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low cost and the plentiful supply of north american natural gas has led to a revival in the u.s. petrochemical market . this is evident as we witness a significant increase in the planned construction of new petrochemical producing facilities , including ethylene , ammonia , methanol , propane dehydrogenation ( pdh ) and urea facilities . in addition , existing petrochemical facilities are restarting idled process units or debottlenecking existing operations to increase throughput . we currently have a number of these projects in our backlog and many more in our pipeline . we historically have had strong market share within u.s. petrochemical facilities . this has continued to date in the current expansion . we believe this is the first wave of major investment by petrochemical producers since the 1990 's . lower natural gas cost is a relatively recent phenomena , having occurred over the past five years and is driven by technology advancements in drilling , which in turn has created a significant increase in supply . this has made the u.s. production of the raw material for ethylene , ethane ( which is a side product of natural gas production ) , globally competitive with naphtha 20 ( the alternative feedstock for ethylene used in most of the world ) . we believe investment in u.s. petrochemical markets could be significant over the next decade , although such investment could occur in multiple phases . the u.s. refining market exhibited some improvement in fiscal 2014. we do not expect the u.s. refining markets to return to the levels experienced during the last upcycle , but that such markets will continue to improve . we expect that the u.s. refining markets will continue to be an important aspect of our business . we are seeing renewed signs of planned investments in the u.s. to convert greater percentages of crude oil to transportation fuels , such as revamping distillation columns to extract residual higher-value components from the low-value waste stream . we are also seeing renewed investment to expand the flexibility of facilities to allow them to utilize multiple feedstocks . moreover , a trend to upgrade existing equipment in order to extend on-stream operation duration between planned shutdowns has emerged that has resulted in an increase in demand for our equipment . investments , including foreign investments , in north american oil sands projects have occurred over the past few years . these investments suggest that downstream spending involving our equipment might increase in the next few years . the continued expansion of the economies of many of the oil-producing middle eastern countries , their desire to extract greater value from their oil and gas resources , and the continued global growth in demand for oil and refined products has renewed investment activity in that region . we do not believe that the ongoing political unrest in the middle east has impacted our business to date . moreover , the planned timeline of refinery and petrochemical projects in the major middle eastern countries is encouraging . emerging economies , especially in asia , continue to have relatively strong economic growth compared with other regions , however this growth appears to be more moderate than in our prior business cycle . asian countries , specifically china and india , are experiencing sustained demand for energy products such as transportation fuel and consumer products derived from petrochemicals . we believe that chinese and indian investments in refining , petrochemical and energy facilities continue to be planned . this renewed demand is driving increased investment in petrochemical and refining capacity . china has also seen a near-term slowdown in spending in the refining and petrochemical markets as the government is moderating its near term investments in an attempt to control inflation . it appears political issues in china have also delayed the investment decision process , however , we believe this is a delay rather than a cancellation of project activity . south america , specifically brazil , venezuela and colombia , is seeing increased refining and petrochemical investments that are driven by its expanding economy , and increased local demand for transportation fuels and other products that are made from oil as the feedstock . countries in this region also desire to extract more value from their natural resources by supplying energy products into the global markets . however , the south american market can be unpredictable and has historically been slower to invest than other emerging markets . investment in new nuclear power capacity in the u.s. and internationally may become subject to increased uncertainty due to political and social pressures , which were augmented by the tragic earthquake and tsunami that occurred in japan in march 2011. the continued progress at the new u.s. nuclear reactor projects planned for the summer ( south carolina ) and vogtle ( georgia ) facilities suggest some growth in the domestic nuclear market will occur . however , the low cost of natural gas does not lead us to believe that additional near-term new capacity is likely . the need for additional safety and back up redundancies at existing domestic nuclear plants could increase demand for our products in the near-term . investments in existing u.s. nuclear plants to extend their operating life and add incremental capacity are expected to continue . the desire to extend the life of the existing nuclear plants including new operating licenses and expanded output ( re-rating ) of the facilities will require investment and could increase demand for our products . 21 we expect that the outcome of these trends will provide growth opportunities for our business . the investments in new petrochemical capacity built in north america , while providing significant volume , are not likely to provide the margin opportunity that the north american refining market yielded in the last upcycle . less favorable product mix may limit the potential upside in gross margin . story_separator_special_tag in addition , the projected expansion in petrochemical and oil refining outside of north america , primarily in the growing asian and south american markets , will continue to result in pressure on our pricing and gross margins , as these markets historically generated lower margins than north american refining markets . because of continued global economic and financial uncertainty and the risk associated with growth in emerging economies , we also expect that we will have continued volatility in our order pattern . we continue to expect our new order levels to remain volatile , resulting in both relatively strong and weak quarters . as the chart below indicates , quarterly orders can vary significantly . we believe that looking at our order level in any one quarter does not provide an accurate indication of our future expectations or performance . rather , we believe that looking at our orders and backlog over a trailing twelve month period provides a better measure of our business . our quarterly order levels and trailing twelve month order levels for fiscal 2014 , fiscal 2013 and fiscal 2012 , respectively , are set forth in the table below . expected domestic growth in chemical processing coupled with international growth in refining and chemical processing combined with expanded market opportunities in nuclear power and u.s. navy projects we expect incremental investments in the domestic market for the refining market and renewed investment in the chemical processing market in north america . we also expect growth in the refining and chemical processing capacity to be driven by emerging markets . we have expanded our addressable markets with expansion of our business capabilities in the power market and our focus on u.s. navy nuclear propulsion projects . we believe our revenue opportunities during the near term will be more heavily weighted in the domestic 22 market . however , over the longer term , we believe the opportunities will be equivalent between the domestic and international markets . we believe the long-term trends remain strong and that the drivers of future growth include : natural gas in the u.s. is globally competitive with oil . as such , lower costs and plentiful supply are expected to drive increased domestic use of natural gas in the u.s. , as well as the ability to export liquefied natural gas to serve other regions . an expansion of the petrochemical market in the u.s. , which has begun , is expected to continue over the next several years , given the plentiful supply and globally competitive price of natural gas . in fiscal 2014 , we saw nearly $ 40,000 in new orders in the domestic petrochemical market . global consumption of crude oil is estimated to expand significantly over the next two decades , primarily in emerging markets . this is expected to offset estimated flat to slightly declining demand in north america and europe . in addition , an increased trend toward export supply of finished product from the middle east to north america and europe is expected . global oil refining capacity is projected to increase , and is expected to be addressed through new facilities , refinery upgrades , revamps and expansions . increased demand is expected for power , refinery and petrochemical products , stimulated by an expanding middle class in asia and the middle east . increased regulation worldwide , impacting the refining , petrochemical and nuclear power industries is expected to continue to drive requirements for capital investments . more domestic refineries are expected to convert their facilities to use heavier , more readily available and lower cost crude oil as a feedstock . shale gas development and the resulting availability of affordable natural gas as feedstock to u.s.-based chemical/petrochemical facilities is expected to lead to renewed investment in chemical/petrochemical facilities in the u.s. construction of new petrochemical plants in the middle east is expected to meet local demand . increased investments in new power generation projects are expected in asia and south america to meet projected consumer demand increases . long-term growth potential in alternative energy markets , such as geothermal , coal-to-liquids , gas-to-liquids and other emerging technologies , such as biodiesel , and waste-to-energy are expected to provide additional sales opportunities . increased focus on safety and redundancy is anticipated in existing nuclear power facilities . long-term increased project development of international nuclear facilities is expected . we believe that the above factors offer us long-term growth opportunities to meet our customers ' expected capital project needs . in addition , we believe we can continue to grow our less cyclical smaller product lines and aftermarket businesses . domestic sales in fiscal 2014 were 62 % of total sales . while we see annual fluctuations between domestic and international sales , we had seen a trend toward more international sales . domestic sales as a percent of total sales had been declining in previous years , from a peak of 63 % in our fiscal year ended march 31 , 2009 ( fiscal 2009 ) to 53 % in fiscal 2013. the recent shift toward more u.s. sales has been driven primarily by mix of our end market sales , with higher domestic chemical and petrochemical sales as well as continued sales to the u.s. navy and our penetration of the domestic nuclear market . story_separator_special_tag fiscal 2013 was $ 51 , down from $ 58 in fiscal 2012. interest expense was a credit of $ 264 in fiscal 2013 , down from $ 476 in fiscal 2012. the decrease was due to the interest charges being reversed for a research and development tax credit audit resolution reached with the irs . in the second quarter of fiscal 2013 , due to lower than expected assessments by the irs , we reversed provisions that had been made in earlier periods for interest related to previously uncertain tax positions .
| selling , general and administrative , or sg & a , expense for fiscal 2014 was $ 17,195 , up 4 % or $ 635 , compared with $ 16,560 in fiscal 2013. however , fiscal 2013 sg & a included the benefit of a $ 975 reversal of a reserve for the potential earn-out for year two following the energy steel acquisition . the earn-out for the second year , calendar year 2012 , had been partly reserved for at the time of acquisition with the remaining charges added subsequent to the acquisition . however , due to lower order volume levels experienced in calendar year 2012 and project timing , the 2012 energy steel earn out criteria was not achieved . as a result , the reserve of $ 975 was adjusted to $ 0 , and $ 975 was recorded as a reduction of sg & a expenses in the third quarter of fiscal 2013. excluding the reserve adjustment , sg & a in fiscal 2013 would have been $ 17,535. comparing fiscal 2014 sg & a to the adjusted number , sg & a in fiscal 2014 was down $ 340 , or 2 % . sg & a as a percentage of sales in fiscal 2014 was 16.8 % of sales compared with 15.8 % of sales ( and 16.7 % of sales excluding the $ 975 reserve reversal noted above ) in fiscal 2013. interest income for fiscal 2014 was $ 94 , up from $ 51 in fiscal 2013. interest expense was $ 1 compared with a credit of $ 264 in fiscal 2013. the credit in fiscal 2013 was due to the interest charges being reversed for a research and development tax credit audit resolution reached with the internal revenue service ( the irs ) . it is our policy to recognize any interest related to uncertain tax positions in interest expense . in fiscal 2013 , due to lower than expected assessments by the irs , we reversed provisions that had been made in earlier periods for interest related to previously uncertain tax positions . the irs audit tax resolution is discussed in more detail in
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the provision for loan losses is established based upon management 's review of the bank 's loans and consideration of a variety of factors including , but not limited to , ( 1 ) the risk characteristics of the loan portfolio , ( 2 ) current economic conditions , ( 3 ) actual losses previously experienced , ( 4 ) the significant level of loan growth and ( 5 ) the existing level of reserves for loan losses that are probable and estimable . during 2011 , the bank experienced $ 2.01 million in net charge-offs ( consisting of $ 2.03 million in charge-offs and $ 25,000 in recoveries ) . during 2010 , the bank experienced $ 677,000 in net charge-offs ( consisting of $ 689,000 in charge-offs and $ 12,000 in recoveries ) . the bank had non-accrual loans totaling $ 47.8 million at december 31 , 2011 and $ 41.8 million at december 31 , 2010. the allowance for loan losses stood at $ 10.5 million or 1.23 % of gross total loans at december 31 , 2011 as compared to $ 8.4 million or 1.08 % of gross total loans at december 31 , 2010. the amount of the allowance is based on estimates and the ultimate losses may vary from such estimates . management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance . while management uses available information to recognize losses on loans , future loan loss provisions may be necessary based on changes in the aforementioned criteria . in addition , various regulatory agencies , as an integral part of their examination process , periodically review the allowance for loan losses and may require the bank to recognize additional provisions based on their judgment of information available to them at the time of their examination . management believes that the allowance for loan losses was adequate at both december 31 , 2011 and 2010. total non-interest income decreased by $ 11.91 million or 85.9 % to $ 1.95 million for the year ended december 31 , 2011 from $ 13.86 million for the year ended december 31 , 2010. the decrease in non-interest income resulted primarily from a decrease in the gain on bargain purchase of $ 11.4 million or 90.5 % to $ 1.2 million for the year ended december 31 , 2011 from $ 12.6 million for the year ended december 31 , 2010. the gain on bargain purchase of $ 1.2 million recorded for the year ended december 31 , 2011 was associated with the completion of the acquisition of allegiance community bank . the gain on bargain purchase of $ 12.6 million for the year ended december 31 , 2010 was associated with the completion of the acquisition of pamrapo bancorp , inc. the decrease in non-interest income also reflects a $ 716,000 decrease in loss on sale of fixed assets and property held for sale to a loss of $ 716,000 for the year ended december 31 , 2011 from no such corresponding entries for the year ended december 31 , 2010. this decrease occurred primarily as a result of the closing of one of our hoboken offices and the realization of the full amortization of the remaining life of the fixed assets remaining on our balance sheet at the time of closing which totaled $ 592,000. additionally , the sale of a former branch site resulted in a loss on the sale of that property of $ 124,000. loss on sale of real estate owned increased by $ 153,000 or 44.3 % to a loss of $ 498,000 for the year ended december 31 , 2011 from a loss of $ 345,000 for the year ended december 31 , 2010 as additional properties taken into real estate owned were sold during the year ended december 31 , 2011 as compared to the year ended december 31 , 2010. fees and service charges decreased by $ 61,000 or 6.7 % to $ 846,000 for the year ended december 31 , 2011 from $ 907,000 for the year ended december 31 , 2010. other fees and service charges decreased by $ 172,000 or 40.7 % to $ 251,000 for the year ended december 31 , 2011 from $ 423,000 for the year ended december 31 , 2010. this decrease resulted primarily as a result of three items occurring in 2010 for a total of $ 345,500 where no such items occurred in 2011. those items were as a result of a $ 237,500 litigation settlement with the bayonne medical center , a $ 50,000 recovery from a previous charge-off regarding a check kiting incident and a $ 67,000 recovery received through litigation on a real estate facility where insurance proceeds were improperly retained by a third party . these decreases in non-interest income were partially offset by an increase in gain on sale of loans originated for sale of $ 592,000 or 200.7 % to $ 887,000 for the year ended december 31 , 2011 from $ 295,000 for the year ended december 31 , 2010. the increase in gain on sale of loans originated for sale occurred primarily as a result of the active local market for refinancing one-to four-family residential mortgages aided in large part by the low interest rate environment . additionally , during 2011 the bank engaged in the underwriting and sale of certain small business administration , ( sba ) loans . fees generated through this activity in 2011 totaled $ 479,000 , as opposed to no such corresponding gain in 2010. gain on sale of securities totaled $ 18,000 for the year ended december 31 , 2011. no such corresponding gain occurred for the year ended december 31 , 2010 . 52 total non-interest expense increased by $ 6.0 million or 27.3 % to $ 28.0 million for the year ended december 31 , 2011 story_separator_special_tag the provision for loan losses is established based upon management 's review of the bank 's loans and consideration of a variety of factors including , but not limited to , ( 1 ) the risk characteristics of the loan portfolio , ( 2 ) current economic conditions , ( 3 ) actual losses previously experienced , ( 4 ) the significant level of loan growth and ( 5 ) the existing level of reserves for loan losses that are probable and estimable . during 2011 , the bank experienced $ 2.01 million in net charge-offs ( consisting of $ 2.03 million in charge-offs and $ 25,000 in recoveries ) . during 2010 , the bank experienced $ 677,000 in net charge-offs ( consisting of $ 689,000 in charge-offs and $ 12,000 in recoveries ) . the bank had non-accrual loans totaling $ 47.8 million at december 31 , 2011 and $ 41.8 million at december 31 , 2010. the allowance for loan losses stood at $ 10.5 million or 1.23 % of gross total loans at december 31 , 2011 as compared to $ 8.4 million or 1.08 % of gross total loans at december 31 , 2010. the amount of the allowance is based on estimates and the ultimate losses may vary from such estimates . management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance . while management uses available information to recognize losses on loans , future loan loss provisions may be necessary based on changes in the aforementioned criteria . in addition , various regulatory agencies , as an integral part of their examination process , periodically review the allowance for loan losses and may require the bank to recognize additional provisions based on their judgment of information available to them at the time of their examination . management believes that the allowance for loan losses was adequate at both december 31 , 2011 and 2010. total non-interest income decreased by $ 11.91 million or 85.9 % to $ 1.95 million for the year ended december 31 , 2011 from $ 13.86 million for the year ended december 31 , 2010. the decrease in non-interest income resulted primarily from a decrease in the gain on bargain purchase of $ 11.4 million or 90.5 % to $ 1.2 million for the year ended december 31 , 2011 from $ 12.6 million for the year ended december 31 , 2010. the gain on bargain purchase of $ 1.2 million recorded for the year ended december 31 , 2011 was associated with the completion of the acquisition of allegiance community bank . the gain on bargain purchase of $ 12.6 million for the year ended december 31 , 2010 was associated with the completion of the acquisition of pamrapo bancorp , inc. the decrease in non-interest income also reflects a $ 716,000 decrease in loss on sale of fixed assets and property held for sale to a loss of $ 716,000 for the year ended december 31 , 2011 from no such corresponding entries for the year ended december 31 , 2010. this decrease occurred primarily as a result of the closing of one of our hoboken offices and the realization of the full amortization of the remaining life of the fixed assets remaining on our balance sheet at the time of closing which totaled $ 592,000. additionally , the sale of a former branch site resulted in a loss on the sale of that property of $ 124,000. loss on sale of real estate owned increased by $ 153,000 or 44.3 % to a loss of $ 498,000 for the year ended december 31 , 2011 from a loss of $ 345,000 for the year ended december 31 , 2010 as additional properties taken into real estate owned were sold during the year ended december 31 , 2011 as compared to the year ended december 31 , 2010. fees and service charges decreased by $ 61,000 or 6.7 % to $ 846,000 for the year ended december 31 , 2011 from $ 907,000 for the year ended december 31 , 2010. other fees and service charges decreased by $ 172,000 or 40.7 % to $ 251,000 for the year ended december 31 , 2011 from $ 423,000 for the year ended december 31 , 2010. this decrease resulted primarily as a result of three items occurring in 2010 for a total of $ 345,500 where no such items occurred in 2011. those items were as a result of a $ 237,500 litigation settlement with the bayonne medical center , a $ 50,000 recovery from a previous charge-off regarding a check kiting incident and a $ 67,000 recovery received through litigation on a real estate facility where insurance proceeds were improperly retained by a third party . these decreases in non-interest income were partially offset by an increase in gain on sale of loans originated for sale of $ 592,000 or 200.7 % to $ 887,000 for the year ended december 31 , 2011 from $ 295,000 for the year ended december 31 , 2010. the increase in gain on sale of loans originated for sale occurred primarily as a result of the active local market for refinancing one-to four-family residential mortgages aided in large part by the low interest rate environment . additionally , during 2011 the bank engaged in the underwriting and sale of certain small business administration , ( sba ) loans . fees generated through this activity in 2011 totaled $ 479,000 , as opposed to no such corresponding gain in 2010. gain on sale of securities totaled $ 18,000 for the year ended december 31 , 2011. no such corresponding gain occurred for the year ended december 31 , 2010 . 52 total non-interest expense increased by $ 6.0 million or 27.3 % to $ 28.0 million for the year ended december 31 , 2011
| 42 factors that could have a material adverse effect on the operations of the company and its subsidiaries include , but are not limited to , changes in market interest rates , general economic conditions , legislation , and regulation ; changes in monetary and fiscal policies of the united states government , including policies of the united states treasury and federal reserve board ; changes in the quality or composition of the loan or investment portfolios ; changes in deposit flows , competition , and demand for financial services , loans , deposits and investment products in the company 's local markets ; changes in accounting principles and guidelines ; war or terrorist activities ; and other economic , competitive , governmental , regulatory , geopolitical and technological factors affecting the company 's operations , pricing and services . readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date of this discussion . although the company believes that the expectations reflected in the forward-looking statements are reasonable , the company can not guarantee future results , levels of activity , performance or achievements . except as required by applicable law or regulation , the company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made . critical accounting policies critical accounting policies are those accounting policies that can have a significant impact on the company 's financial position and results of operations that require the use of complex and subjective estimates based upon past experiences and management 's judgment . because of the uncertainty inherent in such estimates , actual results may differ from these estimates . below are those policies applied in preparing the company 's consolidated financial statements that management believes are the most dependent on the application of estimates and assumptions . for additional accounting policies , see note 2 of “ notes to consolidated financial statements. ” allowance for loan losses loans receivable are presented net of an allowance for loan losses . in determining the appropriate level of the allowance , management considers a combination of factors , such as economic and industry trends , real estate market conditions , size and type of loans in portfolio , nature and value of collateral held , borrowers ' financial strength and credit ratings , and prepayment and default history . the calculation of the appropriate allowance for loan losses requires a substantial amount of judgment regarding the impact of the
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the company has provided a full valuation allowance on its spanish subsidiaries ' tax loss carry-forward benefits of $ 4,508 and $ 4,584 as of december 31 , 2020 and 2019 , respectively , because the company has concluded that it is not more-likely-than-not that these losses will be utilized before their expiration dates . the spanish subsidiary has a history of net operating losses and it is not known when and if they will generate taxable income in the future . u.s. tax reform ( us tax cuts and jobs act enacted in december 2017 ) changed the united states approach to the taxation of foreign earnings to a territorial system by providing a one hundred percent dividends received deduction for certain qualified dividends received from foreign subsidiaries . these provisions of u.s. tax reform significantly impact the accounting for the undistributed earnings of foreign subsidiaries , and as a result the company distributed $ 8,200 of the earnings held in excess cash by its foreign subsidiaries in 2019. the tax costs associated with a future distribution , including foreign withholding taxes , are not material to the company 's financial statements . after carefully considering these facts , 16 the company determined that it would not be asserting permanent reinvestment of its foreign subsidiaries earnings as of december 31 , 2017 , and the company continued to take this position as of december 31 , 2020 . on march 27 , 2020 , the coronavirus aid , relief , and economic security ( “ cares ” ) act was signed into u.s. law . the cares act has provided a substantial stimulus and assistance package intended to address the economic impact of the covid-19 pandemic , including tax relief and government loans , grants and investments . the canadian government also enacted a stimulus program , canadian emergency wage subsidy ( “ cews ” ) , to respond to the economic impact of covid-19 during 2020 the company 's financial results in 2020 did reflect some benefits , primarily in the second and third quarters of 2020 , from these stimulus programs . the company continues to monitor any effects and related benefits that may result from the above discussed legislation and other proposed stimulus programs . based on consultation with its tax advisors , the company does not believe that it will be eligible for any significant benefits in 2021 under these stimulus programs . net earnings were $ 58,995 in 2020 compared to $ 64,920 in 2019 , and net earnings per share were $ 0.89 and $ 0.96 in 2020 and 2019 , respectively , a decrease of $ 0.07 per share of 7 % . earnings per share in 2020 benefited from the reduction in average shares outstanding resulting from purchases of the company 's common stock in the open market by the company . average shares outstanding decreased from 67,416 in 2019 to 66,512 in 2020 which reflects share repurchases of $ 32,055 during 2020 . fourth quarter 2020 and 2019 net earnings attributable to tootsie roll industries , inc. were $ 14,952 and $ 14,555 , respectively , and net earnings per share were $ 0.23 and $ 0.22 , respectively , an increase of $ 0.01 per share or 5 % . certain cost and expense reductions , including company operational changes and initiatives to reduce costs as discussed above , did provide some benefit to fourth quarter 2020 results . although unfavorable foreign exchange adversely affected fourth quarter 2020 results , a lower effective income tax rate contributed to the increase in net earnings in fourth quarter 2020 compared to fourth quarter 2019 . beginning in 2012 , the company received periodic notices from the bakery , confectionery , tobacco workers and grain millers international union pension plan ( plan ) , a multi-employer defined benefit pension plan for certain company union employees , that the plan 's actuary certified the plan to be in “ critical status ” , as defined by the pension protection act ( ppa ) and the pension benefit guaranty corporation ( pbgc ) ; and that a plan of rehabilitation was adopted by the trustees of the plan in 2012. during 2015 , the company received notices that the plan 's status was changed to “ critical and declining status ” , as defined by the ppa and pbgc , for the plan year beginning january 1 , 2015 , and that the plan was projected to have an accumulated funding deficiency for the 2017 through 2024 plan years . a designation of “ critical and declining status ” implies that the plan is expected to become insolvent in the next 20 years . the company has continued to receive annual notices each year ( 2016 to 2020 ) that this plan remains in “ critical and declining status ” and is projected to become insolvent within the next 20 years . these notices have also advised that the plan trustees were considering the reduction or elimination of certain retirement benefits and may seek assistance from the pbgc . plans in “ critical and declining status ” may elect to suspend ( temporarily or permanently ) some benefits payable to all categories of participants , including retired participants , except retirees that are disabled or over the age of 80. suspensions must be equally distributed and can not drop below 110 % of what would otherwise be guaranteed by the pbgc . based on these updated notices , the plan 's funded percentage ( plan investment assets as a percentage of plan liabilities ) , as defined , were 50.4 % , 51.6 % , and 54.7 % as of the most recent valuation dates available , january 1 , 2019 , 2018 , and 2017 , respectively ( these valuation dates are as of the beginning of each plan year ) . these funded percentages are based on actuarial values , as defined , and do not reflect the actual market value of plan investments as of these dates . story_separator_special_tag if the market value of investments had been used as of january 1 , 2019 the funded percentage would be 48.8 % ( not 50.4 % ) . as of the january 1 , 2019 valuation date ( most recent valuation available ) , only 16 % of plan participants were current active employees , 53 % were retired or separated from service and receiving benefits , and 31 % were retired or separated from service and entitled to future benefits . the number of current active employee plan participants as of january 1 , 2019 fell 14 % from the previous year and 17 % over the past two years . when compared to the plan valuation date of january 1 , 2011 ( eight years earlier ) , current active employee participants have declined 47 % , whereas participants who were retired 17 or separated from service and receiving benefits increased 4 % and participants who were retired or separated from service and entitled to future benefits increased 14 % . the company has been advised that its withdrawal liability would have been $ 99,300 , $ 99,800 and $ 81,600 if it had withdrawn from the plan during 2020 , 2019 and 2018 , respectively . the company 's relative share of the plan 's contribution base , driven by employer withdrawals , has increased for the last several years , and management believes that this trend could continue indefinitely which will continue to add upward pressure on the company 's withdrawal liability . in addition , the overall reduction in interest rates through the 12 months ended december 31 , 2020 , will increase the value of vested benefits and likely increase the company 's withdrawal liability in 2020. based on the above , including the plan 's projected insolvency in the next 20 years , management believes that the company 's withdrawal liability will increase further in future years . based on the company 's updated actuarial study and certain provisions in erisa and the law relating to withdrawal liability payments , management believes that the company 's liability would likely be limited to twenty annual payments of $ 2,958 which have a present value in the range of $ 34,700 to $ 49,300 depending on the interest rate used to discount these payments . while the company 's actuarial consultant does not believe that the plan will suffer a future mass withdrawal ( as defined ) of participating employers , in the event of a mass withdrawal , the company 's annual withdrawal payments would theoretically be payable in perpetuity . based on the company 's updated actuarial study , the present value of such perpetuities is in the range of $ 48,500 to $ 150,900 and would apply in the unlikely event that substantially all employers withdraw from the plan . the aforementioned is based on a range of valuations and interest rates which the company 's actuary has advised is provided under the statute . should the company actually withdraw from the plan at a future date , a withdrawal liability , which could be higher than the above discussed amounts , could be payable to the plan . the company and the union concluded a new labor contract in 2018 which requires the company 's continued participation in this plan through september 2022. the amended rehabilitation plan , which also continues , requires that employer contributions include 5 % compounded annual surcharge increases each year for an unspecified period of time beginning in 2012 as well as certain plan benefit reductions . the company 's pension expense for this plan for 2020 , 2019 and 2018 was $ 2,866 , $ 2,961 and $ 2,836 , respectively . the aforementioned expense includes surcharges of $ 1,010 , $ 948 and $ 811 in 2020 , 2019 and 2018 , respectively , as required under the amended rehabilitation plan . in fourth quarter 2020 , the plan trustees advised the company that the surcharges would no longer increase annually and therefore be “ frozen ” at the rates and amounts in effect as of december 31 , 2020 provided that the local bargaining union and the company executed a formal consent agreement by march 31 , 2021. the trustees advised that they have concluded that continuing increases in surcharges would likely have a long-term adverse effect on the solvency of the plan . the trustees concluded that further increases would result in increasing financial hardships and withdrawals of participating employers , and that this change will not have a material effect on the plan 's insolvency date . subsequent to december 31 , 2020 , the local bargaining union and the company executed this agreement which resulted in the “ freezing ” of such surcharges as of december 31 , 2020. company management understands that the us house of representatives ways and means committee is preparing legislation under president biden 's proposed $ 1.9 trillion american rescue plan that would provide financial assistance to shore up struggling multi-employer plans for many years . the ways and means bill would create special assistance programs that would allow the pbgc to make direct cash payments to financially troubled multiemployer plans to ensure that they can remain solvent and continue to pay benefits to retirees through 2051. the company is currently unable to determine the ultimate outcome of the above discussed multi-employer union pension matter and therefore is unable to determine the effects on its consolidated financial statements , but the ultimate outcome could be material to its consolidated results of operations or cash flows in one or more future periods . see also note 7 in the company 's consolidated financial statements on form 10-k for the year ended december 31 , 2020 . 18 2019 vs. 2018 consolidated net product sales were $ 523,616 in 2019 compared to $ 515,251 in 2018 , an increase of $ 8,365 or 1.6 % .
| product cost of goods sold includes $ 610 and $ 408 in certain deferred compensation expenses in 2020 and 2019 , respectively . these deferred compensation expenses principally result from changes in the market value of investments and investment income from trading securities relating to compensation deferred in previous years and are not reflective of current operating results . adjusting for the aforementioned , product cost of goods sold decreased from $ 328,694 in 2019 to $ 299,100 in 2020 , a decrease of $ 29,594 or 9.0 % . as a percent of net product sales , these adjusted costs increased from 62.8 % in 2019 to 64.0 % in 2020 , a 1.2 unfavorable percentage point change . lower sales and production volumes had an unfavorable impact on plant manufacturing overhead costs included in the aforementioned adjusted product cost of goods sold . these plant overhead costs are primarily fixed and recurring each year , and only partially decline with lower volumes . product gross margin was $ 167,717 in 2020 compared to $ 194,514 in 2019 , a decrease of $ 26,797 or 13.8 % . the above discussed sales decline was the principal driver that adversely impacted gross profit margins in 2020. certain cost and expense reductions , including company initiatives to reduce costs did provide some benefit to 2020 gross profit margins . the company is continuing its investments in its plant manufacturing operations to meet new consumer and customer demands , achieve quality improvements , provide genuine value to consumers , and increase operational efficiencies . selling , marketing and administrative expenses were $ 112,117 in 2020 compared to $ 127,802 in 2019 , a de crease of $ 15,685 or 12.3 % . selling , marketing and administrative expenses include $ 11,909 and $ 10,884 in certain deferred compensation expenses in 2020 and 2019 , respectively . these deferred compensation expenses principally result from changes in the market value of investments and investment income from trading securities relating to compensation deferred in previous years and are not reflective of current operating results . adjusting for
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income from continued dumping and subsidy offset act the continued dumping and subsidy offset act of 2000 ( “ cdsoa ” ) provides for distribution of duties collected by u.s. customs and border protection from antidumping cases to domestic producers that supported the antidumping petition . we received $ 18.0 million during fiscal 2012 in cdsoa distributions related to the antidumping order on wooden bedroom furniture from china . certain domestic producers who did not support the antidumping petition ( “ non-supporting producers ” ) filed actions in the u.s. court of international trade challenging the cdsoa 's “ support requirement ” and seeking a share of the distributions . as a result , customs withheld a portion of those distributions pending resolution of the non-supporting producers ' actions . between october 2011 and february 2012 , the court of international trade entered judgments against the non-supporting producers and dismissed their actions . on january 1 , 2012 , customs announced that it would distribute the withheld distributions . the non-supporting producers then filed motions in the court of international trade and , later , in the u.s. court of appeals for the federal circuit to enjoin such distributions pending their appeal of the court of international trade 's judgments . on march 5 , 2012 , the federal circuit denied the non-supporting producers ' motions for injunction “ without prejudicing the ultimate disposition of these cases. ” in november 2012 , customs determined to withhold cdsoa distributions pending resolution of the federal circuit appeals . as a result , we did not receive any cdsoa distributions in fiscal 2013. in view of the uncertainties associated with this program , we are unable to predict the amounts , if any , we may receive in the future under the cdsoa . also , if the federal circuit were to reverse the judgments of the court of international trade and determine that the non-supporting producers are entitled to cdsoa distributions , it is possible that customs may seek to have us return all or a portion of our company 's share of the distributions . based on what we know today , we do not expect this will occur . 27 income taxes our effective tax rate for fiscal 2013 was 33.3 % compared to a net tax benefit of ( 33.0 ) % for fiscal 2012. our effective tax rate varies from the 35 % u.s. federal statutory rate primarily due to state income taxes and the u.s. manufacturing deduction . in fiscal 2013 , we recorded an income tax benefit of 1.6 % as a result of non-taxable gain on the sale of marketable securities . absent this benefit and discrete items , the effective rate for fiscal 2013 would have been 35.4 % . during fiscal 2012 , we recorded a substantial tax benefit as a result of releasing a portion of the valuation allowance related to u.s. federal and state deferred tax assets and other discrete items . absent this adjustment , our effective tax rate for fiscal 2012 would have been 37.5 % . results of operations fiscal year 2012 compared to fiscal year 2011 la-z-boy incorporated replace_table_token_14_th sales fiscal 2012 includes results for a 52 week period , while fiscal 2011 includes results for a 53 week period . our consolidated sales increased by $ 44.5 million on one less week of shipments due to increased sales volume in our upholstery and retail segments . we believe these improvements were the result of an effective promotional plan which drove increased volume for our la-z-boy branded business , as well as the improved performance of our network of retail stores , which includes our company-owned and independent-licensed stores . the operating results of our retail segment continued to improve , with increased sales levels resulting from increased average ticket sales on customer traffic that was slightly down . the improvement in our upholstery and retail segments were partially offset by the performance of our casegoods segment , which experienced decreased sales in fiscal 2012 as compared to fiscal 2011. overall casegoods order levels decreased during fiscal 2012 , as our new product introductions during the year were not as well-received as our new product introductions in the prior year . operating margin our consolidated operating margin increased by 1.8 percentage points in fiscal 2012. our retail segment 's operating margin continued to improve in fiscal 2012 as compared to the prior year and our upholstery segment 's operating margin also increased compared to the prior year . these improvements were partially offset by our casegoods segment , whose operating margin declined in fiscal 2012 as compared to fiscal 2011 . 28 · our gross margin increased 1.0 percentage point in fiscal 2012 as compared to fiscal 2011. ongoing cost reductions , primarily in our upholstery segment related to our mexican operations , along with improvements in our retail segment 's gross margin , drove this improvement . partially offsetting these items were raw material price increases in our upholstery and casegoods segments . · selling , general , and administrative ( “ sg & a ” ) expenses increased in dollars in fiscal 2012 as compared to fiscal 2011 , but as a percent of sales , sg & a decreased by 0.5 percentage points . the improvement as a percentage of sales was driven by our increased sales volume and greater leverage of sg & a expenses . the increase in dollars was driven by an increase in employee incentive and compensation expense , primarily in the upholstery segment and in corporate and other , as well as increased advertising spend in the upholstery segment . · our fiscal 2011 operating margin was impacted by 0.4 percentage points for the write-down of long-lived assets . upholstery segment replace_table_token_15_th sales fiscal 2012 includes results for a 52 week period , while fiscal 2011 includes results for a 53 week period . story_separator_special_tag our upholstery segment 's sales increased $ 58.2 million in fiscal 2012 as compared to fiscal 2011 despite the extra week in fiscal 2011. increased volume drove the majority of the 6.4 % increase in sales , which we believe was the result of an effective promotional plan , combined with new product introductions and accelerated sales in our stationary upholstery business , which drove increased volume for our la-z-boy branded business , as well as the improved performance of our network of retail stores , which includes our company-owned and independent-licensed stores . operating margin our upholstery segment 's operating margin increased by 0.5 percentage points in fiscal 2012 mainly due to the following : · the segment 's gross margin increased 1.0 percentage point during fiscal 2012 due to a combination of factors , the most significant of which were : o ongoing cost reductions and efficiencies , including the favorable operating impact of our mexican operations , resulting in a 2.0 percentage point increase in gross margin . o raw material cost increases resulting in a 1.6 percentage point decrease in gross margin . · offsetting the increase in gross margin were higher warranty costs of $ 1.0 million in fiscal 2012 as compared to fiscal 2011 , due to a reduction in the warranty reserve recorded in fiscal 2011 related to the redesign of a mechanism that had historically experienced high claims activity . also offsetting the increase in gross margin was higher advertising spend and increased employee incentive and compensation expenses in fiscal 2012 . 29 casegoods segment replace_table_token_16_th sales fiscal 2012 includes results for a 52 week period , while fiscal 2011 includes results for a 53 week period . our casegoods segment 's sales decreased $ 12.9 million in fiscal 2012 as compared to fiscal 2011. the decline in sales volume was driven by our new product introductions in fiscal 2012 which were not as well-received as our new product introductions in fiscal 2011. operating margin our casegoods segment 's operating margin decreased 0.4 percentage points in fiscal 2012 mainly due to the de-leverage of fixed costs caused by the decline in sales volume . retail segment replace_table_token_17_th sales fiscal 2012 includes results for a 52 week period , while fiscal 2011 includes results for a 53 week period . our retail segment 's sales increased $ 38.5 million in fiscal 2012 even though fiscal 2011 included an extra week . of this increase , $ 29.2 million was primarily due to the acquisition of our southern california vie in the fourth quarter of fiscal 2011. the remaining increase of $ 9.3 million related mainly to sales increases at stores that were open in both fiscal 2012 and fiscal 2011. this increase was the result of increased average ticket sales on customer traffic that was slightly down . we believe the increase in average ticket sales was the result of an effective advertising campaign bringing in a more qualified consumer . operating margin our retail segment 's operating margin increased 4.9 percentage points in fiscal 2012 compared to fiscal 2011. while our retail segment improved its operating margin for the third year in a row , the segment continued to experience negative operating profit due to its high lease expense to sales volume ratio . · the segment 's gross margin during fiscal 2012 increased 2.5 percentage points compared to fiscal 2011 . · the improved operating margin for this segment was primarily a result of the increased sales volume which resulted in a greater leverage of sg & a expenses as a percentage of sales . · the stores acquired from our southern california vie were essentially break-even on an operating margin basis for fiscal 2012 , a substantial improvement over fiscal 2011 when these stores generated an operating loss of $ 3.5 million when they were a consolidated vie and not reported as part of the retail segment . 30 vies/corporate and other replace_table_token_18_th sales during the third quarter of fiscal 2012 , we deconsolidated our last vie due to the expiration of the operating agreement that previously caused us to be considered its primary beneficiary . our vies ' sales decreased $ 20.3 million ( net of intercompany eliminations ) in fiscal 2012 compared to fiscal 2011. this was mainly the result of acquiring our southern california vie in the fourth quarter of fiscal 2011. prior to deconsolidation , our remaining vie had operating income of $ 1.0 million in fiscal 2012 , compared to an operating loss of $ 4.9 million in fiscal 2011 for the two vies we had at that time . eliminations increased in fiscal 2012 as compared to fiscal 2011 due to higher sales from our upholstery and casegoods segments to our retail segment as a result of the increased volume in the retail segment . operating loss our corporate and other operating loss increased $ 1.8 million in fiscal 2012 compared to fiscal 2011 due to higher costs for incentive compensation expenses of $ 6.2 million as a result of improved operating performance , partially offset by lower consulting costs of $ 1.8 million , a gain recognized on the deconsolidation of our last vie of $ 1.1 million and a $ 1.0 million reduction of an environmental reserve recorded in the first quarter of fiscal 2012 related to a previously sold division . interest expense interest expense decreased $ 1.0 million in fiscal 2012 as compared to fiscal 2011 , mainly due to a 2.1 percentage point decrease in our weighted average interest rate as a result of the may 2011 expiration of our interest rate swap . our average debt level decreased by $ 5.7 million in fiscal 2012 compared to fiscal 2011. income from continued dumping and subsidy offset act we received $ 18.0 million during fiscal 2012 and $ 1.1 million during fiscal 2011 in cdsoa distributions related to the antidumping order on wooden bedroom furniture from china .
| as a result , we have three outstanding performance based stock awards , each with three-year performance measurement periods , for which we were recognizing expense during fiscal 2013. upholstery segment replace_table_token_10_th sales our upholstery segment 's sales increased $ 91.9 million in fiscal 2013 as compared to fiscal 2012. increased volume and selling price , in addition to favorable changes in product mix drove the majority of the 9.4 % increase in sales . we believe the increase in orders was a result of an effective marketing plan that led to greater customer awareness of our improved product value and styling , which drove increased volume for our la-z-boy branded business , as well as the improved performance of our network of retail stores , which includes our company-owned and independent-licensed stores . operating margin our upholstery segment 's operating margin increased by 0.7 percentage points in fiscal 2013 compared to fiscal 2012 . · the segment 's gross margin increased 0.9 percentage points during fiscal 2013 due to a combination of factors , the most significant of which were : o selling price changes as well as changes in product mix resulted in a 1.6 percentage point increase in gross margin . o raw material cost increases resulted in a 1.1 percentage point decrease in gross margin . · the segment 's sg & a as a percentage of sales increased 0.2 percentage points , mainly due to higher incentive compensation expense in fiscal 2013 , as well as increased costs related to our erp implementation . these increased costs were partially offset by favorable absorption of fixed costs resulting from our sales volume increase . casegoods segment replace_table_token_11_th 25 sales our casegoods segment 's sales decreased $ 5.6 million in fiscal 2013 as compared to fiscal 2012. our casegoods sales continued to be weak during fiscal 2013. this impact was partially offset by the increases in selling price . operating margin our casegoods segment 's operating margin declined 2.0 percentage points in fiscal
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as of december 31 , 2019 and december 31 , 2018 , 99.0 % and 95.5 % , respectively , of our debt investments , based on fair value , bore interest at floating rates , which may be subject to interest rate floors . variable-rate investments subject to a floor generally reset periodically to the applicable floor , only if the floor exceeds the index . trends in base interest rates , such as libor , may affect our net investment income over the long term . in addition , our results may vary from period to period depending on the interest rates of new investments made during the period compared to investments that were sold or repaid during the period ; these results reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business or macroeconomic trends . dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected . dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies . expenses our primary operating expenses may include the payment of fees to our advisor under the investment advisory agreement ( the `` investment advisory agreement '' ) , our allocable portion of overhead expenses under the administration agreement ( the `` administration agreement '' ) and other operating costs , including those described below . the base management fee and incentive fee compensate our advisor for its work in identifying , evaluating , negotiating , closing and monitoring our investments . we bear all other out-of-pocket costs and expenses of our operations and transactions , including : our operational and organizational cost ; the costs of any public offerings of our common stock and other securities , including registration and listing fees ; costs of calculating our net asset value ( including the cost and expenses of any third-party valuation services ) ; fees and expenses payable to third parties relating to evaluating , making and disposing of investments , including our advisor 's or its affiliates ' travel expenses , research costs and out-of-pocket fees and expenses associated with performing due diligence and reviews of prospective investments , monitoring our investments and , if necessary , enforcing our rights ; 94 interest payable on debt and other borrowing costs , if any , incurred to finance our investments ; costs of effecting sales and repurchases of our common stock and other securities ; the base management fee and any incentive fee ; distributions on our common stock ; transfer agent and custody fees and expenses ; the allocated costs incurred by the administrator in providing managerial assistance to those portfolio companies that request it ; other expenses incurred by bcsf advisors or us in connection with administering our business , including payments made to third-party providers of goods or services ; brokerage fees and commissions ; federal and state registration fees ; u.s. federal , state and local taxes ; independent director fees and expenses ; costs associated with our reporting and compliance obligations under the 1940 act and applicable u.s. federal and state securities laws ; costs of any reports , proxy statements or other notices to our stockholders , including printing costs ; costs of holding stockholder meetings ; our fidelity bond ; directors ' and officers ' errors and omissions liability insurance , and any other insurance premiums ; litigation , indemnification and other non-recurring or extraordinary expenses ; direct costs and expenses of administration and operation , including printing , mailing , long distance telephone , staff , audit , compliance , tax and legal costs ; fees and expenses associated with marketing efforts ; dues , fees and charges of any trade association of which we are a member ; and all other expenses reasonably incurred by us or the administrator in connection with administering our business . 95 to the extent that expenses to be borne by us are paid by bcsf advisors , we will generally reimburse bcsf advisors for such expenses . to the extent the administrator outsources any of its functions , the company will pay the fees associated with such functions on a direct basis without profit to the administrator . we will also reimburse the administrator for its costs and expenses and our allocable portion of overhead incurred by it in performing its obligations under the administration agreement , including certain rent and compensation paid to or compensatory distributions received by our officers ( including our chief compliance officer and chief financial officer ) and any of their respective staff who provide services to us , operations staff who provide services to us , internal audit staff , if any , to the extent internal audit performs a role in our sarbanes-oxley internal control assessment and fees paid to third-party providers for goods or services . our allocable portion of overhead will be determined by the administrator , which expects to use various methodologies such as allocation based on the percentage of time certain individuals devote , on an estimated basis , to our business and affairs , and will be subject to oversight by our board of directors ( our `` board '' ) . the sub-administrator is paid its compensation for performing its sub-administrative services under the sub-administration agreement . we incurred expenses related to the sub-administrator of $ 0.6 million , $ 0.8 million and $ 0.5 million for the years ended december 31 , 2019 , 2018 and 2017 respectively , which is included in other general and administrative expenses on the consolidated statements of operations . bcsf advisors will not be reimbursed to the extent that such reimbursements would cause any distributions to our stockholders to constitute a return of capital . all of the foregoing expenses are ultimately borne by our stockholders . leverage we may borrow money from time to time . story_separator_special_tag however , our ability to incur indebtedness ( including by issuing preferred stock ) , is limited by applicable regulations such that our asset coverage , as defined in the 1940 act , must equal at least 150 % . in determining whether to borrow money , we will analyze the maturity , covenant package and rate structure of the proposed borrowings as well as the risks of such borrowings compared to our investment outlook . portfolio and investment activity during the year ended december 31 , 2019 , we invested $ 1,295.2 million , including pik , in 89 portfolio companies , and had $ 1,088.0 million in aggregate amount of principal repayments and sales , resulting in a net increase in investments of $ 207.2 million for the year . during the year ended december 31 , 2018 , we invested $ 1,168.7 million in 110 portfolio companies , including abcs as a single portfolio company , and had $ 235.2 million in aggregate amount of principal repayments and sales , resulting in a net increase in investments of $ 933.5 million for the year . during the year ended december 31 , 2017 , we invested $ 789.6 million in 73 portfolio companies , including abcs as a single portfolio company , and had $ 75.6 million in aggregate amount of principal repayments and sales , resulting in a net increase in net investments of $ 714.0 million for the year . 96 the following table shows the composition of the investment portfolio and associated yield data as of december 31 , 2019 ( dollars in thousands ) : replace_table_token_8_th ( 1 ) weighted average yields are computed as ( a ) the annual stated interest rate or yield earned on the relevant accruing debt and other income producing securities , divided by ( b ) the total relevant investments at amortized cost or at fair value , as applicable . the weighted average yield does not represent the total return to our stockholders . the following table shows the composition of the investment portfolio and associated yield data as of december 31 , 2018 ( dollars in thousands ) : replace_table_token_9_th ( 1 ) weighted average yields are computed as ( a ) the annual stated interest rate or yield earned on the relevant accruing debt and other income producing securities , divided by ( b ) the total relevant investments at amortized cost or at fair value , as applicable . the weighted average yield does not represent the total return to our stockholders . ( 2 ) represents equity investment in abcs . 97 the following table presents certain selected information regarding our investment portfolio as of december 31 , 2019 : replace_table_token_10_th ( 1 ) measured on a fair value basis . the following table presents certain selected information regarding our investment portfolio as of december 31 , 2018 : replace_table_token_11_th ( 1 ) measured on a fair value basis . ( 2 ) includes abcs as a single portfolio company . for details of portfolio companies held within abcs , refer to the selected financial data of abcs . the following table shows the amortized cost and fair value of our performing and non-accrual investments as of december 31 , 2019 ( dollars in thousands ) : replace_table_token_12_th the following table shows the amortized cost and fair value of our performing and non-accrual investments as of december 31 , 2018 ( dollars in thousands ) : replace_table_token_13_th loans or debt securities are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected . accrued interest generally is reversed when a loan or debt security is placed on non-accrual status . interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon management 's judgment . non-accrual loans and debt securities are restored to accrual status when past due principal and interest is paid and , in 98 management 's judgment , are likely to remain current . we may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection . the following table shows the amortized cost and fair value of the investment portfolio , cash and cash equivalents , foreign cash and restricted cash as of december 31 , 2019 ( dollars in thousands ) : replace_table_token_14_th the following table shows the amortized cost and fair value of the investment portfolio , cash and cash equivalents and foreign cash as of december 31 , 2018 ( dollars in thousands ) : replace_table_token_15_th ( 1 ) represents equity investment in abcs . 99 the following table shows the composition of the investment portfolio by industry , at amortized cost and fair value as of december 31 , 2019 ( with corresponding percentage of total portfolio investments ) ( dollars in thousands ) : replace_table_token_16_th ( 1 ) finance , insurance and real estate ( `` fire '' ) . 100 the following table shows the composition of the investment portfolio by industry , at amortized cost and fair value as of december 31 , 2018 ( with corresponding percentage of total portfolio investments ) ( dollars in thousands ) : replace_table_token_17_th ( 1 ) represents equity investment in abcs . ( 2 ) finance , insurance and real estate ( `` fire '' ) . 101 our advisor monitors our portfolio companies on an ongoing basis . it monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company .
| dividend income increased to $ 25.4 million for the year ended december 31 , 2018 , primarily due to the growth in our joint venture , abcs . as of december 31 , 2018 , the weighted average yield of our investment portfolio increased to 8.8 % from 8.3 % as of december 31 , 2017 , at amortized cost . 108 operating expenses the composition of our operating expenses for the years ended december 31 , 2019 , 2018 and 2017 were as follows ( dollars in thousands ) : replace_table_token_26_th interest and debt financing expenses interest and debt financing expenses on our borrowings totaled approximately $ 66.3 million and $ 24.0 million for the years ended december 31 , 2019 and 2018 , respectively . interest and debt financing expense for the year ended december 31 , 2019 as compared to december 31 , 2018 , increased primarily due to higher principal balances outstanding on our revolving credit facilities throughout 2019 and the issuance of our 2019-1 debt in august 2019. on april 30 , 2019 , the company entered into a new loan and security agreement with jpmorgan chase bank , n.a. , and wells fargo bank , n.a. , the jpm credit facility . interest and debt financing expenses on our borrowings totaled approximately $ 24.0 million and $ 3.6 million for the years ended december 31 , 2018 and 2017 , respectively . interest and debt financing expense for the year ended december 31 , 2018 as compared to december 31 , 2017 , increased primarily due to higher principal balances outstanding of our revolving credit facilities , the issuance of our 2018-1 notes , and an increase in the average libor rate . our smbc revolving credit facility was terminated on november 21 , 2018. the weighted average interest rate ( excluding deferred upfront financing costs and unused fees ) on our debt outstanding was 4.7 % and 4.3 % as of december 31 , 2019 and 2018 , respectively . management fees management fee ( net of waivers ) increased to $ 24.5 million for the year ended december 31 , 2019 from $ 8.8 million for the
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the components of cost of sales are variable in nature , change with sales volume and are subject to increases or decreases based on fluctuations in commodity costs . labor costs . labor costs include restaurant management salaries , front- and back-of-house hourly wages and restaurant-level manager bonus expense , employee benefits and payroll taxes . operating costs . operating costs consist primarily of restaurant-related operating expenses , such as supplies , utilities , repairs and maintenance , travel cost , insurance , credit card fees , recruiting , delivery service and security . these costs generally increase with sales volume but decline as a percentage of revenue . occupancy costs . occupancy costs include rent charges , both fixed and variable , as well as common area maintenance costs , property insurance and taxes , the amortization of tenant allowances and the adjustment to straight-line rent . these costs are generally fixed but a portion may vary with an increase in sales when the lease contains percentage rent . 36 general and administrative expenses . general and administrative expenses include costs associated with corporate and administrative functions that support our operations , including senior and supervisory management and staff compensation ( including stock-based compensation ) and benefits , travel , financial advisory fees paid to goode partners prior to termination of the advisory agreement with goode partners , legal and professional fees , information systems , corporate office rent and other related corporate costs . as a public company , we expect our stock-based compensation expense to increase . in addition , we estimate that we will incur approximately $ 1.3 million to $ 1.6 million of incremental general and administrative expenses annually as a result of being a public company . marketing . marketing costs include costs associated with our local restaurant marketing programs , community service and sponsorship activities , our menus and other promotional activities . restaurant pre-opening costs . restaurant pre-opening costs consist of costs incurred before opening a restaurant , including manager salaries , relocation costs , supplies , recruiting expenses , initial new market public relations costs , pre-opening activities , employee payroll and related training costs for new employees . restaurant pre-opening costs also include rent recorded during the period between date of possession and the restaurant opening date . depreciation and amortization . depreciation and amortization principally include depreciation on fixed assets , including equipment and leasehold improvements , and amortization of certain intangible assets for restaurants . interest expense . interest expense consists primarily of interest on our outstanding indebtedness and the amortization of our debt issuance costs reduced by capitalized interest . story_separator_special_tag old credit facility we completed in may of 2011 and in november of 2012. on november 30 , 2012 , we entered into a $ 25.0 million secured revolving credit facility ( the new revolving credit facility ) and borrowed $ 5.0 million under the facility to repay approximately $ 5.0 million of outstanding debt remaining under our old credit facility and to pay closing fees for the new revolving credit facility . under our new revolving credit facility , we elected a variable rate of interest based on libor . as of december 30 , 2012 , we had an interest rate of 2.1 % on our new revolving credit facility as compared to an interest rate of 7.0 % under our old credit facility . income tax expense . our effective tax rate decreased to 29.1 % for the year ended december 30 , 2012 from 32.1 % for the year ended december 25 , 2011. the decrease in the effective tax rate for the year ended december 30 , 2012 is primarily attributable to lower state and local income taxes . the effective tax rates differ from the statutory rate of 34.0 % primarily due to payroll tax credits attributable to payroll taxes paid on employee tips and various state and local income taxes . net income . net income increased $ 2.0 million to $ 5.5 million for the year ended december 30 , 2012 compared to $ 3.5 million for the year ended december 25 , 2011. we had net income available to common stockholders of approximately $ 3.3 million for the year ended december 30 , 2012 as compared to net income available to common stockholders of approximately $ 41,000 in the comparable period in 2011. this change in net income available to common stockholders was primarily related to the conversion of our preferred stock to common stock immediately prior to the ipo . 39 year ended december 25 , 2011 compared to year ended december 26 , 2010 revenue . revenue increased $ 35.7 million , or 37.6 % , to $ 130.6 million in 2011 from $ 94.9 million in 2010. this increase was driven by $ 33.3 million in additional revenue related to an additional 387 operating weeks provided by the eight new restaurants opened in 2011 and the full year of operations of the six restaurants opened in 2010. additionally , during this period , comparable restaurant sales increased 3.1 % over the same period the prior year . of this 3.1 % increase , 1.1 % of the increase resulted from an increase in average weekly customers and 2.0 % of the increase resulted from an increase in our average check . the mix of our revenue attributed to food , bar and merchandise sales remained consistent at approximately 79.3 % , 19.7 % and 1.1 % of total revenue for 2011 , respectively . cost of sales . story_separator_special_tag cost of sales increased $ 10.5 million , or 41.0 % , to $ 36.1 million in fiscal 2011 , from $ 25.6 million in fiscal 2010. as a percentage of revenue , cost of sales increased to 27.7 % in 2011 compared to 27.0 % in 2010. the increase in cost of sales as a percentage of revenue primarily resulted from our increase in food costs during 2011 as a result of significant price increases in certain of our key products such as produce , dairy and cheese . labor costs . labor costs increased $ 11.1 million , or 36.5 % , to $ 41.5 million in 2011 , from $ 30.4 million in 2010. this increase was a result of an additional $ 11.4 million of labor costs incurred with respect to eight new restaurants opened during 2011 and the full year of operations of the six restaurants opened in 2010 , as well as increases in support staff at our existing restaurants . as a percentage of revenue , labor costs decreased to 31.8 % in 2011 from 32.0 % in 2010 , primarily as a result of improved labor efficiency in our established restaurants , partially offset by increased training and staffing levels at our new restaurants . operating costs . operating costs increased $ 5.0 million , or 35.0 % , to $ 19.3 million in 2011 , from $ 14.3 million in 2010. this increase was primarily due to increases in costs with respect to eight new restaurants opened during 2011 and the full year of operations of the six restaurants opened in 2010. as a percentage of revenue , operating costs decreased to 14.8 % in 2011 compared to 15.1 % in 2010 as a result of operating leverage . occupancy costs . occupancy costs increased $ 1.9 million , or 33.3 % , to $ 7.6 million in 2011 , from $ 5.7 million in 2010. this increase resulted from eight new restaurants opened in 2011 and the full year of operations of the six new restaurants opened in 2010. as a percentage of revenue , occupancy costs decreased to 5.8 % in 2011 as compared to 6.0 % in 2010 as a result of operating leverage . general and administrative expenses . general and administrative expenses increased $ 2.2 million , or 41.5 % , to $ 7.5 million in 2011 from $ 5.3 million for 2010. this increase was driven primarily by a one-time cash bonus totaling $ 1.0 million paid to members of management in may 2011 in conjunction with entering into our old credit facility and costs associated with additional employees as we continue to strengthen our infrastructure for future growth . as a percentage of revenue , general and administrative expenses increased to 5.7 % in 2011 from 5.6 % in 2010. settlement with former director . settlement with a former director was $ 0.2 million in 2011. we paid this one-time settlement fee in june 2011. see certain relationships and related party transactionssettlement agreement. marketing costs . as a percentage of revenue , marketing costs increased from 0.7 % to 0.8 % . our marketing costs in a particular period are generally targeted not to exceed the period 's proportionate amount of our marketing budget of 0.8 % of sales . restaurant pre-opening costs . restaurant pre-opening costs increased by $ 1.4 million , or 70.0 % , to $ 3.4 million in 2011 from $ 2.0 million in 2010. the increase resulted primarily from opening eight new restaurants in 2011 , as compared to six new restaurants in 2010. the increase in 2011 was also due in part to the increase in restaurant pre-opening costs associated with opening restaurants outside of texas , which resulted in increases in training and travel expenses and the incurrence of expenses for management relocation and public relations services . 40 depreciation and amortization . depreciation and amortization increased $ 1.7 million , or 63.0 % , from $ 2.7 million to $ 4.4 million , due to an increase in equipment and leasehold improvements with respect to eight new restaurants opened during 2011 and the full year of operations of the six restaurants opened in 2010. as a percentage of revenue , depreciation and amortization expenses increased to 3.4 % in 2011 , as compared to 2.9 % in 2010. interest expense . interest expense increased $ 0.7 million , or 19.4 % , to $ 4.3 million in 2011 from $ 3.6 million in 2010. the increase was due to greater average outstanding borrowings offset by a reduction in the average effective interest rate under our credit facilities during 2011 , as compared to 2010. income tax expense . income tax expense increased $ 0.2 million , or 14.2 % , to $ 1.6 million in 2011 from $ 1.4 million in 2010. for the year ended december 25 , 2011 , the effective tax rate was 32.1 % as compared to 30.3 % for the year ended december 26 , 2010. the effective tax rate differs from the statutory rate of 34.0 % primarily due to tax credits attributable to payroll taxes on employee tips . net income . as a result of the foregoing , net income increased $ 0.2 million , to $ 3.5 million for fiscal year 2011 from $ 3.3 million for fiscal year 2010. net income available to common stockholders increased $ 2.4 million to $ 41,000 for fiscal year 2011 from $ ( 2.3 ) million for fiscal year 2010. this increase in net income available to common stockholders resulted from the decrease in undistributed earnings allocated to participating interest , which included the original issuance price of the series x preferred stock and the annualized return . liquidity and capital resources our principal sources of cash are net cash provided by operating activities , which includes tenant improvement allowances from our landlords , and borrowings under our credit facilities .
| cost of sales as a percentage of revenue decreased to 26.9 % during the year ended december 30 , 2012 , from 27.7 % during the same period in 2011. this percentage decrease resulted primarily from price decreases in produce costs and , to a lesser degree , decreases in dairy and bar costs , partially offset by increases in grocery , beef and chicken costs . labor costs . labor costs as a percentage of revenue , increased to 32.0 % during the year ended december 30 , 2012 , from 31.8 % during the same period in 2011 , primarily as a result of increased training and staffing levels at our new restaurants , partially offset by improved labor efficiencies in our comparable restaurants . operating costs . operating costs as a percentage of revenue , decreased to 14.2 % during the year ended december 30 , 2012 , from 14.8 % during the same period in 2011 , primarily attributable to lower liquor taxes as a result of opening more locations outside of texas , which charges a higher liquor tax than other jurisdictions and lower utility costs and credit card fees . the reduction was partially offset by an increase in workers compensation insurance premiums as of result of opening more new locations outside the state of texas . occupancy costs . occupancy costs as a percentage of revenue , increased to 6.0 % during the year ended december 30 , 2012 , from 5.8 % during the same period in 2011 primarily attributable to higher common area expenses as well as higher rent expense as a percentage of revenue for certain noncomparable restaurants . general and administrative expenses . general and administrative expenses increased $ 1.9 million , or 25.1 % , to $ 9.4 million for the year ended december 30 , 2012 , as compared to $ 7.5 million for the comparable period in 2011. this increase was primarily driven by a $ 1.8 million increase in salary and bonus expense associated with additional employees as we continue to strengthen our infrastructure for future growth and an increase in performance based bonuses as a result of our stronger overall profitability for the year . additionally , this increase was a result of incremental costs associated with operating as
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consistent with our original study design ) had much better outcomes compared to placebo patients as measured by recovery in each of the key secondary endpoints : mrs £ 2 , nihss d ³ 75 % and bi ³ 95. specifically , 41.9 % of the multistem-treated patients achieved good or excellent recovery in all three clinical scales , compared to only 24.6 % of all patients receiving placebo , a difference of 17.3 % ( p = 0.08 ) . additionally , multistem subjects had a significantly lower rate of secondary infections than placebo subjects ( 16.1 % v. 47.5 % , p < 0.01 ) and of average initial hospital days ( 6.8 v. 9.8 , p=0.02 ) . at one year , such early-treated multistem patients had a significantly higher rate of excellent outcome than all placebo subjects ( 29.0 % v. 8.2 % , p < 0.01 ) 37 furthermore , we evaluated the recovery at 90 days of patients who received treatment with multistem within 24 to 36 hours post stroke versus all patients receiving placebo , excluding in both groups patients who received both tpa and mechanical reperfusion ( and who were excluded in the original trial design ) . in this post-hoc analysis , patients in the multistem group were more than two times as likely as the placebo group to achieve global recovery based on the global test statistic the primary endpoint ( p=0.06 ) , demonstrated substantially better performance in the three component secondary endpoints , and also exhibited accelerated improvement in comparison to patients receiving placebo . these multistem-treated patients were also much more likely to achieve recovery in each of the key secondary endpoints , with 44.4 % of these patients achieving such recovery on all three scales , compared to just 17.3 % for the placebo group , a difference of 27.1 % ( p < 0.01 ) . additionally , these multistem patients achieved significantly higher rates of excellent outcome ( p=0.03 ) , and patients in the multistem group showed improvement on the cochran-mantel-haenszel shift analysis ( p=0.03 ) , which compares performance for the patient groups across the spectrum of mrs outcomes . hospitalization duration was significantly reduced for the multistem-treated patients ( 35 % lower than the average for placebo patients ) and the average intensive care unit stay was also meaningfully reduced . one-year follow-up data demonstrates that multistem-treated subjects , on average , continued to improve relative to placebo with significant differences in excellent outcome , the shift analysis and barthel index . analysis of biomarker data obtained from samples of study subjects indicated that multistem treatment reduces post-stroke inflammation compared to placebo , and it appears that this effect is more pronounced for subjects receiving multistem earlier than 36 hours post-stroke . this effect is consistent with our hypothesis regarding mechanisms of action and related preclinical data , and with the clinical data suggesting faster recovery for multistem-treated patients . if the multistem therapy is proven effective in a registrational study , this would represent a substantial increase in the time window for treatment for ischemic stroke victims , which currently is limited to several hours . further analyses are being undertaken , and we are preparing for the next stage of clinical development of this program . acute myocardial infarction : we recently initiated a phase 2 clinical study in the united states for the administration of multistem cell therapy to patients that have suffered an ami . we previously evaluated the administration of multistem to patients that suffered an ami in a phase 1 clinical study . the results of this study demonstrated a favorable safety profile and encouraging signs of improvement in heart function among patients that exhibited severely compromised heart function prior to treatment . this data was published in a leading peer reviewed scientific journal , and one-year follow-up data suggested that the benefit observed was sustained over time . we were awarded a grant for up to $ 2.8 million in funding to support the advancement of this clinical program , and we are currently enrolling patients in our phase 2 clinical study , evaluating the safety and efficacy of multistem treatment in subjects who have a non-st elevated myocardial infarction . the study is double-blind , sham-controlled and is being conducted at leading cardiovascular centers in the united states . acute respiratory distress syndrome : we have also initiated a clinical study for the treatment of ards in the uk and in the united states . in 2015 , we were awarded a grant from innovate uk for up to approximately £2.0 million in support of a phase 2a clinical study evaluating the administration of multistem cell therapy to ards patients . ards is a serious immunological and inflammatory condition characterized by widespread inflammation in the lungs . ards can be triggered by pneumonia , sepsis , or other trauma and represents a major cause of morbidity and mortality in the critical care setting . the medical need for a safe and effective treatment of ards is significant due to its high mortality rate , and it annually affects approximately 400,000 to 500,000 patients in europe , the united states and japan , together . the phase 2a clinical trial is being conducted with the assistance of catapult and is currently enrolling patients . hematopoietic stem cell transplant / gvhd : we completed a phase 1 clinical study of the administration of multistem cell therapy to patients suffering from leukemia or certain other blood-borne cancers in which patients undergo radiation therapy and then receive a hematopoietic stem cell transplant . such patients are at significant risk for serious complications , including gvhd , an imbalance of immune system function caused by transplanted immune cells that attack various tissues and organs in the patient . story_separator_special_tag data from the study demonstrated the safety of multistem cell therapy in this indication and suggested that the treatment may have a beneficial effect in reducing the incidence and severity of gvhd , as well as providing other benefits . the multistem product has been designated as an orphan drug for the gvhd prophylaxis indication by both the fda and the ema , which may provide market exclusivity and other substantial incentives and benefits . we have interacted with both the fda and the ema to finalize the design of a single registration study . in february 2015 , the multistem product was granted fast track designation by the fda for prophylaxis therapy against gvhd following hematopoietic cell transplantation . subsequently , our registration study design received a positive opinion from the ema through the protocol assessment/scientific advice procedure . furthermore , in december 2015 , the proposed registration study received special protocol assessment designation from the fda , meaning that the trial is adequately designed to support a bla submission for registration if it is successful . currently , we are staging this program for future registration-directed development dependent on the achievement of certain business development and financial objectives . 38 inflammatory bowel disease : multistem therapy has been evaluated in a phase 2 clinical study involving administration of multistem to patients suffering from uc , the most common form of ibd , which was conducted by a collaborative partner , pfizer . overall , the study results released in 2014 were disappointing , in that a single administration of multistem to a patient population with longstanding , chronic advanced disease failed to show a meaningful clinical effect at the eight-week evaluation period . despite not showing a significant improvement compared to placebo in the primary efficacy endpoints , the multistem therapy demonstrated favorable safety and tolerability in the eight weeks following treatment . furthermore , at four weeks , patients getting multistem treatment had a significantly higher proportion of rectal bleeding responders than placebo patients , suggesting the possibility of a transient effect from the single multistem dose . subsequent analyses suggest that multistem treatment has an impact on relevant biomarkers shortly after treatment compared to placebo , suggesting the possibility of improved benefit from a different treatment regime . taking these results into account and following an internal portfolio review of its ibd programs , pfizer determined that it would not invest further in this program as required by the collaboration and notified us of its decision to terminate the license agreement effective in the third quarter of 2015. in connection with the termination , all rights to the program reverted to us , and we are free to use preclinical and clinical data for development in this area and in other areas , including immunology and inflammatory conditions . we are also conducting or supporting clinical activity in other areas , such as solid organ transplant , which is an investigator-initiated study being conducted at a leading transplant center in europe . we are also engaged in the preparation stages for translational and clinical studies in other targeted areas . in addition to our current and anticipated clinical development activities , we are engaged in preclinical development and evaluation of multistem therapy in other neurological , cardiovascular and inflammatory and immune disease areas , as well as certain other indications . we conduct such work both through our own internal research efforts and through a broad global network of collaborators . we are routinely in discussions with third parties about collaborating in the development of multistem therapy for various programs and may enter into one or more business partnerships to advance these programs over time . in january 2016 , we entered into a license agreement with healios to develop and commercialize multistem cell therapy for ischemic stroke in japan , and to provide healios with access to our proprietary mapc , for use in healios ' proprietary organ bud program , initially for transplantation to treat liver disease or dysfunction . under the agreement , healios also obtained a right to expand the scope of the collaboration to include the exclusive rights to develop and commercialize multistem for the treatment of two additional indications in japan , which include ards and another indication in the orthopedic area , as well as all indications for the organ bud program . healios will develop and commercialize the multistem product in japan , and we will provide the manufactured product to healios . we had entered into a similar arrangement with chugai early in 2015 for the development and commercialization of multistem therapy for stroke in japan , but we terminated the license agreement in october 2015 when the parties were unable to reach an agreement on a potential modification of the financial terms of the agreement and on the development strategy in japan as proposed by chugai following the initial results from our phase 2 clinical study . we also have a collaboration with rti for the development of products for certain orthopedic applications using our stem cell technologies in the bone graft substitutes market , we have been earning royalty revenue from product sales since 2014 and may receive other payments upon the successful achievement of certain commercial milestones . financial in connection with our january 2016 license agreement with healios , we received an up-front cash payment of $ 15 million from healios , and the collaboration can be expanded at healios ' election . if healios expands the collaboration , we will be entitled to receive an additional cash payment of $ 10 million . healios may exercise its option to expand the collaboration by the date that is the later of ( i ) december 31 , 2016 and ( ii ) the receipt of the initial results from athersys ' ongoing ards clinical trial .
| our grant revenues fluctuate from period-to-period based on new grant awards , completed grants and the timing of grant-related activities . research and development expenses . research and development expenses decreased to $ 21.3 million for the year ended december 31 , 2015 from $ 23.4 million for the year ended december 31 , 2014. the decrease of $ 2.1 million related primarily to a decrease in clinical and preclinical development costs of $ 1.5 million , a decrease in sponsored research costs of $ 0.5 million , a decrease in legal and professional fees of $ 0.2 million , and a decrease in travel costs of $ 0.2 million , with such decreases partially offset by an increase of $ 0.2 million in license fees and a $ 0.1 million increase in personnel costs for the year ended december 31 , 2015 from 2014. our clinical and preclinical development costs primarily reflect costs associated with our multistem clinical trials and include contract research organization costs , clinical manufacturing costs , manufacturing process development costs , and clinical and regulatory consulting costs . the decrease in our preclinical and clinical development costs is primarily due to decreased manufacturing costs , clinical study costs and regulatory costs . sponsored research costs decreased primarily due to the timing of costs incurred by certain academic research institutions under our grant-funded programs . the decrease in legal fees was a result of decreased patent expenses associated with patent prosecution , national filings , and interparty proceedings and related filings . based on our planned clinical development and manufacturing process development activities , we expect our 2016 annual research and development expenses to be similar to 2015 , and such costs will vary over time based on clinical manufacturing campaigns , the timing and stage of clinical trials underway , and manufacturing process development activities . other than external expenses for our clinical and preclinical programs , we do not track our research expenses by project ;
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typical c & i contracts cover electrical contracting services for airports , hospitals , data centers , hotels , casinos , arenas , convention centers , manufacturing plants , processing facilities , water treatment facilities and transportation control and management systems . for the year ended december 31 , 2011 , our c & i revenues were approximately $ 158.4 million or 20.3 % of our consolidated revenue . for the year ended december 31 , 2010 , our c & i revenues were approximately $ 149.6 million or 25.1 % of our consolidated revenue . for the year ended december 31 , 2009 , our c & i revenues were approximately $ 162.4 million or 25.7 % of our consolidated revenue . in our c & i segment , we generally provide our electric construction and maintenance services as a subcontractor to general contractors in the c & i industry as well as to facility owners . we have a diverse customer base with many long-standing relationships . measured by revenues in our c & i segment , we provided 55.2 % , 32.6 % and 35.8 % of our services under fixed-price contracts for the years ended december 31 , 2011 , 2010 and 2009 , respectively . business drivers and measures ; seasonality ; fluctuations of results our industry can be highly cyclical . as a result , our volume of business may be adversely affected by declines in new projects in various geographic regions in the united states . the financial condition of our customers and their access to capital , variations in the margins of projects performed during any particular period , and regional economic conditions may also materially affect future results . accordingly , our operating results in any particular period or year may not be indicative of the results 33 that can be expected for any other period or for any other year . you should read `` outlook '' and `` understanding gross margins `` below for additional discussion of trends and challenges that may affect our financial condition and results of operations . although our revenues are primarily driven by spending patterns in our customers ' industries , our revenues , particularly those derived from our t & d segment , and results of operations can be subject to seasonal variations . these variations are influenced by weather , hours of daylight , customer spending patterns , available system outages from utilities , bidding seasons and holidays . during the winter months , demand for our work is generally lower due to inclement weather . during the summer months , the demand for our work may be affected by fewer available system outages during which we can perform electrical line service work , which is due to peak electrical demands caused by warmer weather conditions . during the spring and fall months , the demand for our work generally increases due to improved weather conditions ; however , extended periods of rain and other severe weather can affect the deployment of our crews and efficiency of operations . we also provide storm restoration services to our t & d customers . these services tend to have a higher profit margin . however , storm restoration service work that is performed under an msa typically has the same margin as other work under the agreement , which may not be higher than our typical non-storm work . in addition , deploying employees on storm restoration work may , at times , delay work on other distribution work . storm restoration service work is highly unpredictable and can cause our results of operations to vary from period to period . outlook we were awarded several large transmission projects in late 2010 and during 2011 and began to recognize revenue from some of those large projects during 2011. some of the other large transmission projects awarded over this period are in the early stages of construction and we expect that a high percentage of the revenue on those projects will be recognized in 2012 and 2013. construction typically lags the award date and can be delayed by regulatory approvals , permitting , environmental issues , right-of-way acquisition , financing , engineering design , material procurement and other factors . we had a substantial increase in large transmission projects awarded since late 2010. we believe that we have additional capacity and continue to bid new projects in most areas of the country . we expect transmission bidding activity , which was exceptionally strong for large transmission projects in the second half of 2010 and early in 2011 , to remain strong in 2012. we believe that specialized transmission equipment is in short supply and labor shortages are developing in certain areas of the county . in a few specific geographical areas of the country , there are shortages of qualified labor due to the unprecedented number of large transmission projects being built during the same time . in those geographic regions , as contractors compete for skilled local labor and offer incentives to attract out-of-the-area resources , labor costs may increase significantly , which may put pressure on margins if the higher costs were not anticipated when the project was bid and the increases can not be passed through to the customer . our management team seeks to anticipate trends in labor availability and cost on a region by region basis ; however , there can be no assurances that these expectations with respect to labor availability and cost will be realized , in part because many months can pass between when the project is bid and when construction commences . as a result of the factors described above , we expect to pursue projects that fit strategically to ensure we can effectively utilize our national resources and continue to efficiently execute our work . we recognize revenue on a percentage-of-completion method of accounting , which is commonly used in the construction industry . the percentage-of-completion accounting method we use results in recognizing contract revenues and earnings ratably over the contract term in proportion to our incurrence of contract costs . story_separator_special_tag the earnings or losses recognized on individual contracts are based on estimates of contract revenues , costs and profitability . contract losses are recognized in full when 34 determined , and contract profit estimates are adjusted based on ongoing reviews of contract profitability . changes in job performance , labor costs , equipment costs , job conditions , weather , estimated profitability and final contract settlements may result in revisions to costs and income and their effects are recognized in the period in which the revisions are determined . we record adjustments to estimated costs of contracts when we believe the change in estimate is probable and the amounts can be reasonably estimated . these adjustments could result in either increases or decreases in profit margins . the margins we record in the current period may not be indicative of margins in future periods . we expect our distribution business and our c & i segment to continue to operate in challenging business environments as some of our customers are being affected by economic conditions in their areas . while our revenues in the distribution business and our c & i segment increased in 2011 , our margins were pressured due to the competitive environment , a trend we expect to continue in 2012. we believe that we have a number of competitive advantages in both segments within which we operate , including our skilled workforce , extensive centralized fleet , proven safety performance and reputation for timely completion of quality work that allow us to compete favorably in our markets . in addition , we believe that we are better capitalized than some of our competitors . federal government stimulus spending had little effect on our business in 2011 , 2010 or 2009 , with the exception of one large project which was primarily funded by the arra . we can not be sure if , or when , federal stimulus spending might further impact our business and financial results . our gross margin , which is gross profit expressed as a percentage of revenues , can vary significantly between periods . many factors , some of which are beyond our control , impact our gross margins . these factors include : the mix of revenue derived from the industries we serve , the mix of business conducted in different parts of the country , the mix in service and maintenance work compared to new construction work , the amount of work that we subcontract , changes in labor and equipment costs , seasonal patterns primarily related to weather conditions , changes in fleet utilization , pricing pressures due to competition , efficient work performance , fluctuations in commodity prices of materials , delays in the timing of projects and other factors . we expect our 2012 gross margins in the c & i segment and in our distribution business to be pressured due to increased competition until the economic conditions in those markets improve . in addition , our awarded large transmission projects are in various stages of construction . for large transmission projects in the early stages of construction , revenue and gross profit recognition typically starts slow and accelerates over time as project construction progresses . we continue to invest in developing key management and craft personnel and in procuring the specialty equipment and tooling needed to win and execute both large-scale and smaller projects that will be necessary to improve the reliability of our nation 's electric power grid and to integrate new generation . in 2011 and 2010 , respectively , we invested approximately $ 42.3 million and $ 21.9 million of capital in equipment , tooling and other assets . most of our capital expenditures were spent to prepare for the anticipated opportunities in our transmission business . we plan to invest in additional property and equipment , substantially through cash flows from operations and cash on hand , with a focus on transmission-related equipment . our investment strategy is based on our belief that transmission spending will continue to remain strong over the next several years as electric utilities , cooperatives and municipalities make up for the lack of infrastructure spending in the past , combined with the overall need to integrate new generation into the electric power grid . we ended the year in a strong financial position , which included cash and cash equivalents of approximately $ 34.0 million and availability of $ 147.8 million under our new long-term credit facility . 35 understanding gross margins our gross margin is gross profit expressed as a percentage of revenues . contract costs consist primarily of salaries , wages and benefits to employees , depreciation , fuel and other equipment expenses , equipment rentals , subcontracted services , insurance , facilities expenses , materials and parts and supplies . various factors , some of which are beyond our control , impact our gross margins on a quarterly or annual basis . capital expenditures . over the last few years , we have spent a significant amount of capital on property , facilities and equipment , with the majority of such expenditures being used to purchase additional specialized equipment to enhance our fleet and to reduce our reliance on operating leases and short term equipment rentals . we believe the investment in specialized equipment will reduce our costs and improve our margins over the long-term , although there can be no assurance in this regard . depreciation and amortization . we include depreciation on equipment in contract costs . this is common practice in our industry , but can make comparability to other companies difficult . we expect that , as a result of our current capital expenditure program , depreciation expenses will increase in the future . geographical . the mix of business conducted in different parts of the country will affect margins , as some parts of the country offer the opportunity for higher gross margins than others . seasonal and weather .
| as a percentage of revenues , operating income for our t & d segment increased to 8.4 % for the year ended december 31 , 2011 from 8.2 % for the year ended december 31 , 2010. the increase in operating income , as a percentage of revenues , was mainly due to efficiencies gained in selling , general and administrative functions as our volume increased . these improvements were largely offset by lower margins on a few large t & d contracts caused by increased estimated costs to complete compared to prior estimates and an increase in insurance expense . commercial & industrial revenues for our c & i segment for the year ended december 31 , 2011 were $ 158.4 million compared to $ 149.6 million for the year ended december 31 , 2010 , an increase of $ 8.8 million or 5.8 % . the increase in revenues was due mainly to an increase in revenues derived from several medium-sized projects , partially offset by an overall decrease in revenues from a few large projects . for the year ended december 31 , 2011 , measured by revenue in our c & i segment , we provided 55.2 % of our services under fixed-price contracts , as compared to 32.6 % for the year ended december 31 , 2010. operating income for our c & i segment for the year ended december 31 , 2011 was $ 5.8 million compared to $ 7.1 million for the year ended december 31 , 2010 , a decrease of $ 1.3 million , or 17.7 % . as a percentage of revenues , operating income for our c & i segment decreased to 3.7 % for the year ended december 31 , 2011 from 4.7 % for the year ended december 31 , 2010. the decrease in operating income in the c & i segment was mainly attributable to an overall reduction in margins on c & i contracts with a contract value over $ 3.0 million of approximately $ 1.7 million , which was mostly due to increased competition , some lower productivity on certain projects and an increase in insurance expense . year ended december 31 , 2010 compared to the year ended december 31 , 2009 revenues . revenues decreased $ 34.1 million , or 5.4 % , to $ 597.1 million for the year ended december 31 , 2010 from $ 631.2 million for the year ended
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our results of operations depend in large part on our ability to accurately predict and effectively manage health care costs through effective contracting with providers of care to our members and our medical management and health and wellness programs . several economic factors related to health care costs , such as regulatory mandates of coverage as well as direct-to-consumer advertising by providers and pharmaceutical companies , have a direct impact on the volume of care consumed by our members . the potential effect of escalating health care costs , any changes in our ability to negotiate competitive rates with our providers and any regulatory or market driven restrictions on our ability to obtain adequate premium rates to offset overall inflation in health care costs , including increases in unit costs and utilization resulting from the aging of the population and other demographics , as well as advances in medical technology , may impose further risks to our ability to profitably underwrite our business , and may have a material impact on our results of operations . in march 2016 , we filed a lawsuit against our vendor for pharmacy benefit management services , express scripts , inc. , or express scripts , seeking to recover damages for pharmacy pricing that is higher than competitive benchmark pricing and damages related to operational breaches , and seeking various declarations under the agreement between the parties . in april 2016 , express scripts filed an answer to the lawsuit disputing our contractual claims and alleging various defenses and counterclaims . for additional information regarding this lawsuit , see note 13 , “ commitments and contingencies - litigation , ” to our audited consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. on july 24 , 2015 , we and cigna corporation , or cigna , announced that we entered into an agreement and plan of merger , or merger agreement , dated as of july 23 , 2015 , by and among anthem , cigna and anthem merger sub corp. , a delaware corporation and our direct wholly-owned subsidiary , pursuant to which we will acquire all outstanding shares of cigna , or the acquisition . this acquisition will further our goal of creating a premier health benefits company with critical diversification and scale to lead the transformation of health care delivery for consumers . cigna is a global health services organization that delivers affordable and personalized products and services to customers through employer-based , government-sponsored and individual coverage arrangements . all of cigna 's products and services are provided exclusively by or through its operating subsidiaries , including connecticut general life insurance company , cigna health and life insurance company , life insurance company of north america and cigna life insurance company of new york . such products and services include an integrated suite of health services , such as medical , dental , behavioral health , pharmacy , vision , supplemental benefits , and other related products including group life , accident and disability insurance . cigna maintains sales capability in 30 countries and jurisdictions . under the terms of the merger agreement , cigna 's shareholders will receive $ 103.40 in cash and 0.5152 shares of our common stock for each cigna common share outstanding . the value of the transaction is estimated to be approximately $ 53,000.0 based on the closing price of our common stock on the new york stock exchange on july 23 , 2015. the final purchase price will be determined based on our closing stock price on the date of closing of the acquisition . the combined company will reflect a pro forma equity ownership comprised of approximately 67 % anthem shareholders and approximately 33 % cigna shareholders . we expect to finance the cash portion of the acquisition through available cash on - 46 - hand and the issuance of new debt . we are party to a bridge facility commitment letter and a joinder agreement with a group of lenders which provides up to $ 19,500.0 under a 364 -day senior unsecured bridge term loan credit facility to finance the acquisition in the event that we have not received proceeds from any combination of ( i ) senior unsecured term loans , ( ii ) common or preferred equity or equity-linked securities and or ( iii ) senior unsecured notes in a public offering or private placement in an aggregate principal amount of at least $ 19,500.0 prior to the consummation of the acquisition . in addition , in august 2015 , we entered into a term loan facility which will provide up to $ 4,000.0 to finance a portion of the acquisition . the commitment of the lenders to provide the bridge facility and the term loan facility is subject to several conditions , including the completion of the acquisition . we expect that our pro forma debt-to-capital ratio will approximate 49 % following the closing of the acquisition and we are committed to deleveraging to the low 40 % range approximately twenty-four months following the closing . we also expect to maintain our common stock dividend and we will maintain flexibility with our share repurchase program . the acquisition is subject to certain state regulatory approvals , other standard closing conditions and customary approvals required under the hart-scott-rodino antitrust improvements act . for additional information , see `` risk factors '' included in part i , item 1a ; and note 3 , “ business acquisitions and divestiture - pending acquisition of cigna corporation `` included in part ii , item 8 of this annual report on form 10-k. in july 2016 , the u.s. department of justice , or doj , along with certain state attorneys general , filed a civil antitrust lawsuit in the u.s. district court for the district of columbia , or district court , seeking to block the acquisition . story_separator_special_tag trial commenced in november 2016 and concluded in january 2017. on january 18 , 2017 , we provided notice to cigna that we had elected to extend the termination date under the merger agreement from january 31 , 2017 until april 30 , 2017. on february 8 , 2017 , the district court ruled in favor of the doj , and following our motion to expedite the appeal , which was granted on february 17 , 2017 , we promptly appealed the district court 's ruling to the u.s. circuit court of appeals for the district of columbia circuit , or the appellate court . on february 14 , 2017 , cigna purported to terminate the merger agreement and commenced litigation against us in the delaware court of chancery , or delaware court , seeking damages and a declaratory judgment that its purported termination of the merger agreement was lawful , among other claims . we believe cigna 's allegations are without merit . also on february 14 , 2017 , we initiated our own litigation against cigna in the delaware court seeking a temporary restraining order to enjoin cigna from terminating the merger agreement , specific performance compelling cigna to comply with the merger agreement and damages . on february 15 , 2017 , the delaware court granted our motion for a temporary restraining order and issued an order enjoining cigna from terminating the merger agreement . the temporary restraining order became effective immediately and will remain in place pending any further order from the delaware court . a hearing will be scheduled the week of april 10 , 2017. we intend to vigorously defend the acquisition in both the circuit court and the delaware court and remain committed to completing the acquisition as soon as practicable . if the merger agreement is terminated because the required regulatory approvals can not be obtained , under certain conditions , we could be obligated to pay a $ 1,850.0 termination fee to cigna . on february 17 , 2015 , we completed our acquisition of simply healthcare holdings , inc. , or simply healthcare , a leading managed care company for people enrolled in medicaid and medicare programs in the state of florida . this acquisition aligns with our strategy for continued growth in our government business segment . for additional information about this acquisition , see note 3 , “ business acquisitions and divestiture - acquisition of simply healthcare `` included in part ii , item 8 of this annual report on form 10-k. the future results of our operations will also be impacted by certain external forces and resulting changes in our business model and strategy . in 2010 , the patient protection and affordable care act , or aca , as well as the health care and education reconciliation act of 2010 , or collectively , health care reform , became law , causing significant changes to the u.s. health care system . since then , significant regulations have been enacted by the u.s. department of health and human services , or hhs , the department of labor and the department of the treasury . the legislation and regulations are far-reaching and are intended to expand access to health insurance coverage over time by mandating that most individuals obtain health insurance coverage , increasing the eligibility thresholds for most state medicaid programs and providing certain individuals and small businesses with tax credits to subsidize a portion of the cost of health insurance coverage . as a result of the complexity of the law , its impact on health care in the united states , the continuing modification and interpretation of health care reform rules and the potential for significant future changes to the law , we continue to analyze and refine our estimates of the ultimate impact of health care reform on our business , cash flows , financial condition and results of operations . health care reform presented us with new growth opportunities , but also introduced new risks , regulatory challenges and uncertainties , and required changes in the way products are designed , underwritten , priced , distributed and administered . changes to our business are likely to continue for the next several years as elected officials at the national and state level have proposed significant modification to existing laws and regulations , including the potential repeal or - 47 - replacement of health care reform . for additional discussion , see part i , item 1 “ business - regulation , ” and part i , item 1a “ risk factors ” in this annual report on form 10-k. pricing in our commercial and specialty business segment , including our individual and small group lines of business , remains competitive and we strive to price our health care benefit products consistent with anticipated underlying medical trends . we believe our pricing strategy , based on predictive modeling , proprietary research and data-driven processes have positioned us to benefit from the potential growth opportunities available in fully-insured commercial products as a result of health care reform and any subsequent changes to the current regulatory scheme . in the individual and small group markets , we offer on-exchange products through state or federally facilitated marketplaces , referred to as public exchanges , and off-exchange products . federal premium subsidies are available for certain members , subject to income and family size , who purchase public exchange products . we believe that our pricing strategy , brand name and network quality will provide a strong foundation for commercial risk membership growth opportunities in the future . in our individual markets we offer bronze , silver and gold products , both on and off the public exchanges , in california , colorado , connecticut , georgia , indiana , kentucky , maine , missouri , nevada , new hampshire , new york , ohio , virginia and wisconsin . additionally , we offer platinum products , both on and off the public exchanges , in california and new york .
| the increase in premiums was partially offset by the declines in fully-insured membership in our small group business and lapses in non-aca-compliant individual business product offerings . the increase in administrative fees primarily resulted from membership growth and rate increases for self-funded members in our national accounts and large group businesses . net investment income increased $ 101.9 , or 15.0 % , to $ 779.5 in 2016 , primarily due to higher income from alternative investments . net realized gains on financial instruments decreased $ 152.6 , or 96.9 % , to $ 4.9 in 2016 , primarily due to an increase in net realized losses on derivative financial instruments , largely as a result of losses recognized on options entered in to economically hedge the variability of cash flows in the interest payments on anticipated future financings . the decrease was further due to lower net realized gains on sales of equity securities . these decreases were partially offset by an increase in net realized gains on sales of fixed maturity securities . other-than-temporary impairment losses on investments increased $ 32.0 , or 38.4 % , to $ 115.4 in 2016 , primarily due to an increase in impairment losses on fixed maturity securities , partially offset by a decrease in impairment losses on equity securities . benefit expense increased $ 5,717.5 , or 9.4 % , to $ 66,834.4 in 2016 , primarily due to increased costs as a result of overall cost trends across our businesses . the increase was further attributable to membership growth in our medicaid business and aca-compliant off- and on-exchange individual business product offerings . these increases were partially offset by the declines in fully-insured membership in our small group business and non-aca-compliant individual business product offerings . our benefit expense ratio increased 150 basis points to 84.8 % in 2016 . the increase in the ratio was largely driven by our medicaid business due to increases in medical cost experience that exceeded the impact of premium rate adjustments , higher than expected medical cost
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we have developed cost effective reusable cryogenic transport containers ( referred to as a shipper ) capable of transporting biological , environmental and other temperature sensitive materials at temperatures below minus 150° celsius . these dry vapor shippers are one of the first significant alternatives to dry ice shipping and achieve 10-plus day holding times compared to one to two day holding times with dry ice . our value proposition comes from providing both stable temperatures during transportation and an environmentally friendly , long lasting shipper , and through our value added monitoring of transportation services that offer a simple , hassle-free solution for our customers . these value-added services include an internet-based web portal that enables the customer to initiate scheduling , shipping and tracking of the progress and status of a shipment , and provides in-transit temperature and custody transfer monitoring services of the shipper . the cryoport service also provides a fully ready charged shipper containing all freight bills , customs documents and regulatory paperwork for the entire journey of the shipper to our customers at their pick up location . our principal focus has been the commercialization of our solution as well as the further development of our cryoport express ® portal , an innovative it solution for shipping and tracking high-value specimens through overnight shipping companies and specialty couriers , and our cryoport express ® shippers , a dry vapor cryogenic shipper for the transport of biological and pharmaceutical materials . a dry vapor cryogenic shipper is a container that uses liquid nitrogen in dry vapor form , which is suspended inside a vacuum insulated bottle as a refrigerant , to provide stable storage temperatures below minus 150° celsius . the dry vapor shipper is designed using innovative , proprietary , and patented technology which prevents spillage of liquid nitrogen and pressure build up as the liquid nitrogen evaporates . a proprietary retention system is employed to ensure that liquid nitrogen is retained inside the vacuum container , even when placed upside-down or on its side , as is often the case when in the custody of a shipping company . biological specimens are stored in a specimen chamber , referred to as a well , inside the container and refrigeration is provided by non-hazardous cold nitrogen gas evolving from the liquid nitrogen entrapped within the retention system surrounding the well . biological specimens transported using our cryogenic shipper can include clinical samples , diagnostics , live cell pharmaceutical products ( such as cancer vaccines , semen and embryos , infectious substances ) and other items that require and or are protected through continuous exposure to frozen or cryogenic temperatures . we offer our solution to companies in the life sciences industry . these companies operate within a heavily regulated environment and as such , changing vendors and distribution practices typically require a number of steps which may include the audit of our facilities , review of our procedures , qualifying us as a vendor , and performing test shipments . this process can take several months or longer to complete prior to a company fully adopting the cryoport express solution . 23 during our early years , our limited revenue was derived from the sale of our reusable product line . our current business plan focuses on per- use leasing of the shipping container and added-value services that will be used by us to provide an end-to-end and cost-optimized shipping solution to life science companies moving pharmaceutical and biological samples in clinical trials and pharmaceutical distribution . we have incurred losses since inception and had an accumulated deficit of $ 59,929,015 through march 31 , 2012. going concern as reported in the report of independent registered public accounting firm to our march 31 , 2012 and 2011 consolidated financial statements , we have incurred recurring losses and negative cash flows from operations since inception . these factors , among others , raise substantial doubt about our ability to continue as a going concern . 24 there are significant uncertainties which may negatively affect our operations . these are principally related to ( i ) the expected ramp up of revenues of the new cryoport express ® system , ( ii ) the absence of any commitment or firm orders from key customers in our target markets , ( iii ) the success in bringing additional products currently under development to market with our key customers , and ( iv ) risks associated with scaling company operations to meet demand . moreover , there is no assurance as to when , if ever , we will be able to conduct our operations on a profitable basis . our limited historical revenues for our reusable product , limited introductory revenues to date of the cryoport express ® system and the lack of any purchase requirements in our existing distribution agreements , make it impossible to identify any trends in our business prospects . we have not generated significant revenues from operations and have no assurance of any future revenues . we generated revenues from operations of $ 555,637 , incurred a net loss of $ 7,832,928 and used cash of $ 6,780,134 in our operating activities during the year ended march 31 , 2012. we had working capital of $ 4,024,120 , and had cash and cash equivalents of $ 4,617,535 at march 31 , 2012. currently management has projected that cash on hand , including the gross proceeds from our private placement in february and march 2012 , will be sufficient to allow us to continue our operations into the fourth quarter of our fiscal year 2013 until more significant revenues can be generated or more funding can be secured . these matters raise substantial doubt about our ability to continue as a going concern . story_separator_special_tag story_separator_special_tag there exists substantial doubt regarding the company 's ability to continue as a going concern . as discussed above , the company completed a private placement in march of 2012. the funds raised will be used for working capital purposes and to continue our sales efforts to advance the company 's commercialization of the cryoport express ® solution . management has estimated that cash on hand as of march 31 , 2012 and forecasted sales will be sufficient to allow the company to continue its operations through the end of fiscal 2013. however , the company 's management recognizes that the company may need to obtain additional capital , if forecasted sales targets are not met . management 's plans to extend the cash runway include a reduction in non-sales generating expenses and the use of third parties for services such as its recycling and refurbishment centers . this will provide for greater flexibility in aligning operational expenses with the sales ramp . such plans also may include obtaining additional capital through equity and or debt funding sources ; however , no assurance can be given that additional capital , if needed , will be available when required or upon terms acceptable to the company . contractual obligations the following table summarizes our contractual obligations as of march 31 , 2012 , and the effects such obligations are expected to have on liquidity and cash flow in future periods ( in thousands ) : replace_table_token_6_th impact of inflation . from time to time , cryoport experiences price increases from third party manufacturers and these increases can not always be passed on to cryoport 's customers . while these price increases have not had a material impact on cryoport 's historical operations or profitability in the past , they could affect revenues in the future . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations , as well as disclosures included elsewhere in this annual report , are based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . our significant accounting policies are described in the notes to the audited consolidated financial statements contained elsewhere in this annual report . included within these policies are our critical accounting policies. critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management 's most subjective and complex judgment due to the need to make estimates about matters that are inherently uncertain . although we believe that our estimates and assumptions are reasonable , actual results may differ significantly from these estimates . changes in estimates and assumptions based upon actual results may have a material impact on our results of operations and or financial condition . we believe that the critical accounting policies that most impact the consolidated financial statements are as described below . revenue recognition per use revenues we recognize revenues from product sales when there is persuasive evidence that an arrangement exists , when title has passed , the price is fixed or determinable , and we are reasonably assured of collecting the resulting receivable . the company records a provision for claims based upon historical experience . actual claims in any future period may differ from the company 's estimates . during its early years , the company 's limited revenue was derived from the sale of our reusable product line . the company 's current business plan focuses on per-use leasing of the shipping container and value-added services that will be used by us to provide an end-to-end and cost-optimized shipping solution . 27 the company provides shipping containers to their customers and charges a fee in exchange for the use of the container . the company ' arrangements are similar to the accounting standard for leases since they convey the right to use the containers over a period of time . the company retains title to the containers and provides its customers the use of the container for a specified shipping cycle . at the culmination of the customer 's shipping cycle , the container is returned to the company . as a result of our new business plan , during the quarter ended september 30 , 2009 , the company reclassified the containers from inventory to fixed assets upon commencement of the loaned-container program . inventory the company writes down its inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand , future pricing and market conditions . inventory reserve costs are subject to estimates made by the company based on historical experience , inventory quantities , age of inventory and any known expectations for product changes . if actual future demands , future pricing or market conditions are less favorable than those projected by management , additional inventory write-downs may be required and the differences could be material . such differences might significantly impact cash flows from operating activities . once established , write-downs are considered permanent adjustments to the cost basis of the obsolete or unmarketable inventories . during its early years , the company 's limited revenue was derived from the sale of our reusable product line . the company 's current business plan focuses on per-use leasing of the shipping container and value-added services that will be used by us to provide an end-to-end and cost-optimized shipping solution . the company provides shipping containers to its customers and charges a fee in exchange for the use of the container . the company ' arrangements are similar to the accounting standard for leases since they convey the right to use the containers over a period of time .
| the $ 1,785,545 increase reflects the addition of twelve new employees ( ten in the sales and marketing department ) , recruiting fees for these new hires , and consulting costs for promotional activities . the increase in headcount , in particular in the sales , marketing and client services department , reflects the company 's focus on promoting the use of its cryoport express ® system and expanding its customer base through a direct inside and field sales team . research and development expenses . research and development expenses were $ 491,849 for the year ended march 31 , 2012 , as compared to $ 449,129 for the prior year . our research and development efforts are focused on continually improving the features of the cryoport express ® system including the web based customer service portal and the cryoport express ® shippers . interest expense . interest expense was $ 527,753 for the year ended march 31 , 2012 , as compared to $ 618,765 for the prior year . interest expense for the year ended march 31 , 2012 included the value on warrants issued to convertible debt holders of $ 156,999 , stated interest expense on the convertible debt of $ 122,824 , amortization of the debt discount of $ 197,225 , and accrued interest on our related party notes payable of $ 48,036. interest expense for the prior year included amortization of the debt discount of $ 522,041 , accrued interest on our related party notes payable of $ 57,156 and interest expense on our convertible debentures of $ 19,233. interest income . interest income was $ 11,940 for the year ended march 31 , 2012 as compared to $ 15,571 for the prior year . change in fair value of derivative liabilities . the gain on the change in fair value of derivative liabilities was $ 119,163 for the year ended march 31 , 2012 , compared to a gain of $ 49,590 for the prior year . the gain for the year ended march 31 , 2012 was the result of a decrease in the value of our warrant derivatives , due primarily to a decrease
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for purposes of this calculation , floating rate balances are treated as having a one-month duration . consolidated duration is used in analyzing our aggregate interest rate sensitivity . daily average revenue trades ( `` darts `` ) — total trades divided by the number of trading days in the period . this metric is also known as average client trades per day . ebitda — ebitda ( earnings before interest , taxes , depreciation and amortization ) is a non-gaap financial measure . we consider ebitda to be an important measure of our financial performance and of our ability to generate cash flows to service debt , fund capital expenditures and fund other corporate investing and financing activities . ebitda is used as the denominator in the consolidated leverage ratio calculation for covenant purposes under our senior revolving credit facility . ebitda eliminates the non-cash effect of tangible asset depreciation and amortization and intangible asset amortization . ebitda should be considered in addition to , rather than as a substitute for , pre-tax income , net income and cash flows from operating activities . eps excluding amortization of intangible assets — earnings per share ( `` eps '' ) excluding amortization of intangible assets is a non-gaap financial measure . we define eps excluding amortization of intangible assets as earnings ( loss ) per share , adjusted to remove the after-tax effect of amortization of acquired intangible assets . we consider eps excluding amortization of intangible assets an important measure of our financial performance . amortization of acquired intangible assets is excluded because we believe it is not indicative of underlying business performance . eps excluding amortization of intangible assets should be considered in addition to , rather than as a substitute for , gaap earnings per share . eps from ongoing operations — eps from ongoing operations is a non-gaap financial measure . we define eps from ongoing operations as earnings ( loss ) per share , adjusted to remove any significant unusual gains or charges . we consider eps from ongoing operations an important measure of the financial performance of our ongoing business . unusual gains and charges are excluded because we believe they are not likely to be indicative of the ongoing operations of our business . eps from ongoing operations should be considered in addition to , rather than as a substitute for , gaap earnings per share . fee-based investment balances — client assets invested in money market mutual funds , other mutual funds and company programs such as advisordirect ® and amerivest , ® on which we earn fee revenues . fee revenues earned on these balances are included in investment product fees on our consolidated statements of income . funded accounts — all open client accounts with a total liquidation value greater than zero . futures accounts — sub-accounts maintained by the company on behalf of clients for trading in futures and or options on futures . each futures account must be associated with a brokerage account . futures accounts are not counted separately for purposes of the company 's client account metrics . insured deposit account — the company is party to an insured deposit account ( `` ida '' ) agreement with td bank usa , n.a . ( `` td bank usa '' ) , td bank , n.a . and the toronto-dominion bank ( `` td '' ) . under the ida agreement , td bank usa and td bank , n.a . ( together , the `` td depository institutions '' ) make available to clients of the company fdic-insured money market deposit accounts as either designated sweep vehicles or as non-sweep 28 deposit accounts . the company provides marketing , recordkeeping and support services for the td depository institutions with respect to the money market deposit accounts . in exchange for providing these services , the td depository institutions pay the company an aggregate marketing fee based on the weighted average yield earned on the client ida assets , less the actual interest paid to clients , a servicing fee to the td depository institutions and the cost of fdic insurance premiums . interest-earning assets — consist of client margin balances , segregated cash , deposits paid on securities borrowing and other cash and interest-earning investment balances . interest rate-sensitive assets — consist of spread-based assets and client cash invested in money market mutual funds . investment product fees — revenues earned on fee-based investment balances . investment product fees include fees earned on money market mutual funds , other mutual funds and through company programs such as advisordirect ® and amerivest ® . ira accounts ( individual retirement arrangements ) — a personal trust account for the exclusive benefit of a u.s. individual ( or his or her beneficiaries ) that provides tax advantages in accumulating funds to save for retirement or other qualified purposes . these accounts are subject to numerous restrictions on additions to and withdrawals from the account , as well as prohibitions against certain investments or transactions conducted within the account . the company offers traditional , roth , savings incentive match plan for employees ( simple ) and simplified employee pension ( sep ) ira accounts . liquid assets available for corporate investing and financing activities — liquid assets available for corporate investing and financing activities is a non-gaap financial measure . we consider liquid assets available for corporate investing and financing activities to be an important measure of our liquidity . story_separator_special_tag we define liquid assets available for corporate investing and financing activities as the sum of ( a ) corporate cash and cash equivalents and investments , excluding amounts being maintained to provide liquidity for operational contingencies , including lending to our broker-dealer and futures commission merchant ( `` fcm '' ) /forex dealer member ( `` fdm '' ) subsidiaries under intercompany credit agreements and ( b ) regulatory net capital of ( i ) our clearing broker-dealer subsidiary in excess of 10 % of aggregate debit items and ( ii ) our introducing broker-dealer subsidiary in excess of a minimum operational target established by management ( $ 50 million in the case of our introducing broker-dealer , td ameritrade , inc. ) . we include the excess capital of our broker-dealer subsidiaries in the calculation of liquid assets available for corporate investing and financing activities , rather than simply including broker-dealer cash and cash equivalents , because capital requirements may limit the amount of cash available for dividend from the broker-dealer subsidiaries to the parent company . excess capital , as defined under clause ( b ) above , is generally available for dividend from the broker-dealer subsidiaries to the parent company . liquid assets available for corporate investing and financing activities is based on more conservative measures of broker-dealer net capital than regulatory requirements because we generally manage to higher levels of net capital at the broker-dealer subsidiaries than the regulatory thresholds require . liquid assets available for corporate investing and financing activities should be considered as a supplemental measure of liquidity , rather than as a substitute for cash and cash equivalents . liquidation value — the net value of a client 's account holdings as of the close of a regular trading session . liquidation value includes client cash and the value of long security positions , less margin balances and the cost to buy back short security positions . it also includes the value of open futures , foreign exchange and options positions . margin accounts — brokerage accounts in which clients may borrow from the company to buy securities or for any other purpose , subject to regulatory and company-imposed limitations . market fee-based investment balances — client assets invested in mutual funds ( except money market funds ) and company programs such as advisordirect ® and amerivest , ® on which we earn fee revenues that are largely based on a percentage of the market value of the investment . market fee-based investment balances are a component of fee-based investment balances . fee revenues earned on these balances are included in investment product fees on our consolidated statements of income . net income excluding amortization of intangible assets — net income excluding amortization of intangible assets is a non-gaap financial measure . we define net income excluding amortization of intangible assets as net income ( loss ) , adjusted to remove the after-tax effect of amortization of acquired intangible assets . we consider net income excluding amortization of intangible assets an important measure of our financial performance . 29 amortization of acquired intangible assets is excluded because we believe it is not indicative of underlying business performance . net income excluding amortization of intangible assets should be considered in addition to , rather than as a substitute for , gaap net income . net interest margin ( `` nim `` ) — a measure of the net yield on our average spread-based assets . net interest margin is calculated for a given period by dividing the annualized sum of insured deposit account fees and net interest revenue by average spread-based assets . net interest revenue — net interest revenue is interest revenues less brokerage interest expense . interest revenues are generated by charges to clients on margin balances maintained in margin accounts , the investment of cash from operations and segregated cash and interest earned on securities borrowing/securities lending . brokerage interest expense consists of amounts paid or payable to clients based on credit balances maintained in brokerage accounts and interest incurred on securities borrowing/securities lending . brokerage interest expense does not include interest on company non-brokerage borrowings . net new assets — consists of total client asset inflows , less total client asset outflows , excluding activity from business combinations . client asset inflows include interest and dividend payments and exclude changes in client assets due to market fluctuations . net new assets are measured based on the market value of the assets as of the date of the inflows and outflows . net new asset growth rate ( annualized ) — annualized net new assets as a percentage of client assets as of the beginning of the period . operating expenses excluding advertising — operating expenses excluding advertising is a non-gaap financial measure . operating expenses excluding advertising consists of total operating expenses , adjusted to remove advertising expense . we consider operating expenses excluding advertising an important measure of the financial performance of our ongoing business . advertising spending is excluded because it is largely at the discretion of the company , can vary significantly from period to period based on market conditions and generally relates to the acquisition of future revenues through new accounts rather than current revenues from existing accounts . operating expenses excluding advertising should be considered in addition to , rather than as a substitute for , total operating expenses . order routing revenue — revenues generated from revenue-sharing arrangements with market destinations ( also referred to as `` payment for order flow '' ) . order routing revenue is a component of transaction-based revenues . securities borrowing — we borrow securities temporarily from other broker-dealers in connection with our broker-dealer business . we deposit cash as collateral for the securities borrowed , and generally earn interest revenue on the cash deposited with the counterparty . we also incur interest expense for borrowing certain securities . securities lending — we loan securities temporarily to other broker-dealers in connection with our broker-dealer business .
| ebitda should be considered in addition to , rather than as a substitute for , pre-tax income , net income and cash flows from operating activities . the following table sets forth net income in dollars and as a percentage of net revenues for the periods indicated , and provides reconciliations to ebitda ( dollars in millions ) : replace_table_token_7_th fiscal year ended september 30 , 2016 compared to fiscal year ended september 30 , 2015 our net income increased 4 % for fiscal 2016 compared to fiscal 2015 , primarily due to an increase in net revenues and a lower effective tax rate , partially offset by an increase in operating expenses and interest on borrowings 33 during fiscal 2016 and a $ 7 million gain on sale of investments during the prior year . detailed analysis of net revenues and expenses is presented later in this discussion . our ebitda decreased 1 % for fiscal 2016 compared to fiscal 2015 , primarily due to an increase in operating expenses excluding depreciation and amortization during fiscal 2016 and a $ 7 million gain on sale of investments during the prior year , partially offset by an increase in net revenues . our diluted earnings per share increased 6 % to $ 1.58 for fiscal 2016 compared to $ 1.49 for fiscal 2015 , primarily due to higher net income and a 2 % decrease in average diluted shares outstanding as a result of our stock repurchase programs . based on our expectations for net revenues and expenses , we expect diluted earnings per share to range from $ 1.50 to $ 1.80 for fiscal year 2017 , depending largely on the level of client trading activity , client asset growth and the level of interest rates . details regarding our fiscal year 2017 expectations for net revenues and expenses are presented later in this discussion . fiscal year ended september 30 , 2015 compared to fiscal year ended september 30 ,
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we monitor performance of our investment portfolio under the following methodology : ( 1 ) borrower review , which analyzes the borrower 's ability to execute on its original business plan , reviews its financial condition , assesses pending litigation and considers its general level of responsiveness and cooperation ; ( 2 ) economic review , which considers underlying collateral ( i.e. , leasing performance , unit sales and cash flow of the collateral and its ability to cover debt service as well as the residual loan balance at maturity ) ; ( 3 ) property review , which considers current environmental risks , changes in insurance costs or coverage , current site visibility , capital expenditures and market perception ; and ( 4 ) market review , which analyzes the collateral from a supply and demand perspective of similar property types , as well as from a capital markets perspective . such impairment analyses are completed and reviewed by asset management and finance personnel who utilize various data sources , including periodic financial data such as property occupancy , tenant profile , rental rates , operating expenses , and the borrower 's exit plan , among other factors . as of december 31 , 2014 and 2013 , all loans were paying in accordance with their contractual terms . there were no impairments during the years ended december 31 , 2014 , 2013 and 2012. although we generally hold our target investments as long-term investments within our principal lending business , we may occasionally classify some of our investments as available-for-sale ; provided that such classification would not jeopardize our ability to maintain our qualification as a reit . investments classified as available-for-sale will be carried at their fair value , with changes in fair value recorded through accumulated other comprehensive income , a component of stockholders ' equity , rather than through earnings . additionally , acre capital originates multifamily mortgage loans , which are recorded at fair value . the holding period for these loans held for sale is approximately 30 days . at this time , we do not expect to hold any of our investments for trading purposes . changes in market interest rates . with respect to our business operations , increases in interest rates , in general , may over time cause : the interest expense associated with our borrowings to increase , subject to any applicable ceilings ; the value of our mortgage loans to decline ; coupons on our mortgage loans to reset to higher interest rates ; and to the extent we enter into interest rate swap agreements as part of our hedging strategy where we pay fixed and receive floating interest rates , the value of these agreements to increase . 67 conversely , decreases in interest rates , in general , may over time cause : the interest expense associated with our borrowings to decrease , subject to any applicable floors ; the value of our mortgage loan portfolio to increase , for such mortgages with applicable floors ; coupons on our floating rate mortgage loans to reset to lower interest rates ; and to the extent we enter into interest rate swap agreements as part of our hedging strategy where we pay fixed and receive floating interest rates , the value of these agreements to decrease . credit risk . we are subject to varying degrees of credit risk in connection with our target investments . our manager seeks to mitigate this risk by seeking to originate or acquire investments of higher quality at appropriate prices given anticipated and unanticipated losses , by employing a comprehensive review and selection process and by proactively monitoring originated or acquired investments . nevertheless , unanticipated credit losses could occur that could adversely impact our operating results and stockholders ' equity . market conditions . we believe that our target investments currently present attractive risk-adjusted return profiles , given the underlying property fundamentals and the competitive landscape for the type of capital we provide . following a dramatic decline in cre lending in 2008 and 2009 , debt capital has become more readily available for select stabilized , high quality assets in certain locations such as gateway cities , but less available for many other types of properties , either because of the markets in which they are located or because the property is undergoing some form of transition . more particularly , many traditional financing products tend to come with limited flexibility , especially with respect to prepayment . consequently , we anticipate a high demand for the type of customized debt financing we provide from borrowers or sponsors who are looking to refinance indebtedness that is maturing in the next two to five years or are seeking shorter-term debt solutions as they reposition their properties . we also envision that demand for financing will be strong for situations in which a property is being acquired with plans to improve the net operating income through capital improvements , leasing , cost savings or other key initiatives and realize the improved value through a subsequent sale or refinancing . we have recently witnessed the emergence of new debt providers and legacy debt providers expanding their risk tolerances for transitional lending opportunities . this expanded tolerance has resulted in increased competition for our target assets and increased refinancing activity which we believe has led to higher prepayment rates on our mortgage loans . we believe market conditions continue to be favorable for disciplined and scaled direct lending with broad and flexible product offerings . performance of multifamily and other commercial real estate related markets . our business is dependent on the general demand for , and value of , commercial real estate and related services , which are sensitive to economic conditions . demand for multifamily and other commercial real estate generally increases during periods of stronger economic conditions , resulting in increased property values , transaction volumes and loan origination volumes . story_separator_special_tag during periods of weaker economic conditions , multifamily and other commercial real estate may experience higher property vacancies , lower demand and reduced values . these conditions can result in lower property transaction volumes and loan originations , as well as an increased level of servicer advances and losses from acre capital 's fannie mae dus allowance for loss sharing . the level of losses from fannie mae allowance for loss sharing . loans originated and sold by acre capital to fannie mae under the fannie mae dus program are subject to the terms and conditions of a master loss sharing agreement , which was amended and restated during 2012. under the master loss sharing agreement , acre capital is responsible for absorbing certain losses incurred by fannie mae with respect to loans originated under the dus program , as described below in more detail . 68 the losses incurred with respect to individual loans are allocated between acre capital and fannie mae based on the loss level designation ( `` loss level '' ) for the particular loan . loans are designated as loss level i , loss level ii or loss level iii . all loans are designated loss level i unless fannie mae and acre capital agree upon a different loss level for a particular loan at the time of the loan commitment , or if fannie mae determines that the loan was not underwritten , processed or serviced according to fannie mae guidelines . losses on loss level i loans are shared 33.33 % by acre capital and 66.67 % by fannie mae . the maximum amount of acre capital 's risk-sharing obligation with respect to any loss level i loan is 33.33 % of the original principal amount of the loan . losses incurred in connection with loss level ii and loss level iii loans are allocated disproportionately to acre capital until acre capital has absorbed the maximum level of its risk-sharing obligation with respect to the particular loan . the maximum loss allocable to acre capital for loss level ii loans is 30 % of the original principal amount of the loan , and for loss level iii loans is 40 % of the original principal amount of the loan . the price of loans in the secondary market . our profitability is determined in part by the price we are paid for the loans we originate . a component of our origination fees is the premium we recognize on the sale of a loan . stronger investor demand typically results in larger premiums while weaker demand results in little to no premium . market for servicing commercial real estate loans . service fee rates for new loans are set at the time we enter into a loan commitment based on origination volumes , competition and prepayment rates . changes in future service fee rates impact the value of our future msrs and future servicing revenues , which could impact our profit margins and operating results over time . investment portfolio as of december 31 , 2014 , we have originated or co-originated 46 cre middle market loans held for investment , excluding 11 loans that were repaid since inception . the aggregate originated commitment under these loans at closing was approximately $ 1.6 billion and outstanding principal was $ 1.5 billion as of december 31 , 2014. during the year ended december 31 , 2014 , we funded approximately $ 717.4 million of outstanding principal and received repayments of $ 210.0 million of outstanding principal . such investments are referred to herein as our investment portfolio . as of december 31 , 2014 , 68.7 % of our loans have libor floors , with a weighted average floor of 0.29 % , calculated based on loans with libor floors . references to libor or `` l '' are to 30-day libor ( unless otherwise specifically stated ) . 69 our loans held for investment are accounted for at amortized cost . the following table summarizes our loans held for investment as of december 31 , 2014 : replace_table_token_5_th ( 1 ) the difference between the carrying amount and the outstanding principal face amount of the loans held for investment consists of unamortized purchase discount , deferred loan fees and loan origination costs . ( 2 ) unleveraged effective yield is the compounded effective rate of return that would be earned over the life of the investment based on the contractual interest rate ( adjusted for any deferred loan fees , costs , premium or discount ) and assumes no dispositions , early prepayments or defaults . the total weighted average unleveraged effective yield is calculated based on the average of unleveraged effective yield of all loans held by us as of december 31 , 2014 as weighted by the outstanding principal balance of each loan . non-controlling interests the non-controlling interests held by third parties in our consolidated financial statements represent the equity interests in acrc ka that are not owned by us . see note 17 to our consolidated financial statements included in this annual report on form 10-k for more information about acrc ka . a reconciliation of our investment portfolio , excluding non-controlling interests , compared to our loans held for investment as included within our consolidated balance sheets is as follows : as of december 31 , 2014 $ in thousands carrying amount loans held for investment $ 1,462,584 non-controlling interest investment held by third parties ( 77,609 ) total investment portfolio ( excluding non-controlling interests held by third parties ) $ 1,384,975 for more information about our investment portfolio , see note 3 to our consolidated financial statements included in this annual report on form 10-k. 70 a reconciliation of our interest income from loans held for investment , excluding non-controlling interests , to our interest income from loans held for investment as included within our consolidated statements of operations is as follows : $ in thousands for the year
| for the years ended december 31 , 2014 and 2013 , we earned approximately $ 17.5 million and $ 5.0 million in net gains from mortgage banking activities , respectively . gains from mortgage banking activities includes the initial fair value of msrs , loan origination fees , gain on the sale of loans , interest income on loans held for sale , changes to the fair value of derivative financial instruments , including loan commitments and forward sale commitments and reduced by the expense related to the initial fair value of the servicing fee payable and interest expense related to our warehouse lines of credit . the increase in mortgage banking revenue for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 primarily relates to only four months of operations for acre capital being included in the consolidated statements of operations for the year ended december 31 , 2013 compared to one year of operations for the year ended december 31 , 2014. in addition , acre capital rate-locked 36 loans totaling $ 496.6 million in commitments for the year ended december 31 , 2014 compared to 20 loans totaling $ 131.3 million in commitments for the year ended december 31 , 2013 , which resulted in increased mortgage banking revenue for the year ended december 31 , 2014. operating expenses for the years ended december 31 , 2014 and 2013 , we incurred operating expenses of $ 41.6 million and $ 24.3 million , respectively . the increase in operating expenses for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 primarily relates to only four months of operations for acre capital being included in the consolidated statements of operations for the year ended december 31 , 2013 compared to one year of operations for the year ended december 31 , 2014. related party expenses related party expenses for the year ended december 31 , 2014 included $ 5.9 million in management fees due
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net revenues for 2014 increased versus 2013 and operating results are close to our expectations at this relatively low revenue level . a decrease in orders in the latter part of 2014 resulted in a decrease in many key financial metrics compared to the prior quarters . 30 net revenues for the year ended december 31 , 2014 were $ 2.493 billion , compared to net revenues of $ 2.371 billion and $ 2.230 billion for the years ended december 31 , 2013 and 2012 , respectively . the net earnings attributable to vishay stockholders for the year ended december 31 , 2014 were $ 117.6 million , or $ 0.77 per diluted share , compared to net earnings attributable to vishay stockholders of $ 123.0 million , or $ 0.81 per diluted share , and $ 122.7 million , or $ 0.79 per diluted share , for the years ended december 31 , 2013 and 2012 , respectively . the results of operations for the years ended december 31 , 2014 , 2013 , and 2012 include items affecting comparability as listed in the reconciliation below . the reconciliation below includes certain financial measures which are not recognized in accordance with gaap , including adjusted net earnings and adjusted earnings per share . these non-gaap measures should not be viewed as an alternative to gaap measures of performance . non-gaap measures such as adjusted net earnings and adjusted earnings per share 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 these measures are meaningful because they provide insight with respect to our intrinsic operating results . reconciling items to arrive at adjusted net earnings represent significant charges or credits that are important to understanding our intrinsic operations . the items affecting comparability are ( in thousands , except per share amounts ) : replace_table_token_6_th * includes add-back of interest on exchangeable notes in periods where the notes are dilutive . our results for 2012 - 2014 demonstrate our ability to react quickly to changing economic environments , successfully implement cost reduction measures when necessary to sustain earnings , and organically grow our business . despite revenues below our expected run-rate , our pre-tax results were as we would expect based on our business model . 31 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 inventory turnover and 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 . 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 . we analyze trends and changes in average selling prices to evaluate likely future pricing . story_separator_special_tag 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 . 32 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 2013 through the fourth fiscal quarter of 2014 ( dollars in thousands ) : replace_table_token_7_th _ ( 1 ) operating margin for the fourth fiscal quarter of 2013 and the first , second , third , and fourth fiscal quarters of 2014 includes $ 2.8 million , $ 6.4 million , $ 9.0 million , $ 3.5 million and $ 2.0 million , respectively , of restructuring and severance expenses ( see note 4 to our consolidated financial statements ) . operating margin for the third fiscal quarter of 2014 includes $ 15.6 million of u.s. pension settlement charges ( see note 11 to our consolidated financial statements ) . ( 2 ) end of period backlog for the second fiscal quarter of 2014 reflects a total of $ 1.3 million related to the backlog of holy stone polytech co. , ltd. as of the date of acquisition . end of period backlog for the third fiscal quarter of 2014 reflects a total of $ 8.2 million related to the backlog of capella as of the date of acquisition . see `` financial metrics by segment '' below for net revenues , book-to-bill ratio , and gross profit margin broken out by segment . revenues decreased sequentially versus the third fiscal quarter of 2014. the order level through 2014 was higher than the level experienced in the latter half of 2013 , but decreased at the end of the third fiscal quarter of 2014 and continued to weaken in the fourth fiscal quarter of 2014 before showing signs of a possible recovery . the decrease in orders was primarily due to a decrease in demand from distributors , particularly in asia . currency effects also decreased fourth fiscal quarter of 2014 revenues by $ 12 million versus the third fiscal quarter of 2014. 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 margins decreased versus the third fiscal quarter of 2014 , but remain steady versus the prior year . the decrease versus the third fiscal quarter of 2014 is primarily due to the decrease in average selling prices and reduced volume . gross margins have been negatively impacted by additional depreciation associated with our cost reduction programs beginning with the fourth fiscal quarter of 2013 and will continue to be negatively impacted until the complete implementation of our cost reduction programs . the book-to-bill ratio increased to 0.95 in the fourth fiscal quarter of 2014 from 0.91 in the third fiscal quarter of 2014. the book-to-bill ratios for distributors and original equipment manufacturers ( `` oem '' ) were 0.93 and 0.96 , respectively , versus ratios of 0.86 and 0.97 , respectively , during the third fiscal quarter of 2014 . 33 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 2013 through the fourth fiscal quarter of 2014 ( dollars in thousands ) : replace_table_token_8_th 34 acquisition and divestiture 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 . our growth plan targets adding , through acquisitions , an average of approximately $ 100 million of revenues per year . depending on the opportunities available , we might make several smaller acquisitions or a few larger acquisitions . we intend to make such acquisitions using mainly cash , rather than debt or equity , although we do have capacity under our revolving credit facility if necessary . we are not currently targeting acquisitions with a purchase price larger than $ 500 million . there is no assurance that we will be able to identify and acquire additional suitable acquisition candidates at price levels and on terms and conditions we consider acceptable .
| increases and decreases in these incentives are largely attributable to the then-current business climate . royalty revenues , included in net revenues on the consolidated statements of operations , were $ 4.5 million , $ 6.4 million , and $ 7.1 million , for the years ended december 31 , 2014 , 2013 , and 2012 , respectively . gross profit and margins gross profit margins for the year ended december 31 , 2014 were 24.5 % , as compared to 23.9 % for the year ended december 31 , 2013. the increase was due primarily to higher volume and our cost reduction efforts partially offset by lower average selling prices . gross profit margins for the year ended december 31 , 2013 were 23.9 % , as compared to 23.6 % for the year ended december 31 , 2012. the increase was due primarily to higher volume partially offset by lower average selling prices . 43 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 as a percentage of net revenues for the mosfets segment was as follows : replace_table_token_15_th in 2014 , the mosfets segment continued to regain volume that was lost in 2012. the growth was mainly achieved in the first half of the year while it stagnated towards the latter half of 2014. the increase in volume was primarily due to increased demand from distributors in asia . gross profit margin remains below expectations and decreased even further in 2014. the increase in volume , lower materials prices , and other cost reduction measures could not fully offset the decrease in average selling prices , the negative effect of additional depreciation associated with our cost reduction program , and general cost inflation . overall the gross margin results were similar to 2013 with the additional negative effect of a full year of additional depreciation further impacting 2014 results . typical pricing pressure for
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we acquired 12 properties during 2013. at the time of acquisition of some of these properties , our underwriting and what we believe to be our value-oriented purchase prices may have factored in anticipated or potential roll-downs in rent at some upcoming lease expirations . we believe that rental rates in our markets for product such as our properties are just beginning to recover from the 2008 financial crisis and subsequent economic recession , and accordingly we expect potential increases in lease rates upon renewal of upcoming lease expirations as market conditions continue to improve . future economic downturns or regional downturns affecting our submarkets that impair our ability to renew or re-lease space and adverse developments that affect the ability of our tenants to fulfill their lease obligations , such as tenant bankruptcies , could adversely affect our ability to maintain or increase occupancy or rental rates at our properties . adverse developments or trends in one or more of these factors could adversely affect our rental revenue in future periods . additionally , due to the size of our tenant spaces compared with our peer group and our typically shorter-term leases , we may have increased exposure to a negative trend in rental rates among our target tenant base than other industrial reits . scheduled lease expirations our ability to re-lease space subject to expiring leases will impact our results of operations and is affected by economic and competitive conditions in our markets and by the desirability of our individual properties . as of december 31 , 2013 , in addition to approximately 654,016 rentable square feet of currently available space in our properties , leases representing approximately 26.2 % and 18.2 % of the aggregate rentable square footage of our portfolio are scheduled to expire during the years ending december 31 , 2014 and december 31 , 2015 , respectively . as described in more detail above under “ —rental revenue and tenant reimbursements , ” in the year ended december 31 , 2013 we renewed approximately 66.6 % of leases scheduled to expire , which renewed leases represented approximately 72.8 % of the aggregate rentable square footage under all expiring leases in those years , respectively . the leases scheduled to expire during the years ending december 3 1 , 2014 and december 31 , 2015 represent approximately 28.7 % and 19.9 % , respectively , of the total annualized rent for our portfolio . we estimate that , on a weighted average basis , in-place rents of leases scheduled to expire in 2014 and 2015 are currently at or slightly below current market asking rents . however , we believe that rental rates in our markets for product such as our properties are just beginning to recover , and accordingly we expect potential increases in lease rates upon renewal of upcoming 2014 and 2015 lease expirations as market conditions continue to improve . 49 taxable reit subsidiary as part of our formation transactions , we acquired rexford industrial realty and management , inc. , which we refer to as the services company . the services company is wholly owned , indirectly , by our operating partnership . we will elect , together with our services company , to treat our services company as a taxable reit subsidiary for federal income tax purposes . a taxable reit subsidiary generall y may provide non-customary and other services to our tenants and engage in activities that we may not engage in directly without adversely affecting our qualification as a reit , provided a taxable reit subsidiary may not operate or manage a lodging facility or health care facility or provide rights to any brand name under which any lodging facility or health care facility is operated . we may form additional taxable reit subsidiaries in the future , and our operating partnership may contribute some or all of its interests in certain wholly owned subsidiaries or their assets to our services company . any income earned by our taxable reit subsidiaries will not be included in our taxable income for purposes of the 75 % or 95 % gross income tests , except to the extent such income is distributed to us as a dividend , in which case such dividend income will qualify under the 95 % , but not the 75 % , gross income test . because a taxable reit subsidiary is subject to federal income tax , and state and local income tax ( where applicable ) as a regular corporation , the income earned by our taxable reit subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries . conditions in our markets the properties in our portfolio are located primarily in southern california infill markets . positive or negative changes in economic or other conditions , adverse weather conditions and natural disasters in this market may affect our overall performance . rental expenses our rental expenses generally consist of utilities , real estate taxes , insurance and site repair and maintenance costs . for the majority of our properties , our rental expenses are controlled , in part , by either the triple net provisions or modified gross expense reimbursements in tenant leases . however , the terms of our leases vary and in some instances we may absorb rental expenses . our overall financial results will be impacted by the extent to which we are able to pass-through rental expenses to our tenants . general and administrative expenses we expect to incur increased general and administrative expenses , including legal , accounting and other expenses related to corporate governance , public reporting and compliance with various provisions of the sarbanes-oxley act , as compared to our p redecessor . we anticipate that our staffing levels will increase from approximately 40 employees presently to between 45 and 50 employees during the next 12 to 24 months and , as a result , our general and administrative expenses will increase further . story_separator_special_tag critical accounting policies the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses for the reporting periods . actual amounts may differ from these estimates and assumptions . we have summarized below those accounting policies that require material subjective or complex judgments and th at have the most significant impact on financial condition and results of operations . management evaluates these estimates on an ongoing basis , based upon information currently available and on various assumptions that it believes are reasonable as of the date hereof . in addition , other companies in similar businesses may use different estimation policies and methodologies , which may impact the comparability of our results of operations and financial condition to those of other companies . a critical accounting policy is one that is both important to the portrayal of an entity 's financial condition and results of operations and requires judgment on the part of management . generally , the judgment requires management to make estimates and assumptions about the effect of matters that are inherently uncertain . estimates are prepared using management 's best judgment , after considering past and current economic conditions and expectations for the future . the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions . changes in estimates could affect our financial position and specific items in our results of operations that are used by the users of our financial statements in their evaluation of our performance . of the accounting policies discussed in note 2 to the combined financial statements , the accounting policies presented below have been identified by us as critical accounting policies . 50 investment in real estate acquisitions when we acquire operating properties , with the intention to hold the investment for the long-term , we allocate the purchase price to the various components of the acquisition based upon the fair value of each component . the components typically include land , building and improvements , intangible assets related to above and below market leases , intangible assets related to in-place leases , debt and other assumed assets and liabilities . the initial allocation of the purchase price is based on management 's preliminary assessment , which may differ when final information becomes available . subsequent adjustments made to the initial purchase price allocation are made within the allocation period , which typically does not exceed one year . we allocate the purchase price to the fair value of the tangible assets by valuing the property as if it were vacant . w e consider level 3 inputs such as the replacement cost of such assets , appraisals , property condition reports , comparable market rental data and other related information . in determining the fair value of intangible lease assets or liabilities , we consider level 3 inputs including the value associated with leasing commissions , legal and other costs , as well as the estimated period necessary to lease such property and lease commencement . acqu ired above and below market leases are valued based on the present value of the difference between prevailing market rates and the in-place rates measured over a period equal to the remaining term of the lease for above market leases and the initial term plus the term of any below market fixed rate renewal options for below market leases , if applicable . the estimated fair value of acquired in-place at-market tenant leases are the costs that would have been incurred to lease the property to the occupancy level of the property at the date of acquisition . such estimates include the fair value of leasing commissions and legal costs that would be incurred to lease the property to this occupancy level . the difference between the fair value and the face value of debt assumed in connection with an acquisition is recorded as a premium or discount and amortized to “ interest expense ” over the life of the debt assumed . the valuation of assumed liabilities is based on our estimate of the current market rates for similar liabilities in effect at the acquisition date . for acquisitions that do not meet the accounting criteria to be accounted for as a business combination , we record to land and building the purchase price paid and capitalize the associated acquisition costs . capitalization of costs we capitalize costs incurred in developing , renovating , rehabilitating , and improving real estate assets as part of the investment basis . costs incurred in making repairs and maintaining real estate assets are expensed as incurred . during the land development and construction periods , we capitalize interest costs , insurance , real estate taxes and certain general and administrative costs of the personnel performing development , renovations , and rehabilitation if such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use . capitalized costs are included in the investment basis of real estate assets . our estimate of the useful life of our assets is evaluated upon acquisition and when circumstances indicate a change in the useful life , which requires significant judgment regarding the economic obsolescence of tangible and intangible assets . depreciation and amortization real estate , including land , building and land improvements , tenant improvements , and furniture , fixtures and equipment , leasing costs and intangible lease assets and liabilities are stated at historical cost less accumulated depreciation and amortization , unless circumstances indicate that the cost can not be recovered , in which case , the carrying value of the property is reduced to estimated fair value as discussed below in our policy with regards to impairment of long-lived assets . we estimate the depreciable portion of our real estate assets and related useful lives in order to record depreciation expense .
| 53 replace_table_token_16_th 54 rental revenue our same properties portfolio and total portfolio rental revenue increased $ 2.6 million , or 9.6 % , and $ 9.8 million , or 35.2 % , respectively , for the year ended december 31 , 2013 compared to the year ended december 31 , 2012. the increase in our same properties portfolio is primarily due to the increase in our average occupancy for comparable periods . our total portfolio rental revenue was also positively impacted by the revenues from the 15 properties we acquired during 2012 and 2013 and the consolidation of our la jolla sorrento property that was acquired as part our formation transaction . tenant reimbursements our same properties portfolio and total portfolio tenant reimbursements revenue increased $ 0.4 million , or 15.2 % , and $ 1.4 million or 48.1 % , respectively , for the year ended december 31 , 2013 compared to the year ended december 31 , 2012. the increase in our same properties portfolio is primarily due to the increase in our average occupancy for comparable periods . the total portfolio tenant reimbursement revenue was also positively impacted by reimbursement revenues from the 15 properties we acquired during 2012 and 2013 and the consolidation of our la jolla sorrento property that was acquired as part our formation transaction . management , leasing and development services total portfolio management , leasing , and development services revenue increased $ 0.5 million or 88.8 % for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 , due to additional management fee revenues from the properties that our jv acquired in june 2012. there are no management , leasing and development fees allocable to the same properties portfolio . other operating income our same properties portfolio and total portfolio other operating income increased $ 0.2 million for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 , primarily due to receipt of construction easement income at one of our properties . property expenses same properties portfolio and total portfolio property expenses as a percentage of total rental revenues decreased to 23.6 % and 23.7 % respectively , for the year
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the information from these reviews assists management in the timely identification of problems and potential problems and provides a basis for deciding whether the credit represents a probable loss or risk that should be recognized . loans are considered impaired if , based on current information and events , it is probable that southern bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . the measurement of impaired loans is generally based on the fair value of the collateral for collateral-dependent loans . if the loan is not collateral-dependent , the measurement of impairment is based on the present value of expected future cash flows discounted at the historical effective interest rate or the observable market price of the loan . in measuring the fair value of the collateral , management uses the assumptions ( i.e. , discount rates ) and methodologies ( i.e. , comparison to the recent selling price of similar assets ) consistent with those that would be utilized by unrelated third parties . impairment identified through this evaluation process is a component of the allowance for loan losses . if a loan is not considered impaired , it is grouped together with loans having similar characteristics ( i.e. , the same risk grade ) , and an allowance for loan losses is based upon a quantitative factor ( historical average charge-offs for similar loans over the past one to five years ) , and qualitative factors such as changes in lending policies ; national , regional , and local economic conditions ; changes in mix and volume of portfolio ; experience , ability , and depth of lending management and staff ; entry to new markets ; levels and trends of delinquent , nonaccrual , special mention , and classified loans ; concentrations of credit ; changes in collateral values ; agricultural economic conditions ; and regulatory risk . for portfolio loans that are evaluated for impairment as part of homogenous pools , an allowance is maintained based upon similar quantitative and qualitative factors . changes in the financial condition of individual borrowers , in economic conditions , in historical loss experience and in the conditions of the various markets in which collateral may be sold may all affect the required level of the allowance for losses on loans and the associated provision for losses on loans . financial condition story_separator_special_tag style= '' page-break-after : always ; '' > agricultural economic conditions regulatory risk the qualitative factors are applied to the allowance for loan losses based upon the following percentages by loan type : replace_table_token_24_th at june 30 , 2019 , the amount of our allowance for loan losses attributable to these qualitative factors increased to approximately $ 17.1 million , as compared to $ 15.5 million at june 30 , 2018 , primarily due to the increase in loan balances . the relatively small change in qualitative factors applied was attributable to management 's assessment that risks represented by the qualitative factors continue to modestly decrease . premises and equipment . premises and equipment increased to $ 62.7 million , up $ 7.9 million , or 14.4 % , as compared to june 30 , 2018. the increase was due to facilities added through the gideon acquisition , the purchase of a previously leased facility , and other acquisitions of premises and equipment , partially offset by depreciation . boli . the bank has purchased “ key person ” life insurance policies ( boli ) on employees at various times since fiscal 2003 , and has acquired additional boli in connection with certain acquisitions . at june 30 , 2019 , the cash surrender value of all such policies had increased to $ 38.3 million , up $ 790,000 , or 2.1 % , as compared to june 30 , 2018. intangible assets . the july 2009 acquisition of the southern bank of commerce resulted in goodwill of $ 126,000. the october 2013 acquisition of ozarks legacy community financial , inc. , resulted in goodwill of $ 1.5 million and a $ 1.4 million core deposit intangible , which was amortized over a five-year period using the straight-line method and was fully amortized as of june 30 , 2019. the february 2014 acquisition of citizens state bankshares , inc. , resulted in a $ 624,000 core deposit intangible , which was amortized over a five-year period using the straight-line method and was fully amortized as of june 30 , 2019. the august 2014 acquisition of peoples service company , inc. , and its subsidiary , peoples bank of the ozarks ( the “ peoples acquisition ” ) resulted in goodwill of $ 3.0 million and a $ 3.0 million core deposit intangible , which is being amortized over a six-year period using the straight-line method . the june 2017 acquisition of tammcorp , inc. , and its subsidiary , capaha bank ( the “ capaha acquisition ” ) resulted in goodwill of $ 4.1 million and a $ 3.4 million core deposit intangible , which is being amortized over a seven-year period using the straight-line method . the smb-marshfield acquisition resulted in goodwill of $ 4.4 million and a $ 1.3 million core deposit intangible , which is being amortized over a seven-year period using the straight-line method . the gideon acquisition resulted in goodwill of $ 1.0 million and a $ 4.1 million core deposit intangible , which is being amortized over a seven-year period using the straight-line method . goodwill from these acquisitions is not being amortized , but is tested for impairment at least annually . deposits . deposits were $ 1.9 billion at june 30 , 2019 , an increase of $ 313.8 million , or 19.9 % , as compared to june 30 , 2018. the increase was attributable in large part to the gideon acquisition , which included deposits assumed at a fair value of $ 170.7 million . story_separator_special_tag inclusive of the gideon acquisition , deposit balances saw growth primarily in certificates of deposit , money market deposit accounts , and interest-bearing transaction accounts . since june 30 , 2018 , the company 's public unit deposits increased by $ 19.2 million , primarily reflecting approximately $ 18.6 million in public unit deposits assumed in the gideon acquisition , and totaled $ 266.8 million at june 30 , 2019. also since june 30 , 2018 , brokered certificates of deposit increased by $ 31.3 million , to total $ 44.9 million at june 30 , 2019 , while brokered nonmaturity deposits increased by $ 8.3 million , to total $ 8.3 million at june 30 , 2019. no brokered funding was assumed in the gideon acquisition . the company utilized brokered funding during the fiscal year in order to provide funding for loan growth , reduce overnight borrowings , and to maintain pricing discipline for retail deposits . our discussion of brokered deposits excludes those deposits originated through reciprocal arrangements , as our reciprocal deposits are primarily originated by our public unit depositors and utilized as an alternative to pledging securities against those deposits . recently updated regulatory guidance , adopted 57 following the may 2018 enactment of the economic growth , regulatory relief , and consumer protection act ( senate bill 2155 ) , has generally exempted deposits originated through such reciprocal arrangements from classification as brokered deposits for regulatory purposes , subject to some limitations . the average loan-to-deposit ratio for the fourth quarter of fiscal 2019 was 97.6 % , as compared to 98.5 % for the same period of the prior fiscal year . borrowings . fhlb advances were $ 44.9 million at june 30 , 2019 , a decrease of $ 31.7 million , or 41.4 % , as compared to june 30 , 2018 , with the decrease attributable primarily to the company 's use of brokered funding and sales of afs securities ( primarily those acquired in the gideon acquisition ) , as discussed above . the company held no overnight advances at june 30 , 2019 , declining from a balance of $ 66.6 million at june 30 , 2018 , while term advances increased to $ 44.9 million at june 30 , 2019 , from $ 10.1 million a year earlier , partially as a result of term advances assumed in the gideon acquisition . in june 2017 , the company entered into a revolving , reducing line of credit with a five-year term , providing available credit of $ 15.0 million . the line of credit bears interest at a floating rate based on libor , and available credit will be reduced by $ 3.0 million on each anniversary date of the line of credit . at june 30 , 2019 , the company had a drawn balance of $ 3.0 million , and remaining availability of $ 6.0 million on the line of credit . subordinated debt . in march 2004 , $ 7.0 million of floating rate capital securities of southern missouri statutory trust i , with a liquidation value of $ 1,000 per share were issued . the securities bear interest at a floating rate based on libor , are now redeemable at par , and mature in 2034. in connection with its october 2013 acquisition of ozarks legacy , the company assumed $ 3.1 million in floating rate junior subordinated debt securities . the debt securities had been issued in june 2005 by ozarks legacy in connection with the sale of trust preferred securities , bear interest at a floating rate based on libor , are now redeemable at par , and mature in 2035. the carrying value of these debt securities was approximately $ 2.6 million at june 30 , 2019 , as compared to $ 2.6 million at june 30 , 2018. in connection with the peoples acquisition , the company assumed $ 6.5 million in floating rate junior subordinated debt securities . the debt securities had been issued in 2005 by peoples , in connection with the sale of trust preferred securities , bear interest at a floating rate based on libor , are now redeemable at par , and mature in 2035. the carrying value of these debt securities was approximately $ 5.2 million at june 30 , 2019 , as compared to $ 5.1 million at june 30 , 2018. stockholders ' equity . the company 's stockholders ' equity was $ 238.4 million at june 30 , 2019 , an increase of $ 37.7 million , or 18.8 % , as compared to june 30 , 2018. the increase was attributable to the retention of net income , the issuance of common shares in the gideon acquisition , and a decrease in accumulated other comprehensive loss , which was due to a decrease in market interest rates , partially offset by payment of dividends on common stock and modest repurchase activity totaling 35,351 shares acquired at an average price of $ 31.58 per share . comparison of operating results for the years ended june 30 , 2019 and 2018 net income . the company 's net income available to common stockholders for the fiscal year ended june 30 , 2019 , was $ 28.9 million , an increase of $ 8.0 million , or 38.1 % , as compared to the prior fiscal year . net interest income . net interest income for fiscal 2019 was $ 72.8 million , an increase of $ 10.4 million , or 16.7 % , when compared to the prior fiscal year . the increase , as compared to the prior fiscal year , was attributable to a 16.6 % increase in the average balance of interest-earning assets , while the net interest margin was unchanged at 3.78 % . average earning asset balance growth was due in part to the mid-fiscal 2019 gideon acquisition and the full-year effect of the mid-2018 smb marshfield acquisition .
| inclusive of the gideon acquisition , the loan portfolio primarily saw growth in loans secured by commercial real estate , commercial loans , and residential real estate loans . commercial real estate loans increased due mostly to growth in loans secured by nonresidential properties , accompanied by smaller increases in loans secured by agricultural real estate and unimproved land . the increase in commercial loan balances was attributable primarily to growth in commercial & industrial loan balances , accompanied by smaller increases in agricultural operating and equipment loans . growth in residential real estate loans was attributable primarily to loans secured by multi-family real estate , accompanied by a smaller increase in loans secured by one- to four-family real estate . allowance for loan losses . the allowance for loan losses was $ 19.9 million at june 30 , 2019 , an increase of $ 1.7 million , or 9.3 % , as compared to june 30 , 2018. the allowance represented 1.07 % of gross loans receivable at june 30 , 2019 , as compared to 1.15 % of gross loans receivable at june 30 , 2018. the decrease in the allowance as a percentage of gross loans receivable was primarily the result of the gideon acquisition , in which loans subject to purchase accounting , which the company carries at fair value instead of establishing an allowance for loan losses , were added to the portfolio during the fiscal year . see also , provision for loan losses , under comparison of operating results for the years ended june 30 , 2019 and 2018. in its quarterly evaluation of the adequacy of its allowance for loan losses , the company employs historical data , including past due percentages , charge offs , and recoveries for the previous one to five years for each loan category . average net charge offs are calculated as net charge offs for the period by portfolio type as a percentage of the average balance of the respective portfolio type over the same period . the company believes that it is prudent to emphasize more recent historical factors in the allowance evaluation . the following table sets forth the company 's historical net charge
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pending acquisition of certain ownership interests of midwest gaming holdings , llc on october 31 , 2018 , the company announced that it had entered into a definitive purchase agreement pursuant to which the company will acquire certain ownership interests of midwest gaming holdings , llc ( `` midwest gaming '' ) , the parent company of rivers casino des plaines in des plaines , illinois ( `` rivers des plaines '' ) , for cash ( the `` sale transaction '' ) . the sale transaction will be comprised of ( i ) the company 's purchase of 100 % of the ownership stake in midwest gaming held by affiliates and co-investors of clairvest group inc. ( `` clairvest '' ) for approximately $ 291.0 million and ( ii ) the company 's offer to purchase , on the same terms , additional units of midwest gaming held by high plaines gaming , llc ( `` high plaines '' ) , an affiliate of rush street gaming , llc , and casino investors , llc ( `` casino investors '' ) . following the closing of the sale transaction , the parties expect to enter into a recapitalization transaction pursuant to which midwest gaming will use approximately $ 300.0 million in proceeds from new credit facilities to redeem , on a pro rata basis , additional midwest gaming units held by high plaines and casino investors ( the `` recapitalization '' and together with the sale transaction , the `` transactions '' ) . based on the results of the purchase of the clairvest ownership stake and the purchase , on the same terms , of additional units held by high plaines and casino investors , the company will acquire , at the closing of the sale transaction , approximately 42 % of midwest gaming for aggregate cash consideration of approximately $ 407.0 million . as a result of the recapitalization , the company 's ownership of midwest gaming will increase to approximately 62 % . the transactions are dependent on usual and customary closing conditions , including securing approval from the illinois gaming board . the transactions are expected to close in the first half of 2019. stock split on october 31 , 2018 , the company announced a three-for-one split ( the `` stock split '' ) of the company 's common stock for shareholders of record as of january 11 , 2019. the additional shares resulting from the stock split were distributed on january 25 , 2019. our common stock began trading at the split-adjusted price on january 28 , 2019. all share and per-share amounts in the company 's consolidated financial statements and related notes in part ii . item 8. financial statements and supplementary data have been retroactively adjusted to reflect the effects of the stock split . key indicators to evaluate business results and financial condition our management monitors a variety of key indicators to evaluate our business results and financial condition . these indicators include changes in net revenue , operating expense , operating income , earnings per share , outstanding debt balance , operating cash flow and capital spend . our consolidated financial statements have been prepared in conformity with u.s. generally accepted accounting principles ( `` gaap '' ) . we also use non-gaap measures , including ebitda ( earnings before interest , taxes , depreciation and amortization ) and adjusted ebitda . we believe that the use of adjusted ebitda as a key performance measure of results of operations enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner . our chief operating decision maker utilizes adjusted ebitda to evaluate segment performance , develop strategy and allocate resources . adjusted ebitda is a supplemental measure of our performance that is not required by , or presented in accordance with , gaap . adjusted ebitda should not be considered as an alternative to , or more meaningful than , net income ( as determined in accordance with gaap ) as a measure of our operating results . in the fourth quarter of 2018 , we changed our twinspires segment name to online wagering as we continue to expand our online sports betting and igaming platforms . effective january 1 , 2017 , certain revenue previously included in our corporate segment was deemed by management to be more closely aligned with our online wagering segment . the company has not allocated corporate and other certain expenses to big fish games consistent with the discontinued operations presentation in the accompanying consolidated statements of comprehensive income . accordingly , the prior year amounts were reclassified to conform to this presentation . adjusted ebitda is defined as earnings before interest , taxes , depreciation and amortization , adjusted for the following : adjusted ebitda includes our portion of the ebitda from our equity investments . 38 adjusted ebitda excludes : transaction expense , net which includes : acquisition and disposition related charges , including fair value adjustments related to earnouts and deferred payments ; calder racing exit costs ; and other transaction expense , including legal , accounting and other deal-related expense ; stock-based compensation expense ; asset impairments ; gain on ocean downs/saratoga transaction ; gain on calder land sale ; loss on extinguishment of debt ; pre-opening expenses ; and other charges , recoveries and expenses for segment reporting , adjusted ebitda includes intercompany revenue and expense totals that are eliminated in the consolidated statements of comprehensive income . see the reconciliation of comprehensive income to adjusted ebitda included in this section for additional information . story_separator_special_tag story_separator_special_tag net deferred tax liabilities associated with the tax act which did not recur in 2018 ; ( 4 ) a $ 27.0 million income tax benefit in 2018 as a result of the tax act which reduced the maximum federal corporate income tax rate from 35 % to 21 % effective january 1 , 2018 ; and ( 5 ) a $ 5.5 million after-tax decrease primarily related to higher transaction expenses and pre-opening costs in 2018 related to derby city gaming . the remaining $ 27.6 million of the increase in net income from continuing operations was primarily due to a $ 21.8 million increase driven by after-tax income from our operating segments and after-tax equity in income of our unconsolidated affiliates ; and a $ 5.8 million after-tax decrease in interest expense associated with lower outstanding debt balances . our net income increased $ 212.3 million due to a $ 60.2 million increase in net income from continuing operations discussed above and a $ 152.1 million increase in net income from discontinued operations . the increase in net income from discontinued operations was due to a $ 168.3 million after tax gain on the big fish transaction ( $ 219.5 million pre-tax ) , partially offset by a $ 16.2 million decrease in big fish games net income . our adjusted ebitda increased $ 42.6 million driven by a $ 23.5 million increase from casino primarily driven by strong performances of our wholly-owned casino properties , a $ 7.9 million increase from racing primarily due to a successful kentucky derby and oaks week driven by increased ticket sales and handle , a $ 8.4 million increase at our online wagering segment driven by the increase in handle , a $ 1.6 million increase from other investments primarily due to the opening of derby city gaming in september 2018 , and a $ 1.2 million increase in corporate due to additional allocation of costs to our segments from corporate . year ended december 31 , 2017 , compared to the year ended december 31 , 2016 our net revenue increased $ 60.2 million driven by a $ 34.0 million increase from our online wagering segment due to a 16.9 % increase in handle , a $ 17.7 million increase from casino due to successful marketing and promotional activities , a $ 6.2 million increase in racing primarily due to a strong kentucky derby and oaks week performance , and a $ 2.3 million increase from other investments . our operating income decreased $ 26.8 million driven by a $ 23.7 million gain on calder land sale in 2016 that did not recur in 2017 , a $ 21.7 million impairment of our igaming and intangible assets associated with our online wagering segment and arlington recorded in the fourth quarter of 2017 , a $ 3.7 million increase in selling , general and administrative expense primarily driven by an increase in salaries and associated benefits and stock-based compensation , a $ 2.1 million increase in other expenses primarily due to the elimination of our bluff contingent liability in 2016 that did not recur in 2017 , and a $ 0.2 million increase in other sources . partially offsetting these decreases in operating income were an $ 11.7 million increase from our casino segment performance , a $ 10.5 million increase at our online wagering segment driven by an increase in handle growth , a $ 1.4 million increase from racing , and a $ 1.0 million increase from other investments . our net income from continuing operations increased $ 25.7 million in 2017 as compared to 2016. approximately $ 12.9 million of the increase related to the net effect of the following items that impacted comparability : ( 1 ) a $ 57.7 million provisional tax benefit recorded in the fourth quarter of 2017 related the re-measurement of our net deferred tax liabilities associated with the tax act , which was partially offset by ( 2 ) $ 26.5 million of non-cash after-tax asset impairments and loss on extinguishment of debt in the fourth quarter of 2017 that did not occur in 2016 , ( 3 ) a $ 14.8 million after-tax gain on calder land sale in 2016 that did not recur in 2017 , and ( 4 ) a $ 3.5 million after-tax increase in other expenses due to increased transaction expenses and the elimination of our bluff contingent liability in 2016 that did not recur in 2017. the remaining $ 12.8 million of the increase in net income from operations was primarily due to a $ 16.3 million increase driven by after-tax income from our operating segments and after-tax equity in income from our unconsolidated affiliates , partially offset by a $ 3.5 million after-tax increase in interest expense associated with higher outstanding debt balances . our net income increased $ 32.4 million due to a $ 25.7 million increase related to net income from continuing operations discussed above and a $ 6.7 million increase in net income from discontinued operations related to big fish games . our adjusted ebitda increased $ 33.9 million driven by a $ 20.2 million increase in casino due to our unconsolidated investments and organic growth at certain properties , an $ 8.2 million increase from our online wagering segment due to an increase in handle , a $ 4.8 million increase from racing due to a strong kentucky derby and oaks week performance , and a $ 1.0 million increase from other investments . partially offsetting these increases was a $ 0.3 million decrease from corporate . 41 financial results by segment net revenue by segment the following table presents net revenue for our operating segments , including intercompany revenue : replace_table_token_5_th year ended december 31 , 2018 , compared to the year ended december 31 , 2017 racing revenue increased $ 18.8 million driven by a $ 21.0 million increase at churchill downs primarily due to a successful kentucky derby and oaks week performance .
| we announced the agreement to purchase presque isle in erie , pennsylvania and closed the transaction on january 11 , 2019. we announced the agreement to acquire certain assets and assume the rights and obligations to operate the lady luck nemacolin in farmington , pennsylvania , which we expect to close in the first half of 2019. we announced an agreement to acquire certain ownership interests in midwest gaming , the parent company of rivers casino des plaines in chicago , illinois . after aggregate cash consideration of approximately $ 407.0 million and completion of the recapitalization , we anticipate owning approximately 62 % of midwest gaming upon consummation of the transactions , which is expected to occur in the first half of 2019. we launched our retail betamerica sportsbook at our two mississippi casino properties in august 2018 and we launched our online betamerica sportsbook and betamerica casino platform in new jersey in february 2019. on february 6 , 2019 , we received approval to open a retail and online betamerica sportsbook in pennsylvania and are planning to launch our retail betamerica sportsbook at our presque isle facility after additional approvals are obtained , including licensing for the related equipment and software providers . 39 on january 9 , 2018 , the company completed the big fish transaction for aggregate cash consideration of $ 990.0 million . on february 12 , 2018 , the company completed a `` modified dutch auction '' tender offer and repurchased $ 500.0 million of the company 's shares with a portion of our proceeds from the big fish transaction . on october 30 , 2018 , the board of directors authorized a new common stock repurchase program of up to $ 300.0 million which replaced the prior $ 250.0 million program , and a three-for-one stock split of the company 's common stock with a proportionate increase in the number of our authorized shares of common stock effective on january 25 , 2019. as we look to 2019 and beyond , we remain committed to delivering strong financial results and long-term sustainable growth for our shareholders . we have strong cash flow and a solid balance sheet that supports organic growth as well as other strategic
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within the company 's other business units , wolverine retail reported revenue growth in the mid teens in fiscal year 2011 compared to fiscal year 2010 as a result of a high twenties percentage growth rate in the company 's e-commerce channel and a mid single digit percentage growth rate in comparable store sales from company-owned stores . wolverine retail operated 101 retail stores worldwide at the end of fiscal year 2011 and operated 88 retail stores at the end of fiscal year 2010 , with sixteen new store openings in fiscal year 2011 partially offset by the closure of three existing locations during fiscal year 2011. the wolverine leathers business reported a revenue decline at a rate in the mid twenties , as a result of soft demand from certain key customers and the divestiture of its low-margin procurement division in the fourth quarter of 2010. gross margin for fiscal year 2011 , the company 's consolidated gross margin was flat compared to fiscal year 2010. higher product input costs and a negative shift in the mix of product sold decreased consolidated gross margin by approximately 150 basis points and 110 basis points , respectively . these decreases were offset by the positive impact from strategic selling price increases and the effect of foreign exchange . operating expenses operating expenses increased $ 36.2 million , from $ 350.3 million in fiscal year 2010 to $ 386.5 million in fiscal year 2011. the higher operating expense was due to an increase at a rate in the mid teens in distribution costs , which vary with revenue and advertising and marketing expenses , designed to enhance brand awareness . in addition , selling commissions , which vary with revenue , increased at a rate in the low teens and changes in 26 foreign exchange rates had a $ 5.0 million unfavorable impact on reported operating expenses . these increases were partially offset by a $ 2.8 million dollar reduction in restructuring and other transition costs in fiscal year 2011 compared to fiscal year 2010. interest , other and taxes the increase in net interest expense reflects the increase in revolver borrowings for fiscal year 2011 compared to fiscal year 2010. the decrease in other income is related to the sale of wolverine procurement assets in the fourth quarter of fiscal year 2010 , which resulted in a $ 1.1 million gain , with the remainder of the decrease due to the change in realized gains or losses on foreign denominated assets and liabilities . the company 's full year effective tax rate in fiscal year 2011 was 27.0 % , compared to 27.1 % in fiscal year 2010. the modestly lower effective tax rate reflects the fact that a higher percentage of the company 's earnings in fiscal year 2011 were attributable to foreign jurisdictions where tax rates are lower than in the u.s. or nontaxable based on specific tax rulings and legislation . the company maintains certain strategic management and operational activities in overseas subsidiaries , and its foreign earnings are taxed at rates that are generally lower than the u.s. federal statutory income tax rate . a significant amount of the company 's earnings are generated by its canadian , european and asia pacific subsidiaries and , to a lesser extent , in jurisdictions that are not subject to income tax and free trade zones where the company owns manufacturing operations . the company has not provided for u.s. taxes for earnings generated in foreign jurisdictions because it plans to reinvest these earnings indefinitely outside the u.s. however , if certain foreign earnings previously treated as permanently reinvested are repatriated , the additional u.s. tax liability could have a material adverse effect on the company 's after-tax results of operations and financial position . net earnings and earnings per share as a result of the revenue , gross margin and expense changes discussed above , the company had net earnings of $ 123.3 million in fiscal year 2011 , compared to $ 104.5 million in fiscal year 2010 , an increase of $ 18.8 million . diluted net earnings per share increased 17.5 % in fiscal year 2011 to $ 2.48 , from $ 2.11 in fiscal year 2010. the increase was attributable to increased revenue , stable gross margin and lower restructuring and other transition costs , as detailed above . the company repurchased approximately 1,840,000 shares of common stock in fiscal year 2011 for approximately $ 65.3 million and repurchased approximately 1,795,000 shares in fiscal year 2010 for approximately $ 51.2 million , both of which lowered the average shares outstanding . inflation did not have a significant impact on revenue or net earnings . results of operations fiscal 2010 compared to fiscal 2009 financial summary 2010 versus 2009 replace_table_token_7_th 27 replace_table_token_8_th the following is supplemental information on total revenue : total revenue replace_table_token_9_th revenue revenue in fiscal year 2010 increased $ 147.4 million , to $ 1.249 billion . the growth was driven by increases in revenues for all three branded footwear , apparel and licensing operating groups and the company 's other business units . the outdoor group and heritage group led the revenue growth , with revenues increasing 12.3 % and 15.3 % , respectively , while revenues for the other business units increased 19.1 % . changes in foreign exchange rates increased reported revenue by $ 4.3 million . international revenue represented 38.4 % of total revenue in fiscal year 2010 compared to 37.3 % in fiscal year 2009. the outdoor group branded footwear , apparel and licensing operating group 's revenue increased 12.3 % . fueling growth for the group was a mid single digit percentage increase in merrell ® brand footwear unit sales , driven by an increase in units at a rate in the high teens rate in the brand 's international markets . story_separator_special_tag for merrell ® brand apparel , the increase in revenue for fiscal 2010 was driven by unit sales growth in the mid fifties , 28 attributable to strong category presentations and improved product lines . patagonia ® footwear 's revenue increased at a growth rate in the mid thirties in fiscal year 2010 compared to fiscal year 2009 due to continued strong demand from key outdoor retailers . the chaco ® brand revenue in fiscal year 2010 grew at a rate in the high teens compared to fiscal year 2009 , due to the brand 's expanded distribution in the united states . the heritage group branded footwear , apparel and licensing operating group 's revenue increased 15.3 % . the growth drivers for the group were the wolverine ® brand and cat ® footwear , with growth at rates in the low twenties and mid teens , respectively . the revenue increase for the wolverine ® brand resulted from a u.s. revenue growth rate in the mid teens for the brand 's core work boot and rugged casual businesses . cat ® footwear 's revenue increased at a rate in the mid teens compared to fiscal year 2009 , reflecting stronger sales in both the u.s. and european markets , with percentage increases in the mid teens and low twenties , respectively . revenue from the bates ® footwear business grew at a high single digit rate as the company began shipping military boots under a major contract awarded in the third quarter of fiscal year 2010. harley-davidson ® footwear revenue increased at a mid single digit rate compared to fiscal year 2009 due to organic growth in the european market . hytest ® revenue increased at a rate in the low thirties due to a rebound in the safety footwear market in the united states . the lifestyle group branded footwear , apparel and licensing operating group 's revenue increased 8.3 % . the hush puppies ® brand revenue increased at a low single digit rate as mid single digit percentage growth in the u.s. , and a growth rate in the mid teens for the third-party licensing business was partially offset by a high single digit percentage revenue decline in the canadian market . the sebago ® brand revenue increased at a rate in the mid teens , and the cushe ® brand more than doubled its revenue in fiscal year 2010. the sebago ® brand 's increase resulted from solid organic growth in european and third party distributor markets , with percentage increases in the mid twenties and mid teens , respectively , as the brand benefitted from investments designed to increase brand awareness . the cushe ® brand 's growth was driven by the excellent placement secured in specialty , outdoor and surf retail venues . within the company 's other business units , wolverine retail reported a revenue growth rate in the mid teens compared to fiscal year 2009 as a result of growth in the company 's e-commerce channel at a rate in the mid fifties and mid single-digit percentage growth in comparable store sales from company-owned stores . wolverine retail operated 88 retail stores worldwide at the end of both fiscal years 2010 and 2009 , with seven store openings in fiscal year 2010 offset by the closure of seven existing locations during fiscal year 2010. the wolverine leathers business reported a revenue percentage increase in the low thirties , due to strong demand for wolverine 's proprietary pigskin leather from third-party customers . gross margin for fiscal year 2010 , the company 's consolidated gross margin was 30 basis points higher than the prior year . favorable shift in the mix of product sold increased consolidated gross margin by approximately 60 basis points . this increase was partially offset by the negative effect of higher product costs . operating expenses operating expenses increased $ 4.2 million , from $ 346.1 million in fiscal year 2009 to $ 350.3 million in fiscal year 2010. the increase was related to a mid twenties percentage increase in advertising and marketing expenses designed to increase brand awareness ; a high single digit percentage increase in selling commissions , which vary with revenue ; and a mid single digit percentage increase in distribution costs , which also vary with revenue . these increases were partially offset by continued discipline in general and administrative expenses and a $ 26.9 million dollar reduction in restructuring and other transition costs . interest , other and taxes the increase in net interest expense reflected increased facility fees under the new credit agreement and increased amortization of closing costs related to the new credit facility , offset by a reduction in revolver borrowings in fiscal year 2010 . 29 the increase in other income is due to the sale of wolverine procurement assets in the fourth quarter of fiscal year 2010 , which resulted in a $ 1.1 million gain , with the remainder of the increase due to the change in realized gains or losses on foreign denominated assets and liabilities . the company 's full year effective tax rate in fiscal year 2010 was 27.1 % , compared to 27.8 % in fiscal year 2009. the lower effective tax rate reflects benefits from the favorable settlement of a foreign tax audit and the fact that a higher percentage of the company 's earnings in fiscal year 2010 were attributable to foreign jurisdictions where tax rates are lower than in the u.s. or nontaxable based on specific tax rulings and legislation . the company maintains certain strategic management and operational activities in overseas subsidiaries and its foreign earnings are taxed at rates that are generally lower than the u.s. federal statutory income tax rate . a significant amount of the company 's earnings are generated by its canadian , european and asia pacific subsidiaries and , to a lesser extent , in jurisdictions that are not subject to income tax and free trade zones where the company owns manufacturing operations . the company has not provided for u.s.
| the company expects modest gross margin growth in fiscal year 2012 , driven by continued favorable shifts in brand and channel mix , strategic selling price increases and more moderate product costs . the company anticipates modest full year operating expense deleverage as a result of increased pension expense , costs associated with expanding the company 's u.s. and european distribution infrastructure and continued growth of the company 's brick-and-mortar retail operations . the company expects a full year effective tax rate of approximately 28.0 % and fully diluted earnings per share growth in the mid to high single digits . the following is a discussion of the company 's results of operations and liquidity and capital resources . this section should be read in conjunction with the company 's consolidated financial statements and related notes included elsewhere in this annual report . results of operations fiscal 2011 compared to fiscal 2010 financial summary 2011 versus 2010 replace_table_token_5_th 24 replace_table_token_6_th the company has one reportable segment that is engaged in designing , manufacturing , sourcing , marketing , licensing and distributing branded footwear , apparel and accessories . in january 2011 , the company realigned its branded operating groups , and now identifies three operating groups within its branded footwear , apparel and licensing reportable segment : outdoor group , consisting of merrell ® , chaco ® and patagonia ® footwear and merrell ® brand apparel ; heritage group , consisting of wolverine ® boots and shoes and wolverine ® brand apparel , cat ® footwear , bates ® , harley-davidson ® footwear , and hytest ® ; and lifestyle group , consisting of hush puppies ® footwear and apparel , sebago ® footwear and apparel , cushe ® and soft style ® . the company 's other operating groups , which do not collectively comprise a separate reportable segment , consist of wolverine retail ( the company 's consumer-direct business ) and wolverine leathers ( which markets pigskin leather primarily for use in the footwear industry ) . the following is supplemental information on total
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when used in this report , “ the corporation ” may refer to bank of america corporation individually , bank of america corporation and its subsidiaries , or certain of bank of america corporation 's subsidiaries or affiliates . our principal executive offices are located in charlotte , north carolina . through our banking and various nonbank subsidiaries throughout the u.s. and in international markets , we provide a diversified range of banking and nonbank financial services and products through four business segments : consumer banking , global wealth & investment management ( gwim ) , global banking and global markets , with the remaining operations recorded in all other . we operate our banking activities primarily under the bank of america , national association ( bank of america , n.a . or bana ) charter . at december 31 , 2017 , the corporation had approximately $ 2.3 trillion in assets and a headcount of approximately 209,000 employees . headcount remained relatively unchanged since december 31 , 2016. as of december 31 , 2017 , we operated in all 50 states , the district of columbia , the u.s. virgin islands , puerto rico and more than 35 countries . our retail banking footprint covers approximately 85 percent of the u.s. population , and we serve approximately 47 million consumer and small business relationships with approximately 4,500 retail financial centers , approximately 16,000 atms , and leading digital banking platforms ( www.bankofamerica.com ) with approximately 35 million active users , including approximately 24 million mobile active users . we offer industry-leading support to approximately three million small business owners . our wealth management businesses , with client balances of nearly $ 2.8 trillion , provide tailored solutions to meet client needs through a full set of investment management , brokerage , banking , trust and retirement products . we are a global leader in corporate and investment banking and trading across a 19 bank of america 2017 broad range of asset classes serving corporations , governments , institutions and individuals around the world . 2017 economic and business environment the u.s. economy gained momentum in 2017 , as it grew for the eighth consecutive year . following a soft start , partly driven by sharp inventory liquidation and adverse weather effects , gdp growth accelerated over the remainder of the year . economic growth was supported by a noticeable pickup in business investment in high-tech equipment , a recovery in oil exploration and solid consumer demand growth . a revitalization in u.s. export growth , on the back of a weakening dollar and stronger global growth , also had beneficial impacts . gdp growth was limited by a mid-year softening in residential investment and a flat period for government consumption and investment . the housing market finished the year strongly . a lean supply of unsold inventory and solid demand was supportive of steady home price appreciation through much of the year . the labor market continued to tighten as job creation exceeded the growth in the labor force . the unemployment rate fell to a 17-year low . wage growth , however , remained relatively muted . inflation also remained low . the headline rate edged somewhat higher on recovering energy prices . but core inflation , excluding volatile food and energy components , slowed unexpectedly over much of the year , as goods ' prices and health care inflation softened , and the acceleration in rents leveled off . core inflation once again finished the year below the federal reserve 's two percent target level . equity markets advanced strongly in 2017 , with the s & p 500 increasing by approximately 20 percent . the anticipation of corporate tax reform and strong global earnings growth appeared to fuel the stock market 's strong performance . following a mid-year decline , long-term treasury yields recovered towards the end of 2017 , but finished little changed from the start of the year . with short-end rates rising over the course of the year , the yield curve flattened considerably . after a brief surge following the 2016 election , the trade-weighted dollar declined over most of 2017. the federal open market committee ( fomc ) raised its target range for the federal funds rate three times in 2017 , bringing the total rise in the funds rate during the current cycle to 125 basis points ( bps ) . the federal reserve also began allowing a small portion of its treasury and mortgage-backed securities ( mbs ) to roll off as monetary policy normalization continued . current federal reserve baseline forecasts suggest gradual rate increases will continue into 2018 against a backdrop of solid economic expansion and a tightening labor market . the improved economic momentum in 2017 was not confined to the u.s. the eurozone posted its strongest gdp growth in 10 years , despite heightened political uncertainty and fragmentation . in this context , the european central bank decided to taper its quantitative easing program even if domestic inflationary pressures remained historically weak . the impact of the 2016 u.k. referendum vote in favor of leaving the european union ( eu ) started to materialize within the u.k. economy which , despite the robust global momentum , showed its weakest gdp growth in five years . supported by a very accommodative monetary policy stance and sustained growth in external demand , the japanese economy expanded at the strongest pace since 2010 with headline inflation remaining positive throughout the year . across emerging nations , economic activity was supported by china 's continued transition towards a more consumption-based growth model , as well as by the recovery in brazil and russia following the 2016 recession . story_separator_special_tag recent events capital management during 2017 , we repurchased approximately $ 12.8 billion of common stock pursuant to the board 's repurchase authorizations under our 2017 and 2016 comprehensive capital analysis and review ( ccar ) capital plans , including repurchases to offset equity-based compensation awards , and pursuant to an additional $ 5 billion share repurchase authorization approved by the board and the federal reserve in december 2017. for more information , see capital management on page 45 . change in tax law on december 22 , 2017 , the president signed into law the tax cuts and jobs act ( the tax act ) which made significant changes to federal income tax law including , among other things , reducing the statutory corporate income tax rate to 21 percent from 35 percent and changing the taxation of our non-u.s. business activities . results for 2017 included an estimated reduction in net income of $ 2.9 billion due to the tax act , driven largely by a lower valuation of certain u.s. deferred tax assets and liabilities . we have accounted for the effects of the tax act using reasonable estimates based on currently available information and our interpretations thereof . this accounting may change due to , among other things , changes in interpretations we have made and the issuance of new tax or accounting guidance . long-term debt exchange in december 2017 , pursuant to a private offering , we exchanged $ 11.0 billion of outstanding long-term debt for new fixed/floating-rate senior notes , subject to certain terms and conditions . the impact on our results of operations related to this exchange was not significant . for more information on this exchange , see liquidity risk on page 49 . bank of america 2017 20 selected financial data table 1 provides selected consolidated financial data for 2017 and 2016 . replace_table_token_4_th ( 1 ) return on average tangible common shareholders ' equity is a non-gaap financial measure . for more information and a corresponding reconciliation to accounting principles generally accepted in the united states of america ( gaap ) financial measures , see non-gaap reconciliations on page 88 . financial highlights net income was $ 18.2 billion , or $ 1.56 per diluted share in 2017 compared to $ 17.8 billion , or $ 1.49 per diluted share in 2016 . the results for 2017 include an estimated charge of $ 2.9 billion related to the tax act . the pre-tax results for 2017 compared to 2016 were driven by higher revenue , largely the result of an increase in net interest income , lower provision for credit losses and a decline in noninterest expense . effective october 1 , 2017 , we changed our accounting method for determining when certain stock-based compensation awards granted to retirement-eligible employees are deemed authorized , changing from the grant date to the beginning of the year preceding the grant date when the incentive award plans are generally approved . as a result , the estimated value of the awards is now expensed ratably over the year preceding the grant date . all prior periods presented herein have been restated for this change in accounting method . the change affected consolidated financial information and all other ; it did not affect the business segments . under the applicable bank regulatory rules , we are not required to and , accordingly , did not restate previously-filed capital metrics and ratios . the cumulative impact of the change in accounting method resulted in an insignificant pro forma change to our capital metrics and ratios . for more information , see note 1 - summary of significant accounting principles to the consolidated financial statements . replace_table_token_5_th 21 bank of america 2017 net interest income net interest income increased $ 3.6 billion to $ 44.7 billion in 2017 compared to 2016 . the net interest yield increased 11 bps to 2.32 percent for 2017 . these increases were primarily driven by the benefits from higher interest rates and loan and deposit growth , partially offset by the sale of the non-u.s. consumer credit card business in the second quarter of 2017. for more information regarding interest rate risk management , see interest rate risk management for the banking book on page 81 . noninterest income replace_table_token_6_th noninterest income increased $ 80 million to $ 42.7 billion for 2017 compared to 2016 . the following highlights the significant changes . ● service charges increased $ 180 million primarily driven by the impact of pricing strategies and higher treasury services-related revenue . ● investment and brokerage services income increased $ 536 million primarily driven by the impact of assets under management ( aum ) flows and higher market valuations , partially offset by the impact of changing market dynamics on transactional revenue and aum pricing . ● investment banking income increased $ 770 million primarily due to higher advisory fees and higher debt and equity issuance fees . ● trading account profits increased $ 375 million primarily due to increased client financing activity in equities , partially offset by weaker performance across most fixed-income products . ● mortgage banking income decreased $ 1.6 billion primarily driven by lower net servicing income due to lower net mortgage servicing rights ( msr ) results , and lower production income primarily due to lower volume . ● gains on sales of debt securities decreased $ 235 million primarily driven by lower activity . ● other income remained relatively unchanged . included was a $ 793 million pre-tax gain recognized in connection with the sale of the non-u.s. consumer credit card business and a downward valuation adjustment of $ 946 million on tax-advantaged energy investments in connection with the tax act . provision for credit losses the provision for credit losses decreased $ 201 million to $ 3.4 billion for 2017 compared to 2016 primarily due to reductions in energy exposures in the commercial portfolio and credit quality improvements in the consumer real estate portfolio .
| net interest income is allocated to the deposit products using our funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics . deposits generates fees such as account service fees , non-sufficient funds fees , overdraft charges and atm fees , as well as investment and brokerage fees from merrill edge accounts . merrill edge is an integrated investing and banking service targeted at customers with less than $ 250,000 in investable assets . merrill edge provides investment advice and guidance , client brokerage asset services , a self-directed online investing platform and key banking 31 bank of america 2017 capabilities including access to the corporation 's network of financial centers and atms . deposits includes the net impact of migrating customers and their related deposit and brokerage asset balances between deposits and gwim as well as other client-managed businesses . for more information on the migration of customer balances to or from gwim , see gwim – net migration summary on page 35 . net income for deposits increased $ 1.2 billion to $ 4.6 billion in 2017 driven by higher revenue , partially offset by higher noninterest expense . net interest income increased $ 2.7 billion to $ 13.4 billion primarily due to the beneficial impact of an increase in investable assets as a result of higher deposits , and pricing discipline . noninterest income increased $ 111 million to $ 4.7 billion driven by higher service charges . the provision for credit losses increased $ 27 million to $ 201 million in 2017 . noninterest expense increased $ 703 million to $ 10.4 billion primarily driven by investments in digital capabilities and business growth , including increased primary sales professionals , combined with investments in new financial centers and renovations , higher personnel expense , including the shared success discretionary year-end bonus , and increased fdic expense . average deposits increased $ 54.5 billion to $ 646.9 billion in 2017 driven by strong organic growth . growth in checking , money market savings and traditional savings of
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preliminary data from the ist demonstrate that a daily dose of 40 mg resulted in a rate of bone scan responses similar to that of a 100 mg daily dose used in the rdt and was associated with improved tolerability compared with the higher dose . in addition , preliminary data from a cohort of crpc patients in the nre treated at a daily dose of 40 mg demonstrate pain palliation responses consistent with observations at the 100 mg daily dose . it is a priority for us to generate additional data from the rdt as well as other ongoing exploratory clinical trials for cabozantinib in a broad range of tumor types , including ovarian cancer , melanoma , breast cancer , non-small cell lung cancer , hepatocellular cancer , renal cell carcinoma and differentiated thyroid cancer , to support further prioritization of our clinical and commercial options . in november 2011 , we entered into a cooperative research and development agreement , or crada , with the national cancer institute 's cancer therapy evaluation program , or ctep , for further evaluation of cabozantinib across multiple tumor types and in combination with other anti-tumor agents in a cost-effective manner for exelixis . we believe that cabozantinib 's clinical profile is compelling and will allow commercial differentiation , assuming regulatory approval . collaborations we have established collaborations with leading pharmaceutical and biotechnology companies , including bristol-myers squibb company , or bristol-myers squibb , sanofi , genentech , inc. ( a wholly owned member of the roche group ) , glaxosmithkline , merck ( known as msd outside of the united states and canada ) and daiichi sankyo company limited , or daiichi sankyo , for various compounds and programs in our portfolio . pursuant to these collaborations , we have out-licensed compounds or programs to a partner for further development and commercialization , generally have no further unfunded cost obligations related to such compounds or programs and may be entitled to receive research funding , milestones and royalties or a share of profits from commercialization . several of the out-licensed compounds are in multiple phase 2 studies and could potentially be of significant value to us if their development progresses successfully . with respect to our partnered compounds , we are eligible to receive potential milestone payments under our collaborations totaling approximately $ 3.1 billion in the aggregate on a non-risk adjusted basis , of which 10 % are related to clinical development milestones , 44 % are related to regulatory milestones and 46 % are related to commercial milestones . certain factors important to understanding our financial condition and results of operations successful development of drugs is inherently difficult and uncertain . our business requires significant investments in research and development over many years , often for products that fail during the research and development process . our long-term prospects depend upon our ability , particularly with respect to cabozantinib , and the ability of our partners to successfully commercialize new therapeutics in highly competitive areas such as cancer treatment . our financial performance is driven by many factors , including those described below . 43 clinical development of cabozantinib and other product candidates on december 11 , 2008 , we entered into a worldwide collaboration agreement with bristol-myers squibb for cabozantinib and xl281 , which was amended and restated as of april 15 , 2011 by and between us and bristol-myers squibb , or as amended and restated , the 2008 agreement . upon effectiveness of the 2008 agreement in december 2008 , bristol-myers squibb made a nonrefundable upfront cash payment of $ 195.0 million for the development and commercialization rights to both programs . the 2008 agreement required bristol-myers squibb to make additional license payments to us of $ 45.0 million , which were received during 2009. on june 18 , 2010 , we regained full rights to develop and commercialize cabozantinib under the 2008 agreement following receipt of notice from bristol-myers squibb of its decision to terminate the 2008 agreement , solely as to cabozantinib , on a worldwide basis . bristol-myers squibb informed us that the termination was based upon its review of cabozantinib in the context of bristol-myers squibb 's overall research and development priorities and pipeline products . on june 28 , 2010 , in connection with the termination , we received a $ 17.0 million transition payment from bristol-myers squibb in satisfaction of its obligations under the 2008 agreement to continue to fund its share of development costs for cabozantinib for a period of three months following the notice of termination . as a result of the termination , bristol-myers squibb 's license relating to cabozantinib terminated and its rights to cabozantinib reverted to us , and we received , subject to certain terms and conditions , licenses from bristol-myers squibb to research , develop and commercialize cabozantinib . on july 8 , 2011 , we and one of our wholly-owned subsidiaries received written notification from bristol-myers squibb of its decision to terminate the 2008 agreement on a worldwide basis as to xl281 . the termination was made pursuant to the terms of the 2008 agreement and became effective on october 8 , 2011. we are focusing our proprietary resources and development efforts on the development of cabozantinib . however , the product candidate may fail to show adequate safety or efficacy in clinical testing . furthermore , predicting the timing of the initiation or completion of clinical trials is difficult , and our trials may be delayed due to many factors , including factors outside of our control . the future development path of cabozantinib depends upon the results of each stage of clinical development . we expect to incur increased expenses for the development of cabozantinib as it advances in clinical development . story_separator_special_tag with the exception of activities related to cabozantinib , we are discontinuing efforts with respect to all of our compounds and programs that are not funded by partners pursuant to collaboration agreements and are considering collaborations or other external opportunities for the continued development of these compounds and programs . we expect discovery and clinical activities under various collaborations to continue to be funded by partners until we complete our contractual obligations . limited sources of revenues we have no pharmaceutical products that have received marketing approval , and we have generated no revenues to date from the sale of such products . we do not expect to generate revenues from the sale of pharmaceutical products in the near term and expect that all of our near-term revenues , such as research and development funding , license fees and milestone payments and royalty revenues , will be generated from collaboration agreements with our current and potential future partners . milestones under these agreements may be tied to factors that are outside of our control , such as significant clinical or regulatory events with respect to compounds that have been licensed to our partners . 44 liquidity as of december 31 , 2011 , we had $ 283.7 million in cash and cash equivalents , marketable securities and long-term investments , which included restricted cash and investments of $ 4.2 million and approximately $ 85.3 million of cash and cash equivalents and marketable securities that we are required to maintain on deposit with silicon valley bank or one of its affiliates pursuant to covenants in our loan and security agreement with silicon valley bank . in february 2012 , we raised approximately $ 65 million in net proceeds from a public offering of our common stock . we anticipate that our current cash and cash equivalents , marketable securities , long-term investments and funding that we expect to receive from existing collaborators , together with the anticipated proceeds from this offering , will enable us to maintain our operations for a period of at least 12 months following the filing date of this report . however , our future capital requirements will be substantial and depend on many factors , including the following : the progress and scope of the development activity with respect to cabozantinib ; whether we elect to pay cash or to issue shares of our common stock in respect of any conversion of our principal , prepayments or payments of interest in connection with the secured convertible notes we issued to entities affiliated with deerfield management company , l.p. , or deerfield , under a note purchase agreement ; whether we elect to prepay the amounts advanced under our loan from silicon valley bank ; the level of payments received under existing collaboration agreements , licensing agreements and other arrangements ; the degree to which we conduct funded development activity on behalf of partners to whom we have out-licensed compounds ; and whether we enter into new collaboration agreements , licensing agreements or other arrangements ( including , in particular with respect to cabozantinib ) that provide additional capital . our minimum liquidity needs are also determined by financial covenants in our loan and security agreement with silicon valley bank and our note purchase agreement with deerfield , as well as other factors , which are described under liquidity and capital resources cash requirements . our ability to raise additional funds may be severely impaired if any of our product candidates fails to show adequate safety or efficacy in clinical testing . deerfield facility on june 2 , 2010 , we entered into a note purchase agreement with deerfield pursuant to which , on july 1 , 2010 , we sold to deerfield an aggregate of $ 124.0 million initial principal amount of our secured convertible notes due june 2015 for an aggregate purchase price of $ 80.0 million , less closing fees and expenses of approximately $ 2.0 million . the outstanding principal amount of the notes bears interest in the annual amount of $ 6.0 million , payable quarterly in arrears . we will be required to make mandatory prepayments on the notes on an annual basis in 2013 , 2014 and 2015 equal to 15 % of certain payments from our collaborative arrangements received during the prior fiscal year , subject to a maximum annual prepayment amount of $ 27.5 million and , for payments due in january 2013 and 2014 , a minimum prepayment amount of $ 10.0 million . we may also prepay all or a portion ( not less than $ 5.0 million ) of the principal amount of the notes at an optional prepayment price based on a discounted principal amount ( during the first three years of the term , subject to a prepayment premium ) determined as of the date of prepayment , plus accrued and unpaid interest , plus in the case of a prepayment of the full principal amount of the notes ( other than prepayments upon the occurrence of specified transactions relating to a change of control or a substantial sale of assets ) , all accrued interest that would have accrued between the date of such prepayment and the next anniversary of the note purchase agreement . in lieu of 45 making any optional or mandatory prepayment in cash , subject to certain limitations ( including a cap on the number of shares issuable under the note purchase agreement ) , we have the right to convert all or a portion of the principal amount of the notes into , or satisfy all or any portion of the optional prepayment amounts or mandatory prepayment amounts ( other than the first $ 10.0 million of mandatory prepayments required in 2013 and 2014 ) with shares of our common stock . additionally , in lieu of making any payment of accrued and unpaid interest in respect of the notes in cash , subject to certain limitations , we may elect to satisfy any such payment with shares of our common stock .
| furthermore , there was a decline in milestone revenue relating to the one-time payment received from genentech of $ 2.0 million in 2011 under a 2005 collaboration agreement for therapeutics directed against targets in the notch signaling pathway compared to $ 7.0 million received from genentech in 2010 under our 2006 mek collaboration . the increase in revenues from 2009 to 2010 was primarily due to our collaboration agreements with sanofi for xl147 , xl765 and the discovery of inhibitors of pi3k . in addition to the increase resulting from our collaboration agreements with sanofi , we also recognized increases in revenues of $ 27.4 million due to increased collaboration cost-sharing reimbursements relating to our 2008 cancer collaboration agreement with bristol-myers squibb for cabozantinib and xl281 . these increases in revenues were partially offset by a reduction in license revenues relating to our 2009 collaboration with boehringer ingelheim and our amended 2007 cancer collaboration with bristol-myers squibb , as well as the conclusion of our mek collaboration with genentech . in addition , we had a decline in milestone and contract revenues related to our 2007 cancer collaboration with bristol-myers squibb and the completion of revenue recognition under our lxr collaboration with bristol-myers squibb . research and development expenses total research and development expenses , as compared to the prior year , were as follows ( dollar amounts are presented in millions ) : replace_table_token_7_th 51 research and development expenses consist primarily of clinical trial expenses , personnel expenses , consulting expenses , laboratory supplies , general corporate costs , stock-based compensation and depreciation . the decrease in 2011 compared to 2010 , resulted primarily from the following : personnel personnel expense , which includes salaries , bonuses , related fringe benefits , recruiting and relocation costs , decreased by $ 17.8 million , or 36 % primarily due to the reduction in headcount resulting from our 2010 and 2011 restructuring plans . clinical trial costs clinical trial expenses , which include services performed by third-party contract
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this compared to $ 184,138 or 62 % of net sales for 2014. the decrease in cost of sales as a percentage of net sales in 2015 was driven primarily as a result of reduced factory costs , which reduced cost of sales by approximately 1.8 % . this was partially offset by inflation in raw material prices , which on average amounted to an increase in cost of sales approximately ¾ of one percent . together these factors resulted in the reduction in cost of sales by 1 % . gross profit for 2015 declined by $ 2,594 to end at $ 111,902 for the year ended december 31 , 2015 , as compared to $ 114,496 for the prior year . gross margin percentage for 2015 improved by 1 % and ended at 39 % , as compared to 38 % for 2014. the improvement was driven by improved factory cost recovery . 19 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) operating expenses in 2015 decreased by $ 7,408 to $ 100,378 or 34 % of sales as compared to $ 107,786 or 36 % in 2014. the differences in operating expenses by department are as follows : replace_table_token_8_th selling expenses decreased by $ 4,233 to end at $ 27,360 for the year ended december 31 , 2015 , as compared to $ 31,593 in 2014. the main drivers for the decrease are cost reduction actions in our advertising and marketing efforts and reductions in costs associated with both international and domestic field sales operations . general and administrative expenses increased by $ 1,459 to $ 28,516 for the year ended december 31 , 2015 , as compared to $ 27,057 in 2014. the main drivers for the increase are primarily due to increase in legal expense , amortization expense from the product line acquisitions completed during the early part of 2015 and incentive compensation costs . research , product development and regulatory expenses decreased by $ 2,398 to $ 18,808 for the year ended december 31 , 2015 , as compared to $ 21,206 in 2014. this was driven by timing of product defense studies and from the benefits of the consolidation of two industry wide task force groups . freight , delivery and warehousing costs for the year ended december 31 , 2015 decreased by $ 2,236 to $ 25,694 , as compared to $ 27,930 in 2014. as a percentage of sales , freight costs reduced slightly year over year , at 8.9 % in 2015 , as compared to 9.3 % in 2014. net interest expense was $ 2,562 in 2015 , as compared to $ 3,066 in 2014. interest costs are summarized in the following table : replace_table_token_9_th the company 's average overall debt for the year ended december 31 , 2015 was $ 101,574 as compared to $ 95,060 for the comparable period of the previous year . as can be seen from the above table , on a gross basis , our effective interest rate decreased to 2.1 % , as compared to 2.5 % in 2014 , due to lower interest rates on our new senior credit facility agreement and the absence of a fixed rate swap . after adjustments related to capitalized interest and including expenses related to the amortization of deferred liabilities , the overall effective rate was 2.5 % for 2015 as compared to 3.2 % in 2014. reduction in deferred liabilities related to product line acquisitions contributed to the reduction in our effective interest rate in 2015. the table below shows the amount of outstanding debt and the related notional amount on the interest rate swap contract at each of the balance sheet dates : 20 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) replace_table_token_10_th income tax expense for 2015 was $ 2,009 , as compared to a benefit of $ 451 for 2014. the effective tax rate for 2015 was 22.4 % , whereas for 2014 the benefit was 12.4 % . the increase in the effective tax rate was driven by additional income generated in the u.s. as compared to the previous year . the ratio of domestic to foreign income has a material impact on the company 's overall effective tax rate . for the year ended december 31 , 2015 , the company recorded losses on its equity investment of $ 629 and a loss on dilution of the company 's stockholding in the amount of $ 7. this resulted in a total loss for 2015 of $ 636. for the same period of 2014 , the company recorded losses on its equity investment of $ 983 and offset the losses with gains on dilution in the amount of $ 954. this resulted in a net loss for 2014 of $ 29. in 2015 we adjusted our net income attributable to american vanguard by $ 274 for the non-controlling interest 's share of the net losses of our majority-owned subsidiary , envance , as compared to $ 775 in 2014. net income attributable to american vanguard ended at $ 6,591 or $ 0.23 per diluted share in 2015 as compared to $ 4,841 or $ .17 per diluted share in 2014. liquidity and capital resources the company generated $ 78,568 of cash from operating activities provided during the year ended december 31 , 2015 , as compared to using $ 34,095 in the prior year . story_separator_special_tag net income of $ 6,317 , plus non-cash depreciation , amortization of intangibles , other assets and discounted future liabilities generated a total of $ 28,206. stock based compensation of $ 3,858 , loss from equity method investment of $ 629 , plus a loss on dilution of $ 7 , and change in value of deferred income taxes of $ 27 , provided a net cash inflow of $ 32,727 , as compared to $ 33,034 for the same period of 2014. as of december 31 , 2015 , our working capital has reduced to $ 160,549 , as compared to $ 205,804 as of december 31 , 2014. this decrease was mainly driven by decreased inventory levels and to a lesser extent reduced , accounts receivables and an increase in deferred revenues . these improvements were somewhat offset by reduced accounts payable and accrued program costs . at december 31 , 2015 , our receivables ( net of allowances ) were $ 75,389 as compared to $ 88,423 at the end of the prior year . this is primarily a result of a number of customers making early payments during the last quarter of 2015. as a result of early payments , deferred revenue as of december 31 , 2015 was $ 8,888 , as compared to $ 898 at december 31 , 2014. inventories ended the year at $ 136,477 , as compared to $ 165,631 at december 31 , 2014. the decrease in inventory during the year has been achieved by continuing to hold down manufacturing output in our factories , as channel inventory has been worked through the distribution channel to the growers . during 2015 , channel inventories of the company 's products levels have declined to a level which approaches more normal levels . it should also be noted that the company purchases and holds raw material , intermediate or finished goods inventory from time to time based on a single annual purchase from a single source or supplier , potentially resulting in peaks in the carrying value of inventory . furthermore , in order to achieve efficient manufacturing runs , the company may manufacture a particular product only one time a year and then carry high levels of that inventory for a period of time . timing of payments made on prepaid expenses and other assets caused a decrease of $ 2,082 during the year . as we held down manufacturing activity , accounts payable decreased by $ 5,068. furthermore , the company reduced its income tax receivable by $ 4,872 with the receipt of tax refund and overpayments following the filing of our 2014 federal and state tax returns and 2014 carry back claim to 2012. our program accruals have decreased by $ 8,175 to end at $ 44,371 at december 31 , 2015 , as compared to $ 52,546 at december 31 , 2014 , reflecting primarily the mix of business that has driven the financial performance for 2015. the 21 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) company accrues programs in line with the growing season upon which specific products are targeted . typically crop products have a growing season that ends on september 30 th of each year . during the 2015 year , the company made accruals for programs in the amount of $ 61,514 and made payments in the amount of $ 69,689. during the prior year , the company made accruals in the amount of $ 59,671 and made payments in the amount of $ 60,755. the company used $ 43,691 in investing activities in the year ended december 31 , 2015 as compared to $ 7,680 in the same period of 2014. the company spent $ 36,667 on product lines acquisitions during the year , $ 6,899 on fixed assets primarily focused on continuing to invest in manufacturing infrastructure , and $ 125 on investments . our financing activities used a net cash of $ 33,811 in 2015 , as compared to providing a net cash of $ 41,156 in 2014. the main driver for the change is the pay down on the company 's senior secured credit facility . the company further paid $ 1,141 in dividends , payment of other notes payable and of long-term liabilities primarily associated with liabilities under deferred purchase agreements on product acquisitions in the amount of $ 1,543. the company received $ 317 from the sales of common stock under its espp plan ( including associated tax benefits ) and the tax effect from the share-based compensation of $ 924 , as compared to receiving $ 1,666 from the sales of common stock under its espp plan and $ 300 from the tax effect from the share based compensation for 2014. the company 's net borrowings under its senior secured credit facility decreased by $ 30,400 to end at $ 69,000 as of december 31 , 2015 , as compared to $ 99,400 at the end of prior year . the company has various loans in place that together constitute the short-term and long-term loan balances shown in the consolidated balance sheets as at december 31 , 2015 and december 31 , 2014. these are summarized in the following table : replace_table_token_11_th on june 17 , 2013 , amvac , the company 's principal operating subsidiary , as borrower , and affiliates ( including the company ) , as guarantors and or borrowers , entered into a second amended and restated credit agreement ( the new credit agreement ) with a group of commercial lenders led by bank of the west ( amvac 's primary bank ) as agent , swing line lender and l/c issuer . the new facility also includes both amvac c.v. and amvac netherlands bv ( both dutch subsidiaries ) as borrowers .
| the company 's total net sales for the period were down nearly 22 % to $ 298,634 , as compared to $ 381,021 for the year ended december 31 , 2013. net sales of our crop business in 2014 were $ 267,710 , which constitutes a decrease of nearly 23 % as compared to net sales of $ 346,514 for that business in 2013. net sales of our non-crop products in 2014 were $ 30,924 , which is a reduction of approximately 10 % as compared to $ 34,507 in 2013. a more detailed discussion of product groups and products having a material effect on net sales for each of the crop and non-crop businesses appears below . 24 american vanguard corporation and subsidiaries ( dollars in thousands , except per share data ) in our crop business , net sales of insecticides in 2014 ended at $ 135,705 , which was a 30 % decline as compared to $ 193,623 in 2013. within the crop business , annual net sales of our granular soil insecticides were $ 106,478 , down nearly 37 % below 2013 , driven by reduced restocking orders for our primary corn soil insecticides aztec ® , smartchoice ® , force and counter ® . these declines were slightly offset by year-over-year increases in thimet , nemacur , and mocap , much of that coming from our international business . among our non-granular insecticide products for crop applications , net sales of bidrin , bifenthrin , permethrin and acephate remained relatively flat with the prior year . within the product group of herbicides/soil fumigants/fungicides , our crop net sales in 2014 were down 16 % to $ 101,785 vs. $ 121,042 in 2013. within this group , we had mixed results . the positive drivers were our fumigant and fungicide products posting a combined gain of approximately 3 % with stronger potato usage contributing to both categories . conversely , weak midwest restocking demand for our post-emergent corn herbicide impact resulted in a 39 % decline in our herbicide category . within our other products group ( which includes plant growth regulators , molluscicides and third party manufacturing activity ) , we experienced a decrease of 5 % in net sales , with net sales of $
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celaya farm-out in september 2018 , our wholly owned mexican subsidiary entered into a second and final amendment to an earn-in agreement with a 100 % owned mexican subsidiary of electrum group llc , a privately owned company ( together “ electrum ” ) , related to the farm-out of our celaya exploration property in mexico . pursuant to the second amendment , electrum acquired 100 % of our remaining interest in the celaya project in exchange for a payment of $ 3.0 million , as set out in a definitive assignment of rights agreement ( the “ assignment agreement ” ) containing customary terms and conditions . the earn-in agreement was terminated upon entry into the assignment agreement . the celaya earn-in agreement with electrum commenced in august 2016 when we received an upfront payment of $ 0.2 million and electrum agreed to incur exploration expenditures totaling at least $ 0.5 million within the first year of the agreement , reduced by certain costs electrum previously incurred on the property since december 2015 in its ongoing surface exploration program . electrum initially earned the right to acquire an undivided 60 % interest in a joint venture company to be formed to hold the celaya project by incurring exploration expenditures totaling at least $ 2.5 million during the initial first three years of the agreement . electrum would serve as manager of the joint venture . prior to the subsequent amendments to the agreement , we would have been allowed to maintain a 40 % interest in the celaya project , following the initial earn-in period , by contributing our pro-rata share of an additional $ 2.5 million in exploration or development expenditures incurred over a second three-year period . in february 2018 , we amended the celaya earn-in agreement to permit electrum to earn , at its option , an incremental 20 % interest in the celaya project in exchange for a payment of $ 1.0 million . following the amendment , electrum could have increased its total interest in the project to 80 % by contributing 100 % of the $ 2.5 million of additional expenditures required in the second three-year earn-in period . following the second earn-in period , and prior to entering into the assignment agreement , we could have maintained our 20 % participating interest or our interest could ultimately have been converted into a carried 10 % net profits interest if we elected not to participate as a joint venture owner . we have previously expensed all of our costs associated with the celaya property and accordingly recognized a gain of $ 1.0 million from the execution of the first amendment to the agreement and $ 3.0 million upon execution of the assignment agreement , for the nine month period ended september 30 , 2018 , included in “ other operating income , net ” in the accompanying consolidated statements of operations and comprehensive loss . 46 santa maria since 2015 , we have completed test mining and processing of 7,100 dry tonnes from the santa maria mine west of hildalgo de parral , chihuahua , with average grades 338 g/t silver and 0.8 g/t gold . in march 2017 , a pea was completed on our behalf by the engineering firm tetra tech , prepared pursuant to canadian national instrument 43-101 , based on an updated estimate of mineralized material . the pea presented a base case assessment of developing santa maria 's mineral deposit . in september 2018 , tetra tech completed a second pea for the santa maria project that incorporates data accumulated since march 2017 , including an additional 77 hectares of mineral tenure acquired in august 2017 that covers the on-strike and downdip extensions of the santa maria vein systems . the new pea also incorporates information from a 22-hole , 4,800-meter drilling program begun in august 2017 and completed in april 2018. including the latest drill program , we have drilled 9,900 meters in 59 holes since acquiring the property . surface mapping and sampling has also identified additional high-grade veins on the adjacent eastern extension of the santa maria property and on new veins to the north located outside of the mineralized material area as defined in the march 2017 pea . the september 2018 pea shows improvement in projected cash flow , metal production and profitability compared to the previous study . the pea estimates a 4.2-year underground mining operation using pre-existing and new underground development at an average mine production rate of 218 tonnes per day , using a combination of cut-and-fill and sublevel stoping . it is currently envisioned that both mixed and sulfide materials will undergo toll-milling at a local third-party facility with sulfide flotation circuits . oxide material will be cyanide leached at the same toll-milling facility . in the pea , santa maria is estimated to deliver 150k tonnes of diluted sulfide material to the mill at an average grade of 378 g/t silver equivalent ( “ ageq ” , calculated by combining ag and au values where one g/t of au equals 74 g/t of ag ) , 116k tonnes of diluted oxide material at an average grade of 428 g/t ageq and 42k tonnes of diluted mixed material at an average grade of 278 g/t ageq . we have the right to acquire 100 % of the santa maria property under two separate option agreements representing the total concessions that comprise the property for additional payments of $ 1.0 million , payable through april 2022. the first option agreement covers concessions we acquired in august 2014 and requires an additional approximately $ 0.4 million be paid by continuing to make minimum payments of $ 0.2 million in 2019 and $ 0.2 million in 2020. in addition , until the total due under the first option agreement has been paid , the property owners have the right to 50 % of any net profits from mining activities from the concessions related to the option , after reimbursement of all costs incurred by us since april 2015 , to the story_separator_special_tag extent that such net profit payments exceed the minimum payments . the second option agreement covers concessions recently acquired in august 2017 and requires an additional approximately $ 0.6 million be paid by making additional payments of $ 0.2 million in each of the years 2019 through 2021. zacatecas in april 2016 , we entered into an option agreement , which was later amended in february 2018 , under which santacruz silver mining ltd. ( “ santacruz ” ) has acquired our interest in the zacatecas properties for a series of payments totaling approximately $ 1.5 million . payments of $ 249,000 , $ 225,000 and $ 212,000 were paid to us during the first , second and third quarters of 2018 , respectively . the final payment of $ 13,000 was received by us in october 2018. we had previously expensed all of the costs associated with the zacatecas properties . we recognized income , equal to the cash payments made , evenly over the period covered by each payment . we have recognized approximately $ 748,000 of income under the agreement for the year ended december 31 , 2018 , included in “ other operating income , net ” in the accompanying consolidated statements of operations and comprehensive loss . at december 31 , 2018 , there were no further performance obligations and we had taken all steps necessary for santacruz to take title to the properties . other exploration - yoquivo the yoquivo property was acquired in 2017 and consists of 1,907 hectares in 6 claims that cover an epithermal vein district hosted in tertiary andesitic volcanic rocks that is exposed in an erosional window through oligocene rhyolite 47 on the eastern margin of the sierra madre occidental of northern mexico . the property is 200 km sw of chihuahua city in the state of chihuahua , mexico . recent surface rock sampling has demonstrated gold and silver values of potential economic interest in several of the veins in the district . we have an option to purchase the six concessions that comprise the yoquivo property for payments totaling $ 0.5 million over four years subject to a 2 % nsr royalty on production , capped at $ 2 million . in october 2018 we announced high-grade silver-gold assays from the yoquivo project . multiple silver-gold bearing epithermal veins were mapped and sampled , with the two most important veins being the san francisco and pertenencia veins . a new vein , the la nina vein , was discovered in the northwest of the property where it splits off from the main san francisco vein . we are focusing exploration efforts on the pertenencia vein , which appears to be more silver-rich compared to the san francisco vein . sampling of the pertenencia vein is still in progress as is surface work in preparation for identifying the best drill targets . we expect to begin a drill program in 2019 to test the most promising portions of the veins . a permit for drilling has been obtained . registered direct purchase agreement and commitment purchase agreement and registration rights agreement on may 9 , 2018 we entered into a registered direct purchase agreement ( the “ registered purchase agreement ” ) with lincoln park capital fund , llc ( “ lpc ” ) pursuant to which lpc purchased 3,153,808 shares of our common stock at a price of $ 0.4122 per share , the closing price of our common stock on the nyse american on may 8 , 2018 , for an aggregate purchase price of $ 1.3 million . on the same day , we also entered into a commitment purchase agreement ( the “ commitment purchase agreement ” and together with the registered purchase agreement , the “ lpc program ” ) pursuant to which we have the right for a period of three years , at our sole discretion , to sell up to an additional $ 10.0 million of our common stock to lpc , subject to certain limitations and conditions contained in the commitment purchase agreement . subject to the terms of the commitment purchase agreement , we will control the timing and amount of any future sale of common stock to lpc . lpc has no right to require any sales by us under the commitment purchase agreement but is obligated to make purchases at our sole direction , as governed by such agreement . there are no upper limits to the price lpc may be obligated to pay to purchase common stock from us and the purchase price of the shares will be based on the prevailing market prices of our shares at the time of each sale to lpc . lpc has agreed not to cause or engage in any manner whatsoever , any direct or indirect short selling or hedging of our shares of common stock . we have the right to terminate the commitment purchase agreement at any time , at our discretion , without any cost or penalty . as of december 31 , 2018 , no additional common stock had been sold to lpc under the lpc program following the initial sale of common stock pursuant to the registered purchase agreement . subsequent to december 31 , 2018 we sold an aggregate of approximately 745,000 common shares under the commitment purchase agreement at an average price of $ 0.31 per common share for total proceeds of approximately $ 230,000 during the year to date period ended february 27 , 2019. story_separator_special_tag style= '' display : inline ; font-style : italic ; '' > other operating income , net . we recorded $ 5.1 million of other operating income for the year ended december 31 , 2018 , consisting of $ 4.0 million related to an option payment and the ultimate sale of our celaya property , $ 0.7 million from payments received on our zacatecas properties and $ 0.4 million related to the sale of two non-strategic mexican subsidiaries .
| we recorded $ 1.9 million and $ 1.6 million for the years ended december 31 , 2018 and 2017 , respectively , for expenses related to shut down and care and maintenance at our velardeña properties as the result of the suspension of mining and processing activities in november 2015. the higher care and maintenance costs in 2018 are related to increased maintenance . el quevar project expense . during the year ended december 31 , 2018 we incurred $ 1.3 million primarily related to holding and evaluation costs for the yaxtché deposit at our el quevar project in argentina . during the year ended december 31 , 2017 we recorded an expense of approximately $ 0.8 million primarily related to holding costs for the yaxtché deposit at our el quevar project in argentina . the additional spending in 2018 was primarily related to the costs of preparing the technical reports and preparing for exploration drilling . for both years , additional nominal costs incurred in argentina and not related to the el quevar project are included in “ exploration expense ” , discussed above . administrative expense . administrative expenses totaled $ 3.4 million for the year ended december 31 , 2018 compared to $ 3.5 million for the year ended december 31 , 2017. administrative expenses , including costs associated with being a public company , are incurred primarily by our corporate activities in support of the velardeña properties , el quevar project and our exploration portfolio . the $ 3.4 million of administrative expenses we incurred during 2018 is comprised of $ 1.6 million of employee compensation and directors ' fees , $ 0.9 million of professional fees and $ 0.9 million of insurance , travel expenses , rents , utilities and other office costs . the $ 3.5 million of administrative expenses we incurred during 2017 is comprised of $ 1.6 million of employee compensation and directors ' fees , $ 0.8 million of professional fees and $ 1.1 million of insurance , rents , travel expenses , utilities and other office costs . stock based compensation . during the year ended december 31 , 2018 we incurred expense related to stock-based compensation in the amount of $ 0.2 million compared to $ 0.3 million for the year ended december 31 , 2017. stock based compensation varies
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in october 2015 , we amended the collaboration agreement to include additional countries to conduct clinical trials and in return we received an upfront payment of $ 1.6 million in december 2015. we will retain all commercial rights to the diagnostic test developed under this collaboration and , assuming success in the clinical trial process , and subject to regulatory approval , expect to generate revenues from the sale of the resulting in vitro diagnostic kits . in may 2015 , we entered into a clinical research collaboration agreement with merck sharp & dohme corp. , a subsidiary of merck & co. , inc. or merck , to develop an assay intended to optimize immune-related gene expression signatures and evaluate the potential to predict benefit from merck 's anti-pd-1 therapy , keytruda , in multiple tumor types . we received an upfront payment of $ 2.0 million in july 2015 and development payments totaling $ 1.9 million during 2015. in february 2016 , we expanded our collaboration with merck by entering into a new development collaboration agreement to clinically develop and commercialize a novel diagnostic test , based on an optimized gene expression signature , to predict response to keytruda in multiple tumor types . in may 2015 , we entered into a clinical research collaboration agreement with merck sharp & dohme corp. , a subsidiary of merck & co. , inc. or merck , to develop an assay intended to optimize immune-related gene expression signatures and evaluate the potential to predict benefit from merck 's anti-pd-1 therapy , keytruda , in multiple tumor types . we received an upfront payment of $ 2.0 million in july 2015 and development payments totaling $ 1.9 million during 2015. in february 2016 , we expanded our collaboration with merck by entering into a new development collaboration agreement to clinically develop and commercialize a novel diagnostic test , based on an optimized gene expression signature , to predict response to keytruda in multiple tumor types . under the terms of the new development collaboration agreement , we will receive a $ 12.0 million upfront technology access fee and are eligible to receive up to $ 12.0 million for potential preclinical regulatory milestone payments . we are also eligible to receive development funding and other potential downstream regulatory milestone payments . for additional information regarding the development collaboration agreement , see the section of this report captioned businesscollaborationsmerck & co. , inc. our total revenue increased to $ 62.7 million in 2015 from $ 47.6 million in 2014 and $ 31.4 million in 2013 , which was driven primarily by the sale of additional ncounter analysis systems and consumables for use on our growing installed base of instruments . historically , we have generated a substantial majority of our revenue from sales to customers in north america ; however , recently , sales revenue has been growing more rapidly outside north america and we believe this trend may continue . we have never been profitable and had net losses of $ 45.6 million , $ 50.0 million , and $ 29.3 million in 2015 , 2014 and 2013 , respectively . as of december 31 , 2015 , our accumulated deficit was $ 222.5 million . key financial metrics we are organized as , and operate in , one reportable segment , which is the development , manufacture and commercialization of instruments , consumables and services for efficiently profiling the activity of hundreds of genes and proteins simultaneously from a single tissue sample . -57- our chief operating decision maker is the chief executive officer , who manages our operations and evaluates our financial performance on a total company basis . our principal operations and decision-making functions are located at our corporate headquarters in the united states . until the fourth quarter of 2013 , we operated in two reportable segments , our life sciences business and our diagnostics business . in november 2013 , our ncounter dx analysis system with flex configuration was launched , enabling customers to perform both research and diagnostic testing on the same instrument . we have one sales force that now sells these systems to both research and clinical testing labs , and we launched our first product that can be used for both research and diagnostic testing , ncounter elements reagents . as a result of these fundamental changes to our business , we began operating the company as a single reportable segment during the fourth quarter of 2013. revenue we generate revenue from the sale of our products and related services . for a description of our revenue recognition policies , see the section of this report captioned critical accounting policies and significant estimatesrevenue recognition. product revenue our products consist of our ncounter analysis system and related consumables , including prosigna in vitro diagnostic kits . our ncounter max analysis system typically consists of one ncounter digital analyzer and one ncounter prep station , having a u.s. list price of $ 235,000. the u.s. list price of the similarly configured ncounter dx flex analysis system is $ 265,000 , or $ 285,000 if fully enabled to run prosigna . our newly developed ncounter sprint profiler has a reduced footprint and combines the function of the prep station with the digital analyzer in a single instrument . it has a u.s. list price of $ 149,000. outside the united states , depending on the country , the list price is generally higher . systems are sold to distributors at a discount to list price . our customer base is primarily composed of academic institutions , government laboratories , biopharmaceutical companies and clinical laboratories that perform analyses or testing using our ncounter analysis system and purchase related consumables , potentially including prosigna kits . story_separator_special_tag for our research customers , related consumables include ( 1 ) custom codesets , which we manufacture to the specific requirements of an individual researcher , ( 2 ) panels , which are standard pre-manufactured codesets , ( 3 ) ncounter elements reagents , and ( 4 ) master kits , which are ancillary reagents , cartridges , tips and reagent plates required to setup and process samples in our instruments . product revenue also includes payments for instrument installation . since 2010 , our average consumables revenue per installed system has exceeded $ 100,000 per year . for our clinical laboratory customers , related consumables include prosigna in vitro diagnostic kits and ncounter elements reagents . we sell our ncounter dx analysis systems to clinical laboratory customers or offer to lease them under reagent rental arrangements where an instrument is placed at a customer location at minimal direct cost and the customer commits to purchase a minimum volume of consumable products over a period of time . to date , the majority of our clinical laboratory customers have elected to purchase instruments . the list price of a prosigna test in the united states and europe is $ 2,080 and 1,550 per patient , respectively . although the price of prosigna and our additional future diagnostic products will depend on many factors , including whether and how much third-party payors will reimburse laboratories for conducting such tests , we expect that the gross margin for our diagnostic kits will be higher than for our research consumables . we sell prosigna kits to our lab customers , who will be responsible for providing the testing service and contracting and billing payors . prosigna kits are sold to clinical laboratories on a fixed dollars-per-kit basis , which does not expose us to direct third-party payor reimbursement risk . however , we provide customary volume discounts , and in some cases , introductory pricing during the period in which third-party payor reimbursement is being established . as a result , the average selling price per prosigna test is lower than list price . -58- service revenue service revenue consists of fees associated with extended service contracts and conducting proof-of-principle studies . we include a one-year warranty with the sale of our instruments and offer extended service contracts , which are purchased by a majority of our customers . we selectively provide proof-of-principle studies to prospective customers in order to help them better understand the benefits of the ncounter analysis system . collaboration revenue collaboration revenue is primarily derived from our collaborations with celgene and merck . as of december 31 , 2015 , we had received a total of $ 17.2 million from collaboration these agreements , of which $ 2.9 million and $ 5.9 million had been recorded as collaboration revenue in 2014 and 2015 , respectively , with the remainder recorded as deferred revenue , which will be recognized as collaboration revenue over our remaining development performance period for each of the agreements . collaboration revenue also includes revenue recognized under a smaller evaluation study being performed for a different biopharmaceutical company . revenue by geography we sell our products through our own sales forces in the united states , canada , singapore , israel and certain european countries . we sell through distributors in other parts of the world . as we have expanded our european direct sales force and entered into agreements with distributors of our products in europe , the middle east , asia pacific and south america , the amount of revenue generated outside of north america has generally increased , although there have been significant quarter-to-quarter fluctuations . in the future , we intend to expand our sales force and establish additional distributor relationships outside the united states to better access international markets . the following table reflects total revenue by geography based on the geographic location of our customers , distributors and collaborators . americas consists of the united states , canada , mexico and south america ; and asia pacific includes japan , china , south korea , singapore , malaysia , australia and new zealand . replace_table_token_4_th most of our revenue is denominated in u.s. dollars . our expenses are generally denominated in the currencies in which our operations are located , which is primarily in the united states . changes in foreign currency exchange rates have not materially affected us to date ; however , they may become material to us in the future as our operations outside of the united states expand . cost of product and service revenue cost of product and service revenue consists primarily of costs incurred in the production process , including costs of purchasing instruments from third-party contract manufacturers , consumable component materials and assembly labor and overhead , installation , warranty , service and packaging and delivery costs . in addition , cost of product and service revenue includes royalty costs for licensed technologies included in our products , provisions for slow-moving and obsolete inventory and stock-based compensation expense . we provide a one-year warranty on each ncounter analysis system sold and establish a reserve for warranty repairs based on historical warranty repair costs incurred . -59- the average unit costs of our instruments has declined in the current year as compared to prior years as a result of introducing our lower-cost ncounter sprint profiler in july 2015. we expect the average unit costs of our instruments to continue to decline as we expand our market opportunity among smaller research laboratories and sell a higher proportion of sprint systems . we expect the unit costs of consumable products to decline as a result of our ongoing efforts to improve our manufacturing processes and expected increases in production volume and yields . although the unit costs of our custom codesets vary , they are generally higher as a percentage of the related revenue than our panels , in vitro diagnostic kits and ncounter elements reagents .
| in addition , facility costs increased $ 0.9 million due to expansion of our leased space for research and development activities . these increases were partially offset by decreases of $ 2.1 million in engineering and consulting costs primarily for the development of our ncounter technologies in 2015. selling , general and administrative expense year ended december 31 , change 2015 2014 dollars percentage ( dollars in thousands ) selling , general and administrative expense $ 53,186 $ 51,063 $ 2,123 4 % the increases in selling , general and administration expense in 2015 were primarily attributable to a $ 3.7 million increase in staffing and personnel-related costs to support sales and marketing and administration ; and increased facilities costs of $ 1.3 million as a result of our expanded leased space for operational and administrative activities . partially offsetting the increase was a reduction of $ 2.8 million in marketing program costs in 2015. other income ( expense ) replace_table_token_9_th the $ 0.1 million decrease in interest expense in 2015 was related to the costs incurred to pay off our former credit facility in april 2014 , offset by an overall increase in borrowing in 2015. in 2014 , we incurred and recorded $ 1.4 million of interest expense related to the repayment of our former credit facility , including a loss on extinguishment of debt of $ 0.6 million . the impact of these expenses not recurring in 2015 was partially offset by a $ 1.3 million increase in interest expense attributable to our increase in borrowings outstanding for the respective periods . long-term debt and lease financing obligations outstanding increased to $ 41.2 million as of december 31 , 2015 as compared to $ 30.2 million as of december 31 , 2014. the average balance of long-term debt and lease financing obligations outstanding was $ 31.4 million in 2015 compared to $ 22.5 million in 2014 . -64- comparison of years ended
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consolidated adjusted ebitda decreased $ 29.1 million for the twelve months ended december 31 , 2017 to $ 67.4 million compared to $ 96.6 million for the twelve months ended january 1 , 2017 , driven primarily by lower comparable restaurant sales and higher costs associated with the plan to improve the guest experience to drive incremental transactions , partially offset by closing unprofitable pollo tropical restaurants . consolidated adjusted ebitda is a non-gaap financial measure of performance . for a discussion of our use of consolidated adjusted ebitda and a reconciliation from net income ( loss ) to consolidated adjusted ebitda , see `` management 's use of non-gaap financial measures '' . results of operations the following table summarizes the changes in the number and mix of pollo tropical and taco cabana company-owned and franchised restaurants in each fiscal year : replace_table_token_9_th 36 the following table sets forth , for the years ended december 31 , 2017 , january 1 , 2017 and january 3 , 2016 , selected consolidated operating results as a percentage of consolidated restaurant sales and selected segment operating results as a percentage of applicable segment restaurant sales : replace_table_token_10_th consolidated revenues . revenues include restaurant sales and franchise royalty revenues and fees . restaurant sales consist of food and beverage sales , net of discounts , at our restaurants . franchise royalty revenues and fees represent ongoing royalty payments that are determined based on a percentage of franchisee sales , franchise fees associated with new restaurant openings , and development fees associated with the opening of new franchised restaurants in a given market . restaurant sales are influenced by new restaurant openings , closures of restaurants and changes in comparable restaurant sales . total revenues decreased 6.0 % to $ 669.1 million in 2017 from $ 711.8 million in 2016 , while the 2016 total revenues represent an increase of 3.5 % from $ 687.4 million in 2015 . restaurant sales also decreased 6.0 % to $ 666.6 million in 2017 from $ 709.0 million in 2016 , while 2016 restaurant sales represent an increase of 3.6 % from $ 684.6 million in 2015 . restaurant sales in 2015 contained 53 weeks which increased sales by $ 11.8 million for the additional week in 2015. the following table presents the primary drivers of the increase or decrease in restaurant sales for both pollo tropical and taco cabana ( in millions ) : replace_table_token_11_th restaurants are included in comparable restaurant sales after they have been open for 18 months . for comparative purposes , the calculation of the changes in comparable restaurant sales is based on a 52-week fiscal year . restaurant sales for the extra week in the fiscal year ended january 3 , 2016 have been excluded for purposes of calculating the change in comparable restaurant sales . comparable restaurant sales in 2017 for both brands were negatively impacted by the hurricanes . comparable restaurant sales decreased 6.5 % and 7.3 % for pollo tropical and taco cabana restaurants , respectively , in 2017 . increases or decreases in comparable restaurant sales result primarily from an increase or decrease in comparable restaurant transactions and in average check . the increase in average check is primarily driven by menu price increases . for pollo tropical , 37 a decrease in comparable restaurant transactions of 8.8 % was partially offset by menu price increases that drove an increase in restaurant sales of 2.1 % in 2017 as compared to 2016 . for taco cabana , a decrease in comparable restaurant transactions of 8.7 % was partially offset by menu price increases that drove an increase in restaurant sales of 2.3 % in 2017 as compared to 2016 . the decrease in comparable sales for both brands in 2017 compared to 2016 was partially attributable to temporary closures , limited menu offerings and modified hours of operations as a result of the hurricanes , which we estimate negatively impacted comparable restaurant sales and transactions for pollo tropical by approximately 1.0 % to 2.0 % and taco cabana by approximately 0.5 % to 1.0 % in 2017 compared to 2016. comparable restaurant sales for both brands continue to be negatively impacted by the general industrywide slowdown in restaurant sales in florida and texas . according to data reported by tdn2k 's black box intelligence , comparable restaurant transactions in 2017 in the fast casual segment declined 500 bps and 570 bps in florida and texas , respectively , from 2016 . based on such data , pollo tropical comparable restaurant transactions in florida were approximately 320 bps lower than fast casual restaurant peers and taco cabana comparable restaurant transactions in texas were 300 bps lower than fast casual restaurant peers . as a result of new restaurant openings , sales cannibalization of existing restaurants negatively impacted comparable restaurant sales for pollo tropical by 0.6 % in 2017 . in addition , 2017 comparable restaurant transactions and sales for taco cabana were negatively impacted by reduced promotional discounts and a reduction in hours of operation at the majority of our restaurants that no longer operate 24 hours , seven days a week . both brands were negatively impacted by our planned reduction in advertising , including media and promotions , while we implemented initiatives related to the plan . restaurant sales for pollo tropical in 2017 compared to 2016 were also negatively impacted by the restaurant closures that occurred in the fourth quarter of 2016 and in 2017. comparable restaurant sales decreased 1.6 % and 2.5 % for pollo tropical and taco cabana restaurants , respectively , in 2016 . for pollo tropical , a decrease in comparable restaurant transactions of 3.1 % was partially offset by menu price increases that drove an increase in restaurant sales of 1.4 % in 2016 as compared to 2015 . as a result of new restaurant openings , sales cannibalization of existing restaurants negatively impacted comparable restaurant sales for pollo tropical by 1.5 % in 2016 . story_separator_special_tag for taco cabana , a decrease in comparable restaurant transactions of 3.6 % combined with a decrease in average check driven by a negative change in sales mix , was partially offset by menu price increases that drove an increase in restaurant sale of 2.2 % in 2016 as compared to 2015 . franchise revenues decreased by $ 0.3 million to $ 2.5 million in 2017 as compared to 2016 due to the closure of seven franchised pollo tropical restaurants in 2017. franchise revenues remained relatively stable and were $ 2.8 million in 2016 and 2015 . operating costs and expenses . operating costs and expenses include cost of sales , restaurant wages and related expenses , other restaurant expenses and advertising expenses . cost of sales consists of food , paper and beverage costs including packaging costs , less rebates and purchase discounts . cost of sales is generally influenced by changes in commodity costs , the sales mix of items sold and the effectiveness of our restaurant-level controls to manage food and paper costs . key commodities , including chicken and beef , are generally purchased under contracts for future periods of up to one year . restaurant wages and related expenses include all restaurant management and hourly productive labor costs , employer payroll taxes , restaurant-level bonuses and related benefits . payroll and related taxes and benefits are subject to inflation , including minimum wage increases and increased costs for health insurance , workers ' compensation insurance and state unemployment insurance . other restaurant operating expenses include all other restaurant-level operating costs , the major components of which are utilities , repairs and maintenance , general liability insurance , real estate taxes , sanitation , supplies and credit card fees . advertising expense includes all promotional expenses including television , radio , billboards and other sponsorships and promotional activities . pre-opening costs include costs incurred prior to opening a restaurant , including restaurant employee wages and related expenses , travel expenditures , recruiting , training , promotional costs associated with the restaurant opening and rent , including any non-cash rent expense recognized during the construction period . pre-opening costs are generally incurred beginning four to six months prior to a restaurant opening . 38 the following tables present the primary drivers of the changes in the components of restaurant operating margins for pollo tropical and taco cabana . all percentages are stated as a percentage of applicable segment restaurant sales . replace_table_token_12_th ( 1 ) includes the impact of restaurant closures in 2017 compared to 2016 . ( 2 ) includes the impact of lower sales on fixed and semi-fixed costs for 2017 compared to 2016 . ( 3 ) includes the impact of lower sales at new restaurants for 2016 compared to 2015 . ( 4 ) includes costs related to the plan in 2017 . 39 replace_table_token_13_th ( 1 ) includes the impact of higher wage rates . ( 2 ) includes the impact of lower sales on fixed and semi-fixed costs for 2017 compared to 2016 . ( 3 ) includes the impact of lower sales volumes and higher labor costs for 2016 compared to 2015 . ( 4 ) includes costs related to the plan in 2017. consolidated restaurant rent expense . restaurant rent expense includes base rent and contingent rent on our leases characterized as operating leases , reduced by amortization of gains on sale-leaseback transactions . restaurant rent expense , as a percentage of total restaurant sales , increased to 5.5 % in 2017 from 5.3 % in 2016 , primarily as a result of the impact of lower comparable restaurant sales . restaurant rent expense , as a percentage of total restaurant sales , was 5.3 % in 2016 compared to 40 4.8 % in 2015 , primarily as a result of new restaurants that generally have higher rent and lower sales , and the impact of lower comparable restaurant sales . consolidated general and administrative expenses . general and administrative expenses are comprised primarily of ( 1 ) salaries and expenses associated with the development and support of our company and brands and the management oversight of the operation of our restaurants ; and ( 2 ) legal , auditing and other professional fees and stock-based compensation expense . general and administrative expenses increased to $ 60.1 million in 2017 from $ 56.1 million in 2016 and as a percentage of total revenues , were 9.0 % in 2017 and 7.9 % in 2016 due primarily to the impact of lower sales , higher board and shareholder matter costs , plan restructuring costs and retention bonuses , higher incentive compensation costs related to new executives and retention incentive plans , and charges for terminated capital projects , partially offset by lower write-offs of site development costs , legal settlement and related costs and office restructuring and relocation costs . general and administrative expense in 2017 included $ 3.0 million of costs related to shareholder activism matters and chief executive officer and board member searches , $ 2.4 million related to plan restructuring costs and retention bonuses , $ 0.8 million in charges for terminated capital projects and $ 0.5 million in write-off of site development costs related to locations that we decided not to develop , partially offset by a benefit of $ 0.5 million related to litigation matters and a $ 0.2 million favorable adjustment related to costs associated with the prior-year restructuring of pollo tropical brand and corporate offices .
| one pollo tropical restaurant that closed in 2016 was rebranded as a taco cabana restaurant in 2017. up to five pollo tropical restaurants that were closed in 2016 and 2017 in texas may be rebranded as taco cabana restaurants in 2018. we also closed six taco cabana restaurants in 2017 , including one located in oklahoma city . impairment and other lease charges for the twelve months ended december 31 , 2017 were $ 61.8 million and included impairment charges of $ 54.2 million and lease and other charges of $ 7.5 million primarily with respect to the 46 restaurants that were closed in 2017 , an office location that was closed in 2017 and two pollo tropical restaurants and five taco cabana restaurants that we continue to operate . for the twelve months ended december 31 , 2017 , the 40 closed pollo tropical restaurants and six closed taco cabana restaurants contributed approximately $ 15.2 million and $ 3.6 million in restaurant sales , respectively , and $ 9.2 million and $ 1.0 34 million in restaurant-level operating losses to loss from operations , respectively , including depreciation expense of $ 2.9 million and $ 0.1 million for pollo tropical and taco cabana , respectively . hurricanes during the third quarter of 2017 , texas and florida were struck by hurricane harvey and shortly thereafter hurricane irma ( the `` hurricanes '' ) . 43 taco cabana and two pollo tropical restaurants in the houston metropolitan area and all 149 pollo tropical restaurants in florida and the atlanta metropolitan area were closed and affected by the hurricanes to varying degrees ( e.g . property preparation and damage , inventory losses , payment of hourly restaurant employees while restaurants were closed , lost business related to temporary closures , limited menu and modified hours of operations ) . other texas markets where we operate restaurants including san antonio were also affected by hurricane harvey , but to a lesser degree . all of the restaurants that were closed have re-opened except for one taco cabana restaurant and two pollo tropical restaurants that were permanently closed in houston . we estimate that the hurricanes negatively impacted adjusted ebitda and income ( loss ) from operations by approximately $ 2.5 million to $ 3.5 million for
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for the run-off lines segment , in determining appropriate reserve levels , we maintained the same general processes and disciplines that were used to set reserves at prior reporting dates . no changes in key assumptions were made to estimate the reserves since the last reporting date . consolidated loss and loss adjustment expense reserves were $ 3,223.5 million ( including $ 161.6 million of reserves attributable to argo international 's trade capital providers ) , $ 3,291.1 million ( including $ 196.6 million of reserves attributable to the trade capital providers ) and $ 3,152.2 million ( including $ 185.3 million of reserves attributable to the trade capital providers ) as of 49 december 31 , 2012 , 2011 and 2010 , respectively . management has recorded its best estimate of loss reserves at each date based on current known facts and circumstances . due to the significant uncertainties inherent in the estimation of loss reserves , there can be no assurance that future loss development , favorable or unfavorable , will not occur . in 2011 , we entered into two reinsurance transactions with a special purpose reinsurance company which provided the coverage through the issuance of two catastrophe bond transactions . the reinsurance transactions provide coverage for selected events . the initial catastrophe bond cover expired on december 31 , 2012. in accordance with generally accepted accounting principles in the united states ( gaap ) , we are accounting for these covers as derivatives , and as such , present the financial statement impact in a separate line item other reinsurance-related expenses - in the consolidated statements of income ( loss ) . other reinsurance-related expenses totaled $ 27.3 million and $ 5.9 million for the years ended december 31 , 2012 and 2011 , respectively . as management views these coverages as reinsurance protection , we treat the financial statement effects of these covers as ceded premium for the purposes of calculating our loss , expense and combined ratios . consolidated underwriting , acquisition and insurance expenses were $ 464.5 million , $ 425.7 million and $ 466.0 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . the increase in the consolidated expense ratio for 2012 as compared to 2011 reflects approximately $ 13.1 million of increased expense related to our investments in start-up operations abroad . the increase in the consolidated expense ratio for 2011 as compared to 2010 reflects approximately $ 7.6 million of expense related to our investments in start-up operations abroad ( primarily in brazil ) and a new information technology business delivery platform . in november 2012 , we redeemed our $ 103.1 million 8.85 % capital trust securities at 102.09 % of par value and $ 15.5 million of 9.75 % capital trust securities at 100.975 % of par value , plus accrued and unpaid interest to the redemption date . interest on the capital trust securities ceased to accrue on and after the redemption dates . redemption of capital trust securities resulted in the recognition of a call premium of $ 2.2 million and a write-off of $ 0.4 million in unamortized bond discount for the year ended december 31 , 2012. consolidated interest expense was $ 23.7 million , $ 22.1 million and $ 22.9 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . the increase in interest expense for the year ended december 31 , 2012 as compared to the same period in 2011 was primarily attributable to interest being accrued for both the senior notes ( issued in september 2012 ) and $ 118.6 million of capital trust securities prior to their redemption in november 2012. consolidated foreign currency exchange loss was $ 4.3 million and $ 3.5 million for the years ended december 31 , 2012 and 2011 , respectively , compared to a gain of $ 3.8 million for the same period ended 2010. for the years ended december 31 , 2012 and 2011 , non-u.s. dollar currencies strengthened against the u.s. dollar resulting in the foreign currency exchange loss . by comparison , for the year ended december 31 , 2010 , non u.s. dollar currencies weakened considerably against the u.s. dollar , resulting in the foreign currency exchange gain . the consolidated provisions for income taxes were $ 14.4 million , $ 20.0 million and $ 35.2 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . the consolidated income tax provision represents the income tax expense associated with our operations based on the tax laws of the jurisdictions in which they operate . therefore , the consolidated provision for income taxes represents taxes on net income for our united states , ireland , belgium , brazil , switzerland , and united kingdom operations . the consolidated tax provision for the year ended december 31 , 2012 primarily represents taxes on net income from our operations in the united states and united kingdom . for the year ended december 31 , 2011 , the tax provision generated by our operations based in the united states was partially offset by tax benefits for our operations based in the united kingdom . included in the consolidated provision for income taxes for the year ended december 31 , 2010 was $ 1.3 million in tax expense from argo ireland to the internal revenue service for withholding on dividends received from argo group us . segment results we are primarily engaged in writing property and casualty insurance and reinsurance . we have four ongoing reporting segments : excess and surplus lines , commercial specialty , international specialty and syndicate 1200. additionally , we have a run-off lines segment for products that we no longer underwrite . in evaluating the operating performance of our segments , we focus on core underwriting and investing results before consideration of realized gains or losses from the sales of investments . story_separator_special_tag management excludes realized investment gains 50 and losses from segment results , as decisions regarding the sales of investments are made at the corporate level . although this measure of profit ( loss ) does not replace net income ( loss ) computed in accordance with gaap as a measure of profitability , management utilizes this measure of profit ( loss ) to focus its reporting segments on generating operating income . since we generally manage and monitor the investment portfolio on an aggregate basis , the overall performance of the investment portfolio , and related net investment income , is discussed above on a combined basis under consolidated net investment income rather than within or by segment . excess and surplus lines . the following table summarizes the results of operations for the excess and surplus lines segment : replace_table_token_11_th the increase in gross written premiums for the year ended december 31 , 2012 as compared to the same period in 2011 was primarily attributable to increases in the property , casualty and environmental product lines . the excess and surplus lines segment has introduced several new products during 2012 to drive future growth and profitability . this growth was partially offset by decreases in errors & omissions businesses as we continue to exit unprofitable lines of business . the decline in gross written premiums for the year ended december 31 , 2011 as compared to the same period ended 2010 was due to the planned exit of certain unprofitable lines . the declines in earned premiums were the result of the reductions in gross written premiums in 2011 and 2010. included in losses and loss adjustment expenses for the year ended december 31 , 2012 was $ 12.6 million in catastrophe losses from storm activity in the united states , including $ 8.2 million from hurricane isaac and $ 2.6 million from hurricane sandy . offsetting these catastrophe losses was $ 48.0 million of net favorable loss reserve development on prior accident years primarily attributable to $ 39.2 million of favorable development in the general and products liability lines of business , $ 1.9 million of favorable development in the automobile liability lines of business and $ 5.5 million of favorable development related to unallocated loss adjustment expense reserves . included in losses and loss adjustment expenses for the year ended december 31 , 2011 was $ 7.6 million in catastrophe losses from storm activity in the united states , including the alabama and joplin , missouri tornados and hurricane irene . offsetting these catastrophe losses was $ 33.8 million of net favorable loss reserve development on prior accident years primarily resulting from $ 30.2 million of favorable development in the general and products liability lines of business . the remaining net favorable development was attributable to the automobile liability , professional liability and property lines of business . included in losses and loss adjustment expenses for the year ended december 31 , 2010 was $ 19.0 million in favorable loss reserve development on prior accident years within the casualty , professional liability and property lines . included in losses and loss adjustment expenses was $ 4.5 million for storm losses for the 2010 accident year . included in losses and loss adjustment expenses was $ 15.4 million in favorable loss reserve development on prior accident years within the casualty , professional liability and property lines . 51 the increase in the expense ratio for the year ended december 31 , 2012 as compared to the same periods ended in 2011 and 2010 was primarily attributable to declining earned premiums , coupled with increased compensation expenses associated with the re-underwriting of our book of business . commercial specialty . the following table summarizes the results of operations for the commercial specialty segment : replace_table_token_12_th the decline in earned premiums for the years ended december 31 , 2012 and 2011 as compared to the same period ended in 2010 was primarily due to reduced writings in our retail business , public entity and commercial programs units due to a planned reduction in writings as we exited unprofitable products and implemented underwriting initiatives to increase rate . earned premiums for our retail business unit declined from $ 90.8 million for the year ended december 31 , 2011 to $ 88.5 million for the same period ended 2012. earned premiums for our public entity unit declined from $ 124.1 million for the year ended december 31 , 2011 to $ 121.2 million for the same period ended 2012. earned premiums for our commercial programs unit declined from $ 17.7 million for the year ended december 31 , 2011 to $ 14.0 million for the same period ended 2012 as we terminated a logging program . offsetting these declines were growth in earned premiums in our surety and mining units . earned premiums for our surety unit increased to $ 20.4 million for the year ended december 31 , 2012 from $ 12.9 million for the same period ended in 2011 due to a continued focus on growing this business unit . earned premiums for our mining products increased to $ 69.6 million for the year ended december 31 , 2012 from $ 66.7 million for the same period ended 2011. gross written premiums were favorably impacted by a $ 9.1 million increase in 2012 as compared to 2011 on our state funds program , the underlying risk of which is 100 % ceded . included in losses and loss adjustment expenses for the year ended december 31 , 2012 was $ 16.7 million in catastrophe losses from storm activity in the united states , including $ 8.8 million from hurricane sandy . in addition , commercial specialty experienced several large non-cat property losses during the year . the commercial specialty segment had net unfavorable loss development of $ 22.2 million primarily attributable to $ 31.5 million of unfavorable development in general liability due to increases in claim severity and $ 5.5 million of unfavorable development in the automobile liability lines of business .
| the increase in gross written and earned premiums was primarily due to growth in our casualty and professional lines unit . earned premiums for our brazilian operations , which began writing premiums in 2012 , were $ 26.6 million in earned premiums on gross written premiums of $ 46.8 million . earned premiums for our u.s. operations declined slightly to $ 718.4 million ( on gross written premiums of $ 957.2 million ) for the year ended december 31 , 2012 from $ 721.2 million ( on gross written premiums of $ 913.2 million ) and $ 822.9 million ( on gross written premiums of $ 962.7 million ) for the same periods in 2011 and 2010 , respectively . the increase in gross written premiums in 2012 was the result of the introduction of new products . additionally , we have continued to evaluate the products we have historically written and continue to exit unprofitable lines of business . consolidated net investment income decreased for the year ended december 31 , 2012 as compared to the same periods ended 2011 and 2010 due to lower investment yields . total invested assets at december 31 , 2012 were $ 4,056.8 million , net of $ 143.9 million of invested assets attributable to argo international 's trade capital providers . total invested assets at december 31 , 2011 were $ 3,985.0 million , net of $ 162.5 million of invested assets attributable to such trade capital providers . total invested assets at december 31 , 2010 were $ 4,045.0 million , net of $ 170.4 million of invested assets attributable to such trade capital providers . consolidated gross realized gains were $ 54.4 million for the year ended december 31 , 2012 , as compared to $ 74.2 million and $ 47.3 million in 2011 and 2010 , respectively . included in gross realized gains for the year ended december 31 , 2012 was a $ 4.8 million gain resulting from the favorable settlement of a tax contingency related to the sale of a subsidiary in 2005 .
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the investment objective of the investing pool is to seek investment results that correspond generally to the performance of the index before payment of the investing pool 's expenses through holdings of long positions in cerfs . for futures contracts , counterparty credit risk is mitigated because futures contracts are exchange-traded and the exchange 's clearing house acts as central counterparty to all exchange-traded futures contracts ( although customers continue to have credit exposure to the clearing member who holds their account ) . please refer to note 9 for additional disclosures regarding the investing pool 's investments in cerfs . c. cash and cash equivalents the investing pool defines cash and cash equivalents to be highly liquid investments with original maturities of three months or less . as of december 31 , 2012 and december 31 , 2011 , the investing pool had cash and cash equivalents held at its clearing fcm of $ 53,468,750 and $ 27,248,073 respectively , which were posted as margin to collateralize its cerf positions . d. short-term investments short-term investments on the statements of financial condition consist principally of short-term fixed income securities with original maturities of one year or less . these investments are valued at fair value . as of december 31 , 2012 and december 31 , 2011 , the investing pool had short-term investments held at its clearing fcm of $ 1,111,734,878 and $ 1,287,357,438 respectively , which were posted as margin to collateralize its cerf positions . e. securities transactions , income and expense recognition securities transactions are accounted for on the trade date . realized gains and losses on investment transactions are determined using the specific identification method . other income and expenses are recognized on the accrual basis . f. income taxes the investing pool is not an association taxable as a corporation and is treated as a partnership for federal , state and local income tax purposes . no provision for federal , state , and local income taxes has been made in the accompanying financial statements because the investing pool is not subject to income taxes . holders of interests in the investing pool are individually responsible for their own tax payments on their proportionate share of gains , losses , credits , or deductions . g. calculation of net asset value the net asset value of the investing pool on any given day is obtained by subtracting the investing pool 's accrued expenses and other liabilities on that day from the value of the assets of the investing pool , calculated as of 4:00 p.m. ( new york time ) on each day on which nyse arca , inc. ( nyse arca ) is open for regular trading , as soon as practicable after that time . f-18 ishares ® s & p gsci commodity-indexed investing pool llc notes to financial statements ( continued ) december 31 , 2012 h. recent accounting standard in december 2011 , the financial accounting standards board ( fasb ) issued guidance to enhance current disclosure requirements on offsetting of certain assets and liabilities and enable financial statement users to compare financial statements prepared under u.s. gaap and international financial reporting standards ( ifrs ) . the new disclosures are required for investments and derivative financial instruments subject to master netting agreements or similar agreements and require an entity to disclose both gross and net information about such investments and transactions eligible for offset in the statement of assets and liabilities . in addition , the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar agreements . the guidance is effective for financial statements for fiscal years beginning after january 1 , 2013 , and interim periods within those fiscal years . management is evaluating the impact of this guidance on the investing pool 's financial statements and disclosures . 3 - offering of the investing pool interests interests in the investing pool ( investing pool interests ) are issued only to and redeemable only by the ishares ® s & p gsci commodity-indexed trust ( the trust ) in exchange for a combination of cerfs and cash or short-term securities in lieu of cash . the baskets of cerfs and cash or short-term securities in lieu of cash are transferred to or from the trust in exchange for investing pool interests story_separator_special_tag this information should be read in conjunction with the financial statements and notes to financial statements included with this report . the discussion and analysis that follows may contain statements that relate to future events or future performance . in some cases , such forward-looking statements can be identified by terminology such as may , should , expect , plan , anticipate , believe , estimate , predict , potential or the negative of these terms or other comparable terminology . none of the sponsor , the manager , the trustee or the delaware trustee assumes responsibility for the accuracy or completeness of any forward-looking statements . none of the sponsor , the manager , the trustee or the delaware trustee is under a duty to update any of the forward-looking statements to conform such statements to actual results or to a change in expectations or predictions . introduction as described in part i above , it is the objective of the trust that the performance of the shares correspond generally to the performance of the s & p gsci total return index , or the index , before payment of the trust 's and the investing pool 's expenses and liabilities . the index is intended to reflect the performance of a diversified group of commodities . during the period beginning july 10 , 2006 ( commencement of operations ) and ending on december 31 , 2012 ( the trust 's most recent fiscal year-end ) , the trust 's investment in the investing pool grew from $ 7,358,911 story_separator_special_tag the investment objective of the investing pool is to seek investment results that correspond generally to the performance of the index before payment of the investing pool 's expenses through holdings of long positions in cerfs . for futures contracts , counterparty credit risk is mitigated because futures contracts are exchange-traded and the exchange 's clearing house acts as central counterparty to all exchange-traded futures contracts ( although customers continue to have credit exposure to the clearing member who holds their account ) . please refer to note 9 for additional disclosures regarding the investing pool 's investments in cerfs . c. cash and cash equivalents the investing pool defines cash and cash equivalents to be highly liquid investments with original maturities of three months or less . as of december 31 , 2012 and december 31 , 2011 , the investing pool had cash and cash equivalents held at its clearing fcm of $ 53,468,750 and $ 27,248,073 respectively , which were posted as margin to collateralize its cerf positions . d. short-term investments short-term investments on the statements of financial condition consist principally of short-term fixed income securities with original maturities of one year or less . these investments are valued at fair value . as of december 31 , 2012 and december 31 , 2011 , the investing pool had short-term investments held at its clearing fcm of $ 1,111,734,878 and $ 1,287,357,438 respectively , which were posted as margin to collateralize its cerf positions . e. securities transactions , income and expense recognition securities transactions are accounted for on the trade date . realized gains and losses on investment transactions are determined using the specific identification method . other income and expenses are recognized on the accrual basis . f. income taxes the investing pool is not an association taxable as a corporation and is treated as a partnership for federal , state and local income tax purposes . no provision for federal , state , and local income taxes has been made in the accompanying financial statements because the investing pool is not subject to income taxes . holders of interests in the investing pool are individually responsible for their own tax payments on their proportionate share of gains , losses , credits , or deductions . g. calculation of net asset value the net asset value of the investing pool on any given day is obtained by subtracting the investing pool 's accrued expenses and other liabilities on that day from the value of the assets of the investing pool , calculated as of 4:00 p.m. ( new york time ) on each day on which nyse arca , inc. ( nyse arca ) is open for regular trading , as soon as practicable after that time . f-18 ishares ® s & p gsci commodity-indexed investing pool llc notes to financial statements ( continued ) december 31 , 2012 h. recent accounting standard in december 2011 , the financial accounting standards board ( fasb ) issued guidance to enhance current disclosure requirements on offsetting of certain assets and liabilities and enable financial statement users to compare financial statements prepared under u.s. gaap and international financial reporting standards ( ifrs ) . the new disclosures are required for investments and derivative financial instruments subject to master netting agreements or similar agreements and require an entity to disclose both gross and net information about such investments and transactions eligible for offset in the statement of assets and liabilities . in addition , the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar agreements . the guidance is effective for financial statements for fiscal years beginning after january 1 , 2013 , and interim periods within those fiscal years . management is evaluating the impact of this guidance on the investing pool 's financial statements and disclosures . 3 - offering of the investing pool interests interests in the investing pool ( investing pool interests ) are issued only to and redeemable only by the ishares ® s & p gsci commodity-indexed trust ( the trust ) in exchange for a combination of cerfs and cash or short-term securities in lieu of cash . the baskets of cerfs and cash or short-term securities in lieu of cash are transferred to or from the trust in exchange for investing pool interests story_separator_special_tag this information should be read in conjunction with the financial statements and notes to financial statements included with this report . the discussion and analysis that follows may contain statements that relate to future events or future performance . in some cases , such forward-looking statements can be identified by terminology such as may , should , expect , plan , anticipate , believe , estimate , predict , potential or the negative of these terms or other comparable terminology . none of the sponsor , the manager , the trustee or the delaware trustee assumes responsibility for the accuracy or completeness of any forward-looking statements . none of the sponsor , the manager , the trustee or the delaware trustee is under a duty to update any of the forward-looking statements to conform such statements to actual results or to a change in expectations or predictions . introduction as described in part i above , it is the objective of the trust that the performance of the shares correspond generally to the performance of the s & p gsci total return index , or the index , before payment of the trust 's and the investing pool 's expenses and liabilities . the index is intended to reflect the performance of a diversified group of commodities . during the period beginning july 10 , 2006 ( commencement of operations ) and ending on december 31 , 2012 ( the trust 's most recent fiscal year-end ) , the trust 's investment in the investing pool grew from $ 7,358,911
| the trust 's net asset value was also affected by a decrease in the price of the march 2014 cerfs . the average purchase price of march 2014 cerfs entered into by the investing pool was $ 501.91 while the price of march 2014 cerfs at december 31 , 2011 was $ 474.80 , a 5.40 % decrease . this decrease in the trust 's net asset value was partially offset when in february 2011 , the investing pool began trading in cerfs expiring in march 2014 in connection with the rolling process from cerfs expiring in march 2011. the march 2011 cerfs increased in price from $ 480.40 at december 31 , 2010 to a final sale price of $ 510.80 in february 2011 , a 6.33 % increase . for the year ended december 31 , 2011 , the trust had a net realized gain on futures contracts of $ 165,820,763 and brokerage commissions and fees of $ 761,166 allocated from the investing pool primarily in connection with the rolling process . the year ended december 31 , 2010 the trust 's net asset value grew from $ 1,759,350,446 at december 31 , 2009 to $ 1,799,879,995 at december 31 , 2010. the increase in the trust 's net asset value resulted primarily from an increase in the price of march 2011 cerfs during the year from $ 442.70 at december 31 , 2009 to $ 480.40 at december 31 , 2010 , an 8.52 % increase . the trust 's net asset value was also affected by a decrease in outstanding shares , which fell from 55,550,000 at december 31 , 2009 to 52,700,000 at december 31 , 2010 due to 8,400,000 shares ( 168 baskets ) being created and 11,250,000 shares ( 225 baskets ) being redeemed during the year . liquidity and capital resources the trust 's sole asset as of december 31 , 2012 was its investment in the investing pool . the investing pool 's assets consist of cerfs and cash and short-term securities that are posted as collateral for the investing
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the 2012 plan , as amended , provides for the issuance of up to 11,553,986 shares , or approximately 14 % of our march 31 , 2015 outstanding common stock , to executive officers , directors , advisory board members , consultants and employees . in addition , we assumed and adopted the 2008 plan , and as described above option holders under that plan were granted new options to purchase common stock . no further options will be granted under the 2008 plan . the parties have taken all actions necessary to ensure that the merger was treated as a tax free exchange under section 368 ( a ) of the internal revenue code of 1986 , as amended . as of june 1 , 2015 , the company had 81,580,538 total issued and outstanding shares of common stock , and five year warrants for the opportunity to purchase an additional 1,139,875 shares of common stock at exercise prices ranging from $ 0.85 to $ 7.62 per share . the company had outstanding stock options to purchase an aggregate of 7,085,295 shares of common stock at exercise prices ranging from $ 0.08 to $ 9.92 and 258,750 outstanding restricted stock units , with each unit representing the right to receive one share of common stock . critical accounting policies our consolidated financial statements include the accounts of the company as well as its wholly-owned subsidiaries , with all material intercompany accounts and transactions eliminated in consolidation , which appear under item 8 of part ii , have been prepared in accordance with accounting principles generally accepted in the united states , which require that we make certain assumptions and estimates and , in connection therewith , adopt certain accounting policies . our significant accounting policies are set forth in note 2 to our consolidated financial statements . of those policies , we believe that the policies discussed below may involve a higher degree of judgment and may be more critical to an accurate reflection of our financial condition and results of operations . revenue recognition the company derives its revenues from research service agreements , product sales , collaborative research agreements , and grants from the national institute of health ( “ nih ” ) , u.s. treasury department and private not-for-profit organizations . the company recognizes revenue when the following criteria have been met : ( i ) persuasive evidence of an arrangement exists ; ( ii ) services have been rendered or product has been delivered ; ( iii ) price to the customer is fixed and determinable ; and ( iv ) collection of the underlying receivable is reasonably assured . billings to customers or payments received from customers are included in deferred revenue on the balance sheet until all revenue recognition criteria are met . revenue arrangements with multiple deliverables the company may enter into revenue arrangements that contain multiple deliverables . judgment is required to properly identify the accounting units of the multiple deliverable transactions and to determine the manner in which revenue should be allocated among the accounting units . moreover , judgment is used in interpreting the commercial terms and determining when all criteria of revenue recognition have been met for each deliverable in order for revenue recognition to occur in the appropriate accounting period . for multiple deliverable agreements , consideration is allocated at the inception of the agreement to all deliverables based on their relative selling price . the relative selling price for each deliverable is determined using vendor specific objective evidence ( “ vsoe ” ) of selling price or third-party evidence of selling price if vsoe does not exist . if neither vsoe nor third-party evidence of selling price exists , the company uses its best estimate of the selling price for the deliverable . the company recognizes revenue for delivered elements only when it determines there are no uncertainties regarding customer acceptance . while changes in the allocation of the arrangement consideration between the units of accounting will not affect the amount of total revenue recognized for a particular sales arrangement , any material changes in these allocations could impact the timing of revenue recognition , which could affect the company 's results of operations . revenue from research service agreements for research service agreements , the company defers any up-front fees collected from customers and recognizes revenue when earned , typically when services are rendered or deliverables are provided to the customer . when substantial customer acceptance terms exist , the company recognizes revenue for delivered elements only when it determines there are no uncertainties regarding customer acceptance . 27 research and development revenue under collaborative agreements the company 's collaboration revenue consists of license and collaboration agreements that contain multiple elements , including non-refundable up-front fees , payments for reimbursement of third-party research costs , payments for ongoing research , payments associated with achieving specific development milestones , and royalties based on specified percentages of net product sales , if any . the company considers a variety of factors in determining the appropriate method of revenue recognition under these arrangements , such as whether the elements are separable , whether there are determinable fair values and whether there is a unique earnings process associated with each element of a contract . the company recognizes revenue from research funding under collaboration agreements when earned on a “ proportional performance ” basis as research hours are incurred . the company performs services as specified in each respective agreement on a best-efforts basis , and is reimbursed based on labor hours incurred on each contract . the company initially defers revenue for any amounts billed , or payments received , in advance of the services being performed , and recognizes revenue pursuant to the related pattern of performance , based on total labor hours incurred relative to total labor hours estimated under the contract . product revenue the company recognizes product revenue at the time of shipment to the customer , provided all other revenue recognition criteria have been met . story_separator_special_tag to date , the company has not recognized significant revenue from commercial product sales . product returns as our commercial sales increase , we expect to establish a reserve for estimated sales returns that will be recorded as a reduction to revenue . that reserve will be maintained to account for future return of products sold in the current period . the reserve will be reviewed quarterly and will be estimated based on an analysis of our historical experience related to product returns . grant revenues grant revenue recognition is based on the terms of the grant . the company generally receives two kinds of grants : cost reimbursement-based grants , and fixed price grants for which payments are due upon the achievement of specific milestones . for cost reimbursement-based grants , revenues are based upon internal and subcontractor costs incurred that are specifically covered by the grants , and where applicable , an additional facilities and administrative rate that provides funding for overhead expenses . these revenues are recognized as grant-related expenses are incurred by the company or its subcontractors . fixed price grants that provide for payments upon the completion of specific milestones are considered revenue arrangements with multiple deliverables , and as such , revenue is allocated among the accounting units as described above and is recognized only as elements are delivered and the company determines there are no uncertainties regarding customer acceptance . derivative financial instruments the company does not use derivative instruments to hedge exposures to cash flow , market or foreign currency risks . the company reviews the terms of convertible debt and equity instruments it issues to determine whether there are derivative instruments , including an embedded conversion option that is required to be bifurcated and accounted for separately as a derivative financial instrument . in circumstances where the convertible instrument contains more than one embedded derivative instrument , including the conversion option , that is required to be bifurcated , the bifurcated derivative instruments are accounted for as a single , compound derivative instrument . also , in connection with the sale of convertible debt and equity instruments , the company may issue freestanding warrants that may , depending on their terms , be accounted for as derivative instrument liabilities , rather than as equity . derivative instruments are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense . when the convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities , the total proceeds allocated to the convertible host instruments are first allocated to the fair value of all the bifurcated derivative instruments . the remaining proceeds , if any , are then allocated to the convertible instruments themselves , usually resulting in those instruments being recorded at a discount from their face value . fair value measurements financial assets and liabilities are measured at fair value , which is defined as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . valuation techniques used to measure fair value must maximize the use of 28 observable inputs and minimize the use of unobservable inputs . the following is a fair value hierarchy based on three levels of inputs , of which the first two are considered observable and the last unobservable , that may be used to measure fair value : · level 1 — quoted prices in active markets for identical assets or liabilities . · level 2 — inputs other than level 1 that are observable , either directly or indirectly , such as quoted prices for similar assets or liabilities ; quoted prices in markets that are not active ; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities . · level 3 — unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . the company has issued warrants , of which some are classified as derivative liabilities as a result of the terms in the warrants that provide for down-round protection in the event of a dilutive issuance . the company uses level 3 inputs for its valuation methodology for the warrant derivative liabilities . the estimated fair values were determined using a monte carlo option pricing model based on various assumptions . the company 's derivative liabilities are adjusted to reflect estimated fair value at each period end , with any decrease or increase in the estimated fair value being recorded in other income or expense accordingly , as adjustments to fair value of derivative liabilities . various factors are considered in the pricing models we use to value the warrants , including the company 's current stock price , the remaining life of the warrants , the volatility of the company 's stock price , and the risk free interest rate . future changes in these factors may have a significant impact on the computed fair value of the warrant liability . as such , changes in the fair value of the warrants have in the past and could continue in the future to vary significantly from period to period . stock-based compensation for purposes of calculating stock-based compensation , we estimate the fair value of stock options using a black-scholes option-pricing model . the determination of the fair value of share-based payment awards utilizing the black-scholes model is affected by our stock price and a number of assumptions , including expected volatility , expected life , risk-free interest rate and expected dividends . the expected volatility is based on the historical volatility of our common stock over the most recent period commensurate with the estimated expected term of the stock options .
| 29 comparison of the years ended march 31 , 2015 and march 31 , 2014 revenues revenues of $ 0.6 million for the year ended march 31 , 2015 increased approximately $ 0.2 million , or 50 % , over revenues of $ 0.4 million for the year ended march 31 , 2014. this increase reflects the recognition of $ 0.3 million in commercial revenue since the company 's product launch in november 2014 , partially offset by a $ 0.1 million decrease in collaboration revenue due to the completion of one of the company 's larger collaborative research agreements during the year ended march 31 , 2014. operating expenses operating expenses increased approximately $ 9.9 million , or 47 % , from $ 21.0 million for the year ended march 31 , 2014 to $ 30.9 million for the year ended march 31 , 2015. of this increase , approximately $ 5.0 million is related to increased selling , general and administrative expense , while the other $ 4.9 million relates to increased investment in research and development expense . those increases are attributed to the company 's continued implementation of its business plan , including hiring additional staff to support its research and development initiatives , incremental investment associated with commercialization project initiatives , expenses related to operating as a publicly traded corporation , expansion to a larger facility , and increased stock compensation expense relative to employees and certain consulting services . research and development expenses research and development expense increased $ 4.9 million , or 61 % , from approximately $ 8.0 million for the year ended march 31 , 2014 to approximately $ 12.9 million for the year ended march 31 , 2015 as the company significantly increased its research staff to support its obligations under certain collaborative research agreements and grants , and to expand product development efforts in preparation for commercial revenues . full-time research and development staffing increased from thirty-two full-time employees as of march 31 , 2014 to fifty-four full-time employees as of march 31 , 2015. in addition to the incremental payroll , benefits and stock-based compensation resulting from increased staffing levels , the company increased its facility space to accommodate its growing research staff , and increased its spending on lab equipment and supplies in proportion to its increased research activities . selling , general and administrative expenses selling ,
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these costs affected selling , general and administrative expense ( `` sg & a '' ) , interest expense , spin costs , restructuring charges and income taxes . as a result , fiscal 2014 and 2015 earnings per share on both a gaap and adjusted ( non-gaap ) basis are not comparable to fiscal 2016. in addition , prior year cash flow statements were not adjusted for the impact of the separation and are not comparable . prior to the separation , we managed our business in two reportable segments : personal care and household products . beginning july 1 , 2015 , we manage our business in four reportable segments : wet shave , sun and skin care , feminine care and all other . prior periods have been recast to reflect our current segment reporting . our financial statements include incremental costs incurred to evaluate , plan and execute the separation . fiscal 2016 and 2015 included costs related to the separation of $ 11.8 and $ 137.8 recorded in sg & a , respectively , and $ 0.2 and $ 4.2 in cost of products sold in fiscal 2016 and 2015 , respectively . additionally , fiscal 2015 included $ 28.3 in spin restructuring charges . we do not expect to incur any additional separation-related costs . intangible asset impairment during the fourth quarter of fiscal 2015 , we completed impairment testing on indefinite-lived intangible assets other than goodwill , which consist of trademarks and brand names used across our segments , and determined that the carrying values of our playtex , wet ones and skintimate brand names were above the fair values , resulting in a non-cash asset impairment charge of $ 318.2 . the impairment of the playtex brand was primarily the result of slower adoption of new products and reductions in legacy product sales for certain feminine care products , as well as declines in certain international markets related to the separation . in addition , the impairment of the playtex brand was driven by our infant care products , where competitive pressures , delays in product launches and loss of licensing drove the sales decline . both the wet ones and skintimate impairments were primarily related to the introduction of competing products in the market , which resulted in share and margin declines . during the fourth quarter of fiscal 2016 , we completed our annual impairment testing and found the carrying value of our skintimate brand name to be above the fair value , resulting in an additional non-cash asset impairment charge of $ 6.5 . the fiscal 2016 impairment charge was caused by further market share erosion above previous estimates . despite impairment charges over the past two fiscal years , we believe there is substantial value in the brand based upon the latest financial estimates . the impairment charges had no impact on cash balances , operating cash flows or our business outlook , and are not expected to impact the ability to achieve long-term objectives . see note 8 of notes to consolidated financial statements . during the third fiscal quarter of 2015 , we recorded a $ 2.5 impairment of brand names and a $ 5.6 impairment of customer-related intangibles associated with the sale of our industrial business . for further information on the sale of the industrial business , see note 3 of notes to consolidated financial statements . venezuela deconsolidation venezuelan exchange control regulations have resulted in an other-than-temporary lack of exchangeability between the venezuelan bolivar and u.s. dollar , resulting in a lack of control over our venezuelan subsidiaries for accounting purposes . as we expect this condition to continue for the foreseeable future , we deconsolidated our venezuelan subsidiaries on march 31 , 2015 and began accounting for the investment in our venezuelan operations using the cost method of accounting . as a result of deconsolidating our venezuelan subsidiaries , we recorded a charge of $ 144.5 during fiscal 2015 , of which $ 79.3 was included within continuing operations and had no accompanying tax benefit . this charge included the write-off of our investment in our venezuelan subsidiaries , foreign currency translation losses of $ 18.5 previously recorded in accumulated other comprehensive loss and the write-off of $ 18.5 of intercompany receivables . since march 31 , 2015 , our financial results have not included the operating results of our venezuelan operations . 29 restructuring projects in november 2012 , our board of directors ( the `` board '' ) authorized an enterprise-wide restructuring plan and delegated authority to management to determine the final actions with respect to this plan ( the `` restructuring '' ) . the restructuring originally included several initiatives focused on reducing costs in general and administrative functions as well as reducing manufacturing and operating costs associated with our discontinued operations . in january 2014 , the board authorized an expansion of scope of the previously announced restructuring , which included rationalization and streamlining of the edgewell operating facilities and other cost saving initiatives . restructuring charges specific to edgewell have primarily related to plant closure and accelerated depreciation charges and severance and related benefit costs . during fiscal 2016 , we incurred $ 38.8 of charges related to the restructuring , which includes $ 1.8 associated with non-core inventory obsolescence charges included within cost of products sold , and estimate our incremental additional gross savings during fiscal 2016 under the restructuring to be $ 15.0. project-to-date restructuring costs total $ 139.8. we expect full year costs of $ 15.0 to $ 20.0 in fiscal 2017. project-to-date savings total approximately $ 128.0. we continue to expect incremental savings of approximately $ 45.0 to $ 50.0 in fiscal 2017 and 2018 , combined . we incurred $ 28.3 in spin restructuring charges during fiscal 2015. we do not expect to incur additional spin-related restructuring charges in the future . for further information on our restructuring projects , see note 5 of notes to consolidated financial statements . story_separator_special_tag sale of industrial business in may 2015 , the board authorized the strategic decision to exit our industrial business , which was part of our all other segment , due to a shift of management focus to other segment products . we finalized the sale of the business in september 2015. the sale impacted operations in verona , virginia ; obregon , mexico ; and the united kingdom ( the `` u.k. '' ) . during fiscal 2015 , we incurred $ 21.9 of pre-tax non-cash asset impairment charges and a $ 10.8 pre-tax loss on sale of assets related to the sale of the industrial business . for further information , see note 3 of notes to consolidated financial statements . subsequent event on october 31 , 2016 , we completed the acquisition of bulldog skincare holdings limited , a men 's grooming and skincare products company based in the u.k. for £28.1 , or approximately $ 34 , net of cash acquired . the acquisition creates opportunities to expand our personal care portfolio into a growing global category where we can leverage our international geographic footprint . the acquisition was financed through available foreign cash . executive summary following is a summary of key results for fiscal 2016. net earnings ( loss ) and diluted earnings ( loss ) per share ( `` eps '' ) for the time periods presented were impacted by restructuring charges , costs related to the separation and certain other adjustments as described in the table below . the impact of these items on reported net earnings ( loss ) and eps are provided below as a reconciliation of net earnings ( loss ) and eps to adjusted net earnings and adjusted diluted eps , which are non-gaap measures . 30 fiscal 2016 net sales of $ 2,362.0 decreased 2.4 % from fiscal 2015 , inclusive of a 1.1 % decrease due to currency movements , a 1.7 % decline due to the impact of the sale of our industrial business ( `` industrial '' ) and a 1.0 % decrease from the impact of the deconsolidation of our venezuelan subsidiaries ( `` venezuela '' ) . excluding the impact of currency movements , industrial and venezuela , organic net sales increased 1.4 % for fiscal 2016 as compared to the prior year period , including an estimated $ 34.0 negative impact from international go-to-market changes . the increase in organic net sales was driven primarily by growth in wet shave and sun and skin care . net earnings from continuing operations for fiscal 2016 were $ 178.7 , as compared to a loss in the prior year of $ 296.1 . on an adjusted basis , as illustrated in the table below , net earnings from continuing operations for fiscal 2016 increased 21.7 % to $ 213.3 . the improvement in adjusted net earnings from continuing operations for fiscal 2016 is primarily due to lower sg & a , advertising and sales promotion expense ( `` a & p '' ) investments and interest expense , partially offset by lower sales driven by go-to-market changes , impacts from currency movements in the current year and the impacts of venezuela in the prior year . net earnings per diluted share from continuing operations during fiscal 2016 were $ 2.99 compared to net loss per diluted share of $ 4.78 in the prior year . on an adjusted basis , as illustrated in the table below , net earnings per diluted share from continuing operations during fiscal 2016 were $ 3.57 compared to $ 2.80 in the prior year . replace_table_token_5_th ( 1 ) includes pre-tax sg & a of $ 11.8 , $ 137.8 and $ 24.4 for fiscal 2016 , 2015 and 2014 , respectively , and pre-tax cost of products sold of $ 0.2 and $ 4.2 for fiscal 2016 and 2015 , respectively . ( 2 ) includes pre-tax sg & a of $ 0.3 and $ 4.3 associated with certain information technology and related activities for fiscal 2015 and 2014 , respectively . also includes cost of products sold of $ 1.8 for fiscal 2016 associated with obsolescence charges related to the exit of certain non-core product lines as part of the restructuring , and positive adjustments of $ 0.7 for fiscal 2014 . ( 3 ) all eps impacts are calculated using diluted weighted-average shares outstanding . for fiscal 2015 , this reflects the impact of 0.5 dilutive restricted stock equivalent ( `` rse '' ) awards which were excluded from the gaap eps calculation due to the reported net loss . 31 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 19.3 % in fiscal 2014. the tax rate for 2015 reflects a tax benefit on a net loss primarily due to increased expenses in higher tax rate jurisdictions , including separation related expenses and the intangible asset impairment charge , offset in part by the venezuela deconsolidation charge , which had no accompanying tax benefit . the fiscal 2015 adjusted effective tax rate for continuing operations was 23.2 % as compared to 28.4 % in the prior year . the decrease was due to a higher mix of earnings in lower tax rate jurisdictions compared to the prior year . 33 the following table presents a reconciliation of the adjusted effective tax rate , which is a non-gaap measure : replace_table_token_7_th ( 1 ) includes adjustments for the venezuela deconsolidation charge , spin costs , restructuring charges , industrial sale charges , cost of early debt retirements , impairment charges , acquisition- and integration-related charges , net pension and postretirement benefit gains and the associated tax impact of these charges , as well as adjustments to prior years ' tax accruals . see reconciliation of net earnings to adjusted net earnings . our effective tax rate is highly sensitive to the mix of countries from which earnings or losses are derived .
| gross profit was $ 1,183.8 in fiscal 2015 , as compared to $ 1,289.9 in fiscal 2014. the decrease in gross profit in fiscal 2015 was due primarily to foreign currency movements and lower net sales , which more than offset lower product costs , due in part to the restructuring project . gross margin as a percent of net sales for fiscal 2015 was 48.9 % , down 50 basis points as compared to fiscal 2014 . the gross margin percentage was negatively impacted 100 basis points due to foreign currency movements . excluding the impact of currency , gross profit as a percent of net sales increased 50 basis points due to lower product costs and favorable mix , partially offset by go-to-market impacts . 32 selling , general and administrative expense sg & a was $ 412.7 in fiscal 2016 , or 17.5 % of net sales , as compared to $ 571.6 in the prior year period , or 23.6 % of net sales . included in sg & a in fiscal 2016 and 2015 were approximately $ 11.8 and $ 137.8 of pre-tax spin costs , respectively . excluding spin costs , sg & a was $ 400.9 in the current year period , or 17.0 % of net sales , as compared to $ 433.8 in fiscal 2015 , or 17.9 % of net sales . in addition , sg & a in the first nine months of fiscal 2015 included certain costs associated with supporting the household products business , which were not reported in discontinued operations . sg & a in fiscal 2015 was $ 571.6 , or 23.6 % of net sales , an increase from $ 534.7 , or 20.5 % of net sales , in fiscal 2014. included in sg & a in fiscal 2015 and 2014 were approximately $ 137.8 and $ 24.4 of pre-tax spin costs , respectively . excluding spin costs , sg & a was $ 433.8 , or 17.9 % of net sales , in fiscal 2015 and $ 510.3 , or 19.5 % of net sales , for fiscal 2014. the improvement in sg & a
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we closely monitor the operating performance and rent collections of tenants in our shopping centers as well as those retailers experiencing significant changes to their business models as a result of reduced customer traffic in their stores and increased competition from e-commerce sales . retailers that are unable to withstand these and other business pressures , such as significant debt maturities , may file for bankruptcy . although base rent is supported by long-term lease contracts , tenants filing for bankruptcy protection generally have the legal right to reject any or all of their leases and close related stores . any unsecured claim we hold against a bankrupt tenant for unpaid rent might be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims . as a result , it is likely that we would recover substantially less than the full value of any unsecured claims we hold . for operating leases in which collectability of lease income is not probable , lease income is recognized on a cash basis and all previously recognized lease income is reversed in the period in which the lease income is determined not to be probable of collection . additionally , we may incur significant expense to adjudicate our claim and to release the vacated space . in the event that a tenant with a significant amount of annualized base rent files bankruptcy and cancels its leases , we could experience a significant reduction in our revenues . tenants who are currently in bankruptcy and continue to occupy space in our shopping centers at december 31 , 2019 , represent an aggregate of 0.6 % of our annual base rent on a pro-rata basis , which includes 0.5 % for the 57,000 square foot barneys ' space in new york . the barneys ' lease is expected to terminate in february 2020 . 40 story_separator_special_tag million decrease from the sale of operating properties . general and administrative changed as follows : $ 8.2 million increase due to eliminating capitalization of non-contingent internal leasing costs and legal costs associated with leasing activities upon the adoption of asc 842 , leases , on january 1 , 2019 ; and $ 6.3 million increase in the value of participant obligations within the deferred compensation plan ; reduced by $ 3.4 million decrease from higher development overhead capitalization based on the timing and size of current development and redevelopment projects ; and $ 1.6 million net decrease in compensation and other corporate overhead costs , primarily driven by lower incentive compensation . 42 real estate taxes changed as follows : $ 2.7 million increase from development properties where capitalization ceased as tenant spaces became available for occupancy ; and $ 1.9 million increase from acquisitions of operating properties ; offset by $ 3.7 million decrease at same properties from successful tax appeals with refunds received in 2019 and 2018 including increases for post-merger tax reassessments ; and $ 2.5 million decrease from the sale of operating properties . provision for doubtful accounts was $ 5.0 million during the year ended december 31 , 2018. beginning with the adoption of asc 842 , leases , on january 1 , 2019 , uncollectible lease income is a direct charge against lease income . the uncollectible lease income was $ 5.4 million during the year ended december 31 , 2019 , reflecting changes in collection expectations . other operating expenses increased $ 3.1 million , attributable to environmental remediation costs within our same properties and increased development pursuit costs . the following table presents the components of other expense ( income ) : replace_table_token_24_th the $ 2.8 million net increase in total interest expense is primarily due to : $ 2.1 million net increase in interest on notes payable due to additional unsecured debt offerings to fund the repayment of our $ 300.0 million term loan and several mortgages ; $ 2.8 million increase from lower capitalization of interest based on the size and progress of development and redevelopment projects in process ; reduced by $ 1.4 million decrease in interest on unsecured credit facilities due to repayment of our $ 300 million term loan in august 2019 ; and $ 0.7 million decrease as a result of a previously settled forward hedge for a ten year unsecured note issuance fully amortizing in early 2019. during 2019 , we recognized $ 54.2 million of impairment losses , including $ 3.1 million of goodwill impairment , on six operating properties , three of which have been sold . during 2018 , we recognized $ 38.4 million of impairment losses , including $ 12.6 million of goodwill impairment , on ten operating properties and two land parcels , all of which have sold . one of the remaining three properties that was impaired in 2019 is our 101 7 th avenue center in new york , which was occupied by a single retail tenant , barneys , who filed bankruptcy and is expected to terminate their lease in february 2020. as a result , management reassessed the expected hold period of the property as well as its highest and best use , resulting in a $ 40.3 million impairment loss to reduce the carrying value to its estimated fair value . during 2019 , we sold five operating properties and six land parcels for gains totaling $ 24.2 million . during 2018 , we sold six operating properties and seven land parcels for gains totaling $ 28.3 million . net investment income increased $ 6.7 million , driven by valuation changes in the stock market , primarily attributable to investments held within the non-qualified deferred compensation plan . story_separator_special_tag 43 our equity in income ( losses ) of investment s in real estate partnerships in creased as follows : replace_table_token_25_th the $ 18.0 million increase in total equity in income in investments in real estate partnerships is attributed to : $ 13.9 million increase within grir primarily due to our share of gains on the sale of two operating properties ; $ 10.5 million decrease within nyc due to a provision for impairments of real estate resulting from changes in the expected hold periods of various properties ; $ 2.9 million decrease within columbia ii due to our share of 2018 gain on the sale of an operating property ; $ 2.3 million increase within regcal due to our share of 2019 gains on the sale of one operating property ; and $ 14.7 million increase in other investments in real estate partnerships due to the sale of our ownership interest in a single operating property partnership . the following represents the remaining components that comprise net income attributable to the common stockholders and unit holders : replace_table_token_26_th comparison of the years ended december 31 , 2018 and 2017 : for a comparison of our results from operations for the years ended december 31 , 2018 and 2017 , see “ part ii , item 7. management 's discussion and analysis of financial condition and results of operations ” of our annual report on form 10-k for the year ended december 31 , 2018 , filed with the sec on february 21 , 2019 . 44 supplemental earnings information we use certain non-gaap performance measures , in addition to certain performance metrics determined under gaap , as we believe these measures improve the understanding of our operating results . we provide pro-rata financial information because we believe it assists investors and analysts in estimating our economic interest in our consolidated and unconsolidated partnerships , when read in conjunction with the company 's reported results under gaap . we believe presenting our pro-rata share of operating results , along with other non-gaap measures , may assist in comparing the company 's operating results to other reits . we continually evaluate the usefulness , relevance , limitations , and calculation of our reported non-gaap performance measures to determine how best to provide relevant information to the public , and thus such reported measures could change . see “ defined terms ” in part i , item 1. pro-rata same property noi : our pro-rata same property noi changed as follows : replace_table_token_27_th ( 1 ) represents amounts included within lease income , in the accompanying consolidated statements of operations and further discussed in note 1 , that are contractually billable to the tenant per the terms of the lease agreements . ( 2 ) beginning with the adoption of asc 842 , leases , on january 1 , 2019 , uncollectible lease income is a direct charge against lease income . provision for doubtful accounts was included in total real estate operating expenses during the year ended december 31 , 2018. billable base rent increased $ 15.2 million , driven by increases in rental rate growth on new and renewal leases and contractual rent steps in existing leases , partially offset by a decline in rent paying occupancy . operating and maintenance costs increased $ 3.6 million due to increases in recoverable costs , including insurance , security , and property maintenance , offset by decreases in snow removal costs . termination expense decreased $ 1.2 million due to more significant costs in 2018 to terminate specific tenant leases . real estate taxes decreased $ 3.5 million due to successful supplemental tax appeal receipts at certain properties in 2019. in addition , 2018 included higher real estate tax expense related to supplemental tax bills received from the 2017 merger with equity one . 45 same property rollforward : our same property pool includes the following property count , pro-rata gla , and changes therein : replace_table_token_28_th ( 1 ) sf adjustments arise from remeasurements or redevelopments . nareit ffo : our reconciliation of net income attributable to common stock and unit holders to nareit ffo is as follows : replace_table_token_29_th ( 1 ) includes regency 's pro-rata share of unconsolidated investment partnerships , net of pro-rata share attributable to noncontrolling interests . ( 2 ) effective january 1 , 2019 , regency prospectively adopted the nareit ffo white paper – 2018 restatement , and elected the option of excluding gains on sales and impairments of land , which are considered incidental to the company 's main business . prior period amounts were not restated to conform to the current year presentation of nareit ffo , and therefore 2018 includes $ 6.7 million of gains on sale of land and $ 542,000 of provision for impairment to land . 46 reconciliation of same property noi to nearest gaap measure : our reconciliation of net income attributable to common stockholders to same property noi , on a pro-rata basis , is as follows : replace_table_token_30_th ( 1 ) includes straight-line rental income and expense , net of reserves , above and below market rent amortization , other fees , and noncontrolling interest . ( 2 ) provision for doubtful accounts is applicable only to 2018 amounts . beginning january 1 , 2019 , with the adoption of topic 842 , leases , uncollectible amounts are presented net within lease income . ( 3 ) includes non-noi expenses incurred at our unconsolidated real estate partnerships , including those separated out above for our consolidated properties . ( 4 ) includes revenues and expenses attributable to non-same property , sold property , development properties , corporate activities , and noncontrolling interests . liquidity and capital resources general we use cash flows generated from operating , investing , and financing activities to strengthen our balance sheet , finance our development and redevelopment projects , fund our investment activities , and maintain financial flexibility .
| recoveries from tenants increased , on a net basis , as follows : $ 4.0 million increase from rent commencing at development properties ; and $ 3.5 million increase from acquisitions of operating properties ; reduced by $ 520,000 decrease from same properties , due to a net decrease in the amount of recoverable expenses ; and $ 5.2 million decrease from the sale of operating properties . $ 8.7 million decrease in straight-line rent driven by a $ 4.8 million decrease for known or expected early lease terminations and a $ 3.9 million net decrease driven by timing of contractual rent steps . $ 10.5 million increase in above and below market rent accretion , as follows : $ 2.8 million increase primarily driven by accelerated below-market rent accretion for an early lease termination at a recently acquired property ; $ 7.4 million increase from same properties primarily driven by $ 8.8 million of accelerated below-market rent accretion for expected early lease terminations ; and $ 352,000 increase from the sale of operating properties , which had greater above market rent amortization in 2018 . $ 5.4 million decrease related to uncollectible lease income recorded as a direct charge against lease income beginning on january 1 , 2019 , with the adoption of asc 842 , leases . during the year ended december 31 , 2018 , uncollectible lease income of $ 5.0 million was recorded as provision for doubtful accounts included in other operating expenses below . 41 management , transaction and other fees increased $ 1 . 1 million primarily due to an increase in development fees from projects within our unconsolidated partnerships . changes in our operating expenses are summarized in the following table : replace_table_token_23_th ( 1 ) beginning with the adoption of asc 842 , leases , on january 1 , 2019 , uncollectible lease income is a direct charge against lease income , which totaled $ 5.4 million during the year ended december 31 , 2019. depreciation and amortization costs
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key financial and operating metrics we regularly review certain key financial and operating metrics to evaluate growth trends , measure our performance and make strategic decisions . these key financial and operating metrics may change over time . our key financial and operating metrics at december 31 , 2015 , 2014 and 2013 , were as follows : replace_table_token_10_th net insurance service revenues and net service revenues we define net insurance service revenues as insurance service revenues less insurance costs . we define net service revenues as the sum of professional service revenues and net insurance service revenues . our total revenues on a gaap basis represent the total amount invoiced by us to our clients , net of direct pass-through costs such as payroll and payroll tax payments , for the services we provide to our clients . our insurance costs include the premiums we pay to third-party insurance carriers for the insurance coverage provided to our clients and wses and the reimbursements we pay to the insurance carriers and third-party administrators for claims payments made on our behalf within our insurance deductible layer , where applicable . we act principally as the service provider to add value in the execution and procurement of these services to our clients . historically , net insurance service revenues has served as the primary indicator of our ability to source , add value and offer benefit services to our clients and wses through third-party insurance carriers , and has been considered by management to be a key performance measure . historically , net service revenues has also served as a key performance measure as it provides a useful measure of total revenues for the two main components of our revenues calculated on a consistent basis . in addition , management believes measuring operating costs as a function of net service revenues has historically provided a useful metric , as we believe it has enabled evaluation of the performance of our business . total wses we define total wses at the end of a given fiscal period as the total number of wses paid in the last calendar month of the fiscal period . historically , comparing our total wses at the end of a fiscal period to that of prior periods has served as an indicator of our success in growing our business , both organically and through the integration of acquired businesses , and retaining clients . our total wses paid in the last calendar month of the fiscal period has also historically been a leading indicator of our anticipated revenues for future fiscal periods . total sales representatives our direct sales force consists of sales representatives who focus on serving clients in specific industry vertical markets . we define total sales representatives at the end of a given fiscal period as the total number of our direct sales force employees at that date . historically , comparing our total sales representatives at the end of a fiscal period to our total sales representatives at the end of a prior fiscal period has served as an indicator of our success in growing our business . our total sales representatives at the end of recent fiscal periods has also historically been a key indicator of our ability to increase our revenues in the following fiscal periods . 35 impact of health care reform the affordable care act , or the act , entails sweeping health care reforms with staggered effective dates from 2010 through 2020 , and many provisions of the act require the issuance of additional guidance from the u.s. departments of labor and health and human services , the irs and the states . a number of key provisions of the act have begun to take effect over the past three years , including the establishment of state and federal insurance exchanges , insurance market reforms , “ play or pay ” penalties on applicable large employers and the imposition and assessment of excise taxes on the health insurance industry and reinsurance taxes on insurers and third-party administrators . collectively , these items have the potential to significantly change the insurance marketplace for employers and how employers offer or provide insurance to employees . we are not yet able to determine the full impact to our business , and to our clients , resulting from the act . in future periods , the act may result in increased costs to us and our clients and could affect our ability to attract and retain clients . additionally , we may be limited or delayed in our ability to increase service fees to offset any associated potential increased costs resulting from compliance with the act . furthermore , the uncertainty surrounding the terms and application of the act may delay or inhibit the decisions of potential clients to outsource their hr needs . as a result , these changes could have a negative impact on our operating results . seasonality and insurance variability our business is affected by cyclicality in business activity and wse behavior . historically , we have experienced our highest monthly addition of wses , as well as our highest monthly levels of client attrition , in the month of january , primarily because clients that change their payroll service providers tend to do so at the beginning of a calendar year . we also experience higher levels of client attrition in connection with renewals of the health insurance we sponsor for our wses , in the event that such renewals result in higher costs to our clients . we have also historically experienced higher insurance claim volumes in the second and third quarters of a fiscal year than in the first and fourth quarters of a fiscal year , as wses typically access their health care providers more often in the second and third quarters of a fiscal year , which has negatively impacted our insurance costs in these quarters . story_separator_special_tag we have also experienced variability on a quarterly basis in the amount of our health and workers compensation insurance costs due to the number and severity of insurance claims being unpredictable . these historical trends may change , and other seasonal trends and variability may develop , which would make it more difficult for us to manage our business . basis of presentation and key components of our results of operations total revenues our total revenues consist of professional service revenues and insurance service revenues . for 2015 and 2014 , 15 % and 16 % of our total revenues , respectively , consisted of professional service revenues , and 85 % and 84 % of our total revenues , respectively , consisted of insurance service revenues . we recognize as professional service revenues the fees we earn for providing our clients with a comprehensive suite of hr professional services , but do not include amounts paid to us by clients as payroll that are paid out to wses or amounts withheld and remitted to authorities as taxes . our clients generally pay us these fees based on either a fixed fee per wse per month or per transaction , or a percentage of the wse 's payroll cost , pursuant to written services agreements that are generally cancelable by us or our clients upon 30 days ' prior written notice . we recognize as insurance service revenues all insurance-related billings and administrative fees collected from clients and withheld from wses . we pay premiums to third-party insurance carriers for client and wse insurance benefits and reimburse the insurance carriers and third-party administrators for claims payments made on our behalf within our insurance deductible layer , where applicable , as further described below in “ insurance costs ” . these premiums and reimbursements are classified as insurance costs on our statements of operations . insurance costs insurance costs include the premiums we pay to third-party insurance carriers for insurance coverage provided to clients and wses and the reimbursements we pay to the insurance carriers and third-party administrators for claims payments made on our behalf within the insurance deductible layer for those plans that have such a deductible . our insurance costs are , in part , a function of the type and terms of agreements that we enter into with the third-party insurance carriers that provide trinet-sponsored insurance plans for our clients and wses . approximately 38 % of our 2015 36 health insurance premiums were for fully-insured policies with respect to which our carriers set the premiums and for which we were not responsible for any deductible , which are referred to as ‘ guaranteed cost ' policies . our future premiums under these guaranteed cost policies will be influenced by the wse claims activity in prior periods and rate increases by our insurance carriers . the remaining 62 % of our 2015 group health insurance premiums , and all of our workers compensation insurance premiums , were for fully-insured policies with respect to which we agree to reimburse our carriers for any claims paid within our agreed-upon deductible layer . under these policies , wses file claims with the carriers , which are responsible for paying the claims up to the maximum coverage under the policies . the carriers and third-party administrators then seek reimbursement from us for payments of claims made on our behalf up to our deductible per incident for workers compensation claims , or up to limits to our exposure for individual claims and limits to our maximum aggregate exposure for claims in a given policy year in accordance with the terms of the underlying health insurance policies . in no event are we liable to pay claims directly to wses . as we evaluate the claims experience for each fiscal period , we adjust , as we deem necessary , our workers compensation and health benefits reserves , and this in turn has a corresponding impact on our insurance costs . as a result , our insurance costs fluctuate from period to period depending on the number and severity of the claims incurred by our wses in that period and prior periods . we expect our insurance costs to continue to increase in absolute dollars on an annual basis for the foreseeable future due to expected growth in wses , which will likely mean an increase in the absolute number of claims , and an increase in the cost of claims due to inflation or other factors . cost of providing services cost of providing services consists primarily of costs incurred by us associated with direct client support , such as payroll and benefits processing , professional hr consultants , employee liability insurance and costs associated with assisting clients in managing , processing and responding to employment-related legal claims , benefits and risk management , postage and shipping expenses and consulting expenses . we expect our cost of providing services to continue to increase in absolute dollars on an annual basis for the foreseeable future due to expected growth in wses , although as we improve our systems and processes , we expect to gain efficiencies and we expect our cost of providing services as a percentage of total revenues to decline . in addition , our costs of providing services may fluctuate as a percentage of our total revenues from period to period depending on the timing of those expenses . sales and marketing expenses sales and marketing expenses consist primarily of salaries , commissions and related variable compensation expenses , commission payments to partners and the cost of marketing programs . marketing programs consist of advertising , lead generation , marketing events , corporate communications , brand building and product marketing activities , as well as various incentivized partnership and referral programs . we expect our sales and marketing expenses to increase in absolute dollars at a slower rate than in the past three years as we reduce our rate of growth in our direct sales force offset by increased investments to improve our sales productivity .
| professional service revenues and insurance service revenues represented 16 % and 84 % , respectively , of total revenues for 2014 , compared to 17 % and 83 % , respectively , of total revenues for 2013 . the increase in total revenues was attributable to the significant growth of our total wses and revenues from our acquisition of ambrose employer group , llc , or ambrose , in the third quarter of 2013 , as further described below . professional service revenues for 2014 increased $ 69.7 million , or 26 % , compared to 2013 . the increase was mainly attributable to our increase in total wses and our acquisition of ambrose in third quarter of 2013 , which contributed $ 15.4 million of professional service revenues during the first half of 2014 . insurance service revenues for 2014 increased by $ 479.6 million , or 35 % , compared to 2013 . the increase was primarily due to our increase in total wses . additionally , our acquisition of ambrose contributed $ 130.4 million of insurance service revenues during the first half of 2014. total wses at december 31 , 2014 increased by approximately 57,000 , or 25 % , compared to total wses at december 31 , 2013 . our total sales representatives increased from 300 at december 31 , 2013 to 385 at december 31 , 2014 . 41 insurance costs replace_table_token_16_th insurance costs for 2015 increased $ 426.1 million , or 25 % , compared to 2014 . the increase resulted from an increase in total wses , the volume and severity of medical claims being unexpectedly higher than our wse growth , experience and available information would have suggested and , to a lesser extent , increased workers compensation costs per wse . insurance costs for 2014 increased $ 459.7 million , or 37 % compared to 2013 , $ 118.6 million of which was due to our acquisition of ambrose . the remaining increase resulted from an increase in total wses other than
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if the company is not able to achieve its expectations of the net realizable value of the inventory at its current value , the company would have to adjust its reserves accordingly . product software development costs product software development costs consist of costs incurred by outside parties for the development of software embedded in or used to support new products . these assets have been evaluated to ensure that the capitalized costs do not exceed the estimated net realizable value of the related products . as part of the impairment analysis , we use an undiscounted cash flow model based on estimated net sales and gross profit to be derived in the future from the specific product and other estimated costs directly related to the product . amortization was started in fiscal year 2012 with introduction of the first products at the end of april 2012. no amortization was recorded prior to the introduction of the new products . inherent in the operating results forecasts are certain assumptions regarding revenue growth rates , projected future costs , costs to complete and projected long-term growth rates . the company performed impairment testing as of june 30 , 2012 and 2011 and no impairment was identified . product warranty obligations products , with the exception of striva , are generally covered by a lifetime warranty . the striva products carry a 90 day warranty . we record accruals for potential warranty claims based on prior product returns experience . warranty costs are accrued at the time revenue is recognized . these warranty costs are based upon management 's assessment of past claims and current experience . however , actual claims could be higher or lower than amounts estimated , as the amount and value of warranty claims are subject to variation as a result of many factors that can not be predicted with certainty . income taxes we estimate a provision for income taxes based on the effective tax rate expected to be applicable for the full fiscal year . if the actual results are different from these estimates , adjustments to the effective tax rate may be required in the period such determination is made . additionally , discrete items are treated separately from the effective rate analysis and are recorded separately as an income tax provision or benefit at the time they are recognized . deferred income taxes are accounted for under the asset and liability method whereby deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of 14 existing assets and liabilities and their respective tax bases . deferred income tax assets and liabilities are measured using statutory tax rates . deferred income tax provisions are based on changes in the deferred tax assets and liabilities from period to period . additionally , we analyze our ability to recognize the net deferred income tax assets created in each jurisdiction in which we operate to determine if valuation allowances are necessary based on the “ more likely than not ” criteria . new accounting pronouncements applicable new accounting pronouncements are set forth under item 15 of this annual report and are incorporated herein by reference . item 8. financial statements and supplementary data . see the consolidated financial statements attached hereto . item 9. changes and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures . disclosure controls and procedures . disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) ) of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) are designed to ensure that ( 1 ) information required to be disclosed in reports filed or submitted under the exchange act is recorded , processed , summarized and reported within the time periods specified in sec rules and forms ; and ( 2 ) that such information is accumulated and communicated to management , including the principal executive officer and principal financial officer , to allow timely decisions regarding required disclosures . there are inherent limitations to the effectiveness of any system of disclosure controls and procedures , including the possibility of human error and the circumvention or overriding of controls and procedures . accordingly , even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives . the company 's management , including the company 's chief executive officer and chief financial officer , evaluated the effectiveness of the design and operation of the company 's disclosure controls and procedures as of june 30 , 2012 . the recent enhancements to the company 's controls and procedures , including the computer system installed during the quarter ended september 30 , 2011 , have been fully implemented and tested . the company 's management has concluded that the company 's disclosure controls and procedures as of june 30 , 2012 were effective . management 's annual report on internal controls over financial reporting . the company 's management , including its chief executive officer and chief financial officer , is responsible for establishing and maintaining adequate internal control over financial reporting ( as defined in exchange act rules 13a-15 ( f ) and 15d-15 ( f ) ) and designing such internal controls to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states of america . there are inherent limitations to the effectiveness of any system of internal control over financial reporting , including the possibility of human error or the circumvention or overriding of controls and procedures . accordingly , even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives . management conducted its evaluation of the effectiveness of its internal control over financial reporting based on the story_separator_special_tag if the company is not able to achieve its expectations of the net realizable value of the inventory at its current value , the company would have to adjust its reserves accordingly . product software development costs product software development costs consist of costs incurred by outside parties for the development of software embedded in or used to support new products . these assets have been evaluated to ensure that the capitalized costs do not exceed the estimated net realizable value of the related products . as part of the impairment analysis , we use an undiscounted cash flow model based on estimated net sales and gross profit to be derived in the future from the specific product and other estimated costs directly related to the product . amortization was started in fiscal year 2012 with introduction of the first products at the end of april 2012. no amortization was recorded prior to the introduction of the new products . inherent in the operating results forecasts are certain assumptions regarding revenue growth rates , projected future costs , costs to complete and projected long-term growth rates . the company performed impairment testing as of june 30 , 2012 and 2011 and no impairment was identified . product warranty obligations products , with the exception of striva , are generally covered by a lifetime warranty . the striva products carry a 90 day warranty . we record accruals for potential warranty claims based on prior product returns experience . warranty costs are accrued at the time revenue is recognized . these warranty costs are based upon management 's assessment of past claims and current experience . however , actual claims could be higher or lower than amounts estimated , as the amount and value of warranty claims are subject to variation as a result of many factors that can not be predicted with certainty . income taxes we estimate a provision for income taxes based on the effective tax rate expected to be applicable for the full fiscal year . if the actual results are different from these estimates , adjustments to the effective tax rate may be required in the period such determination is made . additionally , discrete items are treated separately from the effective rate analysis and are recorded separately as an income tax provision or benefit at the time they are recognized . deferred income taxes are accounted for under the asset and liability method whereby deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of 14 existing assets and liabilities and their respective tax bases . deferred income tax assets and liabilities are measured using statutory tax rates . deferred income tax provisions are based on changes in the deferred tax assets and liabilities from period to period . additionally , we analyze our ability to recognize the net deferred income tax assets created in each jurisdiction in which we operate to determine if valuation allowances are necessary based on the “ more likely than not ” criteria . new accounting pronouncements applicable new accounting pronouncements are set forth under item 15 of this annual report and are incorporated herein by reference . item 8. financial statements and supplementary data . see the consolidated financial statements attached hereto . item 9. changes and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures . disclosure controls and procedures . disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) ) of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) are designed to ensure that ( 1 ) information required to be disclosed in reports filed or submitted under the exchange act is recorded , processed , summarized and reported within the time periods specified in sec rules and forms ; and ( 2 ) that such information is accumulated and communicated to management , including the principal executive officer and principal financial officer , to allow timely decisions regarding required disclosures . there are inherent limitations to the effectiveness of any system of disclosure controls and procedures , including the possibility of human error and the circumvention or overriding of controls and procedures . accordingly , even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives . the company 's management , including the company 's chief executive officer and chief financial officer , evaluated the effectiveness of the design and operation of the company 's disclosure controls and procedures as of june 30 , 2012 . the recent enhancements to the company 's controls and procedures , including the computer system installed during the quarter ended september 30 , 2011 , have been fully implemented and tested . the company 's management has concluded that the company 's disclosure controls and procedures as of june 30 , 2012 were effective . management 's annual report on internal controls over financial reporting . the company 's management , including its chief executive officer and chief financial officer , is responsible for establishing and maintaining adequate internal control over financial reporting ( as defined in exchange act rules 13a-15 ( f ) and 15d-15 ( f ) ) and designing such internal controls to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states of america . there are inherent limitations to the effectiveness of any system of internal control over financial reporting , including the possibility of human error or the circumvention or overriding of controls and procedures . accordingly , even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives . management conducted its evaluation of the effectiveness of its internal control over financial reporting based on the
| the company saw some weakness in sales to european distributors in the first six months of the year , but this was largely mitigated by increased sales in the latter part of the year . addition of new customers and introduction of new products in the second half of the year helped to reduce the sales declines seen in the first half . gross profit as a percent of sales in 2012 was 38.4 % which was 2.2 % lower than 2011. the decline in gross profit percentage was almost entirely the result of increased product costs from contract manufacturers based in china . the company has taken actions to offset the cost increases through less expensive sources , selective price increases , and new product introductions . these actions helped improve gross profit late in the year . selling , general and administrative expenses for 2012 were higher than 2011. the majority of this increase was driven by spending for new product development and marketing . these costs increased by approximately $ 1,124,000 in 2012 as the company introduced several new headphones , including the striva product line . the company also attended a major trade show in 2012 which increased spending by approximately $ 206,000. this increased spending was partially offset by lower professional fees and lower profit-based incentive compensation . in fiscal year 2012 , unauthorized transaction related costs declined because the company incurred lower costs for the legal fees related to defending certain actions . the derivative lawsuit and the sec investigation were completed in 2012 , which eliminated legal fees for those cases . included in the unauthorized transaction related recoveries for 2012 was $ 1,118,463 from asset forfeitures , $ 867,711 of insurance proceeds , $ 242,419 received from michael koss and an additional $ 229,510 from garnishment of the 401 ( k ) and koss employee stock ownership trust ( kesot ) balances held by ms. sachdeva , the former vice president of finance .
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the grant contract covered a four-year period from june 1 , 2014 through may 31 , 2018. the grant allowed us to receive funds in advance of costs and allowable expenses being incurred . we recorded the revenue as qualifying costs were incurred and there was reasonable assurance that the conditions of the award had been met for collection . proceeds received prior to the costs being incurred or the conditions of the award being met were recognized as deferred revenue until the services were performed and the conditions of the award were met . on a quarterly basis , we were required to submit a financial reporting package outlining the nature and extent of reimbursable costs paid and requesting reimbursement under the grant . at the end of each period , qualifying costs paid prior to reimbursement resulted in the recognition of a grant receivable . as of december 31 , 2018 , we collected the full $ 19.8 million grant proceeds and will not be recognizing grant revenue under the contract in future periods . research and development expenses research and development expenses consist primarily of costs incurred for the discovery and development of our product candidates , including , our lead product candidate , pegzilarginase , and acn00177 . in addition to operating an internal research laboratory , we contract with external providers for nonclinical studies and clinical trials . our research and development expenses include : costs from acquiring clinical trial materials and services performed for contracted services with contract manufacturing organizations ; fees paid to clinical trial sites , clinical research organizations , contract research organizations , contract manufacturing organizations , nonclinical research companies , and academic institutions ; and employee and consultant-related expenses incurred , which include salaries , benefits , travel and stock-based compensation . research and development costs are expensed as incurred . advance payments for goods or services to be rendered in the future for use in research and development activities are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are performed . research and development expenses have historically represented the largest component of our total operating expenses . we plan to increase our research and development expenses for the foreseeable future as we continue the development of our product candidates . our expenditures on current and future nonclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion . the duration , costs , and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the scope , rate of progress , and expenses of our ongoing research activities as well as any additional clinical trials and other research and development activities ; future clinical trial results ; uncertainties in clinical trial enrollment rates or drop-out or discontinuation rates of patients ; changes in the competitive drug development environment ; potential safety monitoring or other studies requested by regulatory agencies ; significant and changing government regulation ; and the timing and receipt of regulatory approvals , if any . 68 the process of conducting the necessary clinical research to obtain fda and other regulatory approval 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 part i , item 1a of this annual report titled “ 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 salaries and other related costs , including stock-based compensation , for personnel in executive , finance , accounting , commercial development , operations , and human resources functions . other significant costs include legal fees relating to corporate matters and fees for insurance , accounting , consulting , facilities , and recruiting services . we expect that our general and administrative expenses will increase in the future to support our continued research and development activities , and the potential commercialization of our product candidates . these increases will likely include higher costs related to the hiring of additional personnel and fees to outside consultants , lawyers and accountants , among other expenses . additionally , we have incurred and expect to continue to incur increased costs associated with being a public company , including expenses related to services associated with maintaining compliance with nasdaq listing rules and sec requirements , insurance , and investor relations costs . interest income interest income consists of interest earned on our cash , cash equivalents , marketable securities , and restricted cash . income taxes we serve as a holding company for our seven wholly-owned u.s. subsidiary corporations and file a consolidated corporate federal income tax return . we use the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statements and the tax bases of assets and liabilities . a valuation allowance is established against the deferred tax assets to reduce their carrying value to an amount that is more likely than not to be realized . the deferred tax assets and liabilities are classified as noncurrent along with the related valuation allowance . due to our lack of earnings history , the net deferred tax assets have been fully offset by a valuation allowance . story_separator_special_tag we recognize benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on the technical merits , as the largest amount of benefits that is more likely than not to be realized upon the ultimate settlement . our policy is to recognize interest and penalties related to the unrecognized tax benefits as a component of income tax expense . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and related disclosures . these estimates form the basis for judgments we make about the carrying values of our assets and liabilities , which are not readily apparent from other sources . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . on an ongoing basis , we evaluate our estimates and assumptions . our actual results may differ materially from these estimates under different assumptions or conditions . our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our consolidated financial statements . we believe that the assumptions and estimates associated with our most critical accounting policies are those relating to accrued research and development costs . we define our critical accounting policies as those accounting principles generally accepted in the united states that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations , as well as the specific manner in which we apply those principles . our significant accounting policies are more fully described in note 2 to our audited consolidated financial statements appearing elsewhere in this annual report . 69 accrued research and development costs we record the costs associated with research nonclinical studies , clinical trials , and manufacturing development as incurred . these costs are a significant component of our research and development expenses , with a substantial portion of our on-going research and development activities conducted by third-party service providers , including contract research organizations , or cros , and contract manufacturing organizations , or cmos . we accrue for expenses resulting from obligations under agreements with cros , cmos , and other outside service providers for which payment flows do not match the periods over which materials or services are provided to us . we record accruals based on estimates of services received and efforts expended pursuant to agreements established with cros , cmos , and other outside service providers . these estimates are typically based on contracted amounts applied to the proportion of work performed and determined through analysis with internal personnel and external service providers as to the progress or stage of completion of the services . we make significant judgments and estimates in determining the accrual balance in each reporting period . in the event advance payments are made to a cro , cmo , or outside service provider , the payments will be recorded as a prepaid asset which will be amortized as the contracted services are performed . as actual costs become known , we adjust our accruals . inputs , such as the services performed , the number of patients enrolled , or the study duration , may vary from our estimates , resulting in adjustments to research and development expense in future periods . changes in these estimates that result in material changes to our accruals could materially affect our results of operations . story_separator_special_tag roman ' ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > funding the continuing development of pegzilarginase and acn00177 ; funding the advancement of additional product candidates ; and funding working capital , including general operating expenses . due to our significant research and development expenditures , we have generated substantial losses in each period since inception . we have an accumulated deficit of $ 195.1 million as of december 31 , 2019. we anticipate that we will continue to generate as we develop our product candidates , seek regulatory approval of those candidates and begin to commercialize any approved products . until such time as we can generate substantial product revenue , we expect to finance our cash needs through a combination of equity or debt financings , research grants , collaborations , or other sources . we currently have no debt , credit facility or additional committed capital . to the extent that we raise additional equity , the ownership interest of our stockholders will be diluted . based on our available cash , cash equivalents , marketable securities , and restricted cash of $ 73.4 million as of december 31 , 2019 , we believe that we have sufficient resources to fund our operations through the first quarter of 2021. we have based this estimate on assumptions that may prove to be incorrect , however , and we could deplete our capital resources sooner than we expect . cash flows a discussion and analysis of our financial condition and cash flows for the year ended december 31 , 2017 is included in item 7 of part ii , “ management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for the year ended december 31 , 2018 filed with the sec on march 7 , 2019. the following table summarizes our cash flows for the periods indicated ( in thousands ) : replace_table_token_4_th 72 cash used in operating activities cash used in operating activities for the year ended december 31 , 2019 was $ 65.7 million and reflected a net loss of $ 78.3 million . the cash impact of our net loss was offset by non-cash expenses of $ 4.9
| advancing and concl uding enrollment of our phase 1/2 combination trial in patients with small cell lung cancer ; higher nonclinical expenses , which increased by $ 2.2 million as a result of advancing our toxicology and ind-enabling studies to support continued clinical development of our homocystinuria program and expanding our internal laboratory capabilities ; and higher personnel-related expenses , which increased by $ 3.5 million as a result of additional employee headcount to expand our manufacturing and clinical development capabilities along with our internal research laboratory team . general and administrative expenses . general and administrative expenses increased by $ 3.1 million , or 25 % , to $ 15.7 million for the year ended december 31 , 2019 from $ 12.6 million for the year ended december 31 , 2018. the increase in general and administrative expenses was primarily due to additional employee headcount , compensation , and office space to support company growth . increases in non-cash stock compensation expense accounted for $ 0.4 million of the increase . interest income . the increase in interest income to $ 2.1 million for the year ended december 31 , 2019 from $ 1.2 million for the year ended december 31 , 2018 was primarily due to investment diversification and the investment of additional funds received as a result of our public offerings in february 2019. liquidity and capital resources sources of liquidity we are a clinical-stage biotechnology company with a limited operating history , and due to our significant research and development expenditures , we have generated operating losses since our inception and have not generated any revenue from the sale of any products . since our inception and through december 31 , 2019 , we have funded our operations primarily by raising an aggregate of $ 273.5 million of gross proceeds from the sale and issuance of convertible preferred and common equity securities , pre-funded stock warrants , and the collection of
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prior to the year ended december 31 , 2017 , the company had incurred recurring operating losses since inception . as a result of the trx and avadel acquisitions , our commercial operations are expected to continue to generate positive cash flows from product sales . we apply a disciplined decision making methodology as we evaluate the optimal allocation of our resources between investing in our current commercial product line , our development portfolio and acquisitions or in-licensing of new assets . we may seek future funding for our development programs and operations from further offerings of equity or debt securities , non-dilutive financing arrangements such as federal grants , collaboration agreements or out-licensing arrangements . however , we may be unable to raise additional funds or enter into such other agreements or transactions on favorable terms , or at all . since inception , our operations have included organizing and staffing our company , acquiring strategic companies and commercial products , raising capital and developing our product candidates . we have incurred losses in each period since our inception , until the year ended december 31 , 2017. as of december 31 , 2017 we had an accumulated deficit of $ 58.2 million . we expect to use the profits from our commercial products for the expansion of our portfolio of commercial products , development of our product candidates , and operating expenses . we have financed our operations primarily through a public offering , private placements of our common stock and convertible preferred stock , the issuance of debt and the sale of our rights to cerc-501 . our ability to remain profitable depends on our ability to continue to generate product revenue and control the spending related to research and development and the administrative and compliance costs associated with being a public company . recent developments avadel acquisition on february 16 , 2018 , we purchased and acquired all rights to avadel pharmaceuticals plc 's ( “ advadel ( s ) ” ) marketed pediatric products ( the “ acquired products ” ) for the assumption of certain of avadel 's financial obligations to deerfield csf , llc , which includes a $ 15 million loan due in january 2021 and its related interest payments as well as a 15 % annual royalty on net sales of the acquired products through february 2026 ( the “ avadel acquisition ” ) . avadel is specialty pharmaceutical company , which identifies , develops , and commercializes pharmaceutical products for primary care and sterile injectable markets in the united states , france , and ireland . avadel markets products in the hospital and primary care spaces . the acquired products consist of karbinal er , aciphex® sprinkle , cefaclor for oral suspension , and flexichamber . trailing twelve-month net sales for the acquired products were approximately $ 8 million . additionally , under the terms of the avadel acquisition , avadel will develop and provide us with four stable product formulations of our choosing , utilizing its proprietary liquitime and micropump® technology . three of these development projects are already underway . we will reimburse avadel for any costs associated with the development of the acquired products in excess of $ 1.0 million in aggregate . upon transfer of the acquiried products formulations , we will assume all remaining development and regulatory costs . the avadel acquisition aligns with our strategy to become a leading u.s. pediatric pharmaceutical company . 65 trx acquisition on november 17 , 2017 , we acquired trx , including its wholly-owned subsidiary zylera pharmaceuticals , llc and its franchise of commercial medications led by poly-vi-flor® ( multivitamin and fluoride supplement tablet , chewable ) and tri-vi-flor® ( multivitamin and fluoride supplement suspension/drops ) , zylera pharma corp , and princeton , llc . under the terms of the transaction , we paid $ 18.9 million in cash and $ 8.1 million in cerecor common stock . trx shareholders will be eligible to receive up to an additional $ 7 million in contingent payments upon achievement of certain commercial and regulatory milestones . trx is a specialty pharmaceutical company that develops , acquires , and commercializes prescription pharmaceutical products and dietary supplements and markets those products in the u.s. trx has a diversified portfolio of products prescribed by pediatricians to treat an array of conditions . the acquisition of trx and its subsidiaries is a pivotal move in our strategic shift towards becoming an integrated pediatric pharmaceutical company . operationally , we believe the transaction adds a highly-effective commercial unit that will drive a solid , profitable revenue stream to help us advance our pipeline of drug candidates for rare neurologic diseases . components of operating results license , other and grant revenue prior to the acquisition of trx , we have primarily derived revenue from the sale of cerc-501 to janssen pharmaceuticals , inc. ( `` janssen '' ) in august 2017 and research grants from the national institutes of health . in april 2016 , we received a research and development grant from the national institute on drug abuse , or nida , at the national institutes of health to provide additional resources for the period from may 2016 through april 2017 for a phase 2 clinical trial for cerc501 . additionally , in july 2016 , we received a research and development grant from the national institute on alcohol abuse and alcoholism , or niaaa , at the national institutes of health to provide additional resources for the period of july 2016 through august 2017 to progress the development of cerc-501 for the treatment of alcohol use disorder . we recognize revenue under grants in earnings on a systemic basis in the period the related expenditures for which the grants are intended to compensate are incurred . in august 2017 , we sold all of our rights to a prior product candidate , cerc-501 , to janssen in exchange for initial gross proceeds of $ 25.0 million , of which $ 3.75 million was deposited into a twelve-month escrow to secure indemnification obligations . story_separator_special_tag under this agreement , we are also eligible for a potential future $ 20.0 million regulatory milestone payment . the terms of the agreement provide that janssen will assume ongoing clinical trials and be responsible for any new development and commercialization of cerc-501 . product revenue , net we sell our prescription pharmaceuticals to our primary customers , which are wholesale distributors and other direct customers . revenue from prescription pharmaceuticals sales is recognized when ownership of the product is transferred to our customers , the sales price is fixed and determinable , and collectability is reasonably assured . sales are generally recognized when title to the product has transferred to our customers in accordance with the terms of the sale , fob destination and to a lesser extent fob shipping point , since title to the product passes and our customers have assumed the risks and rewards of ownership . we account for sales to some of our direct customers on a consignment basis and do not recognize revenue for these customers until product is sold into the retail market . we defer the recognition of revenue related to these shipments until we confirm that the product has been sold into the retail market and all other revenue recognition criteria have been met . we record allowances for product returns , and wholesaler rebates , chargebacks , fees and discounts ( “ allowances ” ) at the time of sale , and report revenue net of these allowances . we make significant judgments and estimates when determining these allowances . for example , we estimate demand , buying patterns , historical product return rates from wholesalers and the levels of inventory held by wholesalers . the company periodically adjusts these allowances based on actual experience . sales force revenue pursuant to our marketing agreement with pharmaceutical associates , inc . ( “ pai ” ) we receive a monthly marketing fee to promote , market and sell certain of our products behalf of pai . the company also receives a matching fee payment for each month of 66 the term of the marketing agreement if certain provisions calculated in accordance with the terms and inputs set forth in the marketing agreement are met . marketing fees and any matching payments are recognized as sale force revenue when all performance obligations have been satisfied and earned . we and pai also share the net revenues from sales of certain products , after reimbursing certain expenditures , in a manner designed to achieve a 50/50 split of net revenues above a “ break even ” point , calculated in accordance with the terms and inputs set forth in the agreement . we recognize these revenue sharing payments as earned under the terms of the agreement when collectability is reasonably assured . cost of product sales cost of product sales is comprised of ( i ) costs to acquire products sold to customers ; ( ii ) royalty , license payments and other agreements granting the company rights to sell related products ; ( iii ) distribution costs incurred in the sale of products ; ( iv ) the value of any write-offs of obsolete or damaged inventory that can not be sold . inventory valuation we state inventories at the lower of cost and net realizable value . cost is determined based on actual cost . an allowance is established when management determines that certain inventories may not be saleable . if inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand , we record reserves for the difference between the cost and the market value . these reserves are recorded based upon various factors for our products , including the level of product manufactured by the company , the level of product in the distribution channel , current and projected product demand , the expected shelf life of the product and firm inventory purchase commitments , demand , the expected shelf life of the product and firm inventory purchase commitments . research and development expenses our research and development expenses consist primarily of costs incurred developing , testing and seeking marketing approval for our product candidates . these costs include both external costs , which are study‑specific costs , and internal research and development costs , which are not directly allocated to our product candidates . external costs include : expenses incurred under agreements with third‑party contract research organizations and investigative sites that conduct our clinical trials , preclinical studies and regulatory activities ; payments made to contract manufacturers for drug substance and acquiring , developing and manufacturing clinical trial materials ; and payments related to acquisitions of our product candidates and preclinical platform and milestone payments , and fees associated with the prosecution and maintenance of patents . internal costs include : personnel‑related expenses , including salaries , benefits and stock‑based compensation expense ; consulting costs related to our internal research and development programs ; allocated facilities , depreciation and other expenses , which include rent and utilities , as well as other supplies ; and product liability insurance . research and development costs are expensed as incurred . we record costs for some development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or information provided to us by our vendors . we track external costs by program and subsequently by product candidate once a product candidate has been selected for development . product candidates in later stage clinical development generally have higher research and development expenses than those in earlier stages of development , primarily due to the increased size and duration of the clinical trials . as of december 31 , 2017 , we had six full-time employees who were primarily engaged in research and development .
| we had a reduced level of research and development activities in the current year compared to the on-going clinical trial work in the prior year , which resulted in a reduction of grant revenue under the current niaaa grant compared to the nida grant in 2016. the studies related to these grants were discontinued with the sale of cerc-501 to janssen in 2017. cost of product sales cost of product sales was $ 0.6 million for the year ended december 31 , 2017 , and represents cost of product sales from the acquisition of trx on november 17 , 2017. there are no costs of product sales reported for 2016 as the acquisition did not take place until 2017. research and development expenses the following table summarizes our research and development expenses for the years ended december 31 , 2017 and 2016 : 73 replace_table_token_6_th research and development expenses were $ 4.4 million for the year ended december 31 , 2017 , a decrease of $ 5.8 million compared to the 2016 period . costs for cerc-301 decreased by $ 1.7 million from the prior year period , primarily due to the completion of enrollment during the phase 2 clinical trial for the adjunctive treatment of mdd in 2016. we did not perform any clinical trials for cerc-301 in 2017 , however costs were incurred to analyze potential other indications for cerc-301 . costs for cerc-501 decreased by $ 2.5 million from the prior year period as our phase 2 clinical trial with cerc-501 was completed in the fourth quarter of 2016 and activities in 2017 up to the date of sale primarily consisted of completing work related to the niaaa grant . we sold all of our rights to cerc-501 to janssen in august 2017. we purchased cerc-611 in september 2016 for $ 2.0 million which was recorded as research and development expense . costs incurred in 2017 relate to preparing the cerc-611 compound for additional development . general and administrative expenses the following table summarizes our general and administrative expenses for the years ended december 31 , 2017 and 2016 : replace_table_token_7_th general and administrative expenses were $ 7.9 million
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story_separator_special_tag which is included within sg & a expenses , was relatively consistent year over year . goodwill and intangible asset impairment expenses the company incurred $ 144.1 million of goodwill and intangible asset impairment expenses primarily during the third quarter of fiscal 2020. see note 6 , “ goodwill , intangible assets and impairment ” to the company 's consolidated financial statements included in item 8 of this annual report on form 10-k for additional information related to goodwill impairment and intangible asset impairment expenses . restructuring , integration and other expenses as a result of management 's focus on improving operating efficiencies and further integrating the acquisition of farnell , the company has incurred certain restructuring costs . these costs also relate to the continued transformation of the company 's information technology , distribution center footprint and business operations . in addition , the company incurred integration , accelerated depreciation and other costs . integration costs are primarily related to the integration of 25 acquired businesses including farnell , the integration of certain regional and global businesses , and incremental costs incurred as part of the consolidation , relocation , sale and closure of distribution centers and office facilities . accelerated depreciation relates to the incremental depreciation expense incurred related to the shortening of the estimated useful life for certain information technology assets . other costs consist primarily of any other miscellaneous costs that relate to restructuring , integration and other expenses , including acquisition related costs , specific and incremental costs incurred associated with the impacts of the covid-19 pandemic and estimated costs to settle outstanding legal proceedings . the company recorded $ 45.5 million for restructuring costs in fiscal 2020 , and expects to realize approximately $ 52.0 million in incremental annualized operating costs savings as a result of such restructuring actions . restructuring expenses consisted of $ 34.7 million for severance , $ 3.7 million for facility exit costs , and $ 7.1 million for non-cash asset impairments expense primarily related to information technology software . the company also incurred integration costs of $ 13.9 million , accelerated depreciation of $ 10.9 million , other costs of $ 13.4 million and a reversal of $ 1.8 million for changes in estimates for costs associated with prior year restructuring actions . the after-tax impact of restructuring , integration and other expenses were $ 63.2 million and $ 0.63 per share on a diluted basis . see note 17 , “ restructuring expenses ” to the company 's consolidated financial statements included in item 8 of this annual report on form 10-k for additional information related to restructuring expenses . operating income ( loss ) operating loss for fiscal 2020 was $ 4.6 million , representing a 101.3 % decrease as compared with fiscal 2019 operating income of $ 365.9 million . the year-over-year decrease in operating income was primarily driven by declines in sales , gross profit margin , and increased impairment expenses offset by reductions in restructuring , integration and other expenses as compared to fiscal 2019. operating loss margin was 0.0 % in fiscal 2020 compared to operating income margin of 1.9 % in fiscal 2019. both years included impairment expenses , amortization of acquired intangibles , and restructuring , integration and other expenses . excluding these amounts , adjusted operating income was $ 302.9 million , or 1.7 % of sales , in fiscal 2020 as compared with $ 695.7 million , or 3.6 % of sales , in fiscal 2019. the year-over-year decrease in adjusted operating income was primarily driven by the decline in sales and gross profit margin , partially offset by lower sg & a expenses . 26 interest and other financing expenses , net interest and other financing expenses for fiscal 2020 was $ 122.7 million , a decrease of $ 12.1 million , or 9.0 % , compared with interest and other financing expenses of $ 134.9 million in fiscal 2019. the decrease in interest and other financing expenses in fiscal 2020 compared to fiscal 2019 was primarily related to lower outstanding borrowings in fiscal 2020 as compared to fiscal 2019. other ( expense ) income , net in fiscal 2020 , the company had $ 0.7 million of other expense as compared with $ 11.2 million of other income in fiscal 2019. other expense included $ 15.3 million of equity investment impairment expense in fiscal 2020 , representing most of the difference between years . income tax expense avnet 's effective tax rate on loss before income taxes from continuing operations was a benefit of 76.9 % in fiscal 2020 as compared with an effective tax rate of 25.7 % on fiscal 2019 income before income taxes . included in the fiscal 2020 effective tax rate is a tax benefit arising from the reduction in value of certain businesses for tax purposes , partially offset by the establishment of valuation allowances against deferred tax assets that the company no longer expects to realize the future benefit from . see note 9 , “ income taxes ” to the company 's consolidated financial statements included in item 8 of this annual report on form 10-k for further discussion on the effective tax rate . loss from discontinued operations loss from discontinued operations was $ 1.5 million in fiscal 2020 compared to $ 3.8 million in fiscal 2019. net income ( loss ) as a result of the factors described in the preceding sections of this md & a , the company 's net loss in fiscal 2020 was $ 31.1 million , or $ 0.31 of loss per share on a diluted basis , compared with net income of $ 176.3 million , or $ 1.59 of earnings per share on a diluted basis , in fiscal 2019. fiscal 2019 comparison to fiscal 2018 for comparison of the company 's results of operations for fiscal 2019 and fiscal 2018 , see “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for story_separator_special_tag the fiscal year ended june 29 , 2019 filed with the sec on august 15 , 2019. liquidity and capital resources cash flows cash flows from operating activities the company generated $ 730.2 million of cash from its operating activities in fiscal 2020 as compared to $ 591.1 million in fiscal 2019. these operating cash flows from continuing operations are comprised of : ( i ) cash flows generated from net income ( loss ) from continuing operations , adjusted for the impact of non-cash and other items , which includes depreciation and amortization expense , impairment expenses , deferred income taxes , stock-based compensation expense 27 and other non-cash items ( including provisions for doubtful accounts and net periodic pension costs ) , and ( ii ) cash flows used for , or generated from , working capital and other , excluding cash and cash equivalents . cash generated from working capital and other was $ 335.1 million during fiscal 2020 , including decreases in accounts receivable of $ 221.5 million and inventories of $ 266.8 million , partially offset by decreases in accounts payable of $ 107.0 million and accrued expenses and other of $ 46.2 million . comparatively , cash used for working capital and other was $ 4.6 million during fiscal 2019 , including decreases in accounts payable of $ 377.9 million and accrued expenses and other of $ 173.7 million , partially offset by decreases in accounts receivable of $ 465.0 million and inventories of $ 81.9 million . in fiscal 2019 , the company used $ 56.3 million of cash from discontinued operations operating activities primarily associated with income tax payments . cash flows from financing activities during fiscal 2020 , the company repaid $ 302.0 million of notes and $ 227.3 million under the securitization program and received net proceeds of $ 223.1 million under the credit facility . during fiscal 2020 , the company paid dividends on common stock of $ 84.0 million and repurchased $ 237.8 million of common stock . included in other , net is approximately $ 9.3 million of cash paid related to contingent earn out payments made on acquisitions . during fiscal 2019 , the company received net proceeds of $ 122.3 million under the securitization program and repaid $ 61.7 million from borrowings of bank credit facilities and other debt . during fiscal 2019 , the company paid dividends on common stock of $ 87.2 million and repurchased $ 568.7 million of common stock . additionally , included in other , net is approximately $ 20.2 million of cash received from the exercises of stock options . cash flows from investing activities during fiscal 2020 , the company used $ 73.5 million for capital expenditures primarily related to warehouse and facilities , and information technology hardware and software costs compared to $ 122.7 million in fiscal 2019. during fiscal 2020 , the company used $ 51.5 million of cash for acquisitions , which is net of the cash acquired , compared to $ 56.4 million of cash for acquisitions , which is net of the cash acquired in fiscal 2019. in addition , the company paid $ 12.8 million for other investing activities during fiscal 2020. included in other , net is $ 41.7 million of cash received from the sale of real estate in emea in fiscal 2019. during fiscal 2019 , the company received $ 123.5 million of cash from investing activities of discontinued operations from the sale of the ts business . financing transactions the company uses a variety of financing arrangements , both short-term and long-term , to fund its operations in addition to cash generated from operating activities . the company also uses several sources of funding so that it does not become overly dependent on one source of financing and to achieve a lower cost of funding through the use of different alternatives . these financing arrangements include public debt , short-term and long-term bank loans , a revolving credit facility ( the “ credit facility ” ) and an accounts receivable securitization program ( the “ securitization program ” ) . the company has various lines of credit , financing arrangements and other forms of bank debt in the u.s. and various foreign locations to fund the short-term working capital , foreign exchange , overdraft and letter of credit needs of its wholly owned subsidiaries . avnet generally guarantees its subsidiaries ' obligations under such debt facilities . outstanding borrowings under such forms of debt at the end of fiscal 2020 was $ 1.5 million . 28 as an alternative form of financing outside of the united states , the company sells certain of its trade accounts receivable on a non-recourse basis to third-party financial institutions pursuant to factoring agreements . the company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the consolidated statements of cash flows . factoring fees for the sales of trade accounts receivables are recorded within “ interest and other financing expenses , net ” and were not material . see note 7 , “ debt ” to the company 's consolidated financial statements included in item 8 of this annual report on form 10-k for additional information on financing transactions including the credit facility , the securitization program and the outstanding notes as of june 27 , 2020. covenants and conditions the company 's securitization program requires the company to maintain certain minimum interest coverage and leverage ratios in order to continue utilizing the securitization program . the securitization program also contains certain covenants relating to the quality of the receivables sold . if these conditions are not met , the company may not be able to borrow any additional funds and the financial institutions may consider this an amortization event , as defined in the securitization program agreements , which would permit the financial institutions to liquidate the accounts receivables sold to cover any outstanding borrowings .
| avnet 's sales for fiscal 2020 were $ 17.63 billion , a decrease of $ 1.88 billion , or 9.7 % , from fiscal 2019 sales of $ 19.52 billion with all three regions of both operating groups contributing to the decline . sales in constant currency 24 decreased 8.7 % year over year . these decreases are primarily due to lower demand resulting from the continuation of the global industry-wide slowdown and the impacts from the covid-19 pandemic . ec sales in fiscal 2020 were $ 16.34 billion , representing a 9.5 % decrease over fiscal 2019 sales . ec sales in constant currency declined 8.7 % year over year . farnell sales in fiscal 2020 were $ 1.29 billion , a decrease of 11.3 % over fiscal 2019 sales . farnell sales in constant currency declined 9.5 % year over year . on a regional basis , sales in fiscal 2020 declined 7.4 % in the americas , 12.4 % in emea in constant currency and 6.5 % in asia in constant currency as a result of the global industry-wide slowdown and the impacts from the covid-19 pandemic in the second half of fiscal 2020. gross profit and gross profit margin gross profit in fiscal 2020 was $ 2.06 billion , a decrease of $ 422.6 million , or 17.0 % , compared to fiscal 2019 , driven primarily by the decline in sales . gross profit margin of 11.7 % in fiscal 2020 decreased 104 basis points from the prior year driven by declines in gross profit margins in both operating groups . the declines in gross profit margins in both operating groups are primarily due to a combination of unfavorable changes in product and customer mix , geographical market mix and overall declines in gross profit margin due to current market conditions including the impacts of the covid-19 pandemic . sales in the higher margin western regions represented approximately 60 % of sales in fiscal 2020 as compared to 61 % during fiscal 2019. selling , general and administrative expenses selling , general and administrative expenses ( “ sg & a expenses ” ) in fiscal 2020 were $ 1.84 billion , a decrease
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we are required to adopt asu 606 at the beginning of our first quarter of fiscal 2018. the new guidance requires enhanced disclosures , including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition . we will implement the new standard using the modified retrospective approach effective january 1 , 2018. we do not expect the adoption of this guidance to have a material impact on our consolidated financial statements within any accounting period presented . in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) ( asu 2016-02 ) . under asu no . 2016-2 , an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements . asu no . 2016-02 offers specific accounting guidance for a lessee , a lessor and sale and leaseback transactions . lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount , timing and uncertainty of cash flows arising from leases . for public companies , asu no . 2016-02 is effective for annual reporting periods beginning after december 15 , 2018 , including interim reporting periods within that reporting period , and requires a modified retrospective adoption , with early adoption permitted . the company does not expect the adoption of this standard to have a material impact on the company 's consolidated financial statements . in march 2016 , the fasb issued asu 2016-09 , ” compensation - stock compensation ( topic 718 ) : improvements to employee share-based payment accounting . ” the amendments in this update simplify several aspects of the accounting for employee share-based payment transactions , including the accounting for income taxes , forfeitures and statutory tax withholding requirements , as well as classification in the statement of cash flows . the company adopted the new guidance on january 1 , 2017. the primary impact of adoption was the recognition of excess tax benefits in our provision for income taxes rather than paid-in capital . however , as the company has a full valuation allowance against its deferred tax asset , a corresponding adjustment was recorded to increase the valuation allowance . 16 in november 2015 , the fasb issued asu 2015-17 , balance sheet classification of deferred taxes ( “ asu 2017-17 ” ) to simplify the presentation of deferred income taxes . asu 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position . asu 2015-17 is effective for financial statements issued for fiscal years beginning after december 15 , 2016 , and interim periods within those fiscal years . the company has adopted the provisions of update 2016-15 and determined that there is no impact on its financial statements . in august 2014 , the fasb issued 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 in this asu are intended to provide guidance on the responsibility of reporting entity management . specifically , this asu provides guidance of management related to evaluating whether there is substantial doubt about the reporting entity 's ability to continue as a going concern and about related financial statement note disclosures . although the presumption that a reporting entity will continue to operate as a going concern is fundamental to the preparation of financial statements , prior to the issuance of this asu , there was no guidance in u.s. generally accepted accounting principles ( u.s. gaap ) related to the concept . due to the lack of guidance in u.s. gaap , practitioners and their clients often faced challenges in determining whether , when , and how a reporting entity should disclose the relevant information in its financial statements . as a result , the fasb issued this guidance to require management evaluation and potential financial statement disclosures . this asu will be effective for financial statements with periods ending after december 15 , 2016. the company adopted the asu during the year and performed going concern evaluations for its 2017 fiscal year-end financial statements . story_separator_special_tag member distributions of $ 192,507. our net increase in cash for the year ended december 31 , 2017 was $ 63,109 as compared to a net increase of $ 22,068 in the year ended december 31 , 2016. our cash flows from operations and our available capital including the new line of credit of $ 1 million obtained in may 2017 are presently sufficient to sustain our current level of operations for the next 12 months . however , we may require up to an additional $ 1 million to expand and market our business in active areas of texas . of this amount , currently we believe we will require $ 200,000 in capital expenditures for additional trailer units and equipment used by our service crews and for rental purposes , $ 50,000 to increase inventory in our facility in west texas and $ 25,000 in sales and marketing expenses associated with our growth plans . we may pursue capital from a combination of capital sources , including debt and equity financings . failure to secure these additional funds will result in a less aggressive growth plan . we plan to improve our cash flows provided in operating activities by focusing on increasing sales , reducing professional fees as some were one-time reverse acquisition charges , and reducing product transportation costs by locally manufacturing in west texas , complementing our current east texas manufacturing base . historically , we have funded our capital expenditures internally through cash flow , leasing and financing arrangements . story_separator_special_tag we intend to continue to fund future capital expenditures through cash flow , as well as through capital available to us pursuant to our line of credit , capital from the sale of our equity securities and through commercial leasing and financing programs . on may 31 , 2017 , mg entered into a $ 1 million revolving accounts receivable financing facility with crestmark bank . the financing facility provides for mg to have access to the lesser of ( i ) $ 1 million or ( ii ) 85 % of the net amount of eligible receivables ( as defined in the financing agreement ) . the financing facility is paid for by the assignment of mg 's accounts receivable to crestmark bank and is secured by mg 's assets . the financing facility has an interest rate of 7.25 % in excess of the prime rate reported by the wall street journal per annum , with a floor minimum rate of 11.5 % . interest and maintenance fees will be calculated on the higher of the average monthly loan balance from the prior month or a minimum average loan balance of $ 200,000. the financing facility is for an initial term of two-years and will renew on a year to year basis , unless terminated in accordance with the financing agreement . pursuant to the terms of the financing facility , crestmark has been granted a security interest in all of our assets and the assets of mg and we have agreed to guaranty all amounts due under the facility upon an event of default , however , the guaranty does not restrict the company 's ability to incur debt in connection with its operations . 18 pursuant to the terms of the financing facility , mg is not allowed to incur additional indebtedness , to create liens or other encumbrances , or to sell or otherwise dispose of mg 's assets , without the prior written consent of crestmark . the crestmark facility does not restrict the company 's ability to finance its operations through the sale of its equity securities . on october 15 , 2010 , the former managing member of mg cleaners , stephen christian , purchased mg cleaners from the previous membership interest owners ( “ original mg sellers ” ) . in connection with that transaction , a $ 450,000 seller note was issued to the sellers . the note bears an interest rate of 8 % and principal and interest payments are made monthly . the remaining principal balance of $ 307,391 was refinanced by the note holder in january 2015 , bearing an interest rate of 6.00 % , with principal and interest payments due monthly . the note is secured by the land and building originally occupied by mg , which property is no longer occupied . the balance of this note at december 31 , 2017 was $ 228,947. on september 19 , 2017 , stephen christian and the original mg sellers amended the note , whereby the membership interests of mg cleaners llc were removed as security for the loan . additionally , on september 19 , 2017 , the company entered into a guaranty agreement with the original mg sellers with respect to the repayment of the note . this note does not restrict the company 's ability to incur any additional indebtedness , or the sale of its equity securities , in connection with financing its operations . on february 2 , 2017 , we re-financed two truck notes existing with first state bank and trust for one new note of $ 53,610. the term was principal and interest payments monthly over 42 months with an interest rate of 6 % . the note is secured by certain trucks and equipment of the company . this note does not restrict the company 's ability to incur any additional indebtedness , or the sale of its equity securities , in connection with financing its operations . on april 7 , 2017 mg received $ 100,000 in return for an assignment and transfer to capital stack llc of a specified percentage of the proceeds of each future sale made by mg , collectively “ future receipts ” until mg has received the purchased amount of $ 143,000. pursuant to the terms of the capital stack agreement , mg can not sell any portion of its future sales that have previously been sold to capital stack , however , it does not restrict the company 's ability to incur any additional debt , or sell its equity securities , in connection with financing its operations . the final payment to capital stack will be made in october 2017 , at which point the capital stack agreement shall terminate by its terms . on august 10 , 2017 mg received $ 51,150 in return for an assignment and transfer to libertas funding llc of a specified percentage of the proceeds of each future sale made by mg , collectively “ future receipts ” until mg has received the purchased amount of $ 67,100. pursuant to the terms of the libertas agreement , mg can not sell any portion of its future sales that have previously been sold to libertas , however , it does not restrict the company 's ability to incur any additional debt , or sell its equity securities , in connection with financing its operations .
| stock based compensation expense was $ 211,320 in 2017 compared to no expense for the same period in 2016. the 2017 stock based expense was in connection with the acquisition of mg cleaners in september 2017. the impairment expense in 2017 of $ 27,366 was from the recognition of fair value of assets held for sale that were reclassified from fixed assets during the period . the impairment expense in 2016 was $ 24,905 for an inventory write down in the period . there was bad debt recovery of an expense in 2017 of $ 10,439 , as compared to a bad debt expense of $ 55,872 in 2016 resulting from a customer filing for bankruptcy protection , resulting in our entire accounts receivable with that customer being charged off . the acquisition costs in 2017 were $ 378,807 which resulted from the company 's acquisition of mg cleaners on september 19 , 2017. there was no comparable cost in 2016. the gain on settlement of accrued liability in 2017 of $ 7,118 resulted from the settlement of a liability from an obsolete vendor during the period . the gain on settlement of accrued liability in 2016 of $ 10,971 resulted from the settlement of a liability for inventory purchases payable in the period . interest expense , net , increased to $ 155,484 during the year ended december 31 , 2017 from $ 52,603 for the comparable 2016 period . 17 the net loss for the year ended december 31 , 2017 was $ 731,080 as compared to a net income of $ 178,015 for the year ended december 31 , 2016. our net loss in 2017 was primarily attributable to transaction costs of the mg cleaners acquisition , public company expenses , higher professional fees , higher wages from an increase in employees , and an increase in general and administrative expenses as compared to 2016. we plan to address our net loss with a goal to achieve profitability in 2018 by increasing sales , covering more costs within cost of sales , improving gross margins with better sales mix with higher margin service revenues , reducing general and administrative costs of professional fees . liquidity and capital resources as of
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on october 1 , 2020 , support service staff working remotely for the bank began to return to the workplace in limited numbers on a rotation schedule . this return from the remote work environment was by design and a direct result of the number of employees housed in these areas . best practices around social distancing , mask usage and cleaning of work areas has been incorporated into the daily work practice . staff rotation of the support services teams will continue as needed to accommodate cdc and local gathering guidelines . the pandemic committee continues to meet to review changes in guidelines with staff and customer safety related to covid-19 at the forefront . the pandemic committee reports on developments within the bank footprint and the possible impact on the banks business model . as a result , adjustments to the protocol are made as needed . while the ultimate impact of the covid-19 pandemic is largely uncertain , based on an initial assessment of the impact to our loan portfolio we increased our allowance for loan losses through a provision for loan losses of $ 7.6 million during the first quarter of 2020 , and an additional $ 1.6 million , $ 2.1 million , and $ 0.2 million during the second , third , and fourth quarters of 2020 , respectively . in an effort to provide relief to clients most impacted by the pandemic , capstar bank proactively offered a 90-day full deferment of all loan payments to capstar borrowers that were less than 30 days past due . as a result , approximately 700 loans ( representing approximately $ 452 million in outstanding loan balances ) were approved for payment deferment during the second quarter of 2020. as of december 31 , 2020 , the remaining loans still under deferment had been reduced to 13 borrowers ( representing approximately $ 62 million in outstanding loan balances ) . capstar bank was actively involved in assisting clients applying for loans under the sba 's paycheck protection program ( “ ppp ” ) . through this program we have approved approximately 1,334 ppp loans or $ 185.5 million which were outstanding and recorded in total loans on the consolidated balance sheet as of december 31 , 2020. as the pandemic continues , we will continue to assess the impact on our market . while it is likely losses will materialize in the future , we continue to proactively work with our clients and evaluate the potential impact of the pandemic on them and us . furthermore , we currently do not anticipate a significant adverse liquidity impact related to the covid-19 pandemic . in fact , since the start of the pandemic , deposit inflows have increased sharply , significantly strengthening liquidity . nonetheless , the company has a comprehensive contingency funding plan that addresses potential adverse liquidity events and emergency cash flow requirements that may arise from the covid-19 pandemic . see further discussion regarding the company 's management of liquidity risk in the subsequent section titled “ liquidity ” . our primary revenue source is net interest income and fees from various financial services provided to customers . net interest income is the difference between interest income earned on loans , investment securities and other interest earning assets less interest expense on deposit accounts and other interest bearing liabilities . loan volume and interest rates earned on those loans are critical to our overall profitability . similarly , deposit volume is crucial to funding loans and the rates paid on deposits directly impact our profitability . business volumes are influenced by competition , new business acquisition efforts and economic factors including market interest rates , business spending and consumer confidence . net interest income increased $ 8.6 million , or 12.7 % , to $ 76.3 million for 2020 compared to $ 67.7 million for 2019. the increase was largely attributable to the fcb and bow acquisitions , which was partially offset by the adverse impact of lower interest rates in 2020 when compared to 2019. net interest margin decreased to 3.10 % for 2020 , compared with 3.64 % for 2019. provision for loan losses was $ 11.5 million in 2020 compared to $ 0.8 million in 2019. this increase was primarily the result of credit deterioration associated with the covid-19 pandemic . the provision for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that , in management 's evaluation , is adequate to provide coverage for the estimated probable inherent losses on outstanding loans . our allowance for loan losses at december 31 , 2020 was 1.23 % of total loans , compared with 0.89 % of total loans at december 31 , 2019 . 41 total noninterest income for 20 20 in creased $ 19.0 million , or 78.2 % , to $ 43.2 million compared to $ 24.3 million for 201 9 , and comprised 32.0 % of total revenues . total noninterest expense for 2020 increased $ 15.4 million , or 24.8 % , to $ 77.4 million compared to $ 62.0 million for 2019. our efficiency ratio for 2020 was 64.7 % compared to 67.4 % for 2019. despite the increase in noninterest expense , including acquisition related costs , the improvement in efficiency ratio for 2020 is primarily attributable to operational improvements and synergies achieved through the fcb and bow acquisitions . the company 's effective tax rate decreased to 19.6 % for 2020 from 23.4 % for 2019. the lower effective tax rate in 2020 compared to 2019 is mainly the result of net operating loss carryback provisions associated with the cares act and the establishment of a real estate investment trust in 2020. tangible common equity , a non-gaap measure , is a measure of a company 's capital which is useful in evaluating the quality and adequacy of capital . story_separator_special_tag our ratio of tangible common equity to total tangible assets was 10.01 % as of december 31 , 2020 , compared with 11.47 % at december 31 , 2019. see “ non-gaap financial measures ” for a discussion of and reconciliation to the most directly comparable u.s. gaap measure . the following sections provide more details on subjects presented in this overview . critical accounting policies and estimates our consolidated financial statements are prepared based on the application of certain accounting policies , the most significant of which are described in note 1 to our consolidated financial statements for the year ended december 31 , 2020 , which are contained elsewhere in this report . certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may materially and adversely affect our reported results and financial position for the current period or future periods . the use of estimates , assumptions , and judgments are necessary when financial assets and liabilities are required to be recorded at , or adjusted to reflect , fair value . assets carried at fair value inherently result in more financial statement volatility . fair values and information used to record valuation adjustments for certain assets and liabilities are either based on quoted market prices or are provided by other independent third-party sources , when available . when such information is not available , management estimates valuation adjustments based upon historical experience and on various other assumptions that we believe to be reasonable under the circumstances . management evaluates our estimates and assumptions on an ongoing basis . changes in underlying factors , assumptions or estimates in any of these areas could have a material impact on our future financial condition and results of operations . we have identified the following accounting policies and estimates that , due to the difficult , subjective or complex judgments and assumptions inherent in those policies and estimates and the potential sensitivity of our financial statements to those judgments and assumptions , are critical to an understanding of our financial condition and results of operations . we believe that the judgments , estimates and assumptions used in the preparation of our financial statements are reasonable and appropriate . allowance for loan losses we record estimated probable inherent credit losses in the loan portfolio as an allowance for loan losses . the methodologies and assumptions for determining the adequacy of the overall allowance for loan losses involve significant judgments to be made by management . some of the more critical judgments supporting our allowance for loan losses include judgments about the credit-worthiness of borrowers , estimated value of underlying collateral , assumptions about cash flow , determination of loss factors for estimating credit losses , and the impact of current events , conditions , and other factors impacting the level of inherent losses , particularly the impact from the covid-19 pandemic in 2020. under different conditions or using different assumptions , the actual or estimated credit losses ultimately realized by us may be different from our estimates . in determining the allowance , we estimate losses on individual impaired loans and on groups of loans that are not impaired , where the probable loss can be identified and reasonably estimated . on a quarterly basis , we assess the risk inherent in our loan portfolio based on qualitative and quantitative trends in the portfolio , including the internal risk classification of loans , historical loss rates , changes in the nature and volume of the loan portfolio , industry or borrower concentrations , delinquency trends , detailed reviews of significant loans with identified weaknesses , and the impacts of local , regional , and national economic factors on the quality of the loan portfolio . based on this analysis , we may record a provision for loan losses in order to maintain the allowance at appropriate levels . for a more complete discussion of the methodology employed to calculate the allowance for loan losses , see note 1 to our consolidated financial statements for the year ended december 31 , 2020 , which is included elsewhere in this report . 42 investment securities impairment we assess on a quarterly basis whether there have been any events or economic circumstances to indicate that a security with respect to which there is an unrealized loss is impaired on an other-than-temporary basis . in any instance , we would consider many factors , including the severity and duration of the impairment , our intent and ability to hold the security for a period of time sufficient for a recovery in value , recent events specific to the issuer or industry , and , for debt securities , external credit ratings and recent downgrades . securities with respect to which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value with the write-down recorded in earnings . income taxes deferred income tax assets and liabilities are computed using the asset and liability method , which recognizes a liability or asset representing the tax effects , based on current tax law , of future deductible or taxable amounts attributable to events recognized in the financial statements . a valuation allowance may be established to the extent necessary to reduce the deferred tax asset to a level at which it is “ more likely than not ” that the tax asset or benefit will be realized . realization of tax benefits depends on having sufficient taxable income , available tax loss carrybacks or credits , the reversal of taxable temporary differences and or tax planning strategies within the reversal period , and that current tax law allows for the realization of recorded tax benefits . business combinations assets purchased and liabilities assumed in a business combination are recorded at their fair value . the fair value of a loan portfolio acquired in a business combination requires greater levels of management estimates and judgment than the remainder of purchased assets or assumed liabilities .
| ( 3 ) yields on tax exempt securities are shown on a tax equivalent basis . ( 4 ) net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities . ( 5 ) net interest margin is net interest income calculated on a tax equivalent basis divided by total average interest-earning assets . the following table reflects , for the periods indicated , the changes in our net interest income due to changes in the volume of interest-earning assets and interest-bearing liabilities and the associated rates earned or paid on these assets and liabilities . replace_table_token_6_th 2020 compared to 2019 our net interest income increased $ 8.6 million , or 12.7 % , from 2019 to 2020 due to a 32 % increase in average earning assets , which was offset by a 54 basis point or 148.4 % decline in the net interest margin average yield rate . our net interest margin was 3.10 % and 3.64 % for 2020 and 2019 , respectively , with the decline triggered by two factors related to the pandemic – first , the federal reserve reducing the federal funds target rate by 1.50 % in march 2020 , one of numerous actions intended to offset the pandemic 's impact on the u.s. economy , and second , the sharp increase in deposits near the start of the pandemic , with deposits increasing $ 332 million or 19 % in the 2nd quarter . additionally , included in interest expense for savings and money market deposits in 2020 is a loss on previously terminated interest rate swaps of $ 1.9 million . for 2020 compared to 2019 , loan volumes increased 16.8 % while loan yields declined from 5.41 % to 4.61 % due to the impact of lower market interest rates on yields of new loan originations and yields of existing variable rate loans . average loans for 2020 increased 16.8 % compared to 2019 as a result of the fcb and bow acquisitions , the company 's active participation in
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for the years ended december 31 , 2014 and 2013 , approximately 8 % and 9 % of our distributor sales , respectively , were made through small distributors primarily based on purchase orders . these distributors typically have no stock rotation rights . we generally recognize revenue upon shipment of products to the distributors for the following reasons : ( 1 ) the price is fixed or determinable at the date of sale . we do not offer special payment terms , price protection or price adjustments to distributors when we recognize revenue upon shipment . ( 2 ) the distributors are obligated to pay us and this obligation is not contingent on the resale of our products . ( 3 ) the distributors ' obligation is unchanged in the event of theft or physical destruction or damage to the products . ( 4 ) the distributors have stand-alone economic substance apart from our relationship . ( 5 ) we do not have any obligations for future performance to directly bring about the resale of our products by the distributors . ( 6 ) the amount of future returns can be reasonably estimated . we have the ability and the information necessary to track inventory sold to and held at our distributors . we maintain a history of returns and have the ability to estimate the stock rotation returns on a quarterly basis . we maintain a sales reserve for stock rotation rights , which is based on historical experience of actual stock rotation returns on a per distributor basis , where available , and information related to products in the distribution channel . this reserve is recorded at the time of sale . historically , these returns were not material to our consolidated financial statements . in the future , if we are not able to estimate our stock rotation returns accurately , we may have to recognize revenue when the distributors sell such inventory to end customers . if we enter into arrangements that have rights of return that are not estimable , we recognize revenue under such arrangements only after the distributors have sold the products to end customers . three of our u.s. distributors have distribution agreements where revenue is recognized upon sale by these distributors to their end customers because these distributors have certain rights of return which management believes are not estimable . the deferred revenue balance from these distributors as of december 31 , 2014 and 2013 was $ 2.0 million and $ 1.7 million , respectively . the deferred costs as of december 31 , 2014 and 2013 were $ 0.2 million . we generally provide a one to two-year warranty against defects in materials and workmanship . under this warranty , we will repair the goods , provide replacements at no charge , or , under certain circumstances , provide a refund to the customer for defective products . estimated warranty returns and warranty costs are based on historical experience and are recorded at the time product revenue is recognized . inventory valuation we value our inventory at the lower of the standard cost ( which approximates actual cost on a first-in , first-out basis ) or its current estimated market value . we write down inventory for obsolescence or lack of demand , based on assumptions about future demand and market conditions . if actual market conditions are less favorable than those projected by management , additional inventory write-downs may be required . conversely , if market conditions are more favorable , inventory may be sold that was previously reserved . 29 valuation of goodwill and acquisition-related intangible assets we evaluate intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that an impairment may exist . we perform an annual impairment assessment for goodwill and intangible assets with indefinite lives in the fourth quarter , or more frequently if indicators of potential impairment exist . impairment of intangible assets is recognized based on the difference between the fair value of the assets and their carrying value . impairment for goodwill occurs if the fair value of a reporting unit including goodwill is less than its carrying value and is recognized based on the difference between the implied fair value of the reporting unit 's goodwill and the carrying value of the goodwill . the assumptions and estimates used to determine future values of goodwill and intangible assets are complex and subjective . they can be affected by various factors , including external factors such as industry and economic trends , and internal factors such as changes in our business strategy and revenue forecasts . if there is a significant adverse change in our business in the future , including macroeconomic and market conditions , we may be required to record impairment charges on our goodwill and acquisition-related intangible assets . accounting for income taxes asc 740-10 , income taxes – overall , prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . this interpretation also provides guidance on classification , interest and penalties , accounting in interim periods and disclosure . in accordance with asc 740-10 , we recognize federal , state and foreign current tax liabilities or assets based on our estimate of taxes payable or refundable in the current fiscal year by tax jurisdiction . we also recognize federal , state and foreign deferred tax assets or liabilities for our estimate of future tax effects attributable to temporary differences and carryforwards . we record a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that , based on available evidence and judgment , are not expected to be realized . our calculation of current and deferred tax assets and liabilities is based on certain estimates and judgments and involves dealing with uncertainties in the application of complex tax laws . story_separator_special_tag our estimates of current and deferred tax assets and liabilities may change based , in part , on added certainty or finality or uncertainty to an anticipated outcome , changes in accounting or tax laws in the u.s. or foreign jurisdictions where we operate , or changes in other facts or circumstances . in addition , we recognize liabilities for potential u.s. and foreign income tax for uncertain income tax positions taken on our tax returns if it has less than a 50 % likelihood of being sustained . if we determine that payment of these amounts is unnecessary or if the recorded tax liability is less than our current assessment , we may be required to recognize an income tax benefit or additional income tax expense in our financial statements in the period such determination is made . we have calculated our uncertain tax positions which were attributable to certain estimates and judgments primarily related to transfer pricing , cost sharing and our international tax structure exposure . as of december 31 , 2014 , and 2013 , we had a valuation allowance of $ 19.1 million and $ 16.7 million , respectively , attributable to management 's determination that it is more likely than not that most of the deferred tax assets in the u.s. will not be realized . should it be determined that additional amounts of the net deferred tax asset will not be realized in the future , an adjustment to increase the deferred tax asset valuation allowance will be charged to income in the period such determination is made . likewise , in the event we were to determine that it is more likely than not that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount , an adjustment to the valuation allowance for the deferred tax asset would increase income in the period such determination was made . as a result of the cost sharing arrangements with our international subsidiaries ( cost share arrangements ) , relatively small changes in costs that are not subject to sharing under the cost share arrangements can significantly impact the overall profitability of the u.s. entity . because of the u.s. entity 's inconsistent earnings history and uncertainty of future earnings , we have determined that it is more likely than not that the u.s. deferred tax benefits will not be realized . contingencies we are a party to actions and proceedings incident to our business in the ordinary course of business , including litigation regarding our intellectual property , challenges to the enforceability or validity of our intellectual property and claims that our products infringe on the intellectual property rights of others . the pending proceedings involve complex questions of fact and law and will require the expenditure of significant funds and the diversion of other resources to prosecute and defend . in addition , from time to time , we become aware that we are subject to other contingent liabilities . when this occurs , we will evaluate the appropriate accounting for the potential contingent liabilities to determine whether a contingent liability should be recorded . in making this determination , management may , depending on the nature of the matter , consult with internal and external legal counsel and technical experts . based on the facts and circumstances in each matter , we use our judgment to determine whether it is probable that a contingent loss has occurred and whether the amount of such loss can be estimated . if we determine a loss is probable and estimable , we record a contingent loss . in determining the amount of a contingent loss , we take into account advice received from experts for each specific matter regarding the status of legal proceedings , settlement negotiations , prior case history and other factors . should the judgments and estimates made by management need to be adjusted as additional information becomes available , we may need to record additional contingent losses that could materially and adversely impact our results of operations . alternatively , if the judgments and estimates made by management are adjusted , for example , if a particular contingent loss does not occur , the contingent loss recorded would be reversed which could result in a favorable impact on our results of operations . 30 stock-based compensation we measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award . we use the black-scholes model to estimate the fair value of our options and shares issued under employee stock purchase plan . the fair value of time-based and performance-based restricted stock units is based on the grant date share price . the fair value of market-based restricted stock units is estimated using a monte carlo simulation model . we recognize compensation expense equal to the grant-date fair value for all share-based payment awards that are expected to vest . this expense is recorded on a straight-line basis over the requisite service period of the entire awards , unless the awards are subject to performance or market conditions , in which case we recognize compensation expense over the requisite service period of each separate vesting tranche . for the performance-based awards , we recognize compensation expense when it becomes probable that the performance criteria set by the board of directors will be achieved . for the market-based awards , compensation expense is not reversed if the market condition is not satisfied . if the actual performance targets achieved differ significantly from those projected by management , additional stock-based compensation expense may be recorded for the performance-based awards , which could have an adverse impact on our results of operations . furthermore , the amount of stock-based compensation that we recognize is based on an expected forfeiture rate .
| revenue from our dc to dc products was $ 211.3 million for the year ended december 31 , 2013 , an increase of $ 22.6 million , or 12.0 % , from the same period in 2012. this increase was primarily due to higher sales of our dc to dc converters , mini-monsters , pmics and battery charger products . revenue from our lighting control products was $ 26.8 million for the year ended december 31 , 2013 , an increase of $ 1.7 million , or 6.7 % , compared with the same period in 2012 . 32 cost of revenue and gross margin cost of revenue consists primarily of costs incurred to manufacture , assemble and test our products , as well as warranty costs , inventory-related expenses and other overhead costs and stock-based compensation expenses . in addition , cost of revenue includes amortization of intangible assets from the sensima acquisition beginning in the third quarter of 2014. replace_table_token_7_th cost of revenue was $ 129.9 million , or 46.0 % of revenue , for the year ended december 31 , 2014 , and $ 110.2 million , or 46.3 % of revenue , for the year ended december 31 , 2013. the $ 19.7 million increase in cost of revenue was primarily due to a 37 % increase in unit shipments , which was partially offset by a 14 % decrease in the average direct cost of units shipped . in addition , the increase in cost of revenue was driven by an increase of $ 0.8 million in the provision for inventory reserve , and an increase of $ 0.7 million in amortization of intangible assets from the sensima acquisition in july 2014. gross profit as a percentage of revenue , or gross margin , was 54.0 % for the year ended december 31 , 2014 , compared to 53.7 % for the year ended december 31 , 2013. the increase in gross margin was primarily due to higher absorption of in-house test manufacturing overhead , compared to the same period in 2013. this increase was partially offset by an increase in the provision for inventory reserve and an increase in the amortization of intangible assets from
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this facility was renewed in november 2017 , extending the revolving period to november 2019 , followed by an amortization period to november 2021. in a securitization and in our warehouse credit facilities , we are required to make certain representations and warranties , which are generally similar to the representations and warranties made by dealers in connection with our purchase of the automobile contracts . if we breach any of our representations or warranties , we will be obligated to repurchase the automobile contract at a price equal to the principal balance plus accrued and unpaid interest . we may then be entitled under the terms of our dealer agreement to require the selling dealer to repurchase the contract at a price equal to our purchase price , less any principal payments made by the customer . subject to any recourse against dealers , we will bear the risk of loss on repossession and resale of vehicles under automobile contracts that we repurchase . whether a securitization is treated as a secured financing or as a sale for financial accounting purposes , the related special purpose subsidiary may be unable to release excess cash to us if the credit performance of the securitized automobile contracts falls short of pre-determined standards . such releases represent a material portion of the cash that we use to fund our operations . an unexpected deterioration in the performance of securitized automobile contracts could therefore have a material adverse effect on both our liquidity and results of operations , regardless of whether such automobile contracts are treated as having been sold or as having been financed . critical accounting policies we believe that our accounting policies related to ( a ) allowance for finance credit losses , ( b ) amortization of deferred origination costs and acquisition fees , ( c ) term securitizations , ( d ) accrual for contingent liabilities and ( e ) income taxes are the most critical to understanding and evaluating our reported financial results . such policies are described below . 27 finance receivables at fair value in january 2018 the company adopted the fair value method of accounting for finance receivables acquired after 2017. allowance for finance credit losses in order to estimate an appropriate allowance for losses incurred on finance receivables , we use a loss allowance methodology commonly referred to as `` static pooling , `` which stratifies our finance receivable portfolio into separately identified pools based on the period of origination . using analytical and formula driven techniques , we estimate an allowance for finance credit losses , which we believe is adequate for probable incurred credit losses that can be reasonably estimated in our portfolio of automobile contracts . for each monthly pool of contracts that we originate , we begin establishing the allowance in the month of acquisition and increase it over the subsequent 11 months , through a provision for credit losses charged to our consolidated statement of operations , with the goal of establishing an allowance that approximates the next 12 months of expected net losses . net losses incurred on finance receivables are charged to the allowance . we evaluate the adequacy of the allowance by examining current delinquencies , the characteristics of the portfolio , prospective liquidation values of the underlying collateral and general economic and market conditions . as circumstances change , our level of provisioning and or allowance may change as well . receivables acquired after 2017 , are accounted for using fair value and will have no allowance for finance credit losses in accordance with the fair value method of accounting for finance receivables . broad economic factors such as recession and significant changes in unemployment levels influence the credit performance of our portfolio , as does the weighted average age of the receivables at any given time . our internal credit performance data consistently show that new receivables have lower levels of delinquency and losses early in their lives , with delinquencies increasing throughout their lives and losses gradually increasing to a peak between 36 and 42 months , after which they gradually decrease . the historical weighted average seasoning of our total owned portfolio excluding fireside , is summarized in the table below : replace_table_token_19_th the credit performance of our portfolio is also significantly influenced by our underwriting guidelines and credit criteria we use when evaluating contracts for purchase from dealers . we regularly evaluate our portfolio credit performance and modify our purchase criteria to maximize the credit performance of our portfolio , while maintaining competitive programs and levels of service for our dealers . amortization of deferred originations costs and acquisition fees upon purchase of a contract from a dealer , we generally either charge or advance the dealer an acquisition fee . in addition , we incur certain direct costs associated with acquisitions of our contracts . all such acquisition fees and direct costs are applied to the carrying value of finance receivables and are accreted into earnings as an adjustment to the yield over the estimated life of the contract using the interest method . receivables acquired after 2017 are accounted for using fair value . in accordance with the fair value method of accounting for finance receivables , any dealer acquisition fees will be incorporated into acquisition price of the receivables and no direct costs will be deferred . term securitizations our term securitization structure has generally been as follows : we sell automobile contracts we acquire to a wholly-owned special purpose subsidiary , which has been established for the limited purpose of buying and reselling our automobile contracts . the special-purpose subsidiary then transfers the same automobile contracts to another entity , typically a statutory trust . the trust issues interest-bearing asset-backed securities , in a principal amount equal to or less than the aggregate principal balance of the automobile contracts . story_separator_special_tag we typically sell these automobile contracts to the trust at face value and without recourse , except that representations and warranties similar to those provided by the dealer to us are provided by us to the trust . one or more investors purchase the asset-backed securities issued by the trust ; the proceeds from the sale of the asset-backed securities are then used to purchase the automobile contracts from us . we may retain or sell subordinated asset-backed securities issued by the trust or by a related entity . 28 we structure our securitizations to include internal credit enhancement for the benefit the investors ( i ) in the form of an initial cash deposit to an account ( `` spread account `` ) held by the trust , ( ii ) in the form of overcollateralization of the senior asset-backed securities , where the principal balance of the senior asset-backed securities issued is less than the principal balance of the automobile contracts , ( iii ) in the form of subordinated asset-backed securities , or ( iv ) some combination of such internal credit enhancements . the agreements governing the securitization transactions require that the initial level of internal credit enhancement be supplemented by a portion of collections from the automobile contracts until the level of internal credit enhancement reaches specified levels , which are then maintained . the specified levels are generally computed as a percentage of the principal amount remaining unpaid under the related automobile contracts . the specified levels at which the internal credit enhancement is to be maintained will vary depending on the performance of the portfolios of automobile contracts held by the trusts and on other conditions , and may also be varied by agreement among us , our special purpose subsidiary , the insurance company , if any , and the trustee . such levels have increased and decreased from time to time based on performance of the various portfolios , and have also varied from one transaction to another . the agreements governing the securitizations generally grant us the option to repurchase the sold automobile contracts from the trust when the aggregate outstanding balance of the automobile contracts has amortized to a specified percentage of the initial aggregate balance . our warehouse credit facility structures are similar to the above , except that ( i ) our special-purpose subsidiaries that purchase the automobile contracts pledge the automobile contracts to secure promissory notes that they issue , and ( ii ) no increase in the required amount of internal credit enhancement is contemplated . our current maximum revolving warehouse financing capacity is $ 300 million . upon each transfer of automobile contracts in a transaction structured as a secured financing for financial accounting purposes , whether a term securitization or a warehouse financing , we retain on our consolidated balance sheet the related automobile contracts as assets and record the asset-backed notes or loans issued in the transaction as indebtedness . we receive periodic base servicing fees for the servicing and collection of the automobile contracts . under our securitization structures treated as secured financings for financial accounting purposes , such servicing fees are included in interest income from the automobile contracts . in addition , we are entitled to the cash flows from the trusts that represent collections on the automobile contracts in excess of the amounts required to pay principal and interest on the asset-backed securities , base servicing fees , and certain other fees and expenses ( such as trustee and custodial fees ) . required principal payments on the asset-backed notes are generally defined as the payments sufficient to keep the principal balance of such notes equal to the aggregate principal balance of the related automobile contracts ( excluding those automobile contracts that have been charged off ) , or a pre-determined percentage of such balance . where that percentage is less than 100 % , the related securitization agreements require accelerated payment of principal until the principal balance of the asset-backed securities is reduced to the specified percentage . such accelerated principal payment is said to create overcollateralization of the asset-backed notes . if the amount of cash required for payment of fees , expenses , interest and principal on the senior asset-backed notes exceeds the amount collected during the collection period , the shortfall is withdrawn from the spread account , if any . if the cash collected during the period exceeds the amount necessary for the above allocations plus required principal payments on the subordinated asset-backed notes , and there is no shortfall in the related spread account or the required overcollateralization level , the excess is released to us . if the spread account and overcollateralization is not at the required level , then the excess cash collected is retained in the trust until the specified level is achieved . although spread account balances are held by the trusts on behalf of our special-purpose subsidiaries as the owner of the residual interests ( in the case of securitization transactions structured as sales for financial accounting purposes ) or the trusts ( in the case of securitization transactions structured as secured financings for financial accounting purposes ) , we are restricted in use of the cash in the spread accounts . cash held in the various spread accounts is invested in high quality , liquid investment securities , as specified in the securitization agreements . the interest rate payable on the automobile contracts is significantly greater than the interest rate on the asset-backed notes . as a result , the residual interests described above historically have been a significant asset of ours . in all of our term securitizations and warehouse credit facilities , whether treated as secured financings or as sales , we have sold the automobile contracts ( through a subsidiary ) to the securitization entity . the difference between the two structures is that in securitizations that are treated as secured financings we report the assets and liabilities of the securitization trust on our consolidated balance sheet .
| factors that affect margins and net income include changes in the automobile and automobile finance market environments , and macroeconomic factors such as interest rates and changes in the unemployment level . employee costs include base salaries , commissions and bonuses paid to employees , and certain expenses related to the accounting treatment of outstanding stock options , and are one of our most significant operating expenses . these costs ( other than those relating to stock options ) generally fluctuate with the level of applications and automobile contracts processed and serviced . other operating expenses consist largely of facilities expenses , telephone and other communication services , credit services , computer services , marketing and advertising expenses , and depreciation and amortization . total operating expenses were $ 402.3 million for the year ended december 31 , 2017 , compared to $ 372.6 million for the prior year , an increase of $ 29.7 million , or 8.0 % . the increase is primarily due to the increase in interest expense , provision for credit losses and servicing costs . employee costs increased by $ 7.4 million or 11.3 % , to $ 73.0 million during the year ended december 31 , 2017 , representing 18.1 % of total operating expenses , from $ 65.5 million for the prior year , or 17.6 % of total operating expenses . during the year ended december 31 , 2017 , we added servicing staff to accommodate the increase in the number of accounts in our managed portfolio . the table below summarizes our employees by category as well as contract purchases and units in our managed portfolio as of , and for the years ended , december 31 , 2017 and 2016 : replace_table_token_20_th 31 general and administrative expenses include costs associated with purchasing and servicing our portfolio of finance receivables , including expenses for facilities , credit services , and telecommunications . general and administrative expenses were $ 26.6 million , an increase of $ 1.8 million , or 7.0 % , compared to the
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in addition , we have multiple preclinical and research-stage programs that employ our proprietary technologies , including sgn-cd48a , a preclinical adc that is a candidate for investigational new drug , or ind , submission in 2017. we announced on february 10 , 2017 that we had entered into a development and license agreement , or the immunomedics license , with immunomedics , inc. , or immunomedics , pursuant to which , upon the terms and subject to the conditions set forth in the immunomedics license , we would receive exclusive worldwide rights to develop , manufacture and commercialize sacituzumab govitecan ( immu-132 ) . immu-132 is an adc targeted to trop-2 , which is expressed in several solid tumors , and is in a pivotal phase 1/2 trial for patients with triple negative breast cancer , or tnbc , and is being investigated in other solid tumors . immu-132 received breakthrough therapy designation , or btd , from the fda for the treatment of patients with tnbc who have failed prior therapies for metastatic disease . in connection with the closing of the transactions contemplated by the immunomedics license , immunomedics would receive an upfront payment of $ 250 million . in addition , immunomedics would also be eligible to receive development , regulatory and sales-dependent milestone payments across multiple indications and geographical regions of up to a total maximum of approximately $ 1.7 billion , as well as royalties which are based on a percentage of annual net sales of the licensed products , if any , beginning in the teens and rising to twenty percent based on sales volume . the closing of the transactions contemplated by the immunomedics license is subject to customary closing conditions , including the expiration of the applicable waiting period under the hart-scott-rodino antitrust improvements act of 1976 , as amended , or the hsr act , there being no pending court or administrative challenges to the immunomedics license and there being no court or administrative order blocking the closing . on february 20 , 2017 , immunomedics and we entered into a letter agreement pursuant to which immunomedics irrevocably waived to the extent applicable to immunomedics the condition precedent to the closing and effectiveness of the immunomedics license that there be no pending court or administrative challenges to the transaction . additionally , under the terms of the immunomedics license , immunomedics had the right to continue discussions with a small number of parties that previously expressed interest in licensing immu-132 until 11:59 p.m. new york city time on february 19 , 2017. if a third party had provided immunomedics with a financially superior licensing offer , we would have had the right to match any such offer , and if we had decided not to match , immunomedics would have had the right to accept the superior offer and terminate the immunomedics license upon payment of a termination fee to us . we have not received notice from immunomedics of any such third party offers during this limited time period , and on february 21 , 2017 , immunomedics announced that it is subject to customary no-shop restrictions on its and its representatives ' ability to solicit , discuss or negotiate alternative licensing agreement proposals from third parties with regard to immu-132 . on february 13 , 2017 , we were named a co-defendant in a lawsuit filed by venbio select advisors llc , or venbio , in the delaware chancery court against the members of the board of directors of immunomedics pursuant to which , among other things , venbio seeks to enjoin the closing of the 77 transactions contemplated by the immunomedics license . as a result of the pending litigation challenging the transactions contemplated by the immunomedics license , immunomedics and we have committed to the court not to close the transactions contemplated by the immunomedics license prior to march 10 , 2017. we can not predict the timing or outcome of this legal proceeding or the impact it may have on the immunomedics license or the closing of the transactions contemplated by the immunomedics license . however , it is possible that , in connection with the venbio lawsuit , the immunomedics license could be rescinded or reformed in a way that is disadvantageous to us , including by requiring us to increase the transaction consideration payable to immunomedics under the immunomedics license , or that otherwise adversely affects the anticipated benefits to us of the immunomedics license . see license agreementsimmunomedics license in item 1business for more information . we have collaborations for our adc technology with a number of biotechnology and pharmaceutical companies , including abbvie biotechnology ltd. , or abbvie ; bayer pharma ag , or bayer ; celldex therapeutics , inc. , or celldex ; genentech , inc. , a member of the roche group , or genentech ; glaxosmithkline llc , or gsk ; pfizer , inc. , or pfizer ; and psma development company llc , a subsidiary of progenics pharmaceuticals inc. , or progenics . in addition , we have entered into a 50/50 co-development agreement with agensys , inc. , an affiliate of astellas , for the development of adcs , including asg-22me . we also have an option for an adc co-development agreement with genmab a/s , or genmab , and a collaboration with unum therapeutics , inc. , or unum , to develop and commercialize novel antibody-coupled t-cell receptor , or actr , therapies incorporating our antibodies for the treatment of cancer . our ongoing research , development and commercial activities , together with our anticipated transfer , integration and development activities related to immu-132 , will require substantial amounts of capital and may not ultimately be successful . in addition , we may encounter unexpected difficulties during our anticipated transfer , integration and development activities related to immu-132 , any of which may cause us to expend greater funds and efforts or may slow , delay or limit the progress of immu-132 's development . story_separator_special_tag over the next several years , we expect that we will incur substantial expenses , primarily as a result of activities related to the commercialization of adcetris , the continued development of adcetris and sgn-cd33a and the anticipated development of immu-132 under the immunomedics license . our other product candidates are in relatively early stages of development ; sgn-cd33a , our other product candidates and immu-132 will require significant further development , financial resources and personnel to pursue and obtain regulatory approval and develop into commercially viable products , if at all . in addition , sgn-cd33a is our only product candidate in late stage clinical development and if we are unable to resolve the clinical holds on our sgn-cd33a trials or to otherwise advance the development of sgn-cd33a , or if we fail to produce positive results in the cascade trial , the commercialization prospects for sgn-cd33a , as well as our business and financial prospects , would be materially adversely affected . in addition , despite the substantial commitments of time and resources by our management and other employees already incurred in connection with the immunomedics license as well as our equity investment of approximately $ 14.7 million in immunomedics , we may be unable to consummate the transactions contemplated the immunomedics license , whether as a result of the venbio lawsuit or otherwise , in which case we will not realize any of the benefits of the licensing of immu-132 . likewise , it is possible that , in connection with the venbio lawsuit and or the proxy contest that venbio has initiated with respect to the election of directors at the immunomedics annual meeting , the immunomedics license could be reformed in a way that is disadvantageous to us , including by requiring us to increase the transaction consideration payable to immunomedics under the immunomedics license , or that otherwise adversely affects the anticipated benefits to us of the immunomedics license . our commitment of resources to the continuing development , regulatory and commercialization activities for adcetris , the research , continued development and manufacturing of our product candidates , the transactions contemplated by the immunomedics license , including the related upfront and milestone payments provided for under the immunomedics license , and the anticipated transfer , integration and development activities related to immu-132 , will likely require us to raise substantial amounts of additional capital and our operating expenses will fluctuate as a result of such activities . in addition , we may incur significant milestone payment obligations to certain of our licensors , including to immunomedics if the 78 transactions contemplated by the immunomedics license are comsummated , as our product candidates progress through clinical trials towards potential commercialization . we recognize revenue from adcetris product sales in the united states and canada . our future adcetris product sales are difficult to accurately predict from period to period . in this regard , our product sales have varied , and may continue to vary , significantly from period to period and may be affected by a variety of factors . such factors include the incidence rate of new patients in adcetris ' approved indications , customer ordering patterns , the overall level of demand for adcetris , the duration of therapy for patients receiving adcetris , and the extent to which coverage and reimbursement for adcetris is available from government and other third-party payers . obtaining and maintaining appropriate coverage and reimbursement for adcetris is increasingly challenging due to , among other things , the attention being paid to healthcare cost containment and other austerity measures in the u.s. and worldwide , as well as increasing legislative and enforcement interest in the united states with respect to pharmaceutical drug pricing practices . we anticipate that healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and an additional downward pressure on the price that we receive for adcetris . we also anticipate that congress , state legislatures , and third-party payors may continue to review and assess alternative healthcare delivery and payment systems and may in the future propose and adopt legislation or policy changes or implementations effecting additional fundamental changes in the healthcare delivery system , any of which could negatively affect our revenue or sales of adcetris ( or any future approved products ) . we also believe that the level of our current adcetris sales in the united states has been attributable to the incidence flow of patients eligible for treatment with adcetris , which can vary significantly from period to period . moreover , we believe that the incidence rate in adcetris ' approved indications is relatively low , particularly when compared to many other oncology indications . for these and other reasons , we expect that our ability to accelerate adcetris sales growth , if at all , will depend primarily on our ability to continue to expand adcetris ' labeled indications of use , particularly with respect to the frontline hodgkin lymphoma and frontline mtcl indications . our efforts to continue to expand adcetris ' labeled indications of use will continue to require additional time and investment in clinical trials to complete and may not be successful . our ability to successfully commercialize adcetris and to continue to expand its labeled indications of use are subject to a number of risks and uncertainties , including those discussed in part i , item 1a of this annual report on form 10-k. in particular , negative or inconclusive results in our echelon-1 and echelon-2 trials would negatively impact , or preclude altogether , our ability to obtain regulatory approval in the frontline hodgkin lymphoma and frontline mtcl indications , respectively , either of which could limit our sales of , and the commercial potential of , adcetris .
| net product sales we sell adcetris through a limited number of pharmaceutical distributors . customers order adcetris through these distributors and we typically ship product directly to the customer . we record product sales when title and risk of loss pass , which generally occurs upon delivery of the product to the customer . product sales are recorded net of estimated government-mandated rebates and chargebacks , distribution fees , estimated product returns and other deductions . these are generally referred to as gross-to-net deductions . accruals are established for these deductions and actual amounts incurred are offset against applicable accruals . we reflect these accruals as either a reduction in the related account receivable from the distributor , or as an accrued liability depending on the nature of the sales deduction . sales deductions are based on our estimates that consider payer mix in target markets and our experience to date . these estimates involve a substantial degree of judgment . government-mandated rebates and chargebacks : we have entered into a medicaid drug rebate agreement with the centers for medicare & medicaid services . this agreement provides for a rebate to participating states based on covered purchases of adcetris . medicaid rebates are invoiced to us by the various state medicaid programs . we estimate medicaid rebates based on a variety of factors , including our experience to date . we also have completed our federal supply schedule , or fss , agreement under which certain u.s. government purchasers receive a discount on eligible purchases of adcetris . we have entered into a pharmaceutical pricing agreement with the secretary of health and human services which enables certain entities that qualify for government pricing under the public health services act , or phs , to receive discounts on their qualified purchases of adcetris . under these agreements , distributors process a chargeback to us for the difference between wholesale acquisition cost and the applicable discounted price . as a result of our direct-ship distribution model , we can identify the
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in accordance with gaap , the company defers the portions of monthly , quarterly , semi-annually and annually recurring subscription and usage-based fees collected in advance and recognizes them in the period earned . additionally , the company defers and recognizes subscriber activation fees and related direct incremental costs over a subscriber 's estimated useful life . j2 global 's business cloud services also include patent license revenues generated under license agreements that provide for the payment of contractually determined fully paid-up or royalty-bearing license fees to j2 global in exchange for the grant of non-exclusive , retroactive and future licenses to our intellectual property , including patented technology . patent revenues may also consist of revenues generated from the sale of patents . patent license revenues are recognized when earned over the term of the license agreements . with regard to fully paid-up license arrangements , the company recognizes as revenue in the period the license agreement is executed the portion of the payment attributable to past use of the intellectual property and amortizes the remaining portion of such payments on a straight-line basis over the life of the licensed patent ( s ) . with regard to royalty-bearing license - 31 - arrangements , the company recognizes revenues of license fees earned during the applicable period . with regard to patent sales , the company recognizes as revenue in the period of the sale the amount of the purchase price over the carrying value of the patent ( s ) sold . the business cloud services business also generates revenues by licensing certain technology to third parties . these licensing revenues are recognized when earned in accordance with the terms of the underlying agreement . generally , revenue is recognized as the third party uses the licensed technology over the period . digital media the company 's digital media revenues primarily consist of revenues generated from the sale of advertising campaigns that are targeted to the company 's proprietary websites and to those websites operated by third parties that are part of the digital media business 's advertising network . revenues for these advertising campaigns are recognized as earned either when an ad is placed for viewing by a visitor to the appropriate web page or when the visitor `` clicks through '' on the ad , depending upon the terms with the individual advertiser . revenues for digital media business-to-business operations consist of lead-generation campaigns for it vendors and are recognized as earned when the company delivers the qualified leads to the customer . j2 global also generates digital media revenues through the license of certain assets to clients , for the clients ' use in their own promotional materials or otherwise . such assets may include logos , editorial reviews , or other copyrighted material . revenues under such license agreements are recognized when the assets are delivered to the client . the digital media business also generates other types of revenues , including business listing fees , subscriptions to online publications , and from other sources . such other revenues are recognized as earned . investments . we account for our investments in debt and equity securities in accordance with fasb asc topic no . 320 , investments - debt and equity securities ( “ asc 320 ” ) . asc 320 requires that certain debt and equity securities be classified into one of three categories : trading , available-for-sale or held-to-maturity securities . our investments are comprised primarily of readily marketable corporate and governmental debt securities , money-market accounts and time deposits . we determine the appropriate classification of our investments at the time of acquisition and reevaluate such determination at each balance sheet date . held-to-maturity securities are those investments that we have the ability and intent to hold until maturity . held-to-maturity securities are recorded at amortized cost . available-for-sale securities are recorded at fair value , with unrealized gains or losses recorded as a separate component of accumulated other comprehensive income ( loss ) in stockholders ' equity until realized . trading securities are carried at fair value , with unrealized gains and losses included in interest and other income on our consolidated statement of income . all securities are accounted for on a specific identification basis . we assess whether an other-than-temporary impairment loss on an investment has occurred due to declines in fair value or other market conditions ( see note 4 of the notes to consolidated financial statements included elsewhere in this annual report on form 10-k ) . share-based compensation expense . we comply with the provisions of fasb asc topic no . 718 , compensation - stock compensation ( “ asc 718 ” ) . accordingly , we measure share-based compensation expense at the grant date , based on the fair value of the award , and recognize the expense over the employee 's requisite service period using the straight-line method . the measurement of share-based compensation expense is based on several criteria including , but not limited to , the valuation model used and associated input factors , such as expected term of the award , stock price volatility , risk free interest rate , dividend rate and award cancellation rate . these inputs are subjective and are determined using management 's judgment . if differences arise between the assumptions used in determining share-based compensation expense and the actual factors , which become known over time , we may change the input factors used in determining future share-based compensation expense . any such changes could materially impact our results of operations in the period in which the changes are made and in periods thereafter . we elected to adopt the alternative transition method for calculating the tax effects of share-based compensation and continue to use the simplified method in developing the expected term used for our valuation of share-based compensation in accordance with asc 718. long-lived and intangible assets . we account for long-lived assets in accordance with the provisions of fasb asc topic no . story_separator_special_tag 360 , property , plant , and equipment ( “ asc 360 ” ) , which addresses financial accounting and reporting for the impairment or disposal of long-lived assets . we assess the impairment of identifiable intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important which could individually or in combination trigger an impairment review include the following : - 32 - . significant underperformance relative to expected historical or projected future operating results ; . significant changes in the manner of our use of the acquired assets or the strategy for our overall business ; . significant negative industry or economic trends ; . significant decline in our stock price for a sustained period ; and . our market capitalization relative to net book value . if we determined that the carrying value of intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment , we would record an impairment equal to the excess of the carrying amount of the asset over its estimated fair value . we have assessed whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets may not be recoverable and noted no indicators of potential impairment for the years ended december 31 , 2013 , 2012 and 2011 , respectively . goodwill and purchased intangible assets . we evaluate our goodwill and intangible assets for impairment pursuant to fasb asc topic no . 350 , intangibles - goodwill and other ( “ asc 350 ” ) , which provides that goodwill and other intangible assets with indefinite lives are not amortized but tested for impairment annually or more frequently if circumstances indicate potential impairment . in connection with the annual impairment test for goodwill , we have the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if we determine that it was more likely than not that the fair value of the reporting unit is less than its carrying amount , then we perform the impairment test upon goodwill . in connection with the annual impairment test for intangible assets , we have the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value of is less than its carrying amount , then we perform the impairment test upon intangible assets . the impairment test is comprised of two steps : ( 1 ) a reporting unit 's fair value is compared to its carrying value ; if the fair value is less than its carrying value , impairment is indicated ; and ( 2 ) if impairment is indicated in the first step , it is measured by comparing the implied fair value of goodwill and intangible assets to their carrying value at the reporting unit level . we completed the required impairment review at the end of 2013 , 2012 and 2011 and noted no impairment . consequently , no impairment charges were recorded . income taxes . we account for income taxes in accordance with fasb asc topic no . 740 , income taxes ( “ asc 740 ” ) , which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities . asc 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the net deferred tax assets will not be realized . our valuation allowance is reviewed quarterly based upon the facts and circumstances known at the time . in assessing this valuation allowance , we review historical and future expected operating results and other factors to determine whether it is more likely than not that deferred tax assets are realizable . income tax contingencies . we calculate current and deferred tax provisions based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the following year . adjustments based on filed returns are recorded when identified in the subsequent year . asc 740 provides guidance on the minimum threshold that an uncertain income tax position is required to meet before it can be recognized in the financial statements and applies to all tax positions taken by a company . asc 740 contains a two-step approach to recognizing and measuring uncertain income tax positions . the first step is to evaluate the income tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit , including resolution of related appeals or litigation processes , if any . the second step is to measure the tax benefit as the largest amount that is more than 50 % likely of being realized upon settlement . if it is not more likely than not that the benefit will be sustained on its technical merits , no benefit will be recorded . uncertain income tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold . we recognize accrued interest and penalties related to uncertain income tax positions in income tax expense on our consolidated statement of income . on a quarterly basis , we evaluate uncertain income tax positions and establish or release reserves as appropriate under gaap . as a multinational corporation , we are subject to taxation in many jurisdictions , and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions .
| segment operating expenses of $ 121.3 million in 2013 increased $ 12.0 million from 2012 primarily due to ( a ) an increase in sales and marketing costs primarily due to additional advertising and personnel costs associated with businesses acquired in and subsequent to 2012 and ( b ) additional depreciation and amortization associated with businesses acquired in and subsequent to 2012. as a result of these factors , segment operating earnings of $ 198.9 million in 2013 increased $ 11.6 million , or 6.2 % , from 2012. digital media as our digital media segment was established as a result of the acquisition of ziff davis , inc. on november 9 , 2012 , the increase from 2012 to 2013 is due to a full year of activity in fiscal year 2013. the following segment results are presented for fiscal year 2013 and 2012 ( in thousands ) : replace_table_token_17_th - 40 - liquidity and capital resources cash and cash equivalents and investments at december 31 , 2013 , we had cash and investments of $ 345.9 million compared to $ 343.6 million at december 31 , 2012 . the increase resulted primarily from cash provided by operations and the exercise of stock options , partially offset by business acquisitions , dividends , purchase of property , plant and equipment , interest payments and purchase of intellectual property . at december 31 , 2013 , cash and investments consisted of cash and cash equivalents of $ 207.8 million , short-term investments of $ 90.8 million and long-term investments of $ 47.4 million . our investments are comprised primarily of readily marketable corporate and governmental debt securities , money-market accounts , equity securities and time deposits . for financial statement presentation , we classify our investments primarily as available-for-sale ; thus , they are reported as short- and long-term based upon their maturity dates . short-term investments mature within one year of the date of the financial statements and long-term investments mature one year or more from the date of the financial statements . short-term investments include restricted balances which the company may not liquidate until maturity , generally within 12 months . restricted balances included in short-term investments were $ 8.2 million at december 31 , 2013 . we retain a substantial portion of
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we successfully executed a debt offering of approximately $ 5 billion during the third quarter , supporting significant opportunities to invest in high-return industrial gas projects and the repayment of upcoming debt maturities . the issuance included both u.s. dollar- and euro-denominated fixed-rate notes . changes in diluted eps attributable to air products the per share impacts presented in the table below were calculated independently and may not sum to the total change in diluted eps due to rounding . increase year ended 30 september 2020 2019 ( decrease ) diluted eps total diluted eps $ 8.49 $ 7.94 $ 0.55 less : diluted eps from loss from discontinued operations ( 0.06 ) — ( 0.06 ) diluted eps from continuing operations $ 8.55 $ 7.94 $ 0.61 operating impacts underlying business volume ( $ 0.19 ) price , net of variable costs 0.77 other costs ( 0.38 ) currency ( 0.07 ) facility closure 0.10 company headquarters relocation income ( expense ) 0.12 cost reduction actions 0.08 gain on exchange of equity affiliate investments ( 0.13 ) total operating impacts $ 0.30 other impacts equity affiliates ' income $ 0.06 interest expense 0.10 other non-operating income ( expense ) , net ( 0.13 ) change in effective tax rate , excluding discrete items below 0.04 india finance act 2020 0.06 tax reform repatriation ( 0.06 ) tax reform adjustment related to deemed foreign dividends 0.26 noncontrolling interests 0.02 weighted average diluted shares ( 0.03 ) total other impacts $ 0.32 total change in diluted eps from continuing operations ( a ) $ 0.61 ( a ) includes an estimated negative impact of $ 0.60- $ 0.65 from covid-19 . this estimate includes impacts on our sales , costs , and equity affiliates ' income . 23 table of contents replace_table_token_3_th 2021 outlook as covid-19 continues , we remain focused on the safety and well-being of our people . we are committed to safely maintaining plant operations and ensuring business continuity , including providing financial security for employees , reliably supplying critical products and services to our customers , and winning new opportunities for world-scale projects . we expect lower volumes from covid-19 to continue into fiscal year 2021 with recovery in demand depending on the duration of covid-19 and measures implemented by governments , public health authorities and businesses to mitigate its spread . given the dynamic nature of these circumstances , the future impact on our ongoing business , results of operations , and overall financial performance can not be reasonably estimated . despite the uncertainty of the duration of covid-19 , we will continue to focus on pricing discipline in our merchant business and expect our onsite business model , which represents approximately half of our business , to continue generating stable cash flow . this will allow us to execute our strategic focus on our industrial gas business and the creation of long-term shareholder value , including the ongoing growth of our dividend , continued execution of projects in our backlog , and new investments in high-return industrial gas projects . a long-term onsite customer in asia delayed restarting their plant following a planned major maintenance turnaround completed in september 2020. while we expect the plant to restart in fiscal year 2021 , we are negotiating with the customer regarding contract terms that could impact sales in our industrial gases – asia segment . the above guidance should be read in conjunction with the forward-looking statements of this annual report on form 10-k. story_separator_special_tag style= '' color : # 000000 ; font-family : 'arial ' , sans-serif ; font-size:10pt ; font-style : italic ; font-weight:400 ; line-height:120 % ; text-decoration : underline '' > interest expense replace_table_token_5_th interest incurred decreased 17 % , or $ 25.3. the prior year included an expense of $ 33.3 related to foreign currency forward points and currency swap basis differences ( `` excluded components '' ) of our cash flow hedges of intercompany loans . as discussed in note 2 , new accounting guidance , to the consolidated financial statements , we adopted new accounting guidance on hedging activities that changed the presentation of these items from `` interest expense , net '' to “ other non-operating income ( expense ) , net ” in fiscal year 2020. in addition to this presentation change , interest incurred decreased due to lower expenses related to the lu'an joint venture financing and a lower average interest rate on the debt portfolio , partially offset by a higher debt balance due to the issuance of debt during the third quarter of fiscal year 2020. refer to note 15 , debt , to the consolidated financial statements for additional information . we expect interest expense to be higher in future periods due to this issuance . capitalized interest increased 18 % , or $ 2.4 , due to an increase in the carrying value of projects under construction . 26 table of contents other non-operating income ( expense ) , net other non-operating income of $ 30.7 decreased 54 % , or $ 36.0 , primarily due to an expense of $ 33.5 for the excluded components of cash flow hedges of intercompany loans . these components were historically recorded in `` interest expense '' prior to the adoption of the guidance discussed above . the current year also included lower interest income on cash and cash items . these factors were partially offset by higher non-service pension income due to lower interest cost and higher expected asset returns , primarily for our u.s. pension plans . the prior year includes a settlement loss of $ 5.0 ( $ 3.8 after-tax , or $ 0.02 per share ) associated with the u.s. supplementary pension plan . story_separator_special_tag discontinued operations during the second quarter of fiscal year 2020 , we recorded a pre-tax loss from discontinued operations of $ 19.0 ( $ 14.3 after-tax , or $ 0.06 per share ) to increase our liability for retained environmental obligations associated with the sale of our former amines business in september 2006. refer to the pace discussion within note 17 , commitments and contingencies , to the consolidated financial statements for additional information . net income and net income margin net income of $ 1,931.1 increased 7 % , or $ 121.7 , primarily due to higher pricing and income from the sale of property at our current corporate headquarters . in addition , the prior year was negatively impacted by a facility closure , cost reduction actions , and the u.s. tax cuts and jobs act . these factors were partially offset by higher costs , including the after-tax loss from discontinued operations , unfavorable volume mix , and a gain on the exchange of two equity affiliates in the prior year . net income margin of 21.8 % increased 150 bp , primarily due to the factors noted above as well as lower energy and natural gas cost pass-through to customers . adjusted ebitda and adjusted ebitda margin adjusted ebitda of $ 3,619.8 increased 4 % , or $ 151.8 , primarily due to higher pricing , partially offset by higher operating costs . adjusted ebitda margin of 40.9 % increased 200 bp , primarily due to the higher pricing and lower energy and natural gas cost pass-through to customers , partially offset by unfavorable volume mix and higher operating costs . effective tax rate the effective tax rate equals the income tax provision divided by income from continuing operations before taxes . the effective tax rate was 19.7 % and 21.0 % for the fiscal years ended 30 september 2020 and 2019 , respectively . the 2019 tax rate reflected a discrete net income tax expense of $ 43.8 related to impacts from the u.s. tax cuts and jobs act ( the “ tax act ” ) . the net expense included the reversal of a non-recurring $ 56.2 ( $ 0.26 per share ) benefit recorded in 2018 related to the u.s. taxation of deemed foreign dividends . this was partially offset by a benefit of $ 12.4 ( $ 0.06 per share ) to finalize our estimates of the impacts of the tax act and reduce the total expected costs of the deemed repatriation tax . in addition , the net expense from the tax act was partially offset by benefits from changes in valuation allowance recorded at various entities in 2019. the lower current year rate reflects favorable impacts from higher benefits on the revaluation of deferred tax accounts due to enacted changes in foreign tax law , changes in the tax profile of u.s. entities in various state jurisdictions , and higher excess tax benefits on share-based compensation . these items were partially offset by the enactment of the india finance act 2020 ( the `` india finance act '' ) , which increased income tax expense by $ 20.3. the enactment also increased equity affiliates ' income by $ 33.8 for changes in the future tax costs of repatriated earnings . the overall impact to net income resulting from the india finance act was a benefit of $ 13.5 ( $ 0.06 per share ) . the adjusted effective tax rate was 19.1 % and 19.4 % for the fiscal years ended 30 september 2020 and 2019 , respectively . the lower current year rate reflects favorable impacts from higher benefits on the revaluation of deferred tax accounts due to enacted changes in foreign tax law , changes in the tax profile of u.s. entities in various state jurisdictions , and higher excess tax benefits on share-based compensation . these items were partially offset by benefits from changes in valuation allowances recorded at various entities in 2019. refer to note 22 , income taxes , to the consolidated financial statements for additional information . 27 table of contents segment analysis industrial gases – americas replace_table_token_6_th sales % change from prior year volume ( 1 ) % price 3 % energy and natural gas cost pass-through ( 6 ) % currency ( 2 ) % total industrial gases – americas sales change ( 6 ) % sales of $ 3,630.7 decreased 6 % , or $ 242.8 , as lower energy and natural gas cost pass-through to customers of 6 % , a negative impact from currency of 2 % , and lower volumes of 1 % were partially offset by positive pricing of 3 % . the pricing improvement was driven by our merchant business . lower volumes , particularly in our merchant business , were primarily driven by covid-19 , which began impacting this segment at the end of march 2020 and continued through the end of the fiscal year . the negative impact of covid-19 was partially offset by positive contributions from the commencement of a long-term hydrogen supply agreement with pbf energy inc. from assets we acquired in april . the unfavorable currency impact was driven by the chilean peso . operating income of $ 1,012.4 increased 1 % , or $ 14.7 , due to higher pricing , net of power and fuel costs , of $ 95 , partially offset by higher net operating costs of $ 40 , lower volumes of $ 33 , and unfavorable currency impacts of $ 7. operating margin of 27.9 % increased 210 bp , primarily due to positive pricing and lower energy and natural gas cost pass-through to customers , partially offset by lower volumes and unfavorable net operating costs . equity affiliates ' income of $ 84.3 decreased 1 % , or $ 0.5 .
| the decrease from the prior year was driven by lower energy and natural gas cost pass-through to customers of $ 314 , positive currency impacts of $ 73 , the favorable impact from the india contract modification of $ 41 , and the prior year facility closure of $ 29 , partially offset by higher costs attributable to sales volumes of $ 250 and higher other costs , including planned maintenance , of $ 61. gross margin of 33.9 % increased 120 bp from 32.7 % in the prior year , primarily due to positive pricing , lower energy and natural gas cost pass-through to customers , and the prior year facility closure , partially offset by unfavorable volume mix and net operating costs . facility closure in fiscal year 2019 , one of our customers was subject to a government enforced shutdown due to environmental reasons . as a result , we recognized a charge of $ 29.0 ( $ 22.1 after-tax , or $ 0.10 per share ) primarily related to the write-off of onsite assets . this charge was reflected as “ facility closure ” on our consolidated income statements for the fiscal year ended 30 september 2019 and was not recorded in segment results . selling and administrative selling and administrative expense of $ 775.9 increased 3 % , or $ 25.9 , due to higher business development costs to support our growth strategy and higher incentive compensation , partially offset by currency impacts and lower travel expenses . selling and administrative expense , as a percentage of sales , increased from 8.4 % to 8.8 % . research and development research and development expense of $ 83.9 increased 15 % , or $ 11.0 , primarily due to higher product development costs . research and development expense as a percentage of sales increased from 0.8 % to 0.9 % . company headquarters relocation income ( expense ) during the second quarter of fiscal year 2020 , we sold property at our current corporate headquarters located in trexlertown , pennsylvania , for net proceeds of $ 44.1. the sale was completed in anticipation of relocating our u.s. headquarters and resulted in a gain of $ 33.8 ( $ 25.6 after-tax , or $ 0.12 per share ) . this gain is reflected on our consolidated income statements as `` company headquarters relocation income ( expense ) '' for the fiscal year ended 30 september 2020 and was not recorded
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some of the actions we have taken since the onset of the pandemic through december 31 , 2020 include : executed a $ 1.0 billion 364-day delayed draw term loan agreement in march 2020 and immediately drew down on the facility for the full amount available . this term loan facility was repaid during the third quarter . borrowed on our existing $ 550 million revolving credit facility in april 2020. executed a $ 150 million pre-purchase arrangement of trueblue ® points with our co-brand credit card partner in april 2020. suspended non-critical capital expenditure projects . amended our purchase agreement with airbus which changed the timing of our airbus a321 and a220 deliveries in may and october 2020 resulting in approximately $ 2.0 billion of reduction in aircraft capital expenditures through 2022. suspended share repurchases . obtained $ 963 million of government funding under the payroll support program of the coronavirus aid , relief , and economic security act ( “ cares act ” ) , which is discussed further below . executed a $ 750 million term loan credit facility and immediately drew down on the facility for the full amount available in june 2020. en tered into $ 563 million of sale-leaseb ack transactions ; which is discussed further below . completed public placements of equipment notes in an aggregate principal amount of $ 923 million secured by 49 airbus a321 aircraft in august 2020 , which is discussed further in note 4 to our consolidated financial statements . the net proceeds were primarily used to repay the outstanding borrowings under our 364-day delayed draw term loan facility that was due to be repaid in march 2021. entered into a loan and guarantee agreement , as amended , with the united states department of the treasury ( `` treasury '' ) under the loan program of the cares act which gives us access to loans in an aggregate principal ( 1 ) refer to our `` regulation g reconciliation of non-gaap financial measures '' at the end of this section for more information on this non-gaap measure . 37 amount of up to $ 1.9 billion until may 28 , 2021 , which is discussed further below . we drew down $ 115 million under the loan program on september 29 , 2020. completed the public offering of 42 million shares of our common stock for net proceeds of $ 583 million in december 2020. as a result of these activities , we had cash , cash equivalents , and short-term investments of approximately $ 3.1 billion at december 31 , 2020. we continue to evaluate future financing opportunities in an effort to build additional levels of liquidity . we lowered our cash burn from approximately $ 18 million per day at the end of march 2020 to an average of approximately $ 6.7 million per day during the fourth quarter of 2020. preparing for recovery as the covid-19 pandemic progresses , we have taken a number of steps to position the company for recovery when demand for air travel eventually returns . in june 2020 , we announced the addition of 30 new domestic routes to serve customers in markets where leisure and visiting friends and relatives travel were showing signs of strength . these new routes include daily nonstop mint ® service from newark liberty international airport to both los angeles international airport and san francisco international airport . while the timeline for recovery remains uncertain , these new routes offer us the opportunity to generate revenue , bring aircraft back into service that would otherwise sit idle , and add more flying opportunities of our crewmembers and customers . we believe adding more destinations in these key markets will make us more relevant to travelers and increase customer loyalty . in july 2020 , we announced plans for a multi-year west coast expansion from southern california which includes moving our primary base of operations from long beach airport to los angeles international airport . we plan to grow our operations at los angeles international airport from the average current level of 20 flights per day to approximately 70 flights per day by 2025. also in july 2020 , we announced our intention to enter into a strategic relationship with american airlines group inc. ( `` american '' ) . this arrangement , once fully implemented , will include an alliance agreement with reciprocal code sharing on domestic and international routes from or connecting through new york ( john f. kennedy international airport ( `` jfk '' ) , laguardia airport , and newark liberty international airport ) and boston , excluding jetblue 's future european transatlantic flying . we believe this partnership will create more capacity , seamless connectivity for travelers in the northeast , and offer more choices for customers across the networks of both airlines . in addition , we believe this relationship will also accelerate our recovery as the travel industry adapts to new trends as a result of the covid-19 pandemic . pursuant to federal law , american and jetblue submitted this proposed alliance arrangement to the department of transportation ( `` dot '' ) for review . after american , jetblue and the dot agreed to a series of commitments , the dot terminated its review of the proposed alliance . the commitments include growth commitments to ensure capacity expansion , slot divestitures at jfk and at reagan national airport near washington , d.c. and antitrust compliance measures . beyond this agreement with the dot , american and jetblue will also be limiting their coordination on certain city pair markets within the scope of the alliance . in addition to the dot review , the department of justice and the new york attorney general , the massachusetts attorney general , and the attorneys general of certain other state and local jurisdictions are investigating this proposed alliance , which are ongoing . american and jetblue intend to cooperate with those investigations , but are proceeding with plans to implement this alliance . story_separator_special_tag in september 2020 , we announced plans to launch 24 new routes aimed at immediately capturing traffic on a variety of new , nonstop routes as demand increases . these routes will introduce new non-stop destinations from our focus cities and expand our mint ® service in newark and los angeles . in december 2020 , we announced plans to introduce service in four new destinations as part of a broader plan to add 24 new nonstop routes in the first half of 2021. these new destinations include miami and key west in florida ; guatemala city , guatemala ; and los cabos , mexico . the new services are aimed at capturing traffic where we anticipate customer demand . story_separator_special_tag information on this non-gaap measure . 40 operating expenses replace_table_token_10_th aircraft fuel and related taxes aircraft fuel and related taxes represented 13.5 % of our total operating expenses in 2020 compared to 25.3 % in 2019. the average fuel price decreased 26.8 % in 2020 to $ 1.53 per gallon . our fuel consumption decreased by 53.4 % , or 473 million gallons , due to capacity reductions in response to lower demand as a result of the covid-19 pandemic . we recognized fuel hedge losses of $ 7 million and $ 5 million , in 2020 and 2019 , respectively . these losses were recorded in aircraft fuel and related taxes . we are unable to predict the potential loss from hedge accounting , which is determined on a derivative-by-derivative basis , due to the volatility in the forward markets for these commodities . we have no outstanding fuel hedges as of december 31 , 2020. salaries , wages and benefits salaries , wages and benefits decreased $ 288 million , or 12.4 % in 2020. this decrease was driven primarily by the actions taken as a result of decreased demand for air travel due to the covid-19 pandemic . beginning in march 2020 , we instituted a company-wide hiring freeze , implemented salary reductions for a portion of our crewmembers , including officers , offered voluntary time off programs to our crewmembers , and reduced work hours for all other management workgroups . in june 2020 , we announced voluntary separation programs to our crewmembers , with most departures occurring in the third quarter . we had approximately 20,000 crewmembers as of december 31 , 2020 as compared to approximately 22,500 crewmembers at december 31 , 2019. during 2020 , the average number of full-time equivalent crewmembers decreased by 16.6 % and the average tenure of our crewmembers was 8 years . landing fees and other rents landing fees and other rents include landing fees , which are at premium rates in the heavily trafficked northeast corridor of the u.s. through which a large number of our flights operate . other rents primarily consist of rent for airports in our bluecities . landing fees and other rents decreased $ 116 million , or 24.4 % , in 2020 primarily due to capacity reductions in response to the significant decline in demand beginning in the second half of march 2020 amid the covid-19 pandemic . depreciation and amortization depreciation and amortization primarily include depreciation for our owned and finance leased aircraft , engines , and inflight entertainment systems . depreciation and amortization increased $ 10 million , or 1.8 % , primarily driven by a 3.4 % increase in the average number of aircraft operating in 2020 compared to the same period in 2019. we placed nine airbus a321neo aircraft into service and bought out the lease of one airbus a321 aircraft in 2020. in addition , we also completed the cabin restyle on 21 airbus a320 aircraft . maintenance , materials and repairs maintenance , materials and repairs are generally expensed when incurred unless covered by a long-term flight hour services contract . the average age of our aircraft in 2020 was 11.3 years which is relatively young compared to our competitors . however , as our fleet ages our maintenance costs will increase significantly , both on an absolute basis and as a percentage of our unit costs , as older aircraft require additional , more expensive repairs over time . we had an average of 8.6 additional total operating aircraft in 2020 compared to 2019 . ( 1 ) refer to our `` regulation g reconciliation of non-gaap financial measures '' at the end of this section for more information on this non-gaap measure . 41 in 2020 , maintenance , materials and repairs decreased by $ 178 million , or 28.8 % compared to 2019. the decrease is primarily driven by the covid-19 related reduction in flying and timing of heavy maintenance visits and engine maintenance . other operating expenses other operating expenses consist of the following categories : outside services ( including expenses related to fueling , ground handling , skycap , security , and janitorial services ) , insurance , personnel expenses , professional fees , onboard supplies , shop and office supplies , bad debts , communication costs , and taxes other than payroll and fuel taxes . in 2020 , other operating expenses decreased by $ 344 million , or 31.0 % , compared to 2019 , due to capacity reductions in response to the significant decline in demand beginning in the second half of march 2020 coupled with the benefits from cost saving initiatives implemented amid the covid-19 pandemic . special items in 2020 , special items included the following : contra-expense of $ 685 million , which represents the amount of cares act payroll support grants utilized during the period . contra-expense of $ 36 million related to the recognition of employee retention credits provided by the cares act . impairment charges of $ 273 million on our embraer e190 fleet . losses of $ 106 million related to sale-leaseback transactions . one-time costs of $ 59 million , consisting of severance and health benefits , in connection with our voluntary separation programs .
| reported a net loss of $ ( 1.4 ) billion in 2020 compared to net income of $ 569 million in 2019. our reported ( loss ) per share for full year 2020 was $ ( 4.88 ) compared to reported earnings per diluted share of $ 1.91 in 2019. excluding special items , our adjusted ( loss ) per share ( 1 ) was $ ( 5.65 ) for full year 2020. our adjusted earnings per diluted share ( 1 ) for full year 2019 was $ 1.90. during 2020 , we took delivery of seven airbus a321neo aircraft and our first airbus a220 aircraft . we expect our first airbus a220 aircraft to enter into service in early 2021. outlook for 2021 the length and severity of the reduction in demand due to the covid-19 pandemic is uncertain ; accordingly , we expect the adverse impact to continue in the first quarter of 2021 and beyond . the exact timing and pace of the recovery is uncertain given the significant impact of the pandemic on the overall u.s. and global economy . we expect the demand environment to remain depressed until the majority of the u.s. population is vaccinated against covid-19 and the medical community lifts the current physical distancing guidelines . our response to the pandemic and the measures we take to secure additional liquidity may be modified as we have more clarity in the timing of demand recovery . we will continue to monitor customer behaviors as they evolve throughout the pandemic . we plan to make strategic adjustments to our network , as necessary , to maximize revenue potential and accelerate recovery . ( 1 ) refer to our `` regulation g reconciliation of non-gaap financial measures '' at the end of this section for more information on this non-gaap measure . 39 results of operations 2020 compared to 2019 overview we reported a net ( loss ) of $ ( 1.4 ) billion , an operating ( loss ) of $ ( 1.7 ) billion and operating margin of ( 58.0 ) % for the year ended december 31 , 2020. this compares to net income of $ 569 million , operating income of $ 800 million , and operating margin of 9.9 % for the year ended december 31 , 2019. our ( loss ) per share was $ ( 4.88 ) for 2020 compared to earnings of $ 1.91 per diluted share for 2019. our 2020 and 2019 reported results included the effects of special items . adjusting for these one-time items ( 1 ) , our adjusted net ( loss ) was $ ( 1.6 ) billion , operating ( loss ) was $ ( 2.0 ) billion , and our adjusted
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additionally , we agreed to issue to the class warrants for the purchase of 2.0 million shares of our common stock , which we refer to as the settlement warrants , exercisable from the date of issue until the expiration of a one-year period after the date of issue at an exercise price equal to the closing price on december 22 , 2017 , the trading day prior to the execution of the mou , which was $ 3.00 per share . the settlement is subject to notice to the class and final approval of the district court . the settlement shall be effective on the date , or the effective date , on which all of the following circumstances have occurred : ( a ) a final judgment containing the requisite release of claims has been entered by the district court ; ( b ) no appeal is pending with 73 respect to the final judgment ; ( c ) the final judgment has not been reversed , modified , vacated or amended ; ( d ) the time to file any appeal from the final judgment has expired without the filing of an appeal or an order dismissing the appeal or affirming the final judgment has been entered , and any time to file a further appeal ( including a writ of certiorari or for reconsideration of the appeal ) has expired ; and ( e ) the mou and any settlement agreement with respect to the claims released in the final judgment have not expired or been terminated . we have agreed to use our best efforts to issue and deliver the settlement warrants within ten business days following the effective date . a hearing by the district court for final approval of the s tipulation has been scheduled for may 30 , 2018. strategic partnerships canbridge in march 2016 , we entered into a collaboration and license agreement with canbridge , or the canbridge agreement , under which we granted canbridge the exclusive right to develop , manufacture and commercialize av-203 , our proprietary erbb3 ( her3 ) inhibitory antibody , for the diagnosis , treatment and prevention of disease in humans and animals in all countries other than the united states , canada and mexico . under the terms of the canbridge agreement , if we determine to grant a license to any erbb3 inhibitory antibody in the united states , canada or mexico , we are obligated to first negotiate with canbridge for the grant to canbridge of a license to such rights . the parties have both agreed not to directly or indirectly develop or commercialize any other erbb3 inhibitory antibody product during the term of the canbridge agreement other than pursuant to the canbridge agreement . canbridge has responsibility for all activities and costs associated with the further development , manufacture , regulatory filings and commercialization of av-203 throughout its licensed territory . canbridge is obligated to use commercially reasonable efforts to develop and obtain regulatory approval for av-203 in each of china , japan , the united kingdom , france , italy , spain , and germany . canbridge will bear all costs for development of av-203 through proof-of-concept in esophageal squamous cell carcinoma , after which we would expect to contribute to certain worldwide development costs . pursuant to the canbridge agreement , canbridge paid us an upfront fee of $ 1.0 million in april 2016. canbridge also agreed to reimburse us $ 1.0 million for certain manufacturing costs and expenses that we previously incurred . canbridge paid this manufacturing reimbursement in two installments of $ 0.5 million each , including one in march 2017 and one in september 2017 , net of foreign withholding taxes . we are also eligible to receive up to $ 42.0 million in potential development and regulatory milestone payments and up to $ 90.0 million in potential sales based milestone payments based on annual net sales of licensed products . in december 2017 , canbridge filed an ind with the china food and drug administration for a phase 1b / iii clinical study of av-203 in esophageal squamous cell cancer . upon commercialization , we are eligible to receive a tiered royalty , with a percentage range in the low double-digits , on net sales of approved licensed products . canbridge 's obligation to pay royalties for each licensed product expires on a country-by-country basis on the later of the expiration of patent rights covering such licensed product in such country , the expiration of regulatory data exclusivity in such country and ten years after the first commercial sale of such licensed product in such country . a percentage of any milestone and royalty payments received by us , excluding upfront and reimbursement payments , are due to biogen idec international gmbh , or biogen idec , as a sublicensing fee under our option and license agreement with biogen dated march 18 , 2009 , as amended . the term of the canbridge agreement commenced on the effective date and will continue until the last to expire royalty term applicable to licensed products . either party may terminate the canbridge agreement in the event of a material breach of the canbridge agreement by the other party that remains uncured for a period of 45 days , in the case of a material breach of a payment obligation , and 90 days in the case of any other material breach . canbridge may terminate the canbridge agreement without cause at any time upon 180 days ' prior written notice to us . we may terminate the canbridge agreement upon thirty days ' prior written notice if canbridge challenges any of the patent rights licensed to canbridge under the canbridge agreement . story_separator_special_tag eusa in december 2015 , we entered into a license agreement with eusa under which we granted to eusa the exclusive , sublicensable right to develop , manufacture and commercialize tivozanib in the territories of europe ( excluding russia , ukraine and the commonwealth of independent states ) , latin america ( excluding mexico ) , africa , australasia and new zealand for all diseases and conditions in humans , excluding non-oncologic eye conditions . eusa is obligated to use commercially reasonable efforts to seek regulatory approval for and commercialize tivozanib throughout its licensed territories for rcc . with the exception of certain support to be provided by us prior to the grant of marketing approval by the ema , eusa has responsibility for all activities and costs associated with the further development , manufacture , regulatory filings and commercialization of tivozanib in its licensed territories . 74 under the license agreement , eusa made research and development reimbursement payments to us of $ 2.5 million upon the execution of the license agreement in 2015 and $ 4.0 million in september 2017 upon its receipt of marketing approval from the ema for tivozanib ( fotivda ) for the treatment of rcc . in september 2017 , eusa elected to opt-in to co-develop the tinivo trial . as a result of eusa 's exercise of its opt-in right , it became an active participant in the ongoing conduct of the tinivo trial and is able to utilize the resulting data from the tinivo trial for regulatory and commercial purposes in its territories . eusa made an additional research and development reimbursement payment to us of $ 2.0 million upon its exercise of its opt-in right . this payment was received in october 2017 , in advance of the completion of the tinivo trial , and represents eusa 's approximate 50 % share of the total estimated costs of the tinivo trial . we are also eligible to receive an additional research and development reimbursement payment from eusa of fifty percent ( 50 % ) of our total costs for our tivo-3 trial , up to $ 20.0 million , if eusa elects to opt-in to that study . we are entitled to receive milestone payments of $ 2.0 million per country upon reimbursement approval , if any , for rcc in each of france , germany , italy , spain and the united kingdom , and an additional $ 2.0 million for the grant of marketing approval , if any , in three of the following five countries : argentina , australia , brazil , south africa and venezuela . in february 2018 , eusa obtained reimbursement approval from the nice in the uk in first line rcc . accordingly , we earned a $ 2.0 million milestone payment that was received from eusa in march 2018. we are also eligible to receive a payment of $ 2.0 million in connection with a filing by eusa with the ema for marketing approval , if any , for tivozanib for the treatment of each of up to three additional indications and $ 5.0 million per indication in connection with the ema 's grant of marketing approval for each of up to three additional indications , as well as up to $ 335.0 million upon eusa 's achievement of certain sales thresholds . upon commercialization , we are eligible to receive tiered double-digit royalties on net sales , if any , of licensed products in its licensed territories ranging from a low double digit up to mid-twenty percent depending on the level of annual net sales . in november 2017 , we began earning sales royalties upon eusa 's commencement of the first commercial launch of tivozanib ( fotivda ) with the initiation of product sales in germany . the research and development reimbursement payments under the eusa license agreement are not subject to the 30 % sublicensing payment to khk , subject to certain limitations . we would , however , owe khk 30 % of other , non-research and development payments we may receive from eusa pursuant to our license agreement , including eu reimbursement approval milestones in up to five specified eu countries , eu marketing approvals for up to three additional indications beyond rcc , marketing approvals in up to three specified licensed territories outside of the eu , sales-based milestones and royalties , as set forth above . the $ 2.0 million milestone we earned in february 2018 upon eusa 's reimbursement approval from the nice in the uk in first line rcc is subject to the 30 % khk sub-license fee , or $ 0.6 million . the term of the license agreement commenced on the effective date and will continue on a product-by-product and country-by-country basis until the later to occur of ( a ) the expiration of the last valid patent claim for such product in such country , ( b ) the expiration of market or regulatory data exclusivity for such product in such country or ( c ) the 10 th anniversary of the effective date . either party may terminate the license agreement in the event of the bankruptcy of the other party or a material breach by the other party that remains uncured , following receipt of written notice of such breach , for a period of ( a ) thirty ( 30 ) days in the case of breach for nonpayment of any amount due under the license agreement , and ( b ) ninety ( 90 ) days in the case of any other material breach . eusa may terminate the license agreement at any time upon one hundred eighty ( 180 ) days ' prior written notice . in addition , we may terminate the license agreement upon thirty ( 30 ) days ' prior written notice if eusa challenges any of the patent rights licensed under the license agreement .
| million in lower ficlatuzumab expenses , primarily related to the discontinuation of the focal trial in october 2016. the $ 0.4 million net increase in tivozanib expenses included an increase of $ 1.3 million , primarily related to the advancement of the tivo-3 and tinivo trials , partially offset by a $ 0.9 million reduction related to cost sharing provided by eusa in connection with the tinivo trial . in september 2017 , eusa elected to opt-in to co-develop the ongoing tinivo trial and made a research and development reimbursement payment to us of $ 2.0 million that was received in october 2017 , in advance of the completion of the tinivo trial , and represents eusa 's approximate 50 % share of the total estimated costs of the tinivo trial . in 2017 , we recognized an approximate $ 0.9 million reduction in research and development expenses related to eusa 's approximate 50 % share of the cumulative study-to-date costs incurred as of december 31 , 2017 a s the tinivo trial was ongoing at the time eusa made its opt-in election and eusa paid the $ 2.0 million maximum amount of cost sharing per the license agreement in advance . the remaining $ 1.1 million in prepaid cost sharing was classified as deferred research and development reimbursements as of december 31 , 2017 and will continue to be recognized as a reduction in research and development expenses as the related tinivo trial costs are incurred over the duration of the trial . the $ 1.4 million increase in av-380 expense is principally due to $ 1.8 million in research and development expense that was recognized in the first quarter of 2017 in connection with a time-based milestone obligation due to st. vincent 's . in the first quarter of 2016 , w.e recognized approximately $ 0.4 million in research and development expense in connection with
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the pipeline is supported by a network of deep injection disposal wells which we believe is not only an efficient solution for our customers , but also provides us with a strategic competitive position . the fiberglass produced water pipeline has the capacity to transport up to 120,000 barrels per day of produced water . the increased capacity and reliability of the fiberglass pipeline will allow us to expand the line further east to gain more produced water in the future through additional laterals tied directly to our customers ' wells and through the construction of an additional trucking terminal at the east end of the pipeline . story_separator_special_tag continuing operations our net loss for the year ended december 31 , 2011 was $ 0.1 million compared to $ 10.3 million for the year ended december 31 , 2010 , primarily as a result of the items referred to above . loss from discontinued operations our net loss from discontinued operations for the year ended december 31 , 2011 was approximately $ 22.9 million compared to a net loss of $ 4.4 million for the year ended december 31 , 2010. the increased loss was attributable to our september 30 , 2011 sale and abandonment of our china water business ( see note 12 ) . year ended december 31 , 2010 compared to the year ended december 31 , 2009 replace_table_token_7_th revenue revenue for the year ended december 31 , 2010 were $ 15.2 million , which represents revenues from our water solutions for energy development business as compared to net sales for the year ended december 31 , 2009 32 of $ 3.8 million . revenues for the year ended december 31 , 2010 from water disposal operations were significantly greater than the year ended december 31 , 2009 , reflecting full year revenues from the july 2009 acquisition of hwr and one month of sales from the november 2010 acquisition of cvr . revenues from water disposal operations were negatively impacted for the year ended december 31 , 2010 as a result of start-up and commissioning activities discussed below . cost of sales and gross profit the cost of sales for the year ended december 31 , 2010 was $ 11.3 million , resulting in total gross profit of $ 3.9 million , or 25.7 % of sales . all of the gross profit was attributable to water disposal revenues . the cost of goods sold for the year ended december 31 , 2009 was $ 2.1 million , resulting in total gross profit of $ 1.7 million , or 45.0 % of sales . all of this gross profit was attributable to water disposal revenues . gross profits were lower than expected due to interruptions encountered as a result of start-up and commissioning activities on the haynesville pipeline during the second and third quarters of 2010. operating expenses operating expenses for the year ended december 31 , 2010 totaled $ 23.4 million , compared to $ 9.2 million for the year ended december 31 , 2009. operating expense for the year ended december 31 , 2010 included pipeline start-up and commissioning costs of approximately $ 11.8 million resulting from anomalies in certain segments of the haynesville pipeline . accordingly , we reduced the operating pressures below normal operating pressures as we performed additional testing procedures and remediated the anomalies . the pressure reductions and shutdowns that were undertaken to remediate anomalies reduced throughput and adversely impacted our operating costs and revenues during the year ended december 31 , 2010. general and administrative expenses for the year ended december 31 , 2010 were $ 11.6 million which included approximately $ 1.0 million of stock based compensation and amortization expense of approximately $ 1.2 million . general and administrative expenses for the year ended december 31 , 2009 were $ 9.2 million which included approximately $ 2.9 million of stock based compensation and amortization expense of approximately $ 0.1 million . in addition , during the first quarter of 2009 , we adopted the financial accounting standard board 's or fasb revised authoritative guidance for business combinations , which requires that acquisition related costs be expensed in the period in which the costs are incurred . this differs from previous accounting treatment in which acquisition related expenses were included as part of the purchase price of an acquired company . we incurred approximately $ 0.2 million in acquisition related costs in connection with our acquisition by hwr of our saltwater disposal and transport business in the year ended december 31 , 2009 , and approximately $ 0.5 million in acquisition related costs in connection with our acquisition of cvr in the year ended december 31 , 2010. loss from operations loss from operations was $ 19.5 million and $ 7.5 million for december 31 , 2010 and 2009 , respectively , primarily as a result of the items mentioned above . interest income , net during the years ended december 31 , 2010 and 2009 , we recorded interest income on invested funds of approximately $ 2.1 million and $ 3.9 million , respectively . the decrease was primarily due to lower interest rates for invested funds and lower investment balances in 2010 compared to 2009. loss from equity investment during the year ended december 31 , 2010 , we recorded a loss of approximately $ 0.7 million representing the company 's 50 % interest in a joint venture . the joint venture was subsequently terminated on july 8 , 2011 . 33 other income , net during the year ended december 31 , 2010 , we recorded other income of approximately $ 4.4 million compared to other income of $ 0.1 million for the same period in 2009. the increase was primarily attributable to a $ 4.2 million change in the fair value of the contingent consideration associated with the performance based earn-out related to the charis acquisition . story_separator_special_tag as a result of pipeline start-up and commissioning expenses incurred in the twelve months ended december 31 , 2010 , management determined that the earn-out obligation related to the 2010 profitability target for the charis acquisition would not be met . income tax benefit the income tax benefit for the year ended december 31 , 2010 was approximately $ 3.4 million related primarily to losses sustained from pipeline start-up and commissioning expenses during the year . the income tax benefit for the year ended december 31 , 2009 was approximately $ 80,000. loss from continuing operations our net loss from continuing operations for the year ended december 31 , 2010 was $ 10.3 million compared to $ 3.3 million for the year ended december 31 , 2009. the change relates primarily to the items mentioned above . loss from discontinued operations our loss from discontinued operations for the year ended december 31 , 2010 was $ 4.4 million compared to a loss of $ 392.0 million for the year ended december 31 , 2009. the increased 2009 loss relates primarily to the $ 357.5 million non-cash goodwill impairment charge based upon finalizing our goodwill analysis on the china water acquisition , a $ 6.8 million impairment to the carrying value of fixed assets related to the closure of the beijing bottled water factory , which was acquired by china water prior to october 30 , 2008 , $ 5.3 million of expense related to the deconsolidation of shen yang aixin , $ 4.5 million of reimbursements made to xu hong bin , the former president and chairman of china water , that were previously capitalized , $ 9.3 million of bad debt expense , a $ 3.9 million loss on disposal of property , plant and equipment , and provisions for liabilities of $ 1.3 million . net loss our net loss for the year ended december 31 , 2010 was $ 14.7 million compared to $ 395.4 million for the year ended december 31 , 2009. the change relates primarily to the items mentioned above . capital expenditures during the year ended december 31 , 2011 , we made capital expenditures totalling $ 150.9 million , including an expansion of our fleet of trucks and trailers , additional salt water disposal wells and construction of a pipeline in the haynesville shale area . our capital expenditures , excluding acquisitions , are expected to be approximately $ 70.0 million for 2012. a significant portion of our planned capital expenditures can be adjusted to reflect changes in our expectations for future customer spending and we will manage these investments to match market demand . liquidity and capital resources we require cash to fund our operating expenses and working capital requirements , including outlays for capital expenditures , strategic acquisitions and investments , repurchases of our securities , and lease payments . our primary sources of liquidity are cash on hand and cash generated from operations and from our new credit facility . cash generated from operations is a function of such factors as changes in demand for our products and services , competitive pricing pressures , effective management of the utilization of our assets , our ability to 34 achieve reductions in operating expenses , and the impact of integration on our productivity . we seek to preserve our cash balances by investing in marketable securities consisting of high grade corporate notes and united states government securities purchased in accordance with our investment policy , which allows us to invest and reinvest in united states government securities having a maturity of five years or less , and other obligations of united states government agencies and instrumentalities , including government sponsored enterprises , commercial paper , corporate notes and bonds , short term instruments that are direct obligations of issuers , long term instruments that are direct obligations of issuers , and municipal notes and bonds with a maturity of five years or less . we avoid any involvement with mortgage backed securities , collateralized mortgage obligations , auction rate securities , collateralized debt obligations , credit default swaps and similar high risk and or exotic financial instruments . however , as required pursuant to the terms of our new credit facility , we maintain a floating-to-fixed interest rate swap in the notional amount of $ 35.0 million . any decisions regarding the size of individual investments or their composition must comply with our investment policy with the intent to yield higher obtainable returns with the understanding that the investment may need to be liquidated in the near term to consummate strategic business combinations . as of december 31 , 2011 , we had cash and cash equivalents of approximately $ 80.2 million , and approximately $ 5.2 million of marketable securities , for an aggregate of approximately $ 85.4 million in cash and cash equivalents and short-term investments . in addition , we had outstanding borrowings under our new credit facility of $ 140.2 million , with up to $ 59.8 million available thereunder for future borrowings assuming exercise of the uncommitted accordion feature. under our new credit facility , we are required to maintain at least $ 20.0 million in cash and cash equivalents at all times as well as to comply with certain financial covenants . as of december 31 , 2011 we were in compliance with these covenants . we believe that our cash , cash equivalents , investments and availability on our revolving line of credit under our new credit facility will be sufficient to facilitate planned capital expenditures that we may undertake this year . we may , however , seek to raise additional financing during the next twelve months in order to support our growth , including possible acquisitions , or to maintain a strong balance sheet with sufficient cash and liquidity . however , there can be no assurance that our liquidity will be adequate over time . our capital expenditures may be greater than we expect if we decide to bring capacity on line more rapidly .
| revenues from our pipeline operations were negatively impacted during 2011 as a result of start-up and commissioning activities discussed below . cost of sales and gross profit cost of sales for the year ended december 31 , 2011 was $ 123.5 million , resulting in total gross profit of approximately $ 33.3 million , or 21.3 % of revenue . cost of sales for the year ended december 31 , 2010 was $ 11.3 million , resulting in total gross profit of $ 3.9 million , or 25.5 % of sales . included in cost of sales for the years ended december 31 , 2011 and 2010 is depreciation expense of approximately $ 21.4 million and $ 3.4 million , respectively . the significantly higher depreciation expense in 2011 is attributable to the acquisitions in 2011 and 2010 ( see note 3 ) and capital expenditures . operating expenses operating expenses for the year ended december 31 , 2011 totaled $ 38.7 million , compared to $ 23.4 million for the year ended december 31 , 2010. operating expenses in 2011 included approximately $ 2.4 million of stock-based compensation , amortization expense of approximately $ 3.9 million , a $ 2.2 million increase to the bad debt reserve , and approximately $ 2.1 million of start-up and commissioning costs related to our underground pipeline in the haynesville shale area . also included in operating expenses for the year ended december 31 , 2011 was approximately $ 0.9 million of transaction costs associated with the acquisitions completed in the second quarter of 2011. operating expenses for the year ended december 31 , 2010 included pipeline start-up and commissioning costs of approximately $ 11.8 million resulting from repairs and remediation of certain segments of the haynesville pipeline , amortization expense of $ 1.2 million , stock-based compensation expense of $ 1.0 million and $ 0.5 million in transaction costs related to the cvr acquisition . excluding these items , general and administrative expense increased largely due to the impact of the 2010 and 2011 acquisitions as well as increased
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as a result , our customers agreed to price increases in 2017 , and we activated additional idle fleets to meet this demand . business outlook we anticipate that customer activity levels will remain strong into 2018 , which should provide us an opportunity to activate additional fleets at favorable operating margins . we are also focused on minimizing cost inflation in this environment to optimize our operating margins . story_separator_special_tag style= '' margin:0in 0in .0001pt ; text-indent : .5in ; '' > 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 replace 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 have become comprised of refurbished assets in recent years , our depreciation has 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 . total costs of revenue in 2016 decreased by $ 800.8 million from 2015. this decrease was primarily due to a decrease in our costs of revenue , excluding depreciation , and a decrease in the depreciation expense for our service equipment . costs of revenue , excluding depreciation , in 2016 decreased by $ 747.4 million from 2015. this decrease was due to our lower number of active fleets during 2016 in response to lower customer activity and well completion levels ; lower prices for materials used in the fracturing process in 2016 ; the effect of our cost reduction initiatives in 2016 , which resulted in significant savings in labor and repair costs ; and changes in customer job requirements in 2016. depreciation for our service equipment in 2016 decreased by $ 53.4 million from 2015. this decrease was the result of asset impairments , asset disposals and certain assets becoming fully depreciated . additionally , in recent years we have chosen to refurbish our equipment as it approaches the end of its useful life , rather than to replace it by purchasing new equipment . the cost of refurbishing our equipment is significantly lower than it would be to purchase new equipment . as more of our fleet has become comprised of refurbished assets in recent years , our depreciation has correspondingly declined . total costs of revenue as a percentage of total revenue increased by 12.0 percentage points from 102.5 % in 2015 to 114.5 % in 2016. this change was primarily due to increased price concessions we extended to our customers in 2016 , which have been partially offset by a lower number of active fleets in 2016 , lower material costs ; and our cost reduction initiatives . our total costs of 35 revenue exceeded our total revenue during these periods primarily due to the price concessions we have extended to our customers during these periods . selling , general and administrative expense 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. selling , general and administrative expense in 2016 decreased by $ 90.3 million from 2015. approximately $ 60 million of this decrease was related to a decrease in employee headcount in connection with the downturn in our business . approximately $ 10 million of this decrease was due to lower legal costs . the remaining decrease was primarily the result of our various cost saving initiatives . 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 . ( 3 ) related to definite-lived intangible assets that were written down to zero during the year ended december 31 , 2015. depreciation and amortization in 2017 decreased by $ 26.0 from 2016. this decrease was primarily due to a decrease in depreciation for our service equipment , which has been previously discussed . the remaining decrease was primarily due to asset disposals and certain assets becoming fully depreciated . depreciation and amortization in 2016 decreased by $ 159.8 million from 2015. this decrease was primarily due to the cessation of amortization associated with the intangible assets that were impaired during the year ended december 31 , 2015 , and the decrease in depreciation for our service equipment which has been previously discussed . the remaining decrease was primarily due to asset disposals and certain assets becoming fully depreciated . impairments and other charges the following table summarizes our impairments and other charges : replace_table_token_8_th impairment of assets and goodwill : 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 . during the first nine months of 2015 , we recorded a non-cash 36 goodwill impairment of $ 7.1 million for our wireline reporting unit and an asset impairment of $ 0.5 million related to real property that we no longer use . story_separator_special_tag in the fourth quarter of 2015 , we concluded that the persistent low commodity price environment and its effect on our current and forecasted cash flows required us to perform multiple asset impairment tests . as a result , we recorded a number of asset impairments in the fourth quarter of 2015 . · we evaluated the long-lived assets of our pressure pumping asset group for impairment and concluded that the fair value of this asset group was lower than the carrying value of the assets in the asset group . we recognized a total impairment for this asset group of $ 487.0 million . of this amount , $ 461.4 million was attributable to our customer relationships , $ 20.6 million was attributable to certain equipment , and $ 5.0 million was attributable to our proprietary chemical blends . · we evaluated the long-lived assets of our wireline asset group for impairment and concluded that the fair value of this asset group was lower than the carrying value of the assets in the asset group . we recognized a total impairment for this asset group of $ 33.3 million . of this amount $ 24.2 million was attributable to certain equipment and $ 9.1 million was attributable to our customer relationships . · we evaluated our tradename intangible asset for impairment and concluded that the fair value of this asset was lower than its carrying value , which resulted in an impairment of $ 30.2 million . · we recorded $ 14.8 million of impairments for certain land and buildings that we no longer use . supply commitment charges : we have recorded supply commitment charges related to contractual inventory purchase commitments to certain proppant suppliers . in 2017 , 2016 and 2015 , we recorded charges under these supply arrangements of $ 1.2 million , $ 2.5 million and $ 11.0 million , respectively . these charges were attributable to our decreased volume of purchases from these suppliers due to our lower activity levels and or certain customers procuring their own proppants . while we have successfully worked with our vendors to minimize charges related to these purchase commitments , if industry conditions worsen , if customer requirements for specific types of proppant differ from our contracted supply , or if we are unable to work with our vendors in the future , we may incur supply commitment charges in future periods . lease abandonment charges : during 2016 and 2015 , we vacated certain leased facilities to consolidate our operations . in 2017 , 2016 and 2015 , we recognized expense of $ 0.6 million , $ 2.0 million and $ 1.8 million , respectively , in connection with these actions . employee severance costs : during 2016 and 2015 , we incurred employee severance costs of $ 0.8 million and $ 13.1 million , respectively , in connection with our corporate and operating restructuring initiatives . at december 31 , 2016 , we had paid substantially all severance payments owed to former employees . inventory write-down : during 2015 , we made improvements to our supply chain that reduced our inventory requirements . in connection with this initiative we executed a program to liquidate excess inventory . we recorded a $ 24.5 million inventory write-down charge in connection with this liquidation program . acquisition earn-out adjustments : in 2015 , we remeasured the fair value of the contingent consideration related to a wireline acquisition and we recorded adjustments to reduce this liability by $ 3.4 million . at december 31 , 2015 and december 31 , 2016 , the fair value of the contingent consideration was zero and the period to earn the contingent consideration expired on october 31 , 2016. 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 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 . 37 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 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. interest expense , net of interest income , in 2016 increased by $ 10.3 million from 2015. the increase was due to a higher average long-term debt balance and a higher average interest rate in 2016 for our senior floating rate notes due june 2020. gain on extinguishment of debt , net 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 estimated the total cost to reactivate all of our inactive fleets , as of december 31 , 2017 , would be approximately $ 34 million , including capital expenditures , repairs charged as operating expense , labor costs , and other operating expenses . the increase in revenue from related parties in 2017 were due to increases in the activity levels for chesapeake . total revenue in 2016 decreased by $ 843.1 million from 2015. this decrease was due to a lower pricing environment for both our services and fracturing materials in 2016 , lower customer activity and well completion levels in 2016 , resulting in fewer stages completed , and certain customers choosing to procure their own proppants in 2016. we began extending price concessions to our customers in the first quarter of 2015 as a result of the decline in oil and gas commodity prices that began in 2014. our customers significantly reduced their hydraulic fracturing activities in response to the lower commodity price environment . this reduction in activity levels created an oversupply of service providers in our industry and , 34 consequently , market prices for our services declined significantly . in response to the lower pricing environment and lower customer activity levels , we reduced the number of fleets operating during 2016 by an average of 7.4 fleets . however , in 2016 we improved our ability to operate our active fleets with less downtime which increased the number of stages we completed per average active fleet . the decrease in revenue from related parties in 2016 was due to a decrease in the activity levels for chesapeake . costs of revenue the primary costs involved in conducting our hydraulic fracturing services are costs for materials used in the fracturing process and costs to operate , maintain , and repair our fracturing equipment . costs related to the materials used in the fracturing process typically include costs for sand and other proppants , costs for chemicals added to the fracturing fluid , and freight costs to transport these materials
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in january 2019 , the company 's board of directors authorized the company to repurchase up to $ 4 billion of its outstanding common stock over a two-year period . this new program replaced the remaining amounts available under the april 2018 authorization of $ 3 billion . during 2018 , 2017 and 2016 , the company repurchased $ 1,306 million , $ 323 million and $ 318 million of the company 's outstanding common stock , respectively , under authorized share repurchase programs . the company believes that it has the financial flexibility to fund these share repurchases given current cash and investment levels and debt borrowing capacity , as well as to invest in research , technology and business acquisitions to further grow the company 's sales and profits . during 2018 , the company entered into $ 300 million of u.s.-to-euro interest rate cross-currency swap agreements that hedge the company 's net investment in its euro denominated net assets . as a result of entering into these agreements , the company lowered its net interest expense by $ 3 million during 2018. the company anticipates that these swap agreements will lower net interest expense by approximately $ 9 million annually in 2019 and 2020 , and less in 2021 as the three year term of the agreements expire . in january 2019 , the company made organizational changes to better align our resources with our growth and innovation strategies , resulting in a worldwide workforce reduction , impacting 1 % of the company 's employees . the company currently estimates that it will incur approximately $ 15 million of severance and related costs during 2019. results of operations sales by geography geographic sales information is presented below for the years ended december 31 , 2018 , 2017 and 2016 ( dollars in thousands ) : replace_table_token_5_th in 2018 , sales in china increased across all product lines and were driven by double-digit increases in sales to pharmaceutical , governmental and academic customers . the effect of foreign currency translation increased sales in japan by 2 % in 2018 and sales growth was also driven by increased sales to pharmaceutical and industrial customers . the sales decline in the rest of asia in 2018 was a result of lower customer demand in india and weaker sales to environmental customers in the first quarter of 2018. in 2018 , sales growth in europe was driven by ta 's products and services and recurring revenues to pharmaceutical and industrial customers . in 30 addition , the effect of foreign currency translation increased sales in europe by 3 % in 2018. sales growth in the u.s. in 2018 was driven by recurring revenues and ta instruments . sales in the rest of the americas had double-digit sales growth for instrument systems and double-digit sales growth for pharmaceutical customers , which was offset by a decline in sales to industrial customers . in 2017 , the sales growth in asia was driven by double-digit increases in china 's sales across all product and customer classes . the increase in asia other in 2017 was driven by strong sales in india across all product and customer classes . japan 's sales in 2017 were flat as the effect of foreign currency decreased sales by 3 % . japan 's sales in 2017 were driven by recurring revenue sales to governmental and academic customers . europe 's sales in 2017 were balanced across all product lines and driven by sales to pharmaceutical , governmental and academic customers . sales growth in the u.s. in 2017 was driven by ta instrument system sales and recurring revenues . in 2017 , sales to the rest of the world were impacted by a decrease in demand from industrial customers resulting from recent natural disasters . net sales by customer class are presented below for the years ended december 31 , 2018 , 2017 and 2016 ( dollars in thousands ) : replace_table_token_6_th in 2018 , sales to pharmaceutical customers were driven by recurring revenues , with double-digit growth in china , canada and latin america . sales growth for the industrial market in 2018 was driven by ta products and services , and mid-single-digit sales growth in europe , japan and india . the increase in sales to governmental and academic customers in 2018 was broad-based across all product classes and geographies , with double-digit growth in china , india and canada . in 2017 , the growth within our pharmaceutical market was driven by double-digit growth in china , india and europe . sales growth to the industrial market in 2017 was highest in china and india , with modest growth in other regions offset by flat sales in the americas . the increase in sales to governmental and academic customers in 2017 was broad-based across all geographies , with double-digit growth in europe and the americas . waters products and services net sales net sales for waters products and services are as follows for the years ended december 31 , 2018 , 2017 and 2016 ( dollars in thousands ) : replace_table_token_7_th precision chemistry consumables sales increased in both 2018 and 2017 on the uptake in columns and application-specific testing kits . waters service sales in both 2018 and 2017 benefited from increased sales of 31 service plans and higher service demand billings to a higher installed base of customers . the increase in waters instrument system sales ( lc and ms technology-based ) in 2018 is primarily attributable to sales of lc systems , while sales growth in 2017 was driven by higher sales of lc-ms systems that incorporate the company 's tandem quadrupole technologies . the effect of foreign currency translation had a minimal impact on waters sales in both 2018 and 2017. in 2018 , waters sales increased 7 % in asia , 4 % in europe and 2 % in the americas . waters sales increased 15 % in china in 2018 and were broad-based across all product classes , with double-digit increases in sales to pharmaceutical , governmental and academic customers . story_separator_special_tag waters sales in japan in 2018 increased 5 % , with the effect of foreign currency translation increasing sales 2 % . sales in the rest of asia declined 2 % in 2018 , primarily due to lower customer demand in india and a negative 2 % impact of foreign currency translation . in the americas , u.s. sales increased 1 % in 2018. in 2017 , waters sales increased 10 % in both europe and asia and were flat in the americas . waters sales increased 16 % in china and were broad-based across all product and customer classes . waters sales in japan decreased 1 % , primarily due to foreign currency translation , which decreased sales by 3 % . waters sales in the rest of asia increased 8 % and were driven by recurring revenues across all customer classes . ta product and services net sales net sales for ta products and services are as follows for the years ended december 31 , 2018 and december 31 , 2017 ( dollars in thousands ) : replace_table_token_8_th ta 's instrument system sales were broad-based across all product classes in 2018 , while 2017 instrument system sales grew primarily from the discovery product line of thermal instrument systems . in addition , ta 's rheology instrument systems saw strong performance across the entire range of products in the portfolio in 2017 , driven by the discovery hybrid rheometer and rubber rheometer instrument systems . ta service sales increased in both 2018 and 2017 due to sales of service plans and billings to a higher installed base of customers . the effect of foreign currency translation and recent acquisitions had a minimal impact on ta 's sales in both 2018 and 2017. in 2018 , ta sales increased 9 % in the americas , 8 % in europe and 5 % in asia . ta sales in the u.s. increased 9 % in 2018 , while sales in the rest of the americas increased 8 % . ta 's sales in asia were driven by double-digit sales growth in india and 8 % sales growth in china , which was offset by declines in japan . in 2017 , ta sales increased 14 % in asia , 11 % in europe and 5 % in the americas . ta achieved double-digit sales growth in asia , with the exception of japan , where a 5 % sales growth included a 2 % negative impact of foreign currency translation . ta sales in the u.s. in 2017 increased 8 % , while sales in the rest of the americas declined after strong sales in the prior year . cost of sales the increases in cost of sales for both 2018 and 2017 were consistent with the increase in sales volumes . the effect of foreign currency translation had a minimal impact on cost of sales in both 2018 and 2017. cost of sales is affected by many factors , including , but not limited to , foreign currency translation , product mix , product costs of instrument systems and amortization of software platforms . at current foreign currency exchange rates , the company expects that the impact of foreign currency translation may decrease sales and gross profit during 2019 . 32 selling and administrative expenses selling and administrative expenses decreased 1 % in 2018 and increased 6 % in 2017. the decrease in 2018 was primarily due to the impact of $ 13 million of severance costs incurred in 2017 in connection with the closure of a facility in germany and an early retirement transition incentive program . the effect of foreign currency translation increased selling and administrative expenses by 3 % in 2017 and had a minimal impact in 2018. in addition , selling and administrative expenses in both 2018 and 2017 were impacted by headcount additions and higher merit compensation costs , as well as $ 1 million and $ 4 million , respectively , of stock compensation expense related to the modification of certain stock awards upon the retirement of senior executives . as a percentage of net sales , selling and administrative expenses were 22.2 % , 23.6 % and 23.6 % for 2018 , 2017 and 2016 , respectively . research and development expenses research and development expenses increased 8 % and 6 % in 2018 and 2017 , respectively . research and development expenses in both 2018 and 2017 were impacted by additional headcount , merit compensation and costs associated with new products and the development of new technology initiatives . in addition , the effect of foreign currency translation reduced research and development expenses by 4 % in 2017 , primarily due to the weakening of the british pound on the company 's u.k.-based research and development expenses . foreign currency translation had a minimal impact on research and development costs in 2018. litigation settlement in the second quarter of 2017 , the company incurred an $ 11 million litigation provision related to the issuance of a verdict in a patent litigation case . in the first quarter of 2018 , the company resolved the case with a final settlement that resulted in a gain of $ 2 million . acquired in-process research and development during 2017 , the company incurred charges of $ 5 million for acquired in-process research and development related to milestone payments associated with a licensing arrangement for certain intellectual property relating to mass spectrometry technologies yet to be commercialized and for which there was no future alternative use as of the acquisition date . these licensing arrangements are significantly related to new , biologically-focused applications , as well as other applications , and require the company to make additional future payments of up to $ 7 million if certain milestones are achieved , as well as royalties on future net sales . these future payments may be significant and occur over multiple years .
| during 2018 , the demand for our lc-ms instrument systems was somewhat unfavorably impacted by the timing of new product introductions , as many of the company 's new products were not launched until the second half of 2018 or early in 2019. in 2017 , the demand for instrument system sales was balanced across our lc-ms and ta instrument systems . recurring revenues ( combined sales of precision chemistry consumables and services ) increased 8 % and 7 % in 2018 and 2017 , respectively , as a result of a larger installed base of customers and higher billing demand for service sales . geographically , the company 's sales growth in both 2018 and 2017 was primarily driven by the 7 % and 10 % sales growth in asia , respectively , with double-digit sales growth in china for both years . europe 's sales grew 4 % and 10 % in 2018 and 2017 , respectively , and benefited from the effect of foreign currency translation , which added 3 % and 2 % to sales growth , respectively . the company 's 2018 sales were impacted by lower sales growth in india and europe , resulting from lower customer demand for our instrument systems . sales in the americas grew 3 % in 2018 and were flat in 2017. the americas ' sales growth in 2017 was negatively impacted by natural disasters in the u.s. , mexico and puerto rico , as well as weaker customer sentiment in the first half of 2017. sales to pharmaceutical customers grew 5 % and 7 % in 2018 and 2017 , respectively . these increases were driven by the increasing need for global access to prescription drugs and the testing of newer and more complex biologic drugs . combined sales to industrial customers , which include materials characterization , food , environmental and fine chemical markets , grew 2 % and 4 % in 2018 and 2017 , respectively . the growth in both 2018 and 2017 was driven by recent product introductions and rising global regulatory standards in both food and materials markets . combined sales to governmental and academic customers increased 8 % in both 2018 and 2017. sales to governmental and academic customers are highly dependent on when institutions receive funding to purchase our instrument
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% of the company 's pre-transaction outstanding common shares measured on a gaap-diluted basis , adjusted for share issuances and repurchases by the company following the date of the investment agreement and after giving effect to the warrants granted . the exercise price of the warrants is $ 9.73 per share , which represents the closing price of atsg 's common shares on february 9 , 2016. warrants vest as afs leases aircraft from us , up to 20 aircraft . each of the three tranches of warrants will be exercisable in accordance with its terms through march 8 , 2021. the company 's accounting for the warrants has been determined in accordance with the financial reporting guidance for equity-based payments to non-employees and for financial instruments . the fair value of the warrants issuable to amazon is recorded as a lease incentive asset and is amortized against revenues over the duration of the aircraft leases . the warrants are accounted for as financial instruments , and accordingly , the fair value of the outstanding warrants are measured and classified in liabilities at the end of each reporting period . as of december 31 , 2016 , the company 's liabilities reflected 11.06 million warrants having a fair value of $ 8.09 per share . during 2016 , the re-measurements of the warrants to fair value resulted in a non-operating loss of $ 19.1 million before the effect of income taxes . as of december 31 , 2016 , 3.8 million additional warrants are expected to vest as afs leases additional aircraft from the company . the u.s. military comprised 12 % , 16 % and 16 % of the company 's consolidated revenues during the years ended december 31 , 2016 , 2015 and 2014 , respectively . the company 's airlines contract their services to the air mobility command ( `` amc '' ) , through the u.s. transportation command ( `` ustc '' ) , both of which are organized under the u.s. military . our fourth and final boeing 757 combi aircraft entered service in the first quarter of 2014 , after completing the necessary regulatory certification , and serves as a maintenance spare . results of operations fleet summary our cam-owned operating aircraft fleet has increased by seven aircraft since the end of 2014. as of december 31 , 2016 , the combined operating fleet of owned freighter aircraft consisted of 36 boeing 767-200 aircraft , 16 boeing 767-300 aircraft , four boeing 757-200 aircraft and four boeing 757 `` combi '' aircraft . the boeing 757 combi aircraft are capable of simultaneously carrying passengers and cargo containers on the main flight deck . at december 31 , 2016 , the company owned seven boeing 767-300 aircraft that were either already undergoing or awaiting induction into the freighter conversion process . aircraft fleet activity during 2016 is summarized below : - cam completed the modification of two boeing 767-300 freighter aircraft purchased in the previous year and began to lease both aircraft under a multi-year lease to external customers . one of these aircraft is being operated by abx for the customer . - cam purchased eleven boeing 767-300 passenger aircraft during 2016 for the purpose of converting the aircraft into standard freighter configuration . two aircraft completed the freighter modification and entered into long-term leases with afs in 2016 , and are both being operated by ati under multi-year leases . cam sold one of the eleven aircraft to an external customer during 2016. one aircraft completed the freighter modification and entered into service with ati during the fourth quarter . this aircraft was subsequently entered into a long-term lease with afs in january 2017 , and is being operated by ati under a multi-year agreement . the remaining 25 seven boeing 767-300 passenger aircraft were undergoing or preparing to undergo modification to a standard freighter configuration as of december 31 , 2016 and are expected to be completed in 2017 . - in conjunction with the atsa , abx and ati returned a total of ten boeing 767-200 freighter aircraft to cam and external lessees returned two boeing 767-200 freighter aircraft . all twelve were subsequently leased to afs under multi-year leases . abx and ati were separately contracted to operate the aircraft for afs . - five other boeing 767-200 were returned from external lessees . four were subsequently leased to abx or ati while one is now being prepped for other leasing . - abx returned one boeing 767-200 freighter and one boeing 767-300 freighter to cam which were subsequently leased to different external lessees . abx is operating the boeing 767-300 freighter for the customer . - ati ceased operating one dhl-owned boeing 757-200 freighter aircraft during the third quarter . the company 's cargo aircraft fleet is summarized below as of december 31 , 2016 , 2015 and 2014 : replace_table_token_4_th as of december 31 , 2016 , abx and ati were leasing 18 in-service aircraft internally from cam for use in acmi services . as of december 31 , 2016 , eight of cam 's 29 boeing 767-200 aircraft shown in the aircraft fleet table above and six of the twelve boeing 767-300 aircraft were leased to dhl and operated by abx . additionally , twelve of cam 's 29 boeing 767-200 aircraft and two of cam 's twelve boeing 767-300 aircraft were leased to afs and operated by abx or ati . cam leased the other nine boeing 767-200 aircraft and four boeing 767-300 aircraft to external customers , including two boeing 767-200 aircraft to dhl that are being operated by a dhl-owned airline . the carrying values of the total in-service fleet as of december 31 , 2016 , 2015 and 2014 were $ 793.9 million , $ 742.6 million and $ 734.5 million , respectively . the table above does not reflect one boeing 767-200 passenger aircraft owned by cam . story_separator_special_tag summary external customer revenues from continuing operations increased by $ 149.6 million to $ 768.9 million during 2016 compared to 2015. excluding directly reimbursed revenues , customer revenues increased $ 105.0 million , or 18 % during 2016 compared with 2015. increased external customer revenues from cam 's leasing operations , expanded acmi services for afs , increased aircraft maintenance services and additional logistics services , also for afs , were partially offset by lower acmi service revenues for dhl during 2016 , compared to 2015 . 26 the consolidated net earnings from continuing operations were $ 21.1 million for 2016 compared to $ 39.2 million for 2015. the pre-tax earnings from continuing operations were $ 34.5 million for 2016 compared to $ 62.6 million , for 2015. earnings were affected by specific events and certain adjustments that do not directly reflect our underlying operations among the years presented . on a pre-tax basis , earnings included net losses of $ 18.1 million for the year ended december 31 , 2016 , for the re-measurement of financial instruments , primarily warrant obligations granted to amazon during 2016 , to fair value . the larger re-measurement loss for 2016 compared to 2015 primarily reflects the increase in the value of the traded atsg share price after the warrants were granted in 2016. pre-tax earnings for 2016 were also reduced by $ 4.5 million for the amortization of lease incentives given to afs in the form of warrants during 2016. additionally , pre-tax earnings from continuing operations for 2016 were unfavorably impacted by a $ 9.9 million increase in actuarial losses for the non-service component of retiree benefit plan costs compared to 2015. separately , pre-tax earnings for the year ended december 31 , 2016 , included an actuarial gain of $ 2.0 million for the settlement of a retiree medical plan during 2016. pre-tax earnings for the year ended december 31 , 2016 , also included a $ 1.2 million charge for the company 's share of capitalized debt issuance costs that were charged off when west atlantic ab , a non-consolidated affiliate , restructured its debt . after removing the effects of these items , adjusted pre-tax earnings from continuing operations , a non-gaap measure ( a definition and reconciliation of adjusted pre-tax earnings from continuing operations follows ) were $ 65.1 million for 2016 compared to $ 60.6 million for 2015. adjusted pre-tax earnings from continuing operations for 2016 improved compared to 2015 , driven by additional aircraft lease revenues , increased aircraft maintenance revenues and additional logistics support services for afs . this growth in revenue was partially offset by the cost necessary to support expanded operations , including training costs for new flight crews , additional premium pay for abx flight crews , higher aircraft depreciation expense and more employee expenses , particularly in our support services businesses . operating results for 2016 were negatively impacted when abx flight crew members went on strike for two days , which disrupted our customers ' operations and reduced our revenues . during 2014 , we offered vested , former employee participants of the qualified pension plan and vested employee participants of the crewmembers qualified pension plan a one-time option to settle their pension benefit with the company through a single payment or a nonparticipating annuity contract . as a result , pre-tax earnings from continuing operations reflects an actuarial charge of $ 6.7 million in 2014. effective december 31 , 2016 , abx modified its unfunded , non-pilot retiree medical plan to settle benefits to all participants . as a result , pre-tax earnings from continuing operations reflects an actuarial gain of $ 2.0 million for 2016 . 27 a summary of our revenues and pre-tax earnings and adjusted pre-tax earnings from continuing operations is shown below ( in thousands ) : replace_table_token_5_th adjusted pre-tax earnings from continuing operations , a non-gaap measure , is pre-tax earnings excluding non-service components of retiree benefit costs , gains and losses for the fair value re-measurement of financial instruments , lease incentive amortizations , the pension settlement costs and the charge off of debt issuance costs from a non-consolidated affiliate during the first quarter of 2016. we exclude these items from adjusted pre-tax earnings because they are distinctly different in their predictability or not closely related to our on-going operating activities . management uses adjusted pre-tax earnings to compare the performance of core operating results between periods . presenting this measure provides investors with a comparative metric of fundamental operations while highlighting changes to certain items among periods . adjusted pre-tax earnings should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap . acmi reimbursable revenues shown above include revenues related to fuel , landing fees , navigation fees , aircraft rent and certain other operating costs that are directly reimbursed to the airlines by their customers . prior to april 1 , 2015 , the cost of airframe maintenance for cam-owned , boeing 767-200 aircraft operated for dhl and provided by the airlines were directly reimbursed . for all periods presented above , airline services revenues include the compensation for maintenance provided by the airlines on aircraft operated for dhl . 28 2016 and 2015 cam cam offers aircraft leasing and related services to external customers and also leases aircraft internally to the company 's airlines . aircraft leases normally cover a term of five to eight years . in a typical leasing agreement , customers pay rent and maintenance deposits on a monthly basis . cam 's revenues grew $ 17.3 million during 2016 compared to 2015 , primarily as a result of additional aircraft leases . as of december 31 , 2016 and 2015 , cam had 41 and 30 aircraft under lease to external customers , respectively . revenues from external customers totaled $ 117.6 million and $ 93.4 million for 2016 and 2015 , respectively .
| as of december 31 , 2015 , 11 of cam 's 23 boeing 767-200 aircraft shown in the aircraft fleet table above and four of the seven boeing 767-300 aircraft , were leased to dhl and operated by abx . cam leased the other twelve boeing 767-200 aircraft and three boeing 767-300 aircraft to external customers , including two boeing 767-200 aircraft to dhl for operation by a dhl affiliate . aircraft fleet activity during 2015 is summarized below : - during the first quarter , two dhl-owned boeing 767-200 aircraft , previously leased to abx for operation in dhl 's network , were returned to dhl . 32 - cam placed one recently modified boeing 767-300 freighter aircraft with an external customer in february 2015 under a multi-year lease . - in february 2015 , cam purchased a boeing 767-300 freighter aircraft that abx was leasing from an external lessor and began to lease it to abx . - abx returned three boeing 767-200 freighters to cam , two of which were leased to external lessees in april and the third of which was leased to another external lessee in october . - during the second quarter , dhl began to lease directly from cam three boeing 767-300 aircraft that abx had been providing under shorter term arrangements . abx continued to operate the aircraft . - during the second quarter , ati began to operate a boeing 757 freighter that dhl leases from a third party . - during the fourth quarter , dhl transitioned two cam boeing 767-200 aircraft leases to another airline in the middle east . - external lessees returned two other boeing 767-200 freighter aircraft to cam , which leased one to another external customer and the other aircraft to abx during the fourth quarter of 2015 . - cam purchased one boeing 767-300 passenger aircraft in june and completed its modification to standard freighter configuration in november . cam began to lease that aircraft , which is operated by abx , to
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through our 50.1 % ownership interests in the tir entities , we will generate revenue in our pipeline inspection and integrity services segment primarily by providing inspection and integrity services on midstream pipelines , gathering systems and distribution systems , including data gathering and supervision of third-party construction , inspection , and maintenance and repair projects . our results in the pipeline inspection and integrity services segment are driven primarily by the number of inspectors that perform services for our customers and the fees that we charge for those services , which depend on the type and number of inspectors used on a particular project , the nature of the project and the duration of the project . we charge our inspectors ' services out to customers on a per project basis , including per diem charges , mileage and other reimbursement items . 57 how we evaluate our operations our management uses a variety of financial and operating metrics to analyze our performance . we view these metrics as significant factors in assessing our operating results and profitability and intend to review these measurements frequently for consistency and trend analysis . these metrics include : saltwater disposal and residual oil volumes in the water and environmental services segment ; inspector headcount in the pipeline inspection and integrity services segment ; operating expenses ; segment gross margin ; adjusted ebitda ; and distributable cash flow . saltwater disposal and residual oil volumes the amount of revenue we generate in our water and environmental services segment depends primarily on the volume of produced water and flowback water that we dispose for our customers pursuant to published or negotiated rates , as well as the volume of residual oil that we sell pursuant to published rates that are determined based on the quality of the oil sold . our revenues from produced water , flowback water or residual oil sales are generated pursuant to contracts that are short-term in nature . revenues in this segment are recognized when the service is performed and collectability of fees is reasonably assured . the volumes of saltwater disposed at our swd facilities are driven by water volumes generated from existing oil and natural gas wells during their useful lives and development drilling and production volumes from the wells located near our facilities . producers ' willingness to engage in new drilling is determined by a number of factors , the most important of which are the prevailing and projected prices of oil , natural gas and ngls , the cost to drill and operate a well , the availability and cost of capital and environmental and governmental regulations . we generally expect the level of drilling to positively correlate with long-term trends in prices of oil , natural gas and ngls . similarly , oil and natural gas production levels nationally and regionally generally tend to positively correlate with drilling activity . approximately 25 % of our revenue for the year ended december 31 , 2013 in our water and environmental services segment was derived from sales of residual oil recovered during the saltwater treatment process . our ability to recover sufficient volumes of residual oil is dependent upon the residual oil content in the saltwater we treat , which is , among other things , a function of water type , chemistry , source and temperature . generally , where outside temperatures are lower , there is less residual oil content and separation is more difficult . thus , our residual oil recovery during the winter season is lower than our recovery during the summer season in north dakota . additionally , residual oil content will decrease if , among other things , producers begin recovering higher levels of residual oil in saltwater prior to delivering such saltwater to us for treatment . inspector headcount the amount of revenue we generate in our pipeline inspection and integrity services segment depends primarily on the number of inspectors that perform services for our customers . the number of inspectors engaged on projects is driven by the type of project , prevailing market rates , the age and condition of customers ' midstream pipelines , gathering systems and distribution systems and the legal and regulatory requirements relating to the inspection and maintenance of those assets . operating expenses the primary components of our operating expenses that we evaluate include costs of sales or services , general and administrative , and depreciation and amortization . costs of sales or services . we seek to maximize the profitability of our operations in part by minimizing , to the extent appropriate , expenses directly tied to operating and maintaining our assets . repair and maintenance costs , employee-related costs , residual oil disposal costs and utilities expenses are the primary cost of sales components in our water and environmental services segment . these expenses generally remain relatively stable across broad ranges of saltwater disposal volumes but can fluctuate from period to period depending on the mix of activities performed during that period and the timing of these expenses . we seek to manage our operations and repair and maintenance capital expenditures on our swd facilities and related assets by scheduling repairs and maintenance over time to avoid significant variability in our maintenance capital expenditures , downtime and minimize their impact on our cash flows . employee-or-contractor-related costs and per diem expenses are the primary costs of services components in our pipeline inspection and integrity services segment . these expenses fluctuate from period to period based on the number , type and location of projects on which we are engaged at any given time . 58 general and administrative . cypress llc 's historical general and administrative expenses included expenses related to royalty expenses , management fees , legal fees and other expenses for the operation of our wells . under the omnibus agreement , our general partner charges us an annual administrative fee of $ 4.0 million ( payable in equal quarterly installments ) for the provision of certain partnership overhead expenses . story_separator_special_tag this fee is subject to an increase by an annual amount equal to ppi plus one percent or , with the concurrence of the conflicts committee , in the event of an expansion of our operations , including through acquisitions or internal growth . the amount of this fee is approximately the amount we would expect to reimburse the general partner for such services in the absence of the fee . included in this administrative fee are our incremental general and administrative expenses attributable to operating as a publicly traded partnership , such as expenses associated with annual and quarterly sec reporting ; tax return and schedule k-1 preparation and distribution expenses ; sarbanes-oxley compliance ; listing on the new york stock exchange ; independent registered public accounting firm fees ; legal fees ; investor relations , registrar and transfer agent fees ; director and officer liability insurance costs and director compensation , which we estimate to be approximately $ 2.0 million . these incremental partnership overhead expenses are not reflected in our historical financial statements . for the year ending december 31 , 2014 , pursuant to the omnibus agreement , $ 1.0 million of this partnership overhead expense attributable to our operating as a publicly traded partnership will be absorbed by cypress holdings and affiliates , the owners of the 49.9 % non-controlling interests in the tir entities . included in the administrative fee for future general and administrative expenses will be compensation expense associated with the cypress energy partners , l.p. 2013 long-term incentive plan . in the event of termination of the omnibus agreement , in lieu of the quarterly fee , we will be required by our partnership agreement to reimburse our general partner and its affiliates for all costs and expenses that they incur on our behalf for managing and controlling our business and operations , at which time we expect our payment for these services to increase . this increase may be substantial . our partnership agreement provides that our general partner will determine in good faith the expenses that are allocable to us . furthermore , our general partner and its affiliates allocate other expenses related to our operations to us and may provide us other services for which we will be charged fees as determined by our general partner . payments to our general partner and its affiliates following the expiration of the omnibus agreement could be substantial and will reduce the amount of cash we have available to distribute to unitholders . depreciation and amortization . depreciation and amortization expense consists of our estimate of the decrease in value of the assets capitalized in property , plant and equipment as a result of using the assets throughout the applicable year . depreciation is recorded on a straight-line basis . we estimate our assets have useful lives ranging from three years to 39 years . the facilities , wells and equipment constituted 91.0 % of our assets as of december 31 , 2012 and december 31 , 2013 and have useful lives of nine to 15 years . segment gross margin , adjusted ebitda and distributable cash flow we view segment gross margin as one of our primary management tools , and we track this item on a regular basis , both as an absolute amount and as a percentage of revenues compared to prior periods . we also track adjusted ebitda , and we define adjusted ebitda as net income , plus interest expense , depreciation and amortization expenses , income tax expense and impairments related to swd facilities , one of which is retained by cypress holdings , less a gain on the reversal of a contingent liability related to the acquisition of the cypress llc predecessor . although we have not quantified distributable cash flow on a historical basis , we intend to use distributable cash flow , which we define as adjusted ebitda less net cash interest paid and maintenance capital expenditures , to analyze our performance . distributable cash flow will not reflect changes in working capital balances , which could be significant as headcount of our pipeline inspection and integrity services segment varies period to period . adjusted ebitda is a non-gaap , supplemental financial measure used by management and by external users of our financial statements , such as investors , commercial banks and research analysts , to assess : 59 our operating performance as compared to those of other providers of similar services , without regard to financing methods , historical cost basis or capital structure ; the ability of our assets to generate sufficient cash flow to support our indebtedness and make distributions to our partners ; the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities ; our ability to incur and service debt and fund capital expenditures ; and the viability of acquisitions and other capital expenditure projects and the rates of return on various investment opportunities . adjusted ebitda and distributable cash flow are not financial measures presented in accordance with gaap . we believe that the presentation of these non-gaap financial measures will provide useful information to investors in assessing our financial condition and results of operations . net income is the gaap measure most directly comparable to adjusted ebitda . the gaap measure most directly comparable to distributable cash flow is net cash provided by operating activities . our non-gaap financial measures should not be considered as alternatives to the most directly comparable gaap financial measure . each of these non-gaap financial measures has important limitations as an analytical tool because it excludes some but not all items that affect the most directly comparable gaap financial measure . you should not consider any of adjusted ebitda or distributable cash flow in isolation or as a substitute for analysis of our results as reported under gaap .
| 62 predecessor year ended december 31 , 2012 compared to the predecessor period from june 1 , 2011 ( inception ) to december 31 , 2011 total revenues revenues were $ 12.2 million for the year ended december 31 , 2012 , compared to $ 2.9 million for the period from june 1 , 2011 to december 31 , 2011 , an increase of 321 % . the overall increase in saltwater disposal revenues was primarily driven by a 444 % increase in saltwater disposal volumes from 1.6 million barrels for the year ended december 31 , 2011 to 8.7 million barrels for the year ended december 31 , 2012. this increase in saltwater disposal volumes was associated with the addition of four wells between the comparable periods , which was offset somewhat by a 21 % decline in average pricing across the wells from $ 1.79 per barrel of disposed saltwater for the period from june 1 , 2011 to december 31 , 2011 to $ 1.41 for the year ended december 31 , 2012. the decline in revenue per barrel was primarily attributable to the decision to reduce pricing in the bakken shale region due to competitive pressures and an increase in the mix of produced water volumes . costs of sales costs of sales were $ 3.7 million for the year ended december 31 , 2012 , compared to $ 0.5 million for the period from june 1 , 2011 to december 31 , 2011 , an increase of 640 % . the increase is primarily attributable to higher employment costs , repairs and maintenance and utility costs associated with operating the four additional swd facilities . gross margin gross margin was $ 8.5 million for the year ended december 31 , 2012 , compared to $ 2.4 million for the period from june 1 , 2011 to december 31 , 2011 , an increase of $ 6.1 million or 254 % . the increase in gross margin was
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revenue from das network access fees in excess of the monthly minimums is recognized when earned . subscription fees from military and retail customers are paid monthly in advance and revenue is deferred for the portions of monthly recurring subscription fees collected in advance . we provide refunds for our military and retail services on a case-by-case basis . these amounts are not significant and are recorded as contra-revenue in the period the refunds are made . subscription fee revenue is recognized ratably over the subscription period . revenue generated from military and retail single-use access is recognized when access is provided . services provided to wholesale wi-fi partners generally contain several elements including : ( i ) a term license to use our software to access our wi-fi network , ( ii ) access fees for wi-fi network usage , and or ( iii ) professional services for software integration and customization and to maintain the wi-fi service . the term license , monthly minimum network access fees and professional services are billed on a monthly basis based upon predetermined fixed rates . once the term license for integration and customization are delivered , the fees from the arrangement are recognized ratably over the remaining term of the service arrangement . the initial term of the license agreements is generally between one to five years and the agreements generally contain renewal clauses . revenue for wi-fi network access fees in excess of the monthly minimum amounts is recognized when earned . all elements within existing service arrangements are generally delivered and earned concurrently throughout the term of the respective service arrangement . in instances where the minimum monthly wi-fi and das network access fees escalate over the term of the wholesale service arrangement , an unbilled receivable is recognized when performance is within our control and when we have reasonable assurance that the unbilled receivable balance will be collected . 34 we adopted the provisions of asu 2009-13 , revenue recognition ( topic 605 ) multiple-deliverable revenue arrangements ( `` asu 2009-13 '' ) , on a prospective basis on january 1 , 2011. for multiple-deliverable arrangements entered into prior to january 1 , 2011 that are accounted for under fasb asc 605-25 , revenue recognitionmultiple-deliverable revenue arrangements , we defer recognition of revenue for the full arrangement and recognize all revenue ratably over the wholesale service period for wi-fi platform service arrangements and the term of the estimated customer relationship period for das arrangements , as we did not have evidence of fair value for the undelivered elements in the arrangement . for multiple-deliverable arrangements entered into or materially modified after january 1 , 2011 that are accounted for under asc 605-25 , we evaluate whether or not separate units of accounting exist and then allocate the arrangement consideration to all units of accounting based on the relative selling price method using estimated selling prices if vendor specific objective evidence and third-party evidence is not available . we recognize the revenue associated with the separate units of accounting upon completion of such services or ratably over the wholesale service period for wi-fi platform service arrangements and the term of the estimated customer relationship period for das arrangements . advertising revenue is generated from advertisements on our managed and operated or partner networks . in determining whether an arrangement exists , we ensure that a binding arrangement is in place , such as a standard insertion order or a fully executed customer-specific agreement . obligations pursuant to our advertising revenue arrangements typically include a minimum number of units or the satisfaction of certain performance criteria . advertising and other revenue is recognized when the services are performed . goodwill goodwill represents the excess of purchase price over fair value of net assets acquired . goodwill is not amortized but instead is tested annually for impairment , or more frequently when events or changes in circumstances indicate that fair value of the reporting unit has been reduced to less than its carrying value . we perform our impairment test annually as of december 31 st . entities have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in asc 350 , intangiblesgoodwill and other . if , after assessing qualitative factors , an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount , then performing the two-step impairment test is unnecessary . if deemed necessary , a two-step test is used to identify the potential impairment and to measure the amount of goodwill impairment , if any . the first step is to compare the fair value of the reporting unit with its carrying amount , including goodwill . if the fair value of the reporting unit exceeds its carrying amount , goodwill is considered not impaired ; otherwise , there is an indication that goodwill may be impaired and the amount of the loss , if any , is measured by performing step two . under step two , the impairment loss , if any , is measured by comparing the implied fair value of the reporting unit goodwill with the carrying amount of goodwill . at december 31 , 2016 and 2015 , we tested our goodwill for impairment using a market based approach and no impairment was identified as the fair value of our sole reporting unit was substantially in excess of its carrying amount . to date , we have not recorded any goodwill impairment charges . 35 measuring recoverability of long-lived assets our long-lived assets are depreciated and amortized over the estimated useful lives of the related asset type using the straight-line method . story_separator_special_tag the estimated useful lives for property and equipment are as follows : software 2 to 5 years computer equipment 2 to 5 years furniture , fixtures and office equipment 3 to 5 years leasehold improvements the shorter of the estimated useful life or the remaining term of the agreements , generally ranging from 2 to 18 years we perform an impairment review of long-lived assets held and used whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important that could trigger an impairment review include , but are not limited to , significant under-performance relative to projected future operating results , significant changes in the manner of our use of the acquired assets or our overall business and or product strategies and significant industry or economic trends . when we determine that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of these indicators , we determine the recoverability by comparing the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate or other indices of fair value . we would then recognize an impairment charge equal to the amount by which the carrying amount exceeds the fair market value of the asset . stock-based compensation stock-based compensation consists of stock options and restricted stock units ( `` rsus '' ) , which are granted to employees and non-employees . we recognize compensation expense equal to the grant date fair value on a straight-line basis , net of forfeitures , over the employee requisite service period . we recognize stock-based compensation expense for performance-based rsus when we believe that it is probable that the performance objectives will be met . the grant date fair value of our stock option awards is determined using the black-scholes option pricing model . income taxes income taxes are provided based on the liability method , which results in income tax assets and liabilities arising from temporary differences . temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years . the liability method requires the effect of tax rate changes on current and accumulated deferred income taxes to be reflected in the period in which the rate change was enacted . the liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized . we may recognize the tax benefit from uncertain tax positions only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon settlement with the taxing authorities . we establish valuation allowances when necessary to reduce deferred tax assets to the amounts expected to be realized . we evaluate the need for , and the adequacy of , valuation allowances based on the expected realization of our deferred tax assets . the factors used to assess the likelihood of realization include historical earnings , our latest forecast of taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets . 36 our effective tax rates are primarily affected by changes in our valuation allowances , the amount of our taxable income or losses in the various taxing jurisdictions in which we operate , the amount of federal and state net operating losses and tax credits , the extent to which we can utilize these net operating loss carryforwards and tax credits and certain benefits related to stock option activity . recent accounting pronouncements information regarding recent accounting pronouncements is contained in note 2 `` significant accounting policies '' to the accompanying consolidated financial statements included in part ii , item 8 , which is incorporated herein by this reference . key business metrics in addition to monitoring traditional financial measures , we also monitor our operating performance using key performance indicators . our key performance indicators follow : replace_table_token_9_th das nodes . this metric represents the number of active das nodes as of the end of the period . a das node is a single communications endpoint , typically an antenna , which transmits or receives radio frequency signals wirelessly . this measure is an indicator of the reach of our das network . we are experiencing strong customer demand from telecom operators to gain access to our das networks ; accordingly , we expect to continue to invest in securing , building out and upgrading our das networks to meet this demand . subscribersmilitary and subscribers retail . these metrics represent the number of paying customers who are on a month-to-month subscription plan at a given period end . military subscribers have increased as we deploy our service on new military bases . we also expect to see modest increases in military subscribers as we increase signups for new customers on existing military bases through targeted marketing and by continuing to build the boingo brand in the military vertical . retail subscribers have continued to decline as we have expanded our product offerings and enhanced our focus on our wholesale and advertising service offerings . connects . this metric shows how often individuals connect to our global wi-fi network in a given period . the connects include wholesale and retail customers in both customer pay locations and customer free locations where we are a paid service provider or receive sponsorship or promotion fees . we count each connect as a single connect regardless of how many times that individual accesses the network at a given venue during their 24 hour period . this measure is an indicator of paid activity throughout our network .
| as a result of these larger-than-usual rsu grants , the compensation committee does not intend to grant additional equity awards to our chief executive officer and chief financial officer until 2019. stock-based compensation expense increased $ 2.2 million , or 31.2 % , in 2015 , as compared to 2014 , primarily due to additional stock-based compensation expenses for rsus granted in those periods as well as $ 1.0 million of additional stock-based compensation expense recognized in 2015 resulting from a change in the expected service period for one of our executives , who was terminated . under the terms of the executive 's employment agreement , the executive received 12 months of accelerated vesting credit on unvested stock-based awards . we have shifted our stock-based compensation from stock options to rsus , which generally vest over a specified service period . we also issue performance-based rsus to executive personnel . we recognize stock-based compensation expense for performance-based rsus when we believe that it is probable that the performance objectives will be met . at december 31 , 2016 , the total remaining stock-based compensation expense for unvested stock option awards is approximately $ 323,000 , which is expected to be recognized over a weighted average period of 0.8 years . at december 31 , 2016 , the total remaining stock-based compensation expense for unvested rsu awards is approximately $ 17,831,000 which is expected to be recognized over a weighted average period of 2.0 years . 41 the following table sets forth our results of operations for the specified periods as a percentage of our revenue for those periods . replace_table_token_11_th years ended december 31 , 2016 and 2015 revenue replace_table_token_12_th das . das revenue increased $ 11.7 million , or 25.2 % , in 2016 , as compared to 2015 , due to an $ 8.9 million increase from new build-out projects in our managed and operated locations and a $ 2.8 million increase in access fees from our telecom operators . das build-out revenues in 2016 and 2015 include $ 0.5 million and $ 1.0 million , respectively , of short-term build projects that include sales 42 of equipment that were completed during those periods . das access fees for 2015 include $ 0.4 million of one-time fees that were paid for early termination rights . military . military revenue increased $ 20.1 million , or 100.9 % , in 2016 , as compared to 2015 due to a $ 16.9 million increase
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we are looking beyond the traditional office product categories of systems , task seating and storage , to furniture that supports activity areas and the in-between spaces where people meet . we believe that our success in traditional office products gives us an advantage throughout the workplace . our new rockwell unscripted collection encompasses every product category ranging from seating and lounge to architectural walls and storage . it addresses the needs of organizations that seek alternatives to the traditional workspace , and is substantially additive to our current product portfolio . in addition to these initiatives , we aim to increase profitability through operational improvements and investments in our physical and technological infrastructure . our supply chain transformation initiative , combined with continued modernization of our facilities , is allowing us to progressively deliver on this goal . we are committed to building a more efficient and responsive customer centric service culture and technology infrastructure across our organization . our 2016 capital expenditures are reflective of this commitment as we continued to invest in the business through technology infrastructure upgrades , continued investments in our manufacturing facilities focusing on lean initiatives and showroom footprint . story_separator_special_tag distributes both knollstudio and knoll office products , manufactures and sells products to customers primarily in europe . datesweiser , known for its sophisticated meeting and conference tables and credenzas , sets a standard for design , quality and technology integration . our coverings segment includes knolltextiles® , spinneybeck® ( including filzfelt® ) , and edelman® leather . these businesses provide a wide range of customers with high-quality fabrics , felt , leather and related architectural products . in 2016 , we determined it appropriate to revise our segment presentation to segregate corporate costs . we believe this facilitates improved communication as we report segment results and better aligns with how we view and operate the company . corporate costs represent the portion of unallocated expenses relating to shared services and general corporate functions including , but not limited to , legal expenses , acquisition expenses , certain finance , human resources , administrative and executive expenses and other expenses that are not directly attributable to an operating segment . dedicated , direct selling , general and administrative expenses of the segments continue to be included within segment operating profit . we regularly review the costs included in the corporate function , and believe disclosing such information provides more visibility and transparency of how our chief operating decision maker reviews the results for the company . see note 20 of our consolidated financial statements contained in this annual report on form 10-k for further information regarding the business segments . the comparisons of segment results found below present our segment information with corporate costs excluded from operating segment results . prior year amounts have been recast to conform to the current presentation . comparison of segment results for the years ended december 31 , 2016 and december 31 , 2015 replace_table_token_11_th _ ( 1 ) the company does not allocate interest expense or other ( income ) expense , net to the reportable segments . 30 office net sales for the office segment in 2016 were $ 731.3 million , an increase of $ 44.4 million , or 6.5 % , when compared with 2015 . this increase in the office segment for the year was led by continued growth in our core systems portfolio , as well as increases in complementary products . operating profit for the office segment in 2016 was $ 73.9 million , an increase of $ 18.0 million , or 32.3 % , when compared with 2015 . the increase in operating profit was driven by continuous improvement efficiencies and leveraging our fixed cost structure from higher volume . operating profit for the office segment in 2015 includes a $ 0.9 million seating product discontinuation charge and $ 0.5 million of restructuring charges . studio net sales for the studio segment in 2016 were $ 323.4 million , an increase of $ 19.6 million , or 6.4 % , when compared with 2015 . the increase in the studio segment was driven by higher sales at knollstudio in north america and by our european business unit . operating profit for the studio segment in 2016 was $ 53.4 million , an increase of $ 5.5 million , or 11.4 % , when compared with 2015 . the increase in operating profit was driven by increased sales volume and net price realization . operating profit for the studio segment in 2015 included a $ 0.4 million restructuring charge . coverings net sales for the coverings segment in 2016 were $ 109.5 million , a decrease of $ 4.1 million , or 3.6 % , when compared with 2015 . continued year-over-year growth in spinneybeck | filzfelt sales was offset by lower volume at knolltextiles and edelman . operating profit for the coverings segment in 2016 was $ 26.0 million , an increase of $ 8.7 million , or 50.3 % , when compared with 2015 . operating profit for the coverings segment in 2015 included a $ 10.7 intangible asset impairment charge . corporate corporate costs in 2016 were $ 16.9 million , a decrease of $ 3.0 million , or 15.1 % , when compared with 2015. the decrease was driven primarily by the full year pension benefits recognized in 2016 as a result of our 2015 pension curtailment actions , partially offset by higher salary expense related to additional headcount . comparison of segment results for the years ended december 31 , 2015 and december 31 , 2014 replace_table_token_12_th _ ( 1 ) the company does not allocate interest expense or other ( income ) expense , net to the reportable segments . 31 office net sales for the office segment in 2015 were $ 686.9 million , an increase of $ 30.7 million , or 4.7 % , when compared with 2014. this increase in the office segment for the year was the result of growth experienced across all of our product categories . story_separator_special_tag the most predominant growth was experienced in complimentary products where we have been aggressively investing . operating profit for the office segment in 2015 was $ 55.8 million , an increase of $ 17.7 million , or 46.5 % , when compared with 2014. the increase in operating profit was driven by more efficiency and continued work in our plants and a more profitable mix of product revenue . operating profit for the office segment in 2015 includes a $ 0.9 million seating product discontinuation charge and the $ 0.5 million restructuring charges . operating profit for the office segment in 2014 includes a restructuring charges of $ 2.1 million . studio net sales for the studio segment in 2015 were $ 303.8 million , an increase of $ 24.7 million , or 8.8 % , when compared with 2014. this increase in net sales was driven by strong sales growth in holly hunt , one additional month of holly hunt sales included in 2015 as well as additional sales growth in our north american studio business . operating profit for the studio segment in 2015 was $ 48.0 million , an increase of $ 10.1 million , or 26.7 % , when compared with 2014. the increase in operating profit was driven by foreign exchange benefits , increased sales volume and net price realization . operating profit for the studio segment in 2015 includes a $ 0.4 million restructuring charge . operating profit for the studio segment in 2014 includes a restructuring benefit of $ 0.9 million . coverings net sales for the coverings segment in 2015 were $ 113.7 million , a decrease of $ 1.2 million , or 1.1 % , when compared with 2014. for the full year 2015 , spinneybeck | filzfelt and knolltextiles all grew , while edelman was negatively impacted by weakness in the private aviation market . operating profit for the coverings segment in 2015 was $ 17.3 million , a decrease of $ 6.5 million , or 27.5 % , when compared with 2014. operating profit for the coverings segment in 2015 includes a $ 10.7 intangible asset impairment charge . operating profit for the coverings segment in 2014 includes $ 0.3 million of restructuring charges . corporate corporate costs in 2015 were $ 19.9 million , a decrease of $ 3.0 million , or 13.0 % , when compared with 2014. the decrease was driven primarily by a $ 6.1 million settlement charge recognized in 2014 related to pension and obep curtailments that did not reoccur in 2015 , partially offset by increased stock compensation expense and higher incentive compensation expenses . 32 reconciliation of non-gaap financial measures this annual report on form 10-k contains certain non-gaap financial measures . a “ non-gaap financial measure ” is a numerical measure of a company 's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) in the statements of income , balance sheets , or statements of cash flow of the company . these non-gaap financial measures are presented because management uses this information to monitor and evaluate financial results and trends . therefore , management believes this information is also useful for investors . pursuant to applicable reporting requirements , the company has provided reconciliations below of non-gaap financial measures to the most directly comparable gaap measure . the non-gaap financial measures presented within this item are last twelve months ( “ ltm ” ) adjusted ebitda . these non-gaap measures are not indicators of our financial performance under gaap and should not be considered as an alternative to the applicable gaap measure . these non-gaap measures have limitations as analytical tools , and you should not consider them in isolation or as a substitute for analysis of our results as reported under gaap . in addition , in evaluating these non-gaap measures , you should be aware that in the future we may incur expenses similar to the adjustments in this presentation . our presentation of these non-gaap measures should not be construed as an inference that our future results will be unaffected by unusual or infrequent items . we compensate for these limitations by providing equal prominence of our gaap results and using non-gaap measures only as supplemental presentations . the following table reconciles net earnings to adjusted ebitda and computes our bank leverage calculations for the periods shown . the bank leverage calculation is in accordance with our second amended and restated credit agreement dated may 20 , 2014 . 12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016 ( $ in millions ) debt levels ( 1 ) $ 238.7 $ 233.7 $ 221.7 $ 206.7 $ 231.8 ltm net earnings 66.0 65.8 69.3 74.1 82.1 ltm adjustments interest 6.1 6.2 6.2 5.0 4.7 taxes 37.5 37.8 39.3 39.6 45.4 depreciation and amortization 21.3 21.3 21.3 22.5 23.0 non-cash items and other ( 2 ) 12.5 21.9 22.4 23.8 13.4 ltm adjusted ebitda $ 143.4 $ 153.0 $ 158.5 $ 165.0 $ 168.6 bank leverage calculation ( 3 ) 1.67 1.53 1.40 1.25 1.37 ( 1 ) outstanding debt levels include outstanding letters of credit and guarantee obligations . excess cash over $ 15.0 million reduces outstanding debt per the terms of our credit facility , a copy of which was filed with the securities and exchange commission on may 21 , 2014 . ( 2 ) non-cash items and other includes , but is not limited to , an intangible asset impairment charge , stock-based compensation expenses , unrealized gains and losses on foreign exchange , and restructuring charges . ( 3 ) debt divided by ltm adjusted ebitda , as calculated in accordance with our credit facility . 33 liquidity and capital resources the following table highlights certain key cash flows and capital information pertinent to the discussion that follows : replace_table_token_13_th we have historically funded our business through cash generated from operations , supplemented by debt borrowings .
| operating expenses for 2015 include an edelman tradename impairment of $ 10.7 million , as well as restructuring charges of $ 0.9 million . the increase in operating expenses was primarily related to expanded sales , marketing and product development investments as well as additional headcount . interest expense interest expense for 2016 was $ 5.4 million , a decrease of $ 1.5 million from interest expense of $ 6.9 million for 2015 . the decrease in interest expense was due primarily to reductions in our outstanding debt . during 2016 and 2015 , the company 's weighted average interest rates were approximately 2.0 % and 2.1 % , respectively . other expense ( income ) , net other expense in 2016 was $ 3.4 million compared to other income of $ 9.2 million in 2015. other expense in 2016 was related primarily to foreign exchange losses that resulted from the revaluation of intercompany balances between our canadian and us entities . other income in 2015 was due primarily to foreign exchange gains on intercompany balances . income tax expense our effective tax rate was 35.6 % for 2016 , compared to 36.2 % for 2015 . the mix of pretax income and the varying effective tax rates in the countries and states in which we operate directly affects our consolidated effective tax rate . comparison of consolidated results for the years ended december 31 , 2015 and december 31 , 2014 replace_table_token_10_th 28 net sales net sales for the year ended december 31 , 2015 were $ 1,104.4 million , an increase of $ 54.1 million , or 5.2 % , from sales of $ 1,050.3 million for the year ended december 31 , 2014. the increase in sales was largely due to a $ 30.7 million increase in office sales where we experienced growth in our complimentary products to which we have been aggressively investing . in 2015 , our studio segment sales also increased , due
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's stockholders and preserving stockholder capital . critical accounting policies general our accounting policies have been established to conform to gaap . the preparation of financial statements in conformity with gaap requires management to use judgment in the application of accounting policies , including making estimates and assumptions . these judgments 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 revenue and expenses during the reporting periods . if management 's judgment or interpretation of the facts and circumstances relating to various transactions is different , it is possible that different accounting policies will be applied or different amounts of assets , liabilities , revenues and expenses will be recorded , resulting in a different presentation of the financial statements or different amounts reported in the financial statements . additionally , other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses . below is a discussion of the accounting policies that management considers to be most critical . these policies require complex judgment in their application or estimates about matters that are inherently uncertain . principles of consolidation our consolidated financial statements include our accounts and the accounts of our subsidiaries , tnp strategic retail operating partnership , lp , tnp srt moreno marketplace , llc , and tnp srt waianae mall , llc . all intercompany profits , balances and transactions are eliminated in consolidation . 36 our consolidated financial statements will also include the accounts of our consolidated subsidiaries and joint ventures in which we are the primary beneficiary or in which we have a controlling interest . in determining whether we have a controlling interest in a joint venture and the requirement to consolidate the accounts of that entity , our management considers factors such as an entity 's purpose and design and our ability to direct the activities of the entity that most significantly impacts the entity 's economic performance , ownership interest , board representation , management representation , authority to make decisions , and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity in which we will absorb the majority of the entity 's expected losses , if they occur , or receive the majority of the expected residual returns , if they occur , or both . allocation of real property purchase price we account for all acquisitions in accordance with gaap . we first determine the value of the land and buildings utilizing an as if vacant methodology . we then assign a fair value to any debt assumed at acquisition . the balance of the purchase price is allocated to tenant improvements and identifiable intangible assets or liabilities . tenant improvements represent the tangible assets associated with the existing leases valued on a fair value basis at the acquisition date prorated over the remaining lease terms . the tenant improvements are classified as an asset under investments in real estate and are depreciated over the remaining lease terms . identifiable intangible assets and liabilities relate to the value of in-place operating leases which come in three forms : ( 1 ) leasing commissions and legal costs , which represent the value associated with cost avoidance of acquiring in-place leases , such as lease commissions paid under terms generally experienced in our markets ; ( 2 ) value of in-place leases , which represents the estimated loss of revenue and of costs incurred for the period required to lease the assumed vacant property to the occupancy level when purchased ; and ( 3 ) above or below market value of in-place leases , which represents the difference between the contractual rents and market rents at the time of the acquisition , discounted for tenant credit risks . the value of in-place leases are recorded in acquired lease intangibles , net and amortized over the remaining lease term . above or below market leases are classified in acquired lease intangibles , net or in other liabilities , depending on whether the contractual terms are above or below market . above market leases are amortized as a decrease to rental revenue over the remaining non-cancelable terms of the respective leases and below market leases are amortized as an increase to rental revenue over the remaining initial lease term and any fixed rate renewal periods , if applicable . when we acquire real estate properties , we will allocate the purchase price to the components of these acquisitions using relative fair values computed using estimates and assumptions . these estimates and assumptions impact the amount of costs allocated between various components as well as the amount of costs assigned to individual properties in multiple property acquisitions . these allocations also impact depreciation expense and gains or losses recorded on future sales of properties . real property costs related to the development , redevelopment , construction and improvement of properties are capitalized . interest incurred on development , redevelopment and construction projects is capitalized until construction is substantially complete . maintenance and repair expenses are charged to operations as incurred . costs for major replacements and betterments , which include heating , ventilating , and air conditioning equipment , roofs and parking lots , are capitalized and depreciated over their estimated useful lives . gains and losses are recognized upon disposal or retirement of the related assets and are reflected in earnings . property is recorded at cost and is depreciated using a straight-line method over the estimated useful lives of the assets as follows : years buildings and improvements 5-45 years exterior improvements 10-20 years equipment and fixtures 5-10 years 37 revenue recognition we recognize rental income on a straight-line basis over the term of each lease . story_separator_special_tag the difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts receivable in the accompanying consolidated balance sheets . we anticipate collecting these amounts over the terms of the leases as scheduled rent payments are made . reimbursements from tenants for recoverable real estate taxes and operating expenses are accrued as revenue in the period the applicable expenditures are incurred . lease payments that depend on a factor that does not exist or is not measurable at the inception of the lease , such as future sales volume , would be contingent rentals in their entirety and , accordingly , would be excluded from minimum lease payments and included in the determination of income as they are earned . valuation of accounts receivable we have taken into consideration certain factors that require judgments to be made as to the collectability of receivables . collectability factors taken into consideration are the amounts outstanding , payment history and financial strength of the tenant , which taken as a whole determines the valuation . organization and offering costs our organization and offering costs ( other than selling commissions and the dealer manager fee ) are paid by our advisor and its affiliates on our behalf . such costs shall include legal , accounting , printing and other offering expenses , including marketing , salaries and direct expenses of our advisor 's employees and employees of our advisor 's affiliates and others . pursuant to our advisory agreement , we are obligated to reimburse our advisor or its affiliates , as applicable , for organization and offering costs associated with our initial public offering , provided that our advisor is obligated to reimburse us to the extent organization and offering costs , other than selling commissions and dealer manager fees , incurred by us exceed 3.0 % of our gross offering proceeds . any such reimbursement will not exceed actual expenses incurred by our advisor . prior to raising the minimum offering amount of $ 2,000,000 , we had no obligation to reimburse our advisor or its affiliates for any organization and offering costs . as of december 31 , 2009 , organization and offering costs incurred by our advisor on our behalf were $ 1,579,000. these costs are payable by us to the extent organization and offering costs , other than selling commissions and dealer manager fees , do not exceed 3.0 % of the gross proceeds of our initial public offering . as of december 31 , 2009 , organization and offering costs did exceed 3.0 % of the gross proceeds of our initial public offering , thus the amount in excess of 3.0 % , or $ 1,425,000 is deferred . all offering costs , including sales commissions and dealer manager fees are recorded as an offset to additional paid-in-capital , and all organization costs are recorded as an expense when we have an obligation to reimburse our advisor . we will reimburse our advisor for all expenses paid or incurred by our advisor in connection with the services provided to us , subject to the limitation that we will not reimburse our advisor for any amount by which our operating expenses ( including the asset management fee ) at the end of the four preceding fiscal quarters exceeds the greater of : ( 1 ) 2 % of our average invested assets , or ( 2 ) 25 % of our net income determined without reduction for any additions to depreciation , bad debts or other similar non-cash expenses and excluding any gain from the sale of our assets for that period . notwithstanding the above , we may reimburse our advisor for expenses in excess of this limitation if a majority of the independent directors determines that such excess expenses are justified based on unusual and nonrecurring factors . as of december 31 , 2009 , amounts incurred by our advisor in connection with services provided to us were $ 1,967,000 , of which $ 1,579,000 were organization and offering costs and $ 388,000 were other costs incurred on our behalf prior to achieving our minimum offering . income taxes we intend to elect to be taxed as a reit under sections 856 through 860 of the internal revenue code , commencing with the 2009 fiscal year which is the taxable year in which we satisfied the minimum offering requirements . as we believe we qualify for taxation as a reit , we generally will not be subject to federal 38 corporate income tax to the extent we distributed our reit taxable income to our stockholders , so long as we distributed at least 90 % of our reit taxable income ( which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with gaap ) . reits are subject to a number of other organizational and operations requirements . even though we believe we qualify for taxation as a reit , we may be subject to certain state and local taxes on our income and property , and federal income and excise taxes on its undistributed income . story_separator_special_tag financing activities , we invested approximately $ 12,500,000 in property acquisitions , and paid acquisition fees and closing costs of $ 408,000. we paid distributions to stockholders ( net of reinvested distributions ) of $ 6,000 for the year ended december 31 , 2009. net cash used in operating activities for the year ended december 31 , 2009 was $ 1,047,000. the excess cash generated from financing activities ( net of cash used in investing activities and net cash used in operating activities ) of $ 905,000 is expected to be used to pay liabilities or to make additional real estate investments .
| we expect general and administrative costs to increase in the future based on a full year of real estate operations and as a result of anticipated future acquisitions , but to decrease as a percentage of total revenue . acquisition expenses . acquisition expenses for the year ended december 31 , 2009 were $ 408,000 , all of which were incurred in connection with the acquisition of the moreno property . operating and maintenance expenses . for the year ended december 31 , 2009 , operating and maintenance expenses were $ 114,000. asset management and property management fees incurred and payable to our advisor and its affiliates totaled $ 9,000 and $ 5,000 , respectively , for the year ended december 31 , 2009. we expect asset management and property management fees to increase in future years as a result of owning our investments for a full year and as a result of anticipated future acquisitions . depreciation and amortization expenses . depreciation and amortization expense was $ 46,000 for the year ended december 31 , 2009. we expect these amounts to increase in future years as a result of owning our property for a full year and as a result of anticipated future acquisitions . interest expense . interest expense was $ 119,000 for the year ended december 31 , 2009 , which included the amortization of deferred financing costs of $ 39,000. our real estate property acquisition was financed with $ 11,126,000 in debt . we expect that in future periods our interest expense will vary based on the amount of our borrowings , which will depend on the cost of borrowings , the amount of proceeds we raise in our ongoing initial public offering and our ability to identify and acquire real estate and real estate-related assets that meet our investment objectives . interest income . interest income for the year ended december 31 , 2009 was $ 2,000 and related primarily to cash received from subscription agreements that are held for future acquisitions . 39 other expense . during the year ended december 31 , 2009 , we incurred other expense of $ 130,000 which represents the estimated
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recent developments acquisition of wellspring pharma services inc. on august 6 , 2018 , our subsidiary , ani canada , acquired all the issued and outstanding equity interests of wellspring , a canadian company that performs contract development and manufacturing of pharmaceutical products for a purchase price of $ 18.0 million , subject to certain customary adjustments . pursuant to these customary adjustments , the total purchase consideration was $ 16.7 million . the consideration was paid entirely from cash on hand . in conjunction with the transaction , we acquired wellspring 's pharmaceutical manufacturing facility , laboratory , and offices , its current book of commercial business , as well as an organized workforce . following the consummation of the transaction , wellspring was merged into ani canada with the resulting entity 's name being ani pharmaceuticals canada inc. we acquired wellspring to provide an additional tech transfer site in order to accelerate the re-commercialization of the previously-approved andas in our pipeline , to expand our contract manufacturing revenue base , and to broaden our manufacturing capabilities to three manufacturing facilities . asset acquisitions in april 2018 , we entered into an agreement with impax laboratories , inc. ( now amneal pharmaceuticals , inc. , or “ amneal ” ) to purchase the approved andas for three previously-commercialized generic drug products , the approved andas for two generic drug products that have not yet been commercialized , the development package for one generic drug product , a license , supply , and distribution agreement for a generic drug product with an anda that is pending approval , and certain manufacturing equipment required to manufacture one of the products , for $ 2.3 million in cash up front . the transaction closed in may 2018 and we made the $ 2.3 million payment using cash on hand . at the same time , we entered into a supply agreement with amneal under which we may elect to purchase the finished goods for one of the products for up to 17 months beginning october 1 , 2019 , under certain conditions . if we do elect to purchase the finished goods from amneal for this period , we may be required to pay a milestone payment of up to $ 10.0 million upon launch , depending on the number of competitors selling the product at the time of launch . in april 2018 , we entered into an agreement with idt australia , limited to purchase the andas for 23 previously-marketed generic drug products and active pharmaceutical ingredient ( “ api ” ) of four of the acquired products for $ 2.7 million in cash and a single-digit royalty on net profits from sales of one of the products . the transaction closed in april 2018 and we made the $ 2.7 million payment using cash on hand . amendment to teva pharmaceuticals asset purchase agreement in january 2019 , we entered into amendment no . 4 to our asset purchase agreement with teva pharmaceuticals usa , inc. ( “ teva ” ) . under the terms of the purchase agreement amendment , all royalty obligations of the company owed to teva with respect to products associated with ten andas under the asset purchase agreement shall cease effective as of december 31 , 2018. in consideration for the termination of such future royalty obligations , we paid teva a sum of $ 16.0 million . product launches in october 2018 , we launched candesartan hydrochlorothiazide tablets , 16mg/12.5mg , 32mg/12.5mg , and 32mg/25mg , an authorized generic of atacand hct , for the treatment of hypertension . in october 2018 , we launched terbutaline sulfate tablets usp , 2.5mg and 5mg , an authorized generic of brethine® . terbutaline sulfate is indicated for the prevention and reversal of bronchospasm in patients 12 years of age and older with asthma and reversible bronchospasm associated with bronchitis and emphysema . 43 in august 2018 , we launched morphine sulfate oral solution 10mg/5ml , 20mg/5ml and 100mg/5ml . morphine sulfate oral solution is indicated for the management of acute and chronic pain severe enough to require an opioid analgesic and for which alternative treatments are inadequate . morphine sulfate oral solution 100 mg per 5 ml ( 20 mg/ml ) is indicated for the relief of acute and chronic pain in opioid-tolerant patients . in june 2018 , we launched cholestyramine for oral suspension . cholestyramine for oral suspension usp is indicated as adjunctive therapy to diet for the reduction of elevated serum cholesterol in patients with primary hypercholesterolemia ( elevated low-density lipoprotein “ ldl ” cholesterol ) who do not respond adequately to diet . it is also indicated for the relief of pruritus associated with partial biliary obstruction . cortrophin gel re-commercialization update in the fourth quarter of 2018 , we completed our first commercial scale batch of corticotropin api , which met specifications and was analytically-consistent with commercial api batches from the legacy api commercial manufacturer . we continue to manufacture additional commercial scale batches of corticotropin api and are on track to initiate api process validation and registration batch manufacturing in the first quarter of 2019. we have completed validation for some api analytical methods to be used for api batch release and stability testing and will validate the remaining api release methods in the first quarter of 2019 , prior to initiation of process validation and registration batch manufacturing . commercial scale registration batch manufacturing and process validation for cortrophin gel is scheduled to begin in the second quarter of 2019. vancocin oral solution update we are currently advancing a commercialization effort for vancocin oral solution . we filed a prior approval supplement ( “ pas ” ) for the product in september 2018. this product will be manufactured at our site in baudette , minnesota . 44 story_separator_special_tag pharmaceutical products . story_separator_special_tag in 2019 , we anticipate a decrease in royalty and other income primarily related to the launch of atacand , atacand hct , arimidex , and casodex under our own label in 2018. as described in item 1. business – government regulations – unapproved products , we receive royalties on the net sales of a group of contract-manufactured products , which are marketed by the customer without an fda-approved nda . if the fda took enforcement action against such customer , the customer may be required to seek fda approval for the group of products or withdraw them from the market . our royalties on the net sales of these unapproved products were less than 1 % of total revenues for the years ended december 31 , 2018 and 2017. cost of sales ( excluding depreciation and amortization ) years ended december 31 , ( in thousands ) 2018 2017 change % change cost of sales ( excl . depreciation and amortization ) $ 73,024 $ 79,032 $ ( 6,008 ) ( 7.6 ) % cost of sales consists of direct labor , including manufacturing and packaging , active and inactive pharmaceutical ingredients , freight costs , packaging components , and royalties related to profit-sharing arrangements . cost of sales does not include depreciation and amortization expense , which is reported as a separate component of operating expenses on our consolidated statements of operations . for the year ended december 31 , 2018 , cost of sales decreased to $ 73.0 million from $ 79.0 million for the same period in 2017 , a decrease of $ 6.0 million or 7.6 % , primarily due to lower sales of products subject to profit-sharing arrangements , as well as the lack of $ 7.5 million of costs of sales related to the excess of fair value over cost on inderal xl and innopran xl inventory , which impacted 2017. this decrease was tempered by $ 5.6 million of cost of sales related to the excess of fair value over costs on inderal xl and innopran xl inventory and the write-off of remaining inventory acquired as part of the acquisition when we re-launched the products under our own label during the first quarter of 2018. cost of sales as a percentage of net revenues decreased to 36.2 % during the year ended december 31 , 2018 , from 44.7 % during same period in 2017 , primarily as a result of increased royalty income and a change in product mix towards higher-margin brand products and lower sales of products subject to profit-sharing arrangements . cost of sales for the year ended december 31 , 2017 also included $ 7.5 million net impact on cost of sales ( 5.9 % as a percent of net revenues ) of the excess of fair value over cost for inderal xl and innopran xl inventory sold during the period . 47 we source the raw materials for our products from both domestic and international suppliers , which we carefully select . generally , we qualify only a single source of api for use in each product due to the cost and time required to validate and qualify a second source of supply . any change in one of our api suppliers must usually be approved through a pas by the fda . the process of obtaining an approval of such a pas can require between four and 18 months . while we also generally qualify a single source for non-api raw materials , the process required to qualify an alternative source of a non-api raw material is typically much less rigorous . if we were to change the supplier of a raw material for a product , the cost for the material could be greater than the amount we paid with the previous supplier . changes in suppliers are rare , but could occur as a result of a supplier 's business failing , an issue arising from an fda inspection , or failure to maintain our required standards of quality . as a result , we select suppliers with great care , based on various factors including quality , reliability of supply , and long-term financial stability . certain of the apis for our drug products , including those that are marketed without approved ndas or andas , such as eemt , are sourced from international suppliers . from time to time , we have experienced temporary disruptions in the supply of certain of such imported api due to fda inspections . during the year ended december 31 , 2018 , we purchased 13 % of our inventory from one supplier . as of december 31 , 2018 , amounts payable to this supplier was immaterial . in the year ended december 31 , 2017 , we purchased 23 % of our inventory from two suppliers . in order to manufacture morphine sulfate oral solution , opium tincture , oxycodone hydrochloride oral solution ( 5 mg/5 ml ) , oxycodone hydrochloride oral solution ( 100 mg/5 ml ) , and oxycodone hydrochloride capsules , we must submit a request to the drug enforcement agency ( “ dea ” ) for a quota to purchase the amount of morphine sulfate , opium , and oxycodone hydrochloride needed to manufacture the respective products . without approved quotas from the dea , we would not be able to purchase these ingredients from our suppliers . as a result , we are dependent upon the dea to annually approve a sufficient quota of api to support the continued manufacture of morphine sulfate oral solution , opium tincture , oxycodone hydrochloride oral solution ( 5 mg/5 ml ) , oxycodone hydrochloride oral solution ( 100 mg/5 ml ) , and oxycodone hydrochloride capsules . other operating expenses replace_table_token_5_th other operating expenses consist of research and development costs , selling , general , and administrative expenses , depreciation and amortization , and impairment charges .
| under this policy , the fda has stated that it will follow a risk-based approach with regard to enforcement against marketing of unapproved products . the fda evaluates whether to initiate enforcement action on a case-by-case basis , but gives higher priority to enforcement action against products in certain categories , such as those with potential safety risks or that lack evidence of effectiveness . while we believe that , so long as we comply with applicable manufacturing standards , the fda will not take action against us under the current enforcement policy , we can offer no assurances that the fda will continue this policy or not take a contrary position with any individual product or group of products . our combined net revenues for these products for the years ended december 31 , 2018 and 2017 were $ 24.9 million and $ 27.6 million , respectively . · net revenues for branded pharmaceutical products were $ 60.6 million during the year ended december 31 , 2018 an increase of 18.9 % compared to the $ 50.9 million for the same period in 2017. the primary reason for the increase was sales of arimidex and casodex , which were launched under our label in july 2018 , sales of atacand and atacand hct , which were launched under our label in october 2018 , and sales of inderal xl and innopran xl , both of which were acquired in the first quarter of 2017 , and which were re-launched under our label in the first quarter of 2018. these increases were tempered by lower unit sales of inderal la and vancocin . in 2019 , we anticipate increases in branded pharmaceutical product revenues related to a full year of sales of atacand , atacand hct , arimidex , and casodex , all of which were launched under our label in 2018 . 46 · contract manufacturing revenues were $ 9.1 million during the year ended december 31 , 2018 , an increase of
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the cancellation of all existing shares outstanding on the effective date and issuance of new shares in the reorganized company caused a related change of control under us gaap . as a result of the application of fresh start accounting , as well as the effects of the implementation of the plan , our consolidated financial statements on or after october 21 , 2016 , are not comparable with our consolidated financial statements prior to that date . stock listing our common stock was listed on the nyse on april 25 , 2012 through february 3 , 2016 , under the symbol mpo . on february 3 , 2016 , our stock was delisted by the nyse and began trading on the otc pink market under the symbol mpoy through october 21 , 2016. on october 21 , 2016 , in connection with our emergence from chapter 11 , our existing common shares traded under the symbol mpoy were cancelled . on october 24 , 2016 , our newly issued shares of common stock in the reorganized equity were listed and began trading on the nyse mkt under the symbol mpo . on may 4 , 2017 , our common stock began trading on the nyse under the symbol mpo . story_separator_special_tag face= '' times new roman '' size= '' 2 '' style= '' font-size:10.0pt ; '' > for the predecessor period , our oil sales revenues were $ 112.6 million . our oil revenue was comprised of $ 91.5 million from our mississippian lime assets and $ 21.1 million from our anadarko basin assets . ngls revenues year ended december 31 , 2018 as compared to the year ended december 31 , 2017 our ngls sales revenues increased by $ 0.6 million , or 1.4 % , to $ 44.7 million during the year ended december 31 , 2018 , as compared to $ 44.1 million for the year ended december 31 , 2017. our average ngls volumes sold decreased by 308 bbls/d or 5.8 % compared to prior year , primarily due to lower yields of ngls from our natural gas stream . ngls volumes sold decreased from december 31 , 2017 , primarily due to lower production as a result of reduced drilling activity and natural decline . average ngls sales prices , without realized derivatives and certain deductions , increased $ 4.98 or 22.0 % compared to prior year primarily as a result of significant increases in prevailing market prices for oil , which correlate with ngls pricing . successor period for the successor period , our ngls sales revenues were $ 8.4 million . our ngls revenue was comprised of $ 6.8 million from our mississippian lime assets and $ 1.6 million from our anadarko basin assets . predecessor period for the predecessor period , our ngls sales revenues were $ 27.5 million . our ngls revenue was comprised of $ 22.5 million from our mississippian lime assets and $ 5.0 million from our anadarko basin assets . natural gas revenues year ended december 31 , 2018 as compared to the year ended december 31 , 2017 our natural gas sales revenues decreased by $ 27.6 million , or 46.2 % , to $ 32.1 million during the year ended december 31 , 2018 , as compared to $ 59.7 million for the year ended december 31 , 2017. our average natural gas volumes sold decreased by 5,776 mcf/d , or 9.3 % compared to prior year , primarily due to lower production as a result of reduced drilling activity and natural decline . average natural gas sales prices , without realized derivatives and certain deductions , decreased $ 0.25 , or 9.5 % compared to prior year primarily due to lower prevailing index prices at our delivery points . beginning january 1 , 2018 , we adopted asc 606 , and as a result , $ 12.4 million in gathering and transportation expenses for the year ended december 31 , 2018 , are now being netted against gas sales revenue . see note 5. impact of asc 606 adoption in the notes to the consolidated financial statements set forth in part iv , item 15 of this annual report on form 10-k for further details . successor period for the successor period , our natural gas sales revenues were $ 13.6 million . our natural gas revenue was comprised of $ 11.8 million from our mississippian lime assets and $ 1.8 million from our anadarko basin assets . predecessor period for the predecessor period , our natural gas sales revenues were $ 48.3 million . our natural gas revenue was comprised of $ 42.6 million from our mississippian lime assets and $ 5.7 million from our anadarko basin assets . 46 gains/losses on commodity derivative contractsnet we currently utilize commodity derivatives to reduce our exposure to fluctuations in the prices of oil and natural gas . accordingly , our income statements reflect ( i ) the recognition of unrealized gains and losses associated with our open derivative contracts as commodity prices change and commodity derivatives contracts expire or new ones are entered into , and ( ii ) our realized gains or losses on the settlement of these commodity derivative contracts . unrealized gains and losses result from changes in market valuations of derivatives as future commodity price expectations change compared to the contract prices on the derivatives . if the expected future commodity prices increase compared to the contract prices on the derivatives , unrealized losses are recognized . conversely , if the expected future commodity prices decrease compared to the contract prices on the derivatives , unrealized gains are recognized . since we have elected not to apply hedge accounting to our derivatives , we reflect the unrealized and realized gains and losses in our current income statement periods based on the mark-to-market ( mtm ) value at the end of each month . cash flows associated with derivative financial instruments are reflected in cash flows from operations in our consolidated statements of cash flows . story_separator_special_tag we had open derivative contracts at december 31 , 2018 and 2017. our open derivative contracts at december 31 , 2018 extend through december 2020. we did not have any open commodity derivative contract positions at december 31 , 2016. the following table sets forth the components of our realized gain on commodity derivative contracts , net in our consolidated statements of operations ( in thousands ) : replace_table_token_18_th cash settlements , as presented in the table above , represent realized gains/losses related to our derivative instruments . in addition to cash settlements , we also recognize fair value changes on our derivative instruments in each reporting period . the changes in fair value result from new positions and settlements that may occur during each reporting period , as well as the relationships between contract prices and the associated forward curves . other revenues year ended december 31 , 2018 as compared to the year ended december 31 , 2017 our other revenues increased by $ 0.1 million , or 2.4 % , to $ 4.3 million during the year ended december 31 , 2018 , as compared to $ 4.2 million for the year ended december 31 , 2017. other revenue for the year ended december 31 , 2018 and 2017 , was primarily comprised of fees charged to other working interest owners for salt water disposal . successor period for the successor period , other revenues were $ 1.0 million . other revenue for the successor period was primarily comprised of fees charged to other working interest owners for salt water disposal . predecessor period for the predecessor period , other revenues were $ 4.8 million . other revenue for the predecessor period was primarily comprised of fees charged to other working interest owners for salt water disposal . 47 expenses replace_table_token_19_th lease operating and workover lease operating expenses represent costs incurred to bring oil and gas out of the ground and to the market , together with the daily costs incurred to maintain our producing properties . lease operating expenses include both a portion of costs that are fixed in nature , such as infrastructure costs , as well as variable costs resulting from additional wells and production , such as chemicals and electricity , which are primarily associated with the production of produced water . the production of hydrocarbons in our operating area results in a significant amount of produced water . our lease operating expenses are primarily driven by the handling and disposal of this produced water . as oil , ngls , and natural gas production increases , our average lease operating expense per barrel of oil equivalent is typically reduced because fixed costs do not increase proportionately with production . workover expense includes major remedial operations on a completed well to restore , maintain , or improve a well 's production and is closely correlated to the levels of workover activity . because workover projects are pursued on an as needed basis and are not regularly scheduled , workover expense is not necessarily comparable from period to period . year ended december 31 , 2018 as compared to the year ended december 31 , 2017 lease operating and workover expenses decreased $ 9.1 million , or 14.4 % , to $ 54.2 million , or $ 8.14 per boe , during the year ended december 31 , 2018 as compared to $ 63.3 million , or $ 7.83 per boe , for the year ended december 31 , 2017. lease operating and workover expense were down from prior year due to the lincoln county divestiture and the andarko basin divestiture . lease operating expense were also impacted by a decrease in production of 17.6 % during the year ended december 31 , 2018. workover expenses increased $ 3.0 million , or 34 % , to $ 11.9 million during december 31 , 2018 compared to $ 8.9 million for the year ended december 31 , 2017 as a result of our enhanced workover plan that we executed during the first half of 2018. successor period for the successor period , our lease operating and workover expenses were $ 15.3 million at a cost of $ 8.52 per boe . lease operating and workover expenses for the successor period were impacted by weather disruptions , which lowered production and increased costs during the period . predecessor period for the predecessor period , our lease operating and workover expenses were $ 52.8 million at a cost of $ 6.02 per boe . 48 gathering and transportation gathering and transportation costs are incurred for the movement of natural gas to the contractual delivery point . for the year ended december 31 , 2018 , 2017 , the successor period and the predecessor period , these costs relate to the amended gas transportation , gathering and processing contract which commenced during the third quarter of 2013 in our mississippian lime assets . year ended december 31 , 2018 as compared to the year ended december 31 , 2017 gathering and transportation expenses decreased $ 14.3 million , or 98.6 % , to $ 0.2 million , or $ 0.04 per boe , during the year ended december 31 , 2018 as compared to $ 14.5 million , or $ 1.79 per boe , for the year ended december 31 , 2017. gathering and transportation expenses decreased for the year ended december 31 , 2018 , primarily as a result of our adoption of asc 606 on january 1 , 2018. as a result , $ 12.4 million in gathering and transportation expenses for the year ended december 31 , 2018 , are reflected as a decrease in oil , ngls and natural gas sales in the consolidated statements of operations . gathering and transportation , excluding adjustments for asc 606 , decreased $ 1.9 million for the year ended december 31 , 2018 , due to a decrease in natural gas production in our mississippian lime asset .
| 42 the following table sets forth information regarding our oil , ngls and natural gas revenues for the year ended december 31 , 2018 , 2017 , the successor period and the predecessor period ( in thousands ) : replace_table_token_13_th ( 1 ) changes due to the price of natural gas for the year ended december 31 , 2018 , which includes $ 12.4 million , of gathering and transportation expense that as a result of asc 606 , are being net against revenues in the consolidated statements of operations . oil , ngls and natural gas included $ 0.2 million for the year ended december 31 , 2018 , of lease operating expenses that are now being netted against revenues in the consolidated statements of operations . see critical accounting policies and estimates below as well as recent accounting pronouncements adopted during the period in note 4. summary of significant accounting policies in the notes to the consolidated financial statements set forth in part iv , item 15 of this annual report on form 10-k for further details . oil , ngls and natural gas pricing the following table sets forth information regarding average realized sales prices for the year ended december 31 , 2018 , 2017 , the successor period and the predecessor period : replace_table_token_14_th 43 ( 1 ) average realized prices for the year ended december 31 , 2017 , were based upon revenues as presented under asc 605. as a result , the appropriate realized price for comparison purposes with december 31 , 2018 , is the average sale price exclusive of realized derivatives and certain deductions from revenue . see critical accounting policies and estimates below as well as recent accounting pronouncements adopted during the period in note 4. summary of significant accounting policies in the notes to the consolidated financial statements set forth in part iv , item 15 of this annual report on form 10-k for further details . oil , ngls and natural gas production replace_table_token_15_th crude oil prices the majority of our crude oil production is sold at prevailing market prices with an adjustment
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in the ordinary course of business , we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the united states . we base our estimates on historical experiences and on various other assumptions ( including future earnings ) that we believe are reasonable under the circumstances . the results of these assumptions form the basis for making judgments about the carrying values of assets and liabilities , including contingent assets and liabilities such as contingent consideration liabilities from acquisitions , which are not readily apparent from other sources . actual results could differ significantly from those estimates under different assumptions and conditions . we believe that the following discussion addresses our most critical accounting policies , which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult , subjective , and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . revenue recognition we recognize revenue from boat , motor , and trailer sales and parts and service operations at the time the boat , motor , trailer , or part is delivered to or accepted by the customer or the service is completed . we recognize deferred revenue from service operations and slip and storage services on a straight-line basis over the term of the contract as services are completed . we recognize commissions earned from a brokerage sale at the time the related brokerage transaction closes . we recognize commissions earned by us for placing notes with financial institutions in connection with customer boat financing when we recognize the related boat sales . we recognize marketing fees earned on credit , life , accident , disability , gap , and hull insurance products sold by third-party insurance companies at the later of customer acceptance of the insurance product as evidenced by contract execution or when the related boat sale is recognized . we recognize income from the rentals of chartering power yachts on a straight-line basis over the term of the contract as services are completed . we also recognize commissions earned on extended warranty service contracts sold on behalf of third-party insurance companies at the later of customer acceptance of the service contract terms as evidenced by contract execution or recognition of the related boat sale . certain finance and extended warranty commissions and marketing fees on insurance products may be charged back if a customer terminates or defaults on the underlying contract within a specified period of time . based upon our experience of terminations and defaults , we maintain a chargeback allowance that was not material to our financial statements taken as a whole as of september 30 , 2018. should results differ materially from our historical experiences , we would need to modify our estimate of future chargebacks , which could have a material adverse effect on our operating margins . we do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions we use to calculate our estimate of future chargebacks which would result in a material effect on our operating results . vendor consideration received we account for consideration received from our vendors in accordance with fasb accounting standards codification 605-50 , “ revenue recognition - customer payments and incentives ” ( “ asc 605-50 ” ) . asc 605-50 requires us to classify interest assistance received from manufacturers as a reduction of inventory cost and related cost of sales as opposed to netting the assistance against our interest expense incurred with our lenders . pursuant to asc 605-50 , amounts received by us under our co-op assistance programs from our manufacturers are netted against related advertising expenses . our consideration received from our vendors contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding a number of factors , including our ability to collect amounts due from vendors and the ability to meet certain criteria stipulated by our vendors . we do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions we use to calculate our vendor considerations which would result in a material effect on our operating results . accounting for consideration received is not expected to materially change with the adoption of asu 2014-09 , “ revenue from contracts with customers ( topic 606 ) ” , in fiscal 2019 . 44 inventories inventory costs consist of the amount paid to acquire inventory , net of vendor consideration and purchase discounts , the cost of equipment added , reconditioning costs , and transportation costs relating to acquiring inventory for sale . we state new and used boat , motor , and trailer inventories at the lower of cost , determined on a specific-identification basis , or net realizable value . we state parts and accessories at the lower of cost , determined on an average cost basis , or net realizable value . we utilize our historical experience , the aging of the inventories , and our consideration of current market trends as the basis for determining a lower of cost or net realizable value valuation allowance . our lower of cost or net realizable value valuation allowance contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding the amount at which the inventory will ultimately be sold which considers forecasted market trends , model changes , and new product introductions . we do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions we use to calculate our lower of cost or net realizable value valuation allowance which would result in a material effect on our operating results . story_separator_special_tag as of september 30 , 2017 and september 30 , 2018 , our lower of cost or net realizable value valuation allowance for new and used boat , motor , and trailer inventories was $ 1.8 million and $ 1.5 million , respectively . if events occur and market conditions change , causing the fair value to fall below carrying value , the lower of cost or net realizable value valuation allowance could increase . goodwill we account for goodwill in accordance with fasb accounting standards codification 350 , “ intangibles - goodwill and other ” ( “ asc 350 ” ) , which provides that the excess of cost over net assets of businesses acquired is recorded as goodwill . in january 2017 , we purchased hall marine group , a privately owned boat dealer in the southeast united states with locations in north carolina , south carolina , and georgia , resulting in the recording of $ 16.0 million in goodwill . in january 2018 , we purchased island marine center , a privately owned boat dealer located in new jersey resulting in the recording of $ 1.3 million in goodwill . in total , current and previous acquisitions have resulted in the recording of $ 27.4 million in goodwill . in accordance with asc 350 , we review goodwill for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable . our annual impairment test is performed during the fourth fiscal quarter . if the carrying amount of goodwill exceeds its fair value we would recognize an impairment loss in accordance with asc 350. as of september 30 , 2018 , and based upon our most recent analysis , we determined through our qualitative assessment that it is not “ more likely than not ” that the fair values of our reporting units are less than their carrying values . as a result , we were not required to perform a quantitative goodwill impairment test . the qualitative assessment requires us to make judgments and assumptions regarding macroeconomic and industry conditions , our financial performance , and other factors . we do not believe there is a reasonable likelihood that there will be a change in the judgments and assumptions used in our qualitative assessment which would result in a material effect on our operating results . impairment of long-lived assets fasb accounting standards codification 360-10-40 , “ property , plant , and equipment - impairment or disposal of long-lived assets ” ( “ asc 360-10-40 ” ) , requires that long-lived assets , such as property and equipment and purchased intangibles subject to amortization , be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of the asset is measured by comparison of its carrying amount to undiscounted future net cash flows the asset is expected to generate . if such assets are considered to be impaired , the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair market value . estimates of expected future cash flows represent our best estimate based on currently available information and reasonable and supportable assumptions . our impairment loss calculations contain uncertainties because they require us to make assumptions and to apply judgment in order to estimate expected future cash flows . any impairment recognized in accordance with asc 360-10-40 is permanent and may not be restored . the analysis is performed at a regional level for indicators of permanent impairment given the geographical interdependencies among our locations . based upon our most recent analysis , we believe no impairment of long-lived assets existed as of september 30 , 2018. we do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions used to test for recoverability which would result in a material effect on our operating results . 45 stock-based compensation we account for our stock-based compensation plans following the provisions of fasb accounting standards codification 718 , “ compensation — stock compensation ” ( “ asc 718 ” ) . in accordance with asc 718 , we use the black-scholes valuation model for valuing all stock-based compensation and shares purchased under our employee stock purchase plan . we measure compensation for restricted stock awards and restricted stock units at fair value on the grant date based on the number of shares expected to vest and the quoted market price of our common stock . we recognize compensation cost for all awards in operations , net of estimated forfeitures , on a straight-line basis over the requisite service period for each separately vesting portion of the award . our valuation models and generally accepted valuation techniques require us to make assumptions and to apply judgment to determine the fair value of our awards . these assumptions and judgments include estimating the volatility of our stock price , expected dividend yield , employee turnover rates and employee stock option exercise behaviors . we do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions we use to calculate our stock-based compensation which would result in a material effect on our operating results . income taxes we account for income taxes in accordance with fasb accounting standards codification 740 , “ income taxes ” ( “ asc 740 ” ) . under asc 740 , we recognize deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . we measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect those temporary differences to be recovered or settled . we record valuation allowances to reduce our deferred tax assets to the amount expected to be realized by considering all available positive and negative evidence .
| selling , general , and administrative expenses increased $ 15.0 million , or 6.8 % , to $ 235.0 million for the fiscal year ended september 30 , 2018 from $ 220.0 million for the fiscal year ended september 30 , 2017. selling , general , and administrative expenses for the fiscal year ended september 30 , 2018 , included $ 1.4 million of adjustments related to contingent consideration obligations , which reduced expenses , partially offset by a $ 1.2 million increase in non-recurring unusual costs . additionally , selling , general , and administrative expenses for the fiscal year ended september 30 , 2017 included $ 2.9 million of expenses as a result of losses from hurricane irma . excluding these items and making both years comparable , selling , general , and administrative expenses increased $ 18.1 million , or 8.4 % , to $ 235.3 million and as a percentage of revenue decreased to 20.0 % for the fiscal year ended september 30 , 2018 , from 20.6 % for the fiscal year ended september 30 , 2017 . the increase in selling , general , and administrative expenses was primarily attributable to increased commissions resulting from increased new and used boat sales , increased compensation due to improved performance , and increased health care costs due to rising claims . the decrease in selling , general , and administrative expenses as a percentage of revenue was driven by increased efficiencies and operating leverage in the business . interest expense . interest expense increased $ 2.4 million , or 32.4 % , to $ 9.9 million for the fiscal year ended september 30 , 2018 , from $ 7.5 million for the fiscal year ended september 30 , 2017. interest expense as a percentage of revenue increased to 0.8 % for the fiscal year ended september 30 , 2018 , from 0.7 % for the fiscal year ended september 30 , 2017. the increase in interest expense was primarily the result of increased borrowings and increases in interest rates . income taxes . income tax expense decreased $ 293,000 , or 2.1 % , to $ 14.0 million for the fiscal year ended september 30 , 2018 from $ 14.3 million
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the effects of the covid-19 pandemic on our business , financial condition and results of operations in future periods may continue to be significant based upon the significant volatility , uncertainty and potential economic disruption caused by the pandemic . see “ comparison of results of operations for fiscal years 2020 and 2019 ” of this report for a further discussion of the impact of the covid-19 pandemic on our business , results of operations and financial condition . impact of cares act and international wage subsidies in march 2020 , the u.s. enacted the coronavirus aid , relief , and economic security act ( the “ cares act ” ) . the cares act was passed to protect americans from the public health and economic impacts of covid-19 . the cares act provides for fast and direct assistance for american workers , families and small businesses , and preserves jobs for american industries . as related to the preservation of jobs for american industries , the cares act includes the enactment of an employee retention feature , a payroll tax deferral opportunity and , in certain instances , payroll support and business loans . the payroll tax deferral opportunity in the cares act enables businesses to enhance their cash flow by permitting the cash deferral of the payment of the employer 's share of the social security tax they otherwise would be responsible for paying to the federal government with respect to their employees . the amount of the cash deferral will be paid over the next two years , with 50 % of the amount to be paid by december 31 , 2021 and the remaining 50 % by december 31 , 2022. in april 2020 , we elected to defer our share of the employers ' social security tax relating to wages paid to our employees . the total cash deferral as of december 31 , 2020 is $ 5.5 million , which we plan to pay equally by december 31 , 2021 and 2022 . 31 index the employee retention feature of the cares act enables employers to obtain a tax credit for wages paid to employees unable to provide services to the company as a result of covid-19 . the tax credit is limited to 50 % of up to $ 10,000 of wages per employee paid , or incurred , from march 13 , 2020 through december 31 , 2020. although our manufacturing facilities were deemed to be an essential business and continued to operate , our headquarters in long island city , new york were forced to close under the new york state shelter-in-place mandate by the governor , which resulted in a $ 0.9 million tax credit as of december 31 , 2020. additionally , we filed for wage subsidies in canada and poland under laws in those countries . after qualifying , in august 2020 , we received a wage subsidy of cnd $ 1.7 million ( approximately us $ 1.3 million ) from the canadian government , and a wage subsidy of zloty 2.8 million ( approximately us $ 0.7 million ) from the polish government . impact of changes in u.s. trade policy changes in u.s. trade policy , particularly as it relates to china , as with much of our industry , have resulted in the assessment of increased tariffs on goods that we import into the united states . although our operating results in 2020 have been only slightly impacted by the tariff costs associated with chinese sourced products , we have taken , and continue to take , several actions to mitigate the impact of the increased tariffs , including but not limited to , price increases to our customers . we do not anticipate that the increased tariffs will have a significant impact on our future operating results . although we are confident that we will be able to pass along the impact of the increased tariffs to our customers , there can be no assurances that we will be able to pass on the entire increased costs imposed by the tariffs . 32 index comparison of results of operations for fiscal years 2020 and 2019 sales . consolidated net sales for 2020 were $ 1,128.6 million , a decrease of $ 9.3 million , or 0.8 % , compared to $ 1,137.9 million in the same period of 2019 , with the majority of our net sales to customers located in the united states . consolidated net sales decreased in our engine management segment and increased in our temperature control segment . the following table summarizes consolidated net sales by segment and by major product group within each segment for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_5_th engine management 's net sales decreased $ 13.5 million , or 1.6 % , to $ 835.7 million for the year ended december 31 , 2020. net sales in ignition , emission control , fuel and safety related system products for the year ended december 31 , 2020 were $ 691.7 million , a decrease of $ 14.3 million , or 2 % , compared to $ 706 million in the same period of 2019. net sales in the wire and cable product group for the year ended december 31 , 2020 were $ 144 million , an increase of $ 0.8 million , or 0.6 % , compared to $ 143.2 million in the same period of 2019. engine management 's decrease in net sales for the year ended december 31 , 2020 compared to the same period in 2019 results primarily from lower year-over-year net sales in the second quarter of 2020 reflective of the impact of the covid-19 pandemic and the resulting national and regional shelter-in-place orders related thereto . story_separator_special_tag after a downturn in net sales initially in the second quarter of 2020 due to impact of the covid-19 pandemic , customer orders strengthened in the last half of the second quarter and continued throughout the second half of 2020 , resulting in strong engine management net sales in the second half of 2020 , which have largely offset the steep declines experienced earlier in the year . temperature control 's net sales increased $ 3.6 million , or 1.3 % , to $ 282 million for the year ended december 31 , 2020. net sales in the compressors product group for the year ended december 31 , 2020 were $ 163.1 million , an increase of $ 2.6 million , or 1.6 % , compared to $ 160.5 million in the same period of 2019. net sales in the other climate control parts group for the year ended december 31 , 2020 were $ 118.9 million , an increase of $ 1 million , or 0.9 % , compared to $ 117.9 million for the year ended december 31 , 2019. temperature control 's increase in net sales for the year ended december 31 , 2020 , when compared to the same period in 2019 , reflects the impact of a strong second half of the year after a significant year-over-year decrease in net sales in the first and second quarters of 2020. the lower year-over-year net sales in the first half of 2020 reflects the impact of strong pre-season orders in the first quarter of 2019 that did not recur in the first quarter of 2020 ; and the impact in the second quarter of 2020 of the covid-19 pandemic and resulting national and regional shelter-in-place orders related thereto . after a downturn in net sales in the first quarter of 2020 , and initially in the second quarter of 2020 due to impact of the covid-19 pandemic , temperature control 's net sales strengthened in the last half of the second quarter and continued throughout the second half of 2020 , aided by the impact of very warm summer weather conditions , which more than offset the declines earlier in the year . demand for our temperature control products may vary significantly with summer weather conditions and customer inventory levels . 33 index margins . gross margins , as a percentage of consolidated net sales , increased to 29.8 % for 2020 , compared to 29.2 % for 2019. the following table summarizes gross margins by segment for the years ended december 31 , 2020 and 2019 , respectively ( in thousands ) : replace_table_token_6_th ( a ) segment net sales include intersegment sales in our engine management and temperature control segments . compared to 2019 , gross margins at engine management increased 0.5 percentage points from 29.6 % to 30.1 % , while gross margins at temperature control increased 1.5 percentage points from 25.2 % to 26.7 % . the gross margin percentage increases at both engine management and temperature control reflect the impact of improved year-over-year absorption in the third and fourth quarters of 2020 , as production volumes increased due to higher year-over-year customer demand , which more than offset the decline in gross margins in the second quarter of 2020 caused by lower absorption and production volumes . the lower production volume at both engine management and temperature control in the second quarter of 2020 was reflective of the general slowdown in the worldwide economy caused by the covid-19 pandemic , as we temporarily reduced production levels in several of our facilities in line with lower customer demand . as customer demand began to increase , the production levels at all of our facilities were adjusted to meet the increase in customer demand , resulting in higher year-over-year production volumes in the second half of 2020. selling , general and administrative expenses . selling , general and administrative expenses ( “ sg & a ” ) decreased to $ 224.7 million , or 19.9 % of consolidated net sales in 2020 , as compared to $ 234.7 million , or 20.6 % of consolidated net sales in 2019. the $ 10 million decrease in sg & a expenses as compared to 2019 is principally due to lower selling and marketing expenses , lower costs incurred related to our accounts receivable supply chain financing arrangements resulting primarily from lower discount rates , annual savings initiatives , and to a lesser extent by certain non-recurring benefits from cost reduction initiatives . these decreases more than offset the impact of slightly higher distribution expenses , covid-19 related costs , and $ 1.1 million of incremental expenses from our april 2019 acquisition of certain assets and liabilities of the pollak business of stoneridge inc. , including amortization of intangible assets acquired . intangible asset impairment . in december 2020 , a large retail customer informed us of its decision to pursue a private brand strategy for its engine management product line . as a result of this development , we anticipate that products sold under the bwd trademark will be significantly reduced and uncertain beyond the first quarter of 2021. in connection with the decision , we recorded an impairment charge of $ 2.6 million in 2020. restructuring and integration expenses . restructuring and integration expenses were $ 0.5 million in 2020 compared to restructuring and integration expenses of $ 2.6 million in 2019. restructuring and integration expenses incurred in 2020 relate to ( 1 ) $ 0.3 million in environmental cleanup costs for ongoing monitoring and remediation in connection with the prior closure of our manufacturing operations at our long island city , new york location , and ( 2 ) $ 0.2 million in costs related to the residual relocation activities in our engine management segment in connection with our integration of the pollak business of stoneridge , inc. , acquired in april 2019. restructuring and integration expenses incurred in 2019 of $ 2.6 million consisted of ( 1 ) $ 2.2 million of expenses related to relocation of certain inventory , machinery and equipment acquired in our | to maintain our strong competitive position , we remain committed to the following : providing our customers with full-line coverage of high quality engine management and temperature control products and new technologies for all years , makes and models of vehicles on the road ; supporting our products with the highest level of value-added services ; supply chain excellence through supplier and customer focused initiatives , and continuing to maximize our production , supply chain and distribution efficiencies ; continuing to improve our cost position through increased global sourcing , increased manufacturing at our low-cost plants , and strategic transactions with manufacturers in low-cost regions ; and focusing on our engineering development efforts including a focus on bringing more product manufacturing in-house . provide superior value-added services and product availability . our goal is to increase sales to existing and new customers by leveraging our skills in rapidly filling orders , maintaining high levels of product availability and offering a product portfolio that provides comprehensive coverage for all vehicle applications . our marketing support provides insightful customer category management , technical support and award-winning programs , and our technically skilled sales personnel provide our customers with product selection , assortment and application support related to our products . in addition , we have a team dedicated to providing technical training on diagnosing and repairing vehicles equipped with complex systems . 28 index expand our product lines . vehicle manufacturers continue to introduce new technologies and systems creating opportunities for us to expand our product lines . in addition , we intend to increase our sales by continuing to develop internally , or through potential acquisitions , the range of engine management and temperature control products that we offer to our customers . we are committed to investing the resources necessary to maintain and expand our technical capability to manufacture product lines that incorporate the latest technologies , including product lines relating to safety , advanced driver assistance and collision avoidance systems . broaden our customer base and diversify our business . we seek to increase our customer base and diversify our business primarily by ( a ) leveraging our manufacturing and distribution capabilities to secure additional business globally with original equipment vehicle and equipment manufacturers and their service part operations , as well as our existing customer base of large retailers , program distribution groups , warehouse distributors , other manufacturers and export customers , ( b ) supporting the service part |
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