two power plant joint ventures . by year-end all of these businesses were either divested by the corporation or the divestiture processes remained on-going . liquidity and capital and exploratory expenditures net cash provided by operating activities was $ 4,870 million in 2013 , $ 5,660 million in 2012 and $ 4,984 million in 2011. at december 31 , 2013 , cash and cash equivalents totaled $ 1,814 million , up from $ 642 million at december 31 , 2012. total debt was $ 5,798 million at december 31 , 2013 and $ 8,111 million at december 31 , 2012. the corporation 's debt to capitalization ratio at december 31 , 2013 was 19.0 % compared with 27.7 % at the end of 2012. capital and exploratory expenditures were as follows : replace_table_token_15_th * includes capital expenditures related to discontinued operations of $ 33 million , $ 52 million and $ 65 million in 2013 , 2012 and 2011 , respectively . the corporation anticipates investing approximately $ 5.8 billion in e & p capital and exploratory expenditures in 2014 and approximately $ 350 million for retail marketing , primarily for the acquisition of its partner 's share of the wilcohess joint venture which closed in january 2014. story_separator_special_tag bittern and schiehallion fields in the uk north sea , which were sold in the second half of 2012 , were producing at an aggregate net rate of approximately 12,000 boepd at the time of sale . the beryl fields , also in the uk north sea , which were producing at an aggregate net rate of approximately 10,000 boepd at the time of sale , were sold in the first quarter of 2013 , and the corporation 's russian subsidiary , which was producing approximately 50,000 boepd at the time of sale , was sold in april 2013. crude oil production in 2012 was lower than 2011 , primarily due to the downtime at the valhall field in 26 norway , during the second half of 2012. natural gas production was lower in 2012 compared with 2011 , primarily due to the sale of the snohvit field , offshore norway , in january 2012 , downtime at the valhall field and natural decline at the beryl fields in the uk north sea . africa : crude oil production in africa was lower in 2013 compared to 2012 , primarily due to the shutdown of the es sider terminal in libya in the third quarter of 2013 , following civil unrest in the country . in addition , offshore equatorial guinea production was lower due to decline at the okume complex , partially offset by new production from the ceiba field . crude oil production increased in 2012 compared with 2011 mainly due to the resumption of production in libya , partly offset by lower production in equatorial guinea due to downtime and natural field decline . asia and other : crude oil production was lower in 2013 compared to 2012 , mainly due to the sale in march 2013 of the corporation 's interest in the azeri-chirag-guneshli ( acg ) fields in azerbaijan . the assets were producing at a net rate of approximately 6,000 boepd at the time of sale . natural gas production was lower in 2013 compared to 2012 , mainly due to lower production entitlement at the joint development area of malaysia/thailand ( jda ) together with lower production at the pangkah field in indonesia following the facility 's shutdown for planned maintenance in the second quarter of 2013. natural gas production in 2012 was higher than 2011 , primarily due to new wells at the pangkah field in indonesia and a full year 's contribution from the gajah baru complex at the natuna a field in indonesia , which commenced production in the fourth quarter of 2011. sales volumes : the corporation 's worldwide sales volumes were as follows : replace_table_token_21_th * reflects natural gas production converted on the basis of relative energy content ( six mcf equals one barrel ) . barrel of oil equivalence does not necessarily result in price equivalence as the equivalent price of natural gas on a barrel of oil equivalent basis has been substantially lower than the corresponding price for crude oil over the recent past .
| 24 the corporation 's average selling prices were as follows : replace_table_token_19_th crude oil price hedging contracts increased e & p sales and other operating revenues by $ 39 million ( $ 25 million after income taxes ) in 2013 , and reduced e & p sales and other operating revenues by $ 688 million ( $ 431 million after income taxes ) in 2012 and $ 517 million ( $ 327 million after income taxes ) in 2011. during 2013 , the corporation had brent crude oil fixed-price swap contracts to hedge 90,000 barrels of oil per day ( bopd ) of crude oil sales volumes at an average price of $ 109.70 per barrel . in 2012 , the corporation had brent crude oil fixed-price swap contracts to hedge 120,000 bopd of crude oil sales volumes for the full year at an average price of $ 107.70 per barrel . in 2011 and 2012 , the corporation also realized hedge losses from previously closed brent crude oil hedges that covered 24,000 bopd during the year . the corporation has entered into brent crude oil fixed-price swap contracts to hedge 25,000 bopd for calendar year 2014 at an average price of $ 109.12 per barrel . production volumes : the corporation 's crude oil and natural gas production was 336,000 boepd in 2013 , 406,000 boepd in 2012 and 370,000 boepd in 2011. approximately 72 % in 2013 , 75 % in 2012 and 72 % in 2011 of the corporation 's 25 production was from crude oil and natural gas liquids . the corporation currently expects total worldwide production to average between 305,000 boepd and 315,000 boepd in 2014 , excluding asset sales and any contribution from libya , which has a net production capacity of approximately 25,000 boepd and is shut-in due to civil unrest in the country . the corporation 's net daily worldwide production was as follows : replace_table_token_20_th * reflects natural gas production converted on the basis of relative energy content ( six mcf equals one barrel ) . barrel of oil equivalence does
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we derive revenue from three sources : ( i ) subscription and support fees primarily consist of cloud revenue from customers accessing our enterprise cloud computing services , term license revenue , and maintenance and support revenue ; ( ii ) license fees primarily consist of perpetual software license revenue ; ( iii ) professional services primarily consist of consulting , implementation services and training . revenues are recognized when all of the following criteria are met : persuasive evidence of an arrangement exists : evidence of an arrangement consists of a written contract signed by both the custo mer and management prior to the end of the period . we use signed software license , services agreements and order forms as evidence of an arrangement for sales of software , cloud , maintenance and support . we use a signed statement of work as evidence of arrangement for professional services . delivery or performance has occurred : software is delivered to customers electronically or on a cd- rom , and license files are delivered electronically . delivery is considered to have occurred when we provide the customer access to the software along with login credentials . fees are fixed or determinable : we assess whether the fee is fixed or determinable based on the payment terms associated with the transaction . arrangements where a significant portion of the fee i s due beyond 90 days from delivery are generally not considered to be fixed or determinable . collectibility is probable : we assess collectibility based on a number of factors , including the customer 's past payment history and its current creditworthiness . payment terms generally range from 30 to 90 days from invoice date . if we determine that collection of a fee is not reasonably assured , we defer the revenue and recognize it at the time collection becomes reasonably assured , which is generally upon receipt of cash payment . we apply the provisions of accounting standards codification , or asc , 985-605 , software revenue recognition , to all transactions involving the licensing of software products . in the event of a multiple element arrangement for a license transaction , we evaluate the transaction as if each element represents a separate unit of accounting taking into account all factors following the accounting standards . we apply asc 605 , revenue recognition , for cloud transactions to determine the accounting treatment for multiple elements . we also apply asc 605-35 for fixed fee arrangements in which we use the percentage of completion method to recognize revenue when reliable estimates are available for the costs and efforts necessary to complete the implementation services . when such estimates are not available , the completed contract method is utilized . under the completed contract method , revenue is recognized only when a contract is completed or substantially complete . when licenses are sold together with system implementation and consulting services , license fees are recognized upon shipment , provided that ( i ) payment of the license fees is not dependent upon the performance of the consulting and implementation services , ( ii ) the services are available from other vendors , ( iii ) the services qualify for separate accounting as we have sufficient experience in providing such services , have the ability to estimate cost of providing such services , and we have vendor specific objective evidence , or vsoe , of fair value , and ( iv ) the services are not essential to the functionality of the software . we enter into arrangements with multiple-deliverables that generally include subscription , maintenance and support , and professional services . we evaluate whether each of the elements in these arrangements represents a separate unit of accounting , as defined by asc 605 , using all applicable facts and circumstances , including whether ( i ) we sell or could readily sell the element unaccompanied by the other elements , ( ii ) the element has stand-alone value to the customer , and ( iii ) there is a general right of return . we use vsoe , of fair value for each of those units , when available . for revenue recognition with multiple-deliverable elements , in certain limited circumstances when vsoe of fair value does not exist , we apply the selling price hierarchy , which includes vsoe , third-party evidence of selling price , or tpe , and best estimate of selling price , or besp . we determine the relative selling price for a deliverable based on its vsoe , if available , or its besp , if vsoe is not available . we determined that tpe is not a practical alternative due to differences in its service offerings compared to other parties and the availability of relevant third-party pricing information . 26 we determine besp by considering our overall pricing objectives and market conditions . significant pricing practices taken into consideration include our discounting practices , the size and volume of our transactions , the customer demographic , the geographic area where services are sold , price lists , its go-to-market strategy , historical standalone sales and contract prices . the determination of besp is made through consultation with and approval by our management , taking into consideration the go-to-market strategy . as our go-to-market strategies evolve , we may modify its pricing practices in the future , which could result in changes in relative selling prices , including both vsoe and besp . subscription and support revenue cloud revenue cloud revenue consists of subscription fees from customers accessing our cloud-based service offerings . we recognize cloud revenue ratably over the period of the applicable agreement as services are provided . cloud agreements typically have an initial term of one or two years and automatically renew unless either party cancels the agreement . the majority of the cloud services customers purchase a combination of our cloud service and professional services . in some cases , the customer may also acquire a license for our software . story_separator_special_tag we consider the applicability of asc 985-605 , on a contract-by-contract basis . in cloud-based agreements , where the customer does not have the contractual right to take possession of the software , the revenue is recognized on a monthly basis over the term of the contract . invoiced amounts are recorded in accounts receivable and in deferred revenue or revenue , depending on whether the revenue recognition criteria have been met . we consider a software element to exist when we determine that the customer has the contractual right to take possession of our software at any time during the cloud period without significant penalty and can feasibly run the software on its own hardware or enter into another arrangement with a third party to host the software . additionally , we have established vsoe for the cloud and maintenance and support elements of perpetual license sales , based on the prices charged when sold separately and substantive renewal terms . accordingly , when a software element exists in a cloud services arrangement , license revenue for the perpetual software license element is determined using the residual method and is recognized upon delivery . revenue for the cloud and maintenance and support elements is recognized ratably over the contractual time period . professional services are recognized as described below under professional services revenue. if vsoe of fair value can not be established for the undelivered elements of an agreement , the entire amount of revenue from the arrangement is recognized ratably over the period that these elements are delivered . term license revenue term license revenue includes arrangements where our customers receive license rights to use our software along with bundled maintenance and support services for the term of the contract . the majority of our contracts provide customers with the right to use one or more products up to a specific license capacity . certain of our license agreements stipulate that customers can exceed pre-determined base capacity levels , in which case additional fees are specified in the license agreement . term license revenue is recognized ratably over the term of the license contract . maintenance and support revenue maintenance and support revenue consists of customers purchasing maintenance and support for our on-premise software . we use vsoe of fair value for maintenance and support to account for the arrangement using the residual method , regardless of any separate prices stated within the contract for each element . maintenance and support revenue is recognized ratably over the term of the maintenance contract , which is typically one year . maintenance and support is renewable by the customer on an annual basis . maintenance and support rates , including subsequent renewal rates , are typically established based upon a specified percentage of net license fees as set forth in the arrangement . license revenue license revenue includes perpetual license rights sold to customers to use our software in conjunction with related maintenance and support services if an acceptance period is required , revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period . in software arrangements that include rights to multiple software products and or services , we use the residual method under which revenue is allocated to the undelivered elements based on vsoe of the fair value of such undelivered elements . the residual amount of revenue is allocated to the delivered elements and recognized as revenue , assuming all other criteria for revenue recognition have been met . such undelivered elements in these arrangements typically consist of software maintenance and support , implementation and consulting services and in some cases cloud services . we periodically sell to resellers . license sales to resellers as a percentage of total revenue were approximately 6 % , 2 % and 5 % in fiscal years 2013 , 2012 and 2011 , respectively . revenue from sales to resellers is generally recognized upon delivery to the reseller 27 dependent on the facts and circumstances of the transaction . these include items such as our understanding of the reseller 's plans to sell the software , existence of return provisions , price protection or other allowances , the reseller 's financial status and our past experience with the reseller . historically sales to resellers have not included any return provisions , price protections or other allowances . professional services revenue included in professional services revenue is revenue derived from system implementation , consulting and training . for license transactions , the majority of our consulting and implementation services qualify for separate accounting . we use vsoe of fair value for the services to account for the arrangement using the residual method , regardless of any separate prices stated within the contract for each element . our consulting and implementation service contracts are bid either on a fixed-fee basis or on a time-and-materials basis . substantially all of our contracts are on a time-and-materials basis . for time-and-materials contracts , where the services are not essential to the functionality , we recognize revenue as services are performed . if the services are essential to functionality , then both the product license revenue and the service revenue are recognized under the percentage of completion method . for a fixed-fee contract , we recognize revenue based upon the costs and efforts to complete the services in accordance with the percentage of completion method , provided we are able to estimate such cost and efforts . we recognize the services revenue ratably over the estimated life of the customer cloud relationship once cloud services have gone live or are system ready for cloud , consulting , and implementation services that do not qualify for separate accounting . we currently estimate the life of the customer cloud relationship to be approximately 28 months , based on the average life of all cloud customer relationships . training revenue that meets the criteria to be accounted for separately is recognized when training is provided .
| the value of new cloud transactions , as a percentage of combined new cloud , new license , and maintenance and support business , was approximately 60 % and 55 % for the fiscal years 2013 and 2012 , respectively . for license transactions , the license revenue amount is generally recognized in the quarter that delivery and acceptance of our software takes place . for cloud transactions , cloud revenue is recognized ratably over the term of the cloud contract , which is typically one to two years . as a result , our total revenue may increase or decrease in future quarters as a result of the timing and mix of license and cloud transactions , but we anticipate total revenue to increase in fiscal year 2014. subscription and support revenue replace_table_token_5_th 30 subscription and support revenue includes cloud and software maintenance and support revenue . subscription and support revenue was $ 32.3 million , $ 23.6 million , and $ 20.0 million in fiscal years 2013 , 2012 , and 2011 , respectively . this represented an increase of 37 % , or $ 8.7 million , in fiscal year 2013 compared to fiscal year 2012 and an increase of 18 % , or $ 3.6 million , in fiscal year 2012 compared to fiscal year 2011. subscription and support revenue represented 55 % , 54 % , and 46 % of total revenue for the fiscal years 2013 , 2012 and 2011 , respectively . cloud revenue was $ 19.1 million , $ 11.2 million and $ 9.2 million in fiscal years 2013 , 2012 and 2011 , respectively . this represented an increase of 70 % , or $ 7.9 million in fiscal year 2013 compared to fiscal year 2012 and an increase to 21 % , or $ 2.0 million , in fiscal year 2012 compared to fiscal year 2011. the increase in fiscal year 2013 was primarily due to the continued shift from license to our cloud model . the increase in new cloud contracts with current enterprise customers included two new cloud contracts totaling approximately $ 13.1 million that are recognized ratably over the contractual term . the impact from the foreign
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our private loan portfolio investments are primarily debt securities which have been originated through strategic relationships with other investment funds on a collaborative basis , and are often referred to in the debt markets as `` club deals . '' private loan investments are typically similar in size , structure , terms and conditions to investments we hold in our lmm portfolio and middle market portfolio . our private loan portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have a term of between three and seven years from the original investment date . our other portfolio ( `` other portfolio '' ) investments primarily consist of investments which are not consistent with the typical profiles for our lmm , middle market or private loan portfolio investments , including investments which may be managed by third parties . in our other portfolio , we may incur indirect fees and expenses in connection with investments managed by third parties , such as investments in other investment companies or private funds . our external asset management business is conducted through our external investment manager . the external investment manager earns management fees based on the assets of the funds under management and 56 may earn incentive fees , or a carried interest , based on the performance of the funds managed . we have entered into an agreement to provide the external investment manager with asset management service support in connection with its asset management business generally , and specifically for its relationship with hms income fund , inc. ( `` hms income '' ) . through this agreement , we provide management and other services to the external investment manager , as well as access to our employees , infrastructure , business relationships , management expertise and capital raising capabilities . in the first quarter of 2014 , we began charging the external investment manager for these services . our total expenses for the years ended december 31 , 2015 and 2014 are net of expenses charged to the external investment manager of $ 4.3 million and $ 2.0 million , respectively . the total contribution of the external investment manager to our net investment income consists of the combination of the expenses charged to the external investment manager and dividend income from the external investment manager . for the years ended december 31 , 2015 and 2014 , the total contribution to our net investment income was $ 6.5 million and $ 2.5 million , respectively . the following tables provide a summary of our investments in the lmm , middle market and private loan portfolios as of december 31 , 2015 and 2014 ( this information excludes the other portfolio investments and the external investment manager which are discussed further below ) : replace_table_token_9_th ( a ) at december 31 , 2015 , we had equity ownership in approximately 96 % of our lmm portfolio companies , and the average fully diluted equity ownership in those portfolio companies was approximately 36 % . ( b ) the weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of december 31 , 2015 , including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status . weighted-average annual effective yield is higher than what an investor in shares of our common stock will realize on its investment because it does not reflect our expenses or any sales load paid by an investor . ( c ) the average ebitda is calculated using a simple average for the lmm portfolio and a weighted-average for the middle market and private loan portfolios . these calculations exclude certain portfolio companies , including five lmm portfolio companies , three middle market portfolio companies and six private loan portfolio companies , as ebitda is not a meaningful valuation metric for our investments in these portfolio companies , and those portfolio companies whose primary purpose is to own real estate . 57 replace_table_token_10_th ( a ) at december 31 , 2014 , we had equity ownership in approximately 95 % of our lmm portfolio companies , and our average fully diluted equity ownership in those portfolio companies was approximately 35 % . ( b ) the weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of december 31 , 2014 , including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status . weighted-average annual effective yield is higher than what an investor in shares of our common stock will realize on its investment because it does not reflect our expenses or any sales load paid by an investor . ( c ) the average ebitda is calculated using a simple average for the lmm portfolio and a weighted-average for the middle market and private loan portfolios . these calculations exclude certain portfolio companies , including two lmm portfolio companies , one middle market portfolio company and five private loan portfolio companies as ebitda is not a meaningful valuation metric for main street 's investments in these portfolio companies , and those portfolio companies whose primary purpose is to own real estate . as of december 31 , 2015 , we had other portfolio investments in ten companies , collectively totaling approximately $ 74.8 million in fair value and approximately $ 75.2 million in cost basis and which comprised approximately 4.2 % of our investment portfolio ( as defined in `` critical accounting policies basis of presentation '' below ) at fair value . as of december 31 , 2014 , we had other portfolio investments in six companies , collectively totaling approximately $ 58.9 million in fair value and approximately $ 56.2 million in cost basis and which comprised approximately 3.8 % of our investment portfolio at fair value . story_separator_special_tag as previously discussed , the external investment manager is a wholly owned subsidiary that is treated as a portfolio investment . as of december 31 , 2015 , there was no cost basis in this investment and the investment had a fair value of $ 27.3 million , which comprised 1.5 % of our investment portfolio at fair value . as of december 31 , 2014 , there was no cost basis in this investment and the investment had a fair value of $ 15.6 million , which comprised 1.0 % of our investment portfolio at fair value . our portfolio investments are generally made through mscc and the funds . mscc and the funds share the same investment strategies and criteria , although they are subject to different regulatory regimes . an investor 's return in mscc will depend , in part , on the funds ' investment returns as they are wholly owned subsidiaries of mscc . the level of new portfolio investment activity will fluctuate from period to period based upon our view of the current economic fundamentals , our ability to identify new investment opportunities that meet our investment criteria , and our ability to consummate the identified opportunities . the level of new investment activity , and associated interest and fee income , will directly impact future investment income . in addition , the level of dividends paid by portfolio companies and the portion of our portfolio debt investments on non-accrual status will directly impact future investment income . while we intend to grow our portfolio and our investment income over the long term , our growth and our operating results may be more limited during 58 depressed economic periods . however , we intend to appropriately manage our cost structure and liquidity position based on applicable economic conditions and our investment outlook . the level of realized gains or losses and unrealized appreciation or depreciation on our investments will also fluctuate depending upon portfolio activity , economic conditions and the performance of our individual portfolio companies . the changes in realized gains and losses and unrealized appreciation or depreciation could have a material impact on our operating results . because we are internally managed , we do not pay any external investment advisory fees , but instead directly incur the operating costs associated with employing investment and portfolio management professionals . we believe that our internally managed structure provides us with a beneficial operating expense structure when compared to other publicly traded and privately held investment firms which are externally managed , and our internally managed structure allows us the opportunity to leverage our non-interest operating expenses as we grow our investment portfolio . for both of the years ended december 31 , 2015 and 2014 , the ratio of our total operating expenses , excluding interest expense , as a percentage of our quarterly average total assets was 1.4 % . the total investment return on our shares of common stock for the years ended december 31 , 2015 and 2014 was 8.49 % and ( 3.09 % ) , respectively . total investment return is based on the purchase of our stock at the current market price on the first day and a sale at the current market price on the last day of each period reported and assumes reinvestment of dividends at prices obtained by our dividend reinvestment plan during the period . the return does not reflect any sales load that may be paid by an investor . during may 2012 , we entered into an investment sub-advisory agreement with hms adviser , lp ( `` hms adviser '' ) , which is the investment advisor to hms income , a non-publicly traded bdc whose registration statement on form n-2 was declared effective by the sec in june 2012 , to provide certain investment advisory services to hms adviser . in december 2013 , after obtaining required no-action relief from the sec to allow us to own a registered investment adviser , we assigned the sub-advisory agreement to the external investment manager since the fees received from such arrangement could otherwise have negative consequences on our ability to meet the source of income requirement necessary for us to maintain our ric tax treatment . under the investment sub-advisory agreement , the external investment manager is entitled to 50 % of the base management fee and the incentive fees earned by hms adviser under its advisory agreement with hms income . based upon several fee waiver agreements with hms income and hms adviser , the external investment manager did not begin accruing the base management fee and incentive fees , if any , until january 1 , 2014. beginning january 1 , 2015 , the external investment manager conditionally agreed to waive a limited amount of the base management fee and incentive fees otherwise earned during the year ended december 31 , 2015. during the years ended december 31 , 2015 and 2014 , the external investment manager earned $ 7.8 million and $ 2.8 million , respectively , of management fees ( net of fees waived , if any ) under the sub-advisory agreement with hms adviser . during april 2014 , we received an exemptive order from the sec permitting co-investments by us and hms income in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 act . we have made , and in the future intend to continue to make , such co-investments with hms income in accordance with the conditions of the order . the order requires , among other things , that we and the external investment manager consider whether each such investment opportunity is appropriate for hms income and , if it is appropriate , to propose an allocation of the investment opportunity between us and hms income . because the external investment manager may receive performance-based fee compensation from hms income , this may provide it an incentive to allocate opportunities to hms income instead of us .
| the $ 23.8 million increase in total investment income in the year ended december 31 , 2015 includes a decrease of $ 1.7 million primarily related to a decrease in interest income due to lower accelerated prepayment and repricing activity for certain investment portfolio debt investments when compared to the same period in 2014 and a decrease of $ 1.6 million related to dividend income activity from portfolio companies that is considered to be less consistent on a recurring basis during the period when compared to the same period in 2014. expenses for the year ended december 31 , 2015 , total expenses increased to $ 57.5 million from $ 45.2 million for the corresponding period of 2014. this comparable period increase in operating expenses was principally attributable to ( i ) a $ 8.5 million increase in interest expense , primarily due to a $ 7.3 million increase as a result of the issuance of our 4.50 % notes in november 2014 and an increase of $ 0.8 million related to interest on the credit facility due to the higher average balance outstanding in 2015 , both when compared to the prior year , and ( ii ) a $ 2.5 million increase in compensation expense related to increases in the number of personnel , base compensation levels and incentive compensation accruals , ( iii ) a $ 2.0 million increase in share-based compensation expense and ( iv ) a $ 1.5 million increase in general and other administrative expenses , with these increases partially offset by a $ 2.3 million increase in the expenses charged to the external investment manager ( see further discussion in `` overview '' ) , in each case when compared to the prior year . for the years ended december 31 , 2015 and 2014 , the ratio of our total operating expenses , excluding interest expense , as a percentage of our quarterly average total assets was 1.4 % . 66 distributable net investment income for the year ended december 31 , 2015 , distributable net investment income increased 14 % to $ 113.3 million , or $ 2.31 per share , compared with $ 99.8 million , or $ 2.29 per share , in the corresponding period of 2014. the increase in distributable net investment income was primarily due to
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as of february 2021 , the puna power plant that was shut down following the kilauea volcano eruption in may 2018 , has resumed operation and currently is operating at approximately 13 mw . on the field side , the company connected one new production well to the power plant and the company continues its field recovery work , which includes drilling new wells and expects a gradual increase in generation to full capacity by the middle of 2021 , assuming field recovery is successfully achieved . in december 2020 , we announced that we completed the acquisition of a shovel-ready energy storage asset in upton county , texas . we acquired the asset from con edison development . ormat 's wholly owned subsidiary will design , build , own and operate a 25 mw bess project at the site . ormat is targeting commercial operation of the bess before the end of 2021. in december ormat announced several departures and appointments in its executive management team : ◦ zvi krieger announced that he will step down from his role as executive vice president—electricity segment on march 31 , 2021 and will continue to perform certain duties until his june 30 , 2022 retirement date . ◦ shimon hatzir was appointed to the role of executive vice president—electricity segment , effective april 1 , 2021 . ◦ shlomi argas , executive vice president—operations and products of ormat , was appointed to serve as a president of ormat , effective january 1 , 2021. in october and december of 2020 , the company entered into two settlement agreements with the kra in relation to three the noas which were previously issued by the kra , totaling approximately $ 200 million , including interest and penalties . the settlement agreements covered tax years from 2013 through 2019 , included deferral of tax benefits to be utilized in years subsequent to 2019 in an amount of approximately $ 28 million and resulted in a tax payment of approximately $ 29.5 million , including interest and penalties which was made in 2020. this concluded all open audits and noas with the kra . in november 2020 , we announced that we closed a public offering of 4,150,000 shares of our common stock at a price of $ 74.00 per share and fully exercised the underwriters ' option to purchase an additional 622,500 shares of common stock at the same price . we intend to use the net proceeds from the offering for general corporate purposes , including working capital and capital expenditures , and for potential acquisitions , including complementary businesses , technologies or assets . in october 2020 , we announced the signing of two resource adequacy agreements , each for 50 % of our 5 mw / 20 mwh tierra buena battery energy storage project currently under development in sutter county , northern california . the agreements were signed with two community choice aggregators , redwood coast energy authority and valley clean energy . in september 2020 , we announced that enee , our customer for our platanares geothermal power plant in honduras , had paid the $ 20 million overdue payment that was outstanding from prior years . in july 2020 , we completed the acquisition of the pomona energy storage asset in california from alta gas for a total net consideration of $ 43.3 million . the pomona energy storage facility has been in commercial operation since december 31 , 2016 under a 10-year energy storage resource adequacy agreement with southern california edison company . it also participates in the energy and ancillary services markets run by the california independent system operator . in july 2020 , we issued approximately $ 290.0 million of bonds ( the `` bonds '' ) that were issued in new israeli shekels and were converted to u.s. dollars using a cross-currency swap transaction ( the “ swap ” ) at an effective fixed interest rate of 4.34 % . the $ 290 million of bonds will mature in june 2031 and bear , prior to the swap , a fixed interest rate of 3.35 % per annum , payable semi-annually starting december 2020. the bonds will be repaid in 10 equal installments starting june 2022 , unless prepaid earlier by ormat pursuant to the terms and conditions of the trust instrument that will govern the bonds . the bonds received a rating of ilaa- from maloot s & p in israel with a stable outlook . in april and may 2020 , we also raised approximately $ 130 million of new corporate debt from existing lenders . in june 2020 , we completed the enhancement of our steamboat hills complex and increased its generating capacity by 19mw to a total of 84mw . enhancement work included the replacement of all old generating unit equipment with new , state-of-the-art equipment and resource modifications . the new equipment will increase the productivity and efficiency of the power plant and is expected to reduce maintenance costs per kwh . the steamboat hills power plant continues to sell its electricity under the current 25-year long term portfolio power purchase agreement with scppa , with 100 % of the capacity going to the los angeles department of water and power . 80 in april 2020 , we announced the commercial operation of the rabbit hill battery energy storage system ( `` bess '' ) facility , providing required ancillary services and energy optimization to the wholesale markets managed by ercot . the facility is located in the city of georgetown , texas , and it is sized to provide approximately 10 mw of fast responding capacity to the ercot market . in february 2020 , we announced a transition of our senior management . mr. isaac angel retired from his position as chief executive officer a in july 1 , 2020 , after six years of service and became a member of ormat 's board of directors and its chairman . story_separator_special_tag ormat 's board of directors has appointed mr. blachar as the company 's chief executive officer and mr. assaf ginzburg as the chief financial officer . in january 2020 , we signed two similar ppas with silicon valley clean energy ( `` svce '' ) and monterey bay community power ( `` mbcp '' ) . under the ppas , svce and mbcp will each purchase 7 mw ( for a total of 14 mw ) of power generated by the expected 30 mw casa diablo-iv ( `` cd4 '' ) geothermal project located in mammoth lakes , california that is under construction . the ppas are for a term of 10 years and have a fixed mwh price , which includes energy , capacity , environmental attributes , and all other ancillary benefits . the remaining 16 mw of generating capacity will be sold under an additional ppa with scppa , which was signed in early 2019. the cd4 power plant is expected to be on-line in q1 2022 , and will be the first geothermal power plant built within the caiso balancing authority in the last 30 years and will be the first in ormat 's portfolio that will sell its output to a community choice aggregator . covid 19 update in march 2020 , the world health organization declared the outbreak of the novel coronavirus ( `` covid-19 '' ) a pandemic . the company implemented significant measures both to comply with government requirements and to preserve the health and safety of its employees . these measures include working remotely where possible and operating separate shifts in its power plants , manufacturing facilities and other locations while trying to continue operations as close to full capacity in all locations . during the year and subsequently , the company 's power plants , manufacturing facility and storage facilities have been operating at close to full capacity and there has been no material impact on our operations as a result of these measures . with respect to our employees , we have not laid-off or furloughed any employees due to the covid-19 and continued to pay full salaries . we experienced the following impacts on our segment operations : in our electricity segment , almost all of our revenues in 2020 were generated under long term contracts and the majority have a fixed energy rate . as a result , despite logistical and other challenges , we experienced limited impact of covid-19 on our electricity segment . nevertheless , we received two notices declaring a force majeure event in kenya from kplc and in honduras from enee , both had an immaterial impact on our revenues and removed . in addition , we experienced a higher rate of curtailments during the first half of 2020 by kplc in the olkaria complex that was reduced in the second half of 2020. the impact of the curtailments is limited because of the structure of the ppa which secures the vast majority of our revenues with fixed capacity payments and is unrelated to the electricity actually generated ( in 2019 and 2020 , capacity payments represented 70.1 % and 74.4 % of our revenues , respectively ) . enee has initiated discussions with several ipps , including ormat , on potential changes in their existing ppas . however , our platanares geothermal power plant has one of the lowest rates of renewable energy in the country , and we expect this fact to have positive implications for our discussions with enee . in addition , our future growth in the electricity segment is and would be adversely impacted by delays we are experiencing in receiving the required development and construction permits , as well as by the implications of global and local restrictions on our ability to procure raw materials and ship to our products . furthermore , our future growth in the electricity segment might be adversely impacted by a lack of funding for projects , a decrease in demand for electricity , delays in permitting and the implications of global and local restrictions on our ability to procure raw material and ship our products . our product segment revenues are generated from sales of products and services pursuant to contracts , under which we have a right to payment for any product that was produced for the customer . recognition of revenue under these contracts is impacted by delays in the progress of the third-party projects into which our products and services are incorporated . we experienced delays and significant cost increases in one of the projects in the product segment that adversely impacted our results of operations during 2020. we had a product backlog of $ 33.4 million as of february 24 , 2020 , which includes revenues for the period between january 1 , 2021 and february 24 , 2020 , compared to $ 141.9 million as of february 25 , 2020. we believe that the decline in backlog resulted mainly from the impact of covid-19 and the unwillingness of potential customers to enter into new commitments at this time . nevertheless , for the reasons set out above , restrictions on travel and because our customers are deferring their decision to purchase , we expect that 2021 product segment revenues will be significantly lower than revenues of 2020 . 81 our energy storage segment generates revenues mainly from participating in the energy and ancillary services markets , run by regional transmission operators and independent system operators in the various markets where our assets operate . therefore , the revenues these assets generate is directly impacted by the prevailing market prices for energy and or ancillary services . in addition , we experience delays in the permitting for new projects in all segments that may create penalties and cause a delay in those projects . despite our efforts to provide insight into the performance of our business and the trends affecting it , as of the date of this filing , significant uncertainty exists concerning the magnitude of the impact and duration of the covid-19 pandemic .
| the decrease in our product segment revenues was mainly due to projects in turkey and the u.s. , which were completed in 2019 and accounted for $ 75.9 million in revenues in the year ended december 31 , 2019. the decrease was partially offset by other projects in turkey , new zealand and chile , which started in 2019 , and provided $ 98.3 million in revenue recognized during the year ended december 31 , 2020 compared to $ 86.6 million for the year ended december 31 , 2019 , and other projects in mainly in turkey , which started in 2020 and provided $ 29.6 million for the year ended december 31 , 2020. the overall decrease in product revenues is also attributable to the impact of covid-19 which resulted in delays in the progress of the third-party projects as well as unwillingness of potential customers to enter into new commitments . energy storage segment revenues attributable to our energy storage segment for the year ended december 31 , 2020 were $ 15.8 million compared to $ 14.7 million for the year ended december 31 , 2019 , representing a 7.6 % increase . the increase was mainly driven by $ 4.8 million of revenues from the acquisition of the pomona energy storage asset as well as the commissioning of rabitt hill in texas , offset by $ 2.8 million in revenues from a one-time epc project in the year ended december 31 , 2019. total cost of revenues replace_table_token_17_th total cost of revenues for the year ended december 31 , 2020 was $ 429.1 million compared to $ 476.7 million for the year ended december 31 , 2019 , which represented a 10.0 % decrease . this decrease was attributable to a decrease of $ 12.8 million , or 4.1 % , in cost of revenues from our electricity segment , a decrease of $ 31.0 million , or 21.3 % , in cost of revenues from our product segment and a decrease of $ 3.9 million , or 21.5 % , in cost of revenues from our energy storage segment , all as
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private placements on january 14 , 2021 , the company entered into a securities purchase agreement ( the “ spa ” ) with two accredited investors ( the “ investors ” ) to sell an aggregate of 1,022,727 shares of class a common stock at a purchase price of $ 22.00 per share , generating gross proceeds of $ 22,499,994. the sale was consummated on january 20 , 2021. the shares of class a common stock were sold pursuant to an exemption from registration afforded by section 4 ( a ) ( 2 ) of the securities act of 1933 , as amended , and rule 506 promulgated thereunder . jobs act accounting election we are an “ emerging growth company , ” as defined in the jumpstart our business startups act of 2012 ( the “ jobs act ” ) . under the jobs act , emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the jobs act until such time as those standards apply to private companies . we have irrevocably elected to avail ourselves of this exemption from new or revised accounting standards , and , therefore , will not be subject to the same new or revised accounting standards as public companies that are not emerging growth companies . reporting segment we operate in one reportable segment , the production , distribution and exhibition of tv and film content for sale to others and for use on our owned and operated video on demand platforms . we have a presence in over 56 countries and territories worldwide and intend to continue to sell our video content internationally . seasonality our operating results are not materially affected by seasonal factors ; however , we may distribute rights to certain films which result in increased revenues and expenses during the period of distribution and revenues from our avod networks vary from period to period and will generally be higher in the second half of each year . 34 story_separator_special_tag style= '' margin-top:21.6pt ; min-height:41.75pt ; width:100 % ; '' > content assets consists primarily of programming costs and film library assets . management 's periodic assessment of the ultimate revenues expected to be recognized on each episodic series and film , in conjunction with historical performance and current market conditions , management determined the estimated future discounted cash flows were not sufficient to recover the entire unamortized balance of content assets . as a result , the company recorded an impairment of $ 4.0 million for the year ended december 31 , 2020 . the management and license fee increased $ 1.1 million or 20 % for the year ended december 31 , 2020 compared to 2019. the increase is due to and in line with the $ 11.0 million or 20 % increase in net revenue for the year ended december 31 , 2020 compared to 2019 . selling , general and administrative expenses the following table presents selling , general and administrative expense line items for the years ended december 31 , 2020 and 2019 and the year-over-year dollar and percentage changes for those line items : replace_table_token_4_th our selling , general and administrative expenses increased by $ 9.3 million for the year ended december 31 , 2020 compared to 2019 . our compensation expense increased by $ 5.7 million for the year ended december 31 , 2020 compared to 2019. this increase is primarily due to operating crackle for 12 months in 2020 compared to 7.5 months in 2019 and a 16 % increase in headcount as compared to 2019 . professional fees increased by $ 2.0 million for the year ended december 31 , 2020 compared to 2019. this increase is related to a $ 1.2 million increase in legal fees , $ 0.4 million increase in consulting expenses and $ 0.4 million increase in accounting expenses primarily related to various financing activities during the period and the year over year growth in the business . other operating expenses increased by $ 1.2 million for the year ended december 31 , 2020 compared to 2019. this increase is related to a $ 1.4 million increase in rent driven by expansion of our office space as a result of the acquisition of crackle during may 2019 and a $ 0.3 million increase in marketing expenses related to increased marketing efforts in our online networks operation area , offset by a $ 0.3 million decrease in travel and entertainment expenses related to the covid-19 pandemic and $ 0.2 million decrease in various other overhead expenses . management and license fees we incurred management fees to css equal to 5 % of total net revenue reported for the years ended december 31 , 2020 and 2019. we also incurred license fees to css for use of the brand equal to 5 % of total net revenue reported for the years ended december 31 , 2020 and 2019 . interest expense for the years ended december 31 , 2020 and 2019 , our interest expense was comprised primarily of interest incurred on the 9.50 % notes due 2025 , the commercial loan , the revolving credit facility and the film acquisition advance . 37 the following table presents interest expense for the years ended december 31 , 2020 and 2019 : replace_table_token_5_th interest expense increased $ 1.4 million for the year ended december 31 , 2020 compared to 2019. the increase is primarily related to the july and december 2020 underwritten public offering of the 9.50 % notes due 2025. in addition , we entered into a revolving credit facility with cole investments vii , llc in connection with the creation of our landmark studio group subsidiary in october 2019 , which bears interest of 8 % per annum . as of march 3 , 2021 , such facility was paid in full and terminated . story_separator_special_tag further , the company entered into a film acquisition advance agreement with great point media limited in august 2020 , which bears interest at 10 % per annum compounded monthly on the amount outstanding . acquisition related costs for the years ended december 31 , 2020 and 2019 aggregate acquisition-related costs , including legal , accounting and investment advisory fees totaled $ 0.1 and $ 4.0 million , respectively . the $ 3.9 million decrease in acquisition related costs is primarily related to costs incurred in 2019 related to the crackle acquisition while in the current year we had no such acquisition . other non-operating income , net for the years ended december 31 , 2020 and 2019 other non-operating income was $ 6.3 million and $ 0.1 million , respectively . other non-operating income is primarily comprised of $ 5.4 million in extinguished liabilities as part of a settlement agreement with a technology platform vendor which discontinued operations prior to the completion of the contractual service period and $ 1.5 million related to the extinguishment of acquisition related liabilities . other income was offset by other non-operating expenses related to a partner settlement and realized and unrealized losses on marketable securities . provision for income taxes the company 's benefit from , or provision for income taxes , consists of federal and state taxes in amounts necessary to align our tax provision to the effective tax rate . for the years ended december 31 , 2020 and 2019 , we reported income tax expenses of approximately $ 0.1 million and $ 0.6 million , respectively , consisting of state taxes currently payable in 2020 and federal and state taxes currently payable and deferred in 2019. the effective tax rate for the years ended december 31 , 2020 and 2019 was 1 % and 3 % , respectively . the effective rate for the years ended december 31 , 2020 and 2019 were significantly impacted by temporary and permanent differences as described below . temporary timing differences consist primarily of net programming costs and film library acquisition costs that were , for current year additions , amortized over the straight line basis as permitted under the internal revenue code as well as prior year released usa produced shows having been deducted for tax purposes in the period incurred ( under internal revenue code section 168 ( k ) ) as contrasted to the capitalization and amortization for financial reporting purposes under the guidance of asc 926 — entertainment — films . we also incurred impairment losses that were charged to operations on the financial statements on some of those assets but are not currently deductible for tax purposes . additionally , the company amortized , for tax purposes , intangible assets under section 197 of the internal revenue code , the amounts of 38 which differ substantially from charges on related assets that are either not amortized in the consolidated financial statements or amortized at different rates . permanent differences consist primarily of amortization for financial reporting purposes of film library properties that were acquired in a transaction in 2018 wherein the tax cost basis as well as the method and rate of amortization are , for tax purposes , governed by the rules of section 197 of the internal revenue code . affiliate resources and obligations css license agreement we have a trademark and intellectual property license agreement with css , which we refer to as the ‘ ‘ css license agreement . '' under the terms of the css license agreement , we have been granted a perpetual , exclusive , worldwide license to produce and distribute video content using the chicken soup for the soul b rand and related content , such as stories published in the chicken soup for the soul books . we pay css an incremental recurring license fee equal to 4 % of our net revenue for each calendar quarter , and a marketing fee of 1 % of our net revenue for the years ended december 31 , 2020 and 2019 , we recorded $ 3.3 million and $ 2.8 million , respectively , of license fee expense under this agreement . we believe that the terms and conditions of the css license agreement , which provides us with the rights to use the trademark and intellectual property in connection with our video content , are more favorable to us than any similar agreement we could have negotiated with an independent third party . css management agreement we have a management services agreement , the ‘ ‘ css management agreement '' , in which we pay css a management fee equal to 5 % of our net revenue . under the terms of the css management agreement , we are provided with the broad operational expertise of css and its subsidiaries and personnel , including the services of our chairman and chief executive officer , mr. rouhana , our vice chairman and chief strategy officer , mr. seaton , our senior brand advisor and director , ms. newmark , and our chief financial officer , mr. mitchell . the css management agreement also provides for services , such as accounting , legal , marketing , management , data access and back-office systems , and provides us with office space and equipment usage . on august 1 , 2019 , we entered into an amendment to the css management agreement which removed our obligation to pay sales commissions to css in connection with sponsorships for our video content or other revenue generating transactions arranged by css or its affiliates . on march 15 , 2021 , we entered into a further amendment to the css management agreement which clarified that the term of the css management agreement is five years , with automatic one-year renewals unless affirmatively terminated by one of the parties . for the years ended december 31 , 2020 and 2019 , we recorded $ 3.3 million and $ 2.8 million , respectively , of management fee expense under this agreement .
| distribution and production revenue distribution and production revenues increased by $ 21.4 million for the year ended december 31 , 2020 compared to 2019. the increase of $ 21.4 million was primarily due to a $ 13.3 million increase in tvod and internet streaming revenue primarily driven by strong performance from the recent release of the outpost , which hit # 1 on several vod platforms during the period , blood and money and black water : abyss , a $ 9.3 million increase in video distribution and theatrical revenues driven primarily by the performance of the last full measure and robert the bruce , and a $ 3.8 million increase in avod distribution revenue driven by our original and owned content streamed on our avod networks . these increases were partially offset by a $ 4.5 million decrease in international distribution revenue and a net combined $ 0.5 million decrease in other distribution and production revenues . 35 cost of revenue the following table presents cost of revenue line items for the years ended december 31 , 2020 and 2019 and the year-over-year dollar and percentage changes for those line items : replace_table_token_2_th our cost of revenue increased by $ 11.7 million for the year ended december 31 , 2020 compared to 2019. this increase was primarily due to a $ 13.1 million increase in film library amortization as a result of the $ 21.4 million increase in distribution revenue , a $ 6.3 million increase in distribution and platform costs primarily due to incurring crackle related technology costs for 12 months in 2020 as compared to 7.5 months in 2019 , partially offset by a $ 7.7 million decrease in revenue share and partner fees as a result of the $ 10.9 million decrease in advertisement representation revenue primarily driven by the discontinued operations of one ad rep partner . operating expenses the following table presents operating expense line items for the years ended december 31 , 2020 and 2019 and the year-over-year dollar and percentage changes for those line items : replace_table_token_3_th * not meaningful our total operating expenses were 89 % of net revenue for the year ended december 31 , 2020 compared to 74 % in the same period in 2019 and increased in absolute dollars by $ 17.4 million . excluding amortization and depreciation expense driven by acquired intangibles resulting from the formation of crackle plus and impairment of content assets ,
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during the next few years , our net income will fluctuate from year-to-year based upon , among other factors , commodity prices , production within our farming segment , the timing of land sales and the leasing of land and or industrial space within our industrial developments , and equity in earnings realized from our unconsolidated joint ventures . this management 's discussion and analysis of financial condition and results of operations provides a narrative discussion of our results of operations . it contains the results of operations for each operating segment of the business and is followed by a discussion of our financial position . it is useful to read the business segment information in conjunction with note 16 ( reporting segments and related information ) of the notes to consolidated financial statements . critical accounting policies the preparation of our consolidated financial statements in accordance with generally accepted accounting principles in the united states , or gaap , requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we consider an accounting estimate to be critical if : ( 1 ) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made , and ( 2 ) changes in the estimates that are likely to occur from period to period , or use of different estimates that we reasonably could have used in the current period , would have a material impact on our financial condition or results of operations . on an on-going basis , we evaluate our estimates , including those related to revenue recognition , impairment of long-lived assets , capitalization of costs , allocation of costs related to land sales and leases , and stock compensation . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . management has discussed the development and selection of these critical accounting estimates with the audit committee of our board of directors and the audit committee has reviewed the foregoing disclosure . in addition , there are other items within our financial statements that require estimation , but are not deemed critical as defined above . changes in estimates used in these and other items could have a material impact on our financial statements . see also note 1 ( summary of significant accounting policies ) of the notes to consolidated financial statements , which discusses accounting policies that we have selected from acceptable alternatives . we believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of the consolidated financial statements : revenue recognition – the company 's revenue is primarily derived from lease revenue from our rental portfolio , royalty revenue from mineral leases , sales of farm crops , sales of water , and land sales . revenue from leases with rent concessions or fixed escalations is recognized on a straight-line basis over the initial term of the related lease unless there is a considerable risk as to collectability . the financial terms of leases are contractually defined . lease revenue is not accrued when a tenant vacates the premises and ceases to make rent payments or files for bankruptcy . royalty revenues are contractually defined as to the percentage of royalty and are tied to production and market prices . our royalty arrangements generally require payment on a monthly basis with the payment based on the previous month 's activity . we accrue monthly royalty revenues based upon estimates and adjust to actual as we receive payments . from time to time the company sells easements over its land . the easements are either in the form of rights of access granted for such things as utility corridors or are in the form of conservation easements that generally require the company to divest its rights to commercially develop a portion of its land , but do not result in a change in ownership of the land or restrict the company from continuing other revenue generating activities on the land . sales of easements are accounted for in accordance with the five-step model under accounting standards codification topic 606 , or asc 606. the five-step model requires that we ( i ) identify the contract with the customer , ( ii ) identify the performance obligations in the contract , ( iii ) determine the transaction price , including variable consideration to the extent that it is probable that a significant future reversal will not occur , ( iv ) allocate the transaction price to the respective performance obligations in the contract , and ( v ) recognize revenue when ( or as ) we satisfy the performance obligation . since easements generally do not impose any significant continuing 39 performance obligations on the company , revenue from easement sales are generally recognized in the period the sale has closed and consideration has been received . in recognizing revenue from land sales , the company follows asc 606 to achieve the core principle that an entity recognizes revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . the adoption of asc 606 on january 1 , 2018 impacted our accounting for land sales . upon the adoption of asc 606 , for any future land sales with multiple performance obligations , the standard generally requires the company to allocate the transaction price to the performance obligations in proportion to their standalone selling prices ( i.e. , on a relative standalone selling price basis ) not total costs . story_separator_special_tag at the time farm crops are harvested , contracted , and delivered to buyers and revenues can be estimated , revenues are recognized and any related inventoried costs are expensed , which traditionally occurs during the third and fourth quarters of each year . it is not unusual for portions of our almond or pistachio crop to be sold in the year following the harvest . orchard ( almond and pistachio ) revenues are based upon the contract settlement price or estimated selling price , whereas vineyard revenues are typically recognized at the contracted selling price . estimated prices for orchard crops are based upon the quoted estimate of what the final market price may be by marketers and handlers of the orchard crops . these market price estimates are updated through the crop payment cycle as new information is received as to the final settlement price for the crop sold . these estimates are adjusted to actual upon receipt of final payment for the crop . this method of recognizing revenues on the sale of orchard crops is a standard practice within the agribusiness community . actual final crop selling prices are not determined for several months following the close of our fiscal year due to supply and demand fluctuations within the orchard crop markets . adjustments for differences between original estimates and actual revenues received are recorded during the period in which such amounts become known . impairment of long-lived assets – we evaluate our property and equipment and development projects for impairment on an ongoing basis . our evaluation for impairment involves an initial assessment of each real estate development to determine whether events or changes in circumstances exist that may indicate that the carrying amounts of a real estate development are no longer recoverable . possible indications of impairment may include events or changes in circumstances affecting the entitlement process , government regulation , litigation , geographical demand for new housing , and market conditions related to pricing of new homes . when events or changes in circumstances indicate that the carrying value of assets contained in our financial statements may not be recoverable . we make significant assumptions to evaluate each real estate development for possible indications of impairment . these assumptions include the identification of appropriate and comparable market prices , the consideration of changes to legal factors or the business climate , and assumptions surrounding continued positive cash flows and development costs . considering that the planned development communities will be in a location that does not currently have many comparable homes , the company must make assumptions surrounding the expected ability to sell the real estate assets at a price that is in excess of current accumulated costs . we use our internal forecasts and business plans to estimate future prices , absorption , production , and costs . we develop our forecasts based on recent sales data , historical absorption and production data , input from marketing consultants , as well as discussions with commercial real estate brokers and potential purchasers of our farming products . the impairment calculation compares the carrying value of the asset to the asset 's estimated future cash flows ( undiscounted ) . if the estimated future cash flows are less than the carrying value of the asset , we calculate an impairment loss . the impairment loss calculation compares the carrying value of the asset to the asset 's estimated fair value , which may be based on estimated future cash flows ( discounted ) . we recognize an impairment loss equal to the amount by which the asset 's carrying value exceeds the asset 's estimated fair value . if we recognize an impairment loss , the adjusted carrying amount of the asset will be its new cost basis . for a depreciable long-lived asset , the new cost basis will be depreciated ( amortized ) over the remaining useful life of that asset . restoration of a previously recognized impairment loss is prohibited . if actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values , we may be exposed to impairment losses that could be material to our results of operations . at this time , there are no assets within any of our reporting segments that we believe are at risk of being impaired due to market conditions nor have we identified any impairment indicators . we believe that the accounting estimate related to asset impairment is a critical accounting estimate because it is very susceptible to change from period to period ; it requires management to make assumptions about future prices , production , and costs , and the potential impact of a loss from impairment could be material to our earnings . management 's assumptions regarding future cash flows from real estate developments and farming operations have fluctuated in the past due to changes in prices , absorption , production and costs and are expected to continue to do so in the future as market conditions change . 40 capitalization of costs - the company capitalizes direct construction and development costs , including predevelopment costs , interest , property taxes , insurance , and indirect project costs that are clearly associated with the acquisition , development , or construction of a project . costs currently capitalized that in the future would be related to any abandoned development opportunities will be written off if we determine such costs do not provide any future benefits . should development activity decrease , a portion of interest , property taxes , and insurance costs would no longer be eligible for capitalization , and would be expensed as incurred .
| the company received a cash distribution of $ 2,000,000 from the joint venture , and realized a gain on sale of real estate of $ 1,331,000. offsetting these favorable variances in other income was a $ 355,000 decrease in investment income that resulted from not reinvesting maturing securities in order to fund the company 's major development projects . total other income decreased $ 1,870,000 , or 146 % , from $ 1,285,000 in 2018 to a loss of $ 585,000 in 2019. this was mainly attributable to asset abandonment costs of $ 1,604,000 that were overwhelmingly related to the abandonment of a wine grape vineyard , consisting of 313 acres , that will no longer be farmed . corporate expenses corporate general and administrative costs increased $ 69,000 , or 0.7 % , to $ 9,430,000 during 2020 when compared to $ 9,361,000 in 2019. the increase is attributed to an $ 1,182,000 increase in stock compensation as a result of implementing a new performance stock compensation plan . this increase was offset by a $ 546,000 decrease in payroll as a result of temporary cost cutting measures resulting from the covid-19 pandemic , a $ 426,000 decrease in professional services , and a $ 139,000 decrease in depreciation . corporate general and administrative costs decreased $ 344,000 , or 3.5 % , to $ 9,361,000 during 2019 when compared to $ 9,705,000 in 2018. the decrease was primarily attributable to a decrease in depreciation and amortization of $ 231,000 and software licenses of $ 149,000 . 49 equity in earnings of unconsolidated joint ventures equity in earnings of unconsolidated joint ventures is an important and growing component of our commercial/industrial activities and in the future , equity in earnings of unconsolidated joint ventures can become a significant part of our operations within the resort/residential segment . as we expand our current ventures and add new joint ventures , these investments will become a growing revenue source for the company . replace_table_token_8_th 2020 operational highlights : during 2020 , equity in earnings from unconsolidated joint ventures decreased $ 12,071,000 , or 73 % , to $ 4,504,000 when compared to $
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the increases in adjusted net income and adjusted net income per diluted share for both 2015 over 2014 , and 2014 over 2013 , were due primarily to increased net income . such increases are described below in results of operations , in the components of net income . replace_table_token_9_th ( 1 ) beginning in the first quarter of 2015 , we revised the calculation of adjusted net income , continuing operations . we no longer subtract `` depreciation , and amortization of capitalized software '' and `` share-based compensation '' from net income , continuing operations to arrive at adjusted net income , continuing operations . we have made this change to better reflect how we evaluate financial performance , make financing and business decisions , and forecast and plans for future periods . all periods presented conform to this presentation . ( 2 ) effective january 1 , 2016 , we will no longer exclude amortization of convertible notes and lease financing obligations from our presentation of adjusted net income and adjusted net income per share . we made this change because various capital transactions that we completed in 2015 reduced our relative reliance on convertible notes and lease financing as sources of capital . we believe that this change will enhance the comparability of these non-gaap measures with the corresponding non-gaap measures used by our competitors . results of operations , continuing operations as described above , as of december 31 , 2015 , we changed our reporting structure as a result of the pathways acquisition in november 2015. the following table presents gross margin as the appropriate earnings measure for our reportable segments , based on how our chief operating decision maker currently reviews results , assesses performance , and allocates resources . gross margin for our health plans segment is referred to as `` medical margin , '' and for our molina medicaid solutions and other segments , as `` service margin . '' medical margin represents the actual dollars earned by the health plans segment after medical costs are deducted from premium revenue . the medical care ratio represents the amount of medical care costs as a percentage of premium revenue . one of the key metrics used to assess the performance of the health plans segment is the medical care ratio ; therefore , the underlying medical margin is the most important measure of earnings reviewed by the chief operating decision maker . the service margin is equal to service revenue minus cost of service revenue . 45 replace_table_token_10_th health plans segment premium revenue . our health plans segment derives its revenue , in the form of premiums , chiefly from medicaid contracts with the states in which our health plans operate , and , to a lesser degree , from medicare contracts entered into with the centers for medicare and medicaid services ( cms ) , a federal government agency . 2015 compared with 2014 in 2015 , a 42 % increase in membership and a 5 % increase in revenue pmpm resulted in increased premium revenue of 47 % , or over $ 4.2 billion , when compared with 2014 . enrollment growth was primarily due to increased medicaid expansion , marketplace and integrated medicare-medicaid plan ( mmp ) enrollment , and the start-up of the puerto rico health plan in april 2015 . 2014 compared with 2013 in 2014 , premium revenue increased 46 % over 2013 , due to a 28 % increase in membership , and an 18 % increase in revenue pmpm . enrollment growth was primarily due to medicaid expansion program membership added as a result of the affordable care act , and membership added at our south carolina and illinois health plans . higher pmpm premium revenue was primarily the result of the inclusion of long-term services and supports ( ltss ) benefits in various medicaid managed care programs in california , florida , illinois , new mexico , and ohio . premiums by program . the amount of the premiums paid to us may vary substantially between states and among various government programs . the following table sets forth the ranges of premiums paid to our state health plans by program , on a per-member per-month basis for the year ended december 31 , 2015 . the `` consolidated '' column represents the weighted-average amounts for our total membership by program . replace_table_token_11_th 46 medical care costs . our medical care costs include amounts that have been paid by us through the reporting date as well as estimated liabilities for medical care costs incurred but not paid by us as of the reporting date . see `` critical accounting estimates '' below , and item 8 of this form 10-k , notes to consolidated financial statements , note 11 , `` medical claims and benefits payable , '' for further information on how we estimate such liabilities . 2015 compared with 2014 our medical margin increased nearly 53 % in 2015 over 2014 , and our consolidated medical care ratio decreased to 89.1 % in 2015 from 89.5 % in 2014 . 2014 compared with 2013 although medical margin increased nearly 20 % in 2014 over 2013 , our consolidated medical care ratio increased to 89.5 % in 2014 from 87.1 % in 2013. the medical care ratio increased substantially in 2014 as a result of three developments : much of our revenue growth has come from participation in medicaid programs covering ltss . percentage profit margins for ltss benefits are generally lower than percentage profit margins for acute medical benefits . increases to our base premiums in recent years have not kept pace with medical cost trends . lack of coordination in the design of profit caps and medical cost floors in some of our state medicaid contracts is resulting in counterproductive outcomes . in some instances , givebacks due to profitable performance in one program can not be offset against losses in other programs . medical care costs by category . story_separator_special_tag the following table provides the details of consolidated medical care costs by category for the periods indicated ( dollars in millions except pmpm amounts ) : replace_table_token_12_th financial performance by program . the following table presents the components of premium revenue and medical care costs by program . replace_table_token_13_th _ ( 1 ) year ended december 31 , 2014 and 2013 data not presented due to lack of comparability . ( 2 ) a member month is defined as the aggregate of each month 's ending membership for the period presented . ( 3 ) `` mcr '' represents medical costs as a percentage of premium revenue . 47 financial performance by state health plan . the following tables summarize member months , premium revenue , medical care costs , medical care ratio , and medical margin by state health plan for the periods indicated ( pmpm amounts are in whole dollars ; member months and other dollar amounts are in millions ) : replace_table_token_14_th replace_table_token_15_th 48 replace_table_token_16_th ( 1 ) our puerto rico health plan began serving members effective april 1 , 2015. our south carolina health plan began serving members under the state of south carolina 's new full-risk medicaid managed care program effective january 1 , 2014 . ( 2 ) `` other '' medical care costs include primarily medically related administrative costs of the parent company , and direct delivery costs . individual health plan analysis 2015 compared with 2014 california . premium revenue grew $ 677 million , or 44 % , in 2015 compared with 2014 , the result of higher membership . overall , enrollment on a member-month basis increased 31 % in 2015 compared with 2014 . increased premium revenue was also driven by a 15 % increase in premium revenue pmpm , which was the result of the higher relative premium revenue pmpm among those programs experiencing enrollment growth ( medicaid expansion and mmp ) ; and the addition of long-term care benefits to some of the california health plan 's medicaid membership . the medical care ratio increased to 87.6 % in 2015 , from 83.3 % in 2014 . during 2014 , the plan benefited from the recognition of approximately $ 23 million in premium revenue and medical margin that related to 2013 , as a result of certain programmatic changes implemented by the state of california . absent this benefit , the medical care ratio of the california plan would have been 84.6 % in 2014. florida . premium revenue grew to $ 1,199 million in 2015 , from $ 439 million in 2014 , due to increased marketplace membership . the medical care ratio decreased to 90.2 % in 2015 , from 95.5 % in 2014 , due to the lower medical care ratio of the marketplace membership more than offsetting an increase in the medical care ratio for the medicaid program . illinois . premium revenue grew to $ 397 million in 2015 , from $ 153 million in 2014 , due to significant membership growth in late 2014. the medical care ratio increased to 92.3 % in 2015 , from 91.7 % in 2014 . michigan . premium revenue grew $ 286 million , or 37 % , in 2015 compared with 2014 , due to increased medicaid expansion membership and the startup of the mmp program . the medical care ratio of 84.6 % for 2015 was unchanged from 2014 . new mexico . premium revenue grew $ 161 million , or 15 % , in 2015 compared with 2014 , due to substantial increases in membership in all medicaid programs . the medical care ratio decreased to 89.4 % in 2015 , from 92.6 % in 2014 , due to improved profitability for the abd and medicaid expansion programs . ohio . premium revenue grew $ 481 million , or 31 % , in 2015 compared with 2014 , due to growth in membership within the medicaid expansion , and mmp programs . the medical care ratio decreased to 84.4 % in 2015 , from 86.0 % in 2014 , due to lower medical care ratios in these newer programs , as well as abd . puerto rico . the puerto rico health plan began serving members on april 1 , 2015 , and finished the year with a medical care ratio of 89.1 % . see further discussion below , under financial condition , regarding the commonwealth of puerto rico . 49 south carolina . the medical care ratio decreased to 79.8 % in 2015 , from 84.7 % in 2014 . we believe that medical care ratios below 80 % are not sustainable over time , and that the performance of the south carolina health plan in 2014 is more representative of its likely long-term performance than are its financial results for 2015 . texas . premium revenue grew $ 643 million , or 49 % , in 2015 compared with 2014 , primarily due to the addition of abd members receiving nursing facility benefits effective march 1 , 2015 , and the start-up of the texas mmp program on that date . the medical care ratio increased to 92.3 % in 2015 , from 90.8 % in 2014 , primarily as a result of lower percentage margins on premiums to support nursing home services . as previously disclosed , we are unable to recognize certain quality related revenue in texas because we do not have historical information , clear definitions , and clarity around minimum standards . utah . the medical care ratio of the utah health plan decreased to 90.6 % in 2015 , from 92.2 % in 2014 , primarily due to improved financial performance of the plan 's medicare program . washington . premium revenue grew $ 297 million , or 23 % , in 2015 when compared with 2014 , primarily due to growth in medicaid expansion membership .
| our mmps in california , illinois , and ohio offered coverage beginning in 2014 ; our mmps in south carolina and texas offered coverage beginning in the first quarter of 2015 ; and our mmp in michigan offered coverage beginning in the second quarter of 2015. at december 31 , 2015 , our membership included approximately 51,000 integrated mmp members . florida . on november 1 , 2015 , our florida health plan closed on its acquisition of the medicaid contracts , and certain assets related to operation of the medicaid business , of integral health plan , inc. on august 1 , 2015 , our florida health plan closed on its acquisition of the medicaid contracts , and certain assets related to the operation of the medicaid business , of preferred medical plan , inc. illinois . on january 1 , 2016 , our illinois health plan closed on its acquisition of the medicaid membership , and certain assets related to the medicaid business of , accountable care chicago , llc , also known as mycare chicago . we assumed approximately 58,000 medicaid members in this acquisition . on january 1 , 2016 , our illinois health plan closed on its acquisition of the medicaid membership , and certain assets related to the medicaid business , of loyola physician partners , llc . we assumed approximately 21,000 medicaid members in this acquisition . on november 30 , 2015 , we announced that our illinois health plan entered into an agreement to assume the membership and certain medicaid assets of better health network , llc ( better health ) . as of november 30 , 2015 , better health served approximately 40,000 members in the medicaid family health program in cook county . subject to regulatory approvals and the satisfaction of other closing conditions , we expect the transaction to close during the first half of 2016. michigan . on january 1 , 2016 , our michigan health plan closed on its acquisition of the medicaid and michild membership , and certain medicaid and michild assets , of hap midwest health plan , inc. we assumed approximately 81,000 medicaid and michild members in this acquisition . in october 2015 , the michigan department of health and human services announced that molina healthcare of michigan was recommended to serve the state 's medicaid members under
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same day gross profit and gaap gross profit were equal for fiscal 2018. fifty-three week fiscal year ended december 31 , 2017 ( fiscal 2017 ) compared with fifty-two week fiscal year ended december 25 , 2016 ( fiscal 2016 ) the fiscal 2017 consolidated statement of operations includes 39 weeks of zycron operations and 15 weeks of smart operations . revenues : replace_table_token_11_th real estate revenues : real estate revenues increased approximately $ 13.8 million ( 23.8 % ) due to our continued geographic expansion plan . revenue from branches outside of texas accounted for approximately $ 8.9 million of the increase and revenue from branches in texas increased approximately $ 4.9 million . the increase was due to a 16.4 % increase in billed hours and a 6.0 % increase in average bill rate . revenue from existing offices accounted for approximately $ 11.5 million of the increase and revenue from new offices provided approximately $ 2.3 million . professional revenues : professional revenues increased approximately $ 19.6 million ( 18.3 % ) , primarily from zycron , which contributed approximately $ 27.1 million of new revenues and from smart , which contributed approximately $ 3.2 million of new revenues . the remaining it group decreased $ 6.9 million and the remaining finance and accounting group decreased $ 3.7 million . the overall increase was due to a 23.7 % increase in billed hours , offset by decrease of 4.7 % in average bill rate . light industrial revenues : light industrial revenues decreased approximately $ 14.7 million ( 16.5 % ) primarily from operations in texas . texas branches decreased revenues $ 8.3 million and other branches outside of the midwest decreased $ 6.9 million , which were offset by illinois and wisconsin locations increased $ 0.5 million . the overall revenue decrease was due to a 20.6 % decrease in billed hours that was offset by a 5.0 % increase in average bill rate . gross profit : gross profit represents revenues from services less cost of services expenses , which consist of payroll , payroll taxes , payroll-related insurance , field talent costs , and reimbursable costs . replace_table_token_12_th 27 replace_table_token_13_th overall , our gross profit increased approximately $ 8.3 million ( 13.9 % ) due primarily to the zycron ( $ 5.7 million ) and smart ( $ 1.1 million ) acquisitions and increased revenues in our real estate segment , offset by decreased revenues in our light industrial segment . as a percentage of revenue , gross profit has increased to 25.1 % from 23.7 % , primarily due to higher percentage of our revenues from our real estate and professional segments . we determine spread as the difference between average bill rate and average pay rate . real estate gross profit : real estate gross profit increased approximately $ 5.6 million ( 25.9 % ) consistent with the increase in revenue . the increase in gross profit percentage of 0.6 % was due primarily to 6.1 % increase in average spread . professional gross profit : professional gross profit increased approximately $ 4.9 million ( 19.0 % ) due to zycron of $ 5.7 million , smart of $ 1.1 million , a 1.2 % increase in average spread , offset by a $ 0.8 million decrease in the remaining finance and accounting group and a $ 1.2 million decrease in the remaining it group . light industrial gross profit : light industrial gross profit decreased approximately $ 2.2 million ( 16.9 % ) due to the corresponding decreased revenue offset by an increase of 5.0 % in the average spread . selling , general and administrative expenses : selling , general and administrative expenses increased approximately $ 6.5 million ( 17.3 % ) related to an increase in real estate of $ 2.8 million from growth , including $ 0.7 million of new office expansion , and an increase in professional of $ 3.1 million from zycron and $ 0.9 million from smart . depreciation and amortization : depreciation and amortization charges decreased approximately $ 0.4 million ( 6.5 % ) . the decrease in depreciation and amortization is primarily due to professional segment fully amortized intangible assets related to the 2011 extrinsic , llc acquisition of $ 1.1 million that was partially offset by an increase in the professional segment intangible assets acquired in the zycron acquisition of $ 0.7 million . interest expense , net : interest expense , net decreased approximately $ 0.7 million ( 17.9 % ) primarily due to the decrease in the interest of $ 1.2 million related to the payoff of the 13 % subordinated debt , the decrease in contingent consideration discounts of $ 0.6 million , partially offset by the increase of $ 0.7 million in the new term loan described below and the increase of $ 0.3 million in the revolver . income taxes : income tax expense , net increased approximately $ 4.4 million primarily due to the impact of the tcja which resulted in a re-measurement of the net deferred tax assets of $ 3.3 million and an increase of $ 1.1 million from increased pretax income . non-gaap same day revenues : same day revenues are defined as a fifty-three week fiscal year ended december 31 , 2017 ( fiscal 2017 ) revenues less five revenue days . the fiscal 2017 revenues of $ 272.6 million would be less $ 5.7 million for five revenue days resulting in same day revenues of $ 266.9 million . same day revenues increased $ 13.0 million ( 5 % ) from $ 253.9 million in fiscal 2016. same day revenues and gaap revenues were equal for fiscal 2016. non-gaap same day gross profit : same day gross profit is defined as a fifty-three week fiscal year ended december 31 , 2017 ( fiscal 2017 ) gross profit less five gross profit days . story_separator_special_tag the fiscal 2017 gross profit of $ 68.4 million would be less $ 1.4 million for five gross profit days resulting in same day gross profit of $ 67.0 million . same day gross profit increased $ 6.9 million ( 11 % ) from $ 60.1 million in fiscal 2016. same day gross profit and gaap gross profit were equal for fiscal 2016 . 28 liquidity and capital resources our working capital requirements are primarily driven by field talent payments , tax payments and client partner accounts receivable receipts . since receipts from client partners lag payments to field talent , working capital requirements increase substantially in periods of growth . our primary sources of liquidity are cash generated from operations and borrowings under our credit agreement ( the “ amended credit agreement ” ) with texas capital bank , national association ( “ tcb ” ) as amended and restated that provides for a revolving credit facility maturing april 3 , 2022 ( the “ revolving facility ” ) . our primary uses of cash are payments to field talent , team members , related payroll liabilities , operating expenses , capital expenditures , cash interest , cash taxes , dividends and contingent consideration and debt payments . we believe that the cash generated from operations , together with the borrowing availability under our revolving facility , will be sufficient to meet our normal working capital needs for at least the next twelve months , including investments made , and expenses incurred , in connection with opening new branches throughout the next year . our ability to continue to fund these items may be affected by general economic , competitive and other factors , many of which are outside of our control . if our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs , we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt . while we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans , we may elect to pursue additional growth opportunities within the next year that could require additional debt or equity financing . if we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities , our ability to pursue such opportunities could be materially adversely affected . the company has an effective form s-3 shelf registration statement allowing for the offer and sale of up to approximately $ 13 million of common stock . there is no guarantee that we will be able to consummate any offering on terms we consider acceptable or at all . a summary of our operating , investing and financing activities are shown in the following table : replace_table_token_14_th operating activities cash provided by operating activities consists of net income adjusted for non-cash items , including depreciation and amortization , share-based compensation expense , interest expense on contingent consideration payable , and the effect of working capital changes . the primary drivers of cash inflows and outflows are accounts receivable and accrued payroll and expenses . during fiscal 2018 , net cash provided by operating activities was $ 18.4 million , a n in crease of $ 0.4 million compared with $ 18.1 million for fiscal 2017 . this in crease is primarily attributable to higher net income , which was partially offset by a decrease in contingent consideration adjustments , the timing of payments on operating assets and liabilities , amortization expense , and net deferred tax assets . during fiscal 2017 , net cash provided by operating activities was $ 18.1 million , a n in crease of $ 8.5 million compared with $ 9.5 million for fiscal 2016 . this in crease is primarily attributable to the re-measurement of the net deferred tax assets as a result of the tcja , timing of payments on accounts receivables and accrued payroll and expenses . investing activities cash used in investing activities consists primarily of cash paid for businesses acquired and capital expenditures . 29 in fiscal 2018 , we made capital expenditures of $ 0.9 million mainly related to furniture and fixtures and computer equipment purchased in the ordinary course of business . in fiscal 2017 , we paid $ 18.5 million in connection with the zycron acquisition , $ 6.0 million in connection with the smart acquisition and we made capital expenditures of $ 1.1 million mainly related to computer equipment and software purchased in the ordinary course of business . in fiscal 2016 , we made capital expenditures of $ 0.9 million mainly related to computer equipment purchased in the ordinary course of business . financing activities cash flows from financing activities consisted principally of borrowings and payments under our amended credit agreement , payment of dividends and contingent consideration paid . for fiscal 2018 , we paid down $ 13.8 million in principal payments on the term loan described below , paid $ 10.9 million in cash dividends on our common stock , we reduced our revolving line of credit by $ 10.7 million , we paid $ 3.3 million related to option cancellation agreement , and we paid $ 1.0 million of contingent consideration related to the 2015 vts and 2017 zycron acquisitions . we received net proceeds from the issuance of common stock of $ 22.2 million and used the net proceeds to reduce outstanding indebtedness under our revolving facility and term loan with tcb and to cancel outstanding options pursuant to the option cancellation agreement , as noted above . for fiscal 2017 , we received proceeds from the issuance of the $ 25.0 million term loan mainly to fund the zycron acquisition .
| the zycron acquisition contributed an additional $ 5.8 million and the smart acquisition contributed an additional $ 8.4 million increase over 2017. the overall de crease was due to a 10.8 % in crease in billed hours and a de crease of 13.8 % in average bill rate that was offset by a n in crease in permanent placements of $ 0.8 million . light industrial revenues : light industrial revenues in creased approximately $ 6.5 million ( 8.8 % ) . texas branches in creased revenues $ 0.9 million and other branches outside of the midwest in creased $ 5.6 million , while the illinois and wisconsin locations were flat . the overall revenue in crease was due to a 2.6 % in crease in billed hours and a 6.4 % in crease in average bill rate . gross profit : gross profit represents revenues from services less cost of services expenses , which consist of payroll , payroll taxes , payroll-related insurance , field talent costs , and reimbursable costs . replace_table_token_9_th 25 replace_table_token_10_th overall , our gross profit in creased approximately $ 8.2 million ( 12.0 % ) due primarily to in creased revenues in our real estate segment of $ 5.8 million and our professional segment 's addition of zycron of $ 1.4 million and smart of $ 3.1 million . as a percentage of revenue , gross profit has in creased to 26.7 % from 25.1 % , primarily due to higher gross profits across all segments . we determine spread as the difference between average bill rate and average pay rate . real estate gross profit : real estate gross profit in creased approximately $ 5.8 million ( 21.4 % ) consistent with the in crease in revenue . the in crease in gross profit was due primarily to 4.6 % in crease in average spread . professional gross profit : professional gross profit in creased approximately $ 1.0 million ( 3.1 % ) due to the de crease in cost of services which was offset by a 7.0 % de crease in average spread . the zycron acquisition contributed $ 1.4 million , which was offset by a $ 2.8 million de crease in the remaining it group .
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product sales in 2016 decreased 22 % from 2015 , primarily from decreased demand from the company 's heavy duty truck customers , partially offset by full year sales from the acquisition of cpi and other new business starting production in 2016. looking forward , the company anticipates that 2017 sales levels will decrease as compared to 2016 , due to lower demand from heavy duty truck customers and lower tooling sales . heavy duty truck customers as well as industry analysts are forecasting decreases in class 8 truck production of up to 10 % in 2017 compared to 2016 . industry analysts are forecasting a higher decrease in the first half of 2017 with class 8 truck production improving in the second half of 2017. story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > net sales for 2015 totaled $ 199,068,000 , representing a 14 % increase from the $ 175,204,000 reported for 2014. included in total sales were tooling project sales of $ 9,965,000 for 2015 and $ 5,460,000 for 2014. tooling project sales result primarily from customer approval and acceptance of molds and assembly equipment specific to their products as well as other non-production services . these sales are sporadic in nature and fluctuate in regard to scope and related revenue on a period-to-period basis . total product sales for 2015 , excluding tooling project sales , totaled $ 189,103,000 , representing an 11 % increase from the $ 169,744,000 reported for 2014. in 2015 , product sales were positively impacted by approximately $ 17,000,000 as a result of both the acquisition of cpi and other new business starting production in 2015. additional changes in customer demand positively impacted sales by approximately $ 5,000,000. partially offsetting these increases were lower product sales to paccar associated with programs nearing the end of their production life of approximately $ 3,000,000. sales to navistar in 2015 totaled $ 56,415,000 , compared to $ 51,330,000 reported for 2014. included in total sales are tooling sales of $ 6,246,000 and $ 76,000 for 2015 and 2014 , respectively . product sales to navistar decreased 2 % in 2015 as compared to 2014 , primarily due to a change in demand . sales to volvo in 2015 totaled $ 55,125,000 , compared to $ 48,859,000 reported for 2014. included in total sales are tooling sales of $ 1,600,000 and $ 2,519,000 for 2015 and 2014 , respectively . product sales to volvo increased by 16 % in 2015 as compared to 2014 , primarily due to a change in demand . sales to paccar in 2015 totaled $ 34,430,000 , compared to $ 36,128,000 reported for 2014. included in total sales are tooling sales of $ 978,000 and $ 526,000 for 2015 and 2014 , respectively . product sales to paccar decreased 6 % in 2015 as compared to 2014. this decrease was primarily due to lower sales of products nearing the end of their production life , partially offset by a change in demand for other products . sales to yamaha in 2015 totaled $ 16,766,000 , compared to $ 16,911,000 reported for 2014. the 1 % decrease in sales was due to changes in customer demand from yamaha . sales to other customers in 2015 totaled $ 36,332,000 , increasing 65 % from $ 21,976,000 reported for 2014. included in total sales are tooling sales of $ 1,141,000 and $ 2,339,000 in 2015 and 2014 , respectively . product sales to other customers increased 79 % in 2015 as compared to 2014. in 2015 , product sales were positively impacted from the acquisition of cpi and other new business starting production in 2015. the remaining increase is primarily due to changes in demand from other customers . gross margin was approximately 18.2 % of sales in 2015 and 17.2 % in 2014. the gross margin increase , as a percent of sales , was due to favorable foreign currency exchange effects of 1.1 % , favorable net changes in selling price and material costs of 0.4 % and favorable contribution from cpi of 0.1 % . these increases were offset by product mix and production inefficiencies of 0.4 % and higher fixed spending of 0.2 % . selling , general and administrative expense ( “ sg & a ” ) totaled $ 17,754,000 in 2015 , compared to $ 15,539,000 in 2014. contributing to the increase in sg & a expense were sg & a expenses of $ 993,000 from cpi , increased profit sharing costs of $ 603,000 , higher labor and benefits of $ 297,000 and higher travel expenses of $ 210,000. net interest expense totaled $ 330,000 for the year ended december 31 , 2015 , compared to net interest expense of $ 122,000 for the year ended december 31 , 2014. the interest on the term loan related to the acquisition of cpi and lower capitalized interest resulted in an increase in net interest expense of $ 301,000. partially offsetting this increase , were lower interest costs due to the reductions in capex loan balance and the revolving line of credit in 2015 . 24 income tax expense was approximately 34 % of total income before income taxes in 2015 and 2014. net income for 2015 was $ 12,050,000 or $ 1.59 per basic and $ 1.58 per diluted share , compared with net income of $ 9,634,000 or $ 1.28 per basic and diluted share for 2014. comprehensive income totaled $ 11,865,000 in 2015 compared to $ 7,592,000 in 2014. the increase was primarily related to a $ 2,416,000 increase in net income and a reduction in actuarial loss of $ 1,857,000 , net of tax , from other post-retirement benefit obligation . in 2014 , the company recorded an actuarial loss of $ 2,679,000 or $ 1,717,000 , net of tax , for other post-retirement benefit obligations . this loss , net of tax , primarily consisted of $ 570,000 from a decrease to the discount rate , $ 568,000 from updated mortality assumptions and $ 381,000 due to updated claims data . story_separator_special_tag liquidity and capital resources the company 's primary sources of funds have been cash generated from operating activities and borrowings from third parties . primary cash requirements are for operating expenses , capital expenditures and acquisition . on december 9 , 2008 , the company and its wholly owned subsidiary , corecomposites de mexico , s. de r.l . de c.v. , entered into a credit agreement , as amended from time to time ( the `` credit agreement '' ) , with a lender to provide various financing facilities . under this credit agreement , as amended most recently with the eleventh amendment on june 21 , 2016 , the company received certain loans , subject to the terms and conditions stated in the agreement , which included ( 1 ) a $ 12,000,000 capex loan ; ( 2 ) an $ 8,000,000 mexican loan ; ( 3 ) an $ 18,000,000 variable rate revolving line of credit ; ( 4 ) a term loan in an original amount of $ 15,500,000 ; and ( 5 ) a letter of credit commitment of up to $ 250,000 , of which $ 155,000 has been issued . the credit agreement is secured by a guarantee of each u.s. subsidiary of the company , and by a lien on substantially all of the present and future assets of the company and its u.s. subsidiaries , except that only 65 % of the stock issued by corecomposites de mexico , s. de r.l . de c.v. has been pledged . cash provided by operating activities totaled $ 26,069,000 for the year ended december 31 , 2016 . net income of $ 7,411,000 positively impacted operating cash flows . non-cash deductions of depreciation and amortization included in net income amounted to $ 6,283,000 . changes in working capital increased cash provided by operating activities by $ 11,413,000 . changes in working capital primarily relate to decreases in accounts receivable and inventory , partially offset by decreases in accounts payable and accrued and other liabilities . cash used in investing activities totaled $ 2,863,000 for the year ended december 31 , 2016 , all of which related to new programs , equipment improvements and capacity expansion at the company 's production facilities . the company anticipates spending approximately $ 9,000,000 during 2017 on property , plant and equipment purchases for all of the company 's operations . the company anticipates using available cash and cash from operations to finance this capital investment . at december 31 , 2016 , purchase commitments for capital expenditures in progress were approximately $ 616,000 . cash used in financing activities totaled $ 3,864,000 for the year ended december 31 , 2016 . scheduled repayments of principal on the company 's capex and term loans totaled $ 3,714,000. additionally , purchases of treasury stock to satisfy employee tax withholding requirements on vested restricted stock reduced cash flow from financing activities by $ 134,000 . at december 31 , 2016 , the company had cash on hand of $ 28,285,000 and an available revolving line of credit of $ 18,000,000. management believes that cash on hand , cash flow from operating activities and available borrowings under the revolving line of credit will be sufficient to meet the company 's current liquidity needs . if a material adverse change in the financial position of the company should occur , or if actual sales or expenses are substantially different than what has been forecasted , the company 's liquidity and ability to obtain further financing to fund future operating and capital requirements could be negatively impacted . the company is required to meet certain financial covenants included in the credit agreement with respect to leverage ratios , fixed charge ratios , capital expenditures as well as other customary affirmative and negative covenants . as of december 31 , 2016 , the company was in compliance with its financial covenants . management regularly evaluates the company 's ability to effectively meet its debt covenants . based on the company 's forecast , which is primarily based on industry analysts ' estimates of heavy and medium-duty truck production volumes , as well as other assumptions and customer provided forecasts , management believes that the company will be able to maintain compliance with its financial covenants for the next 12 months . 25 on november 14 , 2014 the company filed a universal shelf registration statement on form s-3 ( the “ registration statement ” ) with the sec in accordance with the securities act of 1933 , as amended , which became effective on november 25 , 2014. the registration statement registered common stock , preferred stock , debt securities , warrants , depositary shares , rights , units and any combination of the foregoing , for a maximum aggregate offering price of up to $ 50 million , which may be sold from time to time . the terms of any securities offered under the registration statement and intended use of proceeds will be established at the times of the offerings and will be described in prospectus supplements filed with the sec at the times of the offerings . the registration statement has a three year term . contractual obligations and off-balance sheet transactions the company has the following minimum commitments under contractual obligations , including purchase obligations , as defined by the sec . a “ purchase obligation ” is defined as an agreement to purchase goods or services that is enforceable and legally binding on the company and that specifies all significant terms , including : fixed or minimum quantities to be purchased ; fixed , minimum , or variable price provisions ; and the approximate timing of the transaction . other long-term liabilities are defined as long-term liabilities that are reflected on the company 's balance sheet under accounting principles generally accepted in the united states . based on this definition , the table below includes only those contracts which include fixed or minimum obligations . it does not include normal purchases , which are made in the ordinary course of business .
| included in total sales are tooling sales of $ 3,481,000 and $ 978,000 for 2016 and 2015 , respectively . product sales to paccar decreased 28 % in 2016 as compared to 2015 . this decrease was primarily resulted from lower sales for products reaching the end of their product life and a change in demand , partially offset by new business awards . sales to yamaha in 2016 totaled $ 16,205,000 , compared to $ 16,766,000 reported for 2015 . the 3 % decrease in sales was due to changes in demand from yamaha . sales to other customers in 2016 totaled $ 39,241,000 , increasing 8 % from $ 36,332,000 reported for 2015 . included in total sales are tooling sales of $ 2,333,000 and $ 1,141,000 in 2016 and 2015 , respectively . product sales to other customers increased 5 % in 2016 as compared to 2015 . in 2016 , product sales were positively impacted from the full year impact of cpi , which was acquired in march 2015 and other new business starting production in 2016. partially offsetting these increases were decreases to another customer in the heavy truck market , due to lower demand and lower sales to an automotive customer , due to products reaching the end of their production life . gross margin was approximately 16.0 % of sales in 2016 and 18.2 % in 2015 . the gross margin decrease , as a percent of sales , was due to unfavorable product mix and production inefficiencies of 2.5 % and lower leverage of fixed costs of 0.9 % . these decreases were offset by favorable foreign currency exchange effects of 1.1 % and favorable net changes in selling price and material costs of 0.1 % . selling , general and administrative expense ( “ sg & a ” ) totaled $ 16,379,000 in 2016 , compared to $ 17,754,000 in 2015 . the decrease in sg & a expense primarily resulted from lower profit sharing expense of $ 1,218,000 , and
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as indicated in the rate/volume table below , the slight decrease in rate and increased volume in interest bearing liabilities was outpaced by the effects of the increased volume and rate of interest earning assets , resulting in increased interest income of $ 13.9 million and increased interest expense of $ 3.0 million for 2015. the volume of interest bearing liabilities was also mitigated by $ 87.2 million in capital raised in the july 2015 initial public offering . for 2015 compared to 2014 , net interest margin increased from 3.04 % to 3.26 % due to the aforementioned effects . years ended december 31 , 2014 vs. 2013 for the year ended december 31 , 2014 , net interest income increased $ 3.9 million , or 36.5 % , to $ 14.7 million compared to the year ended december 31 , 2013. this increase was due to growth in average interest earning assets combined with higher asset yields and a relatively stable cost of funds . average interest earning assets increased by $ 117.7 million , or 32.2 % , from fiscal year 2013 to 2014 , while the related yield on average interest earning assets increased by seven basis points to 4.25 % , or an equivalent of $ 5.3 million . as a strategic initiative to develop market share as a de novo bank , the bank offered loans at highly competitive market rates in the development phase of our business . as the business evolved , the bank began pricing loans commensurate with premium market rates and the added value that accompanies each loan from the bank 's business advisory group , or bag . the bank formed the bag in 2010 to enhance borrower experience by focusing specifically on the needs of borrowers within each vertical . the bag provides complementary advisory service to customers , such as receivables and inventory review , in conjunction with periodic financial health reviews which deepens existing relationships . while the corresponding cost of funds on interest bearing liabilities for fiscal year 2014 declined slightly by two basis points to 1.23 % , the average balance in interest bearing liabilities increased by $ 111.7 million or 30.8 % . as indicated in the below rate volume table , the slight drop in the cost of funds was outpaced by the effects of the increased volume of interest bearing liabilities resulting in increased interest expense for fiscal year 2014 of $ 1.3 million . for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 , net interest margin increased from 2.95 % to 3.04 % due to the aforementioned affects . as a bank without a branch network , the bank gathers deposits over the internet and in the community in which it is headquartered . due to the nature of a branchless bank and low overhead required for deposit gathering , the rates the bank is able to offer are generally above the industry average . the bank began , on a limited basis , publicly promoting its deposit products in fiscal year 2012 , which accounts for the increase in interest bearing liabilities . 33 average balances and yields . the following table presents information regarding average balances for assets and liabilities , the total dollar amounts of interest income and dividends from average interest-earning assets , the total dollar amount of interest expense on average interest-bearing liabilities , and the resulting average yields and costs . the yields and costs for the periods indicated are derived by dividing the income or expense by the average balances for assets or liabilities , respectively , for the periods presented . loan fees are included in interest income on loans . replace_table_token_5_th ( 1 ) average loan balances include non-accruing loans . 34 rate/volume analysis . the following table sets forth the effects of changing rates and volumes on net interest income . the rate column shows the effects attributable to changes in rate ( changes in rate multiplied by current volume ) . the volume column shows the effects attributable to changes in volume ( changes in volume multiplied by prior rate ) . the total column represents the sum of the prior columns . for purposes of this table , changes attributable to changes in both rate and volume that can not be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume . replace_table_token_6_th provision for loan losses . the provision for loan losses represents the amount necessary to be charged against the current period 's earnings to maintain the allowance for loan losses at a level that is appropriate in relation to the estimated losses inherent in the loan portfolio . a number of factors are considered in determining the required level of loan loss reserves and the provision required to achieve the appropriate reserve level , including loan growth , credit risk rating trends , nonperforming loan levels , delinquencies , loan portfolio concentrations and economic and market trends . losses inherent in loan relationships are mitigated by the portion of the loan that is guaranteed by the sba . a typical sba 7 ( a ) loan carries a 75 % guarantee , which reduces the risk profile of these loans . the company believes that its focus on compliance with regulations and guidance from the sba are key factors to managing this risk . years ended december 31 , 2015 vs. 2014 for 2015 , the provision for loan losses was $ 3.8 million , an increase of $ 1.0 million , or 36.3 % , compared to the same period in 2014. much of the loan growth for 2015 occurred within new lending verticals with higher assumed loss factors due to the company 's lack of historical loss experience in those industries . story_separator_special_tag net charge-offs were $ 798 thousand for 2015 , compared to net charge-offs of $ 1.1 million for 2014. in addition , at december 31 , 2015 , nonperforming loans not guaranteed by the sba totaled $ 2.0 million , which was 0.7 % of the held-for-investment loan portfolio compared to $ 3.1 million , or 1.5 % , of loans held for investment at december 31 , 2014 . 35 years ended december 31 , 2014 vs. 2013 for the year ended december 31 , 2014 , the provision for loan losses was $ 2.8 million , an increase of $ 3.7 million , or 425.5 % , compared to the same period in 2013. the higher provision for loan losses in 2014 was primarily the result of an increase in reserves on impaired loans of $ 1.1 million , coupled with loan loss provisions totaling approximately $ 1.7 million in response to substantial loan growth and increases in qualitative reserves , partially mitigated by declining loss ratios . much of the loan growth occurred within new lending verticals with higher loss factors due to the company 's lack of historical experience in those industries . net loan charge-offs were $ 1.1 million for the fiscal year ended december 31 , 2014 , compared to $ 1.9 million for fiscal year 2013 , equating to 0.28 % and 0.66 % of average loans for the respective periods . in addition , at december 31 , 2014 , nonperforming loans not guaranteed by the sba totaled $ 3.1 million , which was 1.5 % of the held-for-investment loan portfolio compared to $ 1.7 million , or 1.2 % , of loans held for investment at december 31 , 2013. noninterest income noninterest income principally represents income from the sale of sba-guaranteed loans . this income is comprised of loan servicing revenue and revaluation and net gains on sales of loans . revenue from the sale of loans depends upon volume and rates of underlying loans as well as cost and availability of funds in the secondary markets prevailing in the period between loan funding and closing of sale . in addition , the loan servicing revaluation is significantly impacted by changes in market rates and other underlying assumptions such as prepayment speeds and default rates . other less common elements of noninterest income include nonrecurring gains and losses on investments . the following table shows the components of noninterest income and the dollar and percentage changes for the periods presented . replace_table_token_7_th 36 years ended december 31 , 2015 vs. 2014 for 2015 , noninterest income increased by $ 24.3 million , or 40.4 % , compared to 2014. increases in the serviced loan portfolio and the volume of loans sold in the secondary market , the core components of the company 's business , contributed $ 20.7 million to noninterest income growth , including $ 3.3 million of increased servicing revenue and $ 17.4 million of increased net gains on sale of loans . other factors contributing to the increase in noninterest income were a $ 3.8 million one-time gain arising in the first quarter of 2015 related to the sale of the investment in ncino combined with an increase of $ 2.2 million due to minimal equity method investments in non-consolidated affiliates during 2015 compared to $ 2.2 million in losses on such investments in 2014 , and an increase of $ 1.3 million in fees earned for monitoring higher levels of multi-advance loans in 2015. offsetting increases in noninterest income were larger downward adjustments in the valuation of servicing rights of $ 4.0 million during 2015 compared to the same period in 2014. the tables below reflect loan production , sales of guaranteed loans and the aggregate balance in guaranteed loans sold . these components are key drivers of the company 's recurring noninterest income . replace_table_token_8_th replace_table_token_9_th ( 1 ) this represents the outstanding principal balance of guaranteed loans serviced , as of the last day of the applicable period , which have been sold into the secondary market . changes in various components of noninterest income are discussed in more detail below . loan servicing revenue : while portions of the loans that the bank originates are sold and generate premium revenue , servicing rights for all loans that the bank originates , including loans sold , are retained by the bank . in exchange for continuing to service loans that are sold , the bank receives fee income represented in loan servicing revenue equivalent to one percent of the outstanding balance of the loans sold . in addition , the cost of servicing sold loans is approximately 0.40 % of the balance of the loans sold , which is included in the loan servicing revaluation computations . unrecognized servicing revenue is reflected in a servicing asset recorded on the balance sheet . revenues associated with the servicing of loans are recognized over the expected life of the loan through the income statement , and the servicing asset is reduced as this revenue is recognized . for the year ended december 31 , 2015 , loan servicing revenue increased $ 3.3 million , or 25.4 % , compared to the year ended december 31 , 2014 , as a result of an increase in the average outstanding balance of guaranteed loans sold . at december 31 , 2015 , the outstanding balance of guaranteed loans sold in the secondary market was $ 1.78 billion , with a weighted average servicing fee rate of 1.07 % . at december 31 , 2014 , the outstanding balance of guaranteed loans sold was $ 1.30 billion , with a weighted average servicing fee rate of 1.11 % . prior to january 2010 , the company sold loans for servicing in excess of 1.0 % . as loans sold for servicing fee rates in excess of 1.0 % prior to fiscal year 2010 amortize , the company expects that the weighted average servicing fee rate will approach and stabilize at approximately 1.0 % .
| million on december 31 , 2014. business outlook below is a discussion of management 's current expectations regarding company performance over the near-term based on market conditions , the regulatory environment and business strategies as of the time the company filed this report . actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements . see “ important note regarding forward-looking statements ” in this report for more information on forward-looking statements . the company 's results for 2015 demonstrated strong underlying financial performance and solid growth momentum . management continues to focus not only on building out existing verticals but incrementally adding new verticals to the loan portfolio . the company expects to originate approximately $ 1.35 billion in loans in 2016 , with approximately 40 % of those loans fully funded at closing . management anticipates that the company 's held-for-sale and held-for-investment loan portfolios will continue to grow as a result of growth in the construction portfolio as well as strategic business decisions , including the pursuit of potential opportunities in conventional lending outside of sba or other government guarantee programs . noninterest expenses are expected to increase as a result of investments to support this expected growth in loan production as well as other infrastructure costs . non-gaap financial measures statements included in this management 's discussion and analysis include non-gaap financial measures and should be read along with the accompanying tables which provide a reconciliation of non-gaap financial measures to gaap financial measures . the reconciliation of non-gaap measures is presented at the conclusion of this item 7 section . management believes that non-gaap financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the company without regard to transactional activities . non-gaap financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under gaap , and investors should consider the company 's performance and financial
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37 replace_table_token_8_th discontinued operations in december 2013 , the company initiated a plan to discontinue the cash & go , ltd. joint venture operation , which owns and operates 37 check cashing and financial services kiosks located inside convenience stores in the state of texas . cash & go , ltd. is a joint venture in which the company owns a 50 % interest through its direct 49.5 % ownership interest and its 50 % ownership of cash & go management , llc , which in turns owns a 1 % interest in the joint venture . in connection with this decision to terminate the joint venture , the company recorded a charge of $ 844,000 , net of tax , or $ 0.03 per share , for the quarter ended december 31 , 2013 , which was reported as a loss from discontinued operations . the after-tax earnings from operations for cash & go , ltd. were $ 211,000 , or $ 0.01 per share , in fiscal 2013. comparable after-tax earnings were $ 243,000 , or $ 0.01 per share , in fiscal 2012 and $ 386,000 or $ 0.01 per share in fiscal 2011. the company expects to wind down operations and liquidate the assets of cash & go , ltd. over the first six months of fiscal 2014. in september 2012 , the company closed 7 of its consumer loan stores located in the texas cities of austin and dallas due in part to city ordinances enacted during 2012 , which significantly restricted the company 's ability to provide credit services products . the company recorded a loss on disposal of $ 628,000 , net of tax , or $ 0.03 per share , from these stores in fiscal 2012. the after-tax operating results from operations for these texas stores were immaterial in fiscal 2012 and fiscal 2011. the company sold all 10 of its illinois consumer loan stores in march 2011. the company recorded a gain of $ 5,979,000 , net of tax , or $ 0.19 per share , during fiscal 2011 from the sale of these stores . the after-tax earnings from operations for the illinois stores were an additional $ 514,000 , or $ 0.02 per share in fiscal 2011 . 38 all revenue , expenses and income reported in these consolidated financial statements have been adjusted to reflect reclassification of these discontinued operations . the carrying amounts of the assets and liabilities for discontinued operations as of december 31 , 2013 , were immaterial . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates , assumptions and judgments that affect the reported amounts of assets and liabilities , related revenue and expenses , and disclosure of gain and loss contingencies at the date of the financial statements . such estimates , assumptions and judgments are subject to a number of risks and uncertainties , which may cause actual results to differ materially from the company 's estimates . the significant accounting policies that the company believes are the most critical to aid in fully understanding and evaluating its reported financial results include the following : customer loans and revenue recognition - receivables on the balance sheet consist of pawn loans and consumer loans . pawn loans are collateralized by pledged tangible personal property . the company accrues pawn loan fee revenue on a constant-yield basis over the life of the pawn for all pawns for which the company deems collection to be probable based on historical pawn redemption statistics . the typical pawn loan has an initial term of 30 days , which , depending on state law , can generally be extended from 30 to 60 days . if the pawn is not repaid , the principal amount loaned becomes the carrying value of the forfeited collateral , which is recovered through sales to other customers at prices above the carrying value . the company 's pawn merchandise sales are primarily retail sales to the general public in its pawn stores . the company acquires pawn merchandise inventory through forfeited pawns and through purchases of used goods directly from the general public . the company records sales revenue at the time of the sale . the company presents merchandise sales net of any sales or value-added taxes collected . the company does not provide financing to customers for the purchase of its merchandise , but does permit its customers to purchase merchandise on an interest-free layaway plan . should the customer fail to make a required payment , the previous payments are forfeited to the company . interim payments from customers on layaway sales are recorded as deferred revenue and subsequently recorded as income during the period in which final payment is received or when previous payments are forfeited to the company . some jewelry is melted at a third-party facility and the precious metal content is sold at either prevailing market commodity prices or a previously agreed upon price with a commodity buyer . the company records revenue from these transactions when a price has been agreed upon and the company ships the precious metals to the buyer . the company recognizes credit services fees ratably over the life of the extension of credit made by the independent lender . the extensions of credit made by the independent lender to credit services customers have terms of 7 to 180 days . the company records a liability for any collected , but unearned , credit services fees received from its customers . the company accrues consumer loan service fees on a constant-yield basis over the term of the consumer loan . consumer loans have terms that range from 7 to 365 days . credit loss provisions - the company has determined that no allowance related to credit losses on pawn loans is required , as the fair value of the collateral is significantly in excess of the pawn loan amount . story_separator_special_tag under the cso program , letters of credit issued by the company to the independent lender constitute a guarantee for which the company is required to recognize , at the inception of the guarantee , a liability for the fair value of the obligation undertaken by issuing the letters of credit . the independent lender may present the letter of credit to the company for payment if the customer fails to repay the full amount of the extension of credit and accrued interest after the due date of the extension of credit . each letter of credit expires approximately 30 days after the due date of the extension of credit . the company 's maximum loss exposure under all of the outstanding letters of credit issued on behalf of its customers to the independent lender as of december 31 , 2013 , was $ 13,992,000 . according to the letter of credit , if the borrower defaults on the extension of credit , the company will pay the independent lender the principal , accrued interest , insufficient funds fee , and late fees , all of which the company records in the consumer loan and credit services loss provision . the company is entitled to seek recovery directly from its customers for amounts it pays the independent lender in performing under the letters of credit . the company records the estimated fair value of the liability under the letters of credit as a component of accrued liabilities . an allowance is provided for losses on active consumer loans and service fees receivable based upon expected default rates , net of estimated future recoveries of previously defaulted consumer loans and service fees receivable . the company considers consumer loans to be in default if they are not repaid on the due date and writes off the principal amount and service fees receivable as of the default date , leaving only active advances in the reported balance . net defaults and changes in the consumer loan allowance are charged to the consumer loan loss provision . 39 inventories - inventories represent merchandise acquired from forfeited pawns and merchandise purchased directly from the general public . inventories from forfeited pawns are recorded at the amount of the pawn principal on the unredeemed goods , exclusive of accrued interest . inventories purchased directly from customers are recorded at cost . the cost of inventories is determined on the specific identification method . inventories are stated at the lower of cost or market ; accordingly , inventory valuation allowances are established , if necessary , when inventory carrying values are in excess of estimated selling prices , net of direct costs of disposal . management has evaluated inventories and determined that a valuation allowance is not necessary . goodwill - goodwill represents the excess of the purchase price over the fair value of the net assets acquired in each business combination . the company performs its goodwill impairment assessment annually as of december 31 , and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . the company 's reporting units , which are tested for impairment , are u.s. pawn operations , u.s. consumer loan operations and mexico operations . the company assesses goodwill for impairment at a reporting unit level by first assessing a range of qualitative factors , including , but not limited to , macroeconomic conditions , industry conditions , the competitive environment , changes in the market for the company 's products and services , regulatory and political developments , entity specific factors such as strategy and changes in key personnel , and overall financial performance . if , after completing this assessment , it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value , the company proceeds to the two-step impairment testing methodology . foreign currency transactions - the company has significant operations in mexico , where the functional currency for the company 's mexican subsidiaries is the mexican peso . accordingly , the assets and liabilities of these subsidiaries are translated into u.s. dollars at the exchange rate in effect at each balance sheet date , and the resulting adjustments are accumulated in other comprehensive income ( loss ) as a separate component of stockholders ' equity . revenue and expenses are translated at the average exchange rates occurring during the year-to-date period . prior to translation , any u.s. dollar-denominated transactions of the mexican-based subsidiaries are remeasured into mexican pesos using current rates of exchange for monetary assets and liabilities and historical rates of exchange for non-monetary assets and liabilities . gains and losses from remeasurement of dollar-denominated monetary assets and liabilities in mexico are included in store operating expenses . the company 's management reviews and analyzes certain operating results , in mexico , on a constant currency basis because the company believes this better represents the company 's underlying business trends . amounts presented on a constant currency basis are denoted as such . see “ non-gaap financial information ” for additional discussion of constant currency operating results . 40 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; text-decoration : underline ; '' > consumer lending operations service fees from consumer loans and credit services transactions for fiscal 2013 decreased 10 % , compared to fiscal 2012 . the majority of the payday loan revenues are generated in the company 's stand-alone stores in texas , which experienced a revenue decline of 14 % during fiscal 2013 . the company attributes the decrease , in part , to increased regulation and competition in the texas markets coupled with store closings . payday loan-related products comprised 7 % of total revenue during fiscal 2013 . the company 's consumer loan and credit services loss provision was 26 % of consumer loan and credit services fee revenue during fiscal 2013 and fiscal 2012 .
| constant currency results exclude the effects of foreign currency translation and are calculated by translating current-year balances at the prior-year end-of-period exchange rate . replace_table_token_10_th ( 1 ) cso program amounts outstanding are composed of the principal portion of active cso program extensions of credit by the independent lender , which are not included on the company 's balance sheet , net of the company 's estimated fair value of its liability under the letters of credit guaranteeing the extensions of credit . retail merchandise sales operations the increased retail merchandise sales in the company 's pawn stores reflected new store contributions , maturation of existing stores and an increased mix of retail consumer hard good inventories ( primarily consumer electronics , appliances and power tools ) , especially in mexico . the gross profit margin on retail merchandise sales , which excludes scrap jewelry sales , was 40 % and the margin on wholesale scrap jewelry was 14 % for fiscal 2013 , compared to margins of 42 % on retail merchandise sales and 26 % on wholesale scrap jewelry for fiscal 2012 . the decline in retail margins reflects the continued shift in the company 's consolidated retail product mix toward general merchandise inventory , which carry lower margins than retail jewelry items , especially in mexico , coupled with a more promotional general retail environment in 2013. pawn inventories increased by 19 % from december 31 , 2012 , to december 31 , 2013 , reflecting the growth in pawn loans receivable collateralized by general merchandise , store maturation and acquisition activity . at december 31 , 2013 , the company 's pawn inventories , at cost , were composed of 34 % jewelry ( primarily gold jewelry held for retail sale ) , 41 % electronics and appliances , 10 % tools and 15 % other . as of december 31 , 2012 , the company 's pawn inventories , at cost , were composed of : 39 % jewelry ( primarily gold jewelry held for sale ) , 40 % electronics and appliances , 8 % tools and 13 % other . at december 31 , 2013
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excluding the impact of acquisitions , transactions processed grew 15.5 % from 2016 to 2017. transactions processed in north america accounted for 35 % of the total transactions we processed in 2017. for the year ended december 31 , 2016 , we processed more than 760 million transactions in north america and approximately 1.4 billion transactions in europe , an aggregate increase of 36.8 % compared to the year ended december 31 , 2015 , driven by organic growth and the impact of acquisitions . excluding the impact of acquisitions , transactions processed grew 17.2 % from 2015 to 2016. transactions processed in north america accounted for 35 % of the total transactions we processed in 2016. comparison of results for the years ended december 31 , 2018 and 2017 the following table sets forth the consolidated statements of operations in dollars and as a percentage of revenue for the period presented . replace_table_token_3_th 56 revenue revenue was $ 564.8 million for the year ended december 31 , 2018 , an increase of $ 60.0 million , or 11.9 % , compared to revenue of $ 504.8 million for the year ended december 31 , 2017. this increase was driven primarily by organic growth in our european segment , mexico and the u.s. tech-enabled division . north america segment revenue was $ 320.5 million for the year ended december 31 , 2018 , an increase of $ 21.4 million , or 7.2 % , compared to the year ended december 31 , 2017. the increase was driven by organic growth in our u.s. tech-enabled division and mexico . north america transactions increased 4.6 % for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , primarily driven by organic growth in mexico , revenue from the acquisition of federated payment systems , llc and federated payment canada corporation ( “ federated ” ) and our u.s. tech-enabled division , partially offset by declines in transactions in the u.s. direct and traditional divisions . changes in foreign currency exchange rates decreased reported revenue by $ 2.3 million for the year ended december 31 , 2018. europe segment revenue was $ 244.3 million for the year ended december 31 , 2018 , an increase of $ 38.6 million , or 18.7 % , compared to the year ended december 31 , 2017 , driven by strong growth in europe transactions . europe transactions increased 23.6 % , as compared to the year ended december 31 , 2017. changes in foreign currency exchange rates increased reported revenue by $ 9.1 million for the year ended december 31 , 2018. operating expenses cost of services and products , exclusive of depreciation and amortization cost of services and products , exclusive of depreciation and amortization , was $ 189.4 million for the year ended december 31 , 2018 , an increase of $ 24.9 million , or 15.1 % , compared to the year ended december 31 , 2017. this increase was due primarily to the increase in transactions processed and increases in card network fees . our cost of services and products includes both fixed and variable components , with variable components dependent upon transactions processed , among other secondary measures . the increase in cost was due to the variable component from the increase in transactions processed . selling , general and administrative expenses selling , general and administrative expenses were $ 311.4 million for the year ended december 31 , 2018 , an increase of $ 90.4 million , or 40.9 % , compared to the year ended december 31 , 2017. the increase was due primarily to share-based compensation expense incurred in the current period and other transition , acquisition and integration costs . at the consummation of the ipo and through the year ended december 31 , 2018 , the company recognized one-time , non-cash compensation expenses of approximately $ 51.4 million in connection with ( i ) the company waiving all time-based and performance-based vesting requirements applicable to evo , llc 's outstanding unvested class d units that were reclassified as llc interests and issuing class c common stock or class d common stock and ( ii ) the company waiving all performance-based vesting and performance-based forfeiture requirements and issuing of shares of class a common stock to members of our management and certain of our current and former employees upon conversion of the outstanding unit appreciation awards held by these individuals . we also incurred $ 4.1 million of compensation expense representing the amount recognized in connection with the grant of stock options and restricted stock units to our directors , officers and certain employees in connection with the ipo . we had no such expense for the year ended december 31 , 2017. depreciation and amortization depreciation and amortization was $ 87.2 million for the year ended december 31 , 2018 , an increase of $ 13.0 million , or 17.6 % , compared to the year ended december 31 , 2017. this increase was due primarily to purchases of pos terminals to support growth in certain of our international markets and other hardware and software purchases as well as the amortization of intangible assets acquired during the year ended december 31 , 2018. impairment of intangible assets for the year ended december 31 , 2018 , we recognized a non-cash impairment charge of $ 14.6 million relating to trademarks , indefinite-lived , primarily related to the accelerated integration of the sterling tradename into the evo portfolio in november 2018 . 57 interest expense interest expense was $ 59.8 million for the year ended december 31 , 2018 , compared to $ 62.9 million for the year ended december 31 , 2017. the decrease was due to reductions in borrowings from the use of ipo proceeds raised in the second quarter of 2018 , partially offset by debt extinguishment costs and a prepayment penalty associated with the paydown of the second lien term loan . story_separator_special_tag gain on acquisition of unconsolidated investee gain on acquisition of unconsolidated investee was $ 8.4 million for the year ended december 31 , 2018 , related to the fair value mark-up on the acquisition of a previously minority owned subsidiary . income tax expense historically , as a limited liability company treated as a partnership for u.s. federal income tax purposes , evo , llc 's income was not subject to corporate tax in the u.s. , but only on income earned in foreign jurisdictions . in the u.s. , our members were taxed on their proportionate share of income of evo , llc . however , following the reorganization transactions , we incur corporate tax at the u.s. federal income tax rate on our share of taxable income of evo , llc . our income tax expense reflects such u.s. federal , state and local income tax as well as taxes payable in foreign jurisdictions by certain of our subsidiaries . our income tax expense was $ 10.4 million for the year ended december 31 , 2018 , compared to income tax expense of $ 16.6 million for the year ended december 31 , 2017. net loss net loss was $ 98.9 million for the year ended december 31 , 2018 , an increase of $ 66.5 million , compared to net loss of $ 32.3 million for the year ended december 31 , 2017. this increase was due to higher selling , general and administrative expenses , primarily due to the impact of share-based compensation , higher professional fees related to integration and acquisition activities in the current period , and the $ 14.6 million impairment of the sterling trademark in the current period . these drivers in net loss were partially offset by the $ 8.4 million gain on the acquisition of an unconsolidated investee . net loss attributable to non-controlling interests of evo investco , llc net loss attributable to non-controlling interests of evo investco , llc was $ 90.8 million for the year ended december 31 , 2018. there was no net loss attributable to non-controlling interests of evo investco , llc for the year ended december 31 , 2017 as it was prior to the ipo and reorganization activities . segment performance north america segment profit for the year ended december 31 , 2018 was $ 85.4 million , 3.2 % higher than the year ended december 31 , 2017. the increase is primarily due to organic growth in mexico and the u.s. tech-enabled division and the impact of cost reduction programs in the united states . north america segment profit margin was 26.6 % for the year ended december 31 , 2018 , compared to 27.7 % for the year ended december 31 , 2017. europe segment profit was $ 61.2 million for the year ended december 31 , 2018 , compared to $ 54.8 million for the year ended december 31 , 2017. the increase is primarily due to organic growth and the impact of acquisitions . europe segment profit margin was 25.1 % for the year ended december 31 , 2018 , compared to 26.7 % for the year ended december 31 , 2017. corporate expenses not allocated to a segment were $ 41.4 million for the year ended december 31 , 2018 , compared to $ 25.7 million for the year ended december 31 , 2017. the increase in expense is due to additional public company costs related to insurance , board of directors fees , certain related party transactions as described in note 9 “ related party transactions ” and an increase in consulting and advisor fees , including legal fees . 58 comparison of results for the years ended december 31 , 2017 and 2016 the following table sets forth the consolidated statements of operations in dollars and as a percentage of revenue for the period presented . replace_table_token_4_th revenue revenue was $ 504.8 million for the year ended december 31 , 2017 , an increase of $ 85.5 million , or 20.4 % , compared to revenue of $ 419.2 million for the year ended december 31 , 2016. this increase was driven primarily by the inclusion of revenue from the sterling acquisition and organic growth in our mexico market and european segment . north america segment revenue was $ 299.0 million for the year ended december 31 , 2017 , an increase of $ 58.0 million , or 24.0 % , compared to the year ended december 31 , 2016. the acquisition of the sterling business on january 4 , 2017 contributed $ 50.5 million , while organic growth in our north america sales channels contributed $ 7.4 million . north america transactions increased 17.8 % for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 , primarily driven by the sterling acquisition and organic growth in mexico . changes in foreign currency exchange rates decreased revenue by $ 1.2 million . europe segment revenue was $ 205.7 million for the year ended december 31 , 2017 , an increase of $ 27.6 million , or 15.5 % , compared to the year ended december 31 , 2016. europe transactions increased 24.7 % from double digit growth across all countries . the number of transactions processed increased faster than revenue due to certain one-time incentive payments received in the year ended december 31 , 2016. changes in foreign currency exchange rates increased revenue by $ 6.7 million for the year ended december 31 , 2017. operating expenses cost of services and products , exclusive of depreciation and amortization cost of services and products , exclusive of depreciation and amortization was $ 164.5 million for the year ended december 31 , 2017 , an increase of $ 23.8 million , or 16.9 % , compared to the year ended december 31 , 2016. this increase was due to the increase in transactions processed and the inclusion of costs from sterling .
| · segment profit , which is the measure used by our chief operating decision maker to evaluate the performance of and to allocate resources to our segments , is calculated as segment revenue less ( 1 ) segment expenses , plus ( 2 ) segment income from unconsolidated investees , plus ( 3 ) segment other income , net , less ( 4 ) segment non-controlling interests . certain corporate-wide governance functions , as well as depreciation and amortization , are not allocated to our segments . north america our north america segment is comprised of the united states , canada and mexico . we distribute our products and services through a combination of bank referrals , a direct sales force , specialized integrated solution companies , sales agents and isos . europe our europe segment is comprised of western europe ( spain , united kingdom , ireland , germany and malta ) and eastern europe ( poland and the czech republic ) . we distribute our products and services through a combination of bank referrals , a direct sales force , specialized integrated solution companies and isos . we also provide atm processing services to a financial institution and third-party atm providers . key financial definitions revenue consists primarily of fees derived from the monetary value of and number of transactions processed for our merchants , as defined through contractual agreements with the merchants . we also receive revenues related to other fees for certain services and products . we follow guidance provided in accounting standards codification ( “ asc ” ) 605-45 , principal agent considerations , which establishes guidance for whether revenue is recognized based on the gross amount billed to a customer or the net amount retained . through the evaluation of asc 605-45 , certain revenues are presented net of interchange fees paid to issuers , certain fees and assessments paid to the card networks ( e.g . , visa , mastercard , american express and discover ) , as these costs are controlled by the networks in which we effectively act as a clearing
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impact to our business the recent reduction in exploration spending has had an impact on our results of operations for 2014 , especially those of our solutions segment . we have seen a softening of customer underwriting of our new venture programs . we continue to maintain high standards for underwriting of any new projects , and have delayed certain new venture programs that were originally planned to occur during 2014 . we invested approximately $ 47 million less in our multi-client data library during 2014 , compared to 2013 . we saw a slowdown in our data processing business during 2014. during the second quarter , various customers delayed processing projects and this trend has continued , which negatively affected our backlog . data processing revenues were down in 2014 compared to 2013 , and we expect our data processing business to remain soft into 2015. during 2014 , we took measured actions to reduce our data processing cost structure . our business has traditionally been seasonal , with the strongest demand for our services and products often in the fourth quarter of our fiscal year . as discussed above , we have seen reduced levels of exploration-related spending by e & p companies as those companies focus more of their current spending on optimizing production of existing assets . at december 31 , 2014 , our solutions segment backlog , which consists of commitments for ( i ) data processing work and ( ii ) both multi-client new venture projects and proprietary projects by our geoventures group underwritten by our customers , was $ 46.7 million , compared with $ 84.4 million at december 31 , 2013 . the decline in backlog was primarily due to ( i ) the softening of customer underwriting for new ventures projects and ( ii ) the delay of certain processing projects by customers . we anticipate that the majority of our backlog will be recognized as revenue over the first half of 2015. our software segment revenues increased slightly for 2014 compared to the same period of 2013 . our software segment experienced record revenue quarters in the first half of 2014 , which was mostly offset by a reduction in revenues in the fourth quarter . our traditional seismic contractor customers are also experiencing weakened demand due to the reduction in seismic spend by their customers . as a result , our systems segment continues to experience weak year-over-year sales . our systems segment revenues decreased primarily because of lower towed streamer products sales and no ocean bottom systems sales in 2014 . these declines were partially offset by an increase in repair and replacement marine positioning equipment revenues . in january 2014 , we increased our ownership in oceangeo , our seabed data acquisition joint venture , from 30 % to 70 % . in july 2014 , we increased our ownership in oceangeo to 100 % . our 2014 obs results include the consolidated revenues of oceangeo for february through december . during those eleven months , oceangeo recognized $ 103.2 million of revenues for the work performed in trinidad that was completed in may and from other projects offshore west africa . oceangeo began work on a new contract in west africa in late july and completed it successfully . oceangeo was awarded an additional short-term project nearby and completed that project in the fourth quarter . these projects are in an area where oceangeo is pursuing several tenders for additional long-term work . prior to february , we accounted for our interest in oceangeo as an equity method investment . for information regarding our acquisition of oceangeo , see footnote 3 “ acquisition of oceangeo ” of footnotes to consolidated financial statements . inova geophysical reported a decrease in revenues for 2014 , compared to 2013. this decrease in revenues primarily occurred as a result of decreased sales during 2014 as a result of ( i ) the soft land seismic market caused by the reduction in exploration spending by e & p companies and ( ii ) reduced purchases by bgp . 35 we continue to monitor the global economy , the demand for crude oil and natural gas and the resultant impact on the capital spending plans and operations of our e & p customers in order to plan our business . we remain confident that , despite current marketplace issues that we describe above , we have positioned ourselves to take advantage of the next upturn in the energy cycle by shifting our focus towards e & p solutions and away from equipment sales , and by diversifying our offerings across the e & p lifecycle . it is our view that technologies that add a competitive advantage through improved imaging , cost reductions or improvements in well productivity will continue to be valued in our marketplace . we believe that our newest technologies , such as calypso , wiband , orca and narwhal , will continue to attract customer interest , because those technologies are designed to deliver improvements in image quality within more productive delivery systems . restructuring and other charges due to the current economic and market conditions described above , including significant reductions in e & p capital expenditures , in the fourth quarter we initiated restructurings across all our segments , except for our ocean bottom services segment , reducing our overall workforce by approximately 10 % . this action was taken to rightsize the company to meet the current demands of the marketplace . in connection with this restructuring , we incurred a total of $ 2.3 million of severance charges , which will be paid out in 2015. we expect that this reduction will result in an annual cash savings of approximately $ 15.0 million . additionally , we incurred charges to write-down the value of certain assets , including our multi-client data library , our investment in inova geophysical , our goodwill in the marine systems reporting unit and excess and obsolete inventory totaling approximately $ 176.1 million . story_separator_special_tag see footnote 2 “ impairments , restructurings and other charges ” of footnotes to consolidated financial statements . key financial metrics our results of operations have been materially affected by the impairments and restructuring charges within our solutions , systems and software segments and with respect to our inova geophysical joint venture , and by other charges , which affect the comparability of certain of the financial information contained in this form 10-k. in order to assist with the comparability to our historical results of operations , certain of the financial metrics tables and the discussion below exclude charges related to impairments , the restructuring and other write-downs . the gross profit ( loss ) , income ( loss ) from operations , costs and expenses below that are identified as “ as adjusted ” reflect the exclusion of the restructuring and other charges shown and described in the tables below . we believe that the non-gaap presentation of results of operations excluding these items provides a more meaningful comparison of reporting periods . the tables below provide ( i ) a summary of our net revenues for our company as a whole , and by segment , for 2014 , 2013 and 2012 , and ( ii ) an overview of other certain key financial metrics for our company as a whole and our four business segments on a comparative basis for 2014 , 2013 and 2012 , as reported and as adjusted in all three years for the restructuring and other charges recorded for those years . for certain tabular information on the operating results of our inova geophysical joint venture , see “ — other items — equity in earnings ( losses ) of investments . ” 36 replace_table_token_4_th 37 year ended december 31 , 2014 year ended december 31 , 2013 year ended december 31 , 2012 as reported restructuring and other charges as adjusted as reported restructuring and other charges as adjusted as reported restructuring and other charges as adjusted ( in thousands , except per share data ) gross profit : solutions $ ( 24,345 ) $ 100,825 ( a ) $ 76,480 $ 111,108 $ 5,461 ( a ) $ 116,569 $ 132,950 $ — $ 132,950 systems 29,829 7,580 ( b ) 37,409 19,999 25,688 ( c ) 45,687 50,790 1,280 ( d ) 52,070 software 28,835 137 ( e ) 28,972 28,206 — 28,206 32,061 — 32,061 ocean bottom services 27,904 — 27,904 — — — — — — total $ 62,223 $ 108,542 $ 170,765 $ 159,313 $ 31,149 $ 190,462 $ 215,801 $ 1,280 $ 217,081 gross margin : solutions ( 9 ) % 37 % 28 % 29 % 1 % 30 % 38 % — % 38 % systems 34 % 8 % 42 % 16 % 21 % 37 % 38 % 1 % 39 % software 72 % — % 72 % 72 % — % 72 % 74 % — % 74 % ocean bottom services 27 % — % 27 % — % — % — % — % — % — % total 12 % 22 % 34 % 29 % 6 % 35 % 41 % — % 41 % income ( loss ) from operations : solutions $ ( 80,653 ) $ 102,740 ( a ) $ 22,087 $ 61,146 $ 5,461 ( a ) $ 66,607 $ 88,589 $ — $ 88,589 systems ( 23,521 ) 32,492 ( b ) 8,971 ( 9,957 ) 28,050 ( c ) 18,093 10,132 12,848 ( d ) 22,980 software 20,212 223 ( e ) 20,435 23,602 — 23,602 28,129 — 28,129 ocean bottom services 19,070 — 19,070 — — — — — — corporate and other ( 53,037 ) 6,487 ( f ) ( 46,550 ) ( 58,395 ) 9,157 ( g ) ( 49,238 ) ( 52,323 ) — ( 52,323 ) total $ ( 117,929 ) $ 141,942 $ 24,013 $ 16,396 $ 42,668 $ 59,064 $ 74,527 $ 12,848 $ 87,375 operating margin : solutions ( 29 ) % 37 % 8 % 16 % 1 % 17 % 25 % — % 25 % systems ( 27 ) % 37 % 10 % ( 8 ) % 23 % 15 % 8 % 9 % 17 % software 51 % — % 51 % 60 % — % 60 % 65 % — % 65 % ocean bottom services 18 % — % 18 % — % — % — % — % — % — % corporate and other ( 10 ) % 1 % ( 9 ) % ( 11 ) % 2 % ( 9 ) % ( 10 ) % — % ( 10 ) % total ( 23 ) % 28 % 5 % 3 % 8 % 11 % 14 % 3 % 17 % net income ( loss ) applicable to common shares $ ( 128,252 ) $ 94,143 ( h ) $ ( 34,109 ) $ ( 251,874 ) $ 271,208 ( i ) $ 19,334 $ 61,963 $ ( 369 ) $ 61,594 diluted net income ( loss ) per common share $ ( 0.78 ) $ 0.57 $ ( 0.21 ) $ ( 1.59 ) $ 1.71 $ 0.12 $ 0.39 $ — $ 0.39 38 ( a ) primarily relates to the write-down of our multi-client data library in 2014 and 2013 with the solutions segment . also , 2014 was impacted by the impairment of intangible assets and severance-related charges . ( b ) primarily relates to the write-down of goodwill , impacting income ( loss ) from operations , in addition to inventory write-downs , impacting gross profit ( loss ) , and severance-related charges within the systems segment . ( c ) represents excess and obsolete inventory and severance-related charges within the systems segment in 2013 . ( d ) represents the write-down of excess and obsolete inventory , marine equipment and receivables within the systems segment in 2012 . ( e ) represents severance-related charges within the software segment .
| gross profit decreased by $ 16.4 million to $ 116.6 million , as adjusted , representing a 30 % gross margin , compared to $ 133.0 million , or a 38 % gross margin , for 2012. this decrease was attributable to ( i ) cost overruns on our 3-d marine program during the first half of 2013 and ( ii ) the negative impact of approximately $ 15 million of unrecorded revenues tied to a customer contract that was pending final execution at the end of 2013. systems — net revenues for 2013 decreased by $ 9.6 million , or 7 % , to $ 122.4 million , compared to $ 132.0 million for 2012. fourth quarter 2013 sales accounted for $ 40.5 million , or 33 % , of total annual systems revenues for 2013. sales in the fourth quarter of each year typically account for the largest share of sales each year . this decrease in revenues in 2013 was principally due to reduced demand from the shrinking marketplace and spare capacity in the industry resulting from recent further consolidation of marine geophysical contractors ; these conditions contributed to a decrease in sales of new towed streamer systems . this decrease was partially offset by increasing levels of repair work from the existing installed product base with our customers . gross profit for 2013 decreased by $ 6.4 million to $ 45.7 million , as adjusted , representing a 37 % gross margin , compared to $ 52.1 million , as adjusted , representing a 39 % gross margin , for 2012. the decrease in gross profit was due to the change in revenues , as described above . software — net revenues for 2013 decreased by $ 3.7 million , or 9 % , to $ 39.4 million , compared to $ 43.1 million for 2012. this decrease in revenues was due in part to decreased revenues from our gator seabed software and declines in our orca towed streamer software revenues . the reduction in revenues for seabed software was due primarily to our previous customer , rxt , filing for bankruptcy in june 2013. the declines in towed
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our net losses were $ 306.6 million , $ 291.0 million and $ 230.7 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 1.1 billion . substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative expenses associated with our operations . as of december 31 , 2020 , our cash , cash equivalents and short-term investments totaled $ 500.7 million , which we intend to use to fund our operations . financial overview revenues we have never generated revenues from the sale of products and have incurred losses since inception . we do not expect to receive any revenue from product sales unless and until we obtain regulatory approval for and commercialize one of our current or future product candidates . further , we have not generated any revenue to date from the bayer license agreement . we expect that any revenue we generate from our bayer license agreement and any future collaboration and research and license partners will fluctuate from year to year as a result of the timing and number of milestones and other payments . research and development expenses the largest component of our total operating expenses since inception has been our investment in research and development activities , including the preclinical and clinical development of our product candidates . research and development expenses consist primarily of compensation and benefits for research and development employees , including stock-based compensation ; expenses incurred under agreements with contract research organizations and investigative sites that conduct preclinical and clinical studies ; the costs of acquiring and manufacturing clinical study materials and other supplies ; payments under licensing and research and development agreements ; other outside services and consulting costs ; and facilities , information technology and overhead expenses . research and development costs are expensed as incurred . we plan to continue investment in the development of our product candidates . our current planned research and development activities include the following : continuing to initiate sites and enroll patients in our phase 3 clinical study of tab-cel ® for the treatment of patients with ebv+ ptld after hct and sot who have failed rituximab ; process development , testing and manufacturing of drug supply to support clinical studies and ind-enabling studies ; continuing development of ata188 in progressive ms ; continuing to develop product candidates based on our next-generation car t programs ; continuing to develop our product candidates in additional indications , including tab-cel ® for ebv+ cancers ; continuing to develop other preclinical product candidates ; and leveraging our relationships and experience to in-license or acquire additional product candidates or technologies . in addition , we believe it is important to invest in the development of new product candidates to continue to build the value of our product candidate pipeline and our business . we plan to continue to advance our most promising early product candidates into preclinical development with the objective to advance these early-stage programs to human clinical studies over the next several years . 72 our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion . the duration , costs , and timing of clinical studies and development of our product candidates will depend on a variety of factors , including : the availability of qualified drug supply for use in our ongoing phase 3 or other clinical studies ; the scope , rate of progress , and expenses of our ongoing clinical studies , potential additional clinical studies and other research and development activities ; the potential review or reanalysis of our clinical study results ; future clinical study results ; uncertainties in clinical study enrollment rates or discontinuation rates of patients , including any potential impact of the covid-19 pandemic ; potential additional safety monitoring or other studies requested by regulatory agencies ; changing medical practice patterns related to the indications we are investigating ; significant and changing government regulation ; disruptions caused by man-made or natural disasters or public health pandemics or epidemics , including , for example , the covid-19 pandemic ; and the timing and receipt of any regulatory approvals , as well as potential post-market requirements . the process of conducting the necessary clinical research to obtain approval from the fda and other regulators is costly and time consuming and the successful development of our product candidates is highly uncertain . the risks and uncertainties associated with our research and development projects are discussed more fully in the section of this report titled “ 1a . risk factors. ” as a result of these risks and uncertainties , we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects , or if , when , or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval . we may never succeed in achieving regulatory approval for any of our product candidates . general and administrative expenses general and administrative expenses consist primarily of compensation and benefits for legal , human resources , finance , commercial and other general and administrative employees , including stock-based compensation ; professional services costs , including legal , patent , human resources , audit and accounting services ; other outside services and consulting costs , including those related to pre-commercial activities ; and information technology and facilities costs . interest and other income , net interest and other income , net consists primarily of interest earned on our cash , cash equivalents and short-term investments . income taxes our provision for ( benefit from ) income taxes consists primarily of income taxes in u.s. state and foreign jurisdictions . story_separator_special_tag our effective tax rate was 0 % for the years ended december 31 , 2020 , 2019 , and 2018. critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities and expenses . on an on-going basis , we evaluate our critical accounting policies and estimates . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable in 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 and conditions . our significant judgments and estimates are detailed below , and our significant accounting policies are more fully described in note 2 of the accompanying consolidated financial statements . 73 r evenue recognition revenue from research activities under our research , development , and license agreements is recognized when our customer obtains control of the promised goods or services , in an amount that reflects the consideration which we expect to receive in exchange for those goods or services . revenue generated from our research , development , and license agreements is not subject to repayment and typically includes upfront fees , development , regulatory and commercial milestone payments and royalties on the licensee 's future product sales . our research , development , and license agreements may include the transfer of intellectual property rights in the form of licenses , promises to provide research and development services and promises to participate on certain development committees with the collaboration party . we assess whether the promises in these agreements are considered distinct performance obligations that should be accounted for separately . judgment is required to determine whether licenses to our intellectual property are distinct from the research and development services or participation on development committees . the transaction price in each agreement is allocated to the identified performance obligations based on the standalone selling price ( ssp ) of each distinct performance obligation . due to the early stage of our licensed technology , the license of such technology is typically combined with the research and development services and committee participation as one combined performance obligation . revenue associated with nonrefundable upfront license fees where the license fees and research and development activities can not be accounted for as separate performance obligations is deferred and recognized as revenue over the expected period of performance using a cost-based input method . we utilize judgment to assess the pattern of delivery of the performance obligation . a cost-based input method of revenue recognition requires management to make estimates of costs to complete our performance obligations . in making such estimates , significant judgment is required to evaluate assumptions related to cost estimates . the cumulative effect of revisions to estimated costs to complete our performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated . a significant change in the assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods . at the inception of each agreement that includes development , regulatory or commercial milestone payments , we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price by using the most likely amount method . if it is probable that a significant revenue reversal would not occur , the associated milestone value is included in the transaction price . the transaction price is allocated to each performance obligation in the agreement based on relative ssp . we typically determine ssps using an adjusted market assessment approach model . milestone payments that are not within our or the licensee 's control , such as regulatory approvals , are not considered probable of being achieved until those approvals are received . at the end of each subsequent reporting period , we re-evaluate the probability of achievement of each such milestone and any related constraint , and if necessary , adjust our estimates of the overall transaction price . any such adjustments are recorded on a cumulative catch-up basis , which would affect revenues and earnings in the period of adjustment . certain judgments affect the application of our revenue recognition policy . for example , we record short-term and long-term deferred revenue based on our best estimate of when such revenue will be recognized . short-term deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months , and long-term deferred revenue consists of amounts that we do not expect will be recognized in the next 12 months . this estimate is based on the our current operating plan and , if our operating plan should change in the future , we may recognize a different amount of deferred revenue over the next 12-month period accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate and accrue expenses , the largest of which is related to research and development expenses , including those related to clinical studies and drug manufacturing . this process involves reviewing contracts and purchase orders , identifying and evaluating the services that have been performed on our behalf , and estimating the associated cost incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs .
| million in 2019 as compared to 2018. facility-related costs increased by $ 5.1 million in 2020 as compared to 2019 and by $ 10.4 million in 2019 as compared to 2018. outside service costs remained consistent in 2020 as compared to 2019 and increased by $ 5.6 million in 2019 as compared to 2018. total research and development expenses for 2020 were not significantly impacted as a result of the covid-19 pandemic . general and administrative expenses general and administrative expenses for the periods indicated were as follows : replace_table_token_4_th general and administrative expenses were $ 64.4 million in 2020 as compared to $ 79.6 million in 2019 and $ 69.7 million in 2018. the decrease of $ 15.2 million in 2020 was primarily due to decreases of $ 10.1 million in outside services costs and $ 5.1 million in non-cash stock-based compensation expenses . the increase of $ 9.9 million in 2019 was primarily due to increases in compensation-related costs driven by increased headcount . total general and administrative expenses for 2020 were not significantly impacted as a result of the covid-19 pandemic . 76 quarterly results of operations data ( unaudited ) the following table sets forth our unaudited consolidated statement of operations data for each of the quarterly periods in the years ended december 31 , 2020 and 2019. the unaudited quarterly statement of operations data set forth below have been prepared on a basis consistent with our audited annual consolidated financial statements in this annual report on form 10-k and include , in our opinion , all normal recurring adjustments necessary for a fair statement of the financial information contained in those statements . our historical results are not necessarily indicative of the results that may be expected in the future . the following quarterly financial data should be read in conjunction with our audited consolidated financial statements and
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federal and state authorities also are conducting investigations in connection with certain communications between the utility and cpuc personnel . fines may be imposed , or other regulatory or governmental enforcement action could be taken , with respect to these and other enforcement matters . ( see “ enforcement and litigation matters '' below . ) · the timing and outcome of ratemaking proceedings . in the gt & s rate case the utility has requested that the cpuc authorize revenue requirements for the utility 's gas transmission and storage operations from 2015 through 2017. the utility has requested an increase in its 2015 revenue requirements of $ 555 million over the comparable authorized revenues , as well as increases for 2016 and 2017. in response to utility 's violations of the cpuc 's rules regarding ex parte communications relating to the 2015 gt & s rate case , the cpuc issued a decision to disallow some gt & s incremental revenues that may otherwise be authorized in the final decision which is scheduled to be issued in august 2015. the utility and other parties have filed applications requesting the cpuc to reconsider this decision . it is uncertain whether this decision will be upheld and what amount of revenue requirements will ultimately be authorized in the final gt & s rate case decision . it is also uncertain whether the final outcome of the pending cpuc investigations will affect the outcome of the 2015 gt & s rate case . in addition , the utility has a to rate case pending at the ferc . ( see “ ratemaking and other regulatory proceedings ” below . ) the outcome of regulatory proceedings can be affected by many factors , including the level of opposition by intervening parties , potential rate impacts , the utility 's reputation , the regulatory and political environments , and other factors discussed in item 1a . risk factors . · the ability of the utility to control operating costs and capital expenditures . pg & e corporation 's and the utility 's future results of operations , financial condition , and cash flows could be materially affected if the utility 's actual costs differ from the amounts authorized in the final 2014 grc decision and future rate case decisions . during the quarter ended december 31 , 2014 , the utility recorded a charge of $ 116 million for the increase in the utility 's forecast of psep capital expenditures that are expected to exceed authorized amounts . the utility could incur additional charges in the future if the forecast of psep-related capital expenditures increases . the utility also forecasts that in 2015 it will incur unrecovered pipeline-related expenses ranging from $ 100 million to $ 150 million , including costs to perform continuing work under the utility 's psep and other gas transmission safety work , as well as legal and other expenses . actual costs could be higher . the final outcome of the pending cpuc investigations and the cpuc enforcement actions with respect to the utility 's violations of the ex parte communication rules also could affect the ultimate amount of unrecovered costs . · the amount and timing of the utility 's financing needs . pg & e corporation contributes equity to the utility as needed to maintain the utility 's cpuc-authorized capital structure . in 2014 , pg & e corporation issued $ 802 million of common stock and made equity contributions to the utility of $ 705 million . pg & e corporation forecasts that it will continue issuing a material amount of equity to support the utility 's capital expenditures and to fund unrecovered pipeline-related costs . pg & e corporation expects that it will issue additional common stock to fund its equity contributions to enable the utility to pay fines and compliance costs as may be required by the final outcomes of the cpuc investigations , the criminal proceeding , and the other enforcements matters . these additional issuances could have a material dilutive effect on pg & e corporation 's eps . pg & e corporation 's and the utility 's ability to access the capital markets and the terms and rates of future financings could be affected by the outcome of the matters discussed in “ enforcement and litigation matters ” below , changes in their respective credit ratings , general economic and market conditions , and other factors . for more information about the factors and risks that could affect pg & e corporation 's and the utility 's future results of operations , financial condition , and cash flows , or that could cause future results to differ from historical results , see item 1a . risk factors . in addition , this 2014 annual report contains forward-looking statements that are necessarily subject to various risks and uncertainties . these statements reflect management 's judgment and opinions that are based on current estimates , expectations , and projections about future events and assumptions regarding these events and management 's knowledge of facts as of the date of this report . see the section entitled “ cautionary language regarding forward looking statements ” below for a list of some of the factors that may cause actual results to differ materially . pg & e corporation and the utility are not able to predict all the factors that may affect future results . pg & e corporation and the utility do not undertake an obligation to update forward-looking statements , whether in response to new information , future events , or otherwise . 37 story_separator_special_tag style= '' text-indent : 0pt ; display : block ; margin-left : 9pt '' > the utility 's operating and maintenance expenses that impacted earnings decreased $ 127 million or 3 % in 2014 compared to 2013 and $ 189 million or 4 % in 2013 compared to 2012 , primarily due to lower net costs incurred in connection with natural gas matters shown in the table below . story_separator_special_tag these decreases were offset by higher benefit-related expenses and other operating expenses of $ 120 million in 2014 as compared to 2013 and $ 53 million in 2013 as compared to 2012. additionally , the utility incurred an $ 88 million charge in 2012 for an increase in estimated environmental remediation costs associated with the hinkley natural gas compressor station site , with no comparable charge taken in 2013. the following table provides a summary of the utility 's costs associated with natural gas matters that are not recoverable through rates : replace_table_token_14_th ( 1 ) in 2014 , the utility incurred $ 149 million of psep-related expenses , $ 155 million of other gas safety-related work , and $ 43 million of legal and other expenses . from december 31 , 2010 through december 31 , 2014 , the utility incurred respective expenses of $ 885 million , $ 502 million , and $ 370 million . see “ enforcement and litigation matters ” below . ( 2 ) amounts represent charges for psep capital costs expected to exceed the authorized amount . see “ pipeline safety enhancement plan ” in note 14 of the consolidated financial statements in item 8 . ( 3 ) includes fines related to ex parte communications , the carmel incident , and other fines . see “ pending cpuc investigations ” below . the utility has paid $ 40 million of fines through december 31 , 2014 . ( 4 ) amounts represent third-party liability claims and associated legal costs . the utility 's liability for third-party claims related to the san bruno accident was reduced in 2014 to reflect the settlement of all outstanding third-party claims . since the san bruno accident , the utility has made cumulative settlement payments of $ 532 million through december 31 , 2014 . ( 5 ) the utility has recognized insurance recoveries for third-party claims and associated legal costs . the utility has been engaged in settlement negotiations with its insurers regarding recovery of its remaining claims and costs . 40 depreciation , amortization , and decommissioning the utility 's depreciation , amortization , and decommissioning expenses increased $ 355 million or 17 % in 2014 compared to 2013 and $ 149 million or 8 % in 2013 compared to 2012. in 2014 , the increase was primarily due to higher depreciation rates as authorized by the cpuc in the 2014 grc decision and higher nuclear decommissioning expense reflecting the year-to-date increase as authorized by the cpuc in the nuclear decommissioning triennial proceeding . additionally , depreciation , amortization , and decommissioning expenses were impacted by an increase in capital additions during 2014 as compared to 2013 , and during 2013 as compared to 2012. interest income , interest expense , and other income , net there were no material changes to interest income , interest expense , and other income , net for the periods presented . income tax provision the utility 's revenue requirements for 2014 through 2016 , as authorized in the 2014 grc decision , reflect flow-through ratemaking for income tax expense benefits attributable to the accelerated recognition of repair costs and certain other property-related costs for federal tax purposes . pg & e corporation and the utility 's effective tax rates for 2014 are lower as compared to 2013 , and are expected to remain lower in 2015 and 2016 due to these temporary differences that are now being flowed through . pg & e corporation and the utility 's 2014 financial results reflect a reduction in income tax expense associated with these temporary differences . ( see note 8 of the notes to the consolidated financial statements in item 8 . ) the tax increase prevention act , signed into law on december 19 , 2014 , extended 50 % bonus federal tax depreciation on qualified property placed into service in 2014. the utility 's earnings were not impacted by the incremental tax depreciation as the flow-through ratemaking discussed above does not apply and the 2014 grc decision requires the utility to refund to customers the estimated cost of service benefits associated with this tax law change . the utility 's income tax provision increased $ 58 million or 18 % in 2014 as compared to 2013 and $ 28 million or 9 % in 2013 as compared to 2012. the increase in the tax provision was primarily due to higher pre-tax income , partially offset by certain reductions in tax expense for flow-through treatment as discussed above . the following table reconciles the income tax expense at the federal statutory rate to the income tax provision : replace_table_token_15_th ( 1 ) includes the effect of state flow-through ratemaking treatment . ( 2 ) represents effect of federal flow-through ratemaking treatment including those deductions related to repairs and certain other property-related costs discussed above . 41 utility revenues and costs that did not impact earnings cost of electricity the utility 's cost of electricity includes the costs of power purchased from third parties , transmission , fuel used in its own generation facilities , fuel supplied to other facilities under power purchase agreements , and realized gains and losses on price risk management activities . ( see note 9 of the notes to the consolidated financial statements in item 8 . ) the volume of power purchased by the utility is driven by customer demand , the availability of the utility 's own generation facilities ( including hydroelectric generations ) , and the cost effectiveness of each source of electricity . additionally , the cost of electricity is impacted by the higher cost of procuring renewable energy as the utility increases the amount of its renewable energy deliveries to comply with california law . replace_table_token_16_th cost of gas the utility 's cost of natural gas includes the costs of procurement , storage , transportation of natural gas , and realized gains and losses on price risk management activities . ( see note 9 of the notes to the consolidated financial statements in item 8 . )
| revenues that impact earnings are primarily those that have been authorized by the cpuc and the ferc to recover the utility 's costs to own and operate its assets and to provide the utility an opportunity to earn its authorized rate of return on rate base . expenses that impact earnings are primarily those that the utility incurs to own and operate its assets . 38 the utility 's operating results for 2014 reflect the increase in authorized revenues effective january 1 , 2014 that was approved by the cpuc in the 2014 grc decision issued on august 14 , 2014 . ( see “ utility revenues and costs that impacted earnings ” below . ) replace_table_token_13_th ( 1 ) these items impacted earnings . 39 utility revenues and costs that impacted earnings the following discussion presents the utility 's operating results for 2014 , 2013 and 2012 , focusing on revenues and expenses that impacted earnings for these periods . operating revenues the utility 's electric and natural gas operating revenues that impacted earnings increased $ 890 million or 11 % in 2014 compared to 2013. this amount includes an increase to base revenues of $ 460 million as authorized by the cpuc in the 2014 grc decision . the grc decision also resulted in higher base revenues of $ 150 million in 2014 related primarily to the doe settlement in 2012 for spent nuclear fuel storage costs . ( see “ ratemaking and other regulatory proceedings ” below . ) the total increase in operating revenues also includes approximately $ 150 million , consisting of revenues authorized by the cpuc for recovery of nuclear decommissioning costs and certain psep-related costs and revenues authorized by the ferc in the to rate case . the utility also collected higher gas transmission revenues driven by increased demand for gas-fired generation . the utility 's electric and natural gas operating revenues increased $ 55 million or 1 % in 2013 compared to 2012 , primarily due to an increase of $ 294 million as authorized in various rate cases , partially offset by a decrease in revenues of $ 196
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recorded as prepaid expenses of $ 1,380,459 ) and working capital of $ 1,766,261 as of june 30 , 2019. the decrease in our working capital was primarily a result of the disposition of assets held for sale , the reduction in prepaid expenses , collection of a subscription receivable and a reduction in cash , offset by an increase in related party receivables and promissory note receivables . during the fiscal ended june 30 , 2020 , cash used in operating activities totaled $ 633,482 , primarily as a result of a net loss from continuing operations of $ 2,899,605 and a gain from discontinued operations of $ 552,852. the net loss from continuing operations was offset by stock-based compensation of $ 2,164,782 , depreciation , amortization and impairment expenses of $ 14,624 , changes in allowance for bad debt of $ 35,350 and amortization of right to use assets of $ 3,976. further during the fiscal year ended june 30 , 2020 we increased our accounts receivable by $ 60,565 , our related party accounts receivable decreased by $ 25,199 , our related party accounts payable increased by $ 21,551 , and accounts payable increased by $ 70,984 , while reducing our accrued expenses . unearned revenue also decreased in the current period . in the fiscal year ended june 30 , 2019 , cash used in operating activities totaled $ 485,378 with a net loss from continuing operations of $ 2,326,301 , and a loss from discontinued operations of $ 2,395 , offset by stock-based compensation of $ 1,484,059 , non-cash interest of $ 6,612 , and depreciation , amortization and impairment expenses of $ 121,345. during the fiscal year ended june 30 , 2019 we increased our accounts receivable by $ 44,579 , our prepaid expenses by $ 54,567 , and increased our accrued expenses by $ 122,468. our related party accounts receivable increased by $ 270,805 , while our accounts payable increased by $ 306,432 and our related party accounts payable increased by $ 118,912. unearned revenue also increased in the fiscal year ended june 30 , 2019 by $ 16,570 , and deferred income tax assets increased by $ 31,800 . 18 net cash provided by investing activities in the fiscal year ended june 30 , 2019 was $ 9,983 , as compared to net cash used of $ 27,681 in the fiscal year ended june 30 , 2020. increase to cash due from related party in the fiscal year ended june 30 , 2020 totaled $ 16,854 as compared to $ 23,415 in the prior comparative fiscal year ended june 30 , 2019. during the most recent fiscal year ended june 30 , 2020 the company loaned a third party $ 100,000 on a one-year promissory note and received cash from the acquisition of bombshell of $ 43,975 , with no similar transactions in the prior fiscal year ended june 30 , 2019. the loan receivable was offset in fiscal 2020 by repayments from the borrower of $ 11,490. results for the fiscal year ended june 30 , 2019 also include the purchase of equipment of $ 13,232 and the acquisition of intangible assets of $ 200 with no similar transactions in the fiscal year ended june 30 , 2020. net cash provided by financing activities was $ 1,822,705 in the fiscal year ended june 30 , 2019 as compared to $ 429,754 in fiscal 2020. during the current fiscal year ended june 30 , 2020 , the company closed private placements for total proceeds of $ 355,000 , compared to total proceeds of $ 1,765,000 during the comparable fiscal year ended june 30 , 2019. cash from financing activities in the fiscal year ended june 30 , 2020 was offset by a repayment to a related party of $ 66,195 in the current year , as compared to proceeds from a related party of $ 66,195 in the prior comparative fiscal year ended june 30 , 2019. the company reduced its promissory note on the resort at lake selmac property by $ 9,051 and $ 8,490 respectively during the fiscal years ended june 30 , 2020 and 2019. during fiscal 2020 the company recorded a subscription receivable , with no similar transactions in fiscal 2019. net cash used by discontinued activities totaled $ 833,796 in the fiscal year ended june 30,2019 , as compared to cash used by discontinued activities of $ 5,260 in the fiscal year ended june 30 , 2020. going concern during the fiscal year ended june 30 , 2020 and june 30 , 2019 , the company reported a net loss of $ 2,346,753 and $ 2,328,696 , respectively . working capital deficit totaled approximately $ 269,576 with approximately $ 246,761 of cash on hand . cash used in operations was in excess of this amount for the year ended june 30 , 2020. the company believes that as of june 30 , 2020 its existing capital resources are not adequate to enable it to fully execute its business plan . while the company successfully acquired a second operating business subsequent to fiscal year end , including additional operations complementary to its recently acquired subsidiary , bombshell technologies , management believes we will require additional capital resources to fully implement our business plan , which includes the acquisition of additional operations . while the company ` s subsidiary provided approximately $ 1,100,000 in gross profit to offset operational overhead in the period , revenues are presently not sufficient to meet the company 's ongoing expenditures . story_separator_special_tag the company is actively working to increase the customer base and gross profit in bombshell technologies in order to achieve net profitability by the close of fiscal 2021. the addition of another operating entity subsequent to june 30 , 2020 , is expected to contribute additional gross profits to offset operational overheads . the additional growth plans include the acquisition of several new customers , an increase to the users currently subscribed to our software , as well as increased sales of customization services to new and existing customers . the company intends to rely on sales of our unregistered common stock , loans and advances from related parties to meet operational shortfalls until such time as we achieve profitable operations . if the company fails to generate positive cash flow or obtain additional financing , when required and on acceptable terms , the company may have to modify , delay , or abandon some or all of its business and expansion plans , and potentially cease operations altogether . consequently , the aforementioned items raise substantial doubt about the company 's ability to continue as a going concern within one year after the date that the financial statements are issued . the accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern . covid-19 pandemic the recent covid-19 pandemic could have an adverse impact on our ongoing operations . to date the company 's primary operating segment , bombshell , has not experienced a decline in sales as a result of the impact of covid 19. the company 's operations in the fintech sector are carried out with a limited amount of person to person contact and we do not expect an impact on these operations as a result of covid 19 , however , the full effect of the covid-19 outbreak continues to evolve as of the date of this report , is highly uncertain and subject to change . operations of the company 's resort at lake selmac property were delayed until july 2020 when the government permitted the resort to reopen . management does not expect the delay in opening the resort for the 2020-2021 season to substantially impact profitable operations for this business in the long term . management is actively monitoring the 19 situation but given the daily evolution of the covid-19 outbreak , the company is not able to estimate the effects of the covid-19 outbreak on its operations or financial condition in the next 12 months . while significant uncertainty remains , the company does not believe the covid-19 outbreak will have a negative impact on its ability to raise additional financing , conclude the acquisition of targeted business operations or reach profitable operations . off-balance sheet arrangements we have no off-balance sheet arrangements . critical accounting policies and estimates the preparation of our financial statements 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 amounts of revenues and expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances . the results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities . actual results may differ from these estimates under different assumptions and circumstances . our significant accounting policies are more fully discussed in the notes to our financial statements ; however , we have identified below certain policies that have substantial impact on our financial reporting : accounts receivable and allowance for doubtful accounts the company determines the allowance for doubtful accounts by considering a number of factors , including the length of time the accounts receivable are beyond the contractual payment terms , previous loss history , and the customer 's current ability to pay its obligation . when the company becomes aware of a specific customer 's inability to meet its financial obligations to the company , the company records a charge to the allowance to reduce the customer 's related accounts . at june 30 , 2020 , the allowance for doubtful accounts totaled approximately $ 35,350. leases in february 2016 , the financial accounting standards board ( “ fasb ” ) issued asu no . 2016-02 – topic 842 leases . asu 2016-02 requires that most leases be recognized on the financial statements , specifically the recognition of right-to-use assets and related lease liabilities , and enhanced disclosures about leasing arrangements . asu 2016-02 is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . the standard requires using the modified retrospective transition method and apply asu 2016-02 either at ( i ) latter of the earliest comparative period presented in the financial statements or commencement date of the lease , or ( ii ) the beginning of the period of adoption . the company has elected to apply the standard at the beginning period of adoption , july 1 , 2019 which resulted in no cumulative adjustment to retained earnings . on july 30 , 2018 , the fasb issued asu 2018-11 to provide entities with relief from the costs of implementing certain aspects of the new leasing standard , asu 2016-02 ( codified as asc 842 ) .
| costs of sales in the fiscal year ended june 30 , 2020 totaled $ 1,267,704 of which $ 186,354 were costs of related party services , compared to $ 561,793 for the fiscal year ended june 30 , 2019 of which $ 294,613 were costs of related party services . gross profit for the comparative fiscal years ended june 30 , 2020 and 2019 , respectively totaled $ 1,100,800 and $ 503,420 , respectively . we do not yet have sufficient revenues to meet our ongoing operational overhead . reported revenues in the comparative periods were generated by our wholly owned subsidiary in the fintech sector , bombshell which did not form and begin operations until november 2018 , and the resort at lake selmac site location which provides rv and campsite services . during the fiscal year ended june 30 , 2020 and 2019 , operations of the resort at lake selmac contributed gross profit of 16 $ 87,578 and $ 145,170 , while operations of bombshell contributed gross profit of $ 1,013,222 and $ 353,231 , respectively . operating expenses our operating expenses for the fiscal years ended june 30 , 2020 and 2019 were as follows : replace_table_token_2_th fiscal years ended june 30 , 2020 and 2019 our general and administrative expenses consist of stock-based compensation , rent , telephone , internet services , banking charges , salaries , consulting fees and miscellaneous office costs . the company experienced a substantial increase to operating expenses from $ 2,782,456 during the fiscal year ended june 30 , 2019 compared to $ 3,970,746 during the current fiscal year ended june 30 , 2020. the increase in operating expenses is predominantly attributable to an increase in professional fees and stock-based compensation . during fiscal 2020 and 2019 , the company issued common stock to certain board members , employees and consultants for services rendered at rates below market , the total combined value of which was $ 2,058,341 for the fiscal year ended june 30 , 2020 compared to $ 1,484,059 during the fiscal year
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there are many uncertainties regarding the covid-19 pandemic , and we are closely monitoring the impact of the pandemic on all aspects of our business , including how it will continue to impact our patients , employees , suppliers , vendors , business partners and distribution channels . our product sales , particularly during the second and fourth quarters of 2020 , were negatively impacted by the pandemic due to a surge in reported cases and restrictions adopted in response thereto . however , we are unable to predict the impact that covid-19 will have on our financial position and operating results in future periods due to numerous uncertainties , including duration , scope and severity of the pandemic , the actions taken to contain or mitigate its impact , the impact on governmental programs and budgets , the development and distribution of effective treatments or vaccines , and the resumption of widespread economic activity . a further-extended duration of the pandemic could continue to have a material adverse effect on our product sales for amzeeq and zilxi . in addition , any prolonged material disruption of the company 's employees , suppliers , manufacturing , or customers could further materially negatively impact our consolidated financial position , consolidated results of operations and consolidated cash flows . we will continue to assess the evolving impact of the covid-19 pandemic and will make adjustments to our operations as necessary . on may 28 , 2020 , the fda approved zilxi for the treatment of inflammatory lesions of rosacea in adults . zilxi is the first minocycline product of any kind to be approved by the fda for use in rosacea . zilxi became available in pharmacies nationwide on october 1 , 2020. on june 2 , 2020 , we announced positive results from a phase ii clinical trial evaluating the preliminary safety and efficacy of fcd105 ( 3 % minocycline / 0.3 % adapalene foam ) , the first ever topical minocycline-based combination product , for the treatment of moderate-to-severe acne vulgaris . study fx2016-40 enrolled 447 patients in the united states who were randomized to either fcd105 foam , 3 % minocycline foam , 0.3 % adapalene foam , or vehicle foam . the company anticipates commencing a phase iii program for fcd105 in 2021. on june 9 , 2020 , we completed an underwritten public offering of 7,776,875 shares of common stock at a price to the public of $ 7.40 per share . the net proceeds of the offering were approximately $ 53.6 million , after deducting underwriting discounts and commissions and other offering expenses . the number of shares sold and purchase price have been adjusted to reflect the company 's 1-for-4 reverse stock split . see below for additional discussion about the reverse stock split . on september 4 , 2020 , we filed a certificate of amendment to our amended and restated certificate of incorporation with the secretary of state of the state of delaware to change our corporate name to “ vyne therapeutics inc. ” effective as of september 10 , 2020 , mr. patrick g. lepore joined our board . mr. lepore has more than 40 years of experience in the pharmaceutical industry , in both private and public sectors , and with board and operational experience in each . he previously served as chairman , chief executive officer and president of par pharmaceutical companies , inc. 75 on october 1 , 2020 , zilxi became available in pharmacies nationwide , and on october 7 , 2020 , we announced that express scripts , one of the nation 's leading pharmacy benefit managers ( pbms ) , has elected to cover zilxi on express scripts ' national preferred , flex , and basic commercial formularies , representing millions of additional covered lives in the u.s. that follow these formularies . during the fourth quarter of 2020 , the company expanded its distribution model with respect to amzeeq and zilxi to include independent and specialty pharmacies in an effort to further reduce barriers for patients to initiate and maintain therapy . vyne was added to the nasdaq biotechnology index effective as of december 21 , 2020. during the three months ended december 31 , 2020 , the company issued and sold 1,175,000 shares of common stock at a weighted average price per share of $ 7.00 for $ 8.0 million in net proceeds pursuant to a sales agreement with cantor fitzgerald & co. ( `` cantor fitzgerald '' ) through an at-the-market equity offering program under which cantor fitzgerald acted as our sale agent . in addition , from january 1 , 2021 through january 25 , 2021 , the company issued and sold an additional 2,778,012 shares of common stock at a weighted average price per share of $ 9.76 for $ 26.3 million in net proceeds . effective as of january 25 , 2021 , the company terminated the sales agreement and will not make any additional sales thereunder . the number of shares sold and purchase prices have been adjusted to reflect the company 's 1-for-4 reverse stock split . see below for additional discussion about the reverse stock split . on january 21 , 2021 , the company announced the execution of a contract with one of the largest pharmacy benefit managers in the u.s. with respect to amzeeq and zilxi . on january 28 , 2021 , the company completed a registered direct offering of 5,274,261 shares of common stock at a price of $ 9.48 per share . the net proceeds of the offering were approximately $ 46.7 million , after deducting placement agent fees and other offering expenses . the number of shares sold and purchase price have been adjusted to reflect the company 's 1-for-4 reverse stock split . see below for additional discussion about the reverse stock split . story_separator_special_tag on february 1 , 2021 , we announced that the fda approved a label update for amzeeq , including new information indicating the low propensity of propionibacterium acnes ( more commonly known as p. acnes ) to develop resistance to minocycline . on february 10 , 2021 , our board of directors approved a one-for-four reverse stock split of our outstanding shares of common stock . the reverse stock split was effected on february 12 , 2021 at 5:00 p.m. eastern time . at the effective time , every four issued and outstanding shares of our common stock were converted into one share of common stock . no fractional shares were issued in connection with the reverse stock split , and in lieu thereof , each stockholder holding fractional shares was entitled to receive a cash payment ( without interest or deduction ) from the company 's transfer agent in an amount equal to such stockholder 's respective pro rata shares of the total net proceeds from the company 's transfer agent sale of all fractional shares at the then-prevailing prices on the open market . in connection with the reverse stock split , the number of authorized shares of our common stock was also reduced on a one-for-four basis , from 300 million to 75 million . the par value of each share of common stock remained unchanged . a proportionate adjustment was also made to the maximum number of shares issuable under the company 's 2019 equity incentive plan , 2018 omnibus incentive plan and 2019 employee share purchase plan . on march 1 , 2021 , we announced development plans for fmx114 for the potential treatment of mild-to-moderate atopic dermatitis . fmx114 is a fixed combination of tofacitinib , which is a pan-janus kinase ( jak ) inhibitor , and fingolimod , a sphingosine 1-phosphate receptor modulator . fmx114 attempts to address both the source and cause of inflammation in atopic dermatitis and support skin barrier recovery . revenues our revenue during the periods presented has been primarily comprised of amzeeq and zilxi product sales and collaboration and license revenue . during 2019 , we were engaged in pre-launch sales and marketing planning activities and other pre-commercialization efforts in order to support the commercialization of amzeeq in the united states . amzeeq and zilxi were commercially launched in january and october of 2020 , respectively . we have generated product revenue of $ 10.2 million for the year ended december 31 , 2020. we will not commercially launch our other product candidates in the united states or generate any revenues from sales of any of our product candidates unless and until we obtain marketing approval . our ability to generate 76 revenues from sales will depend on the successful commercialization of amzeeq and zilxi and any other product candidates that receive marketing approval . historically , we have generated revenues under development and license agreements including royalty payments in relation to finacea , the prescription foam product that we developed in collaboration with bayer , which later assigned it to leo . in the three months ended march 31 , 2020 , we did not receive or become entitled to any royalty payments due to the ongoing suspension of the manufacturing of finacea by leo , following inadequate supply of quality-compliant batches of the api used in such product . in april 2020 , leo informed us that it had reestablished the supply of finacea foam and resumed commercial sale in the united states . in the year ended december 31 , 2020 we received royalties of $ 0.8 million . we may become entitled to additional contingent payments in the future , subject to achievement of the applicable clinical results by our other licensees . however , in light of the current phase of development and associated milestone schedules under these agreements , we do not expect to receive significant payments in the near term , if at all . we are also entitled to additional royalties from net sales or net profits generated by other products to be developed under these agreements , if they are successfully commercialized . additionally , as described in “ key developments , ” on april 23 , 2020 , we announced that we entered into a licensing agreement with cutia for our other topical minocycline products and product candidate , if approved , on an exclusive basis in greater china . under the terms of the agreement , cutia will have an exclusive license to obtain regulatory approval of and commercialize amzeeq , zilxi and , if approved in the u.s. , fcd105 in the greater china territory . we will supply the finished licensed products to cutia for clinical and commercial use . we received an upfront cash payment of $ 10 million and will be eligible to receive an additional $ 1 million payment upon the receipt of marketing approval in china of the first licensed product . we will also receive royalties on net sales of any licensed products pursuant to the agreement . in the year ended december 31 , 2020 , we recognized license revenue of $ 10.0 million . cost of goods sold cost of goods sold was $ 1.4 million for the year ended december 31 , 2020. there was no cost of goods sold in the year ended december 31 , 2019 because the revenues in that period consisted solely of royalties , which do not bear related cost of goods sold . our gross margin percentage of 86 % was favorably impacted during the year ended december 31 , 2020 by product sales with certain materials produced prior to fda approval and therefore expensed in prior periods . if inventory sold during the year ended december 31 , 2020 was valued at cost , our gross margin for the period then ended would have been 83 % .
| cost of goods sold cost of goods sold was $ 1.4 million for the year ended december 31 , 2020. there was no cost of goods sold in the year ended december 31 , 2019 because the revenues in that period consisted solely of royalties , which do not bear related cost of goods sold . our gross margin percentage of 86 % was favorably impacted during the year ended december 31 , 2020 by product sales with certain materials produced prior to fda approval and therefore expensed in prior periods . if inventory sold during the year ended december 31 , 2020 was valued at cost , our gross margin for the period then ended would have been 83 % . 79 research and development expenses our research and development expenses for the year ended december 31 , 2020 were $ 43.5 million , representing a decrease of $ 7.7 million , or 15.0 % , compared to $ 51.2 million for the year ended december 31 , 2019. clinical and manufacturing expense for amzeeq and zilxi decreased as both products were commercialized in 2020. clinical trials for fcd105 concluded in april 2020 resulting in a decrease in expense during the second half of the year . this was offset by an increase in clinical costs related to serlopitant and employee-related expenses of $ 12.4 million , including $ 3.8 million related to severance expenses payable to our former employees , and stock based compensation of $ 3.1 million . selling , general and administrative expenses our selling , general and administrative expenses for the year ended december 31 , 2020 were $ 89.5 million , representing an increase of $ 44.4 million , or 98 % , compared to $ 45.1 million for the year ended december 31 , 2019. employee-related expenses increased primarily due to the expansion of our employee base , including sales force to support the growth of our operations . as result of the merger , we incurred $ 4.7 million of severance expense , $ 7.7 million of additional
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the seismic , myoheart and marvel trials have been designed to test the safety and efficacy of myocell in treating patients with severe , chronic damage to the heart . upon regulatory approval of myocell , we intend to generate revenue in the united states from the sale of myocell cell-culturing services for treatment of patients by qualified physicians . we received approval from the fda in july of 2009 to conduct a phase i safety study on 15 patients of a combined therapy ( myocell with sdf-1 ) , which we believe was the first approval of a study combining gene and cell therapies . we initially commenced work on this study , called the regen trial , during the first quarter of 2010. we suspended activity on the trial in 2010 while seeking additional funding necessary to conduct the trial . we are seeking to secure sufficient funds to reinitiate enrollment in the marvel and regen trials . if we successfully secure such funds , we intend to re-engage a contract research organization , or cro , investigators and certain suppliers to advance such trials . we have initiated and enrolled our first patient in the mirror trial in 2013. the trial is very similar to the marvel trial but focuses on sites outside the us . we will continue enrollment in the mirror trial once we have secured sufficient funds . we have completed the phase 1 angel trial for adipocell ( adipose derived stem cells ) . five patients were enrolled and treated in the second quarter of 2013. at the twelve ( 12 ) month time point , patients demonstrated a statistically significant average improvement in ejection fraction ( ef ) by echocardiogram . this trial was extended to 28 patients and the data has been published in a peer reviewed journal . we have also initiated several institutional review board studies in 2013 using adipose derived stem cells for various indications including dry macular degeneration , degenerative disc disease , erectile dysfunction and chronic obstructive pulmonary disease . we have published results of the degenerative disc trial . all other trials are not enrolling patients . we provide these therapies to patients through the clinic . myocath product candidate the myocath is a deflecting tip needle injection catheter that has a larger ( 25 gauge ) needle to allow for better flow rates and less leakage than systems that are 27 gauge . this larger needle allows for thicker compositions to be injected , which helps with cell retention in the heart . also , the myocath needle has more fluoroscopic brightness than the normally used nitinol needle , enabling superior visualization during the procedure . seeing the needle well during injections enables the physician who is operating the catheter to pinpoint targeted areas more precisely . the myocath is used to inject cells into cardiac tissue in therapeutic procedures to treat chronic heart ischemia and congestive heart failure . investigators in our marvel trial may use either our myocath catheters or biosense webster 's ( a johnson & johnson company ) noga® cardiac navigation system along with the myostar injection catheter for the delivery of myocell to patients enrolled in the trial . we are currently producing myocath catheters with a contract manufacturer on an as needed basis . 35 index we conduct operations in one business segment . we may organize our business into more discrete business units when and if we generate significant revenue from the sale of our product candidates . our revenue since inception has been generated inside and outside the united states , and the majority of our long-lived assets are located in the united states . general american capital partners on march 3 , 2017 , we entered into an asset sale and lease agreement ( sale/leaseback transaction ; “ asset sale and lease agreement ” ) , with gacp ( general american capital partners ) stem cell bank llc , a florida limited liability company ( “ gacp ) whereby we sold certain lab , medical and other equipment relating to the cell banking business for $ 400,000 and leased back the sold equipment over a three year term . the lease includes a base monthly rental payment of $ 20,000 , due the first day of each calendar month . in addition , we are required to pay 2.3 % , 22.5 % and 31.6 % of revenues collected on deposits arising from cell banking business for years 1 , 2 and 3 , respectively . at the expiration of the lease , we are required to return all leased equipment and along with any maintenance records , logs , etc . in our possession to the lessor with no right of repurchase . in addition , gacp has contractually agreed to invest an additional two and a half million dollars ( $ 2,500,000 ) to open ten ( 10 ) stem cell clinics in the united states within 3 years -- with a penalty provision to our benefit for shortfalls if less than 6 clinics are opened within 24 months . american stem cell centers of excellence are clinics derived from the investment group behind the asset purchase and leaseback agreement . american stem cell centers of excellence provide comprehensive stem cell treatments using innovative technologies and the latest research with the intent that after treatment , the body 's own healing potential naturally repairs and regenerates damaged tissue . with a new clinic in miami , florida and , as we intend , additional clinics opening soon around the country , management contends that american stem cell centers of excellence provides comprehensive stem cell treatments using the u.s. stem cell inc. innovative technologies and the latest regenerative medicine research . u.s. stem cell 's team of scientists have pioneered these in-clinic regenerative medicine protocols and , in our estimation , have helped thousands of patients through their partly-owned subsidiary u.s. stem cell clinic . story_separator_special_tag american stem cell centers of excellence would like to replicate this success and have partnered and , with the board of directors ' approval and continued oversight that this will not diminish their responsibilities to our company , have retained the professional services of both kristin comella and mike tomas as cso and ceo respectively to help with scientific and successful operational deployment of their clinics . the board of directors contends that the successful deployment of american stem cell centers of excellence will lead to the financial value and revenue growth of us stem cell , inc. through sales of our products and services at american stem cell center of excellence clinics . subsequent events on january 30 , 2018 , greg knutson , a director of the company ( “ knutson ” ) and the company agreed to open and operate a r egenerative medicine/cell therapy clinic providing cellular treatments for patients afflicted with neurological , autoimmune , orthopedic and degenerative diseases in florida . to that end , u.s. stem cell clinic of the villages llc ( the “ llc ” ) was formed january 30 , 2018. knutson provided the company with the sum of three hundred thousand dollars ( $ 300,000 ) ( the “ investment ” ) to be utilized for the formation and initial operation of the llc . currently , knutson holds a 51 % member interest in the llc and the company holds a 49 % member interest . the company will provide operating assistance as well as management services , the latter to be compensated at fee of five percent ( 5 % ) of the net revenues . from january to april 2018 , we issued an aggregate of 9,875,484shares of common stock for services rendered . in addition , from january through march 1 , 2018 , we sold an aggregate of 7,838,457 shares of its common stock for net proceeds of $ 183,000. on or about march 1 , 2018 , the u.s. securities and exchange commission ( “ commission ” ) , miami regional office ( “ commission staff ” ) , served a subpoena upon u.s. stem cell , inc. , which seeks production of certain documents and communications including , among other things , minutes and other documents relating to the company 's board and audit committee meetings , financial statements , and press releases . the commission staff is conducting a formal non-public , fact-finding inquiry of u.s. stem cell , inc. this investigation is neither an allegation of wrongdoing nor a finding that any violation of law has occurred . the company is cooperating with the commission staff and has provided , and will continue to provide , information and documents to the commission staff . at this juncture , the company is not able to predict the duration , scope , results , or consequences of the commission staff 's investigation . there can be no assurance that this inquiry will be resolved in a manner that is not adverse to the company . 36 index results of operations overview on january 30 , 2018 , greg knutson , a director of our company ( “ knutson ” ) and our company agreed to open and operate a r egenerative medicine/cell therapy clinic providing cellular treatments for patients afflicted with neurological , autoimmune , orthopedic and degenerative diseases in florida . to that end , u.s. stem cell clinic of the villages llc ( the “ llc ” ) was formed january 30 , 2018. currently , knutson holds a 51 % member interest in the llc and we hold a 49 % member interest . we will provide operating assistance as well as management services , the latter to be compensated at fee of five percent ( 5 % ) of the net revenues . the llc shall be controlled by the board of managers , specifically knudson and mike tomas and be governed by a standard operating agreement . revenues the company 's primary source of revenue is from the sale of test kits and equipment , training services , patient treatments and laboratory services , and cell banking . our revenue may vary substantially from quarter to quarter and from year to year . we believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as indicative of our future performance . we do not expect to generate substantial revenues until we obtain regulatory approval for and commercialize our product candidates , which we do not expect to occur before 2019. we recognized revenues of $ 5,520,537 in 2017 compared to revenues of $ 3,083,261 in 2016. our revenue in 2017 was generated from the sale of test kits and equipment , training services , patient treatments and laboratory services , and cell banking . our revenues for 2016 were generated from the sale , test kits and equipment , training services , patient treatments and laboratory services , and cell banking . our significant overall increase in 2017 as compared to 2016 was generated by a 170 % increase in our banking revenue . cost of sales cost of sales consists of the costs associated with the production of myocath and test kits , product costs , labor for production and training and lab and banking costs consistent with products and services provided . cost of sales was $ 1,885,371 in the year ended december 31 , 2017 compared to $ 972,009 in the year ended december 31 , 2016. the increase is primarily due higher revenue volume . the margins are lower in 2017 compared to 2016 due to equipment depreciation in 2017. research and development our research and development expenses consist of costs incurred in identifying , developing and testing our product candidates . these expenses consist primarily of costs related to our clinical trials , the acquisition of intellectual property licenses and preclinical studies . we expense research and development costs as incurred .
| marketing , general and administrative marketing , general and administrative expenses were $ 4,426,632 in 2017 , an increase of $ 1,230,275 from marketing , general and administrative expenses of $ 3,264,107 in 2016. the increase in marketing , general and administrative expenses is attributable , in part , to increases in stock based compensation , salaries and insurance and advertising expenses . ( loss ) gain on settlement of debt during the year ended december 31 , 2017 , we incurred a net loss of $ 126,457 primarily related to the settlement of accounts payable and debt restructured during the current period . in 2016 , we incurred a gain of $ 53,690 primarily due to the settlement of accounts payable and related party advances , net with refinancing of debt during the current period . gain on sale of equipment in march 2017 , we entered a sale/leaseback transaction whereby we sold our lab and other medical equipment and re-leased the equipment back for 36 months . in connection with the sale/leaseback , we realized a gain on sale of equipment of $ 386,536 which we will recognize to operations over the term of the lease ( 36 months ) . during the year ended december 31 , 2017 , we recognized $ 107,371 in current period operations . during the year ended december 31 , 2016 , we realized a gain of $ 500 for the sale of old equipment . 42 index ( loss ) gain on change in fair value of derivative liabilities . as of december 31 , 2016 and 2015 , we issued convertible notes and common stock purchase warrants with anti-dilutive provisions that had the possibility of exceeding our common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provisions of these agreements after consideration of all existing instruments that could be settled in shares . as such , we are required to determine the fair value of this derivative and mark to
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because of the nature of the judgment and assumptions we make , actual results could differ from these judgments and estimates that could have a material impact on the carrying values of our assets and liabilities and our results of operations . management has reviewed and approved these critical accounting policies and has discussed these policies with the company 's audit committee . allowance for loan losses the allowance for loan loss is management 's estimate of credit losses inherent in the loan portfolio . the allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings . loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . the allowance for loan losses is evaluated on a regular basis by management and is based upon management 's periodic review of the collectability of the loans in light of historical experience , the nature and volume of the loan portfolio , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral and prevailing economic conditions . this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available . we have an established process to determine the adequacy of the allowance for loan losses that assesses the losses inherent in our portfolio . while we attribute portions of the allowance to specific portfolio segments , the entire allowance is available to absorb credit losses inherent in the total loan portfolio . our process involves procedures to appropriately consider the unique risk characteristics of our commercial and consumer loan portfolio segments . for each portfolio segment , impairment is measured individually for each impaired loan . our allowance levels are influenced by loan volume , loan grade or delinquency status , historic loss experience and other economic conditions . the allowance consists of general and specific components . commercial loans are assessed for estimated losses by grading each loan using various risk factors identified through periodic reviews . we apply historic grade-specific loss factors to each loan class . in the development of our statistically derived loan grade loss factors , we observe historical losses over 12 quarters for each loan grade . these loss estimates are adjusted as appropriate based on additional analysis of external loss data or other risks identified from current economic conditions and credit quality trends . for consumer loans , we determine the allowance on a collective basis utilizing historical losses over 12 quarters to represent our best estimate of inherent loss . we pool loans , generally by loan class with similar risk characteristics . included in the general component of the allowance for loan losses for both portfolio segments is a margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating general losses in the portfolio . uncertainties and subjective issues such as changes in the lending policies and procedures , changes in the local/national economy , changes in volume or type of credits , changes in volume/severity or problem loans , quality of loan review and board of director oversight , concentrations of credit , and peer group comparisons are factors considered . the specific component relates to loans that are classified as impaired . for loans that are classified as impaired , an allowance is established when the value of the impaired loan is lower than the carrying value of that loan . a loan is considered impaired when , based on current information and events , it is probable that the company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . factors considered by management in determining impairment include payment status , collateral value , and the probability of collecting scheduled principal and interest payments when due . impairment is measured on a loan by loan basis for commercial and consumer loans by either the present value of expected future cash flows discounted at the loan 's effective interest rate , the loan 's obtainable market price , or the fair value of the collateral if the loan is collateral dependent . the specific component also includes an amount for the estimated impairment on commercial and consumer loans modified in a troubled debt restructuring ( tdr ) , whether on accrual or nonaccrual status . 36 while management uses available information to recognize losses on loans , future additions to the allowance may be necessary based on changes in local economic conditions . in addition , regulatory agencies , as an integral part of their examination process , periodically review our allowance for loan losses . such agencies may require us to recognize additions to the allowances based on their judgments about information available to them at the time of their examination . fair valuation of financial instruments we use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures . additionally , we may be required to record other assets at fair value on a nonrecurring basis . these nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets . further , we include in the notes to the consolidated financial statements information about the extent to which fair value is used to measure assets and liabilities , the valuation methodologies used , and the related impact to income . additionally , for financial instruments not recorded at fair value , we disclose the estimate of their fair value . fair value is defined as the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date . accounting standards establish a three-level hierarchy for disclosure of assets and liabilities recorded at fair value . story_separator_special_tag the classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable . 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 of inputs that are used to classify fair value measurements are as follows : ● level 1 valuation is based upon quoted prices for identical instruments traded in active markets . level 1 instruments generally include securities traded on active exchange markets , such as the new york stock exchange , as well as securities that are traded by dealers or brokers in active over-the-counter markets . instruments we classify as level 1 are instruments that have been priced directly from dealer trading desks and represent actual prices at which such securities have traded within active markets . ● level 2 valuation is based upon quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , and model-based valuation techniques , such as matrix pricing , for which all significant assumptions are observable in the market . instruments we classify as level 2 include securities that are valued based on pricing models that use relevant observable information generated by transactions that have occurred in the market place that involve similar securities . ● level 3 valuation is generated from model-based techniques that use significant assumptions not observable in the market . these unobservable assumptions reflect the company 's estimates of assumptions market participants would use in pricing the asset or liability . valuation techniques include use of option pricing models , discounted cash flow models , and similar techniques . we attempt to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements . when available , we use quoted market prices to measure fair value . specifically , we use independent pricing services to obtain fair values based on quoted prices . quoted prices are subject to our internal price verification procedures . if market prices are not available , fair value measurement is based upon models that use primarily market-based or independently-sourced market parameters . most of our financial instruments use either of the foregoing methodologies , collectively level 1 and level 2 measurements , to determine fair value adjustments recorded to our financial statements . however , in certain cases , when market observable inputs for model-based valuation techniques may not be readily available , we are required to make judgments about assumptions market participants would use in estimating the fair value of the financial instrument . the degree of management judgment involved in determining the fair value of an instrument is dependent upon the availability of quoted market prices or observable market parameters . for instruments that trade actively and have quoted market prices or observable market parameters , there is minimal subjectivity involved in measuring fair value . when observable ma rket prices and parameters are not fully available , management 's judgment is necessary to estimate fair value . in addition , changes in 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 . when significant adjustments are required to available observable inputs , it may be appropriate to utilize an estimate based primarily on unobservable inputs . when an active market for a security does not exist , the use of management estimates that incorporate current market participant expectations of future cash flows , and include appropriate risk premiums , is acceptable . 37 significant judgment may be required to determine whether certain assets measured at fair value are included in level 2 or level 3. if fair value measurement is based upon recent observable market activity of such assets or comparable assets ( other than forced or distressed transactions ) that occur in sufficient volume and do not require significant adjustment using unobservable inputs , those assets are classified as level 2. if not , they are classified as level 3. making this assessment requires significant judgment . other-than-temporary impairment analysis our debt securities are classified as securities available for sale and reported at fair value . unrealized gains and losses , after applicable taxes , are reported in shareholders ' equity . we conduct other -than-t emporary impairment ( otti ) analysis on a quarterly basis or more often if a potential loss-triggering event occurs . the initial indicator of otti for debt securities is a decline in market value below the amount recorded for an investment and the severity and duration of the decline . for a debt security for which there has been a decline in the fair value below amortized cost basis , we recognize otti if we ( 1 ) have the intent to sell the security , ( 2 ) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis , or ( 3 ) we do not expect to recover the entire amortized cost basis of the security . other real estate owned real estate acquired through foreclosure is initially recorded at the lower of cost or estimated fair value . subsequent to the date of acquisition , it is carried at the lower of cost or fair value , adjusted for net selling costs . fair values of real estate owned are reviewed regularly and writedowns are recorded when it is determined that the carrying value of real estate exceeds the fair value less estimated costs to sell . costs relating to the development and improvement of such property are capitalized , whereas those costs relating to holding the property are expensed . income taxes the financial statements have been prepared on the accrual basis .
| the net charge-offs of $ 2.4 million and $ 4.4 million during 2013 and 2012 , respectively , represented 0.34 % and 0.71 % of the average outstanding loan portfolios for the respective years . noninterest income the following tables set forth information related to our noninterest income . replace_table_token_7_th noninterest income was $ 5.8 million for the year ended december 31 , 2014 , a $ 2.0 million increase over noninterest income of $ 3.8 million for the year ended december 31 , 2013. the increase in total noninterest income during 2014 resulted primarily from the following : ● loan and mortgage fee income increased $ 1.6 million , or 131.1 % , driven by a $ 1.6 million increase in mortgage origination fee income which totaled $ 2.7 million for the year . during 2014 , we continued the expansion our mortgage operations , adding five additional team members to assist with originating , underwriting , closing and funding residential mortgage loans . 41 ● service fees on deposit accounts increased 5.0 % , or $ 44,000 , primarily related to increased service charge fee income on our transaction accounts . during 2014 , our transaction accounts , which include checking , money market , and savings accounts , grew by $ 108.7 million , or 26.3 % . ● during the second quarter of 2014 , we sold a portion of our investment securities and recognized a gain on sale $ 230,000 . ● other income increased by $ 76,000 , or 7.4 % , due primarily to increased fee income on our atm and debit cards which is driven by an increase in transaction volume . noninterest income was $ 3.8 million for the year ended december 31 , 2013 , a $ 40,000 increase over noninterest income of for the year ended december 31 , 2012. the increase in total noninterest income during 2013 resulted primarily from the following : ● loan and mortgage fee income increased $ 191,000 or 18.3 % , driven by a
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patients will be randomized on a 1:1 basis to receive 24 mg/kg of neod001 or placebo via intravenous infusion every 28 days , with both groups receiving concurrent standard of care therapy . the composite primary endpoint is event-based , with all-cause mortality or cardiac hospitalizations as qualifying events . secondary endpoints of the study include evaluation of the cardiac biomarker nt-probnp , renal biomarker proteinuria , six-minute walk test , and multiple quality of life evaluations including the short form-36 and the kansas city cardiomyopathy questionnaire . prothena designed the study with 90 % power to detect a 30 % change in the event rate between the treatment and placebo groups with a two-sided alpha of 0.05. the trial allows for an interim analysis to assess the primary endpoint for efficacy and futility . concurrent with the vital amyloidosis study , a phase 3 clinical trial , we are enrolling up to an additional 25 patients , with al amyloidosis and selected persistent organ dysfunction , in an open-label expansion portion of the phase 1/2 study . we plan to enroll 10 patients with cardiac dysfunction , 10 patients with renal dysfunction and five patients with peripheral neuropathy , all of whom will receive 24 mg/kg intravenously every 28 days . the expansion phase will continue to evaluate safety , tolerability , pharmacokinetics and immunogenicity of neod001 as well as the specific clinical activity against cardiac , renal and neuropathy endpoints . neod001 received fast track designation from the u.s. food and drug administration ( the `` fda '' ) in december 2014. the purpose of the fast track designation is to make important new drugs available to patients earlier . prx002 in april 2014 , together with roche , we initiated a phase 1 clinical trial of prx002 . results for this study are expected in march 2015. the study is a randomized , double-blind , placebo-controlled , single ascending dose study in healthy subjects designed to assess prx002 for safety , tolerability , pharmacokinetics and immunogenicity . we received a $ 15.0 million milestone payment from roche upon initiation of this study under the license agreement , as described below . in july 2014 , together with roche , we initiated a randomized , double-blind , placebo-controlled multiple ascending dose phase 1 clinical trial of prx002 in patients with parkinson 's disease . this multiple ascending dose study is designed to assess prx002 for safety , tolerability , pharmacokinetics and immunogenicity and builds upon the phase 1 single ascending dose study initiated in april 2014. collaboration with roche in december 2013 , we entered into a license , development , and commercialization agreement ( the “ license agreement ” ) with f. hoffmann-la roche ltd and hoffmann-la roche inc. ( collectively , “ roche ” ) to develop and commercialize certain antibodies that target alpha-synuclein , including prx002 , which are referred to collectively as “ licensed products. ” the license agreement became effective following the expiration of the applicable hart-scott-rodino waiting period on january 17 , 2014 , which triggered an upfront payment to us of $ 30.0 million from roche , which we received in february 2014. pursuant to the license agreement , we and roche are collaborating to research and develop antibody products targeting alpha-synuclein . roche is providing funding for a research collaboration between us and roche focused on optimizing early stage antibodies targeting alpha-synuclein , potentially including incorporation of roche 's proprietary brain shuttle technology to increase delivery of therapeutic antibodies to the brain . 43 we filed an investigational new drug application ( `` ind '' ) with the fda for prx002 and subsequently initiated a phase 1 study in april 2014. in may 2014 , we received a $ 15.0 million milestone payment from roche related to the initiation of the phase 1 study for prx002 in the clinic . following the phase 1 study , roche will be primarily responsible for developing , obtaining and maintaining regulatory approval for , and commercializing licensed products . roche will also become responsible for the clinical and commercial manufacture and supply of licensed products within a defined time period following the effective date of the license agreement . in addition to the $ 30.0 million upfront payment and the $ 15.0 million clinical milestone payment , roche is also obligated to pay to us the following : up to $ 380.0 million upon the achievement of development , regulatory and various first commercial sales milestones ; up to an additional $ 175.0 million in ex-u.s. commercial sales milestones ; and tiered , high single-digit to high double-digit royalties in the teens on ex-u.s. annual net sales , subject to certain adjustments . in the u.s. , the parties will share all development and commercialization costs , as well as profits , all of which will be allocated 70 % to roche and 30 % to us , for prx002 in the parkinson 's disease indication , as well as any other licensed products and or indications for which we opt in to co-develop and co-fund . we may opt out of the co-development and cost and profit sharing on any co-developed licensed products and instead receive u.s. commercial sales milestones totaling up to $ 155.0 million and tiered , single-digit to high double-digit royalties in the teens based on u.s. annual net sales , subject to certain adjustments , with respect to the applicable licensed product . in addition , we have an option under the license agreement to co-promote prx002 in the u.s. in the parkinson 's disease indication . if we exercise such option , we may also elect to co-promote additional licensed products in the u.s. approved for parkinson 's disease . outside the u.s. , roche will have responsibility for developing and commercializing the licensed products . story_separator_special_tag october 2013 offering in october 2013 , we completed an underwritten public offering of an aggregate of 6,796,500 of our ordinary shares at a public offering price of $ 22.00 per share , which consisted of 4,177,079 newly issued ordinary shares sold by us and 2,619,421 ordinary shares sold by janssen pharmaceutical , a wholly-owned subsidiary of johnson & johnson , as the selling shareholder . we received aggregate net proceeds of approximately $ 84.5 million , after deducting the underwriting discount and estimated offering costs . we did not receive any proceeds from the sale of 2,619,421 ordinary shares sold , which represented janssen pharmaceutical 's entire shareholding in prothena . during the year ended december 31 , 2013 we recorded underwriting discounts and offering costs of $ 7.4 million as an offset to the proceeds in additional paid in capital . february 2014 offering in february 2014 , elan science one limited ( `` esol '' ) , an indirect wholly owned subsidiary of perrigo , sold 3,182,253 ordinary shares of prothena . the ordinary shares were sold at a price to the public of $ 26.00 per ordinary share , before the underwriting discount . as a result , esol and perrigo no longer owned any ordinary shares of prothena as of such sale . we did not receive any of the proceeds from the offering . we paid the costs associated with the sale of these ordinary shares ( other than the underwriting discount , fees and disbursements of counsel for the selling shareholder ) pursuant to a subscription and registration rights agreement dated november 8 , 2012 by and among us , elan ( acquired by perrigo ) and esol . june 2014 offering in june 2014 , we completed an underwritten public offering of an aggregate of 4,750,000 of our ordinary shares at a public offering price of $ 22.50 per ordinary share . we received aggregate net proceeds of approximately $ 102.5 million , after deducting the underwriting discount and estimated offering costs . in july 2014 , the underwriters exercised their right to subscribe for and purchase an additional 712,500 ordinary shares , pursuant to which we received net proceeds of approximately $ 14.9 million , after deducting the underwriting discount . for the year ended december 31 , 2014 underwriting discount and offering expense of $ 5.5 million were classified as an offset to the proceeds and recorded in additional paid in capital on the balance sheet . 44 basis of presentation and preparation of the financial statements our business consists of a substantial portion of elan 's former drug discovery business platform , including neotope biosciences limited ( now named prothena biosciences limited ) and its wholly owned subsidiaries onclave therapeutics limited ( now named prothena therapeutics limited ) and prothena biosciences inc , and related tangible assets and liabilities . prior to december 21 , 2012 , the prothena business operated as part of elan and not as a separate stand-alone entity . our consolidated financial statements for the periods prior to december 21 , 2012 have been prepared on a “ carve-out ” basis from the consolidated financial statements of elan to represent our financial performance as if we had existed on a stand-alone basis during those periods . prior to the separation and distribution on december 20 , 2012 , centralized support costs were allocated to us for the purposes of preparing the consolidated financial statements based on our estimated usage of the resources . our estimated usage of the centralized support resources was determined by estimating our portion of the most appropriate driver for each category of centralized support costs such as headcount or labor hours , depending on the nature of the costs . we believe that such allocations were made on a reasonable basis , but may not necessarily be indicative of the costs that would have been incurred if we had operated on a standalone basis . for additional information regarding the basis of preparation , refer to note 2 of the “ notes to the consolidated financial statements ” included in item 8 of this report . critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with the accounting principles generally accepted in the u.s. ( `` gaap '' ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets , liabilities , revenues , expenses and related disclosures . we believe the following policies to be critical to the judgments and estimates used in the preparation of our financial statements . carve-out of the results of operations , financial condition and cash flows of the prothena business prior to december 21 , 2012 , the prothena business operated as part of elan and not as a separate stand-alone entity . our consolidated financial statements for the periods prior to december 21 , 2012 have been prepared on a “ carve-out ” basis from the consolidated financial statements of elan to represent the financial position and performance of prothena as if we had existed on a stand-alone basis during those periods , and as if financial accounting standards board ( `` fasb '' ) accounting standard codification ( `` asc '' ) topic 810 , “ consolidation ” ( `` asc 810 '' ) had been applied throughout . the consolidated financial statements have been prepared in conformity with gaap , by aggregating financial information from the components of prothena described in note 2 to the consolidated financial statements . the accompanying consolidated financial statements include allocations of direct costs and indirect costs attributable to our operations for the periods prior to december 21 , 2012. indirect costs relate to certain support functions that were provided on a centralized basis within elan .
| 48 operating expenses replace_table_token_4_th total operating expenses consist of research and development ( `` r & d '' ) expenses and general and administrative ( `` g & a '' ) expenses . our operating expenses for the years ended december 31 , 2014 , 2013 and 2012 were $ 57.5 million , $ 41.1 million and $ 44.1 million , respectively . our r & d expenses primarily consisted of personnel costs and related expenses , including share-based compensation , external costs associated with preclinical activities and drug development related to our drug programs , including neod001 , prx002 , prx003 and our discovery programs , and costs of providing research services to elan . pursuant to our license agreement with roche , in 2014 we began making payments to roche for our share of the development expenses incurred by roche related to prx002 program , which is included in our r & d expense . we recorded reimbursements from roche for development and supply services based on the relative percentages as an offset to r & d expense . our g & a expenses primarily consist of professional services expenses and personnel costs and related expenses , including share-based compensation and , for the year ended december 31 , 2012 , certain centralized support costs that had been allocated to us by elan based on our estimated usage of the resources . share-based compensation expense during the year ended december 31 , 2012 was also allocated to us by elan . additional information regarding the allocation of centralized g & a expenses is discussed above under the caption “ carve-out of the results of operations , financial condition and cash flows of the prothena business ” . research and development expenses our r & d expenses increased by $ 12.4 million , or 48 % , for the year ended december 31 , 2014 , compared to the prior year . the increase for the year ended december 31 , 2014 compared to the prior year was primarily due to an increase in external expenses related to product manufacturing primarily
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the decrease was a result of fewer equipment sales during the year , offset by an increase in service revenue from repairs performed . cost of goods sold cost of goods sold decreased to approximately $ 113,000 for the year ended december 31 , 2014 from $ 188,000 for the year ended december 31 , 2013 , due to decreased sales of our equipment as described above . selling , general and administrative selling , general and administrative expenses increased to approximately $ 2,845,000 for the year ended december 31 , 2014 from approximately $ 2,819,000 for the year ended december 31 , 2013. the increase in selling , general and administrative expenses is principally due to an increase in employee expenses of approximately $ 180,000 ; an increase in office expenses of approximately $ 258,000 which includes commercial insurance , rent and other expenses incurred in the addition of the dr. pave office in california ; offset by a decrease in outside consulting fees of $ 181,000 , a decrease in advertising and promotion activities of approximately $ 166,000 , and a net reduction in legal fees , offering related costs and investor relations costs of approximately $ 65,000. research and development research and development decreased to approximately $ 190,000 for the year ended december 31 , 2014 from approximately $ 267,000 for the year ended december 31 , 2013. the principal reason for the decrease is a reduction in legal and other intellectual property consulting fees related to certain patent applications on technology and processes that may be patentable . we currently have five issued u.s. patents : four utility patents and one design patent . one additional u.s. patent has been allowed and will issue in april 2015. we have three pending u.s. patent applications and five foreign patent applications . three issued utility patents , us patent nos . 8,556,536 ; 8,562,247 and 8,714,871 were issued on oct. 15 , 2013 , oct. 24 , 2013 , and may 6 , 2014 , respectively and cover certain unique device and method of use aspects of our asphalt repair equipment . our design patent , us patent no . d700,633 , was issued on march 4 , 2014 and covers the ornamental design of our asphalt processor . u.s. patent no . 8,801,325 issued august 12 , 2014 and covers aspects of our computer-controlled asphalt heater . u.s. pat . appl . no . 14/456,285 will issue in april , 2015 and covers complementary features of our computer-controlled asphalt heater . we intend to develop other technologies for which we will seek patent protection . in addition , we have made and expect to continue to make certain international filings to attempt to protect our intellectual property rights in a limited number of countries outside of the united states . however , we do not have any assurance that our current pending patent applications will be granted or that we will be able to develop future patentable technologies . we do not believe our ability to operate our business is dependent on the patentability of our technology . loss on extinguishment of debt during the year ended december 31 , 2014 the company settled notes with a net carrying value of $ 1,684,778 with the issuance of 1,100,876 common shares and granted warrants to purchase 550,438 shares of common stock . the common shares and warrants had a total fair value of $ 2,506,872. the company recognized the difference between the fair value of the common shares and warrants and the net carrying amount of the extinguished debt as a loss of $ 822,205 on the extinguishment of unsecured notes payable during the year ended december 31 , 2014 . 22 impairment of goodwill as of january 1 , 2014 , dr. pave had net liabilities of $ 215,659 assumed by the company ; in addition to the consideration of 58,333 shares of common stock valued at $ 175,000. the total consideration paid in the acquisition of dr. pave resulted in goodwill in the amount of $ 390,659. the company determined that the goodwill was immediately impaired as of the acquisition date based on the lack of service revenue for the prior year . an impairment of goodwill from the acquisition in the amount of $ 390,659 , was recorded as an operating expense in the income statement for the year ended december 31 , 2014 income taxes we have incurred tax losses since we began operations . a tax benefit would have been recorded for losses incurred since march 29 , 2011 ; however , due to the uncertainty of realizing these assets , a valuation allowance was recognized which fully offset the deferred tax assets . liquidity and capital resources story_separator_special_tag flow requirements for the next twelve months . total contractual cash obligations a summary of our total contractual cash obligations as of december 31 , 2014 , is as follows : replace_table_token_1_th ( 1 ) amount relates to our warehouse and office lease agreement through july 2015 . ( 2 ) includes equipment utilized in our demonstration process and service work performed . ( 3 ) represents a revolving line of credit entered into by dr. pave at its inception in july 2013 . ( 4 ) amount represents outstanding unsecured notes payable under the company 's loan agreements . ( 5 ) amount represents outstanding balance on senior secured notes payable that mature on june 30 , 2015. off-balance sheet arrangements we do not engage in off-balance sheet financing activities . critical accounting policies and estimates the preparation of these financial statements in conformity with gaap requires management to make estimates , allocations and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . story_separator_special_tag on an ongoing basis , management evaluates its estimates , including those related to impairment of long-lived assets , accrued liabilities and certain expenses . we base our estimates about the carrying values of assets and liabilities that are not readily apparent from other sources on historical experience and on other assumptions believed to be reasonable under the circumstances . actual results may differ materially from these estimates under different assumptions or conditions . we believe the following critical accounting policies involve significant judgments and estimates used in the preparation of our financial statements . see note 2 of the accompanying notes to the financial statements included in item 8 of this form 10-k for additional information on these policies and estimates , as well as a discussion of additional accounting policies and estimates . 25 revenue recognition equipment sales revenue is recognized when equipment is shipped to our customer and collection is reasonably assured . we sell our equipment ( hwx-30 heater and hwx-ap-40 asphalt processor ) , as well as certain consumables , such as rxehab rejuvenation strips and polymer pellets , to third parties . equipment sales revenue is recognized when all of the following criteria are satisfied : ( a ) persuasive evidence of a sales arrangement exists ; ( b ) price is fixed and determinable ; ( c ) collectability is reasonably assured ; and ( d ) delivery has occurred . persuasive evidence of an arrangement and a fixed or determinable price exist once we receive an order or contract from a customer . we assess collectability at the time of the sale and if collectability is not reasonably assured , the sale is deferred and not recognized until collectability is probable or payment is received . typically , title and risk of ownership transfer when the equipment is shipped . research and development expenses research and development costs are expensed as incurred and consist of direct and overhead-related expenses . expenditures to acquire technologies , including licenses , which are utilized in research and development and that have no alternative future use are expensed when incurred . technology we develop for use in our products is expensed as incurred until technological feasibility has been established after which it is capitalized and depreciated . stock-based compensation we record equity instruments at their fair value on the measurement date by utilizing the black-scholes option-pricing model . stock compensation for all share-based payments , is recognized as an expense over the requisite service period . the significant assumptions utilized in determining the fair value of our stock options included the volatility rate , estimated term of the options , risk-free interest rate and forfeiture rate . in order to estimate the volatility rate at each issuance date , given that we have not established a historical volatility rate as it has minimal trading volume since we began trading in october 2013 , management reviewed volatility rates for a number of companies with similar manufacturing operations to arrive at an estimated volatility rate for each option grant . the term of the options was assumed to be five years , which is the contractual term of the options . the risk-free interest rate was determined utilizing the treasury rate with a maturity equal to the estimated term of the option grant . finally , management assumed a zero forfeiture rate as the options granted were either fully-vested upon the date of grant or had relatively short vesting periods . as such , management does not currently believe that any of the options granted will be forfeited . we will monitor actual forfeiture rates , if any , and make any appropriate adjustments necessary to our forfeiture rate in the future . non-employee share-based compensation charges generally are immediately vested and have no future performance requirements by the non-employee and the total share-based compensation charge is recorded in the period of the measurement date . impairment of long-lived assets we review long-lived assets for impairment on an annual basis , during the fourth quarter or on an interim basis if an event occurs that might reduce the fair value of such assets below their carrying values . an impairment loss would be recognized based on the difference between the carrying value of the asset and its estimated fair value , which would be determined based on either discounted future cash flows or other appropriate fair value methods . 26 recent accounting pronouncements the financial accounting standards board recently issued accounting standards update ( asu ) 2014-15 , presentation of financial statements - going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern . the amendments require management to assess an entity 's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in u.s. auditing standards . specifically , the amendments ( 1 ) provide a definition of the term substantial doubt , ( 2 ) require an evaluation every reporting period including interim periods , ( 3 ) provide principles for considering the mitigating effect of management 's plans , ( 4 ) require certain disclosures when substantial doubt is alleviated as a result of consideration of management 's plans , ( 5 ) require an express statement and other disclosures when substantial doubt is not alleviated , and ( 6 ) require an assessment for a period of one year after the date that the financial statements are issued ( or available to be issued ) . the amendments in this update are effective for the annual period ending after december 15 , 2016 , and for annual periods and interim periods thereafter . the financial accounting standards board recently issued asu 2014-10 , development stage entities ( topic 915 ) : elimination of certain financial reporting requirements , including an amendment to variable interest entities guidance in topic 810 , consolidation , which eliminates the financial
| during 2014 , the company issued 171,987 units sold at $ 3.00 per unit for gross proceeds of $ 515,963. the company paid share issuance costs in the amount of $ 6,000. each unit in this offering consists of one share of the company 's series d preferred stock and one-half warrant , with each whole warrant exercisable at $ 3.00 per share . the company issued warrants to purchase 85,993 shares of common stock outstanding . the warrants will be exercisable by the holders at any time on or after the issuance date of the warrants through october 1 , 2015 . 23 on january 6 , 2014 , we initiated a debt offering of up to $ 1,000,000 under the terms of a loan agreement . each loan is evidenced by an unsecured promissory note bearing interest at the rate of 12 % per annum and maturing on january 6 , 2016. interest will be paid in equal monthly installments on the first day of each month . as additional consideration for a lender to enter into the loan agreement , we agreed to issue to each lender one common stock purchase warrant for each $ 3.00 loaned to us , exercisable at $ 3.00 per share . the warrants expire three years following the date of issuance and may not be offered for sale , sold , transferred or assigned without our consent . on february 28 , 2014 , we completed our $ 1,000,000 debt financing through the sale of notes and warrants under the loan agreement . the notes were in the aggregate principal amount of $ 850,000 and were issued with an aggregate of 283,329 warrants to the investors . we allocated the fair value of the warrants in the amount of $ 248,129 as a discount on notes payable which will be amortized over the term of the notes to interest expense in the income statement . the company recognized amortization of discount on notes payable in interest expense of $ 100,999 for the year ended december 31 , 2014. on march 1 , 2014 , we commenced a similar non-public
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although the adoption of sfas 157 has not materially impacted its financial condition , results of operations , or cash flow , the company is now required to provide additional disclosures as part of its financial statements . sfas 157 establishes a three-tier fair value hierarchy , which prioritizes the inputs used in measuring fair value . these tiers include : level 1 , defined as observable inputs such as quoted prices in active markets ; level 2 , defined as inputs other than quoted prices in active markets that are either directly or indirectly observable ; and level 3 , defined as unobservable inputs in which little or no market data exists , therefore requiring an entity to develop its own assumptions . as of december 31 , 2008 , the company held certain items that are required to be measured at fair value on a recurring basis . these included an interest rate cap contract and certain put warrants to purchase 17.5 % of fully diluted equity interest in the company . the fair value of interest rate cap contract is determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets . therefore , the company has categorized the cap contract as level 2. the company determines the value of the put warrants using a discounted cash flow model and weekly asset volatilities of comparable companies over the past three years . therefore , the company has categorized these put warrants as level 2. the fair value of the rate cap and the put warrants at december 31 , 2008 were approximately $ 26,000 and $ 1,537,000 , respectively . 24 revenues and promotional allowances casino revenues are recognized as the net win from gaming activities , which is the difference between gaming wins and losses . all other revenues are recognized as the service is provided . revenues include the retail value of food , beverage , rooms , entertainment , and merchandise provided on a complimentary basis to customers . such complimentary amounts are then deducted from revenues as promotional allowances on our consolidated statements of operations . the estimated departmental costs of providing such promotional allowances are included in casino costs and expenses . hotel and food and beverage revenues hotel revenue recognition criteria are generally met at the time of occupancy . food and beverage revenue recognition criteria are generally met at the time of service . deposits for future hotel occupancy or food and beverage services are recorded as deferred income until revenue recognition criteria are met . cancellation fees for hotel and food and beverage services are recognized upon cancellation by the customer as defined by a written contract entered into with the customer . players ' club program players ' club members earn points based on gaming activity , which can be redeemed for cash . opbiz accrues expense and a liability related to this program as the points are earned based on historical redemption percentages . casino revenues are reduced by points earned through the players ' club loyalty program . allowance for doubtful accounts our receivables balances relate primarily to our hotel and casino operations . we reserve an estimated amount for receivables that may not be collected . we estimate the allowance for doubtful accounts by applying standard reserve percentages to aged account balances under a specific dollar amount and specifically analyzing the collectability of each account with a balance over the specified dollar amount , based on the age of the account , the customers ' financial condition , collection history and any other known information . we maintain strict controls over the issuance of markers and aggressively pursue collection from those customers who fail to pay their markers timely . markers are generally legally enforceable instruments in the united states and at december 31 , 2008 and 2007 , all of our casino receivables were owed by customers in the united states . the following table summarizes our receivable balances ( in thousands ) : replace_table_token_2_th 25 self-insurance accruals we are self-insured , up to certain limits , for costs associated with employee medical coverage . we accrue for the estimated expense of known claims , as well as estimates for claims incurred but not yet reported . income taxes the consolidated financial statements include the operations of bh/re and its majority-owned subsidiaries : equityco , mezzco , opbiz , ph mezz ii , ph mezz i , ph fee owner and tsp owner . bh/re and equityco are limited liability companies and are taxed as partnerships for federal income tax purposes . however , mezzco has elected to be taxed as a corporation for federal income tax purposes . opbiz and ph mezz ii , wholly-owned subsidiaries of mezzco , will be treated as divisions of mezzco for federal income tax purposes , and accordingly , will also be subject to federal income taxes . additionally , ph mezz i , a wholly-owned subsidiary of ph mezz ii , ph fee owner , a wholly owned subsidiary of ph mezz i and tsp owner , a wholly owned subsidiary of ph fee owner will also be subject to federal income taxes . mezzco , opbiz , ph mezz ii , ph mezz i , ph fee owner and tsp owner account for income taxes in accordance with sfas no . 109 , `` accounting for income taxes `` . sfas 109 requires the recognition of deferred income tax assets , net of applicable reserves , related to net operating loss carryforwards and certain temporary differences . the standard requires recognition of a future tax benefit to the extent that realization of such benefit is more likely than not . otherwise , a valuation allowance is applied . membership interests as of december 31 , 2008 , our membership interests had not been unitized and our members do not presently intend to unitize these membership interests . accordingly , we have excluded earnings per membership unit data required pursuant to sfas no . story_separator_special_tag 128 , `` earnings per share , `` because we believe that such disclosures would not be meaningful to the financial statement presentation . the company has entered into various employment agreements , as amended , with several executives . the employment agreements have initial terms of two to five years . the employment agreements provide that the executives will receive a base salary with either mandatory increases or annual adjustments and annual bonus payments . in addition , depending on the terms of the employment agreements , these executives are entitled to options to purchase between 0.2 % and 3 % of the equity of mezzco . the options were granted with an exercise price equal to or greater than the fair value at the date of grant . sheraton hotel management contract opbiz and sheraton have entered into a management contract pursuant to which sheraton provides hotel management services to the hotel , assists opbiz in the management , operation and promotion of the hotel and permits opbiz to use the sheraton brand and trademarks in the promotion of the hotel . opbiz pays sheraton a monthly fee of 4 % of gross hotel revenue and certain food and beverage outlet revenues and 2 % of rental income from third-party leases in the hotel . the management contract has a 20-year term that commenced on the completion of the aladdin acquisition and is subject to certain termination provisions by either opbiz or sheraton . sheraton is a wholly owned subsidiary of starwood , which has an 11.39 % equity interest in equityco and has the right to appoint two members to the equityco board of managers . 26 recently issued accounting standards sfas no . 141 in december 2007 , the fasb issued sfas no . 141 ( revised 2007 ) , `` business combinations . '' sfas no . 141 ( revised ) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired , the liabilities assumed , and noncontrolling interest in the acquiree and the goodwill acquired . the revision is intended to simplify existing guidance and converge rulemaking under u.s. generally accepted accounting principles with international accounting rules . this statement applies prospectively to business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after december 15 , 2008. the adoption of sfas no . 141 ( revised ) is not expected to have a material impact on the company 's financial position , results of operations or cash flows . sfas no . 160 in december 2007 , the fasb issued sfas no . 160 , `` noncontrolling interest in consolidated financial statements , an amendment of arb no . 51 . '' this statement establishes accounting and reporting standards for ownership interest in subsidiaries held by parties other than the parent and for the deconsolidation of a subsidiary . it also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements . sfas no . 160 changes the way the consolidated statement of operations is presented by requiring consolidated net income to be reported at amounts that include the amount attributable to both the parent and the noncontrolling interests . the statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interest of the parent and those of the noncontrolling owners . this statement is effective for fiscal years beginning on or after december 15 , 2008. the adoption of sfas no . 160 is not expected to have a material impact on the company 's financial position , results of operations or cash flows . sfas no . 161 in march 2008 , the fasb issued sfas no . 161 , `` disclosures about derivative instruments and hedging activities , an amendment of sfas no . 133 . '' sfas no . 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity 's financial position , financial performance , and cash flows . this statement is effective for fiscal years beginning after november 15 , 2008. sfas no . 161 is not expected to have a material impact on the company 's financial position , results of operations or cash flows . sfas no . 162 in may 2008 , fasb issued statement no . 162 , `` the hierarchy of generally accepted accounting principles '' ( `` sfas 162 '' ) . sfas 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with gaap ( the gaap hierarchy ) . sfas 162 is effective 60 days following the sec 's approval of the public company accounting oversight board amendments to au section 411 , the meaning of present fairly in conformity with generally accepted accounting principles . the adoption of sfas 162 is not expected to have a material impact on the company 's financial position , results of operations or cash flows . 27 story_separator_special_tag declines contributing to the revenue increase year over year despite challenging market conditions in the fourth quarter of 2008. hotel expenses decreased 1.9 % to $ 40.7 million for the year ended december 31 , 2008 as compared to $ 41.5 million for the year ended december 31 , 2007. the hotel profit margin increased 2.4 percentage points over the same twelve-month period . the expense savings and profit margin increases were the direct result of savings initiatives put in place in response to the economic downturn and market declines .
| net revenues for the year ended december 31 , 2007 , declined over those of the year ended december 31 , 2006. the decline is mainly the result of declines in hotel revenue related to the renovation and food and beverage revenues which declined with the transition of outlets to third party operators . 28 the following table highlights the various sources of our revenues and expenses as compared to the prior years . replace_table_token_4_th casino casino revenue is derived primarily from patrons wagering on slot machines , table games and other gaming activities . table games generally include blackjack or twenty one , craps , baccarat and roulette . other gaming activities include the race and sports books , poker and keno . casino revenue is defined as the win from gaming activities , computed as the difference between gaming wins and losses . casino revenues vary from time-to-time due to general economic conditions , competition , popularity of entertainment offerings , table game hold , slot machine hold and occupancy percentages in the hotel . casino revenues also vary depending upon the amount of gaming activity , as well as variations in the odds for different games of chance . casino revenue is recognized at the end of each gaming day . 2008 compared with 2007 casino revenues increased 7.0 % to $ 122.2 million for the year ended december 31 , 2008 as compared to $ 114.2 million for the year ended december 31 , 2007. table games revenue for the year ended december 31 , 2008 , decreased approximately $ 0.5 million or 1.1 % as compared to the year ended december 31 , 2007. the decrease in table revenue was the result of a decrease in hold percentage . table drop for the year ended december 31 , 2008 was up 23.5 % when compared to the year ended december 31 , 2007 but overall win percentage for the year ended december 31 , 2008 was 16.6 % compared
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$ 70.1 million , or 38.0 % , represented projects destined for deepwater locations compared to $ 224.5 million , or 62.6 % , at december 31 , 2013 . $ 5.3 million , or 2.9 % , represented projects destined for foreign locations compared to 28.7 million , or 8.0 % , at december 31 , 2013. projects for our three largest customers consisted of ( i ) jackets , piles , and topside for a deepwater gulf of mexico project for one customer , which commenced in the second and fourth quarters of 2013 , respectively ; ( ii ) five jackets and piles for a shallow water wind turbine project located off the coast of rhode island , that commenced in the fourth quarter of 2014 ; and ( iii ) three tow boats for an inland towing customer that commenced in the third quarter of 2014. the deepwater project is scheduled to be completed during the third quarter of 2015 ; two of the jackets , piles and deck projects are scheduled to be completed during the second quarter of 2015 and the last three jackets , piles and deck projects are scheduled to be completed during the third quarter of 2015 ; the first tow boat is expected to be completed during the third quarter of 2015 , the second tow boat is expected to be completed during the first quarter of 2016 , and the third tow boat is expected to be completed during the third quarter of 2016. depending on the size of the project , the termination , postponement , or reduction in scope of any one project could significantly reduce our backlog , and could have a material adverse effect on revenue , net income and cash flow . for additional information , see note 1 in the notes to consolidated financial statements assets held for sale and item 1a . risk factors our backlog is subject to change as a result of changes to management 's estimates , suspension or termination of projects currently in our backlog or our failure to secure additional projects . our revenue , net income and cash flow could be adversely affected as a result of changes to our backlog. as of december 31 , 2014 , we expected to recognize revenues from our backlog of approximately $ 176.7 million , or 95.7 % , during the calendar year 2015 , and $ 8.0 million , or 4.3 % , during calendar year 2016. the timing of our recognition of the revenue backlog as presented above is based on management estimates of the application of the direct labor hours during the current projected timelines to complete the projects in our backlog . certain factors and circumstances , as mentioned above , could cause changes in the period when the backlog is recognized as revenue . based on the activity of the major oil and gas companies and certain engineering companies , we expect bids for deepwater projects to be available in the second half of 2015 with a higher level of bidding activity in the fourth quarter of 2015. bidding activity for non-traditional gulf of mexico ( gom ) marine related projects , gom shallow water projects , and ancillary work associated with deepwater structures is expected to increase in the second half of 2015 . 26 workforce our workforce varies based on the level of ongoing fabrication activity at any particular time . as of december 31 , 2014 and 2013 , we had approximately 1,700 and 1,900 employees , respectively . additionally , we will use contract labor when required to meet customer demand . the number of contract laborers we used decreased to 247 in 2014 as compared to 467 in 2013. none of our employees are employed pursuant to a collective bargaining agreement , and we believe our relationship with our employees is good . in an effort to maintain our current workforce and attract new employees in period of high activity , we have enhanced several incentive programs and expanded our training facility . for additional information , see item 1a- risk factors we might be unable to employ a sufficient number of skilled workers. man-hours worked were 3.6 million , 4.1 million and 4.8 million for the years ending december 31 , 2014 , 2013 and 2012 respectively . the decrease in man-hours worked in 2014 relative to 2013 was primarily attributable to overall decreased levels of activity as a result of the completion of topsides for two large deepwater customers in 2013 , and a spar hull for a large deepwater customer in the first quarter of 2014. critical accounting policies our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states , which require us to make estimates and assumptions . we believe that of our significant accounting policies ( see note 1 in the notes to consolidated financial statements ) , the following involves a higher degree of judgment and complexity : revenue recognition the majority of our revenue is recognized on a percentage-of-completion basis based on the ratio of direct labor hours actually performed to date compared to the total estimated direct labor hours required for completion . accordingly , contract price and cost estimates are reviewed monthly as the work progresses , and adjustments proportionate to the percentage of completion are reflected in revenue for the period when such estimates are revised . if these adjustments were to result in a reduction of previously reported profits , we would have to recognize a charge against current earnings , which may be significant depending on the size of the project or the adjustment . some contracts include a total or partial reimbursement to us of any costs associated with specific capital projects required by the fabrication process . if a particular capital project provides future benefits to us , the cost to build the capital project will be capitalized , and the revenue for the capital project will increase the estimated profit in the contract . story_separator_special_tag contract costs include all direct material , labor and subcontract costs and those indirect costs related to contract performance , such as indirect labor , supplies and tools . also included in contract costs are a portion of those indirect contract costs related to plant capacity , such as depreciation , insurance and repairs and maintenance . these indirect costs are allocated to jobs based on actual direct labor hours worked . profit incentives are included in revenue when their realization is probable . claims for extra work or changes in scope of work are included in revenue when the amount can be reliably estimated and collection is probable . changes in job performance , job conditions , and estimated profitability , including those arising from contract penalty provisions , and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined . at december 31 , 2014 , we had no revenue related to unapproved change-orders on projects . at december 31 , 2013 , we recorded revenue totaling $ 0.1 million related to certain change-orders on two projects which were approved as to scope but not price . at december 31 , 2013 , we recorded revenue totaling $ 3.7 million related to re-measure units and quantities on a unit rate contract . at december 31 , 2012 , we recorded 27 revenue totaling $ 5.2 million related to certain change-orders on four projects which were approved as to scope but not price . at december 31 , 2012 , we also recorded revenue totaling $ 7.7 million related to re-measure units and quantities on a unit rate contract . all unapproved items as of december 31 , 2013 and 2012 , respectively , were subsequently approved in the normal course of business . provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined . we recognized contract losses of $ 6.6 million , $ 30.8 million , and $ 12.5 million for the years ended december 31 , 2014 , 2013 , and 2012 , respectively . contract losses for the year ended december 31 , 2014 were primarily related to two tank barge projects for a marine transportation company , platform supply vessels for an offshore marine company and a production platform jacket for a deepwater customer . contract losses in 2013 were primarily due to our inability to recover certain costs and the de-scoping of one of our major deepwater projects , as further discussed in the backlog section above . contract losses in 2012 were primarily related to increased man-hours driven by delays in delivery of specification and design changes by a deepwater customer causing out-of-sequence work schedules . allowance for doubtful accounts we routinely review individual contracts receivable balances and make provisions for probable doubtful accounts as we deem appropriate . among the factors considered during the review are the financial condition of our customers and their access to financing , underlying disputes on the account , age and amount of the account and overall economic conditions . accounts are written off only when all reasonable collection efforts are exhausted . our principal customers include major and large independent oil and gas companies and their contractors and marine vessel operators and their contractors . this concentration of customers may impact our overall exposure to credit risk , either positively or negatively , in that customers may be similarly affected by changes in economic or other conditions . receivables are generally not collateralized ; however , in certain instances we obtain collateral to reduce our credit exposure . in the normal course of business , we extend credit to our customers on a short-term basis . during the fourth quarter of 2014 , the company included an allowance for bad debt in the amount of $ 3.6 million in connection with negotiations of an outstanding contract receivable balance with a deepwater offshore customer related to a deepwater hull project that was completed during the first quarter of 2014. at december 31 , 2013 , the company included an allowance for bad debt in the amount of $ 0.9 million in connection with a vessel upgrade and outfitting project . the company collected $ 0.6 million of this balance in connection with a final settlement during the fourth quarter 2014. assets held for sale assets held for sale consist of a partially constructed topside , related valves , piling and equipment that we acquired from a customer following its default under a contract for a deepwater project in 2012. assets held for sale are required to be measured at the lower of their carrying amount or fair value less cost to sell . management determined fair value of these assets with the assistance of third party valuation specialists , assuming the sale of the underlying assets individually or in the aggregate to a willing market participant , including normal ownership risks assumed by the purchaser , and the sale of certain components at scrap value . we estimated fair value relying primarily on the cost approach and applied the market approach where comparable sales transaction information was readily available . the cost approach is based on current replacement or reproduction costs of the subject assets less depreciation attributable to physical , functional , and economic factors . the market approach involves gathering data on sales and offerings of similar assets in order to value the subject assets . this approach also includes an assumption for the measurement of the loss in value from physical , functional , and economic factors . the fair value of assets held for sale represent level 3 fair value measurements ( as defined by gaap ) , 28 based primarily on the limited availability of market pricing information for either identical or similar items .
| factors contributing to the overall increase in gross profit for the twelve-month period ended december 31 , 2014 compared to the twelve-month period ended december 31 , 2013 include : lower contract losses of $ 6.6 million during the twelve month period ended december 31 , 2014 compared to $ 30.8 million during the twelve-month period ended december 31 , 2013 as further explained in backlog above ; a return to traditional jacket and smaller topside shallow water projects during 2014 as compared to 2013 ; and a higher level of offshore commissioning and hook-up activity performed on a time and material basis . 29 both the offshore connection and hook-up work and execution of the 2014 shallow water projects garnered higher profit margins as compared to our mix of projects performed during 2013 , primarily due to ( i ) certain project improvement initiatives undertaken in 2014 , and ( ii ) the fact that we historically have been able to more effectively control costs associated with these projects as compared to larger , more complex deepwater projects . our general and administrative expenses were $ 20.6 million for the twelve-month period ended december 31 , 2014 compared to $ 11.6 million for the twelve-month period ended december 31 , 2013. factors that contributed to the increase in general and administrative expenses for the twelve months ended december 31 , 2014 include : an impairment charge of $ 3.2 million in 2014 related to assets held for sale ; a net increase of $ 2.7 million in bad debt expense ; increases in expenses related to the relocation of our corporate headquarters to houston , texas and hiring of additional corporate staff members to support operations ; the addition of three consultants to assist with the marketing efforts for assets held for sale and potential flng opportunities ; and increases in expenses associated with an increase in the numbers of directors serving on our board . bad debt expense for 2014 included a $ 3.6 million increase in the fourth quarter related to negotiations of an outstanding contract receivable balance with a customer for a deepwater hull project completed during the first quarter of 2014. at december 31 , 2013 , the
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gross profit margin was 20.3 percent for 2020 compared to 20.9 percent for 2019. selling , general and administrative expenses selling , general and administrative ( `` sg & a '' ) expenses increased $ 8.6 million to $ 516.0 million for 2020 from $ 507.4 million for 2019. sg & a expenses were 11.4 percent of net sales for 2020 compared with 11.0 percent of net sales for 2019. restructuring charges restructuring charges were $ 38.7 million for 2020 compared with $ 26.1 million for 2019. the increase in restructuring charges was primarily due to increased strategic restructuring efforts within the rigid industrial packaging & services segment . see note 4 of the notes to consolidated financial statements included in item 8 of this form 10-k for additional information . acquisition and integration related costs acquisition and integration related costs were $ 17.0 million for 2020 compared with $ 29.7 million for 2019. the decrease was primarily due to fewer expenses incurred in connection with the caraustar acquisition and related integration activities . impairment charges there were no goodwill impairment charges for 2020 and 2019. non-cash asset impairment charges were $ 18.5 million for 2020 compared with $ 7.8 million for 2019. in 2020 , these charges were primarily related to plant closures . see note 7 of the notes to consolidated financial statements included in item 8 of this form 10-k for additional information . gain on disposal of properties , plants and equipment , net the gain on disposal of properties , plants , and equipment , net was $ 19.2 million and $ 13.9 million for 2020 and 2019 , respectively . loss on disposal of businesses , net the loss on disposal of business , net was $ 38.8 million for 2020 and $ 3.7 million for 2019. the current year disposal of business , net was primarily due to goodwill allocated to the divestiture of the cpg business . see note 2 of the notes to consolidated financial statements included in item 8 of this form 10-k for additional information . financial measures operating profit was $ 304.9 million for 2020 compared with $ 399.1 million for 2019. net income was $ 124.3 million for 2020 compared with $ 194.2 million for 2019. adjusted ebitda was $ 642.6 million for 2020 compared with $ 658.9 million for 2019. the respective reasons for the improvement or decline in adjusted ebitda , as the case may be , for each segment are described below in the `` segment review . '' 28 trends we anticipate demand growth in the industrial manufacturing businesses but continued lingering uncertainty in the global economy to continue in early 2021. raw material prices for old corrugated containers are expected to increase , while prices for steel , resin and recycled coated and uncoated paperboard are expected to remain relatively stable after the first quarter of 2021. additionally , we expect higher transportation and insurance costs due to tighter market conditions and higher incentive accruals to impact costs of goods sold and sg & a . story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % ; padding-left:14.5pt '' > hbu property , meaning land that in its current state has a higher market value for uses other than growing and selling timber ; development property , meaning hbu land that , with additional investment , may have a significantly higher market value than its hbu market value ; and core timberland , meaning land that is best suited for growing and selling timber . 30 we report the sale of timberland property in `` timberland gains , '' the sale of hbu and surplus property in “ gain on disposal of properties , plants and equipment , net ” and the sale of timber and development property under “ net sales ” and “ cost of products sold '' in our consolidated statements of income . all hbu and development property , together with surplus property , is used to productively grow and sell timber until the property is sold . whether timberland has a higher value for uses other than growing and selling timber is a determination based upon several variables , such as proximity to population centers , anticipated population growth in the area , the topography of the land , aesthetic considerations , including access to lakes or rivers , the condition of the surrounding land , availability of utilities , markets for timber and economic considerations both nationally and locally . given these considerations , the characterization of land is not a static process , but requires an ongoing review and re-characterization as circumstances change . as of october 31 , 2020 , we estimated that there were 18,800 acres in the united states of special use property , which we expect will be available for sale in the next four to six years . net sales decreased to $ 26.3 million for 2020 compared with $ 26.9 million for 2019. operating profit decreased to $ 8.5 million for 2020 from $ 9.9 million for 2019. adjusted ebitda was $ 11.9 million and $ 12.1 million for 2020 and 2019 , respectively . depreciation , depletion and amortization expense was $ 4.5 million and $ 4.3 million for 2020 and 2019 , respectively . 31 u.s. and non-u.s. income before income tax expense see the following tables for details of the u.s. and non-u.s. income before income taxes and u.s. and non-u.s. income before income taxes after eliminating the impact of non-cash asset impairment charges , non-cash pension settlement income , restructuring charges , acquisition and integration related costs , debt extinguishment charges , and losses on sales of businesses ( collectively , `` adjustments '' ) . replace_table_token_7_th * income before income tax expense = i.b.i.t . income tax expense we had operations in over 40 countries during 2020. operations outside the united states are subject to additional risks that may not exist , or be as significant , within the united states . story_separator_special_tag because of our global operations in numerous countries we are required to address different and complex tax systems and issues which are constantly changing . 32 preparation of our financial statements requires the use of estimates and assumptions that affect the reported amounts of our assets and liabilities ; and revenues and expenses as of the balance sheet date . the numerous tax jurisdictions in which we operate , along with the variety and complexity of the various tax laws , creates a level of uncertainty , and requires judgment when addressing the impact of complex tax issues . our effective tax rate and the amount of tax expense are dependent upon various factors , including the following : the tax laws of the jurisdictions in which income is earned ; the ability to realize deferred tax assets ; negotiation and dispute resolution with taxing authorities in the u.s. and international jurisdictions ; and changes in tax laws . the provision for income taxes is computed using the asset and liability method . under this method , deferred tax assets and liabilities are recognized currently based on the anticipated future tax consequences of changes in the temporary differences between the book and tax bases of assets and liabilities . this method includes an estimate of the future realization of tax benefits associated with tax losses . deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those assets are expected to be realized or settled . income tax expense for 2020 was $ 63.3 million on $ 186.1 million of pretax income and for 2019 was $ 70.7 million on $ 262.0 million of pretax income . for 2020 , the mix of income and losses among various jurisdictions resulted in a net tax decrease of $ 17.0 million on $ 75.9 million less of pretax income , which was offset by additional tax expense of $ 7.5 million related to non-deductible goodwill allocated to the cpg divestiture . various other items resulted in a net tax increase of $ 2.1 million . included in the net tax decrease of $ 17.0 million noted in the previous paragraph was a $ 28.4 million net decrease in valuation allowances . this decrease was primarily due to the ability to utilize foreign tax credits for which a valuation allowance had previously been provided . the release of the valuation allowance related to foreign tax credits resulted in the reduction of the valuation allowance and a tax benefit of $ 21.5 million . other decreases in the valuation allowances related to foreign jurisdictions resulted in an additional decrease of $ 6.9 million . the valuation allowance activity resulted in an overall decrease in the valuation allowance account from 2019 to 2020 of $ 34.7 million . offsetting these amounts was tax expense of $ 31.0 million as a result of a one-time elimination related to an intra-company sale . this one-time activity was the primary driver that resulted in an overall net increase in permanent items for 2019 to 2020 of $ 28.3 million we analyze potential income tax liabilities related to uncertain tax positions in the united states and international jurisdictions . the analysis of potential income tax liabilities results in estimates of income tax liabilities recognized for uncertain tax positions following the guidance of asc 740 , “ income taxes. ” the estimation of potential tax liabilities related to uncertain tax positions involves significant judgment in evaluating the impact of uncertainties in the application of asc 740 and complex tax laws . we periodically analyze both potential income tax liabilities and existing liabilities for uncertain tax positions resulting in both new reserves and adjustments to existing reserves in light of changing facts and circumstances . this includes the release of existing liabilities for uncertain tax positions based on the expiration of statutes of limitation . during 2020 , lapses in the statute of limitations , which were partially offset by the recognition of new uncertain tax position liabilities recorded during the current year , resulted in an overall net decrease in our uncertain tax position liability . the ultimate resolution of potential income tax liabilities may result in a payment that is materially different from our current estimates . if our estimates recognized under asc 740 prove to be different than what is ultimately resolved , such resolution could have a material impact on our financial condition and results of operations . while predicting the final outcome or the timing of the resolution of any particular tax matter is subject to various risks and uncertainties , we believe that our tax accounts related to uncertain tax positions are appropriately stated . see note 9 of the notes to consolidated financial statements included in item 8 of this form 10-k for further information . net income attributable to noncontrolling interests net income attributable to noncontrolling interests represents the portion of earnings from the operations of our non-wholly owned , consolidated subsidiaries that belongs to the noncontrolling interests in those subsidiaries . net income attributable to noncontrolling interests was $ 15.5 million and $ 23.2 million for 2020 and 2019 , respectively . the decrease in net income attributable to noncontrolling interests was due primarily to decreased earnings of the joint venture ( `` flexible packaging jv '' ) formed in 2010 , with dabbagh group holdings company limited and one of its subsidiaries , originally national scientific company limited and now gulf refined packaging for industrial packaging company ltd. year 2019 compared to year 2018 results of year 2019 compared to year 2018 are included in our annual report on form 10-k for the year ended october 31 , 2019 , file no . 001-00566 ( see item 7 therein ) . other comprehensive income changes 33 other comprehensive loss , net of tax for 2020 and 2019 was $ 6.7 million and $ 55.9 million , respectively .
| paper packaging & services key factors influencing profitability in the paper packaging & services segment are : selling prices , product mix , customer demand and sales volumes ; raw material costs , primarily old corrugated containers ; energy and transportation costs ; benefits from executing the greif business system ; acquisition of businesses and facilities ; restructuring charges ; and divestiture of businesses and facilities . net sales were $ 1,916.9 million for 2020 compared with $ 1,780.0 million for 2019. the $ 136.9 million increase was primarily due to full year contribution from the acquired caraustar operations , partially offset by lower published containerboard and boxboard prices , decreased volumes , and the impact to net sales resulting from the cpg divestiture . 29 gross profit was $ 382.7 million for 2020 compared with $ 425.4 million for 2019. the decrease in gross profit was primarily due to the same factors that impacted net sales and higher old corrugated container input costs . gross profit margin decreased 20.0 percent in 2020 from 23.9 percent 2019. operating profit was $ 71.0 million for 2020 compared with $ 184.3 million for 2019. the decrease in operating profit was primarily due to the factors discussed above in gross profit , the loss on sale of the cpg divestiture and the segment receiving a greater portion of allocated corporate costs . adjusted ebitda was $ 306.4 million for 2020 compared with $ 348.3 million for 2019. the decrease was due primarily to the same factors that impacted gross profit and the segment receiving a greater portion of allocated corporate costs . depreciation and amortization expense was $ 153.5 million and $ 119.3 million for 2020 and 2019 , respectively . flexible products & services key factors influencing profitability in the flexible products & services segment are : selling prices , product mix , customer demand and sales volumes ; raw material costs , primarily resin ; energy and transportation costs ; benefits from executing the greif business system ; restructuring charges ; divestiture of businesses and facilities ; and impact of foreign currency translation . net sales were $ 272.9 million for 2020 compared
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summary the emergence of the covid-19 global pandemic dominated the company 's activities and results in 2020. berkshire adjusted its business model to manage pandemic related impacts to its operations , its customers , and its operating profitability . the company 's markets became a national and global disease hotspot early in the pandemic , in the second quarter . government authorities shut down much societal and economic activity in march . conditions improved in the third quarter , but another wave of disease incidence slowed further improvement , and economic conditions remained stressed through year-end . during the year , unprecedented federal fiscal and monetary stimulus was deployed nationally . the federal reserve board of governors lowered short-term interest rates by approximately 1.50 % in the first quarter , and further actions by the federal reserve resulted in rates coming down across all maturities , resulting in a parallel downward rate shock of approximately 1.50 % . following an unprecedented economic contraction in the second quarter , the economy had partially recovered by the end of 2020. the rollout of vaccinations and further federal and monetary support were expected to gradually further normalize conditions in 2021. the bank initially closed its branches except for drive-through tellers , and most back-office staff moved to work from home status . the bank was able to resume most branch activities in the third quarter , while back-office staff continue to telecommute . business activities shifted during this period to provide expedited support for supporting stimulus programs and servicing the needs of customers and communities arising from the emergency conditions . numerous programs were developed to provide support and assistance to the bank 's staff and communities , including granting of loan payment modifications pursuant to government guidelines and the origination of commercial paycheck protection program ( “ ppp ” ) sba guaranteed loans to support employment during the shutdown . branch access restrictions were reintroduced in the fourth quarter and some government restrictions were resumed due to worsening public health . 48 changes in the company 's financial condition and results were primarily due to the pandemic and the related changes in financial market conditions and economic expectations . due to these downturns , the company recorded large non-cash charges for goodwill impairment and the current expected credit loss provision during the year . these charges resulted in losses for the first and second quarters , but did not materially affect most regulatory capital measures , cash flows , or liquidity . among the most significant financial impacts from the pandemic were the following : goodwill impairment : in the second quarter , the company recorded a $ 554 million noncash expense representing the full impairment and write-off of the carrying value of goodwill due to the impact of the covid-19 disease on economic and financial market conditions resulting in a lower fair value of the company 's equity . credit loss provision : a $ 65 million noncash credit loss provision expense was recorded in the first half of 2020 primarily representing projected pandemic related current expected credit losses in future periods under the new current expected credit losses ( “ cecl ” ) accounting standard . the full year provision was $ 76 million . reduced revenue : net revenue from continuing operations decreased year-over-year by 15 % due primarily to compression of the net interest margin resulting from the near zero interest rate policy implemented by the federal reserve board of governors , and reflecting the company 's asset sensitive interest rate risk profile . the margin change also reflected a change in asset mix from loans and into lower yielding short-term investments and investment securities . loan modifications : short-term loan payment deferrals were granted in accordance with terms established by bank regulators to lessen borrower hardship . initial payment deferrals totaled $ 1.6 billion . the balance of active and in-process deferrals declined to $ 350 million at year-end . balance sheet changes : a pandemic related deposit surge was primarily invested in short-term investment reserves held at the federal reserve bank of boston . the company originated $ 708 million in ppp loans to support employment , and these loans partially offset reductions in other loan categories due to reduced economic activity , liquidity from government stimulus , and accelerated prepayments . demand deposits increased as borrowers stored liquidity resulting from government stimulus and reduced economic activity . t otal equity decreased but most regulatory capital ratios improved , and measures of liquidity improved due to reduced usage of wholesale funding and due to higher short-term investment balances . reflecting the above activity , the company recorded a loss of $ 569 million , or $ 11.33 per share for the first six months of 2020. this loss was a result of noncash charges for goodwill impairment and the provision for current expected credit losses on loans . results returned to profitability in the second half of the year , with second half earnings totaling $ 36 million , or $ 0.73 per share . full year results were a loss of $ 533 million , or $ 10.60 per share . in conformance with the industry guidelines issued by the federal reserve at the outset of the pandemic , the company ceased repurchases of common stock in the first quarter , and let its outstanding repurchase authorization expire at the end of the first quarter . also , the company reduced its shareholder dividend by 50 % in the third quarter of 2020. this reduction was made to better align the dividend payout and dividend yield with the reduced level of operating earnings in the current environment . in october 2020 , the company announced the launch of best-in-class digital account opening technology . this platform provides benefits to the customer experience , to revenue generation , and to the company 's operating efficiency . the company also enhanced its customer experience by upgrading its call center and rolling out its e-signature platform . story_separator_special_tag these enhanced capabilities are significantly more valuable in today 's environment as a result of the customer needs and accelerated digital transformation resulting from the pandemic . 49 also in october 2020 , the company announced a strategic goal to pursue expense management initiatives , due in part to the long-term revenue impacts of the near zero interest rate environment . expense management also recognizes long-term changes in customer behaviors and the bank 's operating model based on the accelerated transition to the digital economy resulting from the pandemic . in december 2020 , as part of these initiatives , the company announced a branch optimization plan . the company announced that it had entered into an agreement for the sale of its 8 mid-atlantic branches , including the transfer of more than $ 600 million in deposits and $ 300 million in loans . additionally , the company announced a plan to consolidate 16 branches in its new england/new york footprint . both of these initiatives are targeted for completion in the first half of 2021. the company expects to recognize a net gain on the sale of the mid-atlantic branches , as well as charges in conjunction with the branch consolidations . in addition to reshaping the branch office network , the company is pursuing possibilities for identifying and releasing surplus corporate real estate , and making other operational adjustments to its business model . the company also plans to formalize cost save opportunities arising from work from home as well as changes in procurement processes in the current environment . the company 's goal is to streamline its business model in its core markets and leverage organic growth around that foundation . two critical enablers are the technology that the company has invested in and its personalized banking services program , mybanker . berkshire has been successfully deploying these mobile personal bankers for a number of years to bring service to customers where and when they need it and they remain integral to the distinctive customer experience that the bank is developing as a 21st century community bank . on august 10 , 2020 , the company announced that , pursuant to a separation agreement , richard m. marotta had stepped down from his position as president and chief executive officer of the company and ceo of the bank , as well as from his role as a director to pursue new opportunities . working within its leadership succession planning process , the board appointed sean a. gray , to serve as acting president and ceo for the company . the board initiated a ceo search process to consider a national search for candidates inside and outside of berkshire . the board established a working committee to oversee the search process and retained the firm of spencer stuart as its executive search consulting firm . on january 25 , 2021 the board announced the appointment of nitin j. mhatre as president and chief executive officer of the company and the bank effective january 29 , 2021. with the appointment of mr. mhatre , mr. gray resumed his ongoing duties as president and chief operating officer of berkshire bank and senior executive vice president of berkshire hills bancorp , inc. mr. mhatre is a senior banking executive with 25 years of community and global banking experience . most recently , as executive vice president , community banking at webster bank , mr. mhatre was a member of webster bank 's executive team and led its consumer and business banking businesses . in this role , he was responsible for profitable growth of the community banking segment at the $ 31 billion bank and led a diverse team of more than 1,500 employees . previously , he spent more than 13 years at citi group in various leadership roles across consumer-related businesses globally . mr. mhatre served on the board of the consumer bankers association headquartered in washington d.c. since 2014 and was chairman of the board from 2019 to 2020. he also serves on the board of junior achievement of southwest new england headquartered in hartford , ct. the board and management team are fully aligned on the company 's long-term strategic direction . that strategy focuses on improving core operating performance with a relationship banking model that serves berkshire 's communities and clients in its footprint . berkshire 's brand name and franchise in its markets , its differentiated customer service and culture , and its purpose-based values are all targeted to support meaningful improvement in shareholder returns . the company has five current key initiatives : optimizing berkshire 's branch footprint through the announced branch sales and consolidations rationalizing the balance sheet to maintain strong liquidity and capital metrics and support improved profitability and shareholder return further implementing digitization and automation to improve customer engagement and operational efficiencies focusing on core products and services to enhance customer relationships and the customer experience while exiting non-strategic products & business lines continuing proactive management of asset quality through the pandemic cycle 50 berkshire continues to pursue its ongoing transformation into an innovative 21 st century community bank , which has gained heightened relevance to stakeholders and the company 's long-term opportunity as a result of this year 's events . guided by its be first principles , the company continues to foster a more inclusive , innovative and supportive culture , which is positioning berkshire to deliver a differentiated and compelling community banking experience to everyone in its communities , including those who have been traditionally underbanked . following its principles , the company 's covid-19 response included : 51 comparison of financial condition at december 31 , 2020 and december 31 , 2019 summary : the major balance sheet changes were the result of the covid-19 pandemic and its impacts on the economy and federal fiscal and monetary policy . total loans decreased and demand deposits increased due to the slowdown in economic activity , resulting in less credit demand and the accumulation of customer liquidity – both of which benefited from federal stimulus .
| net interest income : net interest income from continuing operations increased by $ 9 million , or 3 % , in 2019 compared to 2018. this growth was due to a 9 % increase in average earning assets , which was partially offset by a decrease in the net interest margin . the increase in average earning assets included the impact of approximately $ 1.48 billion in earning assets acquired from si financial on may 17. this was offset by a net decline in other average earning assets due to the company 's strategic initiative to reduce less strategically important loans and investments in order to decrease expensive wholesale funding sources and related leverage . the net interest margin decreased year-over-year to 3.17 % from 3.40 % , and the contribution from purchase accounting accretion decreased to 0.12 % from 0.22 % . the margin decreased further to 3.11 % in the final quarter of the year , including a 0.17 % contribution from purchase accounting accretion . the benefit of purchase accounting accretion decreased primarily due to the seasoning of purchased credit impaired loans from prior bank acquisitions . purchase accounting accretion also benefited from accretion related to acquired si financial time deposits , which are contributing approximately 7 basis points per quarter accretion benefit which matured in the second quarter of 2020. non-interest income : non-interest income from continuing operations increased by $ 10 million , or 13 % , in 2019 compared to 2018 due primarily to an $ 8 million swing in unrealized securities gains/losses which the company views as non-operating in nature . fee income increased by $ 3 million , or 4 % , including the benefit of acquired operations . provision for loan losses . the provision increased year-over-year by $ 10 million , or 39 % , including the impact of one fraud related commercial loan loss in the third quarter . non-interest expense : non-interest expense from continuing operations increased year-over-year by $ 23 million , or 9 % , including acquired operations . merger related expense included the completion
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for the years ended december 31 , 2020 and 2019 , we incurred expenses of $ 3.2 million and $ 5.2 million , respectively , related to our property management agreement with cbre , for property management fees , typically calculated as a percentage of the properties ' revenues , and salary and benefits reimbursements for property personnel , such as property managers , engineers and maintenance staff . as of december 31 , 2020 and 2019 , we had amounts payable pursuant to these services of $ 0.3 million and $ 0.6 million , respectively . in connection with repositioning our portfolio , we may sell additional properties , depending on market conditions . with the progress we have made executing dispositions , and the strength and liquidity of our balance sheet , we have shifted our primary focus to capital allocation . we may use our capital for acquisitions and or investments in new properties or businesses , repurchase shares or make distributions that further our long-term strategic goals . with respect to acquisitions and or investments , we are evaluating opportunities to invest capital in high-quality assets or businesses in favorable markets that offer a compelling risk-reward profile . the set of opportunities that we pursue may include acquisitions and or investments in a range of property types . we may be unable to identify suitable investment opportunities . if we do not redeploy capital , we will strive to achieve a sale , liquidation or otherwise exit our business in one or more transactions in a manner that optimizes shareholder value . we are unable to predict if or when we will make a determination to sell , liquidate or otherwise exit our business . 22 our business may be impacted by the evolving covid-19 outbreak . since first surfacing , the outbreak has spread throughout the world and has significantly impacted the united states . the pandemic has led to severe business disruptions , including a dramatic decline in economic activity generally . the duration of the business disruption is unknown at this time . the vast majority of our employees and our tenants ' employees are currently working at least in part remotely and may be subject to government-imposed restrictions . due to the uncertainty created by the pandemic , the company has experienced a significant reduction in leasing interest and activity when compared to pre-pandemic levels . for the three months ended december 31 , 2020 , in our comparable property portfolio , we collected 97 % of contractual rents , including 1 % from the application of security deposits and letters of credit . for january , to date , we have collected 96 % of contractual rents . we currently are not able to estimate the full impact of the covid-19 outbreak on our business . property operations leased occupancy data for 2020 and 2019 is as follows ( square feet in thousands ) : replace_table_token_3_th ( 1 ) based on properties owned continuously from january 1 , 2019 through december 31 , 2020 , and excludes properties sold . ( 2 ) percent leased is the percent of space subject to signed leases . percent leased is disclosed to quantify the ratio of leased square feet to rentable square feet and we believe provides useful information as to the proportion of rentable square feet subject to a lease . the weighted average lease term based on square feet for leases entered into during the year ended december 31 , 2020 was 7.3 years . commitments made for leasing expenditures and concessions , such as tenant improvements and leasing commissions , for leases entered into during the year ended december 31 , 2020 , excluding leasing activity for assets during the quarter in which the asset was sold or classified as held for sale , totaled $ 9.8 million , or $ 68.83 per square foot on average ( approximately $ 9.37 per square foot per year of the lease term ) . 23 as of december 31 , 2020 , approximately 8.4 % of our leased square feet and 7.4 % of our annualized rental revenue , determined as set forth below , are included in leases scheduled to expire through december 31 , 2021. renewal and new leases and rental rates at which available space may be relet in the future will depend on prevailing market conditions at the times these leases are negotiated . we believe that the in-place cash rents for leases expiring in 2021 , that have not been backfilled , are below market . lease expirations by year , as of december 31 , 2020 , are as follows ( square feet and dollars in thousands ) : replace_table_token_4_th ( 1 ) tenants with leases expiring in multiple years are counted in each year they expire . ( 2 ) leased square feet as of december 31 , 2020 includes space subject to leases that have commenced for revenue recognition purposes in accordance with gaap , space being fitted out for occupancy pursuant to existing leases , and space which is leased but is not occupied or is being offered for sublease by tenants . the leased square feet expiring corresponds to the latest-expiring signed lease for a given suite . thus , backfilled suites expire in the year stipulated by the new lease . ( 3 ) annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of december 31 , 2020 , plus estimated recurring expense reimbursements ; excludes lease value amortization , straight-line rent adjustments , abated ( free ) rent periods and parking revenue . we calculate annualized rental revenue by aggregating the recurring billings outlined above for the most recent month during the quarter reported , adding abated rent , and multiplying the sum by 12 to provide an estimation of near-term potentially-recurring revenues . annualized rental revenue is a forward-looking non-gaap measure . story_separator_special_tag annualized rental revenue can not be reconciled to a comparable gaap measure without unreasonable efforts , primarily due to the fact that it is calculated from the billings of tenants in the most recent month at the most recent rental rates during the quarter reported , whereas historical gaap measures include billings from a potentially different group of tenants over multiple months at potentially different rental rates . 24 the principal source of funds for our operations is rents from tenants at our properties . rents are generally received from our tenants monthly in advance . as of december 31 , 2020 , tenants representing 2.5 % or more of our total annualized rental revenue were as follows ( square feet in thousands ) : replace_table_token_5_th ( 1 ) total leased square feet as of december 31 , 2020 includes space subject to leases that have commenced , space being fitted out for occupancy pursuant to existing leases , and space which is leased but is not occupied or is being offered for sublease by tenants . ( 2 ) annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of december 31 , 2020 , plus estimated recurring expense reimbursements ; excludes lease value amortization , straight-line rent adjustments , abated ( free ) rent periods and parking revenue . we calculate annualized rental revenue by aggregating the recurring billings outlined above for the most recent month during the quarter reported , adding abated rent , and multiplying the sum by 12 to provide an estimation of near-term potentially-recurring revenues . annualized rental revenue is a forward-looking non-gaap measure . annualized rental revenue can not be reconciled to a comparable gaap measure without unreasonable efforts , primarily due to the fact that it is calculated from the billings of tenants in the most recent month at the most recent rental rates during the quarter reported , whereas historical gaap measures include billings from a potentially different group of tenants over multiple months at potentially different rental rates . ( 3 ) our lease with salesforce.com , inc. has partially commenced . approximately 44,000 square feet commenced as of december 31 , 2020 , and the remaining 21,000 square feet are expected to commence in the second half of 2021 . ( 4 ) approximately 10,000 square feet of international dairy foods association 's space expire in 2034. the remaining 13,000 square feet expire ( including the expiration dates for backfilling tenants ) in the following years : 5,900 square feet in 2021 , 3,100 square feet in 2022 , and 4,100 square feet in 2027. financing activities as of july 5 , 2020 , we repaid at par $ 25.1 million of mortgage debt at 206 east 9th street and recognized a gain on early extinguishment of debt of $ 0.1 million for the year ended december 31 , 2020 from the write off of an unamortized premium , net of prepayment fees and the write off of unamortized deferred financing fees . for more information regarding our financing sources and activities , please see the section captioned “ liquidity and capital resources—our investment and financing liquidity and resources ” below . 25 story_separator_special_tag notes due 2020. gain on sale of properties , net . gain on sale of properties , net increased $ 24.6 million , or 5.8 % , in the 2020 period , compared to the 2019 period . gain on sale of properties , net in the 2020 period primarily related to the following ( dollars in thousands ) : replace_table_token_7_th ( 1 ) there was consideration of $ 2.0 million being held in escrow related to the sale of this property in 2019. in june 2020 , these proceeds were released to the company , and we recorded an additional $ 2.0 million gain on the sale for year ended december 31 , 2020. gain on sale of properties , net in the 2019 period primarily related to the following ( dollars in thousands ) : asset gain on sale 1735 market street $ 192,985 600 108th avenue ne 149,009 research park 78,158 $ 420,152 income tax expense . income tax expense decreased $ 1.0 million , or 80.7 % , in the 2020 period , compared to the 2019 period , primarily due to a decrease in state and local taxes as a result of the sale of properties . net income attributable to noncontrolling interest . from 2017 through 2020 , we granted ltip units to certain of our trustees and employees . as these ltip units vest , they automatically convert to operating partnership units , or op units . the net income attributable to noncontrolling interest increased $ 0.6 million , or 329.6 % in the 2020 period , compared to the 2019 period , primarily due to the measurement of ltip units in the 2020 period . 27 liquidity and capital resources our operating liquidity and resources as of december 31 , 2020 , we had $ 3.0 billion of cash and cash equivalents . we expect to use our cash balances , cash flow from our operations and proceeds of any future property sales to fund our operations , make distributions , repurchase our common shares , make acquisitions and or investments in properties or businesses , fund tenant improvements and leasing costs and for other general business purposes . we believe our cash balances and the cash flow from our operations will be sufficient to fund our ordinary course activities . our future cash flows from operating activities will depend on our ability to collect rent from our current tenants under their leases . our ability to collect rent and generate parking revenue in the near term may continue to be adversely impacted by the market disruption caused by the covid-19 outbreak . we can not predict the ultimate impact of the pandemic on our results of operations .
| million in the 2020 period and $ 2.2 million in the 2019 period . other revenue . other revenue , which primarily includes parking revenue , decreased $ 6.8 million , or 62.3 % in the 2020 period , compared to the 2019 period , primarily due to the properties sold in 2020 and 2019. other revenue decreased $ 2.2 million , or 36.6 % , at the comparable properties in the 2020 period , compared to the 2019 period primarily due to decreased parking revenue during the 2020 period as a result of the covid-19 outbreak . operating expenses . operating expenses decreased $ 17.6 million , or 37.8 % , in the 2020 period , compared to the 2019 period , primarily due to the properties sold in 2020 and 2019. operating expenses at our comparable properties increased $ 0.5 million , or 1.9 % , primarily due to a $ 0.5 million increase in real estate tax expense , a $ 0.2 million increase in maintenance and repairs 26 expense , a $ 0.2 million increase in salaries and benefits expense and a $ 0.1 million increase in hvac expense , partially offset by a $ 0.5 million decrease in utilities expense and a $ 0.2 million decrease in parking expense . depreciation and amortization . depreciation and amortization decreased $ 8.8 million , or 31.3 % , in the 2020 period , compared to the 2019 period , primarily due to the properties sold in 2020 and 2019. general and administrative . general and administrative expenses decreased $ 5.2 million , or 13.6 % in the 2020 period , compared to the 2019 period , primarily due to a $ 3.2 million decrease in compensation expenses related to severance , a $ 1.6 million decrease in bonus expense , a $ 0.7 million decrease in payroll expenses as a result of a staffing reduction , a $ 0.4 million decrease in share-based compensation expense and a $ 0.3 million decrease in travel , meals and entertainment expense as
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we continue to consider our 57 specialty products segment our core business over the long term , and we plan to seek appropriate ways to further invest in our specialty products segment . accordingly , we continue to evaluate opportunities to divest non-core businesses and assets in line with our strategy of preserving liquidity and streamlining our business to better focus on the advancement of our core business . in addition , we may also consider the disposition of certain core assets or businesses , to the extent such a transaction would improve our capital structure or otherwise be accretive to the company . there can be no assurance as to the timing or success of any such potential transaction , or any other transaction , or that we will be able to sell these assets or businesses on satisfactory terms , if at all . in addition , our acquisition program targets assets that management believes will be financially accretive , and we intend to focus on targeted strategic acquisitions of specialty products assets that leverage an existing core competency and that have an identifiable competitive advantage we can exploit as the new owner . key matters , claims and legal proceedings on october 31 , 2018 , the company received an indemnity claim notice ( the “ claim notice ” ) from husky superior refining holding corp. ( “ husky ” ) under the membership interest purchase agreement , dated august 11 , 2017 ( “ mipa ” ) , which was entered into in connection with the superior transaction . the claim notice relates to alleged losses husky incurred in connection with a fire at the husky superior refinery on april 26 , 2018 , over five months after calumet sold husky 100 % of the membership interests in the entity that owns the husky superior refinery . based on public reports , calumet understands the fire occurred during a turnaround of the husky superior refinery at a time when husky owned , operated , and supervised the refinery . calumet was not involved with the turnaround . the u.s. chemical safety and hazard investigation board ( “ csb ” ) is currently investigating the fire , but has not contacted calumet in connection with that investigation or suggested that calumet is responsible for the fire . husky 's claim notice alleges that husky “ has become aware of facts which may give rise to losses ” for which it reserved the right to seek indemnification at a later date . the claim notice further alleges breaches of certain representations , warranties , and covenants contained in the mipa . the information currently available about the fire and the csb investigation does not support husky 's threatened claims , and husky has not filed a lawsuit against calumet . if husky were to assert such claims , they would be subject to certain limits on indemnification liability under the mipa that may reduce or eliminate any potential indemnification liability . on may 4 , 2018 , the sec requested that the company and certain of its executives voluntarily produce certain communications and documents prepared or maintained from january 2017 to may 2018 and generally related to the company 's finance and accounting staff , financial reporting , public disclosures , accounting policies , disclosure controls and procedures and internal controls . beginning on july 11 , 2018 , the sec issued several subpoenas formally requesting the same documents previously subject to the voluntary production requests by the sec as well as additional , related documents and information . the sec has also interviewed and taken testimony from current and former company employees and may do so in the future with regard to other individuals . the company has , from the outset , cooperated with the sec 's requests and intends to continue to do so . currently , the company can not estimate the timing , or ultimate outcome , including financial impact , if any , resulting from the sec 's investigation . story_separator_special_tag membership interest purchase agreement ) receivable in other accounts receivable in the consolidated balance sheets for post-closing working capital adjustments . in 2018 , we received proceeds totaling $ 44.8 million from husky for the post-closing working capital adjustments related to this sale . 59 in november 2017 , we completed the sale to a subsidiary of q'max solutions inc. ( “ q'max ” ) of all of the issued and outstanding membership interests in anchor drilling fluids usa , llc ( “ anchor ” ) , for total consideration of approximately $ 89.6 million ( subject to further post-closing adjustments ) including a base price of $ 50.0 million , $ 14.2 million to be paid out at various times over the next year for net working capital and other items , and 10 % equity ownership in fluid holding corp. , the parent company of q'max ( the “ anchor transaction ” ) . effective in fourth quarter of 2017 , we classified its results of operations for all periods presented to reflect anchor as a discontinued operation and classified the assets and liabilities of anchor as discontinued operations . following the application of certain post-closing adjustments , the adjusted total consideration we received for the anchor transaction was $ 85.5 million as of december 31 , 2018 . we recognized a net loss on sale of $ 4.1 million and $ 62.6 million in net loss from discontinued operations in the consolidated financial statements of operations for the years ended december 31 , 2018 and 2017 , respectively . prior to being reported as discontinued operations , anchor was included as its own reportable segment as oilfield services . liquidity update as of december 31 , 2018 , we had total liquidity of $ 451.4 million comprised of $ 155.7 million of cash and availability under our revolving credit facility of $ 295.7 million . story_separator_special_tag as of december 31 , 2018 , we had a $ 330.8 million borrowing base , $ 35.1 million in outstanding standby letters of credit and no outstanding borrowings . we believe we will continue to have sufficient liquidity from cash on hand , cash flow from operations , borrowing capacity and other means by which to meet our financial commitments , debt service obligations , contingencies and anticipated capital expenditures . on a continuous basis , we will focus on various initiatives , including working capital initiatives , to further enhance our liquidity over time , given current market conditions . in march 2018 , we formed biosyn holdings , llc ( “ biosyn ” ) with the heritage group , a related party , for the purpose of investing in biosynthetic technologies , llc , a startup company which developed an intellectual property portfolio for the manufacture of renewable-based and biodegradable esters . we incurred approximately $ 4.0 million in related expenditures . in april 2018 , we redeemed all of the $ 400.0 million in aggregate principal amount of the 11.50 % senior secured notes due january 15 , 2021 ( “ 2021 secured notes ” ) . the holders received a redemption price of 100.0 % of the principal amount of the 2021 secured notes , plus accrued and unpaid interest thereon up to , but not including , april 9 , 2018 ( the “ redemption date ” ) , plus a make whole premium ( as defined in the indenture , dated april 20 , 2016 , governing the 2021 secured notes ) . in conjunction with the redemption , we incurred debt extinguishment costs of $ 58.2 million , including $ 11.6 million of non-cash charges . in may 2018 , pacific new investment limited ( “ pacnil ” ) ( an entity formed by us and the heritage group , a related party ) sold its investment in shandong hi-speed hainan development co. , ltd. ( “ hi-speed ” ) to the other owners . we received proceeds of $ 9.9 million for the sale . during 2018 , we received $ 44.8 million in proceeds related to the sale of the superior refinery , $ 41.0 million of which was recorded as a receivable as of december 31 , 2017. we also received $ 6.8 million in proceeds related to the sale of anchor during 2018. renewable fuel standard update we , along with the broader refining industry , remain subject to compliance costs under the rfs . under the regulation of the environmental protection agency ( “ epa ” ) , the rfs provides annual requirements for the total volume of renewable transportation fuels which are mandated to be blended into finished petroleum fuels . if a refiner does not meet its required annual renewable volume obligation ( “ rvo ” ) , the refiner can purchase blending credits in the open market , referred to as rins . for the year ended december 31 , 2018 , our rins gain was $ 31.4 million , as compared to a rins gain for the year ended december 31 , 2017 of approximately $ 41.2 million . our gross rins obligation , which includes rins that are required to be secured through either blending or through the purchase of rins in the open market , was approximately 79 million rins in 2018 . for the full-year 2019 , we anticipate our gross rins obligation will be approximately 85 million rins . during 2017 and 2018 , the epa granted our fuel product refineries a “ small refinery exemption ” under the rfs for the full-year 2016 and the full-year 2017 , respectively , as provided for under the federal clean air act , as amended ( “ caa ” ) . in granting those exemptions , the epa determined that for the full-year 2016 and full-year 2017 , compliance with the rfs would represent a “ disproportionate economic hardship ” for these refineries . we continue to anticipate that expenses related to rfs compliance have the potential to remain a significant expense for our fuel products segment , assuming current market prices for rins . estimated rins obligations remain subject to fluctuations in fuels production volumes during the full-year 2019 . key performance measures our sales and net income are principally affected by the price of crude oil , demand for specialty products and fuel products , prevailing crack spreads for fuel products , the price of natural gas used as fuel in our operations and our results from derivative instrument activities . 60 our primary raw materials are crude oil and other specialty feedstocks , and our primary outputs are specialty petroleum products and fuel products . the prices of crude oil , specialty products and fuel products are subject to fluctuations in response to changes in supply , demand , market uncertainties and a variety of additional factors beyond our control . we monitor these risks and enter into derivative instruments designed to help mitigate the impact of commodity price fluctuations on our business . the primary purpose of our commodity risk management activities is to economically hedge our cash flow exposure to commodity price risk so that we can meet our debt service and capital expenditure requirements despite fluctuations in crude oil and fuel products prices . we enter into derivative contracts for future periods in quantities that do not exceed our projected purchases of crude oil and natural gas and sales of fuel products . please read part ii , item 7a “ quantitative and qualitative disclosures about market risk — commodity price risk ” and note 11 — “ derivatives ” under part ii , item 8 “ financial statements and supplementary data — notes to consolidated financial statements. ” our management uses several financial and operational measurements to analyze our performance . these measurements include the following : sales volumes ; production yields ; segment gross profit ; segment adjusted ebitda ; and selling , general and administrative expenses . sales volumes .
| in the full-year 2018 , we processed 24,700 bpd of heavy canadian crude oil , versus 36,500 bpd in the full-year 2017 . the decline from 2017 to 2018 was primarily attributed to the sale of the superior refinery in november of 2017. in addition , we processed approximately 19,100 bpd of cost-advantaged wti midland crude oil in 2018 . 58 gross profit per barrel for our specialty products segment was $ 33.30 in 2018 , versus $ 33.93 in the prior year . specialty products segment adjusted ebitda was $ 160.2 million in 2018 compared to $ 186.5 million in the prior year . specialty products segment adjusted ebitda margin was 11.6 % in 2018 , compared to 14.3 % in 2017 . specialty products segment results for fiscal year 2018 were impacted by rising feedstock costs , decreased production and sales volume as a result of maintenance activities at our shreveport and princeton refineries , larger light louisiana sweet ( “ lls ” ) /wti crude price differentials and pricing weakness across the paraffinic base oil market , partially offset by strong performance of our solvents products . results were also impacted by a $ 3.4 million unfavorable lcm inventory adjustment in 2018 compared to a $ 10.9 million favorable lcm inventory adjustment in 2017 and a $ 2.7 million loss related to the liquidation of lifo inventory layers in 2018 compared to a $ 3.0 million loss in 2017 . specialty products represented approximately 26.3 % of total production in 2018 , compared to 21.0 % in 2017 . gross profit per barrel for our fuel products segment was $ 5.45 per barrel in 2018 , versus $ 4.61 per barrel in the prior year . fuel products segment adjusted ebitda was $ 103.7 million in 2018 compared to $ 127.8 million in 2017 . fuel products segment adjusted ebitda margin was 4.9 % in 2018 compared to 5.2 %
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we expect cash provided by operations will approximate net income for fiscal 2014 and anticipate that share repurchase activity will be similar to 2013. the forward-looking statements in this current trends and outlook section are subject to significant risks and uncertainties , including changes in the economy and the housing market , the sensitivity of our business to weather conditions , our ability to maintain favorable relationships with suppliers and manufacturers , competition from other leisure product alternatives and mass merchants , and other risks detailed in item 1a of this form 10-k. 19 critical accounting estimates we prepare our consolidated financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) , which requires management to make estimates and assumptions that affect reported amounts and related disclosures . management identifies critical accounting estimates as : those that require the use of assumptions about matters that are inherently and highly uncertain at the time the estimates are made ; and those for which changes in the estimate or assumptions , or the use of different estimates and assumptions , could have a material impact on our consolidated results of operations or financial condition . management has discussed the development , selection and disclosure of our critical accounting estimates with the audit committee of our board . we believe the following critical accounting estimates require us to make the most difficult , subjective or complex judgments . allowance for doubtful accounts we maintain an allowance for doubtful accounts based on an estimate of the losses we will incur if our customers do not make required payments . we perform periodic credit evaluations of our customers and typically do not require collateral . consistent with industry practices , we generally require payment from our north american customers within 30 days , except for sales under early buy programs for which we provide extended payment terms to qualified customers . the extended terms usually require payments in equal installments in april , may and june or may and june , depending on geographic location . credit losses have generally been within or better than our expectations . as our business is seasonal , our customers ' businesses are also seasonal . sales are lowest in the winter months and our past due accounts receivable balance as a percentage of total receivables generally increases during this time . we provide reserves for uncollectible accounts based on our accounts receivable aging . these reserves range from 0.1 % for amounts currently due up to 100 % for specific accounts more than 60 days past due . at the end of each quarter , we perform a reserve analysis of all accounts with balances greater than $ 20,000 and more than 60 days past due . additionally , we perform a separate reserve analysis on the balance of our accounts receivables with emphasis on past due accounts . as we review these past due accounts , we evaluate collectibility based on a combination of factors including : aging statistics and trends ; customer payment history ; independent credit reports ; and discussions with customers . during the year , we write off account balances when we have exhausted reasonable collection efforts and determined that the likelihood of collection is remote . these write-offs are charged against our allowance for doubtful accounts . in the past five years , write-offs have averaged approximately 0.2 % of net sales annually . write-offs as a percentage of net sales were 0.1 % in 2013 , 0.1 % in 2012 and 0.2 % in 2011 . the recent improvement in net write-offs reflects gradually improving external market trends and heightened collection efforts and creditworthiness evaluations . we expect that write-offs will be approximately 0.1 % of net sales in 2014 . at the end of each fiscal year , we prepare a hindsight analysis by comparing the prior year-end allowance for doubtful accounts balance to ( i ) current year write-offs and ( ii ) any significantly aged outstanding receivable balances . based on our hindsight analysis , we concluded that the prior year allowance was within a range of acceptable estimates and that our reserve methodology is appropriate . if the balance of the accounts receivable reserve increased or decreased by 20 % at december 31 , 2013 , pretax income would change by approximately $ 0.9 million and earnings per share would change by approximately $ 0.01 per diluted share ( based on the number of weighted average diluted shares outstanding for the year ended december 31 , 2013 ) . inventory obsolescence product inventories represent the largest asset on our balance sheet . our goal is to manage our inventory such that we minimize stock-outs to provide the highest level of service to our customers . to do this , we maintain at each sales center an adequate inventory of stock keeping units ( skus ) with the highest sales volumes . at the same time , we continuously strive to better manage our slower moving classes of inventory , which are not as critical to our customers and thus , inherently have lower velocity . sales centers classify products into 13 classes based on sales at that location over the past 12 months ( or 36 months for tile products ) . 20 all inventory is included in these classes , except for non-stock special order items and products with less than 12 months of usage . story_separator_special_tag the table below presents a description of these inventory classes : class 0 new products with less than 12 months usage ( or 36 months for tile products ) classes 1-4 highest sales value items , which represent approximately 80 % of net sales at the sales center classes 5-12 lower sales value items , which we keep in stock to provide a high level of customer service class 13 products with no sales for the past 12 months at the local sales center level , excluding special order products not yet delivered to the customer null class non-stock special order items there is little risk of obsolescence for products in classes 1-4 because products in these classes generally turn quickly . we establish our reserve for inventory obsolescence based on inventory classes 5-13 , which we believe represent some exposure to inventory obsolescence , with particular emphasis on skus with the least sales over the previous 12 months . the reserve is intended to reflect the value of inventory that we may not be able to sell at a profit . we provide a reserve of 5 % for inventory in classes 5-13 and non-stock inventory as determined at the sales center level . we also provide an additional 5 % reserve for excess inventory in classes 5-12 and an additional 45 % reserve for excess inventory in class 13. we determine excess inventory , which is defined as the amount of inventory on hand in excess of the previous 12 months ' usage , on a company-wide basis . we also evaluate whether the calculated reserve provides sufficient coverage of the total class 13 inventory . in evaluating the adequacy of our reserve for inventory obsolescence , we consider a combination of factors including : the level of inventory in relationship to historical sales by product , including inventory usage by class based on product sales at both the sales center and company levels ; changes in customer preferences or regulatory requirements ; seasonal fluctuations in inventory levels ; geographic location ; and new product offerings . we periodically adjust our reserve for inventory obsolescence as changes occur in the above-identified factors . at the end of each fiscal year , we prepare a hindsight analysis by comparing the prior year-end obsolescence reserve balance to ( i ) current year inventory write-offs and ( ii ) the value of products with no sales for the past 12 months that remain in inventory . based on our hindsight analysis , we concluded that our prior year reserve was within a range of acceptable estimates and that our reserve methodology is appropriate . if the balance of our inventory reserve increased or decreased by 20 % at december 31 , 2013 , pretax income would change by approximately $ 1.4 million and earnings per share would change by approximately $ 0.02 per diluted share ( based on the number of weighted average diluted shares outstanding for the year ended december 31 , 2013 ) . vendor incentives many of our vendor arrangements provide for us to receive incentives of specified amounts of consideration when we achieve any of a number of measures . these measures are generally related to the volume level of purchases from our vendors and may include negotiated pricing arrangements . we account for vendor incentives as a reduction of the prices of the vendor 's products and therefore a reduction of inventory until we sell the product , at which time such incentives are recognized as a reduction of cost of sales in our income statement . throughout the year , we estimate the amount of the incentive earned based on our estimate of total purchases for the fiscal year relative to the purchase levels that mark our progress toward earning the incentives . we accrue vendor incentives on a monthly basis using these estimates provided that we determine they are probable and reasonably estimable . our estimates for annual purchases , future inventory levels and sales of qualifying products are driven by our sales projections , which can be significantly impacted by a number of external factors including weather and changes in economic conditions . changes in our purchasing mix also impact our incentive estimates , as incentive rates can vary depending on our volume of purchases from specific vendors . 21 we continually revise these estimates throughout the year to reflect actual purchase levels and identifiable trends . as a result , our estimated quarterly vendor incentive accruals may include cumulative catch-up adjustments to reflect any changes in our estimates between reporting periods . these adjustments tend to have a greater impact on gross margin in the fourth quarter since it is our seasonally slowest quarter and because the majority of our vendor incentive arrangements are based on calendar year periods . our estimates for these arrangements are updated at year end to reflect actual annual purchase levels . in the first quarter of the subsequent year , we prepare a hindsight analysis by comparing actual vendor incentives received to the prior year vendor incentive balances . based on our hindsight analysis , we concluded that our vendor incentive estimates were within a range of acceptable estimates and that our estimation methodology is appropriate . if market conditions were to change , vendors may change the terms of some or all of these programs . although such changes would not affect the amounts we have recorded related to products already purchased , they may lower or raise our gross margins for products purchased and sold in future periods . income taxes we record deferred tax assets or liabilities based on differences between the financial reporting and tax basis of assets and liabilities using currently enacted rates and laws that will be in effect when we expect the differences to reverse . due to changing tax laws and state income tax rates , significant judgment is required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future .
| additionally , due to the later start to the 2013 season , we experienced higher sales growth rates in our lower margin , year-round markets than in our higher margin , seasonal markets , which negatively impacted gross margins . selling and administrative expenses ( operating expenses ) for 2013 in creased 2 % from 2012 . base business operating expenses increased 2 % year over year , as salary and other variable expense increases were partially offset by decreases in performance‑based compensation . in the third quarter of 2012 , we performed an interim goodwill impairment analysis for our united kingdom reporting unit and recorded a non-cash goodwill impairment charge equal to the total goodwill carrying amount of $ 6.9 million , which had a $ 0.14 negative impact on diluted eps for the year ended december 31 , 2012. operating income for the year improved 14 % over 2012 and increased 9 % compared to adjusted operating income for 2012 . operating income as a percentage of net sales ( operating margin ) increased to 8.0 % in 2013 compared to 7.4 % in 2012 . adjusted operating margin was 7.8 % in 2012 . net income increased 19 % compared to 2012 , while eps was up 20 % to a record $ 2.05 per diluted share . compared to adjusted net income for 2012 , net income increased 9 % , while diluted eps increased 11 % from adjusted diluted eps for 2012 . financial position and liquidity cash provided by operations of $ 105.1 million in 2013 was $ 7.8 million more than net income and , combined with $ 15.5 million in net proceeds from our revolving line of credit and receivables securitization facility and $ 21.4 million in proceeds from stock issued under share-based compensation plans , helped fund the following : quarterly cash dividend payments to shareholders , which totaled $ 33.8 million for the year ; share repurchases in the open market of $ 94.3 million ; net capital expenditures of $ 18.7 million ;
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( in thousands ) replace_table_token_8_th net sales the following table represents net sales by segment for the years ended december 31 , 2009 and 2010 : ( in thousands ) replace_table_token_9_th in 2010 , net sales increased 5.5 % to $ 555.5 million as compared to net sales of $ 526.5 million in 2009. sales in the north american segment increased 4.0 % from $ 427.4 million in 2009 to $ 444.6 million in 2010 , which was 59.4 % of the total company 's overall increase . the north american segment accounted for 80.0 % of the company 's total sales in 2010 , a slight decrease from 81.2 % in 2009. the increase in net sales in north america resulted from an increase in sales volume as average prices were flat . in 2010 , sales increased throughout most of north america . the growth in the united states was strongest in the midwestern and northeastern regions , while sales in california and the western region declined slightly as compared to 2009. sales in canada increased significantly . sales to dealer distributors and lumber dealers increased , while sales to contractor distributors and home centers decreased over the same period . sales in the european segment increased 8.2 % from $ 93.6 million in 2009 to $ 101.3 million in 2010 , which was 26.6 % of the company 's overall increase . the european segment accounted for 18.2 % of the company 's total sales in 2010 , a slight increase from 17.8 % in 2009. the increase in net sales in europe resulted from an increase in sales volume as average prices were flat . sales in asia and australia , although relatively small , have increased as the company has recently expanded its presence in the region . sales increased across most of the company 's major product lines . 30 gross profit the following table represents gross profit by segment for the years ended december 31 , 2009 and 2010 : ( in thousands ) replace_table_token_10_th gross profit increased 32.0 % to $ 244.1 million in 2010 from $ 184.9 million in 2009. as a percentage of net sales , gross profit increased from 35.1 % in 2009 to 44.0 % in 2010. the increase in gross margins was primarily due to lower manufacturing costs , including lower costs of material , labor and overhead , and increased absorption of fixed overhead , as a result of higher production volumes . steel prices increased from their levels in mid-2010 , as steel mills raised prices as demand returned to steel markets . as a percentage of net sales , gross profit in the north american segment increased from 38.5 % in 2009 to 46.2 % in 2010 , in the european segment increased from 22.3 % in 2009 to 35.0 % in 2010 , and in the asia/pacific segment increased from a loss of 22.6 % in 2009 to a profit of 28.3 % in 2010. all segments benefited from the increased absorption of fixed overhead , as a result of higher production volumes and lower manufacturing costs , including lower costs of material , labor and overhead . research and development and other engineering expense research and development and engineering expense increased 12.6 % from $ 18.8 million in 2009 to $ 21.1 million in 2010 , primarily due to increases in personnel costs of $ 1.6 million and cash profit sharing of $ 1.5 million . these changes were mostly attributable to the north american segment . selling expense selling expense increased 7.7 % from $ 58.8 million in 2009 to $ 63.3 million in 2010 , primarily due to increases in cash profit sharing and commissions of $ 3.3 million , professional services of $ 1.0 million and personnel costs of $ 0.4 million . these changes were mostly attributable to the north american segment . general and administrative expense general and administrative expense increased 6.3 % from $ 75.1 million in 2009 to $ 79.8 million in 2010. the increase was due primarily to increases in cash profit sharing of $ 5.5 million resulting from higher operating profits , information technology expenses of $ 2.4 million , professional fees of $ 1.8 million and stock option expense of $ 1.6 million , partly offset by decreases in personnel costs , excluding stock option expense , of $ 2.0 million , bad debt expense of $ 1.4 million , intangible asset amortization expense of $ 1.1 million , depreciation expense of $ 0.9 million and various other items . these changes were mostly attributable to the north american segment . impairment of goodwill the impairment charge taken in 2010 , which resulted from the company 's annual impairment test in the fourth quarter , was associated with assets that were acquired in germany and ireland in 2008 and was allocated to the european anchor products reporting unit . the reporting unit 's carrying value exceeded the fair value , primarily due to reduced future expected net cash flows . the method to determine the fair value of the european anchor products reporting unit was a discounted cash flow model . this reporting unit was associated with the european segment . see critical accounting policies and estimates goodwill impairment testing . gain on sale of assets in 2010 , the company 's north american segment recorded gains on sale of assets of $ 4.8 million , primarily due to the sale of its real estate in brea , california . 31 provision for income taxes the effective tax rate was 42.6 % in 2010 , as compared to 55.1 % in 2009. this decrease was primarily due to improved operations in countries where valuation allowances were recorded against tax losses , partly offset by a goodwill impairment charge for which a tax benefit was not recognized . the change in the provision for income taxes was mostly attributable to the north american segment . story_separator_special_tag discontinued operations the company recorded a loss from discontinued operations , net of tax , of $ 16.2 million for 2010 , primarily as a result of a pre-tax impairment charge of $ 21.4 million recorded as a result of entering into an agreement to sell substantially all of the assets of simpson dura-vent . critical accounting policies and estimates the critical policies described below affect the company 's more significant judgments and estimates used in the preparation of the consolidated financial statements . if the company 's business conditions change or if it uses different assumptions or estimates in the application of these and other accounting policies , the company 's future results of operations could be adversely affected . inventory valuation inventories are stated at the lower of cost or net realizable value ( market ) . cost includes all costs incurred in bringing each product to its present location and condition , as follows : · raw materials and purchased finished goods principally valued at cost determined on a weighted average basis . · in-process products and finished goods cost of direct materials and labor plus attributable overhead based on a normal level of activity . the company writes the gross value of the inventory down to its net realizable value . the company estimates net realizable value based on estimated selling price less further costs to completion and disposal . the company impairs slow-moving products by comparing inventories on hand to projected demand . if on-hand supply of a product exceeds projected demand or if the company believes the product is no longer marketable , the product is considered obsolete inventory . the company revalues obsolete inventory to its net realizable value . the company has consistently applied this methodology . the company believes that this approach is prudent and makes suitable provisions for slow-moving and obsolete inventory . when provisions are established , a new cost basis of the inventory is created . unexpected change in market demand , building codes or buyer preferences could reduce the rate of inventory turnover and require the company to recognize more obsolete inventory . revenue recognition the company recognizes revenue when the earnings process is complete , net of applicable provision for discounts , returns and incentives , whether actual or estimated , based on the company 's experience . this generally occurs when products are shipped to the customer in accordance with the sales agreement or purchase order , ownership and risk of loss pass to the customer , collectability is reasonably assured and pricing is fixed or determinable . the company 's general shipping terms are f.o.b . shipping point , where title is transferred and revenue is recognized when the products are shipped to customers . when the company sells f.o.b . destination point , title is transferred and the company recognizes revenue on delivery or customer acceptance , depending on terms of the sales agreement . service sales , representing after-market repair and maintenance , engineering activities , software license sales and service and lease income , though significantly less than 1 % of net sales and not material to the consolidated financial statements , are recognized as the services are completed or the software products and services are delivered . if actual costs of sales returns , incentives and discounts were to significantly exceed the recorded estimated allowance , the company 's sales would be adversely affected . business combinations the company recognizes separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values . goodwill as of the acquisition date is measured as the excess of consideration transferred and the 32 net of the acquisition date fair values of the assets acquired and the liabilities assumed . while the company uses its best estimates and assumptions as a part of the purchase price allocation process to value assets acquired and liabilities assumed at the acquisition date , the company 's estimates are inherently uncertain and subject to refinement . as a result , during the measurement period , which may be up to one year from the acquisition date , the company records adjustments to the assets acquired and liabilities assumed , with the corresponding offset to goodwill . on the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed , whichever comes first , the company records any subsequent adjustments to its consolidated statements of operations . accounting for business combinations requires the company 's management to make significant estimates and assumptions , especially at the acquisition date with respect to intangible assets . although the company believes that the assumptions and estimates it has made in the past have been reasonable and appropriate , they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain . examples of critical estimates in valuing certain of the intangible assets that the company has acquired include : · future expected cash flows from customer relationships and acquired unpatented technologies and patents ; · the acquired company 's brand and competitive position and assumptions about the period of time the acquired brand will continue to be used in the combined company 's product portfolio ; and · discount rates . unanticipated events and circumstances may affect the accuracy or validity of such assumptions , estimates or actual results . for a given acquisition , the company may identify pre-acquisition contingencies as of the acquisition date and may extend its review and evaluation of these pre-acquisition contingencies throughout the measurement period ( up to one year from the acquisition date ) to obtain sufficient information to assess whether the company includes these contingencies as a part of the purchase price allocation and , if so , to determine their estimated amounts .
| sales in asia and australia , although relatively small , have increased as the company has recently expanded its presence in the region . the increase in admin and all other is due a full year of lease revenues on the building in vacaville , california . sales increased across most of the company 's major product lines . gross profit the following table represents gross profit by segment for the years ended december 31 , 2010 and 2011 : ( in thousands ) replace_table_token_7_th gross profit increased 10.9 % to $ 270.8 million in 2011 from $ 244.1 million in 2010. as a percentage of net sales , gross profit increased from 44.0 % in 2010 to 44.9 % in 2011. the increase in gross margins was primarily due to increased absorption of fixed overhead , as a result of higher production volumes . the company continues to face uncertainty in the cost and availability of steel . several factors are contributing to this uncertainty . steel prices increased from their levels in mid-2011 , as better then expected demand for steel has led to price increases . the company expects steel prices to increase in the first half of 2012. the steel market continues to be dynamic , however , with a high degree of uncertainty about future pricing trends . if steel prices increase and the company is not able to maintain its prices or increase them sufficiently , the company 's margins could deteriorate . as a percentage of net sales , gross profit in the north american segment increased from 46.2 % in 2010 to 48.8 % in 2011 , in the european segment decreased from 35.0 % in 2010 to 32.6 % in 2011 , and in the asia/pacific segment decreased from 28.3 % in 2010 to 7.0 % in 2011. all segments benefited from the increased absorption of fixed overhead , as a result of higher production volumes . research and development and other engineering expense research and development and other engineering expense increased 22.6 % from $ 21.1 million in 2010 to $ 25.9 million in 2011 , primarily due to increases
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a & l has a network of manufacturing facilities across the eastern seaboard of australia , which we expect will deliver synergies through operational savings from the implementation of jem and by leveraging the benefits of our combined supply chain . a & l is part of our australasia segment . in february 2018 , we acquired domoferm , headquartered in gänserndorf , austria . domoferm is a leading european provider of steel doors , steel door frames , and fire doors for commercial and residential markets with four manufacturing sites in austria , germany , and the czech republic . domoferm is part of our europe segment . in august 2017 , we acquired the kolder group , headquartered in smithfield , australia . kolder is a leading australian provider of shower enclosures , closet systems , and related building products , with leading positions in both the commercial and residential markets . kolder is part of our australasia segment . the acquisition significantly enhances our existing australian capabilities in glass shower enclosures and built-in closet systems and supports our strategy to build leadership positions in attractive markets . in august 2017 , we acquired mmi door , headquartered in sterling heights , michigan . mmi door is a leading provider of doors and related value-added services in the midwest region of the u.s. and is part of our north america segment . the acquisition complements our north america door business and allows us to improve service offerings and lead times to our channel partners . in june 2017 , we acquired mattiovi , headquartered in finland . mattiovi is a leading manufacturer of interior doors and door frames in finland and is part of our europe segment . the acquisition enhances our market position in the nordic region , increases our product offering , and also provides us with additional door frame capacity to support growth in the region . 44 back to top we paid an aggregate of approximately $ 356.8 million in cash ( net of cash acquired ) for the 2017 , 2018 , and 2019 acquisitions . in addition , we assumed debt of approximately $ 70.6 million associated with our 2018 acquired companies . we assumed no debt in our 2017 or 2019 acquisitions . for additional information on our acquisition activity , see note 2 - acquisitions to our consolidated financial statements . factors and trends affecting our business components of net revenues the key components of our net revenues include core net revenues ( which we define to include the impact of pricing and volume/mix , as discussed further under the heading , “ product pricing and volume/mix ” below ) , contribution from acquisitions made within the prior twelve months , and the impact of foreign exchange . core net revenues reported in our financial statements are impacted by the fluctuating currency values in the geographies in which we operate , which we refer to as the impact of foreign exchange . throughout this “ management 's discussion and analysis of financial condition and results of operations ” , percentage changes in pricing are based on management schedules and are not derived directly from our accounting records . product demand general business , financial market , and economic conditions globally and in the regions where we operate influence overall demand in our end markets and for our products . in particular , the following factors may have a direct impact on demand for our products in the countries and regions where our products are marketed and sold : the strength of the economy ; employment rates and consumer confidence and spending rates ; the availability and cost of credit ; the amount and type of residential and non-residential construction ; housing sales and home values ; the age of existing home stock , home vacancy rates , and foreclosures ; interest rate fluctuations for our customers and consumers ; increases in the cost of raw materials or any shortage in supplies or labor ; the effects of governmental regulation and initiatives to manage economic conditions ; geographical shifts in population and other changes in demographics ; and changes in weather patterns . in addition , we seek to drive demand for our products through the implementation of various strategies and initiatives . we believe we can enhance demand for our new and existing products by : innovating and developing new products and technologies ; investing in branding and marketing strategies , including marketing campaigns in both print and social media , as well as our investments in new training centers and mobile training facilities ; and implementing channel initiatives to enhance our relationships with key channel partners and customers , including the true blu dealer management program in north america . product pricing and volume/mix the price and mix of products that we sell are important drivers of our net revenues and net income . under the heading “ results of operations , ” references to ( i ) “ pricing ” refer to the impact of price increases or decreases , as applicable , for particular products between periods and ( ii ) “ volume/mix ” refer to the combined impact of both the number of products we sell in a particular period and the types of products sold , in each case , on net revenues . while we operate in competitive markets , pricing discipline is an important element of our strategy to achieve profitable growth through improved margins . our strategies also include incentivizing our channel partners to sell our higher margin products , and we believe a renewed focus on innovation and the development of new technologies will increase our sales volumes and the overall profitability of our product mix . 45 back to top cost reduction initiatives prior to the ongoing operational transformation being executed by our senior executive team , our operations were managed in a decentralized manner with varying degrees of emphasis on cost efficiency and limited focus on continuous improvement or strategic sourcing . story_separator_special_tag our senior management team has a proven track record of implementing operational excellence programs at some of the world 's leading industrial manufacturing businesses , and we believe the same successes can be realized at jeld-wen . key areas of focus of our operational excellence and footprint rationalization programs include : reducing labor , overtime , and waste costs by reducing facility count while optimizing manufacturing capacity and improving planning and manufacturing processes ; reducing or minimizing increases in material costs through strategic global sourcing and value-added re-engineering of components , in part by leveraging our significant spend and the global nature of our purchases ; reducing warranty costs by improving quality ; and a jem-enabled facility rationalization and modernization initiative that will reduce overhead costs and complexity , while increasing our overall capacity and improving our service levels . we continue to implement our strategic initiatives under jem to develop the culture and processes of operational excellence and continuous improvement . these cost reduction initiatives , which include plant closures and consolidations , headcount reductions , and various initiatives aimed at lowering production and overhead costs , may not produce the intended results within the intended timeframe . raw material costs commodities such as vinyl extrusions , glass , aluminum , wood , steel , plastics , fiberglass , and other composites are major components in the production of our products . changes in the underlying prices of these commodities have a direct impact on the cost of products sold . while we attempt to pass on a substantial portion of such cost increases to our customers , we may not be successful in doing so . in addition , our results of operations for individual quarters may be negatively impacted by a delay between the time of raw material cost increases and a corresponding price increase . conversely , our results of operations for individual quarters may be positively impacted by a delay between the time of a raw material price decrease and a corresponding competitive pricing decrease . freight costs we incur substantial freight costs to third party logistics providers to transport raw materials and work-in-process inventory to our manufacturing facilities and to deliver finished goods to our customers . changes in freight rates and the availability of freight services can have a significant impact on our cost of goods sold . freight costs have risen significantly due to a number of factors that have affected the supply and demand of trucking services including increased regulation , such as data logging of miles , increases in general economic activity , and an aging workforce . we attempt to mitigate some of these cost increases through various internal initiatives and to pass a substantial portion of these increases to our customers ; however , we may not realize the intended results within the intended timeframe . working capital and seasonality working capital , which is defined as accounts receivable plus inventory less accounts payable , fluctuates throughout the year and is affected by seasonality of sales of our products and of customer payment patterns . the peak season for home construction and remodeling in our north america and europe segments , which represent the substantial majority of our revenues , generally corresponds with the second and third calendar quarters , and therefore our sales volume is usually higher during those quarters . typically , working capital increases at the end of the first quarter and beginning of the second quarter in conjunction with , and in preparation for , our peak season , and working capital decreases starting in the third quarter as inventory levels and accounts receivable decline . inventories fluctuate for some raw materials with long delivery lead times , such as steel , as we work through prior shipments and take delivery of new orders . foreign currency exchange rates we report our consolidated financial results in u.s. dollars . due to our international operations , the weakening or strengthening of foreign currencies against the u.s. dollar can affect our reported operating results and our cash flows as we translate our foreign subsidiaries ' financial statements from their reporting currencies into u.s. dollars . in the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , the depreciation or appreciation of the u.s. dollar relative to the reporting currencies of our foreign subsidiaries resulted in higher or lower reported results in such foreign reporting entities . in particular , the exchange rates used to translate our foreign subsidiaries ' financial results for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 reflected , on average , the u.s. dollar strengthened against the euro , australian dollar , and canadian dollar by 6 % , 8 % , and 3 % , respectively . see item 1a- risk factors - risks relating to our business and industry , item 1a- risk factors - exchange 46 back to top rate fluctuations may impact our business , financial condition , and results of operations , and item 7a- quantitative and qualitative disclosures about market risk- exchange rate risk . public company costs as a public company , we incur additional legal , accounting , board compensation , and other expenses that we did not previously incur , including costs associated with sec reporting and corporate governance requirements , and other requirements associated with operating as a public company . these requirements include compliance with the sarbanes-oxley act as well as other rules implemented by the sec and the national securities exchanges . our financial statements following our ipo reflect the impact of these expenses .
| excluding the impact of the litigation contingency accrual and sga associated with our acquisitions , sg & a would have been $ 589.7 million or 15.3 % of net revenues on a comparative basis to 2017. impairment and restructuring charges —impairment and restructuring charges increased $ 4.3 million , or 32.7 % , to $ 17.3 million in the year ended december 31 , 2018 from $ 13.1 million in the year ended december 31 , 2017 . the 2018 charges consisted primarily of personnel restructuring costs in our north america , europe and australasia segments as well as plant consolidations in our north america and australasia segments . the 2017 charges consisted primarily of a reduction in workforce in our north american segment as well as ongoing restructuring costs in our europe segment . 51 back to top interest expense , net —interest expense , net decreased $ 8.2 million , or 10.4 % , to an expense of $ 70.8 million in the year ended december 31 , 2018 from an expense of $ 79.0 million in the year ended december 31 , 2017 . the decrease was primarily due to additional interest expense incurred in 2017 resulting from the write-offs of a portion of the unamortized debt issuance costs and original issue discount totaling approximately $ 6.1 million in connection with the repayment of $ 375.0 million of outstanding term loans with proceeds from our ipo and higher pre-ipo debt levels . other ( income ) expense – other ( income ) expense increased $ 75.0 million , to income of $ 34.9 million in the year ended december 31 , 2018 from expense of $ 40.1 million in the year ended december 31 , 2017 . the other income in the year ended december 31 , 2018 was primarily due to a fair value adjustment of $ 20.8 million associated with our acquisition of the remaining shares outstanding of an equity investment , foreign currency gains of $ 11.3 million , and legal settlement income of $
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we believe our investment in professional services , as well as partners building consulting practices around workday , will drive additional customer subscriptions and continued growth in revenues . due to our ability to leverage the expanding partner ecosystem , we expect that the rate of professional services revenue growth will decline over time and continue to be lower than subscription revenue growth . 29 components of results of operations revenues we primarily derive our revenues from subscription services and professional services . subscription services revenues primarily consist of fees that give our customers access to our cloud applications , which include related customer support . professional services fees include deployment services , optimization services , and training . subscription services revenues accounted for 85 % of our total revenues during fiscal 2019 and represented 96 % of our total unearned revenue as of january 31 , 2019 . subscription services revenues are driven primarily by the number of customers , the number of workers at each customer , the specific applications subscribed to by each customer , and the price of our applications . the mix of the applications to which a customer subscribes can affect our financial performance due to price differentials in our applications . pricing for our applications varies based on many factors , including the complexity and maturity of the application and its acceptance in the marketplace . new products or services offerings by competitors in the future could also impact the mix and pricing of our offerings . subscription services revenues are recognized over time as they are delivered and consumed concurrently over the contractual term , beginning on the date our service is made available to the customer . our subscription contracts typically have a term of three years or longer and are generally non-cancelable . we generally invoice our customers annually in advance . amounts that have been invoiced are initially recorded as unearned revenue . the majority of our consulting engagements are billed on a time and materials basis , and revenues are typically recognized over time as the services are performed . in some cases , we supplement our consulting teams by subcontracting resources from our service partners and deploying them on customer engagements . as our professional services organization and the workday-related consulting practices of our partner firms continue to develop , we expect the partners to increasingly contract directly with our subscription customers . as a result of this trend , and the increase of our subscription services revenues , we expect professional services revenues as a percentage of total revenues to decline over time . costs and expenses costs of subscription services revenues . costs of subscription services revenues consist primarily of employee-related expenses related to hosting our applications and providing customer support , the costs of data center capacity , and depreciation of computer equipment and software . costs of professional services revenues . costs of professional services revenues consist primarily of employee-related expenses associated with these services , the cost of subcontractors , and travel . product development . product development expenses consist primarily of employee-related costs . we continue to focus our product development efforts on adding new features and applications , increasing the functionality , and enhancing the ease of use of our cloud applications . sales and marketing . sales and marketing expenses consist primarily of employee-related costs , sales commissions , marketing programs , and travel . marketing programs consist of advertising , events , corporate communications , brand building , and product marketing activities . sales commissions are considered incremental costs of obtaining a contract with a customer and are deferred and amortized . sales commissions for initial contracts are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be five years . sales commissions for renewal contracts are deferred and then amortized on a straight-line basis over the related contractual renewal period . general and administrative . general and administrative expenses consist of employee-related costs for finance and accounting , legal , human resources , information systems personnel , professional fees , and other corporate expenses . 30 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2018 , and 2017 , respectively . the increase in share-based compensation expenses was primarily due to assumed adaptive insights awards and grants of rsus to existing and new employees . ( 2 ) other operating expenses include employer payroll tax-related items on employee stock transactions of $ 32 million , $ 21 million , and $ 14 million for fiscal 2019 , 2018 , and 2017 , respectively . in addition , other operating expenses include amortization of acquisition-related intangible assets of $ 49 million , $ 19 million , and $ 13 million for fiscal 2019 , 2018 , and 2017 , respectively . ( 3 ) see “ non-gaap financial measures ” below for further information . * see note 1 of the notes to consolidated financial statements for further information . costs of subscription services gaap operating expenses in costs of subscription services were $ 380 million for fiscal 2019 , compared to $ 273 million for fiscal 2018 , an increase of $ 107 million , or 39 % . the increase was primarily due to increases of $ 33 million in employee-related costs driven by higher headcount , $ 24 million in amortization expense for our acquisition-related intangible assets , $ 22 million in third-party costs for hardware maintenance and data center capacity , and $ 19 million in depreciation expense related to our data centers . 32 gaap operating expenses in costs of subscription services were $ 273 million for fiscal 2018 , compared to $ 213 million for fiscal 2017 , an increase of $ 60 million , or 28 % . story_separator_special_tag the increase was primarily due to increases of $ 23 million in depreciation expense related to our data centers , $ 22 million in employee-related costs driven by higher headcount , and $ 10 million in facility and it-related expenses . non-gaap operating expenses in costs of subscription services were $ 312 million for fiscal 2019 , compared to $ 240 million for fiscal 2018 , an increase of $ 72 million , or 30 % . the increase was primarily due to increases of $ 22 million in employee-related costs driven by higher headcount , $ 22 million in third-party costs for hardware maintenance and data center capacity , and $ 19 million in depreciation expense related to our data centers . non-gaap operating expenses in costs of subscription services were $ 240 million for fiscal 2018 , compared to $ 192 million for fiscal 2017 , an increase of $ 48 million , or 25 % . the increase was primarily due to increases of $ 17 million in depreciation expense related to our data centers , $ 16 million in employee-related costs driven by higher headcount , and $ 10 million in facility and it-related expenses . we expect that gaap and non-gaap operating expenses in costs of subscription services will continue to increase in absolute dollars as we improve and expand our data center capacity and operations . costs of professional services gaap operating expenses in costs of professional services were $ 455 million for fiscal 2019 , compared to $ 356 million for fiscal 2018 , an increase of $ 99 million , or 28 % . the increase was primarily due to increases of $ 86 million to staff our deployment and integration engagements . gaap operating expenses in costs of professional services were $ 356 million for fiscal 2018 , compared to $ 270 million for fiscal 2017 , an increase of $ 86 million , or 32 % . the increase was primarily due to increases of $ 70 million to staff our deployment and integration engagements . non-gaap operating expenses in costs of professional services were $ 396 million for fiscal 2019 , compared to $ 316 million for fiscal 2018 , an increase of $ 80 million , or 25 % . the increase was primarily due to increases of $ 66 million to staff our deployment and integration engagements . non-gaap operating expenses in costs of professional services were $ 316 million for fiscal 2018 , compared to $ 242 million for fiscal 2017 , an increase of $ 74 million , or 31 % . the increase was primarily due to increases of $ 59 million to staff our deployment and integration engagements . going forward , we expect gaap and non-gaap costs of professional services as a percentage of total revenues to continue to decline as we continue to rely on our service partners to deploy our applications and as the number of our customers continues to grow . for fiscal 2020 , we anticipate gaap and non-gaap professional services margins to be lower than fiscal 2019 as we invest in programs to ensure ongoing customer success . product development gaap operating expenses in product development were $ 1.2 billion for fiscal 2019 , compared to $ 911 million for fiscal 2018 , an increase of $ 301 million , or 33 % . the increase was primarily due to increases of $ 267 million in employee-related costs due to higher headcount and $ 26 million in facility and it-related expenses . gaap operating expenses in product development were $ 911 million for fiscal 2018 , compared to $ 681 million for fiscal 2017 , an increase of $ 230 million , or 34 % . the increase was primarily due to increases of $ 180 million in employee-related costs due to higher headcount , $ 34 million in facility and it-related expenses , and $ 15 million in third-party costs for hardware maintenance and data center capacity . non-gaap operating expenses in product development were $ 870 million for fiscal 2019 , compared to $ 658 million for fiscal 2018 , an increase of $ 212 million , or 32 % . the increase was primarily due to increases of $ 170 million in employee-related costs due to higher headcount and $ 26 million in facility and it-related expenses . non-gaap operating expenses in product development were $ 658 million for fiscal 2018 , compared to $ 495 million for fiscal 2017 , an increase of $ 163 million , or 33 % . the increase was primarily due to increases of $ 113 million in employee-related costs due to higher headcount , $ 34 million in facility and it-related expenses , and $ 15 million in third-party costs for hardware maintenance and data center capacity . we expect that gaap and non-gaap product development expenses will continue to increase in absolute dollars as we improve and extend our applications and develop new technologies . 33 sales and marketing gaap operating expenses in sales and marketing were $ 891 million for fiscal 2019 , compared to $ 683 million for fiscal 2018 , an increase of $ 208 million , or 30 % . the increase was primarily due to increases of $ 147 million in employee-related costs due to higher headcount and higher commissionable sales volume , $ 20 million in advertising , marketing , and event costs , $ 13 million in travel , and $ 11 million in facility and it-related expenses . gaap operating expenses in sales and marketing were $ 683 million for fiscal 2018 , compared to $ 565 million for fiscal 2017 , an increase of $ 118 million , or 21 % . the increase was primarily due to increases of $ 87 million in employee-related costs due to higher headcount and higher commissionable sales volume , $ 14 million in advertising , marketing , and event costs , and $ 11 million in facility and it-related expenses .
| the increase in professional services revenues was due primarily to the addition of new customers and a greater number of customers requesting deployment and integration services . operating expenses gaap operating expenses were $ 3.3 billion for fiscal 2019 , compared to $ 2.4 billion for fiscal 2018 , an increase of $ 0.9 billion , or 34 % . the increase was primarily due to increases of $ 0.6 billion in employee-related costs driven by higher headcount and $ 0.1 billion in expenses related to facilities , it , depreciation , amortization , and service contracts to expand data center capacity . these increases are partially attributable to the acquisition of adaptive insights and include one-time transaction and integration-related costs . gaap operating expenses were $ 2.4 billion for fiscal 2018 , compared to $ 1.9 billion for fiscal 2017 , an increase of $ 0.5 billion , or 27 % . the increase was primarily due to increases of $ 0.4 billion in employee-related costs driven by higher headcount and $ 0.1 billion in expenses related to facilities , it , depreciation , amortization , and service contracts to expand data center capacity . we use the non-gaap financial measure of non-gaap operating expenses to understand and compare operating results across accounting periods , for internal budgeting and forecasting purposes , for short- and long-term operating plans , and to evaluate our financial performance . we believe that non-gaap operating expenses reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business , as they exclude expenses that are not reflective of ongoing operating results . we also believe that non-gaap operating expenses provide useful information to investors and others in understanding and evaluating our operating results and prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies . non-gaap operating expenses are calculated by excluding share-based compensation expenses , and certain other expenses , which
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