notes to the consolidated financial statements union pacific corporation and subsidiary companies for purposes of this report , unless the context otherwise requires , all references herein to the 201ccorporation 201d , 201ccompany 201d , 201cupc 201d , 201cwe 201d , 201cus 201d , and 201cour 201d mean union pacific corporation and its subsidiaries , including union pacific railroad company , which will be separately referred to herein as 201cuprr 201d or the 201crailroad 201d .
1 .
nature of operations operations and segmentation 2013 we are a class i railroad operating in the u.s .
our network includes 32236 route miles , linking pacific coast and gulf coast ports with the midwest and eastern u.s .
gateways and providing several corridors to key mexican gateways .
we own 26039 miles and operate on the remainder pursuant to trackage rights or leases .
we serve the western two-thirds of the country and maintain coordinated schedules with other rail carriers for the handling of freight to and from the atlantic coast , the pacific coast , the southeast , the southwest , canada , and mexico .
export and import traffic is moved through gulf coast and pacific coast ports and across the mexican and canadian borders .
the railroad , along with its subsidiaries and rail affiliates , is our one reportable operating segment .
although we provide and analyze revenue by commodity group , we treat the financial results of the railroad as one segment due to the integrated nature of our rail network .
our operating revenues are primarily derived from contracts with customers for the transportation of freight from origin to destination .
effective january 1 , 2018 , the company reclassified its six commodity groups into four : agricultural products , energy , industrial , and premium .
the following table represents a disaggregation of our freight and other revenues: .

millions                  | 2018    | 2017    | 2016
------------------------- | ------- | ------- | -------
agricultural products     | $ 4469  | $ 4303  | $ 4209
energy                    | 4608    | 4498    | 3715
industrial                | 5679    | 5204    | 4964
premium                   | 6628    | 5832    | 5713
total freight revenues    | $ 21384 | $ 19837 | $ 18601
other subsidiary revenues | 881     | 885     | 814
accessorial revenues      | 502     | 458     | 455
other                     | 65      | 60      | 71
total operating revenues  | $ 22832 | $ 21240 | $ 19941

although our revenues are principally derived from customers domiciled in the u.s. , the ultimate points of origination or destination for some products we transport are outside the u.s .
each of our commodity groups includes revenue from shipments to and from mexico .
included in the above table are freight revenues from our mexico business which amounted to $ 2.5 billion in 2018 , $ 2.3 billion in 2017 , and $ 2.2 billion in 2016 .
basis of presentation 2013 the consolidated financial statements are presented in accordance with accounting principles generally accepted in the u.s .
( gaap ) as codified in the financial accounting standards board ( fasb ) accounting standards codification ( asc ) .
2 .
significant accounting policies principles of consolidation 2013 the consolidated financial statements include the accounts of union pacific corporation and all of its subsidiaries .
investments in affiliated companies ( 20% ( 20 % ) to 50% ( 50 % ) owned ) are accounted for using the equity method of accounting .
all intercompany transactions are eliminated .
we currently have no less than majority-owned investments that require consolidation under variable interest entity requirements .
cash , cash equivalents and restricted cash 2013 cash equivalents consist of investments with original maturities of three months or less .
amounts included in restricted cash represent those required to be set aside by contractual agreement.


operating expenses operating expenses were $ 2.9 billion , an increase of 8% ( 8 % ) over 2000 .
adjusted for the formation of citistreet , operating expenses grew 10% ( 10 % ) .
expense growth in 2001 of 10% ( 10 % ) is significantly lower than the comparable 20% ( 20 % ) expense growth for 2000 compared to 1999 .
state street successfully reduced the growth rate of expenses as revenue growth slowed during the latter half of 2000 and early 2001 .
the expense growth in 2001 reflects higher expenses for salaries and employee benefits , as well as information systems and communications .
o p e r a t i n g e x p e n s e s ( dollars in millions ) 2001 2000 1999 change adjusted change 00-01 ( 1 ) .

( dollars in millions )                | 2001   | 2000   | 1999   | change 00-01 | adjusted change 00-01 ( 1 )
-------------------------------------- | ------ | ------ | ------ | ------------ | ---------------------------
salaries and employee benefits         | $ 1663 | $ 1524 | $ 1313 | 9% ( 9 % )   | 11% ( 11 % )
information systems and communications | 365    | 305    | 287    | 20           | 22
transaction processing services        | 247    | 268    | 237    | -8 ( 8 )     | -7 ( 7 )
occupancy                              | 229    | 201    | 188    | 15           | 16
other                                  | 363    | 346    | 311    | 5            | 7
total operating expenses               | $ 2867 | $ 2644 | $ 2336 | 8            | 10
number of employees                    | 19753  | 17604  | 17213  | 12           |

( 1 ) 2000 results adjusted for the formation of citistreet expenses related to salaries and employee benefits increased $ 139million in 2001 , or $ 163millionwhen adjusted for the formation of citistreet .
the adjusted increase reflects more than 2100 additional staff to support the large client wins and new business from existing clients and acquisitions .
this expense increase was partially offset by lower incentive-based compensation .
information systems and communications expense was $ 365 million in 2001 , up 20% ( 20 % ) from the prior year .
adjusted for the formation of citistreet , information systems and communications expense increased 22% ( 22 % ) .
this growth reflects both continuing investment in software and hardware , aswell as the technology costs associated with increased staffing levels .
expenses related to transaction processing services were $ 247 million , down $ 21 million , or 8% ( 8 % ) .
these expenses are volume related and include external contract services , subcustodian fees , brokerage services and fees related to securities settlement .
lower mutual fund shareholder activities , and lower subcustodian fees resulting from both the decline in asset values and lower transaction volumes , drove the decline .
occupancy expensewas $ 229million , up 15% ( 15 % ) .
the increase is due to expenses necessary to support state street 2019s global growth , and expenses incurred for leasehold improvements and other operational costs .
other expenses were $ 363 million , up $ 17 million , or 5% ( 5 % ) .
these expenses include professional services , advertising and sales promotion , and internal operational expenses .
the increase over prior year is due to a $ 21 million increase in the amortization of goodwill , primarily from acquisitions in 2001 .
in accordance with recent accounting pronouncements , goodwill amortization expense will be eliminated in 2002 .
state street recorded approximately $ 38 million , or $ .08 per share after tax , of goodwill amortization expense in 2001 .
state street 2019s cost containment efforts , which reduced discretionary spending , partially offset the increase in other expenses .
state street corporation 9


2022 through the u.s .
attorney 2019s office for the district of maryland , the office of the inspector general ( 201coig 201d ) for the small business administration ( 201csba 201d ) has served a subpoena on pnc requesting documents concerning pnc 2019s relationship with , including sba-guaranteed loans made through , a broker named jade capital investments , llc ( 201cjade 201d ) , as well as information regarding other pnc-originated sba guaranteed loans made to businesses located in the state of maryland , the commonwealth of virginia , and washington , dc .
certain of the jade loans have been identified in an indictment and subsequent superseding indictment charging persons associated with jade with conspiracy to commit bank fraud , substantive violations of the federal bank fraud statute , and money laundering .
pnc is cooperating with the u.s .
attorney 2019s office for the district of maryland .
our practice is to cooperate fully with regulatory and governmental investigations , audits and other inquiries , including those described in this note 23 .
in addition to the proceedings or other matters described above , pnc and persons to whom we may have indemnification obligations , in the normal course of business , are subject to various other pending and threatened legal proceedings in which claims for monetary damages and other relief are asserted .
we do not anticipate , at the present time , that the ultimate aggregate liability , if any , arising out of such other legal proceedings will have a material adverse effect on our financial position .
however , we cannot now determine whether or not any claims asserted against us or others to whom we may have indemnification obligations , whether in the proceedings or other matters described above or otherwise , will have a material adverse effect on our results of operations in any future reporting period , which will depend on , among other things , the amount of the loss resulting from the claim and the amount of income otherwise reported for the reporting period .
see note 24 commitments and guarantees for additional information regarding the visa indemnification and our other obligations to provide indemnification , including to current and former officers , directors , employees and agents of pnc and companies we have acquired .
note 24 commitments and guarantees equity funding and other commitments our unfunded commitments at december 31 , 2013 included private equity investments of $ 164 million .
standby letters of credit we issue standby letters of credit and have risk participations in standby letters of credit issued by other financial institutions , in each case to support obligations of our customers to third parties , such as insurance requirements and the facilitation of transactions involving capital markets product execution .
net outstanding standby letters of credit and internal credit ratings were as follows : table 151 : net outstanding standby letters of credit dollars in billions december 31 december 31 net outstanding standby letters of credit ( a ) $ 10.5 $ 11.5 internal credit ratings ( as a percentage of portfolio ) : .

dollars in billions                                        | december 31 2013 | december 312012
---------------------------------------------------------- | ---------------- | ---------------
net outstanding standby letters of credit ( a )            | $ 10.5           | $ 11.5
internal credit ratings ( as a percentage of portfolio ) : |                  |
pass ( b )                                                 | 96% ( 96 % )     | 95% ( 95 % )
below pass ( c )                                           | 4% ( 4 % )       | 5% ( 5 % )

( a ) the amounts above exclude participations in standby letters of credit of $ 3.3 billion and $ 3.2 billion to other financial institutions as of december 31 , 2013 and december 31 , 2012 , respectively .
the amounts above include $ 6.6 billion and $ 7.5 billion which support remarketing programs at december 31 , 2013 and december 31 , 2012 , respectively .
( b ) indicates that expected risk of loss is currently low .
( c ) indicates a higher degree of risk of default .
if the customer fails to meet its financial or performance obligation to the third party under the terms of the contract or there is a need to support a remarketing program , then upon a draw by a beneficiary , subject to the terms of the letter of credit , we would be obligated to make payment to them .
the standby letters of credit outstanding on december 31 , 2013 had terms ranging from less than 1 year to 6 years .
as of december 31 , 2013 , assets of $ 2.0 billion secured certain specifically identified standby letters of credit .
in addition , a portion of the remaining standby letters of credit issued on behalf of specific customers is also secured by collateral or guarantees that secure the customers 2019 other obligations to us .
the carrying amount of the liability for our obligations related to standby letters of credit and participations in standby letters of credit was $ 218 million at december 31 , 2013 .
standby bond purchase agreements and other liquidity facilities we enter into standby bond purchase agreements to support municipal bond obligations .
at december 31 , 2013 , the aggregate of our commitments under these facilities was $ 1.3 billion .
we also enter into certain other liquidity facilities to support individual pools of receivables acquired by commercial paper conduits .
there were no commitments under these facilities at december 31 , 2013 .
212 the pnc financial services group , inc .
2013 form 10-k


theme parks segment 2013 operating costs and expenses our theme parks segment operating costs and expenses consist primarily of theme park operations , includ- ing repairs and maintenance and related administrative expenses ; food , beverage and merchandise costs ; labor costs ; and sales and marketing costs .
theme parks segment operating costs and expenses increased in 2015 and 2014 primarily due to additional costs at our orlando and hollywood theme parks associated with newer attractions , such as the fast fur- ious 2122 2014 supercharged 2122 studio tour in hollywood in 2015 and the wizarding world of harry potter 2122 2014 diagon alley 2122 in orlando in 2014 and increases in food , beverage and merchandise costs associated with the increases in attendance in both years .
operating costs and expenses also increased in 2015 due to $ 89 million of operating costs and expenses attributable to universal studios japan and $ 22 million of transaction costs related to our development of a theme park in china .
nbcuniversal headquarters , other and eliminations headquarters and other operating costs and expenses incurred by our nbcuniversal businesses include overhead , personnel costs and costs associated with corporate initiatives .
operating costs and expenses increased in 2015 and 2014 primarily due to higher employee-related costs , including severance costs in corporate and other results of operations year ended december 31 ( in millions ) 2015 2014 2013 % (  % ) change 2014 to 2015 % (  % ) change 2013 to 2014 .

year ended december 31 ( in millions )              | 2015           | 2014           | 2013           | % (  % ) change 2014 to 2015 | % (  % ) change 2013 to 2014
--------------------------------------------------- | -------------- | -------------- | -------------- | ---------------------------- | ----------------------------
revenue                                             | $ 766          | $ 709          | $ 600          | 8.0% ( 8.0 % )               | 18.1% ( 18.1 % )
operating costs and expenses                        | 1664           | 1487           | 1089           | 11.9                         | 36.5
operating loss before depreciation and amortization | $ -898 ( 898 ) | $ -778 ( 778 ) | $ -489 ( 489 ) | ( 15.5 ) % (  % )            | ( 59.1 ) % (  % )

corporate and other 2013 revenue other revenue primarily relates to comcast spectacor , which owns the philadelphia flyers and the wells fargo center arena in philadelphia , pennsylvania and operates arena management-related businesses .
other revenue increased in 2015 and 2014 primarily due to increases in revenue from food and other services associated with new contracts entered into by one of our comcast spectacor businesses .
the increase in other revenue in 2014 was also due to an increase in revenue associated with newly acquired businesses .
corporate and other 2013 operating costs and expenses corporate and other operating costs and expenses primarily include overhead , personnel costs , the costs of corporate initiatives and branding , and operating costs and expenses associated with comcast spectacor .
excluding transaction costs associated with the time warner cable merger and related divestiture trans- actions of $ 178 million and $ 237 million in 2015 and 2014 , respectively , corporate and other operating costs and expenses increased 19% ( 19 % ) in 2015 .
this was primarily due to $ 56 million of expenses related to a contract settlement , an increase in expenses related to corporate strategic business initiatives and an increase in operating costs and expenses at comcast spectacor primarily associated with new contracts entered into by one of its businesses .
corporate and other operating costs and expenses increased in 2014 primarily due to $ 237 million of transaction-related costs associated with the time warner cable merger and related divest- iture transactions , as well as an increase in operating costs and expenses associated with new contracts entered into by one of our comcast spectacor businesses .
comcast 2015 annual report on form 10-k 60


of exercise for stock options exercised or at period end for outstanding stock options , less the applicable exercise price .
the company issued new shares to satisfy exercised stock options .
compensation expense the company recorded $ 43 million , $ 34 million , and $ 44 million of expense related to stock awards for the years ended december 31 , 2015 , 2014 , and 2013 , respectively .
the company recorded $ 17 million , $ 13 million , and $ 17 million as a tax benefit related to stock awards and stock options for the years ended december 31 , 2015 , 2014 , and 2013 , respectively .
the company recognized tax benefits for the years ended december 31 , 2015 , 2014 , and 2013 , of $ 41 million , $ 53 million , and $ 32 million , respectively , from the issuance of stock in settlement of stock awards , and $ 4 million , $ 5 million , and $ 4 million for the years ended december 31 , 2015 , 2014 , and 2013 , respectively , from the exercise of stock options .
unrecognized compensation expense as of december 31 , 2015 , the company had less than $ 1 million of unrecognized compensation expense associated with rsrs granted in 2015 and 2014 , which will be recognized over a weighted average period of 1.0 year , and $ 25 million of unrecognized expense associated with rpsrs granted in 2015 , 2014 , and 2013 , which will be recognized over a weighted average period of 0.6 years .
as of december 31 , 2015 , the company had no unrecognized compensation expense related to stock options .
compensation expense for stock options was fully recognized as of december 31 , 2013 .
20 .
unaudited selected quarterly data unaudited quarterly financial results for the years ended december 31 , 2015 and 2014 , are set forth in the following tables: .

( $ in millions except per share amounts ) | year ended december 31 2015 1st qtr | year ended december 31 2015 2nd qtr ( 1 ) | year ended december 31 2015 3rd qtr | year ended december 31 2015 4th qtr ( 2 )
------------------------------------------ | ----------------------------------- | ----------------------------------------- | ----------------------------------- | -----------------------------------------
sales and service revenues                 | $ 1570                              | $ 1745                                    | $ 1800                              | $ 1905
operating income ( loss )                  | 156                                 | 269                                       | 200                                 | 144
earnings ( loss ) before income taxes      | 133                                 | 244                                       | 175                                 | 80
net earnings ( loss )                      | 87                                  | 156                                       | 111                                 | 50
dividends declared per share               | $ 0.40                              | $ 0.40                                    | $ 0.40                              | $ 0.50
basic earnings ( loss ) per share          | $ 1.80                              | $ 3.22                                    | $ 2.31                              | $ 1.07
diluted earnings ( loss ) per share        | $ 1.79                              | $ 3.20                                    | $ 2.29                              | $ 1.06

( 1 ) in the second quarter of 2015 , the company recorded a $ 59 million goodwill impairment charge .
during the same period , the company recorded $ 136 million of operating income as a result of the aon settlement .
( 2 ) in the fourth quarter of 2015 , the company recorded $ 16 million goodwill impairment and $ 27 million intangible asset impairment charges.


in a new business model such as the retail segment is inherently risky , particularly in light of the significant investment involved , the current economic climate , and the fixed nature of a substantial portion of the retail segment's operating expenses .
results for this segment are dependent upon a number of risks and uncertainties , some of which are discussed below under the heading "factors that may affect future results and financial condition." backlog in the company's experience , the actual amount of product backlog at any particular time is not a meaningful indication of its future business prospects .
in particular , backlog often increases in anticipation of or immediately following new product introductions because of over- ordering by dealers anticipating shortages .
backlog often is reduced once dealers and customers believe they can obtain sufficient supply .
because of the foregoing , backlog cannot be considered a reliable indicator of the company's ability to achieve any particular level of revenue or financial performance .
further information regarding the company's backlog may be found below under the heading "factors that may affect future results and financial condition." gross margin gross margin for the three fiscal years ended september 28 , 2002 are as follows ( in millions , except gross margin percentages ) : gross margin increased to 28% ( 28 % ) of net sales in 2002 from 23% ( 23 % ) in 2001 .
as discussed below , gross margin in 2001 was unusually low resulting from negative gross margin of 2% ( 2 % ) experienced in the first quarter of 2001 .
as a percentage of net sales , the company's quarterly gross margins declined during fiscal 2002 from 31% ( 31 % ) in the first quarter down to 26% ( 26 % ) in the fourth quarter .
this decline resulted from several factors including a rise in component costs as the year progressed and aggressive pricing by the company across its products lines instituted as a result of continued pricing pressures in the personal computer industry .
the company anticipates that its gross margin and the gross margin of the overall personal computer industry will remain under pressure throughout fiscal 2003 in light of weak economic conditions , flat demand for personal computers in general , and the resulting pressure on prices .
the foregoing statements regarding anticipated gross margin in 2003 and the general demand for personal computers during 2003 are forward- looking .
gross margin could differ from anticipated levels because of several factors , including certain of those set forth below in the subsection entitled "factors that may affect future results and financial condition." there can be no assurance that current gross margins will be maintained , targeted gross margin levels will be achieved , or current margins on existing individual products will be maintained .
in general , gross margins and margins on individual products will remain under significant downward pressure due to a variety of factors , including continued industry wide global pricing pressures , increased competition , compressed product life cycles , potential increases in the cost and availability of raw material and outside manufacturing services , and potential changes to the company's product mix , including higher unit sales of consumer products with lower average selling prices and lower gross margins .
in response to these downward pressures , the company expects it will continue to take pricing actions with respect to its products .
gross margins could also be affected by the company's ability to effectively manage quality problems and warranty costs and to stimulate demand for certain of its products .
the company's operating strategy and pricing take into account anticipated changes in foreign currency exchange rates over time ; however , the company's results of operations can be significantly affected in the short-term by fluctuations in exchange rates .
the company orders components for its products and builds inventory in advance of product shipments .
because the company's markets are volatile and subject to rapid technology and price changes , there is a risk the company will forecast incorrectly and produce or order from third parties excess or insufficient inventories of particular products or components .
the company's operating results and financial condition have been in the past and may in the future be materially adversely affected by the company's ability to manage its inventory levels and outstanding purchase commitments and to respond to short-term shifts in customer demand patterns .
gross margin declined to 23% ( 23 % ) of net sales in 2001 from 27% ( 27 % ) in 2000 .
this decline resulted primarily from gross margin of negative 2% ( 2 % ) experienced during the first quarter of 2001 compared to 26% ( 26 % ) gross margin for the same quarter in 2000 .
in addition to lower than normal net .

                        | 2002         | 2001         | 2000
----------------------- | ------------ | ------------ | ------------
net sales               | $ 5742       | $ 5363       | $ 7983
cost of sales           | 4139         | 4128         | 5817
gross margin            | $ 1603       | $ 1235       | $ 2166
gross margin percentage | 28% ( 28 % ) | 23% ( 23 % ) | 27% ( 27 % )


contracts and customer purchase orders are generally used to determine the existence of an arrangement .
shipping documents are used to verify delivery .
the company assesses whether the selling price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment .
the company assesses collectibility based primarily on the creditworthiness of the customer as determined by credit checks and analysis , as well as the customer 2019s payment history .
accruals for customer returns for defective product are based on historical experience with similar types of sales .
accruals for rebates and incentives are based on pricing agreements and are generally tied to sales volume .
changes in such accruals may be required if future returns differ from historical experience or if actual sales volume differ from estimated sales volume .
rebates and incentives are recognized as a reduction of sales .
compensated absences .
in the fourth quarter of 2001 , the company changed its vacation policy for certain employees so that vacation pay is earned ratably throughout the year and must be used by year-end .
the accrual for compensated absences was reduced by $ 1.6 million in 2001 to eliminate vacation pay no longer required to be accrued under the current policy .
advertising .
advertising costs are charged to operations as incurred and amounted to $ 18.4 , $ 16.2 and $ 8.8 million during 2003 , 2002 and 2001 respectively .
research and development .
research and development costs are charged to operations as incurred and amounted to $ 34.6 , $ 30.4 and $ 27.6 million during 2003 , 2002 and 2001 , respectively .
product warranty .
the company 2019s products carry warranties that generally range from one to six years and are based on terms that are generally accepted in the market place .
the company records a liability for the expected cost of warranty-related claims at the time of sale .
the allocation of our warranty liability between current and long-term is based on expected warranty claims to be paid in the next year as determined by historical product failure rates .
1 .
organization and significant accounting policies ( continued ) the following table presents the company 2019s product warranty liability activity in 2003 and 2002 : note to table : environmental costs .
the company accrues for losses associated with environmental obligations when such losses are probable and reasonably estimable .
costs of estimated future expenditures are not discounted to their present value .
recoveries of environmental costs from other parties are recorded as assets when their receipt is considered probable .
the accruals are adjusted as facts and circumstances change .
stock based compensation .
the company has one stock-based employee compensation plan ( see note 11 ) .
sfas no .
123 , 201caccounting for stock-based compensation , 201d encourages , but does not require companies to record compensation cost for stock-based employee compensation plans at fair value .
the company has chosen to continue applying accounting principles board opinion no .
25 , 201caccounting for stock issued to employees , 201d and related interpretations , in accounting for its stock option plans .
accordingly , because the number of shares is fixed and the exercise price of the stock options equals the market price of the underlying stock on the date of grant , no compensation expense has been recognized .
had compensation cost been determined based upon the fair value at the grant date for awards under the plans based on the provisions of sfas no .
123 , the company 2019s pro forma earnings and earnings per share would have been as follows: .

years ended december 31 ( dollars in millions ) | 2003           | 2002
----------------------------------------------- | -------------- | --------------
balance at beginning of year                    | $ 63.2         | $ 69.6
expense                                         | 29.1           | 29.9
claims settled                                  | -30.2 ( 30.2 ) | -29.1 ( 29.1 )
customer warranty waiver ( 1 )                  | --             | -7.2 ( 7.2 )
balance at end of year                          | $ 62.1         | $ 63.2

( 1 ) in exchange for other concessions , the customer has agreed to accept responsibility for units they have purchased from the company which become defective .
the amount of the warranty reserve applicable to the estimated number of units previously sold to this customer that may become defective has been reclassified from the product warranty liability to a deferred revenue account.


critical accounting estimates our consolidated financial statements include amounts that , either by their nature or due to requirements of accounting princi- ples generally accepted in the u.s .
( gaap ) , are determined using best estimates and assumptions .
while we believe that the amounts included in our consolidated financial statements reflect our best judgment , actual amounts could ultimately materi- ally differ from those currently presented .
we believe the items that require the most subjective and complex estimates are : 2022 unpaid loss and loss expense reserves , including long-tail asbestos and environmental ( a&e ) reserves ; 2022 future policy benefits reserves ; 2022 valuation of value of business acquired ( voba ) and amortization of deferred policy acquisition costs and voba ; 2022 the assessment of risk transfer for certain structured insurance and reinsurance contracts ; 2022 reinsurance recoverable , including a provision for uncollectible reinsurance ; 2022 the valuation of our investment portfolio and assessment of other-than-temporary impairments ( otti ) ; 2022 the valuation of deferred tax assets ; 2022 the valuation of derivative instruments related to guaranteed minimum income benefits ( gmib ) ; and 2022 the valuation of goodwill .
we believe our accounting policies for these items are of critical importance to our consolidated financial statements .
the following discussion provides more information regarding the estimates and assumptions required to arrive at these amounts and should be read in conjunction with the sections entitled : prior period development , asbestos and environmental and other run-off liabilities , reinsurance recoverable on ceded reinsurance , investments , net realized gains ( losses ) , and other income and expense items .
unpaid losses and loss expenses overview and key data as an insurance and reinsurance company , we are required , by applicable laws and regulations and gaap , to establish loss and loss expense reserves for the estimated unpaid portion of the ultimate liability for losses and loss expenses under the terms of our policies and agreements with our insured and reinsured customers .
the estimate of the liabilities includes provisions for claims that have been reported but are unpaid at the balance sheet date ( case reserves ) and for future obligations on claims that have been incurred but not reported ( ibnr ) at the balance sheet date ( ibnr may also include a provision for additional development on reported claims in instances where the case reserve is viewed to be potentially insufficient ) .
loss reserves also include an estimate of expenses associated with processing and settling unpaid claims ( loss expenses ) .
at december 31 , 2009 , our gross unpaid loss and loss expense reserves were $ 37.8 billion and our net unpaid loss and loss expense reserves were $ 25 billion .
with the exception of certain structured settlements , for which the timing and amount of future claim pay- ments are reliably determinable , our loss reserves are not discounted for the time value of money .
in connection with such structured settlements , we carry net reserves of $ 76 million , net of discount .
the table below presents a roll-forward of our unpaid losses and loss expenses for the years ended december 31 , 2009 and 2008. .

( in millions of u.s . dollars )                 | 2009 gross losses | 2009 reinsurance recoverable ( 1 ) | 2009 net losses | 2009 gross losses | 2009 reinsurance recoverable ( 1 ) | net losses
------------------------------------------------ | ----------------- | ---------------------------------- | --------------- | ----------------- | ---------------------------------- | --------------
balance beginning of year                        | $ 37176           | $ 12935                            | $ 24241         | $ 37112           | $ 13520                            | $ 23592
losses and loss expenses incurred                | 11141             | 3719                               | 7422            | 10944             | 3341                               | 7603
losses and loss expenses paid                    | -11093 ( 11093 )  | -4145 ( 4145 )                     | -6948 ( 6948 )  | -9899 ( 9899 )    | -3572 ( 3572 )                     | -6327 ( 6327 )
other ( including foreign exchange revaluation ) | 559               | 236                                | 323             | -1367 ( 1367 )    | -387 ( 387 )                       | -980 ( 980 )
losses and loss expenses acquired                | 2013              | 2013                               | 2013            | 386               | 33                                 | 353
balance end of year                              | $ 37783           | $ 12745                            | $ 25038         | $ 37176           | $ 12935                            | $ 24241

( 1 ) net of provision for uncollectible reinsurance


during 2012 , the company granted selected employees an aggregate of 139 thousand rsus with internal performance measures and , separately , certain market thresholds .
these awards vested in january 2015 .
the terms of the grants specified that to the extent certain performance goals , comprised of internal measures and , separately , market thresholds were achieved , the rsus would vest ; if performance goals were surpassed , up to 175% ( 175 % ) of the target awards would be distributed ; and if performance goals were not met , the awards would be forfeited .
in january 2015 , an additional 93 thousand rsus were granted and distributed because performance thresholds were exceeded .
in 2015 , 2014 and 2013 , the company granted rsus , both with and without performance conditions , to certain employees under the 2007 plan .
the rsus without performance conditions vest ratably over the three- year service period beginning january 1 of the year of the grant and the rsus with performance conditions vest ratably over the three-year performance period beginning january 1 of the year of the grant ( the 201cperformance period 201d ) .
distribution of the performance shares is contingent upon the achievement of internal performance measures and , separately , certain market thresholds over the performance period .
during 2015 , 2014 and 2013 , the company granted rsus to non-employee directors under the 2007 plan .
the rsus vested on the date of grant ; however , distribution of the shares will be made within 30 days of the earlier of : ( i ) 15 months after grant date , subject to any deferral election by the director ; or ( ii ) the participant 2019s separation from service .
because these rsus vested on the grant date , the total grant date fair value was recorded in operation and maintenance expense included in the expense table above on the grant date .
rsus generally vest over periods ranging from one to three years .
rsus granted with service-only conditions and those with internal performance measures are valued at the market value of the closing price of the company 2019s common stock on the date of grant .
rsus granted with market conditions are valued using a monte carlo model .
expected volatility is based on historical volatilities of traded common stock of the company and comparative companies using daily stock prices over the past three years .
the expected term is three years and the risk-free interest rate is based on the three-year u.s .
treasury rate in effect as of the measurement date .
the following table presents the weighted-average assumptions used in the monte carlo simulation and the weighted-average grant date fair values of rsus granted for the years ended december 31: .

                                | 2015               | 2014               | 2013
------------------------------- | ------------------ | ------------------ | ------------------
expected volatility             | 14.93% ( 14.93 % ) | 17.78% ( 17.78 % ) | 19.37% ( 19.37 % )
risk-free interest rate         | 1.07% ( 1.07 % )   | 0.75% ( 0.75 % )   | 0.40% ( 0.40 % )
expected life ( years )         | 3.0                | 3.0                | 3.0
grant date fair value per share | $ 62.10            | $ 45.45            | $ 40.13

the grant date fair value of restricted stock awards that vest ratably and have market and/or performance and service conditions are amortized through expense over the requisite service period using the graded-vesting method .
rsus that have no performance conditions are amortized through expense over the requisite service period using the straight-line method and are included in operations expense in the accompanying consolidated statements of operations .
as of december 31 , 2015 , $ 4 of total unrecognized compensation cost related to the nonvested restricted stock units is expected to be recognized over the weighted-average remaining life of 1.4 years .
the total grant date fair value of rsus vested was $ 12 , $ 11 and $ 9 for the years ended december 31 , 2015 , 2014 and 2013.


the goldman sachs group , inc .
and subsidiaries notes to consolidated financial statements in connection with the firm 2019s prime brokerage and clearing businesses , the firm agrees to clear and settle on behalf of its clients the transactions entered into by them with other brokerage firms .
the firm 2019s obligations in respect of such transactions are secured by the assets in the client 2019s account as well as any proceeds received from the transactions cleared and settled by the firm on behalf of the client .
in connection with joint venture investments , the firm may issue loan guarantees under which it may be liable in the event of fraud , misappropriation , environmental liabilities and certain other matters involving the borrower .
the firm is unable to develop an estimate of the maximum payout under these guarantees and indemnifications .
however , management believes that it is unlikely the firm will have to make any material payments under these arrangements , and no material liabilities related to these guarantees and indemnifications have been recognized in the consolidated statements of financial condition as of december 2016 and december 2015 .
other representations , warranties and indemnifications .
the firm provides representations and warranties to counterparties in connection with a variety of commercial transactions and occasionally indemnifies them against potential losses caused by the breach of those representations and warranties .
the firm may also provide indemnifications protecting against changes in or adverse application of certain u.s .
tax laws in connection with ordinary-course transactions such as securities issuances , borrowings or derivatives .
in addition , the firm may provide indemnifications to some counterparties to protect them in the event additional taxes are owed or payments are withheld , due either to a change in or an adverse application of certain non-u.s .
tax laws .
these indemnifications generally are standard contractual terms and are entered into in the ordinary course of business .
generally , there are no stated or notional amounts included in these indemnifications , and the contingencies triggering the obligation to indemnify are not expected to occur .
the firm is unable to develop an estimate of the maximum payout under these guarantees and indemnifications .
however , management believes that it is unlikely the firm will have to make any material payments under these arrangements , and no material liabilities related to these arrangements have been recognized in the consolidated statements of financial condition as of december 2016 and december 2015 .
guarantees of subsidiaries .
group inc .
fully and unconditionally guarantees the securities issued by gs finance corp. , a wholly-owned finance subsidiary of the group inc .
has guaranteed the payment obligations of goldman , sachs & co .
( gs&co. ) and gs bank usa , subject to certain exceptions .
in addition , group inc .
guarantees many of the obligations of its other consolidated subsidiaries on a transaction-by- transaction basis , as negotiated with counterparties .
group inc .
is unable to develop an estimate of the maximum payout under its subsidiary guarantees ; however , because these guaranteed obligations are also obligations of consolidated subsidiaries , group inc . 2019s liabilities as guarantor are not separately disclosed .
note 19 .
shareholders 2019 equity common equity dividends declared per common share were $ 2.60 in 2016 , $ 2.55 in 2015 and $ 2.25 in 2014 .
on january 17 , 2017 , group inc .
declared a dividend of $ 0.65 per common share to be paid on march 30 , 2017 to common shareholders of record on march 2 , 2017 .
the firm 2019s share repurchase program is intended to help maintain the appropriate level of common equity .
the share repurchase program is effected primarily through regular open-market purchases ( which may include repurchase plans designed to comply with rule 10b5-1 ) , the amounts and timing of which are determined primarily by the firm 2019s current and projected capital position , but which may also be influenced by general market conditions and the prevailing price and trading volumes of the firm 2019s common stock .
prior to repurchasing common stock , the firm must receive confirmation that the federal reserve board does not object to such capital actions .
the table below presents the amount of common stock repurchased by the firm under the share repurchase program. .

in millions except per share amounts   | year ended december 2016 | year ended december 2015 | year ended december 2014
-------------------------------------- | ------------------------ | ------------------------ | ------------------------
common share repurchases               | 36.6                     | 22.1                     | 31.8
average cost per share                 | $ 165.88                 | $ 189.41                 | $ 171.79
total cost of common share repurchases | $ 6069                   | $ 4195                   | $ 5469

172 goldman sachs 2016 form 10-k


republic services , inc .
notes to consolidated financial statements 2014 ( continued ) high quality financial institutions .
such balances may be in excess of fdic insured limits .
to manage the related credit exposure , we continually monitor the credit worthiness of the financial institutions where we have deposits .
concentrations of credit risk with respect to trade accounts receivable are limited due to the wide variety of customers and markets in which we provide services , as well as the dispersion of our operations across many geographic areas .
we provide services to small-container commercial , large-container industrial , municipal and residential customers in the united states and puerto rico .
we perform ongoing credit evaluations of our customers , but generally do not require collateral to support customer receivables .
we establish an allowance for doubtful accounts based on various factors including the credit risk of specific customers , age of receivables outstanding , historical trends , economic conditions and other information .
accounts receivable , net accounts receivable represent receivables from customers for collection , transfer , recycling , disposal , energy services and other services .
our receivables are recorded when billed or when the related revenue is earned , if earlier , and represent claims against third parties that will be settled in cash .
the carrying value of our receivables , net of the allowance for doubtful accounts and customer credits , represents their estimated net realizable value .
provisions for doubtful accounts are evaluated on a monthly basis and are recorded based on our historical collection experience , the age of the receivables , specific customer information and economic conditions .
we also review outstanding balances on an account-specific basis .
in general , reserves are provided for accounts receivable in excess of 90 days outstanding .
past due receivable balances are written-off when our collection efforts have been unsuccessful in collecting amounts due .
the following table reflects the activity in our allowance for doubtful accounts for the years ended december 31: .

                             | 2016           | 2015           | 2014
---------------------------- | -------------- | -------------- | --------------
balance at beginning of year | $ 46.7         | $ 38.9         | $ 38.3
additions charged to expense | 20.4           | 22.7           | 22.6
accounts written-off         | -23.1 ( 23.1 ) | -14.9 ( 14.9 ) | -22.0 ( 22.0 )
balance at end of year       | $ 44.0         | $ 46.7         | $ 38.9

restricted cash and marketable securities as of december 31 , 2016 , we had $ 90.5 million of restricted cash and marketable securities of which $ 62.6 million supports our insurance programs for workers 2019 compensation , commercial general liability , and commercial auto liability .
additionally , we obtain funds through the issuance of tax-exempt bonds for the purpose of financing qualifying expenditures at our landfills , transfer stations , collection and recycling centers .
the funds are deposited directly into trust accounts by the bonding authorities at the time of issuance .
as the use of these funds is contractually restricted , and we do not have the ability to use these funds for general operating purposes , they are classified as restricted cash and marketable securities in our consolidated balance sheets .
in the normal course of business , we may be required to provide financial assurance to governmental agencies and a variety of other entities in connection with municipal residential collection contracts , closure or post- closure of landfills , environmental remediation , environmental permits , and business licenses and permits as a financial guarantee of our performance .
at several of our landfills , we satisfy financial assurance requirements by depositing cash into restricted trust funds or escrow accounts .
property and equipment we record property and equipment at cost .
expenditures for major additions and improvements to facilities are capitalized , while maintenance and repairs are charged to expense as incurred .
when property is retired or


input costs for board and resin are expected to be flat and operating costs are expected to decrease .
european consumer packaging net sales in 2013 were $ 380 million compared with $ 380 million in 2012 and $ 375 million in 2011 .
operating profits in 2013 were $ 100 million compared with $ 99 million in 2012 and $ 93 million in 2011 .
sales volumes in 2013 decreased from 2012 in both the european and russian markets .
average sales price realizations were significantly higher in the russian market , but were lower in europe .
input costs were flat year-over-year .
planned maintenance downtime costs were higher in 2013 than in 2012 .
looking forward to the first quarter of 2014 , sales volumes compared with the fourth quarter of 2013 are expected to be about flat .
average sales price realizations are expected to be higher in both russia and europe .
input costs are expected to increase for wood and energy , but decrease for purchased pulp .
there are no maintenance outages scheduled for the first quarter , however the kwidzyn mill will have additional costs associated with the rebuild of a coated board machine .
asian consumer packaging net sales were $ 1.1 billion in 2013 compared with $ 830 million in 2012 and $ 855 million in 2011 .
operating profits in 2013 were a loss of $ 2 million compared with gains of $ 4 million in 2012 and $ 35 million in 2011 .
sales volumes increased in 2013 compared with 2012 , reflecting the ramp-up of a new coated paperboard machine installed in 2012 .
however , average sales price realizations were significantly lower , reflecting competitive pressure on sales prices which squeezed margins and created an unfavorable product mix .
lower input costs were offset by higher freight costs .
in 2012 , start-up costs for the new coated paperboard machine adversely impacted operating profits .
in the first quarter of 2014 , sales volumes are expected to increase slightly .
average sales price realizations are expected to be flat reflecting continuing competitive pressures .
input costs are expected be higher for pulp , energy and chemicals .
the business will drive margin improvement through operational excellence and better distribution xpedx , our distribution business , is one of north america 2019s leading business-to-business distributors to manufacturers , facility managers and printers , providing customized solutions that are designed to improve efficiency , reduce costs and deliver results .
customer demand is generally sensitive to changes in economic conditions and consumer behavior , along with segment specific activity including corporate advertising and promotional spending , government spending and domestic manufacturing activity .
distribution 2019s margins are relatively stable across an economic cycle .
providing customers with the best choice for value in both products and supply chain services is a key competitive factor .
additionally , efficient customer service , cost-effective logistics and focused working capital management are key factors in this segment 2019s profitability .
distribution .

in millions      | 2013         | 2012   | 2011
---------------- | ------------ | ------ | ------
sales            | $ 5650       | $ 6040 | $ 6630
operating profit | -389 ( 389 ) | 22     | 34

distribution 2019s 2013 annual sales decreased 6% ( 6 % ) from 2012 , and decreased 15% ( 15 % ) from 2011 .
operating profits in 2013 were a loss of $ 389 million ( a gain of $ 43 million excluding goodwill impairment charges and reorganization costs ) compared with $ 22 million ( $ 71 million excluding reorganization costs ) in 2012 and $ 34 million ( $ 86 million excluding reorganization costs ) in annual sales of printing papers and graphic arts supplies and equipment totaled $ 3.2 billion in 2013 compared with $ 3.5 billion in 2012 and $ 4.0 billion in 2011 reflecting declining demand and the discontinuation of a distribution agreement with a large manufacturer of graphic supplies .
trade margins as a percent of sales for printing papers were down from both 2012 and 2011 .
revenue from packaging products was flat at $ 1.6 billion in 2013 , 2012 and 2011 despite the significant decline of a large high-tech customer's business .
packaging margins remained flat to the 2012 level , and up from 2011 .
facility supplies annual revenue was $ 845 million in 2013 , down from $ 944 million in 2012 and $ 981 million in 2011 .
operating profits in 2013 included a goodwill impairment charge of $ 400 million and reorganization costs for severance , professional services and asset write-downs of $ 32 million .
operating profits in 2012 and 2011 included reorganization costs of $ 49 million and $ 52 million , respectively .
looking ahead to the 2014 first quarter , operating profits will be seasonally lower , but will continue to reflect the benefits of strategic and other cost reduction initiatives.


yogurt business in china and simultaneously entered into a new yoplait license agreement with the purchaser for their use of the yoplait brand .
we recorded a pre-tax gain of $ 5.4 million .
during the fourth quarter of fiscal 2018 , we acquired blue buffalo pet products , inc .
( 201cblue buffalo 201d ) for an aggregate purchase price of $ 8.0 billion , including $ 103.0 million of consideration for net debt repaid at the time of the acquisition .
in accordance with the definitive agreement and plan of merger , a subsidiary of general mills merged into blue buffalo , with blue buffalo surviving the merger as a wholly owned subsidiary of general mills .
in accordance with the merger agreement , equity holders of blue buffalo received $ 40.00 per share in cash .
we financed the transaction with a combination of $ 6.0 billion in debt , $ 1.0 billion in equity , and cash on hand .
in fiscal 2019 , we recorded acquisition integration costs of $ 25.6 million in sg&a expenses .
in fiscal 2018 , we recorded acquisition transaction and integration costs of $ 34.0 million in sg&a expenses and $ 49.9 million in interest , net related to the debt issued to finance the acquisition .
we consolidated blue buffalo into our consolidated balance sheets and recorded goodwill of $ 5.3 billion , an indefinite-lived intangible asset for the blue buffalo brand of $ 2.7 billion , and a finite-lived customer relationship asset of $ 269.0 million .
the goodwill was primarily attributable to future growth opportunities and any intangible assets that did not qualify for separate recognition .
the goodwill is included in the pet reporting unit and is not deductible for tax purposes .
in the fourth quarter of fiscal 2019 , we recorded adjustments to certain purchase accounting liabilities that resulted in a $ 5.6 million increase to goodwill .
the consolidated results of blue buffalo are reported as our pet operating segment on a one-month lag .
the following unaudited supplemental pro forma information is presented as if we had acquired blue buffalo at the beginning of fiscal 2017 : unaudited fiscal year .

in millions                                | unaudited fiscal year 2018 | unaudited fiscal year 2017
------------------------------------------ | -------------------------- | --------------------------
net sales                                  | $ 17057.4                  | $ 16772.9
net earnings attributable to general mills | 2252.4                     | 1540.2

the fiscal 2017 pro forma amounts include transaction and integration costs of $ 83.9 million and the purchase accounting adjustment to record inventory at fair value of $ 52.7 million .
the fiscal 2017 and fiscal 2018 pro forma amounts include interest expense of $ 238.7 million on the debt issued to finance the transaction and amortization expense of $ 13.5 million based on the estimated fair value and useful life of the customer relationships intangible asset .
additionally , the pro forma amounts include an increase to cost of sales by $ 1.6 million in fiscal 2017 and $ 5.1 million in fiscal 2018 to reflect the impact of using the lifo method of inventory valuation on blue buffalo 2019s historical operating results .
pro forma amounts include related tax effects of $ 125.1 million in fiscal 2017 and $ 14.5 million in fiscal 2018 .
unaudited pro forma amounts are not necessarily indicative of results had the acquisition occurred at the beginning of fiscal 2017 or of future results .
note 4 .
restructuring , impairment , and other exit costs asset impairments in fiscal 2019 , we recorded a $ 192.6 million charge related to the impairment of our progresso , food should taste good , and mountain high brand intangible assets in restructuring , impairment , and other exit costs .
please see note 6 for additional information .
in fiscal 2019 , we recorded a $ 14.8 million charge in restructuring , impairment , and other exit costs related to the impairment of certain manufacturing assets in our north america retail and asia & latin america segments.


at december 31 .
the following table summarizes our restricted cash and marketable securities as of december .

                                                | 2010    | 2009
----------------------------------------------- | ------- | -------
financing proceeds                              | $ 39.8  | $ 93.1
capping closure and post-closure obligations    | 61.8    | 62.4
self-insurance                                  | 63.8    | 65.1
other                                           | 7.4     | 19.9
total restricted cash and marketable securities | $ 172.8 | $ 240.5

we own a 19.9% ( 19.9 % ) interest in a company that , among other activities , issues financial surety bonds to secure capping , closure and post-closure obligations for companies operating in the solid waste industry .
we account for this investment under the cost method of accounting .
there have been no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment .
this investee company and the parent company of the investee had written surety bonds for us relating to our landfill operations for capping , closure and post-closure , of which $ 855.0 million and $ 775.2 million were outstanding as of december 31 , 2010 and 2009 , respectively .
our reimbursement obligations under these bonds are secured by an indemnity agreement with the investee and letters of credit totaling $ 45.0 million and $ 67.4 million as of december 31 , 2010 and 2009 , respectively .
off-balance sheet arrangements we have no off-balance sheet debt or similar obligations , other than operating leases and the financial assurances discussed above , which are not classified as debt .
we have no transactions or obligations with related parties that are not disclosed , consolidated into or reflected in our reported financial position or results of operations .
we have not guaranteed any third-party debt .
guarantees we enter into contracts in the normal course of business that include indemnification clauses .
indemnifications relating to known liabilities are recorded in the consolidated financial statements based on our best estimate of required future payments .
certain of these indemnifications relate to contingent events or occurrences , such as the imposition of additional taxes due to a change in the tax law or adverse interpretation of the tax law , and indemnifications made in divestiture agreements where we indemnify the buyer for liabilities that relate to our activities prior to the divestiture and that may become known in the future .
we do not believe that these contingent obligations will have a material effect on our consolidated financial position , results of operations or cash flows .
we have entered into agreements with property owners to guarantee the value of property that is adjacent to certain of our landfills .
these agreements have varying terms .
we do not believe that these contingent obligations will have a material effect on our consolidated financial position , results of operations or cash flows .
other matters our business activities are conducted in the context of a developing and changing statutory and regulatory framework .
governmental regulation of the waste management industry requires us to obtain and retain numerous governmental permits to conduct various aspects of our operations .
these permits are subject to revocation , modification or denial .
the costs and other capital expenditures which may be required to obtain or retain the applicable permits or comply with applicable regulations could be significant .
any revocation , modification or denial of permits could have a material adverse effect on us .
republic services , inc .
notes to consolidated financial statements , continued


december 31 , 2008 , 2007 and 2006 , included ( in millions ) : .

                                                                                | 2008           | 2007           | 2006
------------------------------------------------------------------------------- | -------------- | -------------- | ----------------
gain on disposition adjustment or impairment of acquired assets and obligations | $ -9.0 ( 9.0 ) | $ -1.2 ( 1.2 ) | $ -19.2 ( 19.2 )
consulting and professional fees                                                | 10.1           | 1.0            | 8.8
employee severance and retention                                                | 1.9            | 1.6            | 3.3
information technology integration                                              | 0.9            | 2.6            | 3.0
in-process research & development                                               | 38.5           | 6.5            | 2.9
integration personnel                                                           | 2013           | 2013           | 2.5
facility and employee relocation                                                | 7.5            | 2013           | 1.0
distributor acquisitions                                                        | 7.3            | 4.1            | 2013
sales agent and lease contract terminations                                     | 8.1            | 5.4            | 0.2
other                                                                           | 3.2            | 5.2            | 3.6
acquisition integration and other                                               | $ 68.5         | $ 25.2         | $ 6.1

included in the gain on disposition , adjustment or impairment of acquired assets and obligations for 2008 is a favorable adjustment to certain liabilities of acquired companies due to changes in circumstances surrounding those liabilities subsequent to the related measurement period .
included in the gain on disposition , adjustment or impairment of acquired assets and obligations for 2006 is the sale of the former centerpulse austin land and facilities for a gain of $ 5.1 million and the favorable settlement of two pre- acquisition contingent liabilities .
these gains were offset by a $ 13.4 million impairment charge for certain centerpulse tradename and trademark intangibles based principally in our europe operating segment .
in-process research and development charges for 2008 are related to the acquisition of abbott spine .
in-process research and development charges for 2007 are related to the acquisitions of endius and orthosoft .
consulting and professional fees relate to third- party integration consulting performed in a variety of areas such as tax , compliance , logistics and human resources and legal fees related to matters involving acquired businesses .
cash and equivalents 2013 we consider all highly liquid investments with an original maturity of three months or less to be cash equivalents .
the carrying amounts reported in the balance sheet for cash and equivalents are valued at cost , which approximates their fair value .
restricted cash is primarily composed of cash held in escrow related to certain insurance coverage .
inventories 2013 inventories , net of allowances for obsolete and slow-moving goods , are stated at the lower of cost or market , with cost determined on a first-in first-out basis .
property , plant and equipment 2013 property , plant and equipment is carried at cost less accumulated depreciation .
depreciation is computed using the straight-line method based on estimated useful lives of ten to forty years for buildings and improvements , three to eight years for machinery and equipment .
maintenance and repairs are expensed as incurred .
in accordance with statement of financial accounting standards ( 201csfas 201d ) no .
144 , 201caccounting for the impairment or disposal of long-lived assets , 201d we review property , plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable .
an impairment loss would be recognized when estimated future undiscounted cash flows relating to the asset are less than its carrying amount .
an impairment loss is measured as the amount by which the carrying amount of an asset exceeds its fair value .
software costs 2013 we capitalize certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use when both the preliminary project stage is completed and it is probable that the software will be used as intended .
capitalized software costs generally include external direct costs of materials and services utilized in developing or obtaining computer software and compensation and related benefits for employees who are directly associated with the software project .
capitalized software costs are included in property , plant and equipment on our balance sheet and amortized on a straight-line basis when the software is ready for its intended use over the estimated useful lives of the software , which approximate three to seven years .
instruments 2013 instruments are hand-held devices used by orthopaedic surgeons during total joint replacement and other surgical procedures .
instruments are recognized as long-lived assets and are included in property , plant and equipment .
undeployed instruments are carried at cost , net of allowances for excess and obsolete instruments .
instruments in the field are carried at cost less accumulated depreciation .
depreciation is computed using the straight-line method based on average estimated useful lives , determined principally in reference to associated product life cycles , primarily five years .
we review instruments for impairment in accordance with sfas no .
144 .
depreciation of instruments is recognized as selling , general and administrative expense .
goodwill 2013 we account for goodwill in accordance with sfas no .
142 , 201cgoodwill and other intangible assets . 201d goodwill is not amortized but is subject to annual impairment tests .
goodwill has been assigned to reporting units .
we perform annual impairment tests by comparing each reporting unit 2019s fair value to its carrying amount to determine if there is potential impairment .
the fair value of the reporting unit and the implied fair value of goodwill are determined based upon a discounted cash flow analysis .
significant assumptions are incorporated into to these discounted cash flow analyses such as estimated growth rates and risk-adjusted discount rates .
we perform this test in the fourth quarter of the year .
if the fair value of the reporting unit is less than its carrying value , an impairment loss is recorded to the extent that the implied fair value of the reporting unit goodwill is less than the carrying value of the reporting unit goodwill .
intangible assets 2013 we account for intangible assets in accordance with sfas no .
142 .
intangible assets are initially measured at their fair value .
we have determined the fair value of our intangible assets either by the fair value of the z i m m e r h o l d i n g s , i n c .
2 0 0 8 f o r m 1 0 - k a n n u a l r e p o r t notes to consolidated financial statements ( continued ) %%transmsg*** transmitting job : c48761 pcn : 044000000 ***%%pcmsg|44 |00007|yes|no|02/24/2009 06:10|0|0|page is valid , no graphics -- color : d|


years ended december 31                                        | 2018             | 2017             | 2016
-------------------------------------------------------------- | ---------------- | ---------------- | ----------------
statutory tax rate                                             | 19.0% ( 19.0 % ) | 19.3% ( 19.3 % ) | 20.0% ( 20.0 % )
u.s . state income taxes net of u.s . federal benefit          | -0.4 ( 0.4 )     | -1.5 ( 1.5 )     | 0.4
taxes on international operations ( 1 )                        | -7.3 ( 7.3 )     | -30.3 ( 30.3 )   | -12.2 ( 12.2 )
nondeductible expenses                                         | 2.7              | 3.4              | 1.4
adjustments to prior year tax requirements                     | 0.9              | 2.0              | -1.2 ( 1.2 )
adjustments to valuation allowances                            | 3.8              | -1.8 ( 1.8 )     | -2.2 ( 2.2 )
change in uncertain tax positions                              | 0.9              | 1.6              | 3.2
excess tax benefits related to shared based compensation ( 2 ) | -3.6 ( 3.6 )     | -8.0 ( 8.0 )     | 2014
u.s . tax reform impact ( 3 )                                  | 7.1              | 51.2             | 2014
loss on disposition                                            | -10.2 ( 10.2 )   | 2014             | 2014
other 2014 net                                                 | -1.2 ( 1.2 )     | 0.6              | 1.2
effective tax rate                                             | 11.7% ( 11.7 % ) | 36.5% ( 36.5 % ) | 10.6% ( 10.6 % )

( 1 ) the company determines the adjustment for taxes on international operations based on the difference between the statutory tax rate applicable to earnings in each foreign jurisdiction and the enacted rate of 19.0% ( 19.0 % ) , 19.3% ( 19.3 % ) and 20.0% ( 20.0 % ) at december 31 , 2018 , 2017 , and 2016 , respectively .
the benefit to the company 2019s effective income tax rate from taxes on international operations relates to benefits from lower-taxed global operations , primarily due to the use of global funding structures and the tax holiday in singapore .
the impact decreased from 2017 to 2018 primarily as a result of the decrease in the u.s .
federal tax ( 2 ) with the adoption of asu 2016-09 in 2017 , excess tax benefits and deficiencies from share-based payment transactions are recognized as income tax expense or benefit in the company 2019s consolidated statements of income .
( 3 ) the impact of the tax reform act including the transition tax , the re-measurement of u.s .
deferred tax assets and liabilities from 35% ( 35 % ) to 21% ( 21 % ) , withholding tax accruals , and the allocation of tax benefit between continuing operations and discontinued operations related to utilization of foreign tax credits.


largest operators of open-loop and closed-loop retail electronic payments networks the largest operators of open-loop and closed-loop retail electronic payments networks are visa , mastercard , american express , discover , jcb and diners club .
with the exception of discover , which primarily operates in the united states , all of the other network operators can be considered multi- national or global providers of payments network services .
based on payments volume , total volume , number of transactions and number of cards in circulation , visa is the largest retail electronic payments network in the world .
the following chart compares our network with those of our major competitors for calendar year 2007 : company payments volume volume transactions cards ( billions ) ( billions ) ( billions ) ( millions ) visa inc. ( 1 ) .
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$ 2457 $ 3822 50.3 1592 .

company          | payments volume ( billions ) | total volume ( billions ) | total transactions ( billions ) | cards ( millions )
---------------- | ---------------------------- | ------------------------- | ------------------------------- | ------------------
visa inc. ( 1 )  | $ 2457                       | $ 3822                    | 50.3                            | 1592
mastercard       | 1697                         | 2276                      | 27.0                            | 916
american express | 637                          | 647                       | 5.0                             | 86
discover         | 102                          | 119                       | 1.6                             | 57
jcb              | 55                           | 61                        | 0.6                             | 58
diners club      | 29                           | 30                        | 0.2                             | 7

( 1 ) visa inc .
figures as reported previously in our filings .
source : the nilson report , issue 902 ( may 2008 ) and issue 903 ( may 2008 ) .
note : visa inc .
figures exclude visa europe .
figures for competitors include their respective european operations .
visa figures include visa , visa electron , and interlink brands .
visa cards include plus proprietary cards , but proprietary plus cash volume is not included .
domestic china figures are excluded .
mastercard figures include pin-based debit card figures on mastercard cards , but not maestro or cirrus figures .
china commercial funds transfers are excluded .
american express and discover include business from third-party issuers .
jcb figures are for april 2006 through march 2007 , but cards and outlets are as of september 2007 .
jcb total transaction figures are estimates .
our primary operations we generate revenue from the transaction processing services we offer to our customers .
our customers deliver visa products and payment services to consumers and merchants based on the product platforms we define and manage .
payments network management is a core part of our operations , as it ensures that our payments system provides a safe , efficient , consistent , and interoperable service to cardholders , merchants , and financial institutions worldwide .
transaction processing services core processing services our core processing services involve the routing of payment information and related data to facilitate the authorization , clearing and settlement of transactions between visa issuers , which are the financial institutions that issue visa cards to cardholders , and acquirers , which are the financial institutions that offer visa network connectivity and payments acceptance services to merchants .
in addition , we offer a range of value-added processing services to support our customers 2019 visa programs and to promote the growth and security of the visa payments network .
authorization is the process of approving or declining a transaction before a purchase is finalized or cash is disbursed .
clearing is the process of delivering final transaction data from an acquirer to an issuer for posting to the cardholder 2019s account , the calculation of certain fees and charges that apply to the issuer and acquirer involved in the transaction , and the conversion of transaction amounts to the


our consolidated net cash flows used for investing activities were $ 4.2 billion in 2010 , compared with $ 3.2 billion in 2009 .
net investing activities for the indicated periods were related primarily to net purchases of fixed maturities and for 2010 included the acquisitions of rain and hail and jerneh insurance berhad .
our consolidated net cash flows from financing activities were $ 732 million in 2010 , compared with net cash flows used for financing activities of $ 321 million in 2009 .
net cash flows from/used for financing activities in 2010 and 2009 , included dividends paid on our common shares of $ 435 million and $ 388 million , respectively .
net cash flows from financing activ- ities in 2010 , included net proceeds of $ 699 million from the issuance of long-term debt , $ 1 billion in reverse repurchase agreements , and $ 300 million in credit facility borrowings .
this was partially offset by repayment of $ 659 million in debt and share repurchases settled in 2010 of $ 235 million .
for 2009 , net cash flows used for financing activities included net pro- ceeds from the issuance of $ 500 million in long-term debt and the net repayment of debt and reverse repurchase agreements of $ 466 million .
both internal and external forces influence our financial condition , results of operations , and cash flows .
claim settle- ments , premium levels , and investment returns may be impacted by changing rates of inflation and other economic conditions .
in many cases , significant periods of time , ranging up to several years or more , may lapse between the occurrence of an insured loss , the reporting of the loss to us , and the settlement of the liability for that loss .
from time to time , we utilize reverse repurchase agreements as a low-cost alternative for short-term funding needs .
we use these instruments on a limited basis to address short-term cash timing differences without disrupting our investment portfolio holdings and settle the transactions with future operating cash flows .
at december 31 , 2010 , there were $ 1 billion in reverse repurchase agreements outstanding ( refer to short-term debt ) .
in addition to cash from operations , routine sales of investments , and financing arrangements , we have agreements with a bank provider which implemented two international multi-currency notional cash pooling programs to enhance cash management efficiency during periods of short-term timing mismatches between expected inflows and outflows of cash by currency .
in each program , participating ace entities establish deposit accounts in different currencies with the bank provider and each day the credit or debit balances in every account are notionally translated into a single currency ( u.s .
dollars ) and then notionally pooled .
the bank extends overdraft credit to any participating ace entity as needed , provided that the overall notionally-pooled balance of all accounts in each pool at the end of each day is at least zero .
actual cash balances are not physically converted and are not co-mingled between legal entities .
ace entities may incur overdraft balances as a means to address short-term timing mismatches , and any overdraft balances incurred under this program by an ace entity would be guaranteed by ace limited ( up to $ 150 million in the aggregate ) .
our revolving credit facility allows for same day drawings to fund a net pool overdraft should participating ace entities withdraw contributed funds from the pool .
capital resources capital resources consist of funds deployed or available to be deployed to support our business operations .
the following table summarizes the components of our capital resources at december 31 , 2010 , and 2009. .

( in millions of u.s . dollars except for percentages )               | 2010             | 2009
--------------------------------------------------------------------- | ---------------- | ----------------
short-term debt                                                       | $ 1300           | $ 161
long-term debt                                                        | 3358             | 3158
total debt                                                            | 4658             | 3319
trust preferred securities                                            | 309              | 309
total shareholders 2019 equity                                        | 22974            | 19667
total capitalization                                                  | $ 27941          | $ 23295
ratio of debt to total capitalization                                 | 16.7% ( 16.7 % ) | 14.2% ( 14.2 % )
ratio of debt plus trust preferred securities to total capitalization | 17.8% ( 17.8 % ) | 15.6% ( 15.6 % )

our ratios of debt to total capitalization and debt plus trust preferred securities to total capitalization have increased temporarily due to the increase in short-term debt , as discussed below .
we expect that these ratios will decline over the next six to nine months as we repay the short-term debt .
we believe our financial strength provides us with the flexibility and capacity to obtain available funds externally through debt or equity financing on both a short-term and long-term basis .
our ability to access the capital markets is dependent on , among other things , market conditions and our perceived financial strength .
we have accessed both the debt and equity markets from time to time.


table of contents capital deployment program will be subject to market and economic conditions , applicable legal requirements and other relevant factors .
our capital deployment program does not obligate us to continue a dividend for any fixed period , and payment of dividends may be suspended at any time at our discretion .
stock performance graph the following stock performance graph and related information shall not be deemed 201csoliciting material 201d or 201cfiled 201d with the securities and exchange commission , nor shall such information be incorporated by reference into any future filings under the securities act of 1933 or the exchange act , each as amended , except to the extent that we specifically incorporate it by reference into such filing .
the following stock performance graph compares our cumulative total stockholder return on an annual basis on our common stock with the cumulative total return on the standard and poor 2019s 500 stock index and the amex airline index from december 9 , 2013 ( the first trading day of aag common stock ) through december 31 , 2015 .
the comparison assumes $ 100 was invested on december 9 , 2013 in aag common stock and in each of the foregoing indices and assumes reinvestment of dividends .
the stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock price performance. .

                              | 12/9/2013 | 12/31/2013 | 12/31/2014 | 12/31/2015
----------------------------- | --------- | ---------- | ---------- | ----------
american airlines group inc . | $ 100     | $ 103      | $ 219      | $ 175
amex airline index            | 100       | 102        | 152        | 127
s&p 500                       | 100       | 102        | 114        | 113

purchases of equity securities by the issuer and affiliated purchasers since july 2014 , our board of directors has approved several share repurchase programs aggregating $ 7.0 billion of authority of which , as of december 31 , 2015 , $ 2.4 billion remained unused under repurchase programs


notes to consolidated financial statements 2014 ( continued ) note 10 2014shareholders 2019 equity on april 23 , 2010 , our board of directors approved a share repurchase program that authorized the purchase of up to $ 100.0 million of global payments 2019 stock in the open market or as otherwise may be determined by us , subject to market conditions , business opportunities , and other factors .
under this authorization , we repurchased 2382890 shares of our common stock at a cost of $ 100.0 million , or an average of $ 41.97 per share , including commissions .
repurchased shares are held as treasury stock .
in addition , we have $ 13.0 million remaining under the authorization from our original share repurchase program initiated during fiscal 2007 .
these repurchased shares were retired and are available for future issuance .
we did not repurchase shares under this plan in fiscal 2010 .
this authorization has no expiration date and may be suspended or terminated at any time .
note 11 2014share-based awards and options as of may 31 , 2010 , we have four share-based employee compensation plans .
for all share-based awards granted after june 1 , 2006 , compensation expense is recognized on a straight-line basis .
the fair value of share- based awards granted prior to june 1 , 2006 is amortized as compensation expense on an accelerated basis from the date of the grant .
non-qualified stock options and restricted stock have been granted to officers , key employees and directors under the global payments inc .
2000 long-term incentive plan , as amended and restated ( the 201c2000 plan 201d ) , the global payments inc .
amended and restated 2005 incentive plan ( the 201c2005 plan 201d ) , and an amended and restated 2000 non-employee director stock option plan ( the 201cdirector plan 201d ) ( collectively , the 201cplans 201d ) .
effective with the adoption of the 2005 plan , there are no future grants under the 2000 plan .
shares available for future grant as of may 31 , 2010 are 2.7 million for the 2005 plan and 0.4 million for the director plan .
certain executives are also granted performance-based restricted stock units ( 201crsu 201ds ) .
rsus represent the right to earn shares of global stock if certain performance measures are achieved during the grant year .
the target number of rsus and target performance measures are set by our compensation committee .
rsus are converted to a stock grant only if the company 2019s performance during the fiscal year exceeds pre-established goals the following table summarizes the share-based compensation cost charged to income for ( i ) all stock options granted , ( ii ) our employee stock purchase plan , and ( iii ) our restricted stock program .
the total income tax benefit recognized for share-based compensation in the accompanying statements of income is also presented. .

                              | 2010           | 2009           | 2008
----------------------------- | -------------- | -------------- | --------------
share-based compensation cost | $ 18.1         | $ 14.6         | $ 13.8
income tax benefit            | $ -6.3 ( 6.3 ) | $ -5.2 ( 5.2 ) | $ -4.9 ( 4.9 )

stock options stock options are granted at 100% ( 100 % ) of fair market value on the date of grant and have 10-year terms .
stock options granted vest one year after the date of grant with respect to 25% ( 25 % ) of the shares granted , an additional 25% ( 25 % ) after two years , an additional 25% ( 25 % ) after three years , and the remaining 25% ( 25 % ) after four years .
the plans provide for accelerated vesting under certain conditions .
we have historically issued new shares to satisfy the exercise of options.


south america .
approximately 26% ( 26 % ) of 2017 net sales were to international markets .
this segment sells directly through its own sales force and indirectly through independent manufacturers 2019 representatives , primarily to wholesalers , home centers , mass merchandisers and industrial distributors .
in aggregate , sales to the home depot and lowe 2019s comprised approximately 23% ( 23 % ) of net sales of the plumbing segment in 2017 .
this segment 2019s chief competitors include delta ( owned by masco ) , kohler , pfister ( owned by spectrum brands ) , american standard ( owned by lixil group ) , insinkerator ( owned by emerson electronic company ) and imported private-label brands .
doors .
our doors segment manufactures and sells fiberglass and steel entry door systems under the therma-tru brand and urethane millwork product lines under the fypon brand .
this segment benefits from the long-term trend away from traditional materials , such as wood , steel and aluminum , toward more energy-efficient and durable synthetic materials .
therma-tru products include fiberglass and steel residential entry door and patio door systems , primarily for sale in the u.s .
and canada .
this segment 2019s principal customers are home centers , millwork building products and wholesale distributors , and specialty dealers that provide products to the residential new construction market , as well as to the remodeling and renovation markets .
in aggregate , sales to the home depot and lowe 2019s comprised approximately 14% ( 14 % ) of net sales of the doors segment in 2017 .
this segment 2019s competitors include masonite , jeld-wen , plastpro and pella .
security .
our security segment 2019s products consist of locks , safety and security devices , and electronic security products manufactured , sourced and distributed primarily under the master lock brand and fire resistant safes , security containers and commercial cabinets manufactured , sourced and distributed under the sentrysafe brand .
this segment sells products principally in the u.s. , canada , europe , central america , japan and australia .
approximately 25% ( 25 % ) of 2017 net sales were to international markets .
this segment manufactures and sells key-controlled and combination padlocks , bicycle and cable locks , built-in locker locks , door hardware , automotive , trailer and towing locks , electronic access control solutions , and other specialty safety and security devices for consumer use to hardware , home center and other retail outlets .
in addition , the segment sells lock systems and fire resistant safes to locksmiths , industrial and institutional users , and original equipment manufacturers .
in aggregate , sales to the home depot and lowe 2019s comprised approximately 18% ( 18 % ) of the net sales of the security segment in 2017 .
master lock competes with abus , w.h .
brady , hampton , kwikset ( owned by spectrum brands ) , schlage ( owned by allegion ) , assa abloy and various imports , and sentrysafe competes with first alert , magnum , fortress , stack-on and fire king .
annual net sales for each of the last three fiscal years for each of our business segments were as follows : ( in millions ) 2017 2016 2015 .

( in millions ) | 2017     | 2016     | 2015
--------------- | -------- | -------- | --------
cabinets        | $ 2467.1 | $ 2397.8 | $ 2173.4
plumbing        | 1720.8   | 1534.4   | 1414.5
doors           | 502.9    | 473.0    | 439.1
security        | 592.5    | 579.7    | 552.4
total           | $ 5283.3 | $ 4984.9 | $ 4579.4

for additional financial information for each of our business segments , refer to note 18 , 201cinformation on business segments , 201d to the consolidated financial statements in item 8 of this annual report on form other information raw materials .
the table below indicates the principal raw materials used by each of our segments .
these materials are available from a number of sources .
volatility in the prices of commodities and energy used in making and distributing our products impacts the cost of manufacturing our products.


page 59 of 94 notes to consolidated financial statements ball corporation and subsidiaries 13 .
debt and interest costs ( continued ) long-term debt obligations outstanding at december 31 , 2007 , have maturities of $ 127.1 million , $ 160 million , $ 388.4 million , $ 625.1 million and $ 550.3 million for the years ending december 31 , 2008 through 2012 , respectively , and $ 456.1 million thereafter .
ball provides letters of credit in the ordinary course of business to secure liabilities recorded in connection with industrial development revenue bonds and certain self-insurance arrangements .
letters of credit outstanding at december 31 , 2007 and 2006 , were $ 41 million and $ 52.4 million , respectively .
the notes payable and senior credit facilities are guaranteed on a full , unconditional and joint and several basis by certain of the company 2019s domestic wholly owned subsidiaries .
certain foreign denominated tranches of the senior credit facilities are similarly guaranteed by certain of the company 2019s wholly owned foreign subsidiaries .
note 22 contains further details as well as condensed , consolidating financial information for the company , segregating the guarantor subsidiaries and non-guarantor subsidiaries .
the company was not in default of any loan agreement at december 31 , 2007 , and has met all debt payment obligations .
the u.s .
note agreements , bank credit agreement and industrial development revenue bond agreements contain certain restrictions relating to dividend payments , share repurchases , investments , financial ratios , guarantees and the incurrence of additional indebtedness .
on march 27 , 2006 , ball expanded its senior secured credit facilities with the addition of a $ 500 million term d loan facility due in installments through october 2011 .
also on march 27 , 2006 , ball issued at a price of 99.799 percent $ 450 million of 6.625% ( 6.625 % ) senior notes ( effective yield to maturity of 6.65 percent ) due in march 2018 .
the proceeds from these financings were used to refinance existing u.s .
can debt with ball corporation debt at lower interest rates , acquire certain north american plastic container net assets from alcan and reduce seasonal working capital debt .
( see note 3 for further details of the acquisitions. ) on october 13 , 2005 , ball refinanced its senior secured credit facilities to extend debt maturities at lower interest rate spreads and provide the company with additional borrowing capacity for future growth .
during the third and fourth quarters of 2005 , ball redeemed its 7.75% ( 7.75 % ) senior notes due in august 2006 .
the refinancing and senior note redemptions resulted in a debt refinancing charge of $ 19.3 million ( $ 12.3 million after tax ) for the related call premium and unamortized debt issuance costs .
a summary of total interest cost paid and accrued follows: .

( $ in millions )                       | 2007         | 2006         | 2005
--------------------------------------- | ------------ | ------------ | ------------
interest costs before refinancing costs | $ 155.8      | $ 142.5      | $ 102.4
debt refinancing costs                  | 2013         | 2013         | 19.3
total interest costs                    | 155.8        | 142.5        | 121.7
amounts capitalized                     | -6.4 ( 6.4 ) | -8.1 ( 8.1 ) | -5.3 ( 5.3 )
interest expense                        | $ 149.4      | $ 134.4      | $ 116.4
interest paid during the year ( a )     | $ 153.9      | $ 125.4      | $ 138.5

( a ) includes $ 6.6 million paid in 2005 in connection with the redemption of the company 2019s senior and senior subordinated notes.