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commissions on premiums billed directly by insurance carriers to the insureds generally relate to a large number of property/casualty transactions , each with small premiums , and comprise a substantial portion of the revenues generated by our employee benefit operations . under these direct bill arrangements , the insurance carrier controls the entire billing and policy issuance process . we record the income effects of subsequent premium adjustments when the adjustments become known . fee revenues generated from the brokerage segment primarily relate to fees negotiated in lieu of commissions , which we recognize in the same manner as commission revenues . fee revenues generated from the risk management segment relate to third party claims administration , loss control and other risk management consulting services , which we provide over a period of time , typically one year . we recognize these fee revenues ratably as the services are rendered , and record the income effects of subsequent fee adjustments when the adjustments become known . premiums and fees receivable in our consolidated balance sheet are net of allowances for estimated policy cancellations and doubtful accounts . we establish the allowance for estimated policy cancellations through a charge to revenues and the allowance for doubtful accounts through a charge to other operating expenses . both of these allowances are based on estimates and assumptions using historical data to project future experience . such estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed herein . we periodically review the adequacy of these allowances and make adjustments as necessary . income taxes - our tax rate reflects the statutory tax rates applicable to our taxable earnings and tax planning in the various jurisdictions in which we operate . significant judgment is required in determining the annual effective tax rate and in evaluating uncertain tax positions . we report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return . we evaluate our tax positions using a two-step process . the first step involves recognition . we determine whether it is more likely than not that a tax position will be sustained upon tax examination based solely on the technical merits of the position . the technical merits of a tax position are derived from both statutory and judicial authority ( legislation and statutes , legislative intent , regulations , rulings and case law ) and their applicability to the facts and circumstances of the position . if a tax position does not meet the more likely than not recognition threshold , we do not recognize the benefit of that position in the financial statements . the second step is measurement . a tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements . the tax position is measured as the largest amount of benefit that has a likelihood of greater than 50 % of being realized upon ultimate resolution with a taxing authority . uncertain tax positions are measured based upon the facts and circumstances that exist at each reporting period and involve significant management judgment . subsequent changes in judgment based upon new information may lead to changes in recognition , derecognition and measurement . adjustments may result , for example , upon resolution of an issue with the taxing authorities , or expiration of a statute of limitations barring an assessment for an issue . we recognize interest and penalties , if any , related to unrecognized tax benefits in our provision for income taxes . see note 18 to our consolidated financial statements for a discussion regarding the possibility that our gross unrecognized tax benefits balance may decrease within the next twelve months . tax law requires certain items to be included in our tax returns at different times than such items are reflected in the financial statements . as a result , the annual tax expense reflected in our consolidated statements of earnings is different than that reported in the tax returns . some of these differences are permanent , such as expenses that are not deductible in the returns , and some differences are temporary and reverse over time , such as depreciation expense and amortization expense deductible for income tax purposes . temporary differences create deferred tax assets and liabilities . deferred tax liabilities generally represent tax expense recognized in the financial statements for which a tax payment has been deferred , or expense which has been deducted in the tax return but has not yet been recognized in the financial statements . deferred tax assets generally represent items that can be used as a tax deduction or credit in tax returns in future years for which a benefit has already been recorded in the financial statements . 21 we establish or adjust valuation allowances for deferred tax assets when we estimate that it is more likely than not that future taxable income will be insufficient to fully use a deduction or credit in a specific jurisdiction . in assessing the need for the recognition of a valuation allowance for deferred tax assets , we consider whether it is more likely than not that some portion , or all , of the deferred tax assets will not be realized and adjust the valuation allowance accordingly . we evaluate all significant available positive and negative evidence as part of our analysis . negative evidence includes the existence of losses in recent years . positive evidence includes the forecast of future taxable income by jurisdiction , tax-planning strategies that would result in realization of deferred tax assets and the presence of taxable income in prior carryback years . the underlying assumptions we use in forecasting future taxable income require significant judgment and take into account our recent performance . the ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which temporary differences are deductible or creditable . story_separator_special_tag intangible assets/earnout obligations - intangible assets represent the excess of cost over the estimated fair value of net tangible assets of acquired businesses . we classify our intangible assets as either goodwill , expiration lists or non-compete agreements . expiration lists and non-compete agreements are amortized using the straight-line method over their estimated useful lives ( three to fifteen years for expiration lists and three to five years for non-compete agreements ) , while goodwill is not subject to amortization . allocation of intangible assets between goodwill , expiration lists and non-compete agreements and the determination of estimated useful lives are based on valuations we receive from qualified independent appraisers . the calculations of these amounts are based on estimates and assumptions using historical and pro forma data and recognized valuation methods . different estimates or assumptions could produce different results . we carry intangible assets at cost , less accumulated amortization in our consolidated balance sheet . we review all of our intangible assets for impairment at least annually and whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable . we perform these impairment reviews at the reporting unit level with respect to goodwill and at the business unit level for amortizable intangible assets . in reviewing intangible assets , if the fair value were less than the carrying amount of the respective ( or underlying ) asset , an indicator of impairment would exist and further analysis would be required to determine whether or not a loss would need to be charged against current period earnings . based on the results of impairment reviews in 2010 and 2008 , we wrote off $ 2.3 million and $ 2.7 million , respectively , of amortizable intangible assets related to brokerage segment acquisitions . no such indicators were noted in 2009. the determinations of impairment indicators and fair value are based on estimates and assumptions related to the amount and timing of future cash flows and future interest rates . different estimates or assumptions could produce different results . effective january 1 , 2009 , we adopted on a prospective basis revised guidance to account for our acquisitions , which includes the estimation and recognition of the fair value of liabilities related to potential earnout obligations as of the acquisition dates for all of our acquisitions from 2009 and into the future , whose purchase agreements contain such provisions . subsequent changes in these estimated earnout obligations are recorded in our consolidated statement of earnings when incurred . potential earnout obligations are typically based upon the estimated future operating results of the acquired businesses . for acquisitions made prior to january 1 , 2009 , we did not include such obligations in the purchase price recorded for each applicable acquisition at the acquisition date because such obligations are not fixed and determinable . we generally record future payments made under these 2008 and prior arrangements , if any , as additional goodwill when the earnouts are settled , which will have no impact on the amounts reported in our consolidated statement of earnings . see note 4 to our consolidated financial statements for additional discussion on our 2010 business combinations . historically , we have not incurred a material amount of external transaction costs related to our acquisitions . however , when we have incurred such costs , we have capitalized these costs as part of our purchase accounting . effective january 1 , 2009 , we expense all external transaction costs related to our acquisitions as incurred . business combinations and dispositions see note 4 to our consolidated financial statements for a discussion of our 2010 business combinations . we did not have any material dispositions in 2010 or 2009. historically , we have used acquisitions to grow our brokerage segment 's commission and fee revenues . acquisitions allow us to expand into desirable geographic locations and further extend our presence in the retail and wholesale insurance brokerage services industries . we expect that our brokerage segment 's commission and fee revenues will continue to grow from acquisitions . we intend to continue to consider from time to time , additional acquisitions for our brokerage and risk management segments on terms that we deem advantageous . at any particular time , we generally will be engaged in discussions with multiple acquisition candidates . however , we can make no assurances that any additional acquisitions will be consummated , or , if consummated , that they will be advantageous to us . 22 results of operations information regarding non-gaap measures in the discussion that follows regarding our results of operations , we provide information regarding ebitdac , ebitdac margin , adjusted ebitdac , adjusted ebitdac margin , and organic change in commission , fee and supplemental commission revenues . these measures are not in accordance with , or an alternative to , the gaap information provided in this annual report . we believe that these presentations provide useful information to management , analysts and investors regarding financial and business trends relating to our results of operations and financial condition . our industry peers provide similar supplemental non-gaap information , although they may not use the same or comparable terminology and may not make identical adjustments . the non-gaap information we provide should be used in addition to , but not as a substitute for , the gaap information provided . certain reclassifications have been made to the prior-year amounts reported in the annual report in order to conform them to the current-year presentation . earnings measures - we believe that the presentation of ebitdac , ebitdac margin , adjusted ebitdac and adjusted ebitdac margin provides a meaningful representation of our operating performance . we consider ebitdac and ebitdac margin as a way to measure financial performance on an ongoing basis . adjusted ebitdac and adjusted ebitdac margin are meant to reflect the true operating performance of our business ; consequently , they exclude items that could be considered non-operating or non-core in nature .
| a soft market tends to put downward pressure on commission revenues . various countervailing factors , such as greater than anticipated loss experience and capital shortages , can result in increasing property/casualty premium rates ( a hard market ) . a hard market tends to favorably impact commission revenues . hard and soft markets may be broad-based or more narrowly focused across individual product lines or geographic areas . as markets harden , certain insureds , who are the buyers of insurance ( our brokerage clients ) , have historically resisted paying increased premiums and the higher commissions these premiums generate . such resistance often causes some buyers to raise their deductibles and or reduce the overall amount of insurance coverage they purchase . as the market softens , or costs decrease , these trends have historically reversed . during a hard market , buyers may switch to negotiated fee in lieu of commission arrangements to compensate us for placing their risks , or may consider the alternative insurance market , which includes self-insurance , captives , rent-a-captives , risk retention groups and capital market solutions to transfer risk . according to industry estimates , these mechanisms now account for 50 % of the total u.s. commercial property/casualty market . our brokerage units are very active in these markets as well . while increased use by insureds of these alternative markets historically has reduced commission revenue to us , such trends generally have been accompanied by new sales and renewal increases in the areas of risk management , claims management , captive insurance and self-insurance services and related growth in fee revenue . 19 inflation tends to increase the levels of insured values and risk exposures , resulting in higher overall premiums and higher commissions . however , the impact of hard and soft market fluctuations historically has had a greater impact on changes in premium rates , and therefore on our revenues , than inflationary pressures . beginning in 2004 and continuing throughout 2010 , the property/casualty insurance market has been operating in a relatively soft market in
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31 summary of recent financial performance during fiscal 2015 , we recognized net income of $ 113.7 million , or $ 2.80 per basic share and $ 2.65 per diluted share , compared to $ 7.4 million , or $ 0.19 per basic share and $ 0.18 per diluted share for the prior fiscal year . our net income for the year ended march 31 , 2015 included an income tax benefit of $ 84.9 million , primarily due to the release of our valuation allowance on certain of our deferred tax assets in the quarter ended march 31 , 2015. we also had higher impella product revenue due to greater utilization of our impella products in the u.s. and europe in fiscal 2015. critical accounting policies and estimates we prepare our consolidated financial statements in accordance with accounting principles generally accepted in the united states . preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , as well as the reported amounts of revenue and expenses during the reporting period . actual results could differ from these estimates . the accounting policies we believe are critical in the preparation of our consolidated financial statements relate to revenue recognition , in-process research and development , contingent consideration and income taxes . our significant accounting policies are more fully described under the heading summary of significant accounting policies in note 2 to our consolidated financial statements contained elsewhere herein . revenue recognition we recognize revenue when evidence of an arrangement exists , title has passed ( generally upon shipment ) or services have been rendered , the selling price is fixed or determinable and collectability is reasonably assured . revenue from product sales to customers is recognized when delivery has occurred . all costs related to product sales are recognized at time of delivery . we do not provide for rights of return to customers on our product sales and therefore we do not record a provision for returns . maintenance and service support contract revenues are included in product revenue and are recognized ratably over the term of the service contracts . revenue is recognized as it is earned in limited instances where we rent console medical devices to customers on a month-to-month basis or for a longer specified period of time . other service revenues are recognized as the services are performed . in-process research and development in-process research and development , or ipr & d , assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development projects . ipr & d assets represent the fair value assigned to technologies that we acquire , which at the time of acquisition have not reached technological feasibility and have no alternative future use . during the period that the assets are considered indefinite-lived , they are tested for impairment on an annual basis , or more frequently if we become aware of any events occurring or changes in circumstances that indicate that the fair value of the ipr & d assets are less than their carrying amounts . if and when development is complete , which generally occurs when we have regulatory approval and are able to commercialize products associated with the ipr & d assets , these assets are then deemed definite-lived and are amortized based on their estimated useful lives at that point in time . if development is terminated or abandoned , we may have a full or partial impairment charge related to the ipr & d assets , calculated as the excess of carrying value of the ipr & d assets over fair value . contingent consideration contingent consideration is recorded as a liability and measured at fair value using a discounted cash flow model utilizing significant unobservable inputs including the probability of achieving each of the potential milestones and an estimated discount rate associated with the risks of the expected cash flows attributable to the various milestones . significant increases or decreases in any of the probabilities of success or changes in expected timelines for achievement of any of these milestones would result in a significantly higher or lower fair value of these milestones , respectively , and commensurate changes to the associated liability . the fair value of the contingent consideration at each reporting date will be updated by reflecting the changes in fair value reflected in our statement of operations . increases or decreases in the fair value of the contingent consideration obligations can result from changes in the estimates of earn out results . we have a liability of $ 6.5 million of contingent consideration related to $ 15.0 million in potential payments as of march 31 , 2015 , related to the ecp acquisition . income taxes our provision for income taxes is composed of a current and a deferred portion . the current income tax provision is calculated as the estimated taxes payable or refundable on tax returns for the current year . the deferred income tax provision is calculated for the estimated future tax effects attributable to temporary differences and net operating loss carryforwards using expected tax rates in effect in the years during which the differences are expected to reverse . 32 we regularly assess our ability to realize our deferred tax assets . assessing the realization of deferred tax assets requires significant management judgment . we consider whether a valuation allowance is needed on our deferred tax assets by evaluating all positive and negative evidence relative to our ability to recover deferred tax assets . story_separator_special_tag prior to march 31 , 2015 , we had determined that the objectively verifiable negative evidence outweighed the positive evidence due to our history of net operating losses incurred for most of our existence , the then-pending status of our pma application with the fda for our impella 2.5 product , the uncertainties relative to the doj investigations , among other factors , and as a result we recorded a full valuation allowance against our deferred tax assets . during the quarter ended march 31 , 2015 , we determined based on our consideration of the weight of positive and negative evidence that there was sufficient positive evidence that most of our federal , state and certain foreign deferred tax assets are more likely than not recoverable as of march 31 , 2015. our conclusion was primarily driven by the receipt of pma approval for our impella 2.5 product in march 2015 , the $ 28.8 million of income before taxes in fiscal 2015 , our history of profits in recent years and our expectation of sustainable future profitability now that we have obtained pma approval for impella 2.5. accordingly , we recorded a $ 101.5 million reversal of the valuation allowance during the quarter ended march 31 , 2015 , primarily related to the company expecting to be able to use nol carryforwards in the future in the u.s. and germany . as of march 31 , 2015 , the remaining $ 2.9 million valuation allowance represents deferred tax assets related to nol carryforwards in certain foreign jurisdictions . based on the review of all available evidence , we recorded a valuation allowance to reduce these deferred tax assets to the amount that is more likely than not to be realizable as of march 31 , 2015. recent accounting pronouncements information regarding recent accounting pronouncements is included in note 2 . summary of significant accounting policies to our consolidated financial statements in this report . story_separator_special_tag income of $ 113.7 million , or $ 2.80 per basic share and $ 2.65 per diluted share , compared to $ 7.4 million , or $ 0.19 per basic share and $ 0.18 per diluted share for the prior fiscal year . our net income for the year ended march 31 , 2015 included an income tax benefit of $ 84.9 million , primarily due to the release of our valuation allowance on certain of our deferred tax assets in the quarter ended march 31 , 2015. the increase in net income in fiscal 2015 was also due to higher impella product revenue in the u.s. and europe . fiscal years ended march 31 , 2014 and march 31 , 2013 ( fiscal 2014 and fiscal 2013 ) revenue our revenues are comprised of the following : replace_table_token_6_th impella product revenue encompasses impella 2.5 , impella cp , impella 5.0 , and impella ld product sales . other product revenue includes ab5000 , bvs5000 and product accessory sales . service and other revenue represents revenue earned on service maintenance contracts and preventive maintenance calls . 35 total revenues for fiscal 2014 increased by $ 25.5 million , or 16 % , to $ 183.6 million from $ 158.1 million for fiscal 2013. the increase in total revenue was primarily due to higher impella revenue due to greater utilization in the u.s. , which was primarily attributable to the introduction of impella cp in the second half of fiscal 2013. impella product revenues for fiscal 2014 increased by $ 26.7 million , or 19 % , to $ 167.0 million from $ 140.3 million for fiscal 2013. most of our increase in impella revenue was from disposable catheter sales in the u.s. , as we focus on increasing utilization of our disposable catheter products through continued investment in our field organization and physician training programs . also , contributing to the sales increase was the introduction of impella cp to 389 sites in the u.s. since 510 ( k ) clearance was obtained in fiscal 2013. impella product revenues outside the us increased by $ 6.0 million , or 67 % , during fiscal 2014. most of this increase was due to impella product sales in europe , primarily germany , as we expanded our commercial infrastructure there . service and other revenue for fiscal 2014 increased by $ 1.7 million , or 18 % , to $ 10.9 million from $ 9.2 million for fiscal 2013. the increase in service revenue was primarily due to an increase in preventative maintenance service contracts , as we expand the use of our impella aic consoles to additional sites . other product revenues for fiscal 2014 decreased by $ 2.7 million , or 33 % , to $ 5.4 million from $ 8.1 million for fiscal 2013. the decrease in other revenue was due to a decline in bvs 5000 and ab5000 disposable sales . we are no longer actively producing the bvs 5000 and currently only actively selling the bvs 5000 upon request . we also expect that ab5000 revenue will continue to decline in fiscal 2015 as we focus our sales efforts in the surgical suite on impella 5.0 and ld . costs and expenses cost of product revenue cost of product revenue for fiscal 2014 increased by $ 5.7 million , or 18 % , to $ 37.3 million from $ 31.6 million for fiscal 2013. gross margin for each of fiscal 2014 and fiscal 2013 was 80 % . the increase in cost of product revenues was related to increased impella demand and higher production volume and costs to support the higher demand for impella products . gross margin rates remained stable in fiscal 2014 as we maintained average selling price for impella products in the u.s. , improved manufacturing yields and product cost savings from suppliers on increased volume . these improvements were offset by increased shipments of aic consoles and higher costs for product testing and inspection .
| service and other revenue for fiscal 2015 increased by $ 2.9 million , or 27 % , to $ 13.8 million from $ 10.9 million for fiscal 2014. the increase in service revenue was primarily due to an increase in preventative maintenance service contracts , as we expand the use of our impella aic consoles to additional sites . other product revenues for fiscal 2015 decreased by $ 1.9 million , or 35 % , to $ 3.5 million from $ 5.4 million for fiscal 2014. the decrease in other revenue was due to a decline in ab5000 disposable sales . we also had no sales of bvs 5000 in fiscal 2015 and we are no longer actively producing that product . we also expect that ab5000 revenue will continue to decline in fiscal 2016 as we focus our sales efforts in the surgical suite on impella 5.0 and ld . costs and expenses cost of product revenue cost of product revenue for fiscal 2015 increased by $ 2.6 million , or 7 % , to $ 39.9 million from $ 37.3 million for fiscal 2014. gross margin was 83 % for fiscal 2015 and 80 % for fiscal 2014. the increase in cost of product revenues was related to increased impella demand and higher production volume and costs to support growing demand for our impella products . gross margin was impacted favorably by higher manufacturing production volume , fewer shipments of aic consoles , improved efficiencies in manufacturing production and a favorable euro in the second half of fiscal 2015. research and development expenses research and development expenses for fiscal 2015 increased by $ 5.3 million , or 17 % , to $ 36.0 million from $ 30.7 million in fiscal 2014. the increase in research and development expenses was primarily due to operating expenses associated with the ecp business in berlin 34 that we acquired in july 2014 and a $ 1.5 million up-front license payment made to opsens , inc. in
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in addition , we paid approximately $ 2,404,000 in deposits with courts during 2014 related to proceedings in germany , brazil , and malaysia . our operating plans include increasing revenue through the licensing of our intellectual property , strategic partnerships , and litigation , when required , which may be resolved through a settlement or collection . disputes regarding the assertion of patents and other intellectual property rights are highly complex and technical . the majority of our expenditures consist of costs related to our four litigation campaigns . a large percentage of these costs were incurred in the united kingdom , australia , germany , brazil , the netherlands , and france . in civil law jurisdictions , such as germany , france , spain , and others , the majority of costs are incurred in the early stages of litigation . with respect to our litigation in such countries , the respective campaigns are currently in the later stages and therefore we have already incurred the large majority of the related anticipated costs . as such , based on our plans , costs in these jurisdictions are projected to be lower in 2015 and other future periods . despite our plans , our legal proceedings may continue for several years and may require significant expenditures for legal fees and other expenses . further , should we be deemed the losing party in certain of our litigations , we may be liable for some or all of our opponents ' legal fees . in addition , in connection with litigation , we have made several affirmative financial guarantees to courts around the world , and might face the need to make additional guarantees in the future . in addition , our plans to continue to expand our planned operations through acquisitions and monetization of additional patents , other intellectual property or operating businesses may be time consuming , complex and costly to consummate . we may utilize many different transaction structures in our acquisitions and the terms of such acquisition agreements tend to be heavily negotiated . our ability to raise capital may be limited . even if we are able to acquire particular patents or other intellectual property assets , there is no guarantee that we will generate sufficient revenue related to those assets to offset the acquisition costs . therefore , no assurance can be given at this time as to whether we will be able to achieve our objectives or whether we will have the sources of liquidity for follow through with our operating plans . in addition , until we generate sufficient revenue , we may need to raise additional funds , which may be achieved through the issuance of additional equity or debt , or through loans from financial institutions . there can be no assurance , however , that any such opportunities will materialize . we may also be able to raise additional funds through the exercise of our outstanding warrants and options , however , substantially all of such outstanding equity instruments are currently “ out of the money ” due to the decline in our common stock price which began in the third quarter of 2014 . 25 we anticipate that we will continue to seek additional sources of liquidity , when needed , until we generate positive cash flows to support our operations . we can not give any assurance that the necessary capital will be raised or that , if funds are raised , it will be on favorable terms . if we are unable to obtain additional funding on a timely basis , we may be required to curtail or terminate some of our business plans . any future sales of securities to finance our operations may require stockholder approval and will dilute existing stockholders ' ownership . we can not guarantee when or if we will ever generate positive cash flows . the circumstances described above raise substantial doubt about our ability to continue as a going concern . our consolidated financial statements have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business . story_separator_special_tag cellspacing= '' 0 '' style= '' border-collapse : collapse ; width : 90 % ; font : 10pt times new roman , times , serif '' > year ended december 31 , 2014 2013 change revenue $ 1,425,000 $ 1,100,000 $ 325,000 during the year ended december 31 , 2014 , we recorded total revenue of $ 1,425,000 , which represents an increase of $ 325,000 ( or 29.5 % ) as compared to the year ended december 31 , 2013. revenue during the year ended december 31 , 2014 was due to certain one-time payments in connection with license and settlement agreements for certain of our owned intellectual property . revenue during the year ended december 31 , 2013 of $ 1,100,000 mostly relates to a one-time payment in connection with the license and settlement agreement entered into with microsoft for $ 1,000,000. we seek to generate revenue through the monetization of our intellectual property through licensing , strategic partnerships and litigation , when required , which may be resolved through a settlement or collection . we also intend to continue to expand our planned operations through acquisitions and monetization of additional patents , other intellectual property or operating businesses . in particular , following the incorporation of our subsidiary in germany and the acquisition of a patent portfolio from nokia , we intend to continue to expand our intellectual property monetization efforts worldwide . acquisitions of patents or other intellectual property assets are often time consuming , complex and costly to consummate . we may utilize many different transaction structures in our acquisitions and the terms of such acquisition agreements tend to be heavily negotiated . our ability to raise capital may be limited . story_separator_special_tag even if we are able to acquire particular patents or other intellectual property assets , there is no guarantee that we will generate sufficient revenue related to those assets to offset the acquisition costs . we anticipate that our legal proceedings may continue for several years and may require significant expenditures for legal fees and other expenses . disputes regarding the assertion of patents and other intellectual property rights are highly complex and technical . operating legal costs year ended december 31 , 2014 2013 change operating legal costs $ 25,368,000 $ 21,590,000 $ 3,778,000 during the year ended december 31 , 2014 , our operating legal costs were $ 25,368,000 , which represents an increase of $ 3,778,000 ( or 17.5 % ) from operating legal costs recorded for the year ended december 31 , 2013. this increase was primarily due to the timing and nature of consulting and patent litigation costs related to legal proceedings against google and zte . during the year ended december 31 , 2014 , there were costs associated with the oral argument heard in the appeals court in may 2014 in connection with our legal proceedings against google . with respect to our legal proceedings against zte , costs during the year ended december 31 , 2014 were associated with our continued worldwide litigation efforts , including commencement of legal actions in brazil , malaysia , spain , netherlands , and other countries . in addition , we incurred costs during the current period in the u.s. related to our efforts in obtaining the temporary restraining order and preliminary and permanent injunctions against zte related to its use of prohibited materials captured under a non-disclosure agreement . there was also an increase in stock-based compensation expense ( approximately $ 122,000 ) due to the expansion of our in-house legal department staff . 27 it is uncertain whether our operating legal costs will increase over time . though we aim to diversify our portfolio of products and increase our intellectual property monetization efforts , we have also increased the size of our in-house legal department staff as mentioned above . the goal is to decrease our overall legal expenses by performing more work in-house , which we believe will cost less than outsourcing to external firms . there is no guarantee , however , that an in-house team will be less expensive or more efficient than outsourcing this work . moreover , as we expand the scope of our monetization efforts , the amount of legal work will increase leading to a concomitant increase in our operating legal costs , regardless of if such work is performed in-house or outsourced . amortization and impairment of intangibles year ended december 31 , 2014 2013 change amortization and impairment of intangibles $ 5,123,000 $ 3,445,000 $ 1,678,000 during the year ended december 31 , 2014 , amortization expense and impairment charges related to our intangibles totaled $ 5,123,000 which represents an increase of $ 1,678,000 ( or 48.7 % ) from amortization and impairment of intangibles recorded for the year ended december 31 , 2013. currently , our intangible assets consist of our patent portfolios which are amortized over their remaining useful lives ( i.e. , through the expiration date of the patent ) . during the third quarter of 2014 , we recorded an impairment charge of $ 1,355,000 related to the patent portfolio containing the patents-in-suit in i/p engine 's litigation against aol inc. , google inc. et al . there were no impairment charges related to our patents during the year ended december 31 , 2013. the remaining increase of $ 323,000 during the current period was due to the additional amortization of patent portfolios that were acquired during the fourth quarter of 2013. research and development year ended december 31 , 2014 2013 change research and development $ 889,000 $ 1,512,000 $ ( 623,000 ) during the years ended december 31 , 2014 and 2013 , our research and development expenses amounted to $ 889,000 and $ 1,512,000 , respectively . these amounts exclude research and development expenses related to our mobile social application business which is presented in discontinued operations . the decrease of $ 623,000 ( or 41.2 % ) is primarily due to a decrease in costs related to third party consultants who were engaged on certain projects during 2013. such projects had ended prior to 2014 and therefore these third party consultants were no longer utilized in the current period . as mentioned above , in february 2014 , we sold our mobile social application business to infomedia . as part of the sale agreement , the employment of our mobile products and services personnel were assumed by infomedia . general and administrative year ended december 31 , 2014 2013 change general and administrative $ 15,484,000 $ 15,330,000 $ 154,000 during the year ended december 31 , 2014 , general and administrative expenses increased by $ 154,000 ( or 1.0 % ) , to $ 15,484,000 , compared to $ 15,330,000 that was recorded during the year ended december 31 , 2013. the overall increase in general and administrative expenses was primarily due to increased costs in connection with our efforts to consolidate our executive management and finance functions in a centralized location . in addition , there was an increase in corporate legal , insurance , and accounting costs as compared to the prior year . goodwill impairment year ended december 31 , 2014 2013 change goodwill impairment $ 65,757,000 $ — $ 65,757,000 28 during the year ended december 31 , 2014 we performed our annual test for goodwill impairment . based on the first step of the goodwill impairment test , it was determined that the fair value of the reporting unit did not exceed its carrying amount as of december 31 , 2014 , mainly due to the decline of our common stock price during the fourth quarter of 2014. accordingly , we performed the second step of the goodwill impairment test and determined that the implied value of our goodwill was zero .
| as such , the earnings process is complete and revenue is recognized upon the execution of the agreement , upon receipt of the minimum upfront fee for term agreement renewals , and when all other revenue recognition criteria have been met . operating legal costs operating legal costs mainly include expenses incurred in connection with our patent licensing and enforcement activities , patent-related legal expenses paid to external patent counsel ( including contingent legal fees ) , licensing and enforcement related research , consulting and other expenses paid to third parties , as well as related internal payroll expenses and stock-based compensation . amortization and impairment of intangibles amortization of intangibles represents the amortization expense of our acquired patents which is recognized on a straight-line basis over the remaining legal life of the patents . impairment charges related to our acquired patents are recorded when an impairment indicator exists and the carrying amount of the related asset exceeds its fair value . research and development expenses research and development expenses consist primarily of the cost of our development personnel , as well as of the cost of outsourced development services . general and administrative expenses general and administrative expenses include management and administrative personnel , public and investor relations , overhead/office costs and various professional fees , as well as insurance , non-operational depreciation and amortization . goodwill impairment goodwill is reviewed for impairment at least annually , and when triggering events occur , in accordance with generally accepted accounting principles in the united states of america ( “ u.s . gaap ” ) . impairment charges related to our goodwill are recorded based on the results of such impairment tests , if required . 26 non-operating income ( expenses ) non-operating income ( expenses ) includes transaction gains ( losses ) from foreign exchange rate differences , interest on deposits , bank charges , as well as fair value adjustments related to our derivative warrant liabilities . the value of such derivative warrant liabilities is highly influenced by assumptions used in its valuation , as well as by our stock price at the period end ( revaluation date ) . income taxes as of december 31 , 2014 , deferred tax
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despite the current economic environment , we believe healthcare information technology is often viewed as more strategically beneficial to hospitals than other possible purchases because the technology offers the possibility of a quick return on investment . information technology also plays an important role in healthcare by improving safety and efficiency and reducing costs . additionally , we believe most hospitals recognize that they must invest in healthcare information technology to meet current and future regulatory , compliance and government reimbursement requirements . over the past five years , we have experienced an increase in customers seeking financing arrangements from us for system installations as a result of ongoing challenging economic conditions and tightened lending standards . additionally , as our new system installation customers expect significant future cash inflows in the form of electronic health record ( `` ehr '' ) incentive payments from the federal and state governments , we have experienced a significant demand for financing arrangements allowing these customers to minimize the near-term impact on their current cash resources . as a result , we have experienced a significant increase in financing arrangements that allow customers to utilize anticipated cash inflows under the ehr incentive program in satisfaction of their payment obligations in purchasing our ehr solution . the increased demand for financing arrangements has resulted in nearly all of our new system installation customers seeking and receiving financing arrangements during 2013. historically , we have made financing arrangements available to customers on a case-by-case basis depending upon various aspects of the proposed contract and customer attributes . these financing arrangements include short-term payment plans , longer-term lease financing through us or third-party financing companies , and software as a service ( `` saas '' ) arrangements . we intend to continue to work with prospective customers to provide for financing arrangements to purchase our systems so long as such arrangements do not adversely affect our financial position or long-term liquidity . we believe that meeting the financial needs of rural and community hospitals while allowing for the profitable expansion of our footprint in this market will remain both an opportunity and a challenge for us in the foreseeable future . despite the ongoing challenging economic conditions generally , including continued tightened lending standards and the significant increase in customers entering into financing arrangements with us , we have not experienced a decline in demand for our products and services , and our collections of receivables remain consistent with historical trends . american recovery and reinvestment act of 2009 while the ongoing challenging economic conditions and tightened lending standards have impacted and are expected to continue to impact the rural and community hospitals that comprise our target market , we believe that the american recovery and reinvestment act of 2009 ( the `` arra '' ) has increased and will continue to increase demand for healthcare information technology and will have a positive impact on our business prospects through 2015. the arra includes more than $ 19 billion in funding to aid healthcare organizations in modernizing their operations through the acquisition and wide-spread use of healthcare information technology . included in the funding is approximately $ 17.2 billion in incentives through medicare and medicaid reimbursement systems to encourage and assist healthcare providers in adopting and using ehrs . these incentive payments began in 2011 , but if an eligible healthcare provider does not begin to demonstrate meaningful use of an ehr by october 1 , 2014 , then reimbursement under medicare will begin to be reduced . our hospital customers began receiving these incentive payments under the arra in 2011. as of the date of this filing , approximately 420 of our hospital customers have received payments for ehr adoption totaling approximately $ 577 million . we have been focused on ensuring that we take the necessary steps to meet the needs of rural and community hospitals to help them gain access to the incentives made available under the arra . primary among those steps is ensuring that our technology meets the arra 's ehr certification requirements . during 2010 , both our hospital and medical practice ehr solutions were certified as a complete ehr by cchit ® . receiving this certification for both our hospital and medical practice ehr products ensures that both hospitals and providers using our ehr systems can attain `` meaningful use '' of ehrs and qualify for certain ehr incentives . continuing this focus on ensuring that our technology meets the arra 's ehr certification requirements , we recently announced that version 19 of our hospital and medical practice ehr systems were certified by cchit ® as complete ehrs in compliance with the office of the national coordinator for health information technology ( `` onc '' ) 2014 edition criteria . the onc 2014 edition criteria support both stage one and stage two meaningful use measures required to qualify eligible hospitals and providers for funding under the arra . according to data reported by the onc , along with cms , as of december 31 , 2013 cpsi is third among all vendors in terms of the number of successful hospital customer attestations for complete ehr systems . as a result of our obtaining the cchit ® certification and our track record with our hospital customers successfully achieving meaningful use , the arra has had and should continue to have a positive impact on our business and the businesses of the rural and community hospitals that comprise our target market . health care reform in march 2010 , president obama signed into law the patient protection and affordable care act and the health care and 34 index to financial statements education reconciliation act of 2010 , collectively referred to as the `` health reform laws . '' this sweeping legislation implements changes to the healthcare and health insurance industries from 2010 through 2015 , with the ultimate goal of requiring substantially all u.s. citizens and legal residents to have qualifying health insurance coverage by 2014 and providing the means by which it will be made available to them . story_separator_special_tag we anticipate that the health reform laws will have little direct impact on our internal operation but may have a significant impact on the businesses of our hospital customers once fully in effect . we have not been able to determine at this point whether the impact will be positive , negative or neutral ; however , it is likely that the health reform laws will affect hospitals differently depending upon the populations they service . rural and community hospitals typically service higher uninsured populations than larger urban hospitals and rely more heavily on medicare and medicaid for reimbursement . it remains to be seen whether the increase in the insured populations for rural and community hospitals , as well as the increase in medicare and medicaid reimbursements under the arra for hospitals that implement ehr technology , will be enough to offset cuts in medicare and medicaid reimbursements contained in the health reform laws or as a result of sequestration or other federal legislation . we believe healthcare initiatives will continue during the foreseeable future . if adopted , some aspects of previously proposed reforms , such as further reductions in medicare and medicaid payments , could adversely affect the businesses of our customers and thereby harm our business . deficit reduction/sequestration president obama signed legislation in august 2011 , the budget control act of 2011 , to increase the u.s. debt ceiling . this legislation mandates significant cuts in federal spending over the next decade , as the special bipartisan congressional committee appointed under the legislation failed to take any action on deficit reduction . although medicaid is specifically exempted from the federal spending cuts mandated by the legislation , it calls for a reduction of up to 2 % in federal medicare spending , all of which will be achieved by reduced reimbursements to healthcare providers . with the passage of the american taxpayer relief act of 2012 , the reduced reimbursements provided for under the budget control act took effect starting on march 1 , 2013. as our hospital customers rely heavily on reimbursements from medicare to fund their operations , the anticipated reduction in reimbursement rates , although capped at 2 % , could negatively affect the businesses of our customers and our business . as the federal government seeks to further limit deficit spending in the future due to fiscal restraints , it will likely continue to cut entitlement spending programs such as medicare and medicaid matching grants which will place further cost pressures on hospitals and other healthcare providers . furthermore , federal and state budget shortfalls could lead to potential reductions in funding for medicare and medicaid . reductions in reimbursements from medicare and medicaid could lead to hospitals postponing expenditures on information technology . 2013 financial overview our gross revenues in 2013 increased 9.6 % , while our net income increased 9.2 % . despite the increase in net income , cash flow from operations decreased 9.8 % due primarily to significant increases in our financing receivables . we continued to experience increased levels of customers seeking financing arrangements for system installations during the year due to continued challenging economic conditions and unavailability of third-party credit . additionally , as our new system installation customers expect significant future cash inflows in the form of ehr incentive payments , we have experienced a significant demand for financing arrangements allowing these customers to minimize the near-term impact on their current cash resources . as a result , we have experienced a significant increase in financing arrangements that allow customers to utilize anticipated cash inflows under the ehr incentive program in satisfaction of their principal obligation in purchasing our ehr solution . these customers have opted for payment terms that result in the full satisfaction of principal within a timeframe consistent with that of our historical financing arrangements . we will continue to grant financing arrangements to customers on a case-by-case basis depending upon various aspects of the proposed contract and customer attributes . despite the decrease in cash flow from operations during the year , we have maintained a strong cash position that we believe is sufficient to meet our operating requirements . we believe that a strong cash position enables us to compete better in the marketplace and maintain the quality of our customer service and product offerings . as mentioned above , our operations have been significantly affected by the ehr incentives offered under the arra and the related reduction in medicare reimbursement rates for those providers that fail to demonstrate meaningful use of ehr by october 1 , 2014 . `` meaningful use '' of ehr under the arra refers to a set of core criteria that medical providers must meet in order to prove that they are using their ehr as an effective tool in their practice , plus additional a la carte menu items . meaningful use is measured in three stages , with each stage representing a level of adoption of ehr . ehr incentive payments to eligible hospitals meeting the stage one criteria began in 2011 and eligible hospitals not meeting the stage one criteria by october 1 , 2013 will experience a decrease in the overall incentive payments for which they are eligible under the incentive 35 index to financial statements program . to achieve the stage one criteria , eligible hospitals are required to meet 14 core objectives and five menu objectives that they select from a total list of 10. stage two criteria , published in september 2012 , became effective at the beginning of the federal government 's 2014 fiscal year ( october 1 , 2013 ) and require eligible hospitals to meet 16 core objectives and three menu objectives to be selected from a total list of six . most of the stage one objectives are core objectives under stage two , but the thresholds that providers must meet to satisfy these objectives for stage two have been raised .
| sales to existing customers accounted for 58.0 % of our system sales revenues during 2013 compared to 64.1 % during 2012. during 2012 , the company installed systems under first generation meaningful use installment plans for which a substantial majority of the consideration is not received or revenue recognized until the customers successfully achieve 38 index to financial statements `` meaningful use '' designation and receive related stage one arra incentive payments . these arrangements resulted in revenue recognized ( net of additional unrecognized revenue accumulated ) of $ 3.9 million during 2013 and $ 7.1 million of accumulated unrecognized revenue during 2012. excluding the net effect on revenue resulting from these arrangements , adjusted system sales ( as hereinafter defined in the `` non-gaap financial measures '' section below ) decreased $ 3.7 million , or 4.7 % , due to the decrease in add-on sales to existing customers . add-on sales in 2012 benefited from those customers purchasing necessary incremental applications in order to satisfy both stage one and stage two meaningful use criteria , whereas during 2013 the opportunities for add-on sales for stage one incremental applications had largely been exhausted . support and maintenance revenues increased by 6.3 % , or $ 4.2 million . support service fees increased by 8.5 % , or $ 5.3 million , due to an increase in recurring revenues as a result of a larger customer base , an increase in support fees for add-on business sold to existing customers , and increases in support rates from contractually agreed upon consumer price index rate increases . the increase in support service fees was partially offset by a 27.7 % , or $ 0.8 million , decrease in saas , hosting and other fees as a result of the high volume during 2012 of conversions of previously installed saas arrangements to perpetual licenses at the customers ' request . business management , consulting and managed it services revenues increased by 14.0 % , or $ 6.1 million . we experienced this increase in business management , consulting and managed it services revenues primarily as a result of growth
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it is open-label and designed to look at dosing regimens , immune responses and efficacy . we also announced the start of an ovarian cancer study sponsored by memorial sloan kettering cancer center in new york city in collaboration with astrazeneca pharmaceuticals . this study is currently enrolling platinum resistant ovarian cancer patients and is designed to look at the effects of combination therapy with astrazeneca 's checkpoint inhibitor “ durvalumab ” . the study will enroll 40 patients and is open label . although we have no business relationship with astrazeneca , we are paying for half of the clinical study plus providing our tpiv 200 for the study . phase i human clinical trials – her2/neu+ breast cancer – mayo clinic patient dosing has been completed . final safety analysis on all the patients treated is complete and shown to be safe . in addition , 19 out of 20 evaluable patients showed robust t-cell immune responses to the antigens in the vaccine composition providing a solid case for advancement to phase ii in 2015. an additional secondary endpoint incorporated into this phase i trial will be a two year follow on recording time to disease recurrence in the participating breast cancer patients . for phase i ( b ) /ii studies , we plan to add a class i peptide , licensed from the mayo clinic ( april 16 , 2012 ) , to the four class ii peptides . management believes that the combination of class i and class ii her2/neu antigens , gives us the leading her2/neu vaccine platform . as the folate receptor alpha vaccine is our lead product our plans are now initiating formulation studies to progress the her2/neu vaccine towards a phase ii clinical trial in 2017. products and technology-preclinical polystart we converted the previously filed u.s. provisional patent application on polystart into a full patent application , and in february 2016 we received a notice of allowance from the u.s. patent and trademark office ( “ uspto ” ) for a patent application entitled , “ a chimeric nucleic acid molecule with non-aug initiation sequences. ” the term of this patent extends to march 17 , 2034. additional patent filings are in progress . we plan to develop polystart as both a stand-alone therapy and as a ‘ boost strategy ' to be used synergistically with our peptide-based vaccines for breast and ovarian cancer . current state of the company we are a clinical-stage immunotherapy company specializing in the development of innovative peptide and gene-based immunotherapeutics and vaccines for the treatment of cancer . we now plan to conduct multiple phase ii clinical trials on our vaccines . the largest of these studies in triple-negative breast cancer is totally funded by a $ 13.3 million grant from the u.s. department of defense to our collaborators at the mayo clinic in jacksonville , florida . a company-sponsored trial in triple-negative breast cancer started during the second quarter of 2016 with recruitment at multiple sites and treatment of first patients . we believe that our development pipeline is strong and provides us the opportunity to continue to expand on collaborations with leading institutions and corporations . we believe , the strength of our science and development approaches is becoming more widely appreciated , particularly as our clinical program has now generated positive interim data on both clinical programs in breast and ovarian cancer . 39 we continue to be focused on our entry into phase ii triple-negative breast cancer trials including application for fast track & orphan drug status as well as planning for phase ii her2/neu breast cancer trials . we expect to continue to prosecute our polystart patent filings and develop new constructs to facilitate collaborative efforts in our current clinical indications and those where others have already indicated interest in combination therapies . we believe that these fundamental programs and corporate activities have positioned tapimmune to capitalize on the acceptance of immunotherapy as a leading therapeutic strategy in cancer and infectious disease . tapimmune 's pipeline clinical program we have a pipeline of potential immunotherapies under development . phase i clinical programs on her2/neu for breast and ovarian cancer have been completed and strong immune responses in over 90 % of patients treated has provided the rationale and catalyst to advance these programs to phase ii clinical trials . in addition to the exciting clinical developments , our peptide vaccine technology may be coupled with our recently developed in-house polystart nucleic acid-based technology designed to make vaccines significantly more effective by producing four times the required peptides for the immune systems to recognize and act on . our nucleic acid-based systems can also incorporate “ tap ” which stands for transporter associated with antigen presentation . a key component to success is having a comprehensive patent strategy that continually updates and extends patent coverage for key products . it is highly unlikely that early patents will extend through ultimate product marketing , so extending patent life is an important strategy for ensuring product protection . we have three active patent families that we are supporting : 1. filed patents on polystart expression vector ( owned by tapimmune and filed in 2014 : this ip covers the use with tap ) . we announced the allowance of this patent in february 2016 . 40 2. filed patents on her2/neu class ii and class i antigens : exclusive license from mayo foundation ; and 3. filed patents on folate receptor alpha antigens : exclusive license from mayo foundation while the pathway to successful product development takes time , we believe we have put in place significant for success . the strength of our product pipeline and access to leading scientists and institutions gives us a unique opportunity to make a major contribution to global health care . with respect to the broader market , a major driver and positive influence on our activities has been the emergence and general acceptance of the potential of a new generation of immunotherapies that promise to change the standard of care for cancer . story_separator_special_tag the immunotherapy sector has been greatly stimulated by the approval of provenge® for prostate cancer and yervoy for metastatic melanoma , progression of the areas of checkpoint inhibitors and adoptive t-cell therapy and multiple approaches reaching phase ii and phase iii status . we believe that through our combination of technologies , we are well positioned to be a leading player in this emerging market . it is important to note that many of the late-stage immunotherapies currently in development do not represent competition to our programs , but instead offer synergistic opportunities to partner our antigen based immunotherapeutics , and polystart expression system . thus , the use of naturally processed t-cell antigens discovered using samples derived from cancer patients plus our polystart expression technology to improve antigen presentation to t-cells could not only produce an effective cancer vaccine in its own right but also to enhance the efficacy of other immunotherapy approaches such as car-t and pd1 inhibitors for example . recent developments and company highlights research programs her2/neu license agreement on june 7 , 2016 , we announced that we exercised our option agreement with mayo clinic and signed a worldwide license agreement to a proprietary her2/neu vaccine technology . the license gives us the right to develop and commercialize the technology in any cancer indication in which the her2/neu antigen is overexpressed . phase ii trials started on april 26 , 2016 , we announced plans to participate in a phase ii trial of our cancer vaccine , tpiv 200 , a multi-epitope anti-folate receptor vaccine ( frα ) , in combination with astrazeneca 's durvalumab ( medi4736 ) , an anti-pd-l1 antibody , in patients with platinum-resistant ovarian cancer . the study started with the enrollment and treatment of patients in the second quarter of 2016 at memorial sloan kettering cancer center in new york and is being led by jason konner , m.d . as principal investigator . on june 21 , 2016 , we announced the treatment of the first patient in a company-sponsored phase ii trial in triple-negative breast cancer as part of a multi-center study . manufacturing on april 7 , 2016 , we announced that we have successfully completed formulation development , scale-up , gmp ( good manufacturing practice ) manufacturing , and the release of tpiv 200 , our multi-epitope folate receptor peptide vaccine for breast and ovarian cancer . the manufactured product contains five peptide antigens freeze dried in a single vial , ready for injection after reconstitution and addition of granulocyte-macrophage colony-stimulating factor ( gm-csf ) . tpiv 200 doses are now available for the upcoming phase ii clinical trials in both triple-negative breast cancer and ovarian cancer . 41 recent developments enrolling patients : phase ii tpiv 200 trial in triple-negative breast cancer we have opened ten clinical sites ( with another two more sites anticipated in 2017 ) and have begun treating patients in a phase ii trial of our folate receptor alpha cancer vaccine , tpiv 200 , in the treatment of triple-negative breast cancer , one of the most difficult cancers to treat , representing a clear unmet medical need . the open-label , 80-patient clinical trial is designed to evaluate dosing regimens , adjuvants , efficacy , and immune responses in women with triple-negative breast cancer . key data from the trial is expected to be included in a future new drug application submission to the fda for marketing clearance . this trial is sponsored and conducted by tapimmune . details regarding this trial can be found at www.clinicaltrials.gov under identifier numbers nct02593227 and frv-002 . enrolling patients : phase ii trial at memorial sloan kettering of tpiv 200 in ovarian cancer a phase ii study of tpiv 200 in ovarian cancer patients who are not responsive to platinum , a commonly used chemotherapy for ovarian cancer , sponsored by memorial sloan kettering cancer center , and in collaboration with astrazeneca and tapimmune , has begun enrollment for a 40-patient study . the open-label study is designed to evaluate a combination therapy which includes our tpiv 200 t-cell vaccine and astrazeneca 's checkpoint inhibitor , durvalumab . because they are unresponsive to platinum , these patients have no real remaining options . if the combination therapy proves effective , we believe it would address a critical unmet need . tpiv 200 has received orphan drug designation for use in the treatment of ovarian cancer . details regarding this trial can be found at www.clinicaltrials.gov under identifier numbers nct02764333 . enrolling patients : phase ii tpiv 200 trial in platinum-sensitive ovarian cancer we have opened one clinical site ( with at least another 10 sites anticipated in 2017 ) in a phase ii trial of tpiv 200 in 80 ovarian cancer patients who are responsive to platinum . we have received the fda 's fast track designation to develop tpiv 200 as a maintenance therapy in combination with platinum , in platinum responsive ovarian cancer patients . this multi-center , double-blind efficacy study is sponsored and conducted by tapimmune . details regarding this trial can be found at www.clinicaltrials.gov under identifier numbers nct02978222 and frv-004 . patient enrollment to commence in the first quarter of 2017 : phase ii mayo clinic-u.s. dod trial of tpiv 200 in triple-negative breast cancer we anticipate this phase ii study of tpiv 200 in the treatment of triple-negative breast cancer , conducted by the mayo clinic and sponsored by the u.s. department of defense ( “ dod ” ) , will begin to enroll patients in the first quarter of 2017. the anticipated 280-patient study will be led by dr. keith knutson of the mayo clinic in jacksonville , florida . dr. knutson is the inventor of the technology and in the scientific advisory board at tapimmune . while tapimmune is supplying doses of tpiv 200 for the trial , and being reimbursed for the costs associated with manufacturing , the remaining costs associated with conducting this study will be funded by a $ 13.3 million grant made by the dod to the mayo clinic .
| · the changes in fair value of derivative liabilities for the year ended december 31 , 2016 was $ 5,940,000 as compared to ( $ 27,873,000 ) for the year ended december 31 , 2015. the variance from the previous year was due to the following factor : the revaluation of the series a and a-1 , series c and c-1 , series d and d-1 and series e and e-1 warrants issued by us in january and march 2015 , from december 31 , 2015 through august 10 , 2016 , when on august 10 , 2016 we amended warrant agreements to remove the clause that caused the warrants to be classified as derivative liabilities . we revalue the derivative liabilities at each balance sheet date to fair value and record with a corresponding gain in the consolidated statement of operations . the most significant change in the revaluation was the difference in the stock price used at august 10 , 2016 of $ 6.00 compared to $ 7.20 at december 31 , 2015. of the $ 5,940,000 change in fair value of derivative liabilities for fiscal 2016 , $ 5,937,000 was due to the revaluation between december 31 , 2015 and august 10 , 2016. the remaining change was due to the revaluation of the remaining derivative warrants through december 31 , 2016 . · during the year ended december 31 , 2016 , we received $ 231,000 of a grant awarded to mayo foundation from the u.s. department of defense for the phase ii clinical trial of tpiv 200. the grant paid for the clinical supplies purchased by us . · during the year ended december 31 , 2016 , we incurred $ 136,000 loss on debt settlement agreements relating to an outstanding debt agreement from previous years . this compares to $ 25,000 loss on debt settlement agreements for the year ended december 31 , 2015. the weighted average number of shares outstanding were approximately 6,890,000 basic and 7,421,000 diluted for the year ended december 31 , 2016 compared to approximately 3,662,000 basic and diluted for the year ended december 31 , 2015. liquidity and capital resources we have not generated any revenues since inception , we have financed our operations primarily through public and private offerings of our stock and debt including warrants and the exercise thereof . 46 the following table sets forth our cash and working capital as of december
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39 management 's discussion and analysis operating expenses oe includes cost of providing services ( cops ) , sales and marketing ( s & m ) , general and administrative ( g & a ) , systems development and programming ( sd & p ) , and depreciation and amortization expenses ( d & a ) . we manage our operating expenses and allocate resources across different business functions based on a percentage of nsr , which has decreased to 71 % in 2019 from 72 % in 2018 . we had approximately 2,900 corporate employees as of december 31 , 2019 in 54 offices across the u.s. our corporate employees ' compensation-related expenses represent a majority of our operating expenses . compensation costs for our corporate employees include payroll , payroll taxes , sbc , bonuses , commissions and other payroll- and benefits-related costs . compensation-related expense represented 63 % of our oe in 2019 and 61 % in 2018 . during the year ended december 31 , 2019 , we experienced operating expense growth of 3 % when compared to the same period in 2018 . we expect our oe to increase in the foreseeable future due to our continued efforts to improve our customer service experience and our systems and processes . during the year ended december 31 , 2019 , the percent of oe to total revenues was 17 % , compared to 18 % in 2018 . 40 management 's discussion and analysis we analyze and present our oe based upon the business functions cops , s & m , g & a and sd & p and depreciation and amortization . the charts below provide a view of the expenses of the business functions . dollars are presented in millions and percentages represent year-over-year change . ( in millions ) $ 642 2018 operating expense +16 cops increased in 2019 , driven by increases in compensation related expenses to support initiatives to improve our customer experience , our systems and processes , and to enhance our product offerings . we also experienced an increase in the volume of epli claim expenses . +8 s & m increased in 2019 , driven by an increase in headcount and amortization of deferred commissions expense related to our growth in new sales . -5 g & a decreased in 2019 , driven by a decrease in compensation related expenses and professional fees . -6 sd & p decreased in 2019 , primarily due to a decrease in compensation related expenses and professional fees . +6 d & a increased in 2019 , primarily as a result of our investments in technology to support our customer service initiatives . $ 661 2019 operating expenses 41 management 's discussion and analysis we break out the expenses that make up our oe in the chart below : other income ( expense ) other income ( expense ) consists primarily of interest and dividend income from investments and interest expense under our credit facility . interest income increased to $ 23 million in 2019 due to a change in our investment strategy initiated in the second quarter of 2018 to improve our interest income . our investment strategy has improved our interest income , net income , adjusted net income and adjusted ebitda , year-over-year . interest expense , bank fees and other , remained consistent year-over-year . provision for income taxes our effective tax rate ( etr ) was 21 % and 20 % for the years ended december 31 , 2019 and 2018 , respectively . the change in etr was driven by a 3 % increase primarily from one-time expenses associated with sbc , partially offset by a 2 % decrease from a one-time benefit associated with prior year tax expense and changes in the valuation allowance . 42 management 's discussion and analysis liquidity and capital resources liquidity liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations . we believe that we have sufficient liquidity and capital resources to satisfy future requirements and meet our obligations to our clients , creditors and debt holders . included in our balance sheets are assets and liabilities resulting from transactions directly or indirectly associated with wses , including payroll and related taxes and withholdings , our sponsored workers ' compensation and health insurance programs , and other benefit programs . although we are not subject to regulatory restrictions , we distinguish and manage our corporate assets and liabilities separately from those current assets and liabilities held by us to satisfy our employer obligations associated with our wses as follows : replace_table_token_10_th to meet various u.s. state licensing requirements and maintain accreditation by the esac , we are subject to various minimum working capital and net worth requirements . as of december 31 , 2019 , we believe we have fully complied in all material respects with all applicable state regulations regarding minimum net worth , working capital and all other financial and legal requirements . further , we have maintained positive working capital throughout each of the periods covered by the financial statements . working capital for wses activities we designate funds to ensure that we have adequate current assets to satisfy our current obligations associated with wses . we manage our wse payroll and benefits obligations through collections of payments from our clients which generally occurs two to three days in advance of client payroll dates . we regularly review our short-term obligations associated with our wses ( such as payroll and related taxes , insurance premium and claim payments ) and designate funds required to fulfill these short-term obligations , which we refer to as pfc . pfc is included in current assets as restricted cash , cash equivalents and investments . we manage our sponsored benefit and workers ' compensation insurance obligations by maintaining collateral funds in restricted cash , cash equivalents and investments . story_separator_special_tag these collateral amounts are generally determined at the beginning of each plan year and we may be required by our insurance carriers to adjust our collateral balances when facts and circumstances change . we regularly review our collateral balances with our insurance carriers and anticipate funding further collateral in the future based upon our capital requirements . we classify our restricted cash , cash equivalents and investments as current and noncurrent assets to match against the anticipated timing of payment of claims . working capital for corporate purposes we use our available cash and cash equivalents to satisfy our operational and regulatory requirements and to fund capital expenditures . we believe that we can meet our present and reasonably foreseeable operating cash needs and future commitments through existing liquid assets , continuing cash flows from corporate operating activities , our borrowing capacity under our revolving credit facility and the potential issuance of debt or equity securities . 43 management 's discussion and analysis cash flows the following table presents our cash flow activities for the stated periods : replace_table_token_11_th operating activities components of net cash ( used in ) provided by operating activities are as follows : replace_table_token_12_th year-over-year change in net cash used in operating activities for wse purposes was primarily driven by timing of client payments , payments of payroll and payroll taxes , and collateral funding and insurance claim activities . we expect the changes in restricted cash and cash equivalents to correspond to wse cash provided by ( or used in ) operations as we manage our obligations associated with wses through restricted cash . corporate operating cash flows in 2019 remained consistent to 2018 . 44 management 's discussion and analysis investing activities cash used in investing activities for the periods presented below primarily consisted of purchases of investments and capital expenditures , partially offset by proceeds from the sale and maturity of investments . replace_table_token_13_th investments we invest a portion of available cash in investment-grade securities with effective maturities less than five years that are classified on our balance sheets as investments . as of december 31 , 2019 , we had approximately $ 193 million in investments . we also invest funds held as collateral to satisfy our long-term obligation towards workers ' compensation liabilities . these investments are classified on our balance sheets as restricted cash , cash equivalents and investments . we review the amount and the anticipated holding period of these investments regularly in conjunction with our estimated long-term workers ' compensation liabilities and anticipated claims payment trend . as of december 31 , 2019 , we held approximately $ 1.8 billion in cash , cash equivalents and investments , of which $ 213 million is unrestricted . refer to note 2 in part ii , item 8. financial statements and supplemental data , in this form 10-k for a summary of these funds . capital expenditures during 2019 , we continued to make investments in software and hardware and we enhanced our existing products and technology platform . we also incurred expenses related to the build out of our corporate headquarters and our technology and client service centers . we expect capital investments in our software and hardware to continue in the future . financing activities net cash used in financing activities in the years ended december 31 , 2019 and 2018 consisted of our debt and equity-related activities . replace_table_token_14_th in june 2018 we entered into a $ 425 million term loan a ( our 2018 term loan ) under our new credit agreement ( 2018 credit agreement ) . the proceeds of the 2018 term loan were used to repay our previously outstanding term loans . refer to note 9 in part ii , item 8. financial statements and supplemental data , in this form 10-k for more details . 45 management 's discussion and analysis we repurchase shares to return value to our stockholders and to offset dilution from the issuance of stock under our equity-based incentive plan and employee purchase plan . refer to note 12 in part ii , item 8. financial statements and supplemental data , in this form 10-k for more details . in february 2020 , our board of directors authorized a $ 300 million incremental increase to our ongoing stock repurchase program initiated in may 2014. we use this program to return value to our stockholders and to offset dilution from the issuance of stock under our equity-based incentive plan and employee purchase plan . capital resources as of december 31 , 2019 , $ 392 million was outstanding under our 2018 term loan . our 2018 credit agreement includes a $ 250 million revolving credit facility ( our 2018 revolver ) , which will be used solely for working capital and other general corporate purposes . the 2018 revolver includes capacity for a $ 20 million swingline facility . letters of credit issued pursuant to the revolving credit facility reduce the amount available for borrowing under the 2018 revolver . at december 31 , 2019 , we had $ 16 million of letters of credit outstanding and remaining capacity of $ 234 million under the 2018 revolver . each of our 2018 term loan and our 2018 revolver mature in june 2023 and bear interest , at our option , either at a libor rate , or the prime lending rate , plus an applicable margin subject to change in the future based on our leverage ratio , as set forth in our 2018 credit agreement . our 2018 credit agreement contains customary affirmative and restrictive financial covenants and representations and warranties that are customary for facilities of this type , including restrictions on indebtedness , liens , investments , mergers , dispositions , prepayment of indebtedness ( other than our 2018 term loan and our 2018 revolver ) , dividends , distributions and transactions with affiliates , as well as minimum interest coverage and maximum total leverage ratio requirements . we were in compliance with the covenants and restrictions under our 2018 credit agreement at december 31 , 2019 .
| throughout 2019 , we experienced reduced attrition resulting from our customer service initiatives , continued hiring in our installed based , primarily in our professional services and technology verticals , and stronger new sales performance . total wses can be used to estimate our beginning wses for the next period and , as a result , can be used as an indicator of our potential future success in growing our business and retaining clients . anticipated revenues for future periods can diverge from the revenue expectation derived from average wses or total wses due to pricing differences across our hr solutions and services and the degree to which clients and wses elect to participate in our solutions during future periods . in addition to focusing on growing our average wse and total wse counts , we also focus on pricing strategies , product participation and product differentiation to expand our revenue opportunities . we report the impact of client and wse participation differences as a change in mix . we are focused on growing our wse base , including by pursuing acquisitions where appropriate , while we improve our customer service experience and continue to manage attrition . payroll and payroll taxes processed payroll and payroll taxes processed , which includes recurring payrolls and non-recurring bonus payrolls , benefits , and associated payroll taxes may also be used as an indicator of our psr growth . 35 management 's discussion and analysis total revenues our revenues consist of professional service revenues ( psr ) and insurance service revenues ( isr ) . psr represents fees charged to clients for processing payroll-related transactions on behalf of our clients , access to our hr expertise , employment and benefit law compliance services , and other hr-related services . isr consists of insurance-related billings and administrative fees collected from clients and withheld from wses for workers ' compensation insurance and health benefit insurance plans provided by third-party insurance carriers . monthly total revenues per average wse
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we believe this revenue increase reflects the market opportunity , the strength of our dxi and stornext product portfolios and continued innovation in these product families in addition to achieving better sales traction in the channel and improved sales productivity . 26 we expected and experienced sequential improvement in tape automation systems revenue from year-end it budget spending and the release of lto-6 technology in the third quarter of fiscal 2013. we introduced lto-6 tape drives and tape automation systems in certain of our products in december 2012 , which contributed to increased tape automation revenue from the second quarter of fiscal 2013 and sales of products with lto-6 technology contributed incremental tape automation revenue in the fourth quarter of fiscal 2013 compared to the third quarter of fiscal 2013. overall , we believe we retained our market share leadership in open tape systems automation due to the smaller percentage decrease in branded tape automation systems revenue than the estimated decrease in overall market demand . branded tape automation revenue decreased 13 % in fiscal 2013 while oem tape automation revenue decreased 20 % . we continued our focus on training our sales team and engaging with channel partners to take advantage of sales opportunities across our portfolio . we had stronger new customer acquisition in fiscal 2013 than in fiscal 2012 which we believe was due in part to increased end user and channel partner awareness as a result of our marketing and awareness campaign in the first half of fiscal 2013. in addition , we introduced several new products for big data environments during fiscal 2013 , including lattusx and lattusm , the first products in our object storage solutions family for big data environments , and several stornext appliances . we also expanded our data protection product portfolio with the introduction of dxi6800 , enhancements and upgrades to enterprise disk , vmpro software and enterprise tape in addition to releasing our q-cloud solution for cloud backup and disaster recovery which leverages our dxi and vmpro technology . given the tape revenue decrease in the first half of fiscal 2013 compared to the first half of fiscal 2012 , its impact on operating profit , and the use of cash in operations , we recognized the need for and implemented cost controls and spending reductions in the third and fourth quarters of fiscal 2013. as a result , our financial performance in the third quarter of fiscal 2013 improved from the second quarter of fiscal 2013 , contributing to decreased operating loss and generating cash from operations . these cost controls resulted in additional decreases in operating expenses and we generated more cash from operations in the fourth quarter of fiscal 2013 than the third quarter of fiscal 2013. the sequential improvement in our financial results in the third quarter of fiscal 2013 also reflects the leverage in our business model where revenue growth quickly leads to improved operating results . we continued to improve our capital structure during fiscal 2013. we issued $ 70 million of convertible subordinated notes and amended the wells fargo credit agreement to decrease the line of credit and modify certain covenants with terms that are financially more beneficial and provide additional flexibility to run our business . we believe our product portfolio is the strongest it has been since we became a systems company and that it positions us well to continue to add customers and increase revenue in the next fiscal year . we plan to continue to expand and improve our product and solution offerings , with emphasis on branded disk systems , software solutions , virtual offerings , cloud solutions and next generation object storage . using a balanced approach to take advantage of market opportunities and investing for growth while in a period of economic uncertainty , we are focused on revenue growth balanced with operating profit and generating cash from operations . story_separator_special_tag branded and oem device technologies that reached , or are nearing , end of life . largely offsetting the decrease was an increase in branded media revenue primarily due to the march 2011 earthquake and tsunami in japan and resulting concern of shortages and supply disruption in the market . we continue to be strategic with media sales and have chosen to not pursue opportunities that do not provide sufficient margins . 29 service revenue service revenue includes revenue from sales of hardware service contracts , product repair , installation and professional services . sales of hardware service contracts are typically purchased by our customers to extend the warranty or to provide faster service response time , or both . service revenue was relatively unchanged in fiscal 2013 primarily due to a decreased volume of oem product repair services that was offset by growth in revenue from branded service contracts associated with our stornext appliances . service revenue decreased 4 % to $ 144.4 million in fiscal 2012 compared to fiscal 2011 primarily due to lower hardware service contract revenues from end of service life on higher revenue service contracts for certain legacy branded tape automation products and to a lesser extent from decreased oem product repair services . service contracts on certain newer technology branded products provide lower revenue than service contracts on older technology branded products nearing end of service life . oem service revenue decreases are primarily due to a number of our device products that reached end of service life in fiscal 2011 and fiscal 2012. royalty revenue tape media royalties decreased 21 % , or $ 12.2 million , from fiscal 2012 due to lower media unit sales sold by media licensees , largely due to an expected decrease in market demand for lto media . in addition , royalties from dlt media continued to decrease as expected due to many companies no longer choosing to use this older technology . royalty revenue declined 12 % , or $ 7.6 million , in fiscal 2012 primarily due to expected decreases of maturing dlt media unit sales by media licensees . story_separator_special_tag royalties from lto media decreased 4 % in fiscal 2012 primarily due to decreased lto media unit sales by media licensees . gross margin replace_table_token_5_th * fiscal 2012 total gross margin includes a $ 0.3 million restructuring benefit related to cost of revenue and fiscal 2011 total gross margin includes $ 0.6 million of restructuring charges related to cost of revenue . fiscal 2013 compared to fiscal 2012 the 100 basis point decrease in gross margin percentage compared to fiscal 2012 was primarily due to decreased product revenue and a corresponding lower product gross margin as well as a $ 12.2 million decrease in royalty revenue , partially offset by increased service gross margin . some of our costs of goods sold are relatively fixed in the short term ; therefore , revenue increases or decreases can have a material impact on the gross margin rate . fiscal 2012 compared to fiscal 2011 the 10 basis point decrease in gross margin percentage in fiscal 2012 compared to fiscal 2011 was due to largely offsetting factors . gross margin decreased due to less high margin revenue in our product mix , largely from decreased oem deduplication software revenue and royalty revenue . both oem deduplication software and royalty revenue provide among the highest margins of our portfolio . gross margin was favorably impacted by lower intangible amortization from certain intangibles becoming fully amortized in fiscal 2011 and fiscal 2012 . 30 product margin fiscal 2013 compared to fiscal 2012 product gross margin dollars decreased $ 29.2 million , or 18 % , compared to fiscal 2012 , and our product gross margin rate decreased 270 basis points primarily due to a 12 % decrease in product revenue . as noted above , some of our product costs of goods sold are relatively fixed in the short term ; therefore , product revenue increases or decreases impact the product gross margin rate . the change in the mix of products sold , as described above in product revenue , also contributed to decreased product margins in fiscal 2013. in addition , we had an increase in compensation and benefits in fiscal 2013 compared to fiscal 2012 primarily due to investment in our software support team . we also had an increase in the manufacturing inventory allowance in fiscal 2013 compared to the prior year largely due to more products nearing end of life . partially offsetting these factors was lower intangible amortization in fiscal 2013 due to certain intangible assets becoming fully amortized in fiscal 2013 and fiscal 2012 , decreased facility expense from reducing our warehouse footprint and lower freight expense as a result of fewer shipments compared to fiscal 2012. fiscal 2012 compared to fiscal 2011 product gross margin dollars decreased 1 % in fiscal 2012 compared to fiscal 2011 primarily due to the 1 % decrease in product revenue . however , product gross margin percentage improved slightly from fiscal 2011. the product gross margin increase was primarily due to a $ 7.1 million decrease in intangible amortization in fiscal 2012 , mostly offset by the decrease in high margin oem deduplication software revenue compared to fiscal 2011. service margin fiscal 2013 compared to fiscal 2012 service gross margin dollars increased $ 8.5 million , or 15 % , compared to fiscal 2012 , and service gross margin percentage increased 600 basis points while service revenue was unchanged . the increase in service margin was primarily due to reduced costs across our service delivery model from a decreased volume of repairs and in part due to bringing repair of certain product lines in-house . the more significant cost decreases in fiscal 2013 compared to fiscal 2012 were for compensation and benefits , external service providers , third party warehouse and service materials . compensation and benefits decreased due to reduced staffing requirements from decreased repair volumes . external service provider expense decreased due to a combination of having repair of certain product lines in-house for the full fiscal year , decreased repair volumes and negotiating lower rates on the renewals of contracts with certain service providers in fiscal 2012. third party warehouse expenses decreased due to efforts to reduce service parts inventory levels including reduced usage of third party warehouses . service material decreases were primarily due to lower repair volumes compared to the prior year . in addition , our service activities continue to reflect a larger proportion of branded products under contract , which have relatively higher margins than margins for oem repair services . fiscal 2012 compared to fiscal 2011 service gross margin dollars decreased $ 0.9 million , or approximately 2 % , in fiscal 2012 compared to fiscal 2011. our service gross margin percentage increased 110 basis points to 38.7 % in fiscal 2012 , largely due to decreased external provider expenses and inventory allowance expense . external service provider expense decreased due to a combination of bringing repair of additional product lines in-house and negotiating lower rates on the renewals of contracts with certain service providers in fiscal 2012. we had higher inventory allowance expense in fiscal 2011 due to end of service life plans for several products . in addition , our service activities for fiscal 2012 reflected a greater proportion of revenue from branded products under contract , which have relatively higher margins than margins for oem repair services . 31 research and development expenses replace_table_token_6_th fiscal 2013 compared to fiscal 2012 the decrease in research and development expenses compared to fiscal 2012 was the net result of several factors . due to the implementation of cost reduction measures in the second half of fiscal 2013 , including restructuring actions that decreased headcount , we had a decrease of $ 0.8 million in compensation and benefits and also had smaller decreases in several other areas including travel expenses , dues and subscriptions and facilities expense .
| 27 interest expense decreased 22 % to $ 8.3 million primarily due to principal payments in the prior year and to a lesser extent from decreased debt amortization expense as a result of debt refinancings in calendar 2012. during fiscal 2013 , we issued $ 70 million of subordinated convertible debt , using $ 49.5 million of the proceeds to fully repay the balance on the revolving credit line . we continued to generate cash from operating activities , with $ 7.7 million in fiscal 2013 compared to $ 45.7 million in fiscal 2012. results of operations for fiscal 2013 , 2012 and 2011 revenue replace_table_token_3_th total revenue in fiscal 2013 decreased from fiscal 2012 , reflecting a decline in the tape automation market , economic uncertainty and a decrease in large orders , or orders over $ 200,000. these factors impacted revenue from branded data protection products and services the most , with a $ 39.8 million , or 9 % , decrease from fiscal 2012. data protection products include our tape automation systems , disk systems and devices and media offerings . the market for big data management and archive continued to grow , and revenue from branded big data and archive products and services increased 18 % , or $ 7.8 million , from fiscal 2012 , partially offsetting the decreased revenue from data protection products . big data management and archive products include stornext software , stornext appliances and lattus object storage solutions . in addition , oem product and service revenue decreased $ 20.6 million , or 19 % , and royalty revenue decreased $ 12.2 million , or 21 % , from fiscal 2012. total revenue decreased in fiscal 2012 compared to fiscal 2011 primarily due to expected reductions in oem and royalty revenue . the largest decreases in oem revenue were from lower deduplication software , tape automation products , devices and service revenue . partially offsetting these decreases were increased sales of branded disk systems and software solutions in fiscal 2012. product revenue replace_table_token_4_th fiscal 2013 compared to fiscal 2012 product revenue decreased 12 % from fiscal 2012 , primarily due to decreased sales
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the backlog in our aerospace business increased 14 percent during 2012 to $ 1.0 billion . these ongoing business developments help us stay close to our customers while expanding and or sustaining our industry positions with major beverage , food , personal care , household products and aerospace customers . 21 results of operations consolidated sales and earnings replace_table_token_6_th the increase in net sales in 2012 compared to 2011 was driven largely by higher sales in aerospace and higher beverage container sales volumes in certain geographical regions being offset by lower sales volumes in food and household containers and unfavorable currency translation effects in europe . earnings were favorably impacted by higher sales volumes in certain geographical regions , improved pricing and product sales mix and continued year-over-year improvement in our manufacturing costs while negatively impacted by higher distribution and warehousing costs and new facility start up costs in other markets . in addition to the business segment performance analyzed below , net earnings attributable to ball corporation included discontinued operations , higher business consolidation and debt refinancing costs , a decrease in equity earnings and a lower tax rate in 2012. these items are detailed in the management performance measures section below . the increase in net sales in 2011 compared to 2010 was driven largely by the increase in demand for metal packaging in the prc , improved beverage container volumes in the americas , the consolidation of latapack-ball , the acquisitions of two prc joint ventures and the extruded aluminum businesses , and improved aerospace program performance . cost of sales ( excluding depreciation and amortization ) cost of sales , excluding depreciation and amortization , was $ 7,174.0 million in 2012 compared to $ 7,081.2 million in 2011 and $ 6,254.1 million in 2010. these amounts represented 82.1 percent , 82.0 percent and 82.0 percent of consolidated net sales for those three years , respectively . depreciation and amortization depreciation and amortization expense was $ 282.9 million in 2012 compared to $ 301.1 million in 2011 and $ 265.5 million in 2010. these amounts represented 3.2 percent , 3.5 percent and 3.5 percent of consolidated net sales for those three years , respectively . the lower depreciation and amortization expense in 2012 compared to 2011 was primarily due to the revision of estimated useful lives of certain capital equipment and tooling . further details of the revised estimated lives are available in note 1 accompanying the consolidated financial statements included within item 8 of this report . the higher depreciation and amortization expense in 2011 compared to 2010 was primarily due to acquisitions , capital spending in existing businesses in excess of historical levels and changes in currency exchange rates . selling , general and administrative selling , general and administrative ( sg & a ) expenses were $ 385.5 million in 2012 compared to $ 381.4 million in 2011 and $ 356.8 million in 2010. these amounts represented 4.4 percent , 4.4 percent and 4.7 percent of consolidated net sales for those three years , respectively . there were no individually significant items affecting 2012 compared to 2011. the increase in sg & a in 2011 compared to 2010 was due to unfavorable currency exchange effects , the consolidation of our acquisitions and other individually insignificant higher costs . 22 interest expense consolidated interest expense was $ 194.9 million in 2012 compared to $ 177.1 million in 2011 and $ 158.2 million in 2010. interest expense in 2012 included $ 15.1 million for the call premium and the write off of unamortized financing costs and issuance premiums related to the tender of ball 's 6.625 percent senior notes due march 2018. interest expense in 2012 compared to 2011 , excluding debt refinancing costs , was slightly higher due to higher levels of debt , including the issuance of $ 750 million of senior notes in march 2012 , partially offset by lower interest rates . the higher interest expense in 2011 compared to 2010 , excluding debt refinancing costs , was due to higher levels of debt related to the acquisitions of aerocan , jfp and neuman aluminum ( neuman ) , the consolidation of latapack-ball and higher share repurchases , as well as the refinancing of the company 's bank credit facilities in december 2010. interest expense as a percentage of average monthly borrowings was 5.5 percent in 2012 , 5.4 percent in 2011 and 5.3 percent in 2010. tax provision the effective income tax rate for earnings from continuing operations was 27.7 percent in 2012 compared to 30.5 percent in 2011 and 29.0 percent in 2010. the lower rate in 2012 compared to 2011 was primarily the net result of the release of various income tax reserves effectively settled with taxing jurisdictions , a lower income tax rate on foreign earnings and an increased tax benefit on company and trust-owned life insurance . the higher rate in 2011 compared to 2010 was primarily due to significant discrete period tax benefits in 2010 not recurring in 2011 related to a change in entity status of a foreign subsidiary and the 2010 world-wide debt refinancing . these two items were partially offset by a lower 2011 effective income tax rate on foreign earnings , primarily related to the inclusion of a full year of brazil 's results and the acquisition of aerocan , both of which have income tax holidays . equity in results of affiliates in october 2011 , we acquired our partners ' 60 percent equity interests in qmcp , and recorded a gain of $ 9.2 million on the fair value of our previously held equity ownership as a result of the required purchased accounting . story_separator_special_tag additionally , in march 2011 we entered into a joint venture agreement with thai beverage can limited to construct a beverage container manufacturing facility in vietnam that began production in the first quarter of 2012. in august 2010 , we acquired an additional 10.1 percent economic interest in our brazilian beverage packaging joint venture , latapack-ball , increasing our overall economic ownership interest in the joint venture to 60.1 percent . in connection with the acquisition of the additional interest in latapack-ball , we recorded a gain of $ 81.8 million on the fair value of the previously held 50 percent equity ownership as a result of the required purchase accounting . in june 2010 , we acquired our partner 's 65 percent interest in jfp and entered into a long-term supply agreement . in connection with the acquisition , we recorded equity earnings of $ 24.1 million , which was composed of equity earnings , gains on the forgiveness of debt and guarantees and a gain realized on the fair value of ball 's equity investment as a result of the required purchase accounting . story_separator_special_tag > metal food and household products packaging , americas replace_table_token_9_th ( a ) further details of these items are included in note 5 to the consolidated financial statements within item 8 of this annual report . the metal food and household products packaging , americas , segment consists of operations located in the u.s. , canada , mexico and argentina that manufacture and sell metal food , aerosol , paint and general line containers , decorative specialty containers , extruded aluminum aerosol containers and aluminum slugs . in december 2012 , the company acquired a manufacturing facility from envases , a leading producer of extruded aluminum aerosol packaging in mexico with a single manufacturing facility in san luis potosí , for $ 55.9 million in cash , net of cash acquired , and assumed debt of $ 72.7 million . the acquisition is discussed in note 3 to the consolidated financial statements within item 8 of this annual report . segment sales in 2012 decreased $ 45.0 million compared to 2011 due to lower sales volumes , partially offset by pricing and product mix . segment sales in 2011 increased $ 56.3 million compared to 2010 primarily due to the inclusion of a full year of aluminum slug sales associated with the neuman facilities of $ 108 million and improved pricing and sales mix , partially offset by $ 73 million from lower sales volumes . segment earnings in 2012 decreased $ 2.6 million compared to 2011 primarily due to nonrecurring inventory holding gains in 2011 of $ 16 million and lower 2012 sales volumes , partially offset by favorable manufacturing performance and improved pricing and product mix . segment earnings in 2011 increased $ 4.6 million compared to 2010 mainly due to the year over year impact of lower cost inventory of $ 16 million in 2011 , contribution from a full year of aluminum slug sales and improved pricing and sales mix , partially offset by lower sales volumes of $ 16 million and unfavorable manufacturing performance due to higher fourth quarter 2011 production curtailments . 25 aerospace and technologies replace_table_token_10_th ( a ) further details of these items are included in note 5 to the consolidated financial statements within item 8 of this annual report . the aerospace and technologies segment consists of the manufacture and sale of aerospace and other related products and services provided for the defense , civil space and commercial space industries . segment sales in 2012 increased $ 92.2 million compared to 2011 primarily due to higher sales from u.s. national defense contracts . segment earnings in 2012 compared to 2011 increased $ 7.0 million as a result of continued strong program performance and higher sales . segment sales in 2011 increased $ 70.9 million compared to 2010 primarily due to higher sales from u.s. national defense contracts and existing commercial programs , partially offset by lower sales from civil space programs . segment earnings in 2011 increased $ 9.8 million as compared to 2010 , due to increased sales , improved performance on fixed-price contracts and better award fees on several of our large cost plus contracts . sales to the u.s. government , either directly as a prime contractor or indirectly as a subcontractor , represented 90 percent of segment sales in 2012 , 87 percent in 2011 and 96 percent in 2010. contracted backlog for the aerospace and technologies segment at december 31 , 2012 and 2011 , was $ 1.0 billion and $ 897 million , respectively . comparisons of backlog are not necessarily indicative of the trend of future operations due to the nature of varying delivery and milestone schedules on contracts and the funding of programs . 26 discontinued operations plastic packaging , americas in august 2010 , we completed the sale of our plastics packaging , americas , business to amcor limited and received proceeds of $ 258.7 million , which included $ 15 million of contingent consideration recognized at closing and was net of post-closing adjustments of $ 21.3 million . the sale of our plastics packaging business included five u.s. facilities that manufactured polyethylene terephthalate ( pet ) bottles and preforms and polypropylene bottles , as well as associated customer contracts and other related assets . the following table summarizes the operating results for discontinued operations : replace_table_token_11_th additional segment information for additional information regarding our segments , see the business segment information in note 2 accompanying the consolidated financial statements within item 8 of this annual report . the charges recorded for business consolidation activities were based on estimates by ball management and were developed from information available at the time . if actual outcomes vary from the estimates , the differences will be reflected in current period earnings in the consolidated statement of earnings and identified as business consolidation gains and losses .
| segment earnings in 2012 were $ 40.8 million higher than in 2011 due to $ 51 million from favorable sales mix , higher sales volumes and lower depreciation as a result of the change in the estimated useful lives , partially offset by $ 20 million from higher distribution and warehousing costs and higher tooling , spare parts and dunnage expense as a result of the accounting change . segment earnings in 2011 were $ 63.4 million higher than in 2010 due to $ 45 million from the consolidation of latapack-ball and the acquisition of two prc joint venture interests , $ 35 million from higher sales volumes and $ 16 million from improved manufacturing performance , partially offset by $ 38 million of higher manufacturing and distribution costs . metal beverage packaging , europe replace_table_token_8_th ( a ) further details of these items are included in note 5 to the consolidated financial statements within item 8 of this annual report . the metal beverage packaging , europe , segment includes the manufacture of metal beverage containers , extruded aluminum aerosol containers and aluminum slugs . ball has manufacturing facilities located in germany , the united kingdom , france , the netherlands , poland , serbia and the czech republic . during the third quarter of 2012 , we acquired tubettificio , a small regional manufacturer of metal beverage packaging containers in italy and consolidated it into other existing facilities . in january 2011 , we acquired aerocan , a leading european supplier of aluminum aerosol containers , bottles and slugs . these acquisitions are discussed in note 3 to the consolidated financial statements within item 8 of this annual report . segment sales in 2012 decreased $ 67.6 million compared to 2011 due to $ 157 million from unfavorable currency exchange effects , partially offset by $ 77 million from higher sales volumes and favorable product sales mix . segment sales in 2011 increased $ 318.5 million compared to 2010 due to $ 180 million from the inclusion of aerocan sales , $ 100 million from the effect of currency exchange rates and $ 31 million from higher sales volumes . segment earnings in 2012 decreased $ 24.7 million compared to 2011 primarily due to $ 14 million from unfavorable currency exchange effects and other higher operating costs . segment
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we believe we have adequate liquidity and the financial discipline to address the near-term challenges related to the covid-19 outbreak . while the disruption is currently expected to be temporary , there is significant uncertainty around its duration . as a result , we have taken a number of actions to mitigate the impact of this pandemic on our business and operations including : in addition to the retail store and restaurant closures , we are furloughing a significant number of our employees ; certain of our salaried employees , including our chief executive officer and chief financial officer , are taking reductions in their base salary ; we have drawn down $ 200 million from our u.s. revolving credit agreement to increase our cash position and preserve financial flexibility ; our board of directors reduced the rate of our dividend payable in the first quarter of fiscal 2020 ; we are working with suppliers to cancel , delay or suspend future product deliveries ; we are working with our wholesale customers to identify suitable changes to our business arrangements ; and we are , in many cases , suspending or deferring capital expenditures . we have established management committees , reporting to the chief executive officer on an ongoing basis , to continue to monitor the covid-19 outbreak and its impact and are taking the necessary precautionary measures to protect the health and safety of our employees . given the dynamic nature of these circumstances , and the uncertain duration and severity of business disruption and its impact on discretionary consumer spending , the financial impact of the covid-19 outbreak can not be reasonably estimated at this time but will significantly impact our operating results , cash flows and financial position in fiscal 2020. for additional information about our business and each of our operating groups , see part i , item 1. business included in this report . important factors relating to certain risks which could impact our business , including those resulting from the covid-19 outbreak , are described in part i , item 1a . risk factors of this report . 47 key operating results the following table sets forth our consolidated operating results from continuing operations ( in thousands , except per share amounts ) for fiscal 2019 compared to fiscal 2018 : replace_table_token_13_th the higher net earnings per diluted share in fiscal 2019 was primarily due to higher operating income in lilly pulitzer , the improved operating results in corporate and other and lower interest expense partially offset by lower operating income in lanier apparel and a higher effective tax rate , each as discussed below . operating groups our business is primarily operated through our tommy bahama , lilly pulitzer , lanier apparel and southern tide operating groups . we identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance . our operating group structure reflects a brand-focused management approach , emphasizing operational coordination and resource allocation across each brand 's direct to consumer , wholesale and licensing operations , as applicable . tommy bahama , lilly pulitzer and southern tide each design , source , market and distribute apparel and related products bearing their respective trademarks and license their trademarks for other product categories , while lanier apparel designs , sources and distributes branded and private label men 's tailored clothing , sportswear and other products . corporate and other is a reconciling category for reporting purposes and includes our corporate offices , substantially all financing activities , the elimination of inter-segment sales and any other items that are not allocated to the operating groups including lifo inventory accounting adjustments . because our lifo inventory pool does not correspond to our operating group definitions , lifo inventory accounting adjustments are not allocated to the operating groups . corporate and other also includes the operations of other businesses which are not included in our operating groups , including the operations of tbbc and our lyons , georgia distribution center . for additional information about each of our operating groups , see part i , item 1. business and note 2 to our consolidated financial statements , both included in this report . comparable sales we often disclose comparable sales in order to provide additional information regarding changes in our results of operations between periods . our disclosures of comparable sales include net sales from our full-price retail stores and e-commerce sites , excluding sales associated with e-commerce flash clearance sales . we believe that the inclusion of both full-price retail stores and e-commerce sites in the comparable sales disclosures is a more meaningful way of reporting our comparable sales results , given similar inventory planning , allocation and return policies , as well as our cross-channel marketing and other initiatives for the direct to consumer channel . for our comparable sales disclosures , we exclude ( 1 ) outlet store sales , warehouse sales and e-commerce flash clearance sales , as those clearance sales are used primarily to liquidate end of season inventory , which may vary significantly depending on the level of end of season inventory on hand and generally occur at lower gross margins than our non-clearance direct to consumer sales , and ( 2 ) restaurant sales , as we do not currently believe that the inclusion of restaurant sales in our comparable sales disclosures is meaningful in assessing our consolidated results of operations . comparable sales information reflects net sales , including shipping and handling revenues , if any , associated with product sales . story_separator_special_tag for purposes of our disclosures , comparable sales consists of sales through e-commerce sites and any physical full-price retail store that was owned and open as of the beginning of the prior fiscal year and which did not have during 48 the relevant periods , and is not within the current fiscal year scheduled to have , ( 1 ) a remodel or other event which would result in a closure for an extended period of time ( which we define as a period of two weeks or longer ) , ( 2 ) a greater than 15 % change in the size of the retail space due to expansion , reduction or relocation to a new retail space or ( 3 ) a relocation to a new space that is significantly different from the prior retail space . for those stores which are excluded based on the preceding sentence , the stores continue to be excluded from comparable sales until the criteria for a new store is met subsequent to the remodel , relocation , or other event . a retail store that is remodeled will generally continue to be included in our comparable sales metrics as a store is not typically closed for longer than a two-week period during a remodel ; however , a retail store that is relocated generally will not be included in our comparable sales metrics until that store has been open in the relocated space for the entirety of the prior fiscal year because the size or other characteristics of the store typically change significantly from the prior location . any stores that were closed during the prior fiscal year or current fiscal year , or which we expect to close or vacate in the current fiscal year , as well as any pop-up or temporary store locations , are excluded from our comparable sales metrics . definitions and calculations of comparable sales differ among retail companies , and therefore comparable sales metrics disclosed by us may not be comparable to the metrics disclosed by other companies store count the table below provides store count information for tommy bahama , lilly pulitzer and southern tide as of the dates specified . the table includes our permanent stores and excludes any pop-up or temporary store locations , which have initial lease terms of less than 12 months . replace_table_token_14_th story_separator_special_tag style= '' background-color : # 000000 ; clear : both ; height:2pt ; page-break-after : always ; width:79.3 % ; border:0 ; margin:30pt 10.35 % 30pt 10.35 % ; '' > southern tide : the southern tide net sales increase of $ 1 million , or 3 % , in fiscal 2019 was primarily due to higher sales in the e-commerce channel of distribution . wholesale sales were generally flat as increased full-price wholesale sales driven by higher department store sales were offset by lower off-price wholesale sales . southern tide opened its first owned retail store in november 2019 resulting in a minimal amount of owned retail store sales in fiscal 2019. the following table presents the proportion of net sales by distribution channel for southern tide for each period presented : replace_table_token_20_th corporate and other : corporate and other net sales primarily consist of the net sales of tbbc , which includes e-commerce and wholesale operations , and our lyons , georgia distribution center operations . the increase in net sales was due to sales growth in tbbc partially offset by lower sales at the lyons , georgia distribution center . gross profit the table below presents gross profit by operating group and in total for fiscal 2019 and fiscal 2018 , as well as the change between those two periods . our gross profit and gross margin , which is calculated as gross profit divided by net sales , may not be directly comparable to those of our competitors , as the statement of operations classification of certain expenses may vary by company . replace_table_token_21_th the table below presents gross margin by operating group an in total for fiscal 2019 and fiscal 2018 . replace_table_token_22_th the increase in consolidated gross profit in fiscal 2019 was primarily due to increased sales with comparable gross margin . the comparable gross margin includes the impact of lower gross margin in tommy bahama , lanier apparel and southern tide offset by higher gross margin in lilly pulitzer . also , the incremental tariffs on products sourced from china had an unfavorable impact on gross profit of $ 2 million in fiscal 2019 , with the substantial majority 52 of that amount in tommy bahama and lilly pulitzer . the changes in gross margin by operating group are discussed below . tommy bahama : the modest decrease in gross margin for tommy bahama was primarily due to ( 1 ) fiscal 2018 including the favorable outcome of a duty assessment assertion , ( 2 ) the unfavorable gross margin impact of the incremental tariffs on products sourced from china in fiscal 2019 and ( 3 ) the impact of an increasing proportion of tommy bahama direct to consumer sales occurring during periodic loyalty award card , flip side and friends and family marketing events . these unfavorable items were partially offset by ( 1 ) a change in sales mix as full-price and off-price wholesale sales and outlet stores were a lower proportion of net sales for tommy bahama in fiscal 2019 and ( 2 ) improved initial margins reflecting progress in our initiatives to selectively increase prices and reduce product costs . lilly pulitzer : the increase in gross margin for lilly pulitzer reflects ( 1 ) improved gross margin on the e-commerce flash clearance sales resulting from lower markdowns on the product sold and lower freight costs , ( 2 ) a change in sales mix as full-price e-commerce sales represented a greater proportion of net sales and ( 3 ) the impact of higher gift card breakage income .
| net sales replace_table_token_17_th consolidated net sales increased $ 15 million , or 1 % , in fiscal 2019. the increase in consolidated net sales was primarily driven by ( 1 ) a $ 19 million , or 4 % , comparable sales increase to $ 539 million in fiscal 2019 from $ 520 million 50 in fiscal 2018 , with strong comparable sales increases in both tommy bahama and lilly pulitzer and a double-digit comparable sales increase in our smaller brands , and ( 2 ) an incremental net sales increase of $ 6 million associated with non-comp retail store operations in lilly pulitzer . these increases in net sales were partially offset by ( 1 ) a $ 9 million decrease in wholesale sales due to decreases at tommy bahama and lanier apparel and ( 2 ) a $ 1 million decrease in restaurant sales in tommy bahama . the changes in net sales by operating group are discussed below . tommy bahama : tommy bahama net sales increased $ 1 million in fiscal 2019 due to a $ 10 million , or 3 % , increase in comparable sales to $ 369 million in fiscal 2019 compared to $ 359 million in fiscal 2018. this increase was partially offset by ( 1 ) a $ 6 million decrease in wholesale sales primarily reflecting decreased full-price wholesale sales , ( 2 ) a $ 2 million decrease in outlet store sales due to lower sales at existing outlet stores and the net sales impact of outlet store closures , and ( 3 ) a $ 1 million decrease in restaurant sales primarily due to the net impact of certain restaurant closures , remodels and openings since the beginning of fiscal 2018. the following table presents the proportion of net sales by distribution channel for tommy bahama for each period presented : replace_table_token_18_th lilly pulitzer : the lilly pulitzer net sales increase of $ 12 million , or 5 % , in fiscal 2019 was primarily the result of ( 1 ) an incremental net sales increase of $ 6 million associated with non-comp retail store operations , including stores that were opened , closed or remodeled during fiscal 2019 and fiscal 2018 as well as pop-up store locations , and increased gift card breakage income , ( 2 ) a $ 3 million , or 2 % , increase in comparable sales to $ 148 million in fiscal 2019 from
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subsequent recoveries , if any , are credited to the allowance . the allowance for loan losses is evaluated on a regular basis by management and is based upon management 's periodic review of the collectability of the loans in light of historical experience , the nature and volume of the loan portfolio , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral and prevailing economic conditions . this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available . we have an established process to determine the adequacy of the allowance for loan losses that assesses the losses inherent in our portfolio . while we attribute portions of the allowance to specific portfolio segments , the entire allowance is available to absorb credit losses inherent in the total loan portfolio . our process involves procedures to appropriately consider the unique risk characteristics of our commercial and consumer loan portfolio segments . for each portfolio segment , impairment is measured individually for each impaired loan . our allowance levels are influenced by loan volume , loan grade or delinquency status , historic loss experience and other economic conditions . the allowance consists of general and specific components . commercial loans are assessed for estimated losses by grading each loan using various risk factors identified through periodic reviews . we apply historic grade-specific loss factors to each loan class . in the development of our statistically derived loan grade loss factors , we observe historical losses over 20 quarters for each loan grade . these loss estimates are adjusted as appropriate based on additional analysis of external loss data or other risks identified from current economic conditions and credit quality trends . for consumer loans , we determine the allowance on a collective basis utilizing historical losses over 20 quarters to represent our best estimate of inherent loss . we pool loans , generally by loan class with similar risk characteristics . included in the general component of the allowance for loan losses for both portfolio segments is a margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating general losses in the portfolio . uncertainties and subjective issues such as changes in the lending policies and procedures , changes in the local/national economy , changes in volume or type of credits , changes in volume/severity or problem loans , quality of loan review and board of director oversight , concentrations of credit , and peer group comparisons are qualitative and environmental factors considered . the specific component relates to loans that are classified as impaired . for loans that are classified as impaired , an allowance is established when the value of the impaired loan is lower than the carrying value of that loan . a loan is considered impaired when , based on current information and events , it is probable that the company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . factors considered by management in determining impairment include payment status , collateral value , and the probability of collecting scheduled principal and interest payments when due . impairment is measured on a loan by loan basis for commercial and consumer loans by either the present value of expected future cash flows discounted at the loan 's effective interest rate , the loan 's obtainable market price , or the fair value of the collateral if the loan is collateral dependent . the specific component also includes an amount for the estimated impairment on commercial and consumer loans modified in a troubled debt restructuring ( “ tdr ” ) , whether on accrual or nonaccrual status . while management uses available information to recognize losses on loans , future additions to the allowance may be necessary based on changes in local economic conditions . in addition , regulatory agencies , as an integral part of their examination process , periodically review our allowance for loan losses . such agencies may require us to recognize additions to the allowances based on their judgments about information available to them at the time of their examination . 41 derivatives derivative instruments are used in relation to our mortgage banking activities and require significant judgment and estimates in determining their fair value . we hold derivative instruments , which consist of rate lock agreements related to expected funding of fixed-rate mortgage loans to customers ( “ interest rate lock commitments ” ) and forward commitments to sell mortgage-backed securities and individual fixed-rate mortgage loans ( “ forward commitments ” ) . our objective in obtaining the forward commitments is to mitigate the interest rate risk associated with the interest rate lock commitments and the mortgage loans that are held for sale . derivatives related to these commitments are recorded as either a derivative asset or a derivative liability in the balance sheet and are measured at fair value . both the interest rate lock commitments and the forward commitments are reported at fair value , with adjustments recorded in current period earnings in mortgage banking within the noninterest income section of the consolidated statements of income . fair valuation of financial instruments we use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures . additionally , we may be required to record other assets at fair value on a nonrecurring basis . these nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets . further , we include in the notes to the consolidated financial statements information about the extent to which fair value is used to measure assets and liabilities , the valuation methodologies used , and the related impact to income . additionally , for financial instruments not recorded at fair value , we disclose the estimate of their fair value . story_separator_special_tag fair value is defined as the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date . accounting standards establish a three-level hierarchy for disclosure of assets and liabilities recorded at fair value . the classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable . observable inputs reflect market-derived or market-based information obtained from independent sources , while unobservable inputs reflect our estimates about market data . the three levels of inputs that are used to classify fair value measurements are as follows : ● level 1 — valuation is based upon quoted prices for identical instruments traded in active markets . level 1 instruments generally include securities traded on active exchange markets , such as the new york stock exchange , as well as securities that are traded by dealers or brokers in active over-the-counter markets . instruments we classify as level 1 are instruments that have been priced directly from dealer trading desks and represent actual prices at which such securities have traded within active markets . ● l evel 2 — valuation is based upon quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , and model-based valuation techniques , such as matrix pricing , for which all significant assumptions are observable in the market . instruments we classify as level 2 include securities that are valued based on pricing models that use relevant observable information generated by transactions that have occurred in the market place that involve similar securities . ● level 3 — valuation is generated from model-based techniques that use significant assumptions not observable in the market . these unobservable assumptions reflect the company 's estimates of assumptions market participants would use in pricing the asset or liability . valuation techniques include use of option pricing models , discounted cash flow models , and similar techniques . we attempt to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements . when available , we use quoted market prices to measure fair value . specifically , we use independent pricing services to obtain fair values based on quoted prices . quoted prices are subject to our internal price verification procedures . if market prices are not available , fair value measurement is based upon models that use primarily market-based or independently-sourced market parameters . most of our financial instruments use either of the foregoing methodologies , collectively level 1 and level 2 measurements , to determine fair value adjustments recorded to our financial statements . however , in certain cases , when market observable inputs for model-based valuation techniques may not be readily available , we are required to make judgments about assumptions market participants would use in estimating the fair value of the financial instrument . the degree of management judgment involved in determining the fair value of an instrument is dependent upon the availability of quoted market prices or observable market parameters . for instruments that trade actively and have quoted market prices or observable market parameters , there is minimal subjectivity involved in measuring fair value . 42 when observable market prices and parameters are not fully available , management 's judgment is necessary to estimate fair value . in addition , changes in market conditions may reduce the availability of quoted prices or observable data . for example , reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable . when significant adjustments are required to available observable inputs , it may be appropriate to utilize an estimate based primarily on unobservable inputs . when an active market for a security does not exist , the use of management estimates that incorporate current market participant expectations of future cash flows , and include appropriate risk premiums , is acceptable . significant judgment may be required to determine whether certain assets measured at fair value are included in level 2 or level 3. if fair value measurement is based upon recent observable market activity of such assets or comparable assets ( other than forced or distressed transactions ) that occur in sufficient volume and do not require significant adjustment using unobservable inputs , those assets are classified as level 2. if not , they are classified as level 3. making this assessment requires significant judgment . other-than-temporary impairment analysis our debt securities are classified as securities available for sale and reported at fair value . unrealized gains and losses , after applicable taxes , are reported in shareholders ' equity . we conduct other-than-temporary impairment ( “ otti ” ) analysis on a quarterly basis or more often if a potential loss-triggering event occurs . the initial indicator of otti for debt securities is a decline in market value below the amount recorded for an investment and the severity and duration of the decline . for a debt security for which there has been a decline in the fair value below amortized cost basis , we recognize otti if we ( 1 ) have the intent to sell the security , ( 2 ) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis , or ( 3 ) we do not expect to recover the entire amortized cost basis of the security . other real estate owned real estate acquired through foreclosure is initially recorded at the lower of cost or estimated fair value less selling costs . subsequent to the date of acquisition , it is carried at the lower of cost or fair value , adjusted for net selling costs .
| interest expense on deposits for the years ended december 31 , 2017 , 2016 and 2015 represented 71.4 % , 48.1 % , and 47.8 % of total interest expense , respectively , while interest expense on borrowings represented 28.6 % , 51.9 % , and 52.2 % of total interest expense , respectively . the increase in interest expense on deposits during 2017 occurred as a result of a $ 290.0 million increase in our deposit balances which assisted in replacing $ 48.0 million of fhlb advances and other borrowings , as they matured during the year . we have included a number of tables to assist in our description of various measures of our financial performance . for example , the “ average balances , income and expenses , yields and rates ” table shows the average balance of each category of our assets and liabilities as well as the yield we earned or the rate we paid with respect to each category during 2017 , 2016 , and 2015. similarly , the “ rate/volume analysis ” table demonstrates the effect of changing interest rates and changing volume of assets and liabilities on our financial condition during the periods shown . we also track the sensitivity of our various categories of assets and liabilities to changes in interest rates , and we have included tables to illustrate our interest rate sensitivity with respect to interest-earning and interest-bearing accounts . the following table sets forth information related to our average balance sheet , average yields on assets , and average costs of liabilities at december 31 , 2017 , 2016 and 2015. we derived these yields or costs by dividing income or expense by the average balance of the corresponding assets or liabilities . we derived average balances from the daily balances throughout the periods indicated . during the same periods , we had no securities purchased with agreements to resell . all investments were owned at an original maturity of over one year . nonaccrual loans are included in earning assets in the following tables .
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replace_table_token_7_th comparison of operating results for the years ended december 31 , 2017 , 2016 , and 2015 net income was $ 51.9 million in 2017 , compared to $ 72.5 million in 2016 , and $ 44.8 million in 2015. during 2017 , net interest income increased $ 9.2 million , the provision for loan losses decreased by $ 1.6 million , non-interest income decreased by $ 54.4 million and non-interest expense increased by $ 1.2 million . income tax expense decreased $ 24.1 million in 2017 , as a result of $ 44.7 million of lower pre-tax income which was offset by the re-evaluation of the company 's deferred tax assets and liabilities due to the change in tax rates for 2018 enacted in december 2017. during 2016 , net interest income increased $ 14.9 million , the provision for loan losses increased by $ 3.4 million , non-interest income increased by $ 67.3 million and non-interest expense increased by $ 21.3 million . income tax expense increased $ 29.7 million in 2016 , as a result of $ 57.5 million of additional pre-tax income . net interest income the discussion of net interest income for 2017 , 2016 , and 2015 below should be read in conjunction with the tables presented on pages 38 and 39 , which set forth certain information related to the consolidated statements of operations for those periods , and which also present the average yield on assets and average cost of liabilities for the periods indicated . the company 's net interest income and net interest margin during 2017 , 2016 , and 2015 were impacted by the following factors : · during the period january 1 , 2010 through december 31 , 2017 , fomc monetary policies resulted in the maintenance of the overnight federal funds rate in a range of 0.0 % to 1.50 % , resulting in deposit and borrowing costs at historically low levels . · increased marketplace competition and refinancing activity on real estate loans , particularly during the period january 1 , 2013 through december 31 , 2017 , resulted in an ongoing reduction in the average yield on real estate loans . 39 interest income was $ 212.1 million in 2017 , $ 195.6 million in 2016 , and $ 174.8 million in 2015. during 2017 , interest income increased $ 16.5 million from 2016 , primarily reflecting increases in interest income of $ 12.6 million on real estate loans and $ 3.0 million on c & i loans . the growth in interest income was driven by an increase of $ 656.6 million in average interest-earning assets , which more than offset the 13 basis point decline in average yield . the increased interest income on real estate loans reflected growth of $ 567.5 million in their average balance during the comparative period , as new originations exceeded amortization and satisfactions during 2017 due to lower prepayment volume.an increase of $ 656.6 million in average interest-earning assets , which more than offset the 13 basis point decline in average yield . the increased interest income on real estate loans reflected growth of $ 567.5 million in their average balance during the comparative period , as new originations exceeded amortization and satisfactions during 2017 due to lower prepayment volume . the increase in interest income on c & i loans reflected an increase of $ 63.2 million in their average balance as a result of the company 's business banking initiative to shift the loan portfolio mix and grow the c & i loan portfolio . during 2016 , interest income increased $ 20.8 million from 2015 , primarily reflecting increases in interest income of $ 20.5 million on real estate loans and $ 0.5 million on other short term investments . the increased interest income on real estate loans reflected growth of $ 883.6 million in their average balance during the comparative period , as new originations significantly exceeded amortization and satisfactions during 2016 in connection with the company 's growth strategy . partially offsetting the higher interest income on real estate loans from the growth in their average balance was a reduction of 28 basis points in their average yield , resulting from both continued low lending rates and heightened marketplace competition . the increase in interest income on other short-term investments reflected an increase of $ 28.7 million in their average balance as a result of increased cash from $ 75.9 million net proceeds from the sale of premises during 2016 , offset by a 23 basis point decline in their average yield during the comparative period . net interest margin ( “ nim ” ) was 2.54 % during 2017 , compared to 2.68 % in 2016 , and 2.89 % in 2015. nim was negatively impacted in both 2017 and 2016 by lower income recognized from loan prepayment activity . for 2017 , income from prepayment activity totaled $ 5.0 million , benefiting nim by 8 basis points , compared to $ 9.0 million , or 17 basis points in 2016 , and $ 11.3 million , or 22 basis points in 2015. interest expense was $ 59.4 million in 2017 , $ 52.1 million in 2016 , and $ 46.2 million in 2015. during 2017 , interest expense increased $ 7.2 million from 2016 , primarily reflecting increases in expense of $ 6.6 million on money market accounts and $ 1.2 million in interest expense on borrowed funds . the increase of $ 6.6 million in interest expense on money market deposits reflected activities of the dimedirect internet banking channel that increased their average balance by $ 585.1 million and their average cost by 6 basis points in 2017. interest expense on borrowings increased $ 1.2 million due to an increase of 13 basis points in their average cost , resulting from the re-pricing of lower interest rate borrowings during the period . story_separator_special_tag during 2016 , interest expense increased $ 5.9 million from 2015 , primarily reflecting increases in expense of $ 7.2 million on money market accounts and $ 2.2 million on cds , offset by a reduction of $ 3.5 million in interest expense on borrowed funds . the increase of $ 7.2 million in interest expense on money market deposits reflected activities in connection with the company 's growth strategy that increased their average balance by $ 693.3 million and their average cost by 10 basis points in 2016. the increase of $ 2.2 million in interest expense on cds reflected an increase in their average balance by $ 113.0 million and their average cost by 6 basis points , as the bank competed more aggressively for cds during 2016 compared to 2015. interest expense on borrowings declined $ 3.5 million due to a reduction of 24 basis points in their average cost ( resulting from the re-pricing of higher interest rate borrowings ) , and a decrease in their average balance by $ 46.2 million during 2016 compared to 2015 as fhlbny advances continued to mature . provision ( credit ) for loan losses the company recognized a provision for loan losses of $ 0.5 million and $ 2.1 million in 2017 and 2016 respectively , and a credit ( negative provision ) for loan losses of $ 1.3 million in 2015. the $ 0.5 million provision for loan losses recognized during 2017 resulted mainly from growth in the real estate and c & i portfolio in connection with the company 's growth strategy , offset by a reduction of $ 280.0 million multifamily real estate loans due to the loan securitization in december 2017 , and continued improvement in the overall credit quality of the loan portfolio . the $ 2.1 million provision for loan losses recognized during 2016 resulted mainly from growth in the real estate portfolio in connection with the company 's growth strategy , offset by continued improvement in the overall credit quality of the loan portfolio . the credits recorded during the year ended december 31 , 2015 reflected continued improvement in the overall credit quality of the loan portfolio from october 1 , 2013 through december 31 , 2015 , including a $ 1.5 million recovery of previously charged-off amounts from the favorable resolution of the bank 's largest problem loan . 40 the following table sets forth activity in the bank 's allowance for loan losses at or for the dates indicated : replace_table_token_8_th non-interest income total non-interest income was $ 21.5 million in 2017 , $ 75.9 million in 2016 , and $ 8.6 million in 2015. during 2017 , non-interest income decreased $ 54.4 million from 2016 , due primarily to a gain of $ 68.2 million recognized on the sale of real estate during the year ended december 31 , 2016. partially offsetting these increases were a $ 2.7 million gain on the sale of pooled bank trust preferred securities and a $ 1.5 million gain on the sale of loans . during 2016 , non-interest income increased $ 67.3 million from 2015 due primarily to a gain of $ 68.2 million recognized on the sale of real estate during the year ended december 31 , 2016. partially offsetting these increases were a $ 1.3 million gain on the sale of mbs in 2015 , and a decline in service charges and other fees during the comparative period as a result of lower transaction volume . non-interest expense non-interest expense was $ 85.0 million in 2017 , $ 83.8 million in 2016 , and $ 62.5 million in 2015. during 2017 , the company recognized non-recurring expenses of $ 1.3 million for loss on extinguishment of debt related to the redemption of trust preferred securities and $ 1.7 million related to de-conversion costs associated with the planned change in the bank 's core processor . during 2016 , the company recognized a non-cash , non-tax deductible , and non-recurring expense of $ 11.3 million on the prepayment of the employee stock ownership plan ( “ esop ” ) share acquisition loan by the plan ( “ esop charge ” ) . during 2015 , the company recognized a non-recurring $ 3.4 million reduction in salaries and employee benefits from the curtailment of certain postretirement health benefits ( “ curtailment gain ” ) . excluding these items , non-interest expense was $ 82.0 million in 2017 , $ 72.5 million in 2016 , and $ 65.9 million in 2015. the increase of $ 9.5 million during 2017 compared to 2016 was primarily the result of increases of salaries and benefits expense of $ 2.5 million , occupancy expense of $ 2.1 million , data processing expense of $ 3.1 million , marketing expense of $ 1.7 million , accelerated consulting expenses of $ 1.4 million , higher fdic insurance premiums of $ 0.5 million , and recognition of the bank 's first loss guarantee for the loan securitization totaling $ 0.4 million . the remaining increase was experienced in other operating expenses . the $ 2.5 million increase in salaries and benefits expense was attributable to the build out of the business banking division . the $ 2.1 million increase in occupancy expense was attributable to the new corporate office , and the addition of two additional office locations . the $ 3.1 million of additional data processing expense was the result of various technology enhancement initiatives related to customer banking services . the $ 1.7 million of additional marketing expense was related to deposit gathering initiatives as the market continues to experience elevated levels of competition . the additional consulting expense of $ 1.4 million was related to an earlier-than-anticipated completion of such services .
| historically , the bank 's primary lending strategy included the origination of , and investment in , mortgage loans secured by multifamily and mixed-use properties , and , to a lesser extent , mortgage loans secured by commercial real estate properties , primarily located in the greater nyc metropolitan area . as part of its strategic plan for 2017 and beyond , the bank is investing in the development of its business banking division , by adding products and services to serve both the credit and business banking needs in its footprint . beginning in 2018 , the bank will once again begin to offer one-to-four family loan products . the business banking division is focused on total relationship banking and will enable the bank to diversify its loan portfolio into areas such as c & i loans , small business administration ( “ sba ” ) loans ( a portion of which is guaranteed by the sba ) , adc loans , finance loans and leases , one-to-four family loans and consumer loans . these business lines are intended to supplement core deposit growth and provide greater funding diversity . in the first quarter of 2017 , the bank hired seasoned executives , and bolstered its lending and credit and administrative staff . in the third quarter of 2017 , the bank was approved by the sba as a lender , better positioning the business banking division for future expansion . since january 1 , 2017 , the bank has grown its c & i portfolio to $ 135.7 million and its direct-sourced cre portfolio to $ 98.6 million . the bank also purchases investment grade securities primarily for liquidity purposes . the bank seeks to maintain the asset quality of its loans and other investments , and uses portfolio and asset/liability management techniques in an effort to manage the effects of interest rate volatility on its profitability and capital . recent events in june 2017 , the company issued $ 115.0 million of fixed-to-floating rate subordinated notes due june 2027 , which will become callable commencing in june 2022. interest will be paid semi-annually in arrears on each june 15 and december 15 at a fixed annual interest rate equal to 4.50 % , until june 2022 , at which point the
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these initiatives have included exiting unprofitable markets in europe and south america , the transition of our former casa region to a licensed model , streamlining and right-sizing supply chain operations including the closure of three owned manufacturing facilities in mexico , streamlining our global organizational structure including a redesign of our commercial organization in the u.s. and asia , and relocating the lee ® brand 's north american headquarters to greensboro , north carolina . subsequent to the separation , the company has continued to service commercial arrangements with vf , which include sales of vf-branded products at vf outlet stores , as well as sales to vf for products manufactured in our plants , use of our transportation fleet and fulfillment of a transition services agreement related to vf 's sale of its nautica ® brand business in mid-2018 , none of which will continue in 2020. we will continue to implement proactive strategic quality-of-sales programs to improve efficiencies throughout the organization , such as exiting unprofitable points of distribution , including select channels in india , changing business models and rationalizing underperforming styles . focusing on our near- to medium-term business strategy , we are focused on optimizing our business and accelerating our performance in fundamental areas , including margin expansion and cash flow generation . longer term , we are focused on accelerating revenue generation and additional strategic actions to fuel and sustain long-term performance and our competitive advantage around the world . we anticipate opportunities to further enhance our value-creation ability through investment in our core business . our primary areas of financial focus during 2020 will be to ( i ) continue aggressive pay-down of debt ; ( ii ) provide for a superior dividend yield ; and ( iii ) implement technology solutions to enable global efficiency . additionally , we continue to monitor the covid-19 coronavirus situation and the potential impact on our global operations . in terms of supply chain impacts , there are currently no material disruptions in either manufacturing or sourcing of materials . highlights of the year ended december 2019 net revenues decreased 8 % to $ 2,548.8 million compared to the year ended december 2018 , driven by decreases in all segments and a 1 % unfavorable impact from foreign currency . u.s. wholesale revenues decreased 4 % compared to the year ended december 2018 , primarily due to the negative impact of a major u.s. retailer bankruptcy in the fourth quarter of 2018 , proactive quality-of-sales initiatives and reduced sales of certain lower margin lines of business . these declines were partially offset by growth in our u.s. digital wholesale business . the u.s. wholesale net revenues represented 63 % of total revenues in the current year . international revenues decreased 15 % compared to the year ended december 2018 , due to a 5 % unfavorable impact from foreign currency and declines in the non-u.s. wholesale channel primarily driven by strategies actioned by the company in 2019 , which included the exit of unprofitable points of distribution in india , strategic actions to exit direct operations in underperforming 29 kontoor brands , inc. 2019 form 10-k countries in europe and south america and business model changes . international revenues represented 25 % of total revenues in the current year . branded direct-to-consumer revenues decreased 5 % on a global basis compared to the year ended december 2018 , primarily due to business model changes actioned by the company in 2019 and a 3 % unfavorable impact from foreign currency . these declines were partially offset by 16 % growth in the u.s. digital business through our owned e-commerce sites . the global branded direct-to-consumer channel represented 11 % of total revenues in the current year . gross margin decreased 90 basis points to 39.4 % compared to the year ended december 2018. gross margin was negatively impacted by approximately 140 basis points during the current year due to business model changes , restructuring programs and separation costs , partially offset by favorable channel mix in the current year . selling , general & administrative expenses as a percentage of revenues increased 320 basis points . business model changes , restructuring programs and separation costs negatively impacted the current year by approximately 300 basis points . the remaining increase as a percentage of net revenues was primarily driven by deleverage of fixed costs on lower revenues . net income decreased 63 % to $ 96.7 million compared to the year ended december 2018 , primarily due to the business results discussed above and a $ 32.6 million ( $ 25.2 million after-tax ) non-cash impairment of the rock & republic ® trademark intangible asset during the current year . story_separator_special_tag style= '' line-height:120 % ; padding-bottom:12px ; padding-top:12px ; text-align : justify ; font-size:9pt ; '' > 2019 compared to 2018 global revenues for the wrangler ® brand decreased 5 % , driven by declines in all channels . revenues in the americas region decreased 4 % , primarily due to a 2 % decrease in u.s. wholesale revenues resulting from reduced sales of certain lower margin lines of business and the negative impact of a major u.s. retailer bankruptcy in the fourth quarter of 2018. non-u.s. americas wholesale revenues decreased 32 % , primarily due to business model changes in the casa region and a 5 % unfavorable impact from foreign currency . revenues in the apac region decreased 29 % , primarily due to results in india which reflected the economic impact of demonetization and our exit of certain unprofitable points of distribution , as well as a 3 % unfavorable impact from foreign currency . revenues in the emea region decreased 13 % , primarily due to business model changes and a 5 % unfavorable impact from foreign currency . story_separator_special_tag kontoor brands , inc 2019 form 10-k 32 operating margin decreased to 14.2 % compared to 16.6 % for 2018 , primarily due to higher product costs , unfavorable mix driven by lower international sales , higher restructuring and separation costs as well as business model changes in 2019 . 2018 compared to 2017 global revenues for the wrangler ® brand decreased 1 % due to declines in non-u.s. wholesale and branded direct-to-consumer revenues , offset by growth in u.s. wholesale revenues . revenues in the americas region were flat due to declines in non-u.s. wholesale and branded direct-to-consumer revenues , offset by growth in u.s. wholesale revenues . branded brick & mortar revenues in the americas region decreased , primarily due to declines in sales through our vf outlet tm stores , offset by growth in our owned websites . the u.s. wholesale channel increase was attributable to strong growth with our digital wholesale partners and growth in certain key brick & mortar retail accounts . revenues in the non-u.s. americas region decreased 16 % due to declines in wholesale and branded brick & mortar revenues , primarily due to a 13 % unfavorable impact from foreign currency related to the highly inflationary economy in argentina . revenues in the apac region decreased 4 % , primarily due to declines in wholesale revenues associated with the ongoing effects of economic demonetization in india and a 3 % unfavorable impact from foreign currency . revenues in the emea region decreased 2 % , primarily due to declines in wholesale and branded direct-to-consumer revenues attributed to door closures and an unseasonably warm summer weather pattern , partially offset by a 4 % favorable impact from foreign currency . operating margin decreased to 16.6 % compared to 17.3 % for 2017 , primarily due to higher restructuring costs related to severance , additional strategic investments in our direct-to-consumer business and product development costs , all of which resulted in reduced expense leverage on lower revenues in 2018. lee replace_table_token_8_th 2019 compared to 2018 global revenues for the lee ® brand decreased 8 % , driven by declines in all channels . revenues in the americas region decreased 6 % , primarily due to a 7 % decrease in u.s. wholesale revenues resulting from the negative impact of a major u.s. retailer bankruptcy in the fourth quarter of 2018 and reduced sales in certain lower margin lines of business . non-u.s. americas revenues decreased 13 % , primarily due to business model changes in the casa region and a 2 % unfavorable impact from foreign currency . revenues in the apac region decreased 7 % , primarily due to a 4 % unfavorable impact from foreign currency and results in india which reflected the economic impact of demonetization and our exit of certain unprofitable points of distribution . revenues in the emea region decreased 16 % , primarily due to business model changes , softer european demand and a 5 % unfavorable impact from foreign currency . operating margin decreased to 7.7 % compared to 9.7 % for 2018 , primarily due to higher product costs , unfavorable mix driven by lower international sales , higher restructuring and separation costs as well as business model changes in 2019 . 2018 compared to 2017 global revenues for the lee ® brand decreased 5 % , driven by declines in u.s. wholesale revenues , which were partially offset by growth in branded direct-to-consumer revenues . revenues in the americas region decreased 9 % , primarily due to declines in u.s. wholesale revenues . the u.s. wholesale channel was adversely impacted by a key customer 's inventory destocking decision related to our lee ® riders ® brand , as well as door closures following bankruptcy filings by a limited number of key retailers . this decline was partially offset by strong growth in our sales through our vf outlet tm stores . revenues in the non-u.s. americas region decreased 14 % , primarily due to declines in wholesale revenues related to inventory reductions at a key retailer and a 4 % unfavorable impact from foreign currency , led by the highly inflationary economy in argentina . 33 kontoor brands , inc. 2019 form 10-k revenues in the apac region decreased 1 % , primarily due to declines in wholesale revenues that were adversely affected by higher product returns related to a market transition in a key market , partially offset by growth in branded direct-to-consumer revenues led by our concessions business and a 1 % favorable impact from foreign currency . revenues in the emea region were flat , primarily due to growth in wholesale revenues and a 4 % favorable foreign currency impact , offset by declines in our branded direct-to-consumer revenues driven by door closures and an unseasonably warm summer weather pattern . operating margin decreased to 9.7 % compared to 10.7 % for 2017 , primarily due to higher manufacturing labor , overhead and product costs , while selling , general and administrative expenses remained flat on lower revenues in 2018. other in addition , we report an `` other '' category for purposes of a reconciliation of segment revenues and segment profit to the company 's operating results , but the other category is not considered a reportable segment based on evaluation of the aggregation criteria . other includes sales of third-party branded merchandise at vf outlet stores , sales and licensing of rock & republic ® branded apparel , and sales of products manufactured for third-parties . sales of wrangler ® and lee ® branded products at vf outlet stores are not included in other and are reported in the respective segments discussed above . the other category also includes transactions with vf for pre-separation activities , none of which will continue going forward .
| our branded direct-to-consumer channel continued to grow , driven by the performance of our own websites . additional details on 2019 , 2018 and 2017 revenues are provided in the section titled “ information by reportable segment. ” the following table presents components of the company 's statements of income as a percent of total net revenues : replace_table_token_4_th kontoor brands , inc 2019 form 10-k 30 2019 compared to 2018 gross margin decreased 90 basis points . business model changes , restructuring programs and separation costs negatively impacted the current year by approximately 140 basis points . this decrease was partially offset by the impact of favorable channel mix in the current year . selling , general and administrative expenses as a percentage of revenues increased 320 basis points . business model changes , restructuring programs and separation costs negatively impacted the current year by approximately 300 basis points . the remaining increase as a percentage of net revenues was primarily driven by deleverage of fixed costs on lower revenues . non-cash impairment of intangible asset reflects a $ 32.6 million impairment of the rock & republic ® trademark recorded in august 2019. there were no intangible asset impairments in 2018. the effective income tax rate was 28.5 % for the year ended december 2019 compared to 22.6 % for the year ended december 2018. the 2019 effective income tax rate included a net discrete tax expense of $ 3.8 million , comprised of $ 3.5 million of tax expense primarily related to an increase in unrecognized tax benefits and interest , $ 2.1 million of net tax expense related to recording valuation allowances on beginning balance deferred tax assets at the date of separation and the impact of a corresponding change in assertion on unremitted earnings , $ 1.9 million of tax expense related to adjustments to tax balances transferred from former parent at the separation and $ 3.7 million of
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our sales forces were merged to create atlas | masland contract , now equipped with a much broader product line and providing modular carpet tile , broadloom carpet , luxury vinyl flooring , and commercial wool and nylon rugs . this combined sales force has the added benefit of not only a broad product line but distinct design capabilities in custom products as well . 18 story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:9pt ; '' > replace_table_token_5_th net sales . net sales for the year ended december 29 , 2018 were $ 405.0 million compared with $ 412.5 million in the year-earlier period , a decrease of 1.8 % for the year-over-year comparison . sales of residential floorcovering products were up 3.6 % and sales of commercial floorcovering products decreased 13.2 % . the decrease in commercial net sales was due to distractions caused by the restructuring of our commercial operations and sales force during 2018. gross profit . gross profit , as a percentage of net sales , decreased 3.0 percentage points in 2018 compared with 2017. gross profit in 2018 was negatively impacted by inventory write downs of $ 2.7 million taken during the year as part of our profit improvement plan . selling and administrative expenses . selling and administrative expenses were $ 92.5 million in 2018 compared with $ 96.2 million in 2017 , or a decrease of .5 % as a percentage of sales . the improved results in the 2018 selling expenses are the result of changes made as part of our profit improvement plan . other operating expense , net . net other operating expense was an expense of $ 458 thousand in 2018 compared with expense of $ 441 thousand in 2017. facility consolidation and severance expenses , net . facility consolidation expenses were $ 3.2 million in 2018 compared with $ 636 thousand in the year-earlier period . facility consolidation expenses increased in 2018 as we continued our profit improvement 20 plan , announced in 2017 , which includes the consolidation of our two commercial brands , consolidation of commercial manufacturing operations and sales forces , and an overall review of corporate wide operations and functions . as a result of this plan , we incurred expenses of $ 3.2 million during 2018 primarily related to facility consolidation expenses and severance costs . asset impairments . the asset impairments recorded in 2018 were $ 6.7 million . there were no asset impairment expenses in 2017. the asset impairments incurred in 2018 included the impairment of fixed assets as part of our profit improvement plan ( $ 1.2 million ) . we also incurred intangible asset impairments ( $ 2.1 million ) and goodwill impairment ( $ 3.4 million ) . operating income ( loss ) . operations reflected an operating loss of $ 15.8 million in 2018 compared with an operating income of $ 3.9 million in 2017. the operating results for 2018 were impacted by the lower sales volume , settlement of a class action lawsuit , and facility consolidation , asset impairments , and severance costs related to the profit improvement plan . interest expense . interest expense increased $ 752 thousand in 2018 principally due to higher levels of debt and higher rates than a year ago . income tax provision ( benefit ) . our effective income tax rate was a benefit of 3.72 % in 2018. the benefit relates to certain federal and state credits and also includes a benefit for the reduction of certain indefinite lived assets not covered by our valuation allowance . in 2018 we increased our valuation allowance by $ 4 million related to our net deferred tax asset and specific state net operating loss and state credit carryforwards . on december 22 , 2017 , the president signed the tax cuts and jobs act ( the “ tax act ” ) . the tax act , among other things , lowered the u.s. corporate income tax rate from 35 % to 21 % effective january 1 , 2018. the income tax expense for 2017 was $ 7.5 million , which included a charge of $ 1.4 million related to the re-measurement of certain net deferred tax assets using the lower u.s. corporate income tax rate and a charge of $ 6.4 million to increase our valuation allowance related to our net deferred tax asset . the majority of the increase in the valuation allowance is related to the revised treatment of net operating losses under the tax act . absent the impact of the tax act , our effective income tax benefit rate for 2017 would have been 36.4 % . net loss . continuing operations reflected a loss of $ 21.5 million , or $ 1.36 per diluted share in 2018 , compared with a loss from continuing operations of $ 9.3 million , or $ 0.59 per diluted share in 2017. our discontinued operations reflected an income of $ 95 thousand , or $ 0.01 per diluted share in 2018 compared with a loss of $ 233 thousand , or $ 0.01 per diluted share in 2017. including discontinued operations , we had a net loss of $ 21.4 million , or $ 1.35 per diluted share , in 2018 compared with a net loss of $ 9.6 million , or $ 0.60 per diluted share , in 2017. liquidity and capital resources during the year ended december 28 , 2019 , cash provided by operations was $ 11.7 million . inventories decreased $ 9.7 million , receivables decreased $ 5.2 million and accounts payable and accrued expenses decreased $ 3.7 million . inventories were planned more closely in 2019 and decreased with lower demand . receivables decreased on lower sales volume . story_separator_special_tag in addition to lower operating demands on accounts payable as a result of lower volume , accounts payable and accrued expenses decreased due to balances in the prior year end related to a class action lawsuit and severances related to restructuring that were paid in full or significantly lower in the 2019 year end balances as compared to 2018. capital asset acquisitions for the year ended december 28 , 2019 were $ 4.2 million . in 2019 proceeds from sale of equipment totaled $ 37.2 million , primarily related to the sale of our building in santa ana , california . depreciation and amortization for the year ended december 28 , 2019 were $ 11.4 million . we expect capital expenditures to be approximately $ 5.0 million in 2020 while depreciation and amortization is expected to be approximately $ 11.0 million . planned capital expenditures in 2020 are primarily for new equipment . during the year ended december 28 , 2019 , cash used in financing activities was $ 43.9 million . we had net payments of $ 39.5 million on the revolving credit facility . notes payable were reduced by payments , net of new borrowings , of $ 7.5 million and borrowings on finance leases net of payments increased cash by $ 7.3 million . the balance in amount of checks outstanding in excess of cash at year end 2019 decreased from prior year resulting in a cash outflow of $ 3.1 million . we believe our operating cash flows , credit availability under our revolving credit facility and other sources of financing are adequate to finance our anticipated liquidity requirements under current operating conditions . included in the unused borrowing availability under our credit line , as of the sale of our susan street facility in october , 2019 and the enactment of amendment thirteen to our loan agreement , is an additional availability block of $ 5,000 to be reduced upon reaching a specially defined fixed charge coverage ratio of 1.1 to 1.0 for a consecutive period of 3 months or 6 months . contingent upon reaching the desired fixed coverage ratio , the availability block will reduce to $ 2,500 when the three-month threshold is reached and $ 0 once reaching the six-month threshold . as of december 28 , 2019 , the unused borrowing availability under our revolving credit facility was $ 33.8 million . however , our revolving credit facility reduces our funds available to borrow by $ 15 million if our fixed charge coverage ratio is less than 1.1 to 1.0. as of the date hereof , our fixed coverage ratio was less than 1.1 to 1.0 , accordingly the unused availability accessible by us was $ 18.8 million ( the amount above $ 15.0 million ) at december 28 , 2019. significant additional cash expenditures above our normal liquidity requirements , significant deterioration in economic conditions or continued operating losses could affect our business 21 and require supplemental financing or other funding sources . there can be no assurance that such supplemental financing or other sources of funding can be obtained or will be obtained on terms favorable to us . debt facilities revolving credit facility . during the fourth quarter 2019 , the company amended its credit agreement with wells fargo capital finance to reduce the size of the senior credit facility from $ 150,000 to $ 120,000 and adjust the availability limitation related to the fixed coverage ratio from $ 16,500 to $ 15,000 upon closing of the sale lease back of the susan street property . the changes to the credit facility were implemented by the twelfth and thirteenth amendments to the credit agreement , effective october 3 , 2019 and october 22 , 2019 , respectively . these amendments were intended to permit the sale and leaseback of the company 's susan street facility and , upon completion of the sale , to adjust the credit agreement 's borrowing base . the borrowing base is currently equal to specified percentages of the company 's eligible accounts receivable , inventories , fixed assets and real property less reserves established , from time to time , by the administrative agent under the facility . the revolving credit facility matures on september 23 , 2021. the revolving credit facility is secured by a first priority lien on substantially all of the company 's assets . at the company 's election , advances of the revolving credit facility bear interest at annual rates equal to either ( a ) libor for 1 , 2 or 3 month periods , as selected by the company , plus an applicable margin ranging between 1.50 % and 2.00 % , or ( b ) the higher of the prime rate , the federal funds rate plus 0.5 % , or a daily libor rate plus 1.00 % , plus an applicable margin ranging between 0.50 % and 1.00 % . the applicable margin is determined based on availability under the revolving credit facility with margins increasing as availability decreases . as of december 28 , 2019 , the applicable margin on our revolving credit facility was 1.75 % . the company pays an unused line fee on the average amount by which the aggregate commitments exceed utilization of the revolving credit facility equal to 0.375 % per annum . the weighted-average interest rate on borrowings outstanding under the revolving credit facility was 4.79 % at december 28 , 2019 and 4.58 % at december 29 , 2018. the revolving credit facility includes certain affirmative and negative covenants that impose restrictions on the company 's financial and business operations .
| facility consolidation expenses increased in 2019 as we completed our profit improvement plan , announced in 2017 , which included the consolidation of our two commercial brands , consolidation of commercial manufacturing operations and sales forces , and an overall review of corporate wide operations and functions . as a result of this plan , we incurred expenses of $ 5.0 million during 2019 primarily related to facility consolidation expenses and severance costs . asset impairments . there were no expenses related to asset impairments recorded in 2019. the asset impairments recorded in 2018 were $ 6.7 million . the asset impairments incurred in 2018 included the impairment of fixed assets as part of our profit improvement plan ( $ 1.2 million ) . we also incurred intangible asset impairments ( $ 2.1 million ) and goodwill impairment ( $ 3.4 million ) . operating income ( loss ) . operations reflected an operating income of $ 21.3 million in 2019 compared with an operating loss of $ 15.8 million in 2018. the operating results for 2019 were heavily impacted by the $ 25.1 million gain on the sale of our building in santa ana , california . this gain was partially offset by lower gross profit as a result of lower sales volume and expenses related to the profit improvement plan . 19 interest expense . interest expense decreased $ 47 thousand in 2019 as compared to 2018 principally due to lower levels of debt in the last quarter of the year as a result of the sale of our building in santa ana , california . income tax provision ( benefit ) . our effective income tax rate was a benefit of 4.39 % in 2019. the benefit relates to certain federal and state credits and also includes a benefit for the reduction of certain indefinite lived assets not covered by our valuation allowance . in 2019 , we decreased our valuation allowance by $ 3.7 million related to our net deferred tax asset and specific state net operating loss and state credit carryforwards . our effective
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on may 3 , 2019 , we consummated a joint venture agreement with saint-gobain , a world leader in the production of float glass , a key component of our manufacturing process , whereby we acquirred a 25.8 % minority ownership interest in vidrio andino , a colombia-based subsidiary of saint-gobain . the purchase price for our interest in vidrio andino was $ 45 million , of wich $ 34.1 million was paid in cash and $ 10.9 million to be paid through the contribution of land to be contributed on our behalf by our chief executive officer and chief operating officer , josé m. daes and christian t. daes by the first quarter of 2020. vidrio andino 's float glass plant located in the outskirts of bogota , colombia , had been one of our main suppliers of raw glass . we believe this transaction will solidify our vertical integration strategy by acquiring an interest in the first stage of our production chain , while securing ample glass supply for our expected production needs . the joint venture agreement includes plans to build a new plant in galapa , colombia that will be located approximately 20 miles from our primary manufacturing facility , in which we will also have a 25.8 % interest . the new plant will be funded with proceeds from the original cash contribution made by the company , operating cashflows from the bogota plant , debt incurred at the joint venture level that will not consolidate into the company and an additional contribution by us of approximately $ 12.5 million to be paid between 2020 and 2021 if needed ( based on debt availability ) . additionally , the company carried out enhancements at its glass and aluminum facilities to increase production capacity and automate operations . the company anticipates that these high return investments will speed up production processes in response to strong customer demand , especially for aluminum products . the company expects to improve efficiency in its glass production by automating certain processes to increase capacity , while reducing material waste and overall lead times . in its aluminum operations , the company intends to benefit from a 25 % increase in capacity and favorable operating leverage with the addition of an aluminum furnace and a new extrusion line , along with working capital improvements through the automation of warehousing systems . the company completed this aluminum capacity expansion in the middle of july of 2019 and implemented its automation initiatives by the start of 2020 , with the funding being executed since the end of 2018 and expected to be completed by the first quarter of 2020. the company expects to continue funding these capital investments mainly with cash on hand . 38 results of operations ( amounts in thousands ) replace_table_token_1_th comparison of years ended december 31 , 2019 and december 31 , 2018 our operating revenue increased $ 59.9 million , or 16.2 % , from $ 371.0 million in the year ended december 31 , 2018 to $ 430.9 million in the year ended december 31 , 2019. the increase was mostly driven by executing our strategy to further penetrate the u.s. market , which continues to be key . while we continue to have a strong position in the south florida region , we are continuously diversifying into other regions . sales in the united states market increased $ 71.5 million , or 24.1 % , from $ 296.5 million in in the year ended december 31 , 2018 , to $ 368.1 million in in the year ended december 31 , 2019. a portion of the company 's sales growth in the american market have been driven by our elite and prestige lines aimed towards residential markets , in which we did not actively participate prior to 2017. u.s. sales contributed 85 % and 80 % of our consolidated sales during the years ended december 31 , 2019 and 2018 , respectively . the increase in u.s revenues is aligned with our strategy to penetrate new geographical and end markets . sales in the colombian market decreased $ 10.1 million , or 16.2 % , from $ 62.4 million in the year ended december 31 , 2018 , to $ 52.3 million in the year ended december 31 , 2019 resulting from a slow construction market and sales comprised mainly of smaller projects with only few medium-to-large projects being executed . cost of sales increased $ 44.3 million , or 17.7 % , from $ 250.8 million in the year ended december 31 , 2018 , to $ 295.1 million for the year ended december 31 , 2019. as a result , gross profit increased $ 15.6 million , or 13.0 % , from $ 120.2 million in the year ended december 31 , 2018 , to $ 135.8 million for the year ended december 31 , 2019 while gross profit margins , calculated by dividing the gross profit by operating revenues , compressed from 32.4 % to 31.5 % between the years ended december 31 , 2018 and 2019 as a result of an unfavorable mix of sales and higher than expected installation and labor costs , partially offset by diluting our fixed costs over higher sales . 39 operating expenses increased $ 4.0 million , or 5.4 % , from $ 73.0 million in the year ended december 31 , 2018 to $ 77.0 million in the year ended december 31 , 2019 , improving as a percentage of sales from 19.7 % to 17.9 % . the improvement as a percentage of sales represents a gain in operating leverage over our fixed administrative cost structure over some variable components such as sales commissions and shipping cost , which we actively seek to make more efficient . story_separator_special_tag interest expense increased $ 1.6 million , or 7.6 % , from $ 21.2 million in the year ended december 31 , 2018 to $ 22.8 million in the year ended december 31 , 2019 commensurate with a 7.2 % increase in our total debt , from $ 242.3 million at the end of 2018 to $ 259.8 million at the end of 2019. non-operating income decreased $ 1.4 million , or 46.3 % , from $ 2.9 million in the year ended december 31 , 2018 to $ 1.6 million in the year ended december 31 , 2019. non-operating income is primarily comprised of interests on receivables and short-term investments , rent income and recoveries on scrap materials . during the years ended december 31 , 2019 and 2018 , the company recorded a foreign currency transaction loss of $ 1.0 million and $ 14.5 million , respectively , related to the company 's colombian subsidiaries es and tg , which have the colombian peso as functional currency but a substantial portion of their monetary assets and liabilities denominated in us dollars . foreign currency transaction losses during the year ended december 31 , 2018 were associated with a net us dollar liability position of the colombian subsidiaries , which coupled with a 9 % devaluation of the colombian peso during the year , ended up signifying a higher amount of liabilities in pesos when compared against the us dollar . conversely , despite significant volatility in the u.s. dollar to colombian peso exchange rate during 2019 , the colombian peso only depreciated less than 1 % from the beginning to the end of the year . income tax expense increased $ 7.0 million , or 116.3 % , from $ 6.0 million in the year ended december 31 , 2018 to $ 12.9 million in the year ended december 31 , 2019 , mostly as a result of a 157.2 % increase of income before tax as a result of the foregoing , and a decrease of effective income tax rate from 41.3 % in 2018 to 34.8 % in 2019. the decrease in statutory tax rate is related to the 2018 colombian tax reform , which lowered the corporate statutory income tax rate from 37 % in 2018 to 34 % in 2019. cash flow from operations , investing and financing activities during the year ended december 31 , 2019 and 2018 , $ 26.7 million and $ 5.0 million generated and used by operating activities , respectively . while the use of cash in operating activities in 2018 was related to the working capital required to support the 18 % sales growth during the year , effective inventory management and other working capital initiatives led to the positive cashflow , despite also growing sales by 16.2 % year over year in 2019. during the year ended december 31 , 2019 , procurement of inventories was the largest source of operating cashflow , generating $ 8.4 million , in contrast with a use of $ 28.1 million in 2018. tight inventory management and streamlining processes have allowed the company to decrease inventory levels , despite increasing sales , thus speeding up inventory turnovers . another significant source of cash within operating activities was taxes payable , as a result of the company more than doubling its income before tax between 2018 and 2019. the largest use of cash in operating activities during 2019 , was trade accounts receivable , which used $ 19.6 million , in comparison with $ 23.7 million during the prior year which was associated to revenue growth in both years . despite the increase in trade accounts receivable and use of cash , the company 's days sales outstanding remain relatively stable between 2018 and 2019. it is expected that given the industry related longer cash cycle , during periods of accelerated growth , accounts receivable may remain a significant use of operating cashflow but partially offset by the further penetration into the residential market which carries a lower sales cycle . we used $ 59.2 million and $ 18.7 million in investing activities during the years ended december 31 , 2019 and 2018 , respectively . the main use of cash in investing activities was a payment for the acquisition of 25.8 % equity interest in vidrio andino , a joint-venture with saint-gobain described above under capital resources . additionally , capital expenditures , including assets acquired with credit or debt ( which are not reflected in cash flows from investing activities ) amounted to $ 26.2 million and $ 13.6 million during 2019 and 2018 , respectively . 40 the main source of cash during 2019 was financing activities , which generated $ 47.3 million . in march 2019 , the company closed an underwritten follow-on public offering of 5,551,423 ordinary shares , including the underwriters ' over-allotment option , for net proceeds of $ 36.5 million . additionally , the company generated proceeds of debt for $ 45.5 million , mostly related to a $ 30 million five year term facility , proceeds which were mostly used to repay then existing short-term debt the company had accumulated to fund working capital required to support nine quarters with consecutive quarter-over-quarter sales growth. , net of repayments we generated $ 16.0 million from debt while continuing the decrease of its leverage metrics given the company´s continued growth and profitability . off-balance sheet arrangements we did not have any material off-balance sheet arrangements as of december 31 , 2019. critical accounting policies the preparation of financial statements in conformity with u.s. gaap requires management to make significant estimates and assumptions that affect the assets , liabilities , revenues and expenses , and other related amounts during the periods covered by the financial statements . management routinely makes judgments and estimates about the effect of matters that are inherently uncertain . as the number of variables and assumptions affecting the future resolution of the uncertainties increases , these judgments become more subjective and complex .
| our track record of successfully delivering high profile projects has earned us an increasing number of opportunities across the united states , evidenced by our expanding backlog and overall revenue growth . 36 our structural competitive advantage is underpinned by our low-cost manufacturing footprint , vertically integrated business model and geographic location . our integrated facilities in colombia and distribution and services operations in florida provide us with a significant cost advantage in both manufacturing and distribution , and we continue to invest in these operations to expand our operational capabilities . our lower cost manufacturing footprint allows us to offer competitive prices for our customers , while also providing innovative , high quality and high value-added products , together with consistent and reliable service . we have historically generated high margin organic growth based on our position as a value-added solutions provider for our customers . we have a strong presence in the florida market , which represents a substantial portion of our revenue stream and backlog . our success in florida has primarily been achieved through sustained organic growth , with further penetration now taking place into other highly populated areas of the united states . as part of our strategy to become a fully vertically integrated company , we have supplemented our organic growth with some recent acquisitions that have allowed us added control over our supply chain , allowed for further vertical integration of our business and will act as a platform for our future expansion in the united states . in 2016 , we completed the acquisition of esw , which gave us control over the distribution of products into the united states from our manufacturing facilities in colombia . in 2017 , we completed the acquisition of gm & p , a consulting and glazing installation business that was previously our largest installation customer . these acquisitions allowed for further vertical integration of our business and will act as a platform for our future expansion in the united states . and on may 3 , 2019 ,
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replace_table_token_12_th all of the professional services rendered by principal accountants for the audit of our annual financial statements that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for last two fiscal years were approved by our board of directors . item 15. exhibits exhibit number description 31.1 certification of chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 32.1 certification of chief executive officer and chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 101 interactive data files for the olb group , inc. form 10-k for the period ended december 31 , 2014 27 signatures in accordance with section 13 or 15 ( d ) of the exchange act , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . the olb group , inc. by : ronny yakov ronny yakov president and interim chief financial officer date : march 23 , 2015 in accordance with the exchange act , this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated . signature title date ronny yakov president and treasurer director interim chief financial officer march 23 , 2015 ronny yakov ( chief executive officer and principal financial officer ) 28 story_separator_special_tag results of operations for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 revenue revenue from our insurance program for the year ended december 31 , 2014 decreased $ 24,444 to $ 74,626 from $ 99,070 for the year ended december 31 , 2013. the decrease can be attributed to a decrease in the number of subscribers to our insurance program and lower premiums for some . during the year ended december 31 , 2014 , we signed our first white label software licensing agreement . per the terms of that agreement the company recognized $ 50,000 for set up and implementations fees . in addition $ 11,862 was recognized from software development services that were provided . 5 gross margin gross margin from operations for the year ended december 31 , 2014 increased $ 40,886 , or 62 % to $ 106,573 from $ 65,687 for the year ended december 31 , 2013. the increase in gross margin is a direct result of the licensing agreement revenue . officer compensation officer compensation expense decreased by $ 214,137 or 44 % for the year ended december 31 , 2014 to $ 275,000 from $ 489,137 for the year ended december 31 , 2013. the decrease is a result of stock that was issued in the prior year for conversion of accrued compensation . on december 31 , 2013 , the ceo converted $ 214,137 of accrued compensation to 713,790 shares of common stock . the conversion price was $ 0.30 , which due to the limited trading of the company 's stock is a more accurate reflection of the value of the stock . however , the closing price on that day was $ 0.60. the difference of the value of the stock of $ 214,137 was booked as additional compensation expense and to additional paid in capital . story_separator_special_tag times new roman , times , serif ; margin : 0 ; text-align : justify '' > we follow section 740-10-30 of the fasb asc , which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns . under this method , deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse . deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of income and comprehensive income in the period that includes the enactment date . we adopted fasb asc 740-10-25 , accounting for uncertainty in income taxes . asc 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements . under asc 740-10-25 , we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . asc 740-10-25 also provides guidance on derecognition , classification , interest and penalties on income taxes , and accounting in interim periods and requires increased disclosures . we had no material adjustments to our liabilities for unrecognized income tax benefits according to the provisions of asc 740-10-25. recently issued accounting pronouncements in august 2014 , the fasb issued accounting standards update “ asu ” 2014-15 on “ presentation of financial statements going concern ( subtopic 205-40 ) – disclosure of uncertainties about an entity 's ability to continue as a going concern ” . currently , there is no guidance in u.s. gaap about management 's responsibility to evaluate whether there is substantial doubt about an entity 's ability story_separator_special_tag replace_table_token_12_th all of the professional services rendered by principal accountants for the audit of our annual financial statements that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for last two fiscal years were approved by our board of directors . item 15. exhibits exhibit number description 31.1 certification of chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 32.1 certification of chief executive officer and chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 101 interactive data files for the olb group , inc. form 10-k for the period ended december 31 , 2014 27 signatures in accordance with section 13 or 15 ( d ) of the exchange act , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . the olb group , inc. by : ronny yakov ronny yakov president and interim chief financial officer date : march 23 , 2015 in accordance with the exchange act , this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated . signature title date ronny yakov president and treasurer director interim chief financial officer march 23 , 2015 ronny yakov ( chief executive officer and principal financial officer ) 28 story_separator_special_tag results of operations for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 revenue revenue from our insurance program for the year ended december 31 , 2014 decreased $ 24,444 to $ 74,626 from $ 99,070 for the year ended december 31 , 2013. the decrease can be attributed to a decrease in the number of subscribers to our insurance program and lower premiums for some . during the year ended december 31 , 2014 , we signed our first white label software licensing agreement . per the terms of that agreement the company recognized $ 50,000 for set up and implementations fees . in addition $ 11,862 was recognized from software development services that were provided . 5 gross margin gross margin from operations for the year ended december 31 , 2014 increased $ 40,886 , or 62 % to $ 106,573 from $ 65,687 for the year ended december 31 , 2013. the increase in gross margin is a direct result of the licensing agreement revenue . officer compensation officer compensation expense decreased by $ 214,137 or 44 % for the year ended december 31 , 2014 to $ 275,000 from $ 489,137 for the year ended december 31 , 2013. the decrease is a result of stock that was issued in the prior year for conversion of accrued compensation . on december 31 , 2013 , the ceo converted $ 214,137 of accrued compensation to 713,790 shares of common stock . the conversion price was $ 0.30 , which due to the limited trading of the company 's stock is a more accurate reflection of the value of the stock . however , the closing price on that day was $ 0.60. the difference of the value of the stock of $ 214,137 was booked as additional compensation expense and to additional paid in capital . story_separator_special_tag times new roman , times , serif ; margin : 0 ; text-align : justify '' > we follow section 740-10-30 of the fasb asc , which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns . under this method , deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse . deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of income and comprehensive income in the period that includes the enactment date . we adopted fasb asc 740-10-25 , accounting for uncertainty in income taxes . asc 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements . under asc 740-10-25 , we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . asc 740-10-25 also provides guidance on derecognition , classification , interest and penalties on income taxes , and accounting in interim periods and requires increased disclosures . we had no material adjustments to our liabilities for unrecognized income tax benefits according to the provisions of asc 740-10-25. recently issued accounting pronouncements in august 2014 , the fasb issued accounting standards update “ asu ” 2014-15 on “ presentation of financial statements going concern ( subtopic 205-40 ) – disclosure of uncertainties about an entity 's ability to continue as a going concern ” . currently , there is no guidance in u.s. gaap about management 's responsibility to evaluate whether there is substantial doubt about an entity 's ability
| profitable operations . the financial statements do not include any adjustments that might result from the outcome of this uncertainty . off-balance sheet arrangements as of december 31 , 2014 , there were no off balance sheet arrangements . critical accounting policies the following is a discussion of the accounting policies the company believes are critical to its operations : our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states . the preparation of financial statements requires management to make estimates and disclosures on the date of the financial statements . on an on-going basis , we evaluate our estimates including , but not limited to , those related to revenue recognition . we use authoritative pronouncements , historical experience and other assumptions as the basis for making judgments . actual results could differ from those estimates . we believe that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our financial statements . 6 revenue recognition we had limited revenue during fiscal 2014 and 2013 while conducting our limited quality control evaluation of our shopfast pc software . revenues will be recognized when title and risk of loss transfers to the customer and the earnings process is complete . in general , title passes to our customers upon the customer 's receipt of the merchandise . revenue is accounted for in accordance with the revenue recognition topic of the fasb asc 605 , reporting revenue gross as a principal versus net as an agent . revenue is recognized on a gross basis since our company has the risks and rewards of ownership , latitude in selection of vendors and pricing , and bears all credit risk . we also recognized revenue from membership fees for the sales of health-related discount benefit plans as earned as part of
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rare pediatric disease designation for lonafarnib in the treatment of progeria and progeroid laminopathies on october 22 , 2018 , we announced that the fda granted rare pediatric disease , or rpd , designation to lonafarnib in the treatment of progeria and progeroid laminopathies . rpd designation enables priority review voucher , or prv , eligibility upon u.s. market approval of lonafarnib for these ultra-rare and fatal genetic conditions characterized by accelerated aging in children . we are collaborating with the progeria research foundation , or prf , and we plan to submit an nda in 2019. there is currently no approved treatment for progeria or progeroid laminopathies . the priority review voucher program is focused on encouraging development of therapies to prevent and treat rare pediatric diseases . if lonafarnib is approved by the fda for progeria and progeroid laminopathies , the rpd designation qualifies eiger , as the therapeutic sponsor , for the prv upon marketing approval . the voucher , which can be sold or transferred to another entity , can be used by the holder to receive priority review for a future nda or biologics license application submission , which reduces the fda submission review time from ten to six months . pursuant to our collaboration and supply agreement with prf , we will equally share with prf any proceeds from the monetization of any prv that we may receive for lonafarnib for the treatment of progeria and progeroid laminopathies to support future progeria research . 68 phase 2 limt study on october 17 , 2018 , we announced positive data with peginterferon lambda , or lambda , in our phase 2 limt hdv ( lambda interferon monotherapy in hepatitis delta virus ) study . limt hdv enrolled a total of 33 patients , randomized to lambda 180 µg ( n=16 ) or lambda 120 µg ( n=17 ) , respectively , with weekly subcutaneous injections for 48 weeks in patients with chronic hdv . lambda is a first in class , type iii interferon , in development for the treatment of hdv . at week 48 , patients in the 180 µg lambda treated group experienced a -2.4 log 10 mean decline in hdv-rna , with 6 of 10 ( 60 % ) experiencing 2log10 decline , 4 of 10 ( 40 % ) patients were hdv-rna negative at end of treatment . at week 48 , patients in the 120 µg lambda treated group experienced a -1.5 log 10 mean decline in hdv rna , with 6 of 14 ( 42.9 % ) experiencing 2log10 decline , 2 of 14 ( 14.3 % ) patients were hdv-rna negative at end of treatment . the most common adverse events included mild to moderate flu-like symptoms and elevated transaminase levels . phase 2 prevent study on october 16 , 2018 , we announced positive results from our phase 2 prevent study , which is a multi-center , placebo-controlled study investigating the safety and durability of effect of 28-day dosing of subcutaneous , or sc , avexitide ( formerly known as exendin 9-39 ) in post-bariatric surgical patients who experience dangerously low , postprandial blood glucose levels known as post-bariatric hypoglycemia , or pbh . avexitide is a first in class glucagon-like peptide-1 , or glp-1 , antagonist in development for pbh as a convenient , novel liquid formulation for sc administration . pbh is an orphan disease with a high unmet medical need and no approved pharmacologic therapy . eighteen patients with refractory , severe pbh were enrolled across five u.s. academic centers and dosed as outpatients in the prevent study . all patients received placebo subcutaneous injections for 14 days in a single-blinded manner followed by avexitide subcutaneous injections of 30 mg twice daily , or bid , injections for 14 days and 60 mg once daily , or qd , injections for 14 days , for a total of 28 days active dosing , in a double-blinded to dose , cross-over design . the primary efficacy endpoint of improved postprandial glucose nadir during mixed meal tolerance testing , or mmtt , was achieved with statistical significance with avexitide 30 mg bid ( 57.1 vs 47.1 mg/dl ; p = 0.001 ) and 60 mg qd ( 59.2 vs 47.1 mg/dl ; p = 0.0002 ) , and with fewer participants requiring glycemic rescue during each of the active dosing regimens than during placebo dosing . the secondary endpoint of reduced postprandial insulin peak during mmtt was also statistically significant with avexitide 30 mg bid ( 349.5 vs 454.5 µiu/ml ; p < 0.03 ) and 60 mg qd ( 357.2 vs 454.5 µiu/ml ; p = 0.04 ) . metabolic and clinical improvements were also monitored during each patients ' daily routine in the outpatient setting and assessed by electronic diary and continuous glucose monitoring , or cgm . patients experienced fewer episodes of hypoglycemia ( hypoglycemia symptoms confirmed by self-blood glucose monitor , or sbgm , concentrations of < 70 mg/dl ) and severe hypoglycemia ( neuroglycopenic symptoms confirmed by sbgm concentrations < 55 mg/dl ) during both dosing regimens of avexitide as compared to placebo . these results were corroborated by cgm data . avexitide was well-tolerated . there were no treatment-related serious adverse events and no participant withdrawals . adverse events were typically mild to moderate in severity . the most common adverse events were injection site bruising , nausea , and headache , all of which occurred with lower frequency during avexitide dosing periods than during the placebo dosing period . phase 2 ultra study on october 16 , 2018 , we also announced results from our phase 2 ultra study in primary and secondary lymphedema of the lower limb , which demonstrated no improvement of ubenimex over placebo in the primary endpoint of skin thickness and secondary endpoints of limb volume and bioimpedance . no safety signals attributed to ubenimex were identified . 69 topline analysis suggests select , individual patient responses , which clinical investigators believe warrant further exploration . story_separator_special_tag we currently plan no additional clinical work for ubenimex but will support any additional investigator analyses and will reevaluate if future findings suggest any potential pathway forward . we expect that we would only pursue such an option through a strategic partnership . fda guidance on hdv phase 3 study design : primary endpoint established on september 24 , 2018 , we announced the receipt of written guidance from the fda , confirming concurrence on a pivotal trial design , including the primary endpoint for d-livr , the first-ever , registration study for hdv infection . a combined primary endpoint of ≥ 2 log 10 decline in hdv rna and normalization of alanine aminotransferase ( alt ) at the end of 48 weeks of treatment has been accepted by the fda as the primary endpoint and would be supportive of an accelerated approval of two lonafarnib-based , ritonavir-boosted regimens . an all-oral arm of lonafarnib boosted with ritonavir and a combination arm of lonafarnib boosted with ritonavir combined with pegylated interferon-alfa will each be compared to placebo in the d-livr study . accelerated approval could be based on successful achievement of this surrogate endpoint in this single pivotal study in addition to a post-marketing confirmatory trial to evaluate clinical benefit . notice of allowance for lonafarnib patent claims in hdv on july 31 , 2018 , we announced the receipt of the notice of allowance from the united states patent and trademark office for u.s. patent application number 15/335,327 , entitled “ treatment of hepatitis delta virus infection. ” the allowed claims cover a broad range of doses and durations of lonafarnib boosted with ritonavir . lonafarnib is an oral , small molecule farnesyl transferase inhibitor in development for the treatment of hdv infection . the resulting u.s. patent 10,076,512 issued on september 18 , 2018 and has a term extending to 2035. we are pursuing additional claims with continuation applications . in january 2018 , we announced that phase 2 liberty study results in pulmonary arterial hypertension or pah demonstrated no improvement overall or in key subgroups . on october 16 , 2018 , we announced results from our phase 2 ultra study in primary and secondary lymphedema of the lower limb , demonstrated no improvement of ubenimex over placebo in the primary endpoint of skin thickness and secondary endpoints of limb volume and bioimpedance . we discontinued development of ubenimex in both pah and lymphedema based on these results . we have no products approved for commercial sale and have not generated any revenue from product sales . we have never been profitable and have incurred operating losses in each year since inception , and we do not anticipate that we will achieve profitability in the near term . our net losses were $ 52.4 million , $ 42.4 million and $ 47.1 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . as of december 31 , 2018 , we had an accumulated deficit of $ 171.2 million . substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations . we expect to incur significant expenses and increasing operating losses for at least the next several years as we initiate and continue the clinical development of , and seek regulatory approval for , our product candidates and add personnel necessary to operate as a public company with an advanced clinical candidate pipeline of products . in addition , we are now operating as a publicly traded company following the merger with celladon in march 2016 , and we have and will be hiring additional financial and other personnel , upgrading our financial information systems and incurring costs associated with operating as a public company . we expect that our operating losses will fluctuate significantly from quarter to quarter and year to year due to timing of clinical development programs and efforts to achieve regulatory approval . merger with celladon on march 22 , 2016 , we completed the merger between private eiger and celladon in accordance with the terms of the agreement and plan of merger , dated as of november 18 , 2015 , by and among private eiger , celladon and celladon merger sub , inc. , or the merger . also , on march 22 , 2016 , in connection with , and prior to the completion of the merger , we effected a fifteen for one reverse stock split of our common stock , or the reverse stock split , and changed our name to “ eiger biopharmaceuticals , inc. ” 70 on november 18 , 2015 , in connection with the m erger , we entered into a subscription agreement , or the subscription agreement , with investors for the sale of shares of our common stock , or the private placement , which closed on march 22 , 2016. immediately prior to and in connection with the merger , each share of private eiger 's preferred stock outstanding was converted into shares of private eiger 's common stock at an exchange ratio of one share of common stock for each share of preferred stock . under the terms of the merger agreement , at the effective time of the merger , celladon issued shares of common stock to private eiger stockholders , at an exchange ratio of approximately 0.09 shares of common stock , after taking into account the reverse stock split , in exchange for each share of private eiger 's common stock outstanding immediately prior to the merger . the exchange ratio was calculated by a formula that was determined through arms-length negotiations between celladon and private eiger . immediately after the merger , the former private eiger equity holders beneficially owned approximately 78 % of post-merger eiger 's common stock . the merger was accounted for as a reverse asset acquisition .
| interest expense interest expense increased by $ 0.8 million to $ 2.3 million for the year ended december 31 , 2018 , from $ 1.5 million for the same period in 2017. interest expense primarily increased due to the drawdown of an additional $ 10.0 million under the oxford loan in 2018. interest income interest income increased by $ 0.6 million to $ 1.0 million for the year ended december 31 , 2018 , from $ 0.4 million for the same period in 2017. the increase was primarily due to an increase in the interest earned on our investments in debt securities and cash equivalents in 2018 as compared to 2017. other ( expense ) income , net other ( expense ) income , net changed by $ 0.2 million to $ 12,000 of other expense for the year ended december 31 , 2018 , from $ 0.2 million of other income for the same period in 2017. other income in 2017 consisted of the $ 0.2 million payment received from theragene for mydicar sale , and there was no such income earned in 2018 . 75 comparison of the years ended december 31 , 2017 and 2016 the following table summarizes results of operations for the years ended december 31 , 2017 and 2016 ( in thousands ) : replace_table_token_3_th * percentage not meaningful . research and development expense research and development expenses decreased by $ 3.5 million to $ 29.5 million for the year ended december 31 , 2017 , from $ 33.0 million for the same period in 2016. the decrease was primarily due to a $ 5.2 million upfront payment under our license agreement with bristol myers squibb company in 2016. there were no similar payments in 2017. the decrease was partially offset by a $ 0.7 million increase in compensation and personnel related expenses due to an increase in headcount , a $ 0.5 million increase in stock-based compensation expense due to an increase in headcount , $ 0.3 million increase in facility and insurance expenses and $ 0.2 million in milestone payments to two stanford university inventors for the asset purchase agreement . general and administrative expenses general and administrative expenses decreased by $ 1.1 million to $ 12.0 million for the year
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critical accounting policies and significant estimates preparation of financial statements in conformity with accounting principles generally accepted in the united states of america , requires management to make estimates and assumptions , that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities , as of the date of the financial statements , and reported amounts of revenues and expenses during the periods presented . on an ongoing basis , management evaluates their estimates and assumptions and the effects of any such revisions are reflected in the financial statements , in the period in which they are determined to be necessary . actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements . set forth below are the policies and estimates that we have identified as critical to our business operations and understanding our results of operations , based on the high degree of judgment or complexity in their application . revenue recognition revenue from the sale of new and used vehicles ( which excludes sales tax ) , is recognized upon the latest of delivery , signing of the sales contract or approval of financing . manufacturer incentives and rebates , including manufacturer holdbacks , floor plan interest assistance and certain advertising assistance , are recognized as a reduction of new vehicle cost of sales at the time the related vehicles are sold . revenue from the sale of parts , service , and collision repair work ( which excludes sales tax ) , is recognized upon the delivery of parts to the customer or at the time vehicle service or repair work is completed , as applicable . we receive commissions from third-party lending and insurance institutions for arranging customer financing and from the sale of vehicle service contracts , guaranteed auto protection ( known as `` gap '' ) insurance , and other insurance to customers ( collectively `` f & i '' ) . we may be charged back for f & i commissions in the event a contract is prepaid , defaulted upon , or terminated ( `` chargebacks '' ) . f & i commissions are recorded at the time the associated vehicle is sold . f & i commissions , net of estimated future chargebacks , are included in finance and insurance , net in the accompanying consolidated statements of income . additionally , we participate in future profits associated with the performance of the third-party held underlying portfolio for certain products pursuant to retrospective commission arrangements . our retrospective portfolio income is recorded as revenue at the time it is received from our third-party providers . used vehicle inventory lower of cost or market reserves— our used vehicle inventory is stated at the lower of cost or market . we use the specific identification method to value our used vehicle inventories . we maintain a reserve for used vehicle inventory when cost basis exceeds fair value . in assessing lower of cost or market for used vehicles , we consider ( i ) the age of our used vehicles , ( ii ) historical sales experience of used vehicles and ( iii ) current market conditions and trends in used vehicle sales . we also review and consider the following metrics related to used vehicle sales ( both on a recent and longer-term historical basis ) : ( i ) days of supply in our used vehicle inventory , ( ii ) used vehicle units sold at less than original cost as a percentage of total used vehicles sold and ( iii ) average vehicle selling price of used vehicle units sold at less than original cost . we then determine the appropriate level of reserve required to reduce our used vehicle inventory to the lower of cost or market , and record the resulting adjustment in the period in which we determine a loss has occurred . the level of reserve determined to be appropriate for each reporting period is considered to be a permanent inventory write-down and therefore is only released upon the sale of the related inventory . our used vehicle inventory reserves are as follows : replace_table_token_7_th a 100 basis point change in our estimated reserve rate would change our used vehicle inventory reserve by approximately $ 1.4 million as of december 31 , 2016 . f & i chargeback reserve— we reserve for chargebacks on finance , insurance , or vehicle service contract commissions received . the reserve is established based on historical operating results and the termination provisions of the applicable contracts . this data is 30 evaluated on a product-by-product basis . our loss histories vary depending on the product , but generally range from 9 % to 15 % of f & i revenues . our f & i cash chargebacks for the years ended december 31 , 2016 , 2015 , and 2014 were $ 34.9 million , $ 31.3 million , and $ 25.8 million , respectively . our chargeback reserves were $ 43.0 million and $ 38.1 million as of december 31 , 2016 and december 31 , 2015 , respectively . total chargebacks as a percentage of f & i revenue for the years ended december 31 , 2016 , 2015 , and 2014 , were 14 % , 13 % , and 12 % , respectively . a 100 basis point change in our estimated reserve rate for future chargebacks , would change our finance and insurance chargeback reserve by approximately $ 3.5 million as of december 31 , 2016 . insurance reserves— we are self-insured for employee medical claims and maintain stop loss insurance for large-dollar individual claims . we have large deductible insurance programs for workers compensation , property and general liability claims . we maintain and review our claim and loss history to assist in assessing our expected future liability for these claims . we also use professional service providers , such as account administrators and actuaries , to help us accumulate and assess this information . story_separator_special_tag provisions for retained losses and deductibles are made by charges to expense based upon periodic evaluations of the estimated ultimate liabilities on reported and unreported claims . we had $ 14.5 million and $ 13.3 million of insurance reserves for both known and unknown employee medical , workers compensation , property , and general liability claims , net of anticipated insurance recoveries , as of december 31 , 2016 and december 31 , 2015 , respectively . expenses associated with employee medical , workers compensation , property , and general liability claims , including premiums for insurance coverage , for the years ended december 31 , 2016 , 2015 , and 2014 , totaled $ 30.9 million , $ 26.9 million , and $ 27.1 million , respectively . goodwill and manufacturer franchise rights— goodwill represents the excess cost of an acquired business over the fair market value of its identifiable assets and liabilities . we have determined that , based on how we integrate acquisitions into our business , how the components of our business share resources and interact with one another , and how we review the results of our operations , that we have several geographic market-based operating segments . we have determined that the dealerships in each of our operating segments are components that are aggregated into several geographic market-based reporting units for the purpose of testing goodwill for impairment , as they ( i ) have similar economic characteristics , ( ii ) offer similar products and services ( all of our franchised dealerships offer new and used vehicles , parts and service , and arrange for third-party vehicle financing and the sale of insurance products ) , ( iii ) have similar customers , ( iv ) have similar distribution and marketing practices ( all of our dealerships distribute products and services through dealership facilities that market to customers in similar ways ) and ( v ) operate under similar regulatory environments . our only significant identifiable intangible assets , other than goodwill , are our rights under franchise agreements with manufacturers , which are recorded at an individual franchise level . the fair value of our manufacturer franchise rights are determined at the acquisition date , by discounting the projected cash flows specific to each franchise . we have determined that manufacturer franchise rights have an indefinite life as there are no economic , contractual or other factors that limit their useful lives , and they are expected to generate cash flows indefinitely due to the historically long lives of the manufacturers ' brand names . furthermore , to the extent that any agreements evidencing our manufacturer franchise rights would expire , we expect that we would be able to renew those agreements in the ordinary course of business . we do not amortize goodwill and other intangible assets that are deemed to have indefinite lives . we review goodwill and manufacturer franchise rights for impairment annually as of october 1 st , or more often if events or circumstances indicate that any impairment may have occurred . we are subject to financial statement risk to the extent that goodwill becomes impaired due to decreases in the fair value of our automotive retail business or manufacturer franchise rights become impaired due to decreases in the fair value of our individual franchises . we completed our annual intangible impairment tests as of october 1 , 2016 , and no impairments of goodwill or manufacturer franchise rights were recognized as a result of such tests . 31 results of operations the year ended december 31 , 2016 compared to the year ended december 31 , 2015 replace_table_token_8_th nm — not meaningful 32 replace_table_token_9_th total revenue during 2016 decrease d by $ 60.5 million ( 1 % ) compared to 2015 , due to a $ 55.3 million ( 3 % ) decrease in used vehicle revenue , a $ 40.6 million ( 1 % ) decrease in new vehicle revenue , and a $ 2.4 million ( 1 % ) decrease in f & i revenue , partially offset by a $ 37.8 million ( 5 % ) increase in parts and service revenue . the $ 2.1 million decrease in gross profit during 2016 was the result of a $ 15.9 million ( 8 % ) decrease in new vehicle gross profit , a $ 4.5 million ( 3 % ) decrease in used vehicle gross profit , and a $ 2.4 million ( 1 % ) decrease in f & i gross profit , partially offset by a $ 20.7 million ( 4 % ) increase in parts and service gross profit . our total gross profit margin increased 10 basis points to 16.2 % , primarily due to our parts and service business , which has higher margins than new and used vehicle sales , representing a larger percentage of our total revenue for the year ended 2016 compared to the year ended 2015 . income from operations during 2016 decrease d by $ 3.8 million ( 1 % ) compared to 2015 , primarily due to the $ 2.1 million decrease in gross profit , increases in sg & a expenses and depreciation and amortization of $ 2.6 million and $ 1.2 million , respectively , partially offset by a $ 2.1 million increase in other operating income , net . total other expenses increased by $ 1.8 million , primarily due to increases in floor plan interest expense and other interest expense , net of $ 3.2 million and $ 9.1 million , respectively , partially offset by a $ 10.6 million increase in the gain on divestitures . as a result , income from continuing operations before income taxes decrease d by $ 5.6 million ( 2 % ) to $ 267.8 million in 2016 . the decrease in income from continuing operations before income taxes , resulted in a decrease in income tax expense of $ 3.4 million ( 3 % ) . net income decrease d by $ 2.0 million ( 1 % ) to $ 167.2 million in 2016 .
| as a result , income from continuing operations before income taxes increased by $ 90.4 million ( 49 % ) to $ 273.4 million in 2015 . the increase in income from continuing operations before income taxes , resulted in an increase in income tax expense of $ 33.0 million ( 46 % ) . net income increased by $ 57.6 million ( 52 % ) to $ 169.2 million in 2015 . we assess the organic growth of our revenue and gross profit on a same store basis . as such , for the following discussion , same store amounts consist of information from dealerships for identical months in each comparative period , commencing with the first month we owned the dealership . additionally , amounts related to divested dealerships are excluded from each comparative period . 42 new vehicle— replace_table_token_19_th 43 new vehicle metrics— replace_table_token_20_th new vehicle revenue increased by $ 421.9 million ( 13 % ) , as a result of an 11 % increase in new vehicle units and a 2 % increase in revenue per new vehicle sold . same store new vehicle revenue increased by $ 253.1 million ( 9 % ) , due to a 7 % increase in new vehicle units sold and a 2 % increase in revenue per new vehicle sold . same store unit volumes for our luxury , import , and domestic brands increased 7 % , 6 % , and 10 % , respectively , reflecting consumer demand for the broad range of attractive vehicles we offer and the continued availability of credit at terms favorable to our customers . overall , same store new vehicle unit volumes increased by 7 % in 2015 , compared to new vehicle sales in the u.s. which increased by 6 % over the same period . total new vehicle gross profit increased by $ 4.7 million ( 2 % ) in 2015 . same store new vehicle gross profit decreased by $ 2.7 million ( 1 % ) , resulting
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principal amount outstanding under the third amended and restated revolving note ( the note payable ) into shares of the company 's common stock at a conversion rate of $ 0.41 per share upon receipt of stockholder approval by the company of such conversion ( the note conversion ) . for additional information relating to the note conversion , see footnote 6 to our consolidated financial statements . for additional information relating to the offering , see footnote 8 to our consolidated financial statements . in connection with the offering , certain holders of our capital stock , representing approximately 51.7 % of the voting power of the outstanding shares of our capital stock entitled to vote to approve the offering , entered into a voting agreement , pursuant to which such holders agreed to vote or execute and deliver a written consent in favor of approving the offering . at the company 's 2009 annual meeting of stockholders held on may 15 , 2009 , the company 's stockholders approved the offering and note conversion . immediately upon stockholder approval , the $ 4,782,600 aggregate principal amount of promissory notes issued in the offering by the company to the investment funds affiliated with signet healthcare partners , g.p. , together with accrued and unpaid interest , were converted into an aggregate of approximately 804 shares of the company 's series b-1 convertible preferred stock and the warrants to purchase shares of the company 's series b-2 preferred stock issued to these investment funds were cancelled . additionally , the $ 500,000 principal amount outstanding under the pinnacle note payable was converted into 1,219,512 shares of the company 's common stock . the company believes that its operating cash flow along with its existing capital resources and a recently completed stock offering as detailed below will be sufficient to support its current business plan through march 2011. on march 29 , 2010 , the company completed a $ 1,550,000 private placement with certain investors , including investment funds affiliated with signet healthcare partners , g.p . and jane e. hager ( the series c offering ) . as part of the series c offering , the company issued 1,550 shares of series c convertible preferred stock . the series c convertible preferred stock has a par value of $ 0.01 per share and the holders are entitled to quarterly dividends at an annual rate of 5 % , when and if declared by the board of directors . furthermore , each share of series c preferred stock is convertible into shares of common stock equal to ( i ) 1,000 plus any accrued and unpaid dividends , divided by ( ii ) $ 0.69 ( the closing price of the company 's common stock on the date of issuance ) . the company may require additional funding . this funding will depend , in part , on the timing and structure of potential business arrangements . if necessary , the company may continue to seek to raise additional capital through the sale of its equity . it may accomplish this via a strategic alliance with a third party . in addition , there may be additional acquisition and growth opportunities that may require external financing . however , the trading price of the company 's stock , a downturn in the u.s. equity and debt markets and the negative economic trends in general could make it more difficult to obtain financing through the issuance of equity securities or otherwise . there can be no assurance that such financing will be available on terms acceptable to the company , or at all . 16 the company 's operating activities used $ 3,619,000 in 2009 , compared to $ 722,000 used during 2008. the increase in cash used in 2009 was primarily due to the decrease in revenues and the increase in costs and expenses during 2009. the company 's investing activities used $ 736,000 of cash in 2009 compared to $ 119,000 cash used in 2008. cash used in 2009 was for capital expenditures related to additional equipment and improvements for the manufacturing area , the packaging and filing lines and the analytical area . cash used in 2008 was for capital expenditures related to additional equipment and improvements for the packaging and filling lines . the company 's financing activities provided $ 5,308,000 of cash during the year ended december 31 , 2009 compared to $ 98,000 provided by financing activities during the year ended december 31 , 2008. the cash provided for the year ended december 31 , 2009 is mainly from the proceeds of the offering as more fully described in footnote 8 to our consolidated financial statements . the cash used for the year december 31 , 2008 represents a pay down of the note payable balance offset by proceeds from the exercise of common stock options and warrants . recent pronouncements in june 2009 , the fasb issued asc 105 , generally accepted accounting principles which establishes the fasb accounting standards codification as the sole source of authoritative generally accepted accounting principles . pursuant to the provisions of asc 105 , the company has updated references to gaap in its financial statements issued for the period ended december 31 , 2009. the adoption of asc 105 did not impact the company 's financial position or results of operations . asc 805-10 , 805-20 and 805-30 10 on business combinations establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired , the liabilities assumed , any non controlling interest in the acquiree and the goodwill acquired . asc 805 also establishes disclosure requirements , which will enable users to evaluate the nature and financial effects of the business combination . story_separator_special_tag asc 805 is effective as of the beginning of an entity 's fiscal year that begins after december 15 , 2008. asc 805 will only have an impact on the company 's financial position or results of operations if it enters into a business combination . asc 810-10-65 , on consolidation establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent , the amount of consolidated net income attributable to the parent and to the noncontrolling interest , changes in a parent 's ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated . the code also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners . asc 810 is effective as of the beginning of an entity 's fiscal year that begins after december 15 , 2008. the company has evaluated the new statement and has determined that it does not have a significant impact on the determination or reporting of its financial results . asc 808 on collaborative arrangements provides guidance concerning determining of whether an arrangement constitutes a collaborative arrangement within the scope of the issue ; how costs incurred and revenue generated on sales to third parties should be reported in the income statement ; how an entity should characterize payments on the income statement ; and what participants should disclose in the notes to the financial statements about a collaborative arrangement . asc 808 is effective for the company 's collaborations existing after january 1 , 2009. the company has evaluated the new statement and has determined that it does not have a significant impact on the determination or reporting of its financial results . asc 350 relating to intangibles - goodwill and other amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under the earlier standard . asc 350 is effective for financial statements issued for fiscal years and interim periods beginning after december 15 , 2008. the guidance in asc 350 for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption , and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of , and subsequent to , adoption . the company has evaluated the new statement and has determined that it does not have a significant impact on the determination or reporting of its financial results . asc 470-20 deals with debt with conversion and other options , and requires separate accounting for the debt and equity components of convertible debt issuances . the requirements for separate accounting must be applied retrospectively to previously issued cash-settleable convertible instruments as well as prospectively to newly issued instruments , negatively affecting both net income and earnings per share for issuers of the instruments . asc 470 is effective for financial statements issued for fiscal years beginning after december 15 , 2008. the company has evaluated the new statement and has determined that it does not have a significant impact on the determination or reporting of its financial results . 17 asc 260-10-45-28 dealing with earnings per share addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating , earnings per share. this asc requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings per share . asc 260-10- 45-28 is effective for fiscal years beginning after december 15 , 2008 ; earlier application is not permitted . the company has evaluated the new statement and has determined that it does not have a significant impact on the determination or reporting of its financial results . critical accounting policies and estimates the sec defines critical accounting policies as those that require application of management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . our significant accounting policies are described in footnote 1 to our consolidated financial statements . not all of these significant accounting policies require management to make difficult , subjective or complex judgments or estimates . however , the following policies could be deemed to be critical within the sec definition . environmental remediation liability on april 6 , 2000 , officials of the new jersey department of environmental protection ( dep ) inspected the company 's leased storage site in buena , new jersey , and issued notices of violation ( novs ) relating to the storage of waste materials in a number of trailers at the site . the company established a disposal and cleanup schedule and completed the removal of materials from the site . in march 2006 , the company received a judge 's decision from the office of administrative law ( oal ) of a fine in the amount of $ 35,000 in respect to the novs the company received from the dep . due to the criminal settlement that was reached between the company and the dep in 2002 , the company had a credit of $ 40,000 to be used against any fines determined as a result of the civil matter , therefore , the company did not have to pay any money to the dep for the settlement amount .
| the increase in our cost of sales was primarily due to our underutilized manufacturing capacity which led to higher cost of sales due to the unabsorbed overhead expenses along with creation of reserves to inventory arising out of expired materials and inventories related to products recalled of approximately $ 104,000. replace_table_token_2_th selling , general and administrative expenses for the year ended december 31 , 2009 increased by $ 825,000 or 30 % as compared to the same period in 2008 as a result of the severance payment of $ 341,000 to our former president and chief executive officer as per his separation agreement , employees ' compensation payable in stock of $ 280,000 , an increase in consulting fees of $ 50,000 , an increase in salaries of approximately $ 115,000 and an increase of $ 475,000 in legal and other professional fees , partially offset by a decrease in expense from the issuance of stock options of $ 404,000. this increase of $ 825,000 or 30 % is a direct result of the company creating its pharmaceutical foundation , transitioning from a contract manufacturer to a generic topical pharmaceutical company . the company reinforced its board of directors by adding individuals with generic pharmaceutical industry experience . as the company continued to develop its long-term strategy , it utilized the external resources of various topical industry consultants in developing its future product portfolio , while at the same time recruiting a new management team in finance , quality , regulatory and business development to strengthen the company . product development and research expenses for the year ended december 31 , 2009 increased by 47 % as compared to the same period in 2008 due to testing expenses related to new products of $ 104,000 , an increase in consulting fees of $ 60,000 , expense from the issuance of stock options of $ 20,000 and an increase in salaries of $ 44,000. replace_table_token_3_th interest income increased by 73 % for the year ended december 31 , 2009 as compared to the same period in 2008 due to higher average cash balances offset by lower interest rates in 2009. interest expense increased by 3,581 % for the year ended december 31 , 2009 as compared to the same period in
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additionally , we expect to see some bid opportunities related to coastal restoration funded through the restore act towards the end of 2016. we believe the adjustments we have made to our capital assets will allow us to better meet market demand for projects from both our public and private customers in the future . commercial concrete construction segment our new commercial concrete construction segment is experiencing growth in nonresidential construction as a result of significant population increases . demand for the construction of warehouses , industrial facilities , retail establishments , medical facilities and schools continues to grow as the populations of houston and dallas continue to expand . with both strong bids outstanding and backlog , we expect 2016 to be another positive year for this segment . we also continue to explore potential opportunities to bring both our heavy civil marine construction and commercial concrete construction services to work on projects . in the long-term , we see positive trends in demands for our services in our end markets , including : general demand to repair and improve degrading u. s. marine infrastructure ; improving economic conditions and increased activity in the petrochemical industry and energy related companies will necessitate capital expenditures , including larger projects , as well as maintenance call-out work ; expected increases in cargo volume and future demands from larger ships transiting the panama canal that will require ports along the gulf coast and atlantic seaboard to expand port infrastructure as well as perform additional dredging services ; the wrrda act authorizes expenditures for the conservation and development of the nation 's waterways , as well as address funding deficiencies within the harbor maintenance trust fund ; renewed focus on coastal rehabilitation along the gulf coast , particularly through the use of restore act funds based on fines collected related to the 2010 gulf of mexico oil spill ; and proposed 6-year extension of the highway bill currently under consideration in the senate . story_separator_special_tag completion . gross margin in 2014 was 11.6 % as compared to 9.0 % in the prior year period . as measured by cost , our self-performance rate was 83 % during 2014 , which is comparable with the prior period . selling , general and administrative expense . selling , general and administrative ( `` sg & a '' ) expenses were $ 34.7 million , an increase of $ 2.6 million , or 8.0 % , as compared with the prior year period . the increase primarily relates to accrual for bonus expense and increase to bad debt expense in the current year . however , as a percentage of revenues , sg & a expenses declined as compared with the prior year , from 9.1 % to 9.0 % , resulting from the increased volume of business during 2014. income tax ( benefit ) expense . we recorded tax expense of $ 3.2 million in 2014 , as compared with a tax benefit of $ 937,000 in 2013. our effective tax rate in 2014 was 31.6 % . the variance is primarily due to increased net income from prior year . critical accounting policies the consolidated financial statements contained in this report were prepared in accordance with u.s. gaap . the preparation of these financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect both the company 's carrying values of its assets and liabilities , and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . although our significant accounting policies are described in more detail in note 2 of the notes to consolidated financial statements ; we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements : 36 revenue recognition from construction contracts ; long lived assets ; goodwill ; income taxes ; insurance coverage , litigation , claims and contingencies ; and accounting for stock issued to employees and others . revenue recognition we determine our revenue recognition guidelines for our operations based on guidance provided in applicable accounting standards and positions adopted by the fasb and the sec . we enter into construction contracts principally on the basis of competitive bids . although the terms of our contracts vary considerably , most are made on a fixed price basis . revenues from construction contracts are recognized on the percentage-of-completion method . the percentage-of-completion method measures the ratio of costs incurred and accrued to date for each contract to the estimated total costs for each contract at completion . this requires us to prepare on-going estimates of the costs to complete each contract as the project progresses . in preparing these estimates , we make significant judgments and assumptions concerning our significant cost drivers of materials , labor and equipment , and we evaluate contingencies based on possible schedule variances , production delays or other productivity factors . actual costs incurred on projects may vary from the costs we estimated . variations from estimated contract costs along with other risks inherent in fixed price contracts ( including but not limited to our contract performance ) may result in actual revenue and gross profits that differ in some cases from those we estimated and could result in losses on projects . if a current estimate of total contract cost indicates a loss on a contract , the projected loss is recognized in full when determined , without regard to the percentage of completion . we consider unapproved change orders to be contract variations on which we have customer approval for scope change , but no agreement on price associated with that scope change . these costs are included in the estimated cost to complete the contracts and are expensed as incurred . story_separator_special_tag we recognize revenue equal to cost incurred on unapproved change orders when realization of price approval is probable and the estimated amount is equal to or greater than our cost related to the unapproved change order and the related margin when the change order is formally approved by the customer . revenue recognized on unapproved change orders is included in contract costs and estimated earnings in excess of billings on uncompleted contracts on the balance sheet . we consider claims to be amounts that we seek or will seek to collect from customers or others for customer-caused changes in contract specifications or design , or other customer-related causes of unanticipated additional contract costs on which there is no agreement with customers on both scope and price changes . revenue from claims is recognized when agreement is reached with customers as to the value of the claims , which in some instances may not occur until after completion of work under the contract . costs associated with claims are included in the estimated costs to complete the contracts and are expensed when incurred . depending on the size of a particular project , variations from estimated project costs could have a significant impact on our operating results for any fiscal quarter or year . we believe our exposure to losses on fixed price contracts is limited by the relatively short duration of the contracts we undertake and our management 's experience in estimating contract costs . long-lived assets our long-lived assets consist primarily of equipment used in our operations . fixed assets are carried at cost and are depreciated over their estimated useful lives , ranging from one to thirty years , using the straight-line method for financial reporting purposes and accelerated methods for tax reporting purposes . the carrying value of our long-lived assets is evaluated periodically based on utilization of the asset and physical condition of the asset , as well as the useful life of the asset to determine if adjustment to the depreciation period or the carrying value is warranted . if events and circumstances such as poor utilization or deteriorated physical condition indicate that the asset ( s ) should be reviewed for possible impairment , we use projections to assess whether future cash flows , including disposition , on a non-discounted basis related to the tested assets are likely to exceed the recorded carrying amount of those assets to determine if an impairment exists . if we identify a potential impairment , we will estimate the fair value of the asset through known market transactions of similar equipment and other valuation techniques , which could include the use of similar projections on a discounted cash flow basis . we will report a loss to the extent that the carrying value of the impaired assets exceeds their fair values . goodwill we have acquired businesses and assets in purchase transactions that resulted in the recognition of goodwill that we carry on our balance sheet . in accordance with u.s. gaap , goodwill recorded on our consolidated balance sheets is not amortized , but is subject to impairment testing at least annually or more frequently if events or circumstances indicate that the asset more likely than not may be impaired . we determined that our operations comprise two reporting units for goodwill impairment testing , which matches our two operating segments for financial reporting . at december 31 , 2015 , goodwill totaled $ 66.0 million . we assess the fair value of our reporting unit based on a weighted average of valuations based on market multiples , discounted cash flows , and consideration of our market capitalization . the key assumptions used in the discounted cash flow valuations are 37 discount rates and perpetual growth rates applied to cash flow projections . also inherent in the discounted cash flow valuation models are past performance , projections and assumptions in current operating plans , and revenue growth rates over the next five years . these assumptions contemplate business , market and overall economic conditions . we also consider assumptions that market participants may use . as required , annual impairment assessments and testing of goodwill are performed as of october 31 of each year or when circumstances arise that indicate a possible impairment might exist . based on this testing , we determined that the estimated fair value of either reporting unit exceeded its respective carrying values as of october 31 , 2015 , goodwill was not impaired , and no events have occurred since that date that would require an interim impairment test . in the future , our estimated fair value could be negatively impacted by extended declines in our stock price , changes in macroeconomic indicators , sustained operating losses , and other factors which may affect our assessment of fair value . income taxes we determine our consolidated income tax provision using the asset and liability method prescribed by u.s. gaap , which requires the recognition of income tax expense for the amount of taxes payable or refundable for the current period and for deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity 's financial statements or tax returns . we must make significant assumptions , judgments and estimates to determine our current provision for income taxes , our deferred tax assets and liabilities , and any valuation allowance to be recorded against any deferred tax asset . the current provision for income tax is based upon the current tax laws and our interpretation of these laws , as well as the probable outcomes of any tax audits . the value of any net deferred tax asset depends upon estimates of the amount and category of future taxable income reduced by the amount of any tax benefits that we do not expect to realize .
| this increase is offset by a decrease in the heavy civil marine construction segment of $ 38.7 million from the comparable prior period . this decrease is primarily a result of project writedown costs from projects managed by the tampa office and delays in beginning projects in the gulf coast region due to inclement weather conditions during the first and second quarters . contract revenues generated from private sector customers for the heavy civil marine construction segment decreased to 40.1 % of total contract revenues in 2015 from 51.4 % in 2014 . this totaled approximately $ 139.2 million generated from private customers , or a decrease of $ 59.0 million or from the comparable prior period . this is primarily due to a shift of project mix , with an increase in public sector projects of approximately 11.3 % . contract revenues generated from private sector customers for the commercial concrete construction segment represented 91.9 % , or $ 109.7 million , in 2015. contract revenues generated from public sector customers for the heavy civil marine construction segment represented 59.9 % of total revenue in the year , or approximately $ 208.0 million , as compared with 48.6 % during 2014. this is primarily due to a contract with a local port authority which commenced work during the second half of 2014. contract revenues generated from public sector customers for the commercial concrete construction segment represented 8.1 % , or $ 9.7 million , in 2015. gross profit . gross profit was $ 40.2 million in the twelve month period ended december 31 , 2015 , a decrease of $ 4.4 million compared with the prior period . gross margin in 2015 was 8.6 % as compared to 11.6 % in the prior year period . the commercial concrete construction segment added $ 17.1 million to gross profit in the current year , therefore the decrease in gross profit in the heavy civil marine construction segment was $ 21.5 million from the comparable prior period .
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the allowance for doubtful accounts is based on a review of specifically identified accounts in addition to an overall aging analysis . judgments are made with respect to the collectability of accounts receivable based on historical experience and current economic trends . actual losses could differ from those estimates . retail design center acquisitions – we account for the acquisition of retail design centers and related assets with the purchase method . accounting for these transactions as purchase business combinations requires the allocation of purchase price paid to the assets acquired and liabilities assumed based on their fair values as of the date of the acquisition . the amount paid in excess of the fair value of net assets acquired is accounted for as goodwill . impairment of long-lived assets and goodwill – goodwill and other indefinite-lived intangible assets are evaluated for impairment on an annual basis during the fourth quarter of each fiscal year , and between annual tests whenever events or circumstances indicate that the carrying value of the goodwill or other intangible asset may exceed its fair value . when testing goodwill for impairment , we may assess qualitative factors for some or all of our reporting units to determine whether it is more likely than not ( that is , a likelihood of more than 50 percent ) that the fair value of a reporting unit is less than its carrying amount , including goodwill . alternatively , we may bypass this qualitative assessment for some or all of our reporting units and determine whether the carrying value exceeds the fair value using a quantitative assessment as described below . the recoverability of long-lived assets are evaluated for impairment by determining whether the carrying value will be recovered through the expected undiscounted future cash flows resulting from the use of the asset . in the event the sum of the expected undiscounted future cash flows is less than the carrying value of the asset , an impairment loss equal to the excess of the asset 's carrying value over its fair value is recorded . the long-term nature of these assets requires the estimation of cash inflows and outflows several years into the future and only takes into consideration technological advances known at the time of the impairment test . 24 ethan allen interiors inc. and subsidiaries to evaluate goodwill using a quantitative assessment , the company determines the current fair value of the reporting units using a combination of “ market ” and “ income ” approaches . in the market approach , the “ guideline company ” method is used , which focuses on comparing the company 's risk profile and growth prospects to reasonably similar publicly traded companies . key assumptions used for the guideline company method are total invested capital ( “ tic ” ) multiples for revenues and operating cash flows , as well as consideration of control premiums . the tic multiples are determined based on public furniture companies within our peer group , and if appropriate , recent comparable transactions are considered . control premiums are determined using recent comparable transactions in the open market . under the income approach , a discounted cash flow method is used , which includes a terminal value , and is based on external analyst financial projection estimates , as well as internal financial projection estimates prepared by management . the long-term terminal growth rate assumptions reflect our current long-term view of the market in which we compete . discount rates use the weighted average cost of capital for companies within our peer group , adjusted for specific company risk premium factors . the fair value of our trade name , which is the company 's only indefinite-lived intangible asset other than goodwill , is valued using the relief-from-royalty method . significant factors used in trade name valuation are rates for royalties , future growth , and a discount factor . royalty rates are determined using an average of recent comparable values . future growth rates are based on the company 's perception of the long-term values in the market in which we compete , and the discount rate is determined using the weighted average cost of capital for companies within our peer group , adjusted for specific company risk premium factors . i n the fourth quarter of fiscal years 2016 , 2015 and 2014 , the company performed qualitative assessments of the fair value of the wholesale reporting unit and concluded that the fair value of its goodwill exceeded its carrying value . the fair value of the trade name exceeded its carrying value by a substantial margin in fiscal years 2016 , 2015 , and 2014. to calculate fair value of these assets , management relies on estimates and assumptions which by their nature have varying degrees of uncertainty . wherever possible , management therefore looks for third party transactions to provide the best possible support for the assumptions incorporated . management considers several factors to be significant when estimating fair value including expected financial outlook of the business , changes in the company 's stock price , the impact of changing market conditions on financial performance and expected future cash flows , and other factors . deterioration in any of these factors may result in a lower fair value assessment , which could lead to impairment of the long-lived assets and goodwill of the company . income taxes – income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . story_separator_special_tag additional factors that we consider when making judgments about the deferred tax valuation include tax law changes , a recent history of cumulative losses , and variances in future projected profitability . the company evaluates , on a quarterly basis , uncertain tax positions taken or expected to be taken on tax returns for recognition , measurement , presentation , and disclosure in its financial statements . if an income tax position exceeds a 50 % probability of success upon tax audit , based solely on the technical merits of the position , the company recognizes an income tax benefit in its financial statements . the tax benefits recognized are measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . the liability associated with an unrecognized tax benefit is classified as a long-term liability except for the amount for which a cash payment is expected to be made or tax positions settled within one year . we recognize interest and penalties related to income tax matters as a component of income tax expense . 25 ethan allen interiors inc. and subsidiaries business insurance reserves – we have insurance programs in place to cover workers ' compensation and property/casualty claims . the insurance programs , which are funded through self-insured retention , are subject to various stop-loss limitations . we accrue estimated losses using actuarial models and assumptions based on historical loss experience . although we believe that the insurance reserves are adequate , the reserve estimates are based on historical experience , which may not be indicative of current and future losses . in addition , the actuarial calculations used to estimate insurance reserves are based on numerous assumptions , some of which are subjective . we adjust insurance reserves , as needed , in the event that future loss experience differs from historical loss patterns . other loss reserves – we have a number of other potential loss exposures incurred in the ordinary course of business such as environmental claims , product liability , litigation , tax liabilities , restructuring charges , and the recoverability of deferred income tax benefits . establishing loss reserves for these matters requires the use of estimates and judgment with regard to maximum risk exposure and ultimate liability or realization . as a result , these estimates are often developed with our counsel , or other appropriate advisors , and are based on our current understanding of the underlying facts and circumstances . because of uncertainties related to the ultimate outcome of these issues or the possibilities of changes in the underlying facts and circumstances , additional charges related to these issues could be required in the future . results of operations a summary of our consolidated operations for the past three fiscal years are presented in the following table ( $ in millions ) . replace_table_token_8_th a summary of changes from the preceeding fiscal year are presented in the following table . replace_table_token_9_th 26 ethan allen interiors inc. and subsidiaries beginning in the fall of 2014 , we began a major transformation of our product offerings with several phases . we introduced casual classics during the first phase in the fall of 2014 , focusing on several design projections with relaxed finishes and comfort . in the spring and summer of 2015 , we launched the second phase , romantic classics , with design projections featuring unique , stand-alone timeless pieces with new finishes and forms , designed specifically for manufacturing primarily at our north american workshops to obtain maximum benefit from our vertical integration . we launched the third phase in the fall of 2015 , during which we further developed romantic classics , inspired by european designs , taking inspiration from the classics and modernizing them for today 's living , with continued focus on north american manufacturing . in our current phase , we continue to differentiate our brand by further expanding our casual classics , with three new design projections ; buckhead , featuring designs infused with european inspiration and southern charm , introduced in june 2016 ; santa monica , a blend of breezy beach house and vintage farmhouse flair , introduced in july 2016 ; and brooklyn , a sophisticated industrial design , expected to be introduced in august 2016. these new product offerings will be followed by the introduction of our ethan allen | disney home line in the fall of 2016. while we implement major product introductions , such as the anticipated introductions described above , our wholesale segment experiences some disruptions in manufacturing as we change tooling and methods , build prototypes and then ramp up production . in our retail segment , some disruption also occurs in our design centers as we update floor displays , and sell the remainder of our older products on clearance to make space for the new product . our continuous product transformation in measured steps helps us minimize these disruptions and preserve our reputation for offering high-quality and fashionable products . for the year ended june 30 , 2016 , our net sales increased from the prior fiscal year at a higher rate than in the previous two fiscal years , as our new introductions and marketing efforts gain traction with consumers . operating expenses during fiscal 2016 decreased as a percentage of sales in fiscal 2016 compared to fiscal 2015 , further contributing to a fiscal 2016 net income increase of 52.5 % over the prior fiscal year and earnings per diluted share of $ 2.00. net cash provided by operating activities along with operating cash enabled us to repurchase $ 19.3 million of our common stock under our share repurchase program , pay down $ 31.5 million of our debt earlier than scheduled , and return $ 16.6 million in cash dividends to our shareholders . at june 30 , 2016 we had total cash and securities of $ 60.5 million , and working capital of $ 124.9 million .
| year-over-year , written orders for the company operated design centers increased 1.7 % and comparable design centers written orders increased 1.8 % . a higher increase in net sales relative to written orders is reflected in the 13.1 % decrease in ending backlog at june 30 2016. gross profit for fiscal 2016 increased to $ 442.2 million from $ 411.2 million in fiscal 2015. the $ 31.1 million increase in gross profit was attributable to increases in both our retail and wholesale segment net sales , as well as a higher mix of retail net sales to consolidated net sales in fiscal 2016 of 78.9 % compared to the 76.8 % in the prior fiscal year . operating expenses increased $ 7.8 million or 2.3 % to $ 353.1 million or 44.5 % of net sales in fiscal 2016 from $ 345.2 million or 45.7 % of net sales in fiscal 2015. the increase in fiscal year 2016 expenses in absolute dollars is primarily due to increased variable costs associated with our increased sales in both business segments . as a percentage of net sales , expenses decreased during fiscal 2016 as compared to fiscal 2015 primarily due to gains associated with the disposal of real estate in fiscal 2016 compared to expenses in the prior fiscal year . operating income for the fiscal year ended june 30 , 2016 totaled $ 89.2 million , or 11.2 % of net sales , compared to $ 65.9 million , or 8.7 % of net sales , in the prior fiscal year . w holesale operating income for fiscal 2016 totaled $ 74.4 million , or 15.1 % of net sales , as compared to $ 67.0 million , or 14.3 % of net sales , in the prior year . retail operating income was $ 16.5 million , or 2.6 % of sales , for fiscal 2016 , compared to $ 1.7 million , or 0.3 % of sales , for fiscal 2015 , an increase of $ 14.7 million . the increase in consolidated
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during fiscal 2014 , we opened nine new anthropologie stores , of which seven were located in the united states , one was located in canada and one was located in europe . during the year ended january 31 , 2014 , anthropologie closed two stores located in the united states due to lease expirations . anthropologie operates websites in north america and europe that capture the spirit of the brand by offering a similar yet broader selection of merchandise as found in our stores . anthropologie also offers a catalog in north america and in europe that markets select merchandise , most of which is also available in our anthropologie stores . anthropologie tailors its merchandise to sophisticated and contemporary women aged 28 to 45. anthropologie 's product assortment includes women 's casual apparel and accessories , shoes , home furnishings and a diverse array of gifts and decorative items . we plan to open additional stores over the next several years . anthropologie 's north american and european retail segment net sales accounted for approximately 39.8 % and 1.2 % of consolidated net sales , respectively , for fiscal 2014 , compared to 38.8 % and 1.1 % , respectively , for fiscal 2013. as of january 31 , 2014 , we operated 90 free people stores , of which 88 were located in the united states and two were located in canada . during fiscal 2014 , we opened 13 new free people stores , all of which were located in the united states . free people operates websites in north america and in europe that capture the spirit of the brand by offering a similar yet broader selection of merchandise as found in our stores , as well as all of the free people wholesale offerings . free people also offers a catalog offering select merchandise , most of which is also available in our free people stores . free people primarily offers private label branded merchandise targeted to young contemporary women aged 25 to 30. free people provides a unique merchandise mix of casual women 's apparel , intimates , shoes , accessories and gifts . we plan to open additional stores over the next several years , some of which may be outside the united states . free people 's retail segment net sales accounted for approximately 7.7 % of consolidated net sales for fiscal 2014 , compared to approximately 6.2 % for fiscal 2013 . 24 as of january 31 , 2014 , we operated two terrain garden centers and a website that offers customers a portion of the product assortment found at the terrain garden centers . terrain is designed to appeal to women and men interested in a creative , sophisticated outdoor living and gardening experience . terrain creates a compelling shopping environment through its large and freestanding sites . merchandise includes lifestyle home and garden products combined with antiques , live plants , flowers , wellness products and accessories . both terrain locations offer a full-service restaurant and coffee bar . terrain also offers a variety of landscape and design services . terrain 's retail segment net sales accounted for less than 1.0 % of consolidated net sales for fiscal 2014 and 2013 , respectively . as of january 31 , 2014 , we operated two bhldn stores and a website that offers customers access to all product offerings of the bhldn brand . we also operate shop-within-shop locations within our anthropologie stores that offer a comparable product assortment to our standalone stores and website . bhldn offers a curated collection of heirloom quality wedding gowns , bridesmaid frocks , party dresses , assorted jewelry , headpieces , footwear , lingerie and decorations . bhldn 's retail segment net sales accounted for less than 1.0 % of consolidated net sales for fiscal 2014 and 2013 , respectively . for all brands combined , we plan to open approximately 35 to 40 new stores during fiscal 2015 , including 13 urban outfitters stores , 13 anthropologie stores and 12 free people stores . wholesale segment the free people wholesale division designs , develops and markets young women 's contemporary casual apparel . free people 's range of tops , bottoms , sweaters and dresses are sold worldwide through approximately 1,400 better department and specialty stores worldwide , including macy 's , nordstrom , bloomingdale 's , lord & taylor , selfridges , our own free people stores , and in japan through an exclusive distribution and marketing agreement with world co. , ltd. free people 's wholesale segment net sales accounted for approximately 5.8 % of consolidated net sales for fiscal 2014 , compared to 5.3 % in fiscal 2013. critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states . these generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period . our senior management has reviewed the critical accounting policies and estimates with our audit committee . our significant accounting policies are described in note 2 , summary of significant accounting policies in the notes to consolidated financial statements. we believe that the following discussion addresses our critical accounting policies , which are those that are most important to the presentation of our financial condition and cash flows and require management 's most difficult , subjective and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . if actual results were to differ significantly from estimates made , the reported results could be materially affected . we are not currently aware of any reasonably likely events or circumstances that would cause our actual results to be materially different from our estimates . story_separator_special_tag 25 revenue recognition revenue is recognized by the retail segment at the point-of-sale for merchandise the customer takes possession of at the retail store or when merchandise is shipped to the customer , net of estimated customer returns . revenue is recognized by the wholesale segment when merchandise is shipped to the customer , net of estimated customer returns . revenue is recognized at the completion of a job or service for landscape sales . revenue is presented on a net basis and does not include any tax assessed by a governmental or municipal authority . payment for merchandise in our retail segment is tendered by cash , check , credit card , debit card or gift card . therefore , our need to collect outstanding accounts receivable for our retail segment is negligible and mainly results from returned checks or unauthorized credit card transactions . we maintain an allowance for doubtful accounts for our wholesale segment and landscape service accounts receivable , which management reviews on a regular basis and believes is sufficient to cover potential credit losses and billing adjustments . deposits for custom orders are recorded as a liability and recognized as a sale upon delivery of the merchandise to the customer . these custom orders , typically for upholstered furniture , are not material . deposits for landscape services are recorded as a liability and recognized as a sale upon completion of service . landscape services and related deposits are not material . we account for a gift card transaction by recording a liability at the time the gift card is issued to the customer in exchange for consideration from the customer . a liability is established and remains on our books until the card is redeemed by the customer , at which time we record the redemption of the card for merchandise as a sale , or when we determine the likelihood of redemption is remote . we determine the probability of the gift cards being redeemed to be remote based on historical redemption patterns . revenues attributable to the reduction of gift card liabilities for which the likelihood of redemption becomes remote are included in sales and are not material . our gift cards do not expire . sales return reserve we record a reserve for estimated product returns where the sale has occurred during the period reported , but the return is likely to occur subsequent to the period reported . the reserve for estimated product returns is based on our most recent historical return trends . if the actual return rate or experience is materially higher than our estimate , sales returns would be adjusted in the future . as of january 31 , 2014 and 2013 , reserves for estimated sales returns totaled $ 17.1 million and $ 14.4 million , representing 3.2 % and 3.3 % of total liabilities , respectively . marketable securities all of our marketable securities as of january 31 , 2014 and january 31 , 2013 are classified as available-for-sale and are carried at fair value , which approximates amortized cost . interest on these securities , as well as the amortization of discounts and premiums , is included in interest income in the consolidated statements of income . unrealized gains and losses on these securities ( other than mutual funds held in the rabbi trust for the urban outfitters , inc. non-qualified deferred compensation plan ( see note 3 , marketable securities , in the notes to consolidated financial statements ) ) are considered temporary and therefore are excluded from earnings and are reported as a component of other comprehensive income in the consolidated statements of comprehensive income and in accumulated other comprehensive loss in shareholders ' equity until realized . mutual funds held in the rabbi trust have been accounted for under the fair value option , which results in all unrealized gains and losses being recorded in interest income in the consolidated statements of income . other than temporary impairment losses related to credit losses are considered to be realized 26 losses . when available-for-sale securities are sold , the cost of the securities is specifically identified and is used to determine the realized gain or loss . securities classified as current assets have maturity dates of less than one year from the balance sheet date . securities classified as non-current assets have maturity dates greater than one year from the balance sheet date . available-for-sale securities such as auction rate securities that fail at auction and do not liquidate in the normal course are classified as non-current assets . inventories we value our inventories , which consist primarily of general consumer merchandise held for sale , at the lower of cost or market . cost is determined on the first-in , first-out method and includes the cost of merchandise and import related costs , including freight , import taxes and agent commissions . a periodic review of inventory is performed in order to determine if inventory is properly stated at the lower of cost or market . factors related to current inventories such as future expected consumer demand and fashion trends , current aging , current and anticipated retail markdowns or wholesale discounts and class or type of inventory are analyzed to determine estimated net realizable value . criteria that we utilize to quantify aging trends includes factors such as average selling cycle and seasonality of merchandise , the historical rate at which merchandise has sold below cost during the average selling cycle and the value and nature of merchandise currently priced below original cost . a provision is recorded to reduce the cost of inventories to the estimated net realizable values , if appropriate . the majority of inventory at january 31 , 2014 and 2013 consisted of finished goods . unfinished goods and work-in-process were not material to the overall net inventory value . net inventories as of january 31 , 2014 and january 31 , 2013 totaled $ 311.2 million and $ 282.4 million , representing 14.0 % and 15.7 % of total assets , respectively .
| the increase in net sales attributable to non-comparable and new stores was primarily the result of opening 87 new stores in fiscal 2014 and 2013 that were not in operation for the full comparable periods . thus far during the first quarter of fiscal 2015 , comparable retail segment net sales are low single-digit negative . the increase in wholesale segment net sales in fiscal 2014 was due to higher sales to both specialty and department stores driven by increases in transactions . gross profit rates in fiscal 2014 increased to 37.6 % of net sales , or $ 1.2 billion , from 36.9 % of net sales , or $ 1.0 billion , in fiscal 2013. the increase in the gross profit rate was primarily due to improved merchandise margins largely due to significant improvement in the anthropologie brand markdown rate . this improvement was partially offset by increased markdowns at the urban outfitters brand in north america . the increased penetration of the direct-to-consumer channel continued to drive store occupancy leverage and delivery expense deleverage . total inventories at january 31 , 2014 increased by $ 28.8 million , or 10.2 % , to $ 311.2 million from $ 282.4 million at january 31 , 2013. this increase was primarily related to the acquisition of inventories to stock new and non-comparable stores . comparable retail segment inventories as of january 31 , 2014 grew 2.5 % . selling , general and administrative expenses as a percentage of net sales increased during fiscal 2014 to 23.8 % , compared to 23.5 % for fiscal 2013 , primarily due to increases in marketing expenses . selling , general and administrative expenses increased by $ 77.3 million , or 11.8 % , to $ 734.5 million in fiscal 2014 , from $ 657.2 million in fiscal 2013. the dollar increase over the prior year was primarily related to the operating expenses of new stores and increased marketing expenses to support our customer acquisition and retention programs . income from operations increased to 13.8 % of net sales , or $ 426.8 million , for fiscal 2014 compared to 13.4 % of net sales , or $ 374.3
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our equipment is primarily used in laboratories for new process development and yield improvement . the increasing complexity and shrinking dimensions of the devices made by our customers have increased the demand for our dualbeams and high-resolution tems . in addition , we introduced products in the latter half of 2013 that have moved our tools closer to the production line . we believe sales to the semiconductor market will grow as our customers increase their focus on smaller and more complex structures and demand for our near-line products continues to develop . given the structure of the semiconductor industry , with a small number of customers accounting for a large portion of the capital spend , we believe that we will continue to see quarter-to-quarter variability in revenue and customer orders . our industry group also includes , to a much lesser extent , sales to companies in oil and gas and the mining markets . in 2014 , revenue and orders in these markets were down significantly compared with 2013. capital spending in the mining market remained depressed and the significant declines in oil prices in the second half of 2014 negatively impacted customer spending . we are focusing our efforts in the oil and gas market toward reservoir characterization and digital rock technology . we believe there are long term opportunities in these areas but we do not expect a material improvement in our revenues from the oil and gas market in 2015 based on current market conditions . within the science group , sales of our products for materials science research drive the largest portion of our revenues . these customers are globally dispersed and their spending is driven by varied economic and political factors . in 2014 , revenue was down compared with 2013 due to decreased spending in several large asian countries , partially offset by strong growth in north america . we expect growth in the materials science markets in 2015 as customer adoption of new products first introduced in 2013 continues to grow and emerging economies , such as china , continue to invest in their research , development and education infrastructure . sales to researchers in structural biology showed significant growth in 2014. the primary driver of this growth has been increased penetration of electron microscopy into structural biology applications and adoption of our products by new customers . we expect these revenues to continue to grow as the market grows , and we increase our ability to serve existing customers and acquire new customers . gross margin increased by 70 basis points from 2012 to 2013 and declined by 40 basis points from 2013 to 2014. we are seeking to improve gross margin in 2015. in addition to increasing our proportion of newer , higher-margin products and application-specific products , we expect lower costs from continued sourcing improvements and efficiencies from our new facility in the czech republic . operating expenses are expected to remain relatively flat in 2015 as increased spending for research and development and higher stock-based compensation expense are offset by savings from our 2014 restructuring program and more favorable impact of foreign exchange rates on our expenses . our net income declined in 2014 principally as a result of the restructuring program we announced in june . growth in our net income will primarily depend upon our ability to grow our revenue and deliver improvement in our gross margin . please review the risk factors described in part i , item 1a of this annual report on form 10-k for the risk factors that could cause our results to vary from the outlook described above . 24 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 2.5 million , or 0.5 % , as compared to the prior year . the $ 41.4 million , or 9.0 % , increase in science group sales in 2013 compared to 2012 was primarily driven by increased revenue from high-end , high-resolution systems sold to research and science customers globally , the full year inclusion of revenue from acquired businesses , and increased maintenance and repair revenue realized from year-over-year increases to our installed base . we saw increased sales to emerging countries as they expanded their scientific infrastructure . in addition , sales of our high-end , high-resolution systems for structural and cell biology applications increased over 2012. currency fluctuations decreased science group sales by $ 4.1 million , or 0.9 % , and revenue from acquired businesses increased revenue by $ 12.1 million , or 2.6 % , as compared to the prior year . net sales by geographic region a majority of our net sales are derived from customers outside of the u.s. , which we expect to continue . the following table shows our net sales by geographic region ( dollars in thousands ) : replace_table_token_9_th 26 u.s. and canada the $ 45.0 million , or 17.2 % , increase in sales to the u.s. and canada in 2014 compared to 2013 was primarily due to increased sales to customers engaged in semiconductor manufacturing , structural and cell biology research , and materials research . we also saw increased service revenue from our installed base . the $ 31.1 million , or 10.7 % , decrease in sales to the u.s. and canada in 2013 compared to 2012 was primarily due to fewer sales to research customers and a decline within the semiconductor industry as demand shifted to the asia-pacific region . europe our european region also includes central america , south america , africa ( excluding south africa ) , the middle east and russia . the $ 2.9 million , or 1.1 % , decrease in sales to europe in 2014 compared to 2013 was primarily as a result of lower revenues from semiconductor manufacturing customers as their demand continues to shift to the asia-pacific region . story_separator_special_tag we also saw a decrease in sales to our research customers , but this decline was offset by increased demand from our structural and cell biology customers as our solutions continue to gain acceptance within the scientific community . currency fluctuations decreased sales to europe by $ 2.6 million , or 1.0 % , in 2014 compared to 2013 . the $ 25.9 million , or 10.6 % , increase in sales to europe in 2013 compared to 2012 was primarily due to increased sales of high-end , high-resolution systems to science group customers and full-year inclusion of revenue from acquired businesses . currency fluctuations increased sales to europe by $ 8.1 million , or 3.0 % , in 2013 compared to 2012 . asia-pacific region and rest of world the $ 13.3 million , or 3.3 % , decrease in sales to the asia-pacific region and rest of world in 2014 compared to 2013 was due to a decline in sales to customers engaged in materials research activities . in particular , while demand for our products in china remains substantial , recent anti-corruption initiatives undertaken by the chinese government have slowed funding and procurement by chinese government-controlled or related entities , thus causing delays in orders and revenue from our chinese customers . we have also experienced lower sales in japan as the weakening of the japanese yen against the us dollar has made our products more expensive . the decrease in sales to our materials research customers was offset by increased purchases by our semiconductor customers as the region continues to expand manufacturing capacity , as well as increased purchases by our structural and cell biology customers . currency fluctuations decreased sales to this region by $ 7.5 million , or 1.9 % , in 2014 compared to 2013 . the $ 40.9 million , or 11.5 % , increase in sales to the asia-pacific region and rest of world in 2013 compared to 2012 was primarily driven by increased sales to science group customers , increased maintenance and repair revenue due to a larger installed base and increased sales to semiconductor customers as the region continues to expand manufacturing capacity . currency fluctuations , specifically the weakening of the yen compared to the dollar , decreased sales to this region by $ 16.4 million , or 4.1 % , in 2013 compared to 2012 . cost of sales and gross margin our gross margin ( gross profit as a percentage of net sales ) by segment was as follows : replace_table_token_10_th cost of sales includes manufacturing costs , such as materials , labor ( both direct and indirect ) and factory overhead , as well as all of the costs of our customer service function such as labor , materials , travel and overhead . the four primary drivers affecting gross margin include : product mix , operational efficiencies , competitive pricing pressure and currency movements . cost of sales increased $ 19.5 million , or 4.0 % , to $ 508.1 million in 2014 compared to $ 488.7 million in 2013 , due primarily to higher sales volume and a change in product mix of systems sold . currency fluctuations decreased cost of sales by $ 9.6 million and reduced gross margin by $ 0.7 million , or 0.4 percentage points , in 2014 compared to 2013 . cost of sales increased $ 12.6 million , or 2.6 % , to $ 488.7 million in 2013 compared to $ 476.1 million in 2012 , primarily due to increased sales in our science group , offset somewhat by improved operating efficiencies in the manufacture of our high-end , high-resolution systems . currency fluctuations decreased cost of sales by $ 1.7 million in 2013 compared to 2012 . the net effect on our gross margin from currency fluctuations during 2013 compared to 2012 was a decrease of $ 6.0 million , or 0.3 percentage points . 27 industry group the decrease in industry group gross margin in 2014 compared to 2013 was due primarily to change in product mix as we sold less comparatively higher resolution systems to semiconductor and oil and gas customers , which generally carry higher average margins , and incurred higher costs to support our near-line solutions . this was partially offset by higher maintenance and repair revenue derived from our installed base . the realignment plan announced in the second quarter of 2014 also decreased gross margins as we discontinued or de-emphasized certain product lines and reduced the value of excess inventory . currency fluctuations decreased industry group gross margin by $ 0.6 million , or 0.2 percentage points , in 2014 compared to 2013 . the increase in industry group gross margin in 2013 compared to 2012 was due primarily to change in product mix as we sold more sample preparation solutions , which generally carry higher average margins , as well as an increase in margins on service revenue derived from our installed base . currency fluctuations decreased industry group gross margin in 2013 compared to 2012 by $ 2.8 million , or 0.2 percentage points . science group the decrease in science group gross margin in 2014 compared to 2013 was due primarily to changes in product mix and increased competition , which reduced average selling prices for our lower-resolution systems , offset by higher margins on revenue from our installed base due to lower costs for parts and labor . the realignment plan announced in the second quarter of 2014 also decreased gross margins as we discontinued certain product lines and reduced the value of excess inventory . currency fluctuations had an insignificant impact on science group gross margin in 2014 compared to 2013 . the increases in science group gross margin in 2013 compared to 2012 was primarily due to the inclusion of revenue from acquired businesses , increased sales of high-resolution systems which carried higher average margins , and increased maintenance and repair revenue . currency fluctuations decreased science group gross margin in 2013 compared to 2012 by $ 3.2 million , or 0.3 percentage points .
| 25 net sales by segment net sales by market segment ( in thousands ) and as a percentage of net sales were as follows : replace_table_token_8_th industry group the $ 22.5 million , or 5.3 % , increase in industry group sales in 2014 compared to 2013 was primarily due to increased sales to semiconductor customers , mainly as a result of their ongoing investment in advanced technologies and the continued adoption of our near-line product solutions , as well as overall growth in revenues from our installed base . this increase was partially offset by reduced demand for our products from oil and gas customers and continued weakness in the mining sector driven by lower commodity prices and a corresponding reduction in capital spending . we may continue to experience reduced future demand for our oil and gas solutions if global oil prices remain at multi-year lows . currency fluctuations decreased industry group revenue by $ 2.6 million , or 0.6 % , and revenue from acquired businesses increased industry group revenue by $ 7.6 million , or 1.8 % , as compared to the prior year . the $ 5.7 million , or 1.3 % , decrease in industry group sales in 2013 compared to 2012 was primarily due to fewer sales to semiconductor customers as a result of their capital purchasing cycles and reduced demand for our products from mining customers due to lower commodity prices , especially for gold , platinum and copper . currency fluctuations decreased industry group revenue by $ 4.1 million , or 1.0 % , and revenue from acquired businesses increased revenue by $ 3.1 million , or 0.7 % , as compared to the prior year . science group the $ 6.4 million , or 1.3 % , increase in science group sales in 2014 compared to 2013 was primarily driven by increased revenue from high-end , high-resolution systems sold to our structural and cell biology customers globally and increased revenue from our installed base . offsetting this was reduced demand in china due to new procurement regulations slowing down order flow and a reduced demand for our products in japan due to the weakening of the japanese yen against the u.s. dollar which made our products more expensive . currency fluctuations decreased science group revenue by $ 7.6 million , or 1.5 % , and revenue from
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additional information about rate filings is provided in note 17. state regulation the rates pnm and tnmp charge customers are subject to traditional rate regulation by the nmprc , ferc , and the puct . new mexico 2015 rate case – on september 28 , 2016 , the nmprc issued an order that authorized pnm to implement an increase in base non-fuel rates of $ 61.2 million for new mexico retail customers , effective for bills sent after september 30 , 2016. this order was on pnm 's application for a general increase in retail electric rates ( the “ nm 2015 rate case ” ) filed in august 2015. a - 30 the nmprc 's order included a determination that pnm was imprudent in purchasing certain leased capacity in pvngs unit 2 , extending other pvngs leased capacity , and installing bdt environmental controls equipment on sjgs . pnm appealed the nmprc 's imprudence findings to the nm supreme court . specifically , pnm appealed the nmprc 's determination that pnm was imprudent in certain matters in the case , including the disallowance of the full purchase price of 64.1 mw of capacity in pvngs unit 2 , the undepreciated costs of capitalized improvements made during the period the 64.1 mw of capacity was leased by pnm , the costs of converting sjgs units 1 and 4 to bdt , and future contributions for pvngs decommissioning attributable to 64.1 mw of purchased capacity and the 114.6 mw of capacity under the extended leases . in may 2019 , the nm supreme court issued its decision on the matters that had been appealed in the nm 2015 rate case . the nm supreme court upheld all of the decisions in the nmprc 's order except for their decision to permanently disallow recovery of future decommissioning costs related to the purchased and extended leases because pnm was deprived of its rights to due process of law and remanded the case to the nmprc for further proceedings . in january 2020 , the nmprc issued its order in response to the nm supreme court 's remand that reaffirmed its september 2016 order except for the decision to permanently disallow recovery of certain future decommissioning costs related to pvngs units 1 and 2. the nmprc indicated that pnm 's ability to recover these costs will be addressed in a future proceeding and closed the nm 2015 rate case docket . as a result of the nm supreme court 's ruling , pnm recorded a pre-tax impairment of $ 150.6 million which is reflected as regulatory disallowances and restructuring costs in the consolidated statements of earnings for the year ended december 31 , 2019. this amount reflects capital costs not previously impaired during the pendency of the appeal related to pnm 's purchase of 64.1 mw , undepreciated capital improvements made in pvngs unit 1 during the period such interests had been leased , and investments in bdt environmental controls equipment on sjgs units 1 and 4. the impairment was offset by tax impacts of $ 45.7 million which are reflected as income taxes on the consolidated statements of earnings . new mexico 2016 rate case – in january 2018 , the nmprc approved a settlement agreement that authorized pnm to implement an increase in base non-fuel rates of $ 10.3 million , which includes a reduction to reflect the impact of the decrease in the federal corporate income tax rate and updates to pnm 's cost of debt ( aggregating $ 47.6 million annually ) . this order was on pnm 's application for a general increase in retail electric rates filed in december 2016 ( the “ nm 2016 rate case ” ) . the key terms of the order include : a roe of 9.575 % a requirement to return to customers over a three-year period the benefit of the reduction in the new mexico corporate income tax rate to the extent attributable to pnm 's retail operations ( note 18 ) a disallowance of pnm 's ability to collect an equity return on certain investments aggregating $ 148.1 million at four corners , but allowing recovery of a debt-only return an agreement to not implement non-fuel base rate changes , other than changes related to pnm 's rate riders , with an effective date prior to january 1 , 2020 a requirement to consider the prudency of pnm 's decision to continue its participation in four corners in pnm 's next general rate case filing pnm implemented 50 % of the approved increase for service rendered beginning february 1 , 2018 and implemented the rest of the increase for service rendered beginning january 1 , 2019. on december 29 , 2020 , sierra club filed a motion to re-open the 2016 rate case . the motion requests that the nmprc re-open the 2016 rate case for the limited purpose of conducting a prudence review of certain four corners capital expenditures that the nmprc deferred in its order approving the settlement agreement . alternatively , sierra club requested that the deferred prudence review be conducted , and given weight as appropriate , in the four corners abandonment application . on february 10 , 2021 , the nmprc rejected sierra club 's motion to re-open the nm 2016 rate case and stated that issues on whether the terms of the eta provide an opportunity for consideration of prudence for four corners undepreciated investments included in a financing order or what effects the rates approved in the nm 2016 rate case may have on determining energy transition cost should be considered in the four corners abandonment application . see note 17 . 2020 decoupling petition – on may 28 , 2020 , pnm filed a petition for approval of a rate adjustment mechanism that would decouple the rates of its residential and small power rate classes . decoupling is a rate design principle that severs the link between the recovery of fixed costs of the utility through volumetric charges . story_separator_special_tag if approved , customer bills would not be impacted until january 1 , 2022. on october 2 , 2020 , pnm requested an order to vacate the public hearing , scheduled to begin october 13 , 2020 , and stay the proceeding until the nmprc decides whether to entertain a petition to issue a declaratory order resolving the issues raised in the motions to dismiss . on october 7 , 2020 , the hearing examiner approved pnm 's request to stay the proceeding and vacate the public hearing and on october 30 , 2020 pnm filed a petition for declaratory order asking the nmprc to issue an order finding that full revenue decoupling is authorized by the euea . see note 17. pnm can not predict the outcome of this matter . advanced metering – currently , tnmp has more than 242,000 advanced meters across its service territory . beginning in 2019 , the majority of costs associated with tnmp 's ams program are being recovered through base rates . on october 2 , a - 31 2020 , tnmp filed an application with the puct for authorization to implement necessary technological upgrades of approximately $ 46 million to its ams program by november 2022. on january 14 , 2021 , the puct approved tnmp 's application . tnmp will seek recovery of the investment associated with the upgrade in a future general rate proceeding or distribution cost recovery factor filing . in february 2016 , pnm filed an application with the nmprc requesting approval of a project to replace its existing customer metering equipment with advanced metering infrastructure ( “ ami ” ) , which was denied . as ordered by the nmprc , pnm 's 2020 filing for energy efficiency programs to be offered in 2021 , 2022 , and 2023 included a proposal for an ami pilot project , although pnm did not recommend the proposal due to the limited benefits that are cost-effective under a pilot structure . on september 17 , 2020 the hearing examiner in the energy efficiency case issued a recommended decision recommending that pnm 's proposed 2021 energy efficiency and load management program be approved , with the exception of the proposed ami pilot program . on october 28 , 2020 the nmprc approved the recommended decision . rate riders and interim rate relief – the puct has approved mechanisms that allow tnmp to recover capital invested in transmission and distribution projects without having to file a general rate case . the nmprc has approved pnm recovering fuel costs through the fppac , as well as rate riders for renewable energy and energy efficiency . these mechanisms allow for more timely recovery of investments . on april 6 , 2020 , tnmp filed its 2020 dcos that requested an increase in annual distribution revenues of $ 14.7 million and that new rates go into effect beginning in september 2020. on june 26 , 2020 , tnmp reached a unanimous settlement agreement with parties that would authorize tnmp to collect a $ 14.3 million annual distribution revenue requirement beginning in september 2020. on august 13 , 2020 , the puct approved the unanimous settlement . see note 17. cost recovery related to joining the eim – in 2018 , pnm completed a cost-benefit analysis that indicated pnm 's participation in the california independent system operator ( “ caiso ” ) western energy imbalance market ( “ eim ” ) would provide substantial benefits to retail customers . in august 2018 , pnm filed an application with the nmprc requesting , among other things , to recover the cost of initial capital investments and authorization to establish a regulatory asset to recover other expenses that would be incurred in order to join the eim . pnm 's application proposed recovery of the costs incurred to join the eim beginning on the effective date of new rates in pnm 's next general rate case and that the benefits of participating in the eim be credited to retail customers through pnm 's existing fppac . in december 2018 , the nmprc issued an order approving the establishment of a regulatory asset to recover pnm 's cost of joining the eim . the order was subsequently vacated based on challenges by certain parties . in march 2019 , the nmprc issued a revised order approving the hearing examiner 's recommendation to defer certain rate making issues , including but not limited to implementation and ongoing eim costs and savings , the prudence and reasonableness of costs included in a regulatory asset , and the period over which costs would be charged to customers until pnm 's next general rate case filing . in april 2019 , the nmprc issued an order clarifying that the caiso quarterly benefits reports may be used to support the benefits of participating in the eim . pnm anticipates it will begin participating in the eim in april 2021. ferc regulation rates pnm charges wholesale transmission customers are subject to traditional rate regulation by ferc . rates charged to wholesale electric transmission customers are based on a formula rate mechanism pursuant to which rates for wholesale transmission service are calculated annually in accordance with an approved formula . the formula includes updating cost of service components , including investment in plant and operating expenses , based on information contained in pnm 's annual financial report filed with ferc , as well as including projected transmission capital projects to be placed into service in the following year . the projections included are subject to true-up . certain items , including changes to return on equity and depreciation rates , require a separate filing to be made with ferc before being included in the formula rate . in may 2019 , pnm filed an application with ferc requesting approval to purchase a new 165-mile long 345-kv transmission line and related facilities ( the “ western spirit line ” ) .
| letters of credit were issued under the wfb loc facility and exchanged for the letters of credit outstanding under the jpm loc facility prior to the expiration of the jpm loc facility . on october 21 , 2020 , the jpm loc facility expired according to its terms . as discussed in note 7 at december 31 , 2020 , pnmr had $ 300.0 million outstanding of pnmr 2018 suns that are expected to mature on march 9 , 2021. pnmr intends to utilize the remaining $ 220.0 million of capacity under the pnmr 2020 delayed-draw term loan to repay an equivalent amount of the pnmr 2018 suns . as discussed in note 7 at december 31 , 2020 , pnmr development had $ 10.0 million outstanding under the pnmr development revolving credit facility that was expected to mature on february 23 , 2021. on february 22 , 2021 , pnmr development extended the facility to january 31 , 2022. on november 26 , 2018 , pnmr development entered into a $ 90.0 million term loan agreement ( the “ pnmr development term loan ” ) , among pnmr development and keybank , n.a. , as administrative agent and sole lender . proceeds from the pnmr development term loan were used to repay intercompany borrowings from pnmr and for general corporate purposes . on november 25 , 2020 , the pnmr development term loan was amended to reduce the balance from $ 90.0 million to $ 65.0 million and the maturity was subsequently extended to january 31 , 2022. the pnmr development term loan bears interest at a variable rate , which was 1.52 % on december 31 , 2020. pnmr , as parent company of pnmr development , has guaranteed pnmr development 's obligations under the loan . as discussed above and in note 7 , in january 2020 , pnmr entered into forward sale agreements to sell approximately 6.2 million shares of pnmr common stock . the initial forward sale price of $ 47.21 per share was subject to adjustments based on a net interest rate factor and by expected future dividends paid on pnmr common stock as specified in the
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46 further , statements about the potential effects of the ongoing covid-19 pandemic on our business , financial condition , liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ , possibly materially , from what is reflected in those forward-looking statements due to factors and future developments that are uncertain , unpredictable and in many cases beyond our control , including the scope and duration of the pandemic , actions taken by governmental authorities in response to the pandemic , and the direct and indirect impact of the pandemic on our customers , clients , third parties and us . the foregoing factors should not be considered an exhaustive list and should be read together with the other cautionary statements set forth under “ item 1a . risk factors ” in this annual report on form 10-k. if one or more events related to these or other risks or uncertainties materialize , or if our underlying assumptions prove to be incorrect , actual results may differ materially from what we anticipate . accordingly , you should not place undue reliance on any such forward-looking statements . any forward-looking statement speaks only as of the date on which it is made , and we do not undertake any obligation to update or review any forward-looking statement , whether as a result of new information , future developments or otherwise , except as required by applicable law . company overview fhi , a bank holding company , owns 100 % of the outstanding common stock of fhb . fhb was founded in 1858 under the name bishop & company and was the first successful banking partnership in the kingdom of hawaii and the second oldest bank formed west of the mississippi river . as of december 31 , 2020 , we were the largest full-service bank headquartered in hawaii as measured by assets , loans and leases , deposits and net income . as of december 31 , 2020 , we had $ 22.7 billion of assets , $ 13.3 billion of gross loans and leases and $ 19.2 billion of deposits . we also generated $ 185.8 million of net income or diluted earnings per share of $ 1.43 per share for the year ended december 31 , 2020. we operate our business through three operating segments : retail banking , commercial banking and treasury and other . see “ note 23. reportable operating segments ” in the notes to the consolidated financial statements included in item 8. financial statements and supplementary data for more information . recent developments regarding covid-19 and the hawaii and global economy overview the covid-19 pandemic has brought unprecedented challenges to businesses and economies around the world , particularly those in the united states . our business has been , and continues to be , impacted by the recent and ongoing outbreak of covid-19 . there remains a high degree of uncertainty relating to the ongoing spread and severity of the virus and new variants , as well as the availability , distribution and use of effective treatments and vaccines . to the extent that the economy continues to be negatively impacted by the pandemic , our results will be affected . in light of the uncertainties and continuing developments discussed herein , the ultimate adverse impact of covid-19 can not be reliably estimated at this time , but it has been and is expected to continue to be material . we have , however , continued to support our community in the midst of the pandemic . we waived atm fees for non-bank customers for a portion of the year and waived fees for individuals to cash their stimulus checks , whether or not they were a bank customer . we launched an initiative through our foundation to support local restaurants by donating up to $ 1 million to support non-profit organizations with food supply and health and human service programs for those impacted by covid-19 . we partnered with the hawaii community foundation by contributing $ 1 million , through our foundation , to establish the $ 2 million stronger together hawai ' i scholarship fund , which provides scholarship opportunities to public high school seniors who graduated amidst the pandemic . unlike traditional scholarships that are limited to tuition and college materials , students awarded with the scholarship can use the funds in a variety of ways , with the intent to help students overcome barriers to their education caused by covid-19 . we donated , through our foundation , $ 200,000 to the queen 's medical center to support its infectious diseases program . our employees also donated $ 877,000 through our kokua mai campaign to support a number of local charities . 47 hawaii economy hawaii 's economy continues to be significantly impacted by covid-19 and the responses to it . on march 5 , 2020 , the governor of the state of hawaii issued an emergency proclamation declaring a state of emergency in hawaii and the governor has issued a number of supplemental emergency proclamations since . the resulting closures and or limited operations of non-essential businesses and related economic disruption have impacted our operations as well as the operations of our customers . for an economy that is heavily dependent on tourism , the combination of various response measures to the covid-19 pandemic—including the stay-at-home orders for local residents and the mandatory self-quarantine period for visitors–resulted in an unprecedented increase in hawaii unemployment . the statewide seasonally adjusted unemployment rate was 9.3 % in december 2020 compared to 2.6 % in december 2019 , according to the state of hawaii department of labor and industrial relations , while the national seasonally adjusted unemployment rate was 6.7 % in december 2020 compared to 3.5 % in december 2019. visitor arrivals for the year ended december 31 , 2020 decreased by 75.2 % compared to the same period in 2019 , according to the hawaii tourism authority . story_separator_special_tag visitor spending from u.s. mainland visitors decreased from a daily average of $ 195 per person in 2019 to $ 170 per person in 2020. statistics from non-u.s. visitors were not available for 2020 due to insufficient data . while we may see a gradual improvement in unemployment as local businesses and the hawaii tourism industry continue to reopen in 2021 and the covid-19 vaccine becomes more widely administered , the timing and extent of the return of air travel and the recovery of the hawaii tourism industry is highly uncertain and beyond our control . although the volume of home sales on oahu has decreased year-over-year due to stay-at-home orders that were in place earlier in the year , prices have increased . for the year ended december 31 , 2020 , the volume of single-family home sales increased by 2.3 % , while condominium sales decreased by 13 % compared to the same period in 2019 , according to the honolulu board of realtors . the median price of single-family home sales and condominium sales on oahu was $ 830,000 and $ 435,000 , respectively , or an increase of 5.2 % and 2.4 % , respectively , for the year ended december 31 , 2020 as compared to the same period in 2019. as of december 31 , 2020 , months of inventory of single-family homes and condominiums on oahu remained low at approximately 1.4 and 3.3 months , respectively . lastly , state general excise and use tax revenues decreased by 15.6 % for year ended december 31 , 2020 as compared to the same period in 2019 , according to the hawaii department of business , economic development & tourism . legislative and regulatory developments recent actions taken by the federal government and the federal reserve and other bank regulatory agencies to partially mitigate the economic effects of covid-19 and related containment measures will also have an impact on our financial position and results of operations . these actions are further discussed below . in response to market conditions resulting from the covid-19 pandemic , the federal reserve has taken a number of proactive measures , including cutting its target for the federal funds rate by a total of 1.50 % , bringing it down to a range of 0.00 % to 0.25 % . in september 2020 , the federal reserve indicated that it expects to maintain the targeted federal funds rate at current levels until such time that labor market conditions have reached levels consistent with the federal open market committee 's assessments of maximum employment and inflation has risen to 2 % and is on track to moderately exceed 2 % for some time . the federal reserve has instituted a number of other measures , to mitigate the lasting impact from the covid-19 pandemic , including the following : ● establishing a temporary repurchase agreement facility for foreign and international monetary authorities ; ● committing to quantitative easing through large-scale asset-purchase programs ; ● lowering the rate charged on its discount window and extending the length of the loans offered ; ● increasing the frequency of engagement with currency swap lines with foreign central banks ; 48 ● expanding the collateral accepted by its term asset-backed securities loan facility ; and ● introducing a number of additional facilities , which is designed to enhance support for small and mid-sized businesses that were in good financial standing before the crisis . the u.s. government has also enacted certain fiscal stimulus measures in several phases to counteract the economic disruption caused by covid-19 . the coronavirus aid , relief , and economic security act ( the “ cares act ” ) , enacted on march 27 , 2020 , is an approximately $ 2 trillion emergency economic stimulus package in response to the covid-19 outbreak . among other provisions , the cares act ( i ) authorized the secretary of the treasury to make loans , loan guarantees and other investments , up to $ 500 billion , for assistance to eligible businesses , states and municipalities with limited , targeted relief for passenger air carriers , cargo air carriers , and businesses critical to maintaining national security , ( ii ) created a $ 670 billion loan program ( the “ paycheck protection program ” or the “ ppp ” ) for fully guaranteed loans ( which may then be forgiven ) to small businesses for , among other things , payroll , group health care benefit costs and qualifying mortgage , rent and utility payments ( program dollar amount includes amount approved under the original program in march 2020 and a second tranche which was approved in april 2020 ) , ( iii ) provides certain credits against the 2020 personal income tax for eligible individuals and their dependents , ( iv ) expanded eligibility for unemployment insurance and provides eligible recipients with an additional $ 600 per week on top of the unemployment amount determined by each state and ( v ) set a 60-day foreclosure moratorium beginning on march 18 , 2020 for federally backed mortgage loans ( the federal housing administration has subsequently announced a second extension of the foreclosure and eviction moratorium through august 31 , 2020 ) . the paycheck protection program flexibility act of 2020 ( the “ pppf act ” ) was enacted on june 5 , 2020 and modified the ppp as follows : ( i ) established a minimum maturity of five years for all loans made after the enactment of the pppf act and permits an extension of the maturity of existing loans to five years if the borrower and lender agree ; ( ii ) extended the “ covered period ” of the cares act from june 30 , 2020 , to december 31 , 2020 ; ( iii ) extended the eight-week “ covered period ” for expenditures that qualify for forgiveness to the earlier of 24 weeks following loan origination and december 31 , 2020 ; ( iv ) extended the deferral period for payment of principal , interest and
| for a reconciliation to the most directly comparable gaap financial measures for core net income and core basic and diluted earnings per share , see “ item 6. selected financial data - gaap to non-gaap reconciliation ” . net income was $ 284.4 million for the year ended december 31 , 2019 , an increase of $ 20.0 million or 8 % as compared to the same period in 2018. basic earnings per share was $ 2.14 for the year ended december 31 , 2019 , an increase of $ 0.21 or 11 % as compared to the same period in 2018. diluted earnings per share was $ 2.13 for the year ended december 31 , 2019 , an increase of $ 0.20 or 10 % as compared to the same period in 2018. the increase was primarily due to a $ 13.5 million increase in noninterest income , an $ 8.4 million decrease in the provision and a $ 7.1 million increase in net interest income , partially offset by a $ 5.5 million increase in noninterest expense and a $ 3.5 million increase in the provision for income taxes . net income for the year ended december 31 , 2019 was negatively impacted by a $ 4.5 million charge on the funding swap for the visa class b restricted shares sold in 2016 as well as $ 2.7 million losses on available-for-sale debt securities . core net income was $ 291.8 million for the year ended december 31 , 2019 , an increase of $ 5.1 million or 2 % as compared to the same period in 2018. core basic and diluted earnings per share were both $ 2.19 for the year ended december 31 , 2019 , an increase of $ 0.10 or 5 % as compared to the same period in 2018. core net income and core basic and diluted earnings per share are non-gaap financial measures . for a reconciliation to the most directly comparable gaap
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the difference between the consideration paid and the carrying value of the non-controlling interest purchased was recorded as additional paid-in capital . on march 1 , 2016 we completed our acquisition of certain assets of advanced radiological imaging – astoria p.c . consisting of two multi-modality imaging centers located in astoria , ny for cash consideration of $ 5.0 million . the facility provides mri , pet/ct , ultrasound and x-ray services . we have made a fair value determination of the acquired assets and approximately $ 3.6 million of fixed assets , $ 47,000 of prepaid assets , $ 100,000 covenant not to compete , and $ 1.3 million of goodwill were recorded . on october 1 , 2015 we completed our acquisition of certain assets of dig consisting of seventeen multi-modality imaging centers located in the boroughs of brooklyn and queens , new york , for $ 62.9 million detailed as follows : cash consideration of $ 54.6 million ( $ 49.6 million paid at execution , $ 5 million to be paid 18 months after acquisition or earlier if certain conditions are met ) , the assumption of $ 2.1 million in equipment debt , and issuance of 1.5 million radnet common shares valued at $ 8.3 million on the acquisition date . the transaction also includes contingent consideration payable equal to five times the amount by which collections on the sellers ' historical revenue exceeds a defined threshold . during 2016 , based on fair value determination of the assets and liabilities by a third party , we recorded certain measurement period adjustments associated with our acquisition . in the second quarter of 2016 , these adjustments resulted in an increase to fixed assets acquired by $ 1.1 million and the recognition of a net unfavorable lease contract liability of $ 1.0 million . in the third quarter of 2016 , we recorded a decrease to our intangible and fixed assets of approximately $ 121,000. also , amounts previously owed to dig of $ 5.0 million were reduced to $ 3.4 million on june 15 , 2016 when we remitted a payment of $ 1.6 million to a payor on behalf of dig . assets held for sale on november 4 , 2016 , the board of directors resolved to sell the ownership interest in all five of its rhode island imaging centers operating under the name the imaging institute within the upcoming 12 months . the following table summarizes the major categories of assets classified as held for sale in the accompanying consolidated balance sheets at december 31 , 2016 ( in thousands ) : property and equipment , net $ 1,056 other assets 21 goodwill 1,126 total assets held for sale $ 2,203 as the sale of these assets does not represent a strategic shift that will have a major effect on the company 's operations and financial results , it is not classified as a discontinued operation . 35 story_separator_special_tag margin : 0pt 0 0pt 0.5in '' > stock-based compensation decreased $ 1.8 million , or 23.8 % , to $ 5.8 million for the year ended december 31 , 2016 compared to $ 7.6 million for the year ended december 31 , 2015. this decrease was driven by the lower fair value of stock based compensation awarded and vested in the year 2016 as compared to 2015 . 37 · building and equipment rental building and equipment rental expenses increased $ 2.5 million , or 3.6 % , to $ 74.2 million for the year ended december 31 , 2016 , compared to $ 71.7 million for the year ended december 31 , 2015. building and equipment rental expenses , including only those centers which were in operation throughout the full fiscal years of both 2016 and 2015 , decreased $ 3.3 million , or 5.2 % , mainly due to favorable lease negotiations at existing facilities . this comparison excludes contributions from centers that were acquired subsequent to january 1 , 2016. for the year ended december 31 , 2016 , building and equipment rental expenses from centers that were acquired subsequent to january 1 , 2015 , and excluded from the above comparison , was $ 12.9 million . for the year ended december 31 , 2015 , building and equipment rental expenses from centers that were acquired subsequent to january 1 , 2015 , and excluded from the above comparison , was $ 7.1 million . · medical supplies medical supplies expense increased $ 2.3 million , or 4.7 % , to $ 51.7 million for the year ended december 31 , 2016 , compared to $ 49.4 million for the year ended december 31 , 2015. medical supplies expense , including only those centers which were in operation throughout the full fiscal years of both 2016 and 2015 , decreased $ 2.2 million , or 4.6 % . this 4.6 % decrease is primarily due to renegotiation of our medical supplier contracts . this comparison excludes contributions from centers that were acquired or divested subsequent to january 1 , 2016. for the year ended december 31 , 2016 , medical supplies expense from centers that were acquired subsequent to january 1 , 2015 , and excluded from the above comparison was $ 7.1 million . for the year ended december 31 , 2015 , medical supplies expense from centers that were acquired subsequent to january 1 , 2015 , and excluded from the above comparison was $ 2.6 million . · other operating expenses other operating expenses increased $ 33.3 million , or 16.4 % , to $ 236.5 million for the year ended december 31 , 2016 compared to $ 203.2 million for the year ended december 31 , 2015. other operating expenses , including only those centers which were in operation throughout the full fiscal years of both 2016 and 2015 , increased $ 9.5 million or 5.1 % . the 5.1 % increase was primarily related to insurance , temporary labor and legal expenses . story_separator_special_tag this comparison excludes contributions from centers that were acquired or divested subsequent to january 1 , 2015. for the year ended december 31 , 2016 , other operating expenses from centers that were acquired subsequent to january 1 , 2015 , and excluded from the above comparison were $ 43.5 million . for the year ended december 31 , 2015 , other operating expenses from centers that were acquired subsequent to january 1 , 2015 , and excluded from the above comparison were $ 19.7 million . · depreciation and amortization expense depreciation and amortization expense increased $ 6.0 million , or 9.9 % , to $ 66.6 million for the year ended december 31 , 2016 when compared $ 60.6 million for the year ended december 31 , 2015. depreciation and amortization expense at those centers which were in operation throughout the full fiscal years of both 2016 and 2015 , increased $ 793,000 or 1.4 % . this comparison excludes contributions from centers that were acquired or divested subsequent to january 1 , 2015. for the year ended december 31 , 2016 , depreciation and amortization from centers that were acquired or divested subsequent to january 1 , 2015 and excluded from the above comparison was $ 10.0 million . for the year ended december 31 , 2015 , depreciation and amortization from centers that were acquired subsequent to january 1 , 2015 , and excluded from the above comparison was $ 4.8 million . · loss on sale and disposal of equipment loss on sale of equipment was $ 767,000 and $ 866,000 for the years ended december 31 , 2016 and 2015 , respectively , and primarily related to the difference between the net book value of certain equipment sold and proceeds we received from the sale . 38 · severance costs during the year ended december 31 , 2016 , we had severance costs of $ 2.9 million compared to $ 745,000 recorded during the year ended december 31 , 2015. in the third quarter of 2016 , we incurred severance expenses of $ 2.2 million specifically related to the integration of acquisitions in the state of new york . interest expense interest expense increased approximately $ 1.8 million , or 4.3 % , to $ 43.5 million for the year ended december 31 , 2016 compared to $ 41.7 million for the year ended december 31 , 2015. interest expense for the year ended december 31 , 2016 included $ 4.3 million of amortization of deferred financing and discount on issuance of debt , as well as a write off of $ 709,000 of deferred financing costs in relation to the restatement amendment and $ 93,000 of other non cash interest . interest expense for the year ended december 31 , 2015 included $ 5.4 million of amortization of deferred financing costs and discount on issuance of debt as well as $ 61,000 in other non cash interest . excluding these adjustments to interest expense for each period , interest expense increased approximately $ 2.1 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015. the increase was primarily due to higher interest rates on our term loan debt stemming from the restatement amendment and first lien credit agreement . see “ liquidity and capital resources ” below for more details on our financing activity during 2016. meaningful use incentive for the year ended december 31 , 2016 , we recognized other income from meaningful use incentive in the amount of $ 2.8 million . this amount was earned under a medicare program to promote the use of electronic health record technology . see note 2 to our consolidated financial statements contained herein for more detail regarding this meaningful use incentive . equity in earnings from unconsolidated joint ventures equity in earnings from our unconsolidated joint ventures increased $ 840,000 or 9.4 % to $ 9.8 million for the year ended december 31 , 2016 compared to $ 8.9 million for the year ended december 31 , 2015. the increase relates mainly to equity in earnings stemming from the september 30 , 2015 sale of 10 wholly owned centers from our subsidiary new jersey imaging partners to new jersey imaging networks , a joint venture where we hold a 49 % non-controlling interest . see note 4 to our consolidated financial statements contained herein for more details . gain on sale of imaging center on september 30 , 2015 , we recognized a gain on the sale of 10 wholly owned imaging centers to the new jersey imaging networks in the amount of $ 5.4 million . see note 4 to our consolidated financial statements contained herein for more details . gain on return of common stock we recorded a gain on return of common stock of $ 5.0 million . see note 2 to our consolidated financial statements contained herein for more details . other expenses / income for the year ended december 31 , 2016 we recorded approximately $ 196,000 of other expenses . for the year ended december 31 , 2014 , we recorded $ 419,000 of other expenses mainly related to acquisition activity . provision for income tax expense for the years ended december 31 , 2016 and december 31 , 2015 , we recorded income tax expense of $ 4.4 million and $ 6.0 million , respectively . see note 11 to our consolidated financial statements contained herein for more details . 39 year ended december 31 , 2015 compared to the year ended december 31 , 2014 service fee revenue , net of contractual allowances and discounts service fee revenue , net of contractual allowances and discounts for the year ended december 31 , 2015 was $ 746.8 million compared to $ 670.1 million for the year ended december 31 , 2014 , an increase of $ 76.6 million , or 11.4 % .
| we review our provision by the application of judgment based on factors such as contractual reimbursement rates , payor mix , the age of receivables , historical cash collection experience and other relevant information . revenue under capitation arrangements revenue under capitation arrangements for the year ended december 31 , 2016 was $ 108.3 million compared to $ 98.9 million for the year ended december 31 , 2015 , an increase of $ 9.4 million , or 9.5 % . revenue under capitation arrangements , including only those centers which were in operation throughout the full fiscal years of both 2016 and 2015 , increased $ 1.7 million , or 1.7 % . this comparison excludes revenue contributions from centers that were acquired subsequent to january 1 , 2015. for the year ended december 31 , 2016 , revenue under capitation arrangements from centers that were acquired subsequent to january 1 , 2015 and excluded from the above comparison was $ 9.0 million . for the year ended december 31 , 2015 , net revenue from centers that were acquired subsequent to january 1 , 2015 and excluded from the above comparison was $ 1.3 million . operating expenses cost of operations for the year ended december 31 , 2016 increased approximately $ 67.5 million , or 9.5 % , from $ 708.3 million for the year ended december 31 , 2015 to $ 775.8 million for the year ended december 31 , 2016. the following table sets forth our operating expenses for the years ended december 31 , 2016 and 2015 ( in thousands ) : replace_table_token_9_th * includes billing fees , office supplies , repairs and maintenance , insurance , business tax and license , outside services , utilities , marketing , travel and other expenses . · salaries and professional reading fees , excluding stock-based compensation and severance salaries and professional reading fees increased $ 31.2 million , or 8.3 % , to $ 407.6 million for the year ended december 31 , 2016 , compared to $ 376.4 million for the year ended december 31 , 2015. salaries and professional reading fees for only those centers in operation throughout
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the amount and timing of future funding requirements will depend on many factors , including capital market conditions , the timing and results of our ongoing development efforts , the potential expansion of our current development programs , regulatory development requirements related to lpcn 1021 and our other development programs , potential new development programs , the pursuit of various potential commercial activities and strategies associated with our development programs and related general and administrative support . we anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources , such as potential license and collaboration agreements . we can not be certain that anticipated additional financing will be available to us on favorable terms , or at all . although we have previously been successful in obtaining financing through public and private equity securities offerings and our license and collaboration agreements , there can be no assurance that we will be able to do so in the future . 45 our product candidates our current portfolio , shown below , includes our lead product candidate , lpcn 1021 , a twice daily oral testosterone replacement therapy , that is currently under review with the fda . additionally , we are in the process of establishing our pipeline of other clinical candidates including a next generation once daily oral testosterone replacement therapy , lpcn 1111 , and an oral therapy for the prevention of preterm birth , lpcn 1107. our development pipeline replace_table_token_3_th these products are based on our proprietary lip'ral promicellar drug delivery technology platform . lip'ral promicellar technology is a patented technology based on lipidic compositions which form an optimal dispersed phase in the gastrointestinal environment for improved absorption of insoluble drugs . the drug loaded dispersed phase presents the solubilized drug efficiently at the absorption site ( gastrointestinal tract membrane ) thus improving the absorption process and making the drug less dependent on physiological variables such as dilution , gastro-intestinal ph and food effects for absorption . lip'ral based formulation enables improved solubilization and higher drug-loading capacity , which can lead to improved bioavailability , reduced dose , faster and more consistent absorption , reduced variability , reduced sensitivity to food effects , improved patient compliance , and targeted lymphatic delivery where appropriate . lpcn 1021 : an oral product candidate for testosterone replacement therapy our lead product , lpcn 1021 , is an oral formulation of the chemical testosterone undecanoate ( `` tu '' ) , an eleven carbon side chain attached to testosterone . tu is an ester prodrug of testosterone . an ester is chemically formed by bonding an acid and an alcohol . upon the cleavage , or breaking , of the ester bond , testosterone is formed . tu has been approved for use outside the united states for many years for delivery via intra-muscular injection and in oral dosage form and tu has received regulatory approval in the united states for delivery via intra-muscular injection . we are using our lip'ral technology to facilitate steady gastrointestinal solubilization and absorption of tu for twice daily oral dosing of tu . proof of concept was initially established in 2006 , and subsequently lpcn 1021 was licensed in 2009 to solvay pharmaceuticals , inc. ( `` solvay '' ) which was then acquired by abbott products , inc. ( `` abbott '' ) . following a portfolio review associated with the spin-off of abbvie by abbott in 2011 , the rights to lpcn 1021 were reacquired by us . all obligations under the prior license agreement have been completed except that lipocine will owe abbott a perpetual 1 % royalty on net sales . such royalties are limited to $ 1 million in the first two calendar years following product launch , after which period there is not a cap on royalties and no maximum aggregate amount . if generic versions of any such product are introduced , then royalties are reduced by 50 % . story_separator_special_tag > 47 we also completed our labeling `` food effect '' study in may 2015. results from the labeling `` food effect '' study indicate that bioavailability of testosterone from lpcn 1021 is not affected by changes in meal fat content . the results demonstrate comparable testosterone levels between the standard fat meal ( similar to the meal instruction provided in the phase 3 clinical study ) and both the low and high fat meals . the labeling “ food effect ” study was conducted per the fda requirement and we submitted preliminary results from this study to the fda in the second quarter of 2015 prior to submitting the nda . based on our pre-nda meeting with the fda , we do not expect to be required to conduct a heart attack and stroke risk study or any additional safety studies prior to the approval of our nda for lpcn 1021. we may , however , be required to conduct a heart attack and stroke risk study on our own or with a consortium of sponsors that have an approved trt product post approval of lpcn 1021. the fda accepted our nda in october 2015 and has assigned a prescription drug user fee act ( `` pdufa '' ) goal date of june 28 , 2016 for completion of the review . additionally , the 74-day filing communication letter did not mention a need to convene an advisory committee for advice on the nda for lpcn 1021. we also expect to file a new drug submission in canada in the second half of 2016. lpcn 1111 : a next-generation oral product candidate for trt lpcn 1111 is a next-generation , novel ester prodrug of testosterone which uses the lip'ral technology to enhance solubility and improve systemic absorption . story_separator_special_tag we initiated a phase 2b dose finding study in hypogonadal men in the fourth quarter of 2015 and anticipate results from that study in the second quarter of 2016. the primary objectives of the phase 2b clinical study are to determine the optimal dose of lpcn 1111 along with safety and tolerability of lpcn 1111 and its metabolites following oral administration of single and multiple doses of lpcn 1111 in hypogonadal men . the phase 2b clinical study is an open label , two-period , multiple dose pk study in 36 hypogonadal males . the 2b clinical study has three dose levels of lpcn 1111 in period 1 and two dose levels of lpcn 1111 in period 2 in which 12 subjects at each dose level will receive treatment for 14 days . in october 2014 , we successfully completed a phase 2a proof-of-concept study in hypogonadal men . the phase 2a open-label , dose-escalating single and multiple dose study enrolled 12 males . these subjects had serum total testosterone < 300 ng/dl based on two blood draws on two separate days . subjects received doses of lpcn 1111 as a single dose of 330 mg , 550 mg , 770 mg , followed by once daily administration of 550 mg for 28 days in 10 subjects , and once daily administration of 770 mg for 28 days in eight subjects . results from the phase 2a clinical study demonstrated the feasibility of a once daily dosing with lpcn 1111 in hypogonadal men and a good dose response . additionally , the study confirmed that steady state is achieved by day 14 with consistent inter-day performance observed on day 14 , 21 and 28. no subjects exceeded cmax of 1500 ng/dl at any time during the 28-day dosing period on multi-dose exposure . overall , lpcn 1111 was well tolerated with no serious adverse events lpcn 1107 : an oral product candidate for the prevention of preterm birth we believe lpcn 1107 has the potential to become the first oral hydroxyprogesterone caproate ( “ hpc ” ) product indicated for the reduction of risk of preterm birth in women with a prior history of at least one preterm birth . we have successfully completed a multi-dose pk dose selection study in pregnant women . the objective of the multi-dose pk selection study was to assess hpc blood levels in order to identify the appropriate lpcn 1107 phase 3 dose . the multi-dose pk dose selection study was an open-label , four-period , four-treatment , randomized , single and multiple dose , pk study in pregnant women of three dose levels of lpcn 1107 and the injectable hpc ( makena® ) . the study enrolled 12 healthy pregnant women ( average age of 27 years ) with a gestational age of approximately 16 to 19 weeks . subjects received three dose levels of lpcn 1107 ( 400 mg bid , 600 mg bid , or 800 mg bid ) in a randomized , crossover manner during the first three treatment periods and then received five weekly injections of hpc during the fourth treatment period . during each of the lpcn 1107 treatment periods , subjects received a single dose of lpcn 1107 on day 1 followed by twice daily administration from day 2 to day 8. following completion of the three lpcn 1107 treatment periods and a washout period , all subjects received five weekly injections of hpc . results from this study demonstrated that average steady state hpc levels ( c avg 0-24 ) were comparable or higher for all three lpcn 1107 doses than for injectable hpc . additionally , hpc levels as a function of daily dose were linear for the three lpcn 1107 doses . also unlike the injectable hpc , steady state exposure was achieved for all three lpcn 1107 doses within seven days . the approved hpc injectable product is a single fixed dose product that does not allow for dose adjustments . we have also successfully completed a proof-of-concept phase 1b clinical study of lpcn 1107 in healthy pregnant women in january 2015 and a proof-of-concept phase 1a clinical study of lpcn 1107 in healthy non-pregnant women in may 2014. these studies were designed to determine the pharmacokinetics and bioavailability of lpcn 1107 relative to an intramuscular ( `` im '' ) hpc , as well as safety and tolerability . a traditional pharmacokinetics/pharmacodynamics ( “ pk/pd ” ) based phase 2 clinical study in the intended patient population may not be required prior to entering into phase 3. therefore ; based on the results of our multi-dose pk study results we plan to request an end-of-phase 2 meeting with the fda in the second quarter of 2016 to agree on a phase 3 development plan for lpcn 1107. there are multiple potential development plans for lpcn 1107 with no assurances which , if any , will be acceptable to the fda . each potential development plan has a different timeline , cost and risk profile . 48 the fda has granted orphan drug designation to lpcn 1107 based on a major contribution to patient care . orphan designation qualifies lipocine for various development incentives , including tax credits for qualified clinical testing , and a waiver of the prescription drug user fee when we file our nda . financial operations overview revenue to date , we have not generated any revenues from product sales and do not expect to do so until one of our product candidates receives approval from the fda . revenues to date have been generated substantially from license fees , milestone payments and research support from our licensees . since our inception through december 31 , 2015 , we have generated $ 27.5 million in revenue under our various license and collaboration arrangements and from government grants . we may never generate revenues from lpcn 1021 or any of our other clinical or preclinical development programs or licensed products as we may never succeed in obtaining regulatory approval or commercializing any of these product candidates .
| the fda guidelines for primary efficacy success is that at least 75 % of the subjects on active treatment achieve a testosterone cavg within the normal range ; and the lower bound of the 95 % confidence interval ( “ ci ” ) must be greater than or equal to 65 % . lpcn 1021 met the fda primary efficacy guideline . in the eps analysis , 87 % of the subjects on active treatment achieved testosterone cavg within the normal range with lower bound ci of 82 % . additionally , sensitivity analysis using the fas and ss reaffirmed the finding that lpcn 1021 met the fda primary efficacy guideline as 87 % and 80 % , respectively , of the subjects on active treatment achieved testosterone cavg within the normal range with lower bound ci of 82 % and 74 % , respectively . other highlights from the efficacy results include : · mean cavg was 446 ng/dl with coefficient of variance of 38 % ; · less than 13 % of the subjects were outside the tesosterone cavg normal range at final dose ; · 89 % of subjects arrived at final dose with no more than one titration ; and · 51 % of subjects were on final dose of 225 mg bid which was also the starting dose . in the eps analysis , cmax ≤1500 ng/dl was 83 % , cmax between 1800 and 2500 ng/dl was 4.6 % and cmax > 2500 ng/dl was 2 % . three patients had a cmax > 2500 ng/dl which were transient , isolated and sporadic . moreover , none of these subjects reported any adverse events ( `` aes '' ) through the efficacy readout at week 13. results were generally consistent with those of approved trt products . safety the safety component of the soar trial was completed the last week of april 2015. the safety extension phase was designed to assess safety based on information such as metabolites , biomarkers , laboratory values , serious adverse events ( `` saes '' ) and adverse events ( “ aes ” ) , with subjects on their stable dose regimen
| 10,905 |
cost of sales for offset printing paper was $ 10,147,280 for the year ended december 31 , 2020 , as compared to $ 14,061,771 in 2019. average cost of sales per tonne of offset printing paper increased by 3.53 % , from $ 481 for the year ended december 31 , 2019 , to $ 498 in 2020. the increase was mainly attributable to higher average unit purchase costs ( net of applicable value added tax ) of recycled white scrap paper . cost of sales for tissue paper products was $ 10,242,868 for the year ended december 31 , 2020 , as compared to $ 8,349,409 in 2019. average cost of sales per tonne of tissue paper products decreased by 17.48 % , from $ 1,230 for the year ended december 31 , 2019 , to $ 1,015 for 2020. changes in cost of sales and cost per tonne by product for the year ended december 31 , 2020 and 2019 are summarized below : replace_table_token_6_th our average unit purchase costs ( net of applicable value added tax ) of recycled paper board and recycled white scrap paper for the year ended december 31 , 2020 were rmb 1,582/tonne ( approximately $ 229/tonne ) and rmb 2,086/tonne ( approximately $ 303/tonne ) , respectively , as compared to rmb 1,536/tonne ( approximately $ 223/tonne ) and rmb 1,855/tonne ( approximately 269/tonne ) for the year ended december 31 , 2019 , respectively . these changes ( in us dollars ) represent a year-over-year increase of 2.69 % for the unit purchase cost of recycled paper board and a year-over-year increase of 12.64 % for the unit purchase cost of recycled white scrap paper . we use domestic recycled paper ( sourced mainly from the beijing-tianjin metropolitan area ) exclusively . although we do not rely on imported recycled paper , the pricing of which tends to be more volatile than domestic recycled paper , our experience suggests that the pricing of domestic recycled paper bears some correlation to the pricing of imported recycled paper . 34 the pricing trends of our major raw materials for the 24-month period from january 2019 to december 2020 are shown below : electricity and gas are our two main energy sources . electricity and gas accounted for approximately 5 % and 10.5 % of total sales in 2020 , respectively , compared to 6 % and 10.3 % of total sales 2019. the monthly energy cost ( electricity , coal and gas ) as a percentage of total monthly sales of our main paper products for the 24 months ended december 31 , 2020 are summarized as follows : gross profit gross profit for december 31 , 2020 was $ 5,701,985 ( 5.65 % of the total revenue ) , representing a decrease of $ 7,977,533 , or 58.32 % , from the gross profit of $ 13,679,518 ( 11.63 % of the total revenue ) for the year ended december 31 , 2019. the decrease was mainly due to ( i ) the decrease in quantities sold of cmp and offset printing paper and ( ii ) the decrease of asp of cmp , offset printing paper and tissue paper products , partially offset by the increase in sales quantities of tissue paper products . 35 corrugating medium paper , offset printing paper and tissue paper products gross profit for offset printing paper , cmp and tissue paper products for the year ended december 31 , 2020 was $ 5,171,937 , a decrease of $ 8,519,386 , or 62.22 % , from the gross profit of $ 13,691,322 for the year ended december 31 , 2019. the decrease was mainly the result of the factors discussed above . the overall gross profit margin for offset printing paper , cmp and tissue paper products decreased by 6.46 percentage points , from 11.64 % for the year ended december 31 , 2019 , to 5.18 % for the year ended december 31 , 2020. gross profit margin for regular cmp for the year ended december 31 , 2020 was 5 . 42 % , or 4.87 percentage points lower , as compared to gross profit margin of 10.29 % for the year ended december 31 , 2019. such decrease was primarily due to decrease in asp of regular cmp , partially offset by the decrease in unit cost of sales . gross profit margin for light-weight cmp for the year ended december 31 , 2020 was 8.93 % , or 1.20 percentage points lower , as compared to gross profit margin of 10.13 % for the year ended december 31 , 2019. gross profit margin for offset printing paper was 17.27 % for the year ended december 31 , 2020 , a decrease of 13.92 percentage points , as compared to 31.19 % for the year ended december 31 , 2019. such increase was mainly due to the increase of purchase price of recycled white scrap paper and the decrease in asp of offset printing paper . gross profit margin for tissue paper products was -21.73 % for the year ended december 31 , 2020 , an increase of 9.73 percentage points , as compared to -31.46 % for the year ended december 31 , 2019. the increase was mainly due to the decrease in cost of tissue base paper . monthly gross profit margins for our corrugating medium paper and offset printing paper for the 24-month period ended december 31 , 2020 are as follows : face masks gross profit for face masks for the year ended december 31 , 2020 was $ 530,049 , representing a gross margin of 48.10 % . selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2020 were $ 11,157,789 , an increase of $ 1,376,070 , or 14.07 % from $ 9,781,719 for the year ended december 31 , 2019. the increase was mainly attributed to issuance of 2,000,000 shares of common stock valued at $ 1,200,000 to officers and directors . story_separator_special_tag income ( loss ) from operations operating loss for the year ended december 31 , 2020 was $ 5,455,804 , a decrease of $ 9,353,603 , or 239.97 % , from income from operations of $ 3,897,799 for the year ended december 31 , 2019. the decrease was primarily due to the decrease in gross profit and increase in selling , general and administrative expenses . 36 other income and expenses interest expense for the year ended december 31 , 2020 increased by $ 100,144 , from $ 926,368 for the year ended december 31 , 2019 , to $ 1,026,512. the company had short-term and long-term interest-bearing loans and lease obligation that aggregated $ 16,566,324 as of december 31 , 2020 , as compared to $ 15,137,181 as of december 31 , 2019. net income ( loss ) as a result of the above , net loss was $ 5,554,002 for the year ended december 31 , 2020 , representing a decrease of $ 7,775,184 , or 350.05 % , from net income of $ 2,221,182 for year ended december 31 , 2019. accounts receivable net accounts receivable decreased by $ 730,254 , or 23.41 % , to $ 2,389,057 as of december 31 , 2020 , as compared with $ 3,119,311 as of december 31 , 2019. we usually collect accounts receivable within 30 days of delivery and completion of sales . inventories inventories consist of raw materials ( accounting for 21.69 % of total value of inventory as of december 31 , 2020 ) , semi-finished goods and finished goods . as of december 31 , 2020 , the recorded value of inventory decreased by 23.25 % to $ 1,233,801 from $ 1,607,463 as of december 31 , 2019. due to the uncertainty of market and economy situation during the pandemic , a minimum level of inventory was maintained at the end of 2020. a summary of changes in major inventory items is as follows : replace_table_token_7_th accounts payable accounts payable was $ 592,391 as of december 31 , 2020 , an increase of 341,905 , or 136.50 % , from $ 250,486 as of december 31 , 2019. liquidity and capital resources as of december 31 , 2020 the we had current assets of $ 14,909,605 and current liabilities of $ 18,340,074 ( including amounts due to related parties of $ 727,433 and interest payable for related party loans of $ 649,468 ) , resulting in a working capital deficit of approximately $ 3,430,469 ; as of december 31 , 2019 , the company had current assets of $ 24,041,239 and current liabilities of $ 16,835,460 ( including amounts due to related parties of $ 1,147,438 ) , resulting in a working capital of approximately $ 7,205,779. the deficit as of december 31 , 2020 was mainly attributed to the payments for acquisition of hebei tengsheng . on june 25 , 2019 , dongfang paper entered into an acquisition agreement with shareholder of hebei tengsheng , to buy up 100 % shares of hebei tengsheng with a purchase price of rmb 320 million ( approximately $ 49 million ) . as of december 31 , 2020 , rmb 128 million ( approximately $ 20 million ) has been paid and recorded as ‘ prepayment on property , plant and equipment ' in the consolidated balance sheet . 37 renewal of operating lease on august 7 , 2013 , the company 's audit committee and the board of directors approved the sale of the land use right of the headquarters compound ( the “ lur ” ) , the office building and essentially all industrial-use buildings in the headquarters compound ( the “ industrial buildings ” ) , and three employee dormitory buildings located within the headquarters compound ( the “ dormitories ” ) to hebei fangsheng for cash prices of approximately $ 2.77 million , $ 1.15 million , and $ 4.31 million respectively . in connection with the sale of the industrial buildings , hebei fangsheng agreed to lease the industrial buildings back to the company for its original use for a term of up to three years , with an annual rental payment of approximately $ 145,052 ( rmb1,000,000 ) . the lease agreement expired in august 2016. on august 6 , 2016 and august 6 , 2018 , the company entered into two supplementary agreements with hebei fangsheng , who agreed to extend the lease term to august 9 , 2022 with the same rental payment as original lease agreement . the accrued rental owed to hebei fangsheng was approximately $ nil and $ 56,552 which was recorded as part of the current liabilities as of december 31 , 2020 and december 31 , 2019 , respectively . capital expenditure commitment as of december 31 , 2019 on may 5 , 2020 , the company announced it planned the commercial launch of a new tissue paper production line pm10 and the company signed an agreement to purchase paper machine with paper machine supplier . the company expected the new tissue paper production line to be launched after the completion of trial run . as of december 31 , 2020 , we had approximately $ 4.6 million in capital expenditure commitments that were mainly related to the purchase of paper machine of pm10 . these commitments are expected to be financed by bank loans and cash flows generated from our business operations . financing with sale-leaseback the company entered into a sale-leaseback arrangement ( the “ lease financing agreement ” ) with tac leasing co. , ltd. ( “ tlcl ” ) on august 6 , 2020 , for a total financing proceeds in the amount of rmb 16 million ( approximately us $ 2.5 million ) . under the sale-leaseback arrangement , hebei tengsheng sold the leased equipment to tlcl for 16 million ( approximately us $ 2.5 million ) . concurrent with the sale of equipment , hebei tengsheng leases back the equipment sold to tlcl for a lease term of three years .
| we resumed full capacity of cmp production in may 2020. the production of offset printing paper was suspended during january to may 2020 and resumed in june 2020. the changes in revenue and quantity sold for the year ended december 31 , 2020 and 2019 are summarized as follows : replace_table_token_4_th 31 monthly revenue ( excluding revenue of digital photo paper and tissue paper products ) for the 24 months ended december 31 , 2020 , are summarized below : the average selling price , or asp , for our major products for the years ended december 31 , 2020 and 2019 are summarized as follows : replace_table_token_5_th the following is a chart showing the month-by-month asps ( excluding the asps of digital photo paper and tissue paper products ) for the 24 month period ended december 31 , 2020 : 32 corrugating medium paper revenue from cmp amounted to $ 79,160,926 ( 79.29 % of the total offset printing paper , cmp and tissue paper products revenues ) for the year ended december 31 , 2020 , representing a decrease of $ 11,665,512 , or 12.84 % , from $ 90,826,438 during 2019. we sold 196,885 tonnes of cmp in the year ended december 31 , 2020 as compared to 214,147 tonnes in the year ended december 31 , 2019 , representing a 8.06 % decrease in quantity sold . asp for regular cmp dropped from $ 427/tonne in 2019 to $ 404/tonne in 2020 , representing a 5.39 % decrease . asp in rmb for regular cmp in 2019 and 2020 was rmb2,942 and rmb2,789 , respectively , representing a 5.20 % decrease . the quantity of regular cmp sold decreased by 14,753 tonnes , from 168,837 tonnes in 2019 to 154,084 tonnes in 2020. asp for light-weight cmp dropped from $ 414/tonne in 2019 to $ 393/tonne in 2020 , representing a $ 5.07 % decrease . asp in rmb for light-weight cmp in 2019 and 2020 was rmb2,857 and rmb2,712 , respectively , representing a 5.08 % decrease . the quantity of light-weight cmp sold decreased by 2,509 tonnes , from 45,310 tonnes in 2019 , to 42,801 tonnes in 2020. our pm6 production line , which produces regular cmp , has a designated capacity of 360,000 tonnes /year . the utilization rates for the year ended december
| 10,906 |
the recent financial crisis did have the effect of reducing participation in the securities market by our retail and institutional customers , which had an adverse effect on our revenues . while the stock market improved in 2015 our revenues did not . for the period ended november 9 , 2015 , in which siebert sold its 49 % equity interest to our former affiliate resulting in discontinued operations , income of our affiliate , sbsf increased to $ 1.4 million as a result of an increase in the number of offerings by municipalities . a loss resulted from the disposal of this equity investment in the amount of $ 52,000 for 2015 which includes equity earnings of former affiliate of $ 671,000 , net of $ 448,000 loss related to disposal of investment in 2015 , net of income tax of $ 275,000. siebert also earned interest income from the receivable from the scm sale to sbsf of $ 235,000 in 2015 which is included in revenue in continuing operations as the receivable will be retained by siebert . the company 's professional expenses during 2014 and 2013 include the costs of an arbitration proceeding commenced by a former employee following the termination of his employment , which was resolved in 2014 resulting in a $ 4,300,000 settlement payment . the action has adversely affected the company 's results of operations . competition in the brokerage industry remains intense . on november 4 , 2014 , the company , which at the time held a 49 % membership interest in , and the other members of , siebert brandford shank & co. , llc ( “ sbs ” ) , contributed their sbs membership interests into a newly formed delaware limited liability company , siebert brandford shank financial , llc ( “ sbsf ” ) , in exchange for the same percentage interests in sbsf . on the same day , the company entered into an asset purchase agreement ( the “ scm purchase agreement ” ) with sbs and sbsf , pursuant to which the company sold substantially all of the assets relating to the company 's capital markets business to sbsf . pursuant to the scm purchase agreement , sbsf assumed post-closing liabilities relating to the transferred business . the scm purchase agreement provides for an aggregate purchase price for the disposition of $ 3,000,000 , payable by sbsf after closing in annual installments commencing on march 1 , 2016 and continuing on each of march 1 , 2017 , 2018 , 2019 and 2020. the transferred business was contributed by sbsf to , and operated by sbs . the amount payable to the company on each annual payment date will equal 50 % of the net income attributable to the transferred business recognized by sbs in accordance with generally accepted accounting principles during the fiscal year ending immediately preceding the applicable payment date ; provided - 14 - that , if net income attributable to the transferred business generated prior to the fifth annual payment date is insufficient to pay the remaining balance of the purchase price in full on the fifth annual payment date , then the unpaid amount of the purchase price will be paid in full on march 1 , 2021. the annual installment payable on march 1 , 2016 was based on the net income attributable to the capital markets business for the year ended december 31 , 2015 , which amounted to $ 493,000 and was paid on march 3 , 2016. transferred assets of the company 's capital markets business consisted of issuer relationships and goodwill , which assets had no carrying value to the company , and the company recorded a gain on sale of $ 1,820,000 , which reflected the fair value of the purchase obligation . such fair value ( level 3 ) was based on the present value of estimated annual installments to be received during 2016 through 2020 from forecasted net income of the transferred business plus a final settlement in 2021 , discounted at 11.5 % ( representing sbs 's weighted average cost of capital ) . the discount recorded for the purchase obligation will be amortized as interest income using an effective yield , initially calculated based on the original carrying amount of the obligation and estimated annual installments to be received and adjusted in future periods to reflect actual installments received and changes in estimates of future installments . interest income recognized on the obligation for the period december 31 , 2015 , amounted to approximately $ 235,000 based on a yield of approximately 12 % . the following table sets forth certain metrics as of december 31 , 2015 , 2014 and 2013 , respectively , which we use in evaluating our business . replace_table_token_5_th replace_table_token_6_th description : total retail trades represents retail trades that generate commissions . average commission per retail trade represents the average commission generated for all types of retail customer trades . retail customer net worth represents the total value of securities and cash in the retail customer accounts before deducting margin debits . retail customer money market fund value represents all retail customers accounts invested in money market funds . retail customer margin debit balances represents credit extended to our customers to finance their purchases against current positions . retail customer accounts with positions represent retail customers with cash and or securities in their accounts . story_separator_special_tag we , like other securities firms , are directly affected by general economic and market conditions including fluctuations in volume and prices of securities , changes and the prospect of changes in interest rates , and demand for brokerage and investment banking services , all of which can affect our profitability . in addition , in periods of reduced financial market activity , profitability is likely to be adversely affected because certain expenses remain relatively fixed , including salaries and related costs , portions of communications costs and occupancy expenses . accordingly , earnings for any period should not be considered representative of earnings to be expected for any other period . - 15 - competition continues to intensify among all types of brokerage firms , including established discount brokers and new firms entering the on-line brokerage business . electronic trading continues to account for an increasing amount of trading activity , with some firms charging very low trading execution fees that are difficult for any conventional discount firm to meet . some of these brokers , however , impose asset based charges for services such as mailing , transfers and handling exchanges which we do not currently impose , and also direct their orders to market makers where they have a financial interest . continued competition could limit our growth or even lead to a decline in our customer base , which would adversely affect our results of operations . industry-wide changes in trading practices , such as the continued use of electronic communications networks , are expected to put continuing pressure on commissions/fees earned by brokers while increasing volatility . we are a party to an operating agreement ( the “ operating agreement ” ) , with suzanne shank and napoleon brandford iii , the two individual principals ( the “ principals ” ) of sbsfpc . pursuant to the terms of the operating agreement , the company and each of the principals made an initial capital contribution of $ 400,000 in exchange for a 33.33 % initial interest in sbsfpc . sbsfpc engages in derivatives transactions related to the municipal underwriting business . the operating agreement provides that profit and loss will be shared 66.66 % by the principals and 33.33 % by us . the company and principals closed down the operations of sbsfpc in 2014. in 2014 , we began business as a registered investment advisor through our wholly-owned subsidiary , siebert investment advisors , inc. ( “ sia ” ) . sia is a boutique investment management firm that greatly extends our ability to meet our customer 's investment needs . sia offers advice to clients regarding asset allocation and the selection of investments . our investment management services include the design , implementation , and continued monitoring of client accounts on a discretionary or non-discretionary basis . investment selections and recommendation are guided by the stated objectives of the customer , other considerations include the customer 's risk profile and financial status . sia offers to its clients a number of asset management programs ( “ managed programs ” ) consisting of asset allocation , flexible asset management and focused or completion strategies . in these managed programs , sia acts as the co-adviser to clients . ia representatives will assist each client in reviewing information about the programs , completing a client questionnaire to determine the client 's risk tolerance , financial situation and investment objectives and selecting an investment strategy . sia does not ever act as portfolio manager directly , sia selects other investment advisers to act as portfolio manager on behalf of its clients . during 2015 , the results of sia operations are immaterial to the operations of the company . on january 23 , 2008 , our board of directors authorized a buy back of up to 300,000 shares of our common stock . under this program , shares are purchased from time to time , at our discretion , in the open market and in private transactions . no shares were purchased during 2015. critical accounting policies we generally follow accounting policies standard in the brokerage industry and believe that our policies appropriately reflect our financial position and results of operations . our management makes significant estimates that affect the reported amounts of assets , liabilities , revenues and expenses and the related disclosure of contingent assets and liabilities included in the financial statements . the estimates relate primarily to revenue and expense items in the normal course of business as to which we receive no confirmations , invoices , or other documentation , at the time the books are closed for a period . we use our best judgment , based on our knowledge of revenue transactions and expenses incurred , to estimate the amount of such revenue and expenses . we are not aware of any material differences between the estimates used in closing our books for the last five years and the actual amounts of revenue and expenses incurred when we subsequently receive the actual confirmations , invoices or other documentation . estimates are also used in determining the useful lives of intangibles assets , and the fair market value of intangible assets . our management believes that its estimates are reasonable . story_separator_special_tag roman , times , serif ; margin : 8pt 0 0 ; text-align : justify ; text-indent : 0.5in '' > - 17 - investment banking revenues decreased $ 588,000 or 24.3 % , from the prior year to $ 1.8 million in 2014 due to our participation in fewer new issues in the equity and debt capital markets . the capital markets division was sold on november 4 , 2014 to our affiliate .
| the discount recorded for the purchase obligation will be amortized as interest income using an effective yield initially calculated based on the original carrying amount of the obligation and estimated annual installments to be received and adjusted in future periods to reflect actual installments received and changes in estimates of future installments . interest income recognized on the obligation for the period december 31 , 2015 amounted to $ 235,000 based on a yield of approximately 12 % . income from interest and dividends increased $ 232,000 , or 246.8 % , from the prior year to $ 326,000 in 2015 primarily due to accrued interest on our receivable from business sold to affiliate ( see above paragraph ) and the sale of our equity interest to our former affiliate offset by secured demand note interest with our former affiliate which expired on august 31 , 2015. expenses . total expenses for 2015 were $ 13.2 million , a decrease of $ 9.3 million , or 41.3 % , from the prior year . employee compensation and benefit costs decreased $ 2.9 million , or 34.9 % , from the prior year to $ 5.4 million in 2015. this decrease was due to a reduction in head count from the previous year , as well as the capital markets division being sold to sbsf on november 4 , 2014. clearing and floor brokerage fees decreased $ 426,000 , or 25.6 % , from the prior year to $ 1.2 million in 2015 primarily due to lower retail trading volumes , as well as shutting down our rebate recapture business on september 30 , 2014. professional fees decreased $ 1.1 million , or 25.8 % from the prior year to $ 3.2 million in 2015 primarily due to a decrease in legal fees relating to a dispute with a former employee ( see settlement of case below ) . in july 2014 , the company entered into a settlement agreement in regard to a dispute with a former employee , in which the former employee sought , among other things , damages arising from his separation from the company . the company asserted counter claims in the arbitration . pursuant to the settlement , the company
| 10,907 |
we acquired the rights to bempedoic acid from pfizer in 2008. we own the exclusive worldwide rights to bempedoic acid and we are not obligated to make any royalty or milestone payments to pfizer . during the year ended december 31 , 2016 , we incurred $ 36.2 million in expenses related to the four studies in our global pivotal phase 3 ldl-c lowering program in high cvd risk patients with hypercholesterolemia on optimized background lipid-modifying therapy , including maximally tolerated statins , and patients who are only able to tolerate less than the lowest approved daily starting dose of their statin and are considered `` statin intolerant , '' our clear outcomes cvot in patients with hypercholesterolemia and high cvd risk and who are considered `` statin intolerant , '' our phase 2 pk/pd ( 1002-035 ) study in patients treated with high-dose statin therapy , our phase 1 pk ( 1002-037 ) study and other clinical pharmacology studies . during the year ended december 31 , 2015 , we incurred $ 12.0 million in expenses related to our phase 2 clinical study in patients with elevated ldl-c already receiving statin therapy ( 1002-009 ) , our phase 2 exploratory clinical safety study in patients with both elevated ldl-c and hypertension ( 1002-014 ) , our phase 3 global long-term safety study in patients with hyperlipidemia whose ldl-c is not adequately controlled with low- and moderate-dose statins ( 1002-040 ) and other clinical pharmacology studies . during the year ended december 31 , 2014 , we incurred $ 14.5 million in expenses related to our phase 2 clinical study in patients with elevated ldl-c with or without `` statin intolerance '' ( 1002-008 ) , our phase 2 clinical study in patients with elevated ldl-c already receiving statin therapy ( 1002-009 ) , 63 our phase 2 exploratory clinical safety study in patients with both elevated ldl-c and hypertension ( 1002-014 ) and other clinical pharmacology studies . financial operations overview revenue to date , we have not generated any revenue . in the future , we may never generate revenue from the sale of bempedoic acid or other product candidates . if we fail to complete the development of bempedoic acid or any other product candidates and secure approval from regulatory authorities , our ability to generate future revenue and our results of operations and financial position will be adversely affected . research and development expenses since our inception , we have focused our resources on our research and development activities , including conducting nonclinical , preclinical and clinical studies . our research and development expenses consist primarily of costs incurred in connection with the development of bempedoic acid , which include : expenses incurred under agreements with consultants , contract research organizations , or cros , and investigative sites that conduct our preclinical and clinical studies ; the cost of acquiring , developing and manufacturing clinical study materials ; employee-related expenses , including salaries , benefits , stock-based compensation and travel expenses ; allocated expenses for rent and maintenance of facilities , insurance and other supplies ; and costs related to compliance with regulatory requirements . we expense research and development costs as incurred . to date , substantially all of our research and development work has been related to bempedoic acid . costs for certain development activities , such as clinical studies , are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations or information provided to us by our vendors . our direct research and development expenses consist principally of external costs , such as fees paid to investigators , consultants , central laboratories and cros in connection with our clinical studies . we do not allocate acquiring and manufacturing clinical study materials , salaries , stock-based compensation , employee benefits or other indirect costs related to our research and development function to specific programs . our research and development expenses are expected to increase in the foreseeable future . costs associated with bempedoic acid will increase as we further its clinical development , including in connection with the commencement of our global pivotal phase 3 ldl-c lowering program and our clear outcomes cvot . we also expect to incur increased research and development costs as we pursue the clinical development of ba + ez . we can not determine with certainty the duration and completion costs associated with the ongoing or future clinical studies of bempedoic acid . also , we can not conclude with certainty if , or when , we will generate revenue from the commercialization and sale of bempedoic acid , if ever . we may never succeed in obtaining regulatory approval for bempedoic acid . the duration , costs and timing associated with the development and commercialization of bempedoic acid will depend on a variety of factors , including uncertainties associated with the results of our clinical studies and our ability to obtain regulatory approval . for example , if the fda or another regulatory authority were to require us to conduct clinical studies beyond those that we currently anticipate will be required for the completion of clinical development or post-commercialization clinical studies of bempedoic acid , or if we experience significant delays in enrollment in any of our clinical 64 studies , we could be required to expend significant additional financial resources and time on the completion of clinical development or post-commercialization clinical studies of bempedoic acid . general and administrative expenses general and administrative expenses primarily consist of salaries and related costs for personnel , including stock-based compensation , associated with our executive , accounting and finance , operational and other administrative functions . other general and administrative expenses include facility-related costs , communication expenses and professional fees for legal , patent prosecution , protection and review , consulting and accounting services . story_separator_special_tag we anticipate that our general and administrative expenses will increase in the future in connection with the continued research and development and commercialization of bempedoic acid , increases in our headcount , expansion of our information technology infrastructure , and increased expenses associated with being a public company and complying with exchange listing and securities and exchange commission , or sec , requirements , including the additional complexities and related costs of our transition away from being an `` emerging growth company '' under the rules of the sec . these increases will likely include higher legal , compliance , accounting and investor and public relations expenses . interest expense interest expense consists primarily of cash interest costs associated with our credit facility and non-cash interest costs associated with the amortization of the related debt discount , deferred issuance costs and final payment fee . critical accounting policies and significant judgments and estimates our discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements . we evaluate our estimates and judgments on an ongoing basis , including those related to accrued expenses and stock-based compensation . we base our estimates on historical experience , known trends and events , contractual milestones and other various factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . our actual results may differ from these estimates under different assumptions or conditions . our significant accounting policies are described in more detail in note 2 to our audited financial statements appearing elsewhere in this annual report on form 10-k. we believe the following accounting policies to be most critical to understanding our results and financial operations . accrued clinical development costs as part of the process of preparing our financial statements we are required to estimate our accrued expenses . we base our accrued expenses related to clinical studies on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and cros that conduct and manage clinical studies on our behalf . we generally accrue expenses related to clinical studies based on contracted amounts applied to the level of patient enrollment and activity according to the protocol . if timelines or contracts are modified based upon changes in the clinical study protocol or scope of work to be performed , we modify our estimates of accrued expenses accordingly on a 65 prospective basis . if we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates . we do not anticipate the future settlement of existing accruals to differ materially from our estimates . stock-based compensation we typically grant stock-based compensation to new employees in connection with their commencement of employment and to existing employees in connection with annual performance reviews . we account for all stock-based compensation payments issued to employees , consultants and directors using an option-pricing model for estimating fair value . accordingly , stock-based compensation expense is measured based on the estimated fair value of the awards on the date of grant , net of estimated forfeitures . compensation expense is recognized for the portion that is ultimately expected to vest over the period during which the recipient renders the required services to us using the straight-line method . in accordance with authoritative guidance , the fair value of non-employee stock-based awards is remeasured as the awards vest , and the resulting value , if any , is recognized as expense during the period the related services are rendered . significant factors , assumptions and methodologies used in determining fair value we estimate the fair value of our stock-based awards to employees , consultants and directors using the black-scholes option-pricing model . the black-scholes model requires the input of subjective assumptions , including ( a ) the per share fair value of our common stock , ( b ) the expected stock price volatility , ( c ) the calculation of the expected term of the award , ( d ) the risk free interest rate and ( e ) expected dividends . due to our limited operating history and a lack of company-specific historical and implied volatility data , we have based our estimate of expected volatility on the historical volatility of a group of similar companies , which are publicly traded . when selecting these public companies on which we have based our expected stock price volatility , we selected companies with comparable characteristics to us , including enterprise value , risk profiles , position within the industry , and with historical share price information sufficient to meet the expected life of our stock-based awards . the historical volatility data was computed using the daily closing prices for the selected companies ' shares during the equivalent period of the calculated expected term of our stock-based awards . we will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available . we have estimated the expected life of our employee stock options using the `` simplified '' method , whereby , the expected life equals the arithmetic average of the vesting term and the original contractual term of the option . the risk-free interest rates for periods within the expected life of the option are based on the u.s. treasury yield curve in effect during the period the options were granted .
| 68 results of operations comparison of the years ended december 31 , 2015 and 2014 the following table summarizes our results of operations for the years ended december 31 , 2015 and 2014 : replace_table_token_9_th research and development expenses research and development expenses for the year ended december 31 , 2015 , were $ 29.8 million compared to $ 25.3 million for the year ended december 31 , 2014 , an increase of $ 4.5 million . research and development expenses were primarily related to the further clinical development of bempedoic acid , including completing our phase 2 clinical study in patients with elevated ldl-c already receiving statin therapy ( 1002-009 ) , our phase 2 exploratory clinical safety study in patients with elevated ldl-c and hypertension ( 1002-014 ) and our phase 3 global long-term safety study in patients with hyperlipidemia whose ldl-c is not adequately controlled with low- and moderate-dose statins ( 1002-040 ) . general and administrative expenses general and administrative expenses for the year ended december 31 , 2015 , were $ 20.2 million compared to $ 10.9 million for the year ended december 31 , 2014 , an increase of $ 9.3 million . the increase in general and administrative expenses was primarily attributable to costs associated with pre-commercialization activities for bempedoic acid , increases in our headcount , which includes increased stock-based compensation expense for awards granted during the period , and other costs to support public company operations and our growth . interest expense interest expense for the year ended december 31 , 2015 , was $ 0.5 million compared to $ 0.3 million for the year ended december 31 , 2014. interest expense was related to our credit facility with oxford finance llc . other income , net other income , net for the year ended december 31 , 2015 , was approximately $ 0.8 million compared to approximately $ 0.1 million for the year ended december 31 , 2014. this increase was primarily related to an increase in interest income earned on our cash , cash equivalents and investment securities . 69 liquidity and capital resources we have funded our operations
| 10,908 |
the calculation of deferred preservation costs involves judgment and complexity and uses the same principles as inventory costing . donated human tissue is procured from deceased human donors by organ and tissue procurement organizations ( “ opos ” ) and tissue banks that consign the tissue to us for processing , preservation , and distribution . deferred preservation costs consist primarily of the procurement fees charged by the opos and tissue banks , direct labor and materials ( including salary and fringe benefits , laboratory supplies and expenses , and freight - in charges ) , and indirect costs ( including allocations of costs from support departments and facility allocations ) . fixed production overhead costs are allocated based on actual tissue processing levels , to the extent that they are within the range of the facility 's normal capacity . these costs are then allocated among the tissues processed during the period based on cost drivers , such as the number of donors or number of tissues processed . we apply a yield estimate to all tissues in process and in quarantine to estimate the portion of tissues that will ultimately become implantable . we estimate quarantine and in process yields based on our experience and reevaluate these estimates periodically . actual yields could differ significantly from our estimates , which could result in a change in tissues available for shipment and could increase or decrease the balance of deferred preservation costs . these changes could result in additional cost of preservation services expense or could increase per tissue preservation costs , which would impact gross margins on tissue preservation services in future periods . we regularly evaluate our deferred preservation costs to determine if the costs are appropriately recorded at the lower of cost or market value . we also evaluate our deferred preservation costs for costs not deemed to be recoverable , including tissues not expected to ship prior to the expiration date of their packaging . lower of cost or market value write-downs are recorded if the tissue processing costs incurred exceed the estimated market value of the tissue services , based on recent average service fees at the time of the evaluation . impairment write-downs are recorded based on the book value of tissues deemed to be impaired . actual results may differ from these estimates . write-downs of deferred preservation costs are expensed as cost of preservation services , and these write-downs are permanent impairments that create a new cost basis , which can not be restored to its previous levels if our estimates change . 46 we recorded write-downs to our deferred preservation costs totaling $ 787,000 , $ 437,000 , and $ 922,000 for the years ended december 31 , 2019 , 2018 , and 2017 , respectively , due primarily to tissues not expected to ship prior to the expiration date of the packaging . deferred income taxes deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax return purposes . we periodically assess the recoverability of our deferred tax assets , as necessary , when we experience changes that could materially affect our determination of the recoverability of our deferred tax assets . we provide a valuation allowance against our deferred tax assets when , as a result of this analysis , we believe it is more likely than not that some portion or all of our deferred tax assets will not be realized . assessing the recoverability of deferred tax assets involves judgment and complexity in conjunction with prudent and feasible tax planning . estimates and judgments used in the determination of the need for a valuation allowance and in calculating the amount of a needed valuation allowance include , but are not limited to , the following : projected future operating results ; anticipated future state tax apportionment ; timing and amounts of anticipated future taxable income ; timing of the anticipated reversal of book/tax temporary differences ; evaluation of statutory limits regarding usage of certain tax assets ; and evaluation of the statutory periods over which certain tax assets can be utilized . significant changes in the factors above , or other factors , could affect our ability to use our deferred tax assets . such changes could have a material , adverse impact on our profitability , financial position , and cash flows . we will continue to assess the recoverability of our deferred tax assets , as necessary , when we experience changes that could materially affect our prior determination of the recoverability of our deferred tax assets . we believe that the realizability of our acquired net operating loss carryforwards will be limited in future periods due to a change in control of our former subsidiaries hemosphere , inc. ( “ hemosphere ” ) and cardiogenesis corporation ( “ cardiogenesis ” ) , as mandated by section 382 of the internal revenue code of 1986 , as amended . we believe that our acquisitions of these companies each constituted a change in control as defined in section 382 and that , prior to our acquisition , hemosphere had experienced other equity ownership changes that should be considered such a change in control . we also acquired net operating loss carryforwards in certain foreign jurisdictions in our recent acquisition of jotec . we believe these loss carryforwards will be fully realizable . the deferred tax assets recorded on our consolidated balance sheets exclude amounts that we expect will not be realizable due to changes in control . a portion of the acquired net operating loss carryforwards is related to state income taxes , for which we believe it is more likely than not , that some will not be realized . therefore , we recorded a valuation allowance against these state net operating loss carryforwards . valuation of acquired assets or businesses as part of our corporate strategy , we are seeking to identify and capitalize upon acquisition opportunities of complementary product lines and companies . story_separator_special_tag we evaluate and account for acquired patents , licenses , distribution rights , and other tangible or intangible assets as the purchase of an asset or asset group , or as a business combination , as appropriate . the determination of whether the purchase of a group of assets should be accounted for as an asset group or as a business combination requires judgment based on the weight of available evidence . for the purchase of an asset group , we allocate the cost of the asset group , including transaction costs , to the individual assets purchased based on their relative estimated fair values . in-process research and development acquired as part of an asset group is expensed upon acquisition . we account for business combinations using the acquisition method . under this method , the allocation of the purchase price is based on the fair value of the tangible and identifiable intangible assets acquired and the liabilities assumed as of the date of the acquisition . the excess of the purchase price over the estimated fair value of the tangible net assets and identifiable intangible assets is recorded as goodwill . transaction costs related to a business combination are expensed as incurred . in-process research and development acquired as part of a business combination is accounted for as an indefinite-lived intangible asset until the related research and development project gains regulatory approval or is discontinued . 47 we typically engage external advisors to assist in determining the fair value of acquired asset groups or business combinations , using valuation methodologies such as : the excess earnings , the discounted cash flow , or the relief from royalty methods . the determination of fair value in accordance with the fair value measurement framework requires significant judgments and estimates , including , but not limited to : timing of product life cycles , estimates of future revenues , estimates of profitability for new or acquired products , cost estimates for new or changed manufacturing processes , estimates of the cost or timing of obtaining regulatory approvals , estimates of the success of competitive products , and discount rates . we , in consultation with our advisor ( s ) , make these estimates based on our prior experiences and industry knowledge . we believe that our estimates are reasonable , but actual results could differ significantly from our estimates . a significant change in our estimates used to value acquired asset groups or business combinations could result in future write-downs of tangible or intangible assets acquired by us and could , therefore , materially impact our financial position and profitability . if the value of the liabilities assumed by us , including contingent liabilities , is determined to be significantly different from the amounts previously recorded in purchase accounting , we may need to record additional expenses or write-downs in future periods , which could materially impact our financial position and profitability . new accounting pronouncements see part ii , item 8 , note 1 of “ notes to consolidated financial statements ” for further discussion of new accounting standards that have been adopted or are being evaluated for future adoption . story_separator_special_tag 0 ; margin-top : 0 ; '' > jotec on december 1 , 2017 cryolife acquired jotec ag and its subsidiaries ( the “ jotec acquisition ” ) , a germany-based , developer of technologically differentiated endovascular stent grafts , and cardiac and vascular surgical grafts , focused on aortic repair . the jotec product line is used in endovascular and open vascular surgery , as well as for the treatment of complex aortic arch and thoracic aortic diseases . jotec revenues decreased 4 % for the three months ended december 31 , 2019 , as compared to the three months ended december 31 , 2018. jotec revenues increased 3 % for the twelve months ended december 31 , 2019 , as compared to the twelve months ended december 31 , 2018. jotec revenues , excluding original equipment manufacturing ( “ oem ” ) , were flat for the three months ended december 31 , 2019 , as compared to the three months ended december 31 , 2018. the factors affecting revenue during this period include a change in mix of volume sold which increased revenues by 5 % , offset by the effect of foreign exchange rates , which decreased revenues by 4 % , and a change in average sales prices which decreased revenues 1 % . jotec revenues , excluding oem , increased 3 % for the twelve months ended december 31 , 2019 as compared to the twelve months ended december 31 , 2018. this increase in revenues was primarily due to an 8 % increase in volume of units sold , which increased revenues by 11 % , partially offset by the effect of foreign exchange rates , which decreased revenues by 6 % , and a decrease in average sales price , which decreased revenues by 2 % . excluding the effects for foreign exchange , jotec revenues , excluding oem , increased 4 % and 10 % for the three and twelve months ended december 31 , 2019 , respectively , as compared to the three and twelve months ended december 31 , 2018. revenues for jotec , excluding oem , increased in the three months ended december 31 , 2019 , as compared to the three months ended december 31 , 2018 in emea and latin america , on a constant currency basis , due to growth in distributor markets . 50 revenues for jotec , excluding oem , increased in the twelve months ended december 31 , 2019 as compared to the twelve months ended december 31 , 2018 in emea , latin america , and asia pacific with the largest growth in emea , on a constant currency basis , due to growth in distributor markets . on-x the on-x product line includes the on-x prosthetic aortic and mitral heart valves and the on-x ascending aortic prosthesis ( “ aap ” ) for heart valve replacement .
| sales of certain products through our direct sales force and distributors across europe and various other countries are denominated in a variety of currencies , with a concentration denominated in euros in addition to british pounds , polish zlotys , swiss francs , brazilian reals , and canadian dollars which are subject to exchange rate fluctuations . for the three and twelve months ended december 31 , 2019 compared to the three and twelve months ended december 31 , 2018 the u.s. dollar strengthened in comparison to major currencies , resulting in revenue decreases when these foreign currency denominated transactions were translated into u.s. dollars . future changes in these exchange rates could have a material , adverse effect on our revenues denominated in these currencies . additionally , our sales to many distributors around the world are denominated in u.s. dollars , and although these sales are not directly impacted by currency exchange rates , we believe that some of our distributors may delay or reduce purchases of products in u.s. dollars depending on the relative price of these goods in their local currencies . bioglue the bioglue product line is used as an adjunct to standard methods of achieving hemostasis ( such as sutures and staples ) in adult patients in open surgical repair of large vessels ( such as aorta , femoral , and carotid arteries ) . 49 revenues from the sale of bioglue decreased 1 % for the three months ended december 31 , 2019 , as compared to the three months ended december 31 , 2018. this decrease was primarily due to an impact of foreign exchange rates and a change in average sales prices , each of which decreased revenues by 1 % , partially offset by a change in the mix of milliliters sold , which increased revenues by 1 % . excluding the effects for foreign exchange , revenues were flat for the three months ended december 31 , 2019 , as compared to the three months ended december 31 , 2019. revenues from the sale of bioglue increased 3 % for the twelve months ended december 31 , 2019 , as compared to the twelve months ended december 31 , 2018. this increase
| 10,909 |
however , the capital investment and significant operational , mix and pricing improvements we have made in our chicken segment have better positioned us to adapt to rising grain prices . for fiscal 2013 , we anticipate our chicken segment will remain profitable , but could be below our normalized range of 5.0 % -7.0 % . beef – we expect to see a reduction of industry fed cattle supplies of 2-3 % in fiscal 2013 as compared to fiscal 2012. although we generally expect adequate supplies in regions we operate our plants , there may be periods of imbalance of fed cattle supply and demand . we anticipate beef exports will remain strong . for fiscal 2013 , we believe our beef segment will remain profitable , but could be below our normalized range of 2.5 % -4.5 % . pork – we expect industry hog supplies in fiscal 2013 to be flat compared to fiscal 2012 and pork exports to remain strong . for fiscal 2013 , we believe our pork segment will be in or above our normalized range of 6.0 % -8.0 % . prepared foods – we expect operational improvements and increased pricing to offset increased raw material costs . because many of our sales contracts are formula based or shorter-term in nature , we are typically able to offset rising input costs through increased pricing . for fiscal 2013 , we believe our prepared foods segment will remain in its normalized range of 4.0 % -6.0 % . sales – we expect fiscal 2013 sales to increase to approximately $ 35 billion mostly resulting from price increases related to decreases in domestic availability of protein and rising raw material costs . capital expenditures – our preliminary capital expenditures plan for fiscal 2013 is approximately $ 550 million . the reduction in planned capital expenditures from fiscal 2012 is primarily a result of an anticipated rise in working capital needs in fiscal 2013. once we gain more visibility into our working capital needs , or should forecasted conditions change , we may raise our capital expenditures target . we will continue to make significant investments in our production facilities for high return operational efficiencies , other profit improvement projects and development of our foreign operations . net interest expense – we expect fiscal 2013 net interest expense will approximate $ 140 million . debt and liquidity – we do not have any significant maturities of debt due until october 2013. we may use our available cash to repurchase notes when available at attractive rates . total liquidity at september 29 , 2012 , was $ 2.0 billion , well above our goal to maintain liquidity in excess of $ 1.2 billion . share repurchases – we expect to continue repurchasing shares under our share repurchase plan . in fiscal 2012 , we repurchased 12.5 million shares for approximately $ 230 million . as of september 29 , 2012 , 35.2 million shares remain authorized for repurchases . the timing and extent to which we repurchase shares will depend upon , among other things , our working capital needs , market conditions , liquidity targets , our debt obligations and regulatory requirements . dividends – on november 15 , 2012 , the board of directors declared a special dividend of $ 0.10 per share on our class a common stock and $ 0.09 per share on our class b common stock . additionally , the board increased the quarterly dividend previously declared on august 3 , 2012 , to $ 0.05 per share on our class a common stock and $ 0.045 per share on our class b common stock . both the special dividend and the increased quarterly dividend are payable on december 14 , 2012 , to shareholders of record at the close of business on november 30 , 2012. the board also declared a quarterly dividend of $ 0.05 per share on our class a common stock and $ 0.045 per share on our class b common stock , payable on march 31 , 2013 , to shareholders of record at the close of business on march 1 , 2013 . 19 story_separator_special_tag to a sale of interests in an equity method investment . 2010 – included $ 12 million charge related to the impairment of an equity method investment . 21 replace_table_token_15_th the effective tax rate on continuing operations was impacted by a number of items which result in a difference between our effective tax rate and the u.s. statutory rate of 35 % . the table below reflects significant items impacting the rate as indicated . 2012 – domestic production activity deduction reduced the rate 1.9 % . general business credits reduced the rate 0.8 % . state income taxes increased the rate 1.6 % . foreign rate differences and valuation allowances increased the rate 3.3 % . 2011 – domestic production activity deduction reduced the rate 2.3 % . net decrease in unrecognized tax benefits reduced the rate 1.7 % . general business credits reduced the rate 0.9 % . state income taxes increased the rate 1.6 % . 2010 – domestic production activity deduction reduced the rate 2.0 % . decrease in unrecognized tax benefits reduced the rate 1.4 % . decrease in state valuation allowances reduced the rate 1.0 % . state income taxes increased the rate 3.4 % . segment results we operate in four segments : chicken , beef , pork and prepared foods . the following table is a summary of sales and operating income ( loss ) , which is how we measure segment income ( loss ) . replace_table_token_16_th 22 replace_table_token_17_th 2012 – operating income included a $ 15 million non-cash charge related to the impairment of non-core assets in china . 2010 – operating income included a $ 38 million gain from insurance proceeds and a $ 29 million non-cash , non-tax deductible charge related to a full goodwill impairment of an immaterial chicken segment reporting unit . story_separator_special_tag 2012 vs. 2011 – sales volume – the decrease in sales volumes in fiscal 2012 was primarily attributable to the impact of domestic production cuts we made in late fiscal 2011 and maintained throughout fiscal 2012 , in order to balance our supply with forecasted customer demand . these production cuts reduced our total domestic slaughter pounds by approximately 4 % in fiscal 2012 , but were partially offset by increases in international sales volumes and open-market meat purchases . average sales price – the increase in average sales prices is primarily due to mix changes and price increases associated with reduced industry supply and increased input costs . operating income – the increase in operating income was largely due to the increase in average sales price and operational improvements , partially offset by reduced sales volumes , increased grain , feed ingredients and other growout costs and losses incurred in our foreign start-up businesses . grain , feed ingredients and growout costs – operating results were negatively impacted in fiscal 2012 by an increase in grain and feed ingredients costs of $ 320 million and an increase in other growout operating costs of $ 50 million . operational improvements – operating results were positively impacted by approximately $ 115 million of operational improvements , primarily attributed to improvements in yield , mix and processing optimization . start-up businesses – our foreign start-up businesses in brazil and china incurred operating losses of approximately $ 105 million in fiscal 2012 , which included $ 15 million for the impairment of non-core assets . derivative activities – operating results included the following amounts for commodity risk management activities related to grain and energy purchases . these amounts exclude the impact from related physical purchase transactions , which impact current and future period operating results . replace_table_token_18_th 2011 vs. 2010 – sales volume – a 2.1 % increase in slaughter pounds that mostly occurred in the first three quarters of fiscal 2011 and a reduction of volumes in ending inventory in fiscal 2011 as compared to fiscal 2010 , primarily drove the 4.6 % increase in sales volume for fiscal 2011. average sales price – the increase in average sales prices is primarily due to mix changes and price increases associated with increased input costs . operating income – grain , feed ingredients and growout costs – operating results were negatively impacted in fiscal 2011 by an increase in grain and feed ingredients costs of $ 675 million and an increase in other growout operating costs of $ 74 million . operational improvements – operating results were positively impacted by approximately $ 200 million of operational improvements , primarily attributed to improvements in yield , mix and processing optimization . these operational improvements were partially offset by an increase in operating costs , mostly from cooking ingredients and employee related costs . derivative activities – operating results included the following amounts for commodity risk management activities related to grain and energy purchases . these amounts exclude the impact from related physical purchase transactions , which impact current and future period operating results . replace_table_token_19_th 23 replace_table_token_20_th 2012 vs. 2011 – sales and operating income – average sales price increased due to price increases associated with increased livestock costs . sales volume decreased due to a reduction in live cattle processed and outside tallow purchases . operating income decreased due to higher fed cattle costs and periods of reduced demand for beef products , which made it difficult to pass along increased input costs , as well as lower sales volumes and increased employee related operating costs . derivative activities – operating results included the following amounts for commodity risk management activities related to forward futures contracts for live cattle . these amounts exclude the impact from related physical sale and purchase transactions , which impact current and future period operating results . replace_table_token_21_th 2011 vs. 2010 – sales and operating income – average sales price increased due to price increases associated with increased livestock costs . we have maintained strong operating income by maximizing our revenues relative to the rising live cattle markets , partially attributable to strong export sales . this was offset by an increase in operating costs , primarily attributable to employee related costs . derivative activities – operating results included the following amounts for commodity risk management activities related to forward futures contracts for live cattle . these amounts exclude the impact from related physical sale and purchase transactions , which impact current and future period operating results . replace_table_token_22_th 24 replace_table_token_23_th 2012 vs. 2011 – sales and operating income – average sales price decreased due to increased domestic availability of pork products , which drove lower live hog costs . operating income decreased due to compressed pork margins caused by the excess domestic availability of pork products . we were able to maintain strong operating margins by maximizing our revenues relative to the live hog markets , partially due to strong export sales and operational and mix performance . derivative activities – operating results included the following amounts for commodity risk management activities related to forward futures contracts for live hogs . these amounts exclude the impact from related physical sale and purchase transactions , which impact current and future period operating results . replace_table_token_24_th 2011 vs. 2010 – sales and operating income – average sales price increased due to price increases associated with increased livestock costs . we have maintained strong operating income by maximizing our revenues relative to the rising live hog markets , partially attributable to strong export sales and operational and mix performance . derivative activities – operating results included the following amounts for commodity risk management activities related to forward futures contracts for live hogs . these amounts exclude the impact from related physical sale and purchase transactions , which impact current and future period operating results .
| the $ 2.2 billion impact of higher input costs per pound was primarily driven by : increase in live cattle and hog costs of approximately $ 1.5 billion . increase in grain and feed ingredients of $ 320 million and increase in other growout operating costs of $ 50 million in our chicken segment . the $ 1.2 billion impact of lower sales volumes was driven by decreases in our chicken , beef and prepared foods segments , partially offset by an increase in sales volume in our pork segment . 2011 vs. 2010 – cost of sales increased by approximately $ 4.1 billion . higher input cost per pound increased cost of sales by approximately $ 3.7 billion , while higher sales volume increased cost of sales $ 445 million . the $ 3.7 billion impact of higher input costs per pound was primarily driven by : increase in live cattle and hog costs of approximately $ 2.4 billion . increase in grain and feed ingredients of $ 675 million and increase in other growout operating costs of $ 74 million in our chicken segment , which were partially offset by approximately $ 200 million of operational improvements . increase in raw material costs of $ 273 million in our prepared foods segment . the $ 0.4 billion impact of higher sales volumes was primarily driven by : increases in sales volume in our chicken and pork segments partially offset by decreases in our beef and prepared foods segments . increase of $ 145 million of costs of sales associated with dynamic fuels , which commenced production activities in fiscal 2011 . 20 replace_table_token_10_th 2011 vs. 2010 – decrease of $ 13 million related to reduced incentive-based compensation awarded during fiscal 2011. replace_table_token_11_th 2010 – included the full impairment of an immaterial chicken segment reporting unit . replace_table_token_12_th 2012/2011/2010 – interest income remained at the current level primarily due to continued low interest rates . replace_table_token_13_th 2012/2011/2010 – cash
| 10,910 |
currency translation effects decreased european segment net income , when stated in u.s. dollars , by $ 0.7 million , mainly due to a weaker euro . international segment net income for the year ended december 31 , 2012 was $ 22.3 million , a decrease of $ 4.9 million , or 18 % , from $ 27.2 million for the year ended december 31 , 2011. lower local currency net income was primarily related to higher selling , general and administrative expenses . currency translation effects decreased international segment net income , when stated in u.s. dollars , by approximately $ 2.6 million , primarily due to the weakening of the south african rand and brazilian real . the net loss reported in reconciling items for the year ended december 31 , 2012 was $ 15.5 million , compared to a net loss of $ 22.5 million for the year ended december 31 , 2011. the improvement during the year 23 ended december 31 , 2012 reflects lower interest expense and higher gains on the sale of land in our cranberry woods office park . year ended december 31 , 2011 compared to year ended december 31 , 2010 net sales . net sales for the year ended december 31 , 2011 were $ 1,173.2 million , an increase of $ 196.6 million , or 20 % , from $ 976.6 million for the year ended december 31 , 2010. replace_table_token_9_th net sales by the north american segment were $ 561.1 million for the year ended december 31 , 2011 , an increase of $ 97.1 million , or 21 % , compared to $ 464.0 million for the year ended december 31 , 2010. north american sales for the year ended december 31 , 2011 included $ 60.4 million of general monitors sales compared to $ 12.1 million in the year ended december 31 , 2010. during the year ended december 31 , 2011 , we saw growing demand in oil and gas and other core industrial markets , resulting in higher shipments of instruments ( excluding general monitors ) , head protection and fall protection , up $ 11.8 million , $ 6.0 million and $ 5.2 million , respectively . sales of the advanced combat helmet ( ach ) were $ 27.2 million higher in 2011. net sales of our european segment were $ 286.8 million for the year ended december 31 , 2011 , an increase of $ 35.7 million , or 14 % , from $ 251.1 million for the year ended december 31 , 2010. net sales in the european segment included $ 25.8 million of general monitor sales for the year ended december 31 , 2011 , compared to $ 4.2 million in the year ended december 31 , 2010. excluding general monitors , local currency sales in europe decreased $ 1.0 million for the year ended december 31 , 2011. the decrease occurred primarily in western europe where local currency sales were down $ 8.6 million reflecting lower shipments of gas masks , fire helmets and ballistic helmets , partially offset by higher shipments of scbas and instruments . lower local currency sales in western europe were partially offset by a $ 7.6 million increase in sales in eastern europe and the middle east on higher shipments of scbas , instruments and ballistic helmets to the fire service , industrial and military markets . favorable translation effects of stronger european currencies , particularly the euro , increased 2011 european segment sales , when stated in u.s. dollars , by approximately $ 15.1 million . net sales of our international segment were $ 325.3 million for the year ended december 31 , 2011 , an increase of $ 63.8 million , or 24 % , compared to $ 261.5 million for the year ended december 31 , 2010. local currency sales in the international segment increased $ 49.1 million during the year ended december 31 , 2011. the increase in sales was due to strong demand in the mining , fire service and core industrial markets . the sales increase was most notably related to increased shipments of scba 's , head , eye and face protection and gas detection products , which increased by $ 9.3 million , $ 13.4 million and $ 8.9 million , respectively . sales growth was fueled mainly by market growth in latin america and china . currency translation effects increased international segment sales for the year ended december 31 , 2011 , when stated in u.s. dollars , by $ 14.7 million , reflecting a strengthening of the australian dollar , south african rand and brazilian real . cost of products sold . cost of products sold was $ 703.0 million for the year ended december 31 , 2011 , an increase of $ 96.5 million , or 16 % , from $ 606.5 million for the year ended december 31 , 2010. the increase was driven by higher sales . cost of products sold as a percentage of sales was 59.9 % in the year ended december 31 , 2011 compared to 62.1 % in 2010. lower cost of products sold as a percentage of sales in 2011 was due to control over manufacturing costs and the addition of general monitors . gross profit . gross profit for the year ended december 31 , 2011 was $ 470.2 million , an increase of $ 100.1 million , or 27 % , from $ 370.1 million for the year ended december 31 , 2010. the ratio of gross profit to sales 24 was 40.1 % in 2011 compared to 37.9 % in 2010. the higher gross profit ratio in 2011 was primarily related to improved pricing , control over manufacturing costs , and the addition of general monitors . selling , general and administrative expenses . selling , general and administrative expenses for the year ended december 31 , 2011 were $ 306.4 million , an increase of $ 43.5 million , or 17 % , from $ 262.9 million for the year ended december 31 , 2010. story_separator_special_tag selling , general and administrative expenses were 26.1 % of sales in 2011 compared to 26.9 % of sales in 2010. north american segment selling general and administrative expenses were up $ 25.0 million , including an increase of $ 14.4 million at general monitors . the remainder of the increase in north american segment selling , general and administrative expenses was primarily related to legal fees associated with our insurance receivable , higher insurance expense due to increased coverage limits and higher selling expenses to support sales growth . local currency selling , general and administrative expenses in the european segment were up $ 1.3 million , reflecting $ 2.6 million of additional general monitors selling , general and administrative expenses , partially offset by a $ 1.3 million decrease at other european companies . local currency selling , general and administrative expenses in the international segment increased $ 11.6 million , primarily to support the increased sales volume . currency exchange effects increased european and international segment administrative expenses for the year ended december 31 , 2011 , when stated in u.s. dollars , by $ 8.2 million , primarily related to the strengthening of the euro , australian dollar , south african rand and brazilian real . research and development expenses . research and development expenses were $ 39.2 million for the year ended december 31 , 2011 , an increase of $ 6.4 million , or 20 % , from $ 32.8 million for the year ended december 31 , 2010. the increase includes $ 3.3 million of additional general monitors research and development expense . the remainder of the increase reflects our ongoing focus on developing innovative new products . restructuring and other charges . for the year ended december 31 , 2011 , we recorded charges of $ 8.6 million ( $ 5.7 million after tax ) . european segment charges of $ 5.8 million for the year ended december 31 , 2011 , related primarily to staff reductions and the transfer of certain production activities to china . north american segment charges for the year ended december 31 , 2011 of $ 1.7 million included costs associated with the relocation of certain administrative and production activities . international segment charges for the year ended december 31 , 2011 of $ 1.1 million were related primarily to severance costs associated with the relocation of our wuxi , china operations to suzhou , china . for the year ended december 31 , 2010 , we recorded charges of $ 14.1 million ( $ 9.6 million after tax ) . north american segment charges of $ 3.8 million included stay bonuses and other costs associated with the transfer of certain production and administrative activities . european segment charges of $ 8.8 million related primarily to a focused voluntary retirement incentive program in germany and severance costs associated with staff reductions . international segment charges of $ 1.5 million were primarily for severance costs related to staff reductions . interest expense . interest expense for the year ended december 31 , 2011 was $ 14.1 million , an increase of $ 5.4 million , or 62 % , from $ 8.7 million for the year ended december 31 , 2010. the increase was primarily due to higher borrowings associated with the acquisition of general monitors in october 2010. income tax provision . our effective tax rate for the year ended december 31 , 2011 was 33.2 % compared to 31.9 % for the year ended december 31 , 2010. the higher effective tax rate for the year was primarily related to a lower manufacturing deduction and research and development tax credit as a percentage of pretax income , partially offset by the recognition of deferred tax assets on net operating loss carryforwards in asia . net income attributable to mine safety appliances company . net income for the year ended december 31 , 2011 was $ 69.9 million , an increase of $ 31.8 million , or 83 % , from net income for the year ended december 31 , 2010 of $ 38.1 million . basic earnings per share of common stock was $ 1.91 in 2011 compared to $ 1.06 in 2010 , an increase of 85 cents per share , or 80 % . 25 north american segment net income for the year ended december 31 , 2011 was $ 57.9 million , an improvement of $ 13.3 million , or 30 % , from $ 44.6 million for the year ended december 31 , 2010. north american segment net income includes $ 9.5 million of general monitors net income for the year ended december 31 , 2011 compared to $ 0.2 million for the year ended december 31 , 2010. the remainder of the increase in north american segment net income was primarily related to improved sales and gross profits , partially offset by the previously discussed increase in selling general and administrative expenses and research and development expense . european segment net income for the year ended december 31 , 2011 was $ 7.3 million , an improvement of $ 12.7 million , from a net loss of $ 5.4 million for the year ended december 31 , 2010. the improvement in european segment net income includes $ 6.6 million of general monitors net income . the remainder of the improvement in european segment results for 2011 was primarily due to lower operating costs and restructuring expenses . international segment net income for the year ended december 31 , 2011 was $ 27.2 million , an increase of $ 11.4 million , or 72 % , from $ 15.8 million for the year ended december 31 , 2010. higher net income was primarily related to improved sales and gross profits , partially offset by higher selling expenses . currency translation effects increased the 2011 international segment net income , when stated in u.s. dollars , by approximately $ 1.0 million , primarily due to the strengthening of the australian dollar , south african rand and brazilian real .
| net sales for the european segment were $ 289.5 million for the year ended december 31 , 2012 , an increase of $ 2.7 million , or 1 % , from $ 286.8 million for the year ended december 31 , 2011. local currency sales increased $ 22.4 million , reflecting higher shipments of instruments , scbas , ballistic helmets , and respirators , up $ 10.8 million , $ 4.8 million , $ 4.2 million , and $ 3.3 million , respectively . the increase was partially offset by a $ 2.1 million decrease in shipments of gas masks to military markets . currency translation effects decreased european segment sales , when stated in u.s. dollars , by $ 19.7 million , primarily related to a weaker euro . net sales of our international segment were $ 327.4 million for the year ended december 31 , 2012 , an increase of $ 2.1 million , or 1 % , compared to $ 325.3 million for the year ended december 31 , 2011. local currency sales in the international segment increased $ 21.8 million during the year ended december 31 , 2012. growth in fire service markets in china and latin america led to increases in sales of scbas and fire helmets of $ 9.8 million and $ 3.8 million , respectively . in addition , sales of head , eye and face protection to industrial markets improved by $ 9.7 million . currency translation effects decreased international segment sales , when stated in u.s. dollars , by $ 19.7 million , primarily related to a weaker south african rand and brazilian real . other income . other income for the year ended december 31 , 2012 was $ 11.0 million , an increase of $ 5.6 million , from $ 5.4 million for the year ended december 31 , 2011. during the year ended december 31 , 2012 , we recognized gains on the sale of assets totaling $ 8.4 million compared to gains of $ 3.3 million in 2011. these gains in both years were primarily related to property sales in our cranberry woods office park . in december 2012 , we sold the last available parcel in cranberry woods . other income for the year ended december 31 , 2012 also includes a $ 4.8 million gain on an escrow settlement related to our
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there can be no assurance that a transaction will take place , and our board of directors may consider other alternatives for the ben sherman business that it believes are in the best interest of shareholders . 40 we continue to believe that it is important to maintain a strong balance sheet and liquidity . we believe that positive cash flow from operations in the future coupled with the strength of our balance sheet and liquidity will provide us with sufficient resources to fund future investments in our lifestyle brands . while we believe that we have significant opportunities to appropriately deploy our capital and resources in our existing lifestyle brands , in the future , we may also add additional lifestyle brands to our portfolio if we identify appropriate targets which meet our investment criteria . the following table sets forth our consolidated operating results ( in thousands , except per share amounts ) for fiscal 2014 compared to fiscal 2013 : replace_table_token_19_th the primary reasons for the higher net earnings in fiscal 2014 were : higher operating income in lilly pulitzer resulting from higher net sales and gross margins partially offset by higher sg & a associated with expanding operations ; improved operating results in ben sherman primarily due to increased net sales partially offset by lower gross margin and lower royalty income ; lower income taxes primarily reflecting a lower effective tax rate ; and lower interest expense . these favorable items were partially offset by : a larger operating loss in corporate and other reflecting higher incentive compensation , an unfavorable lifo accounting charge and lower oxford golf sales in fiscal 2014 , while fiscal 2013 included a gain on the sale of a property and the benefit of certain favorable changes in accruals ; and lower operating income in tommy bahama reflecting lower gross margin and higher sg & a associated with the expanding operations , partially offset by the impact of higher net sales and higher royalty income . operating groups our business primarily operates through our four operating groups : tommy bahama , lilly pulitzer , lanier clothes and ben sherman . we identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance . our operating group structure reflects a brand-focused management approach , emphasizing operational coordination and resource allocation across each brand 's direct to consumer , wholesale and licensing operations . for a description of each of our operating groups , see part i , item 1. business and note 2 to our consolidated financial statements , both included in this report . comparable store sales we often disclose comparable store sales in order to provide additional information regarding changes in our results of operations between periods . our disclosures of comparable store sales include net sales from full-price stores and our e-commerce sites , excluding sales associated with e-commerce flash clearance sales . we believe that the inclusion of both our full-price stores and e-commerce sites in the comparable store sales disclosures is a more meaningful way of reporting our comparable store sales results , given similar inventory planning , allocation and return policies , as well as our cross-channel marketing and other initiatives for the direct to consumer channel . for our comparable store sales disclosures , we exclude ( 1 ) outlet store sales , warehouse sales and e-commerce flash clearance sales , as those sales are used primarily to liquidate end of season inventory , which may vary significantly depending on the level of end of season inventory on hand and generally occur at lower gross margins than our full-price direct to consumer sales , and ( 2 ) restaurant sales , as we do not currently believe that the inclusion of restaurant sales is meaningful in assessing our consolidated results of operations . comparable store sales information reflects net sales , including shipping and handling revenues , if any , associated with product sales . for purposes of our disclosures , we consider a comparable store to be , in addition to our e-commerce sites , a physical full-price retail store that was owned and open as of the beginning of the prior fiscal year and which did not have during the 41 relevant periods , and is not within the current fiscal year scheduled to , have , ( 1 ) a remodel resulting in the store being closed for an extended period of time ( which we define as a period of two weeks or longer ) , ( 2 ) a greater than 15 % change in the size of the retail space due to expansion or reduction , ( 3 ) a relocation to a new space that was significantly different from the prior retail space , or ( 4 ) a closing or opening of a tommy bahama restaurant adjacent to the retail store . for those stores which are excluded from comparable stores based on the preceding sentence , the stores continue to be excluded from comparable store sales until the criteria for a new store is met subsequent to the remodel , relocation or restaurant closing or opening . generally , a store that is remodeled will continue to be included in our comparable store metrics as a store is not typically closed for a two week period during a remodel . however , a store that is relocated generally will not be included in our comparable store metrics until that store has been open in the relocated space for the entirety of the prior fiscal year as the size or other characteristics of the store typically change significantly from the prior location . additionally , any stores that were closed during the prior fiscal year or current fiscal year , or which we plan to close or vacate in the current fiscal year , are excluded from the definition of comparable stores . story_separator_special_tag definitions and calculations of comparable store sales differ among retail companies , and therefore comparable store metrics disclosed by us may not be comparable to the metrics disclosed by other companies . story_separator_special_tag sales increase of 3.1 % was primarily due to a $ 3.5 million increase in net sales in the private label business , with branded sales generally being comparable between fiscal 2014 and fiscal 2013 . the increase in the private label business was driven by an increase in the pants program for a warehouse club customer , which began in the fourth quarter of fiscal 2013 and more than offset decreases in other private label programs . the decreases in the other private label programs was primarily due to lower volume and the exit from some seasonal and replenishment programs . ben sherman : the ben sherman net sales increase of 15.3 % primarily resulted from ( 1 ) an increase in wholesale sales of $ 4.2 million , substantially all of which is related to increased off-price sales associated with the liquidation of certain aged inventory , ( 2 ) a $ 3.1 million increase in retail store sales reflecting comparable store sales increases and the net impact of store openings and closures since the start of fiscal 2013 , ( 3 ) $ 2.2 million of higher sales resulting from the translation impact of a change in the average exchange rate between the british pound sterling and the united states dollar reflecting a 4 % stronger pound sterling in fiscal 2014 and ( 4 ) an $ 0.8 million increase in e-commerce sales . as of january 31 , 2015 , we operated 21 ben sherman retail stores , consisting of 12 full-price retail stores and nine outlet stores . as of february 1 , 2014 we operated 17 ben sherman retail stores , consisting of 11 full-price stores and six outlets . the following table presents the proportion of net sales by distribution channel for ben sherman for each period presented : replace_table_token_25_th corporate and other : corporate and other net sales primarily consist of the net sales of our oxford golf business and our lyons , georgia distribution center as well as the impact of the elimination of inter-company sales between our operating groups . the decrease in sales of 30.4 % was primarily due to ( 1 ) a reduction in oxford golf 's private label sales , ( 2 ) a significant initial shipment of an oxford golf branded program in fiscal 2013 that did not anniversary in fiscal 2014 and ( 3 ) a larger unfavorable impact of the elimination of inter-company sales of lanier clothes to ben sherman in fiscal 2014 . gross profit the table below presents gross profit by operating group and in total for fiscal 2014 and fiscal 2013 as well as the change between those two periods . our gross profit and gross margin , which is calculated as gross profit divided by net sales , may not be directly comparable to those of our competitors , as statement of operations classification of certain expenses may vary by company . 44 replace_table_token_26_th the increase in consolidated gross profit was primarily due to the higher net sales as discussed above . in addition to the impact of higher net sales , gross profit on a consolidated basis and for each operating group was impacted by changes in sales mix and gross margin within each operating group , as discussed below . the table below presents gross margin by operating group and in total for fiscal 2014 and fiscal 2013 . replace_table_token_27_th on a consolidated basis , gross margin decreased primarily as a result of lower gross margin in tommy bahama and lanier clothes as well as the $ 2.1 million net unfavorable impact of lifo accounting in fiscal 2014 as compared to fiscal 2013 . these unfavorable items were partially offset by ( 1 ) improved gross margins in lilly pulitzer , ( 2 ) the favorable impact of a greater proportion of net sales being from our direct to consumer channels of distribution and ( 3 ) fiscal 2013 including a $ 0.7 million inventory step-up charge associated with the tommy bahama canada acquisition with no inventory step-up charge in fiscal 2014 . we do not anticipate any future charges for inventory step-up beyond fiscal 2013 related to this acquisition . tommy bahama : the lower gross margin at tommy bahama primarily reflected a change in sales mix with outlet stores , e-commerce flash clearance sales and off-price wholesale sales representing a greater proportion of tommy bahama 's net sales and lower gross margins in our outlet store , e-commerce flash clearance and wholesale sales . the lower gross margins in our outlet stores resulted from more in-outlet store discounts in order to move excess spring inventory and drive traffic . the decrease in wholesale gross margins primarily resulted from more significant discounts on certain wholesale sales as well as a larger amount of off-price wholesale sales . fiscal 2013 included a $ 0.7 million inventory step-up charge associated with the tommy bahama canada acquisition . lilly pulitzer : the higher gross margin in lilly pulitzer was primarily driven by ( 1 ) a change in sales mix toward the direct to consumer channel of distribution , which typically has higher gross margins than the wholesale channel of distribution , and ( 2 ) higher gross margins in both the direct to consumer and wholesale channels of distribution . the higher gross margins in the direct to consumer business reflects less promotional activity . these favorable items were partially offset by the gross margin impact of the increase in e-commerce flash clearance sales in fiscal 2014 . lanier clothes : the lower gross margin for lanier clothes was primarily due to a change in sales mix with private label programs representing a greater proportion of net sales of lanier clothes . private label programs , including a warehouse club pants program , generally have lower gross margins than branded product programs .
| in wholesale sales reflecting higher levels of off-price wholesale sales in fiscal 2014 and the inclusion of the wholesale sales of tommy bahama canada for the full year in fiscal 2014 , ( 4 ) $ 4.6 million of additional e-commerce flash clearance sales resulting in $ 8.1 million for the fiscal year , and ( 5 ) a $ 3.4 million increase in restaurant sales primarily resulting from higher sales in existing restaurants . these increases in net sales were partially offset by a $ 3.3 million decrease in net sales in outlet stores which were operated during all of fiscal 2013 and fiscal 2014. as of january 31 , 2015 , we operated 157 tommy bahama stores globally , consisting of 101 full-price retail stores , 15 restaurant-retail locations and 41 outlet stores . as of february 1 , 2014 , we operated 141 tommy bahama stores consisting of 91 full-price retail stores , 14 restaurant-retail locations and 36 outlet stores . the following table presents the proportion of net sales by distribution channel for tommy bahama for each period presented : replace_table_token_23_th lilly pulitzer : the lilly pulitzer net sales increase of 21.6 % reflects an increase in each channel of distribution including ( 1 ) an $ 11.1 million , or 19 % , increase in comparable store sales , to $ 70.1 million in fiscal 2014 compared to $ 59.0 million in fiscal 2013 , ( 2 ) an incremental net sales increase of $ 8.9 million associated with retail stores opened in fiscal 2013 or fiscal 2014 , ( 3 ) an increase in e-commerce flash clearance sales of $ 5.2 million to $ 16.7 million and ( 4 ) a $ 4.5 million increase in wholesale sales . as of january 31 , 2015 , we operated 28 lilly pulitzer retail stores compared to 23 retail stores as of february 1 , 2014 . the following table presents the proportion of net sales by distribution
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pari-mutuel wagering and gaming businesses , which are driven , in part , by discretionary spending and industry competition , continued to weaken and contributed to a decline in our racing operations pari-mutuel handle of 6.4 % during the year ended december 31 , 2011 compared to the same period of 2010. total handle for the pari-mutuel industry , according to figures published by equibase , declined 5.7 % during the year ended december 31 , 2011 compared to the same period of 2010. despite the declines in our racing operations , twinspires.com handle increased $ 212.0 million , partially from growth in new customers and an increase in average daily wagering , primarily resulting from our acquisition of youbet during june 2010. although there is a growing confidence that the global economies have resumed growth , there remains risk that the recovery will be short-lived , such recovery may not include the industries or markets in which we conduct our business or the downturn may resume . there is a strong likelihood that the recent significant economic downturn has had , and for the foreseeable future will continue to have , a negative impact on our financial performance . we believe that , despite uncertain economic conditions , we are in a strong financial position . recent developments ohio joint venture during march 2012 , we announced an agreement to enter into a 50 % joint venture with delaware north companies gaming & entertainment inc. ( dnc ) to develop a new harness racetrack and video lottery terminal ( vlt ) gaming facility in lebanon , ohio . the project will involve the relocation of the current operations of lebanon raceway to a new location to be selected along the interstate 75 corridor between cincinnati and dayton . through the joint venture agreement , we and dnc have formed a new company , miami valley gaming & racing llc ( mvg ) , which will manage both our and dnc 's interests in the development and operation of the racetrack and vlt gaming facility . mvg has entered into an asset purchase agreement through which it will acquire the harness racing licenses and certain assets held by lebanon trotting club inc. and miami valley 49 trotting inc. , the two entities conducting harness racing at the existing lebanon raceway facility at the warren county fairgrounds in lebanon , ohio . mvg will acquire these assets for an aggregate purchase price of $ 60 million , of which $ 10 million will be paid in cash , with the remaining $ 50 million to be funded thorough a promissory note delivered at closing . an additional $ 10 million could be paid to the sellers if certain conditions are met with respect to the performance of the vlt facility over time . we and dnc will contribute , in the aggregate , up to $ 90 million in equity to fund the asset purchase agreement for the existing racing licenses and racetrack assets , the initial vlt license fees and acquisition costs for the land eventually selected for development . completion of the asset purchase transaction and development of the new racetrack and vlt gaming facility are subject to regulatory approvals and other customary closing conditions , including the resolution of any outstanding legal challenges threatening the legality of vlt gaming . in the event the transaction is not completed , the operating agreement will be terminated and the joint venture will be liquidated . bluff media acquisition during february 2012 , we announced the acquisition of the assets of bluff media , a multimedia poker content brand and publishing company . the acquisition price is not material to our financial position as of december 31 , 2011. bluff media 's assets include the poker periodical , bluff magazine ; bluff magazine 's online counterpart , bluffmagazine.com ; thepokerdb , a comprehensive online database and resource that tracks and ranks the performance of poker players and tournaments ; and various other news and content forums . bluff media also publishes fight ! magazine , a premier mixed martial arts magazine and its online counterpart , fightmagazine.com . in addition to our intention to further expand and build upon bluff media 's current content and business model , we believe this acquisition potentially provides us with new business avenues to pursue in the event there is a liberalization of state or federal laws with respect to internet poker in the united states . the assets and liabilities assumed from the acquisition will not have a material impact on our consolidated financial statements or related disclosures . horse racing equity trust fund beginning in 2009 , we have received payments from the horse racing equity trust fund ( the hre trust fund ) related to subsidies paid by illinois riverboat casinos in accordance with public acts 94-804 and 95-1008 ( the public acts ) . the hre trust fund was established to fund operating and capital improvements at illinois racetracks via a 3 % surcharge on revenues of illinois riverboat casinos that meet a predetermined revenue threshold . the funds were to be distributed with approximately 58 % of the total to be used for horsemen 's purses and the remaining monies to be distributed to illinois racetracks . the monies received from the public acts were placed into an arlington park escrow account due to a temporary restraining order ( tro ) imposed by the united states district court for the northern district of illinois , eastern division , pending the resolution of a lawsuit brought by certain illinois casinos that were required to pay funds to the hre trust fund ( casinos ) , and the monies were recognized as restricted cash and a deferred riverboat subsidy liability on the company 's consolidated balance sheet . on july 8 , 2011 , the seventh circuit court of appeals issued a thirty-day stay of dissolution of the tro to allow the casinos to request a further stay of dissolution of the tro pending their petition for certiorari to the united states supreme court . story_separator_special_tag on august 5 , 2011 , the united states supreme court denied an application by the casinos to further stay the dissolution of the tro . on august 9 , 2011 , the stay of dissolution expired and the tro dissolved , which terminated the restrictions on our ability to access the funds from the hre trust fund held in the escrow account . as of december 31 , 2011 , we have received $ 45.4 million in proceeds , of which $ 26.1 million has been designated for arlington park purses . arlington park intends to use the remaining $ 19.3 million of the proceeds to improve , market , and maintain or otherwise operate its racing facility in order to conduct live racing , which we have recognized as miscellaneous other income in our consolidated statements of net earnings and comprehensive earnings for the year ended december 31 , 2011 . 50 hoosier park consideration in accordance with the sale of our ownership interest in hoosier park , l.p. ( hoosier park ) to centaur racing , llc ( centaur ) during 2007 , we received a promissory note ( the note ) in the amount of $ 4.0 million plus interest . the partnership interest purchase agreement documenting such sale to centaur also includes a contingent consideration provision whereby we are entitled to payments of up to $ 15 million on the date which is eighteen months after the date that slot machines are operational at hoosier park . during june 2008 , hoosier park commenced its slot operations , fulfilling the terms of the contingency provision . however , due to uncertainties regarding collectability , we did not recognize the contingent consideration at the date of sale . on march 6 , 2010 , centaur and certain of its affiliates filed chapter 11 bankruptcy petitions in the united states district court for the district of delaware . on february 1 , 2011 , we entered into a settlement agreement with centaur and its affiliates whereby , subject to the conditions to the implementation of centaur 's reorganization plan being met , we would receive a cash payment of $ 8.5 million . on february 18 , 2011 , the u.s. bankruptcy court in delaware approved centaur 's reorganization plan and our settlement agreement with centaur . on october 1 , 2011 , we received $ 5.1 million in repayment of the amount owed to the company pursuant to the note . in addition , we also received $ 3.4 million as the final settlement of the contingent consideration provision of the partnership interest purchase agreement , which we recognized as a gain in discontinued operations during the year ended december 31 , 2011. income taxes during 2003 , we entered into a tax increment financing agreement ( tif ) with the commonwealth of kentucky . pursuant to this agreement , we are entitled to receive reimbursement of 80 % of the increase in kentucky income and sales tax driven by the 2005 renovation of the churchill facility . during the year ended december 31 , 2011 , we resolved uncertainties related to the computation of the tax increase and recognized a $ 3.1 million reduction in operating expenses and a $ 1.3 million reduction in income tax expense , net of federal taxes related to the years 2005 through 2010 and the year ended december 31 , 2011. during 2011 , we received a refund of $ 8.5 million related to the overpayment of our 2010 federal income taxes and a refund of $ 1.9 million related to an amended prior year federal income tax return that served to adjust state lobbying expense deductions . convertible note payable conversion during 2004 , we acquired 452,603 shares of our common stock from a shareholder in exchange for a convertible promissory note in the principal amount of $ 16.7 million which could be immediately convertible at any time at the option of the shareholder into shares of our common stock . during the year ended december 31 , 2011 , the shareholder exercised his conversion right , and the convertible note payable with a related party was paid through the issuance of 452,603 shares of our common stock . we recognized a gain on conversion of $ 2.7 million in miscellaneous other income and interest expense of $ 1.4 million as a result of the conversion and the elimination of the short forward contract liability and long put option asset . the conversion of the note payable resulted in a favorable impact on net earnings of approximately $ 0.8 million during the year ended december 31 , 2011. kentucky tornado on june 22 , 2011 , a tornado caused damage to portions of louisville , kentucky including churchill downs , which sustained damage to its stable area , as well as several other buildings on the backside of the racetrack . the company cancelled one day of its live racing meet as a result of the incident . the company carries property and casualty insurance as well as business interruption insurance subject to a $ 0.5 million deductible . during march 2012 , we finalized our insurance claim . for the year ended december 31 , 2011 , we received $ 1.0 million and recorded insurance recoveries in excess of losses of $ 0.6 million as a reduction of selling , general and administrative expenses . 51 mississippi river flooding on may 7 , 2011 , the board of mississippi levee commissioners ordered the closure of the mainline mississippi river levee as a result of the mississippi river flooding , and the company temporarily ceased operations at harlow 's casino resort & hotel ( harlow's ) on may 6 , 2011. on may 12 , 2011 , the property sustained damage to its 2,600-seat entertainment center and a portion of its dining facilities . on june 1 , 2011 , harlow 's resumed casino operations with temporary dining facilities .
| calder casino , which opened on january 20 , 2010 , increased total revenues by $ 17.6 million , compared to the same period of 2010 reflecting performance driven by what we believe is an improved economy in south florida , a revised marketing strategy executed during 2011 and the effect of a full year of operations during 2011. revenues generated by the online business segment increased $ 44.0 million during the year ended december 31 , 2011 , compared to the same period of 2010 primarily reflecting the acquisition of youbet during the second quarter of 2010. we benefitted from a full year of operations of youbet during the year ended december 31 , 2011 compared to approximately seven months of operations during the year ended december 31 , 2010. racing operations revenues declined $ 9.3 million as continued declines in pari-mutuel racing were partly offset by improvements in kentucky derby week performance . finally , other operating revenues increased $ 6.4 million predominantly due to revenues generated by united tote , which was acquired as part of the youbet acquisition during the second quarter of 2010. further discussion of net revenue variances by our reported segments is detailed below . year ended december 31 , 2010 , compared to the year ended december 31 , 2009 our total net revenues increased $ 114.8 million primarily as a result of the operation of calder casino , which opened on january 22 , 2010 , and generated gaming revenues of $ 65.2 million during 2010. pari-mutuel revenues generated from the acquisition of youbet and the continuing growth of twinspires and faw resulted in an increase of $ 49.5 million during the year ended december 31 , 2010. in addition , net revenues increased $ 13.4 million due to the addition of united tote as part of the youbet acquisition during the year ended december 31 , 2010. these increases in net revenues were offset by a decline in racing operations revenues of $ 14.4 million , driven primarily by the fact that we conducted twenty-five fewer live race days during the year ended december 31 , 2010 , compared to 2009. further discussion of net revenue variances by our reported segments is detailed below . 58 consolidated operating expenses the following table is a summary of our consolidated operating expenses ( in thousands ) : replace_table_token_9_th year ended december 31 , 2011 , compared to the year ended december
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in focusing on profitability and cash flows , among other things , the company will continue to aggressively pursue claims that it has asserted against project contractors , owners , engineers , consultants , subcontractors or others involved in projects where the 26 company has incurred additional costs exceeding the contract price or for amounts not included in the original contract price . management believes that the resolution of such currently existing and possible future claims will be a significant part of the company 's success related to profitability , liquidity and financial performance . additionally , given that both the 2019 refinancing agreement ( as defined below ) and the 2019 abl credit agreement ( as defined below ) have minimum liquidity covenant requirements of at least $ 10.0 million on a per monthly basis ( as more fully described in “ liquidity and capital resources ” below ) and that those covenants can ( and have ) created challenges for the company to utilize the revolving facility under the 2019 abl credit agreement ( unless such covenants can be met while still incurring borrowings ) , management also believes that this focus on claims recovery and on management 's ability to manage operating cash flows and liquidity will be significant to the company 's overall short-term success . however , as a specialty contractor providing hvac , plumbing , electrical and building controls design , engineering , installation and maintenance services in commercial , institutional and light industrial markets , our operating cash flows are subject to variability , including variability associated with winning , performing and closing work and projects . additionally , our operating cash flows are impacted by the timing related to the resolution of the uncertainties inherent in the complex nature of the work that we perform , including claims and back charge settlements . although we believe that we have adequate plans related to providing sufficient operating working capital and liquidity in the short-term , the complex nature of the work we perform , including related to claims and back charge settlements could prove those plans to be incorrect . if those plans prove to be incorrect , our financial position , results of operations , cash flows and liquidity could be materially and adversely impacted . as it relates to focusing on owner-direct work and our focus on job selection and processes , we believe that it is appropriate in the current contracting environment to reduce risk and exposure to large , complex , non-owner direct projects where the trend has been for such jobs to provide risks that are difficult to mitigate . currently , management believes the historical industry pricing and associated risks for this type of work does not align with the company 's stakeholders ' expectations and therefore the company is taking steps to actively reduce these risks as it looks at future job selection and as it completes current jobs . jobs act we ceased to qualify as an “ emerging growth company ” pursuant to the jumpstart our business act on december 31 , 2019 , at which time we reached the last day of the fiscal year following the fifth anniversary of our initial public offering of common equity securities . industry forecast industry forecasting by fmi anticipates that the impact of covid-19 will cause , at a minimum , a momentary recession between the second and third quarter of 2020. this is due to the high volatility across financial and equity markets , emergency policies set in place by the federal reserve , significantly lower oil prices , the potential impact of federal stimulus , and the mounting political uncertainty headed into the 2020 presidential election . as noted in fmi 's first quarter 2020 construction outlook report , three of our top four sectors : healthcare , education , and infrastructure are projected to be relatively stable through 2024. our fourth largest sector , sports and entertainment , is projected to decrease through 2022 before rebounding in 2023. the ultimate impact of the covid-19 pandemic on our business , results of operations , financial condition and cash flows is highly uncertain , can not be accurately predicted and is dependent on future developments , including the duration of the pandemic and the related length of its impact on the global economy , such as a lengthy or severe recession or any other negative trend in the u.s. or global economy , and any new information that may emerge concerning the covid-19 outbreak and the actions to contain it or treat its impact . the continued impact on our business as a result of covid-19 pandemic could result in a material adverse effect on our business , results of operations , financial condition , prospects and the trading prices of our securities in the near-term and beyond 2020. trends that could affect the company 's business are discussed in this annual report on form 10-k under the caption item 1a . key components of consolidated statements of operations revenue we generate revenue principally from fixed-price construction contracts to deliver hvac , plumbing , and electrical construction services to our customers . the duration of our contracts generally ranges from six months to two years . revenue from fixed price contracts is recognized on the cost-to-cost method , measured by the relationship of total cost incurred to total estimated contract costs . revenue from time and materials service contracts is recognized as services are performed . we believe that our extensive experience in hvac , plumbing , and electrical projects , and our internal cost review procedures during the bidding process , enable us to reasonably estimate costs and mitigate the risk of cost overruns on fixed price contracts . we generally invoice customers on a monthly basis , based on a schedule of values that breaks down the contract amount into discrete billing items . costs and estimated earnings in excess of billings are recorded as a contract asset until billable under the 27 contract terms . story_separator_special_tag billings in excess of costs and estimated earnings are recorded as a contract liability until the related revenue is recognizable . cost of revenue cost of revenue primarily consists of the labor , equipment , material , subcontract , and other job costs in connection with fulfilling the terms of our contracts . labor costs consist of wages plus taxes , fringe benefits , and insurance . equipment costs consist of the ownership and operating costs of company-owned assets , in addition to outside-rented equipment . if applicable , job costs include estimated contract losses to be incurred in future periods . due to the varied nature of our services , and the risks associated therewith , contract costs as a percentage of contract revenue have historically fluctuated and we expect this fluctuation to continue in future periods . selling , general and administrative expenses selling , general and administrative expenses consist primarily of personnel costs for our administrative , estimating , human resources , safety , information technology , legal , finance and accounting employees and executives . also included are non-personnel costs , such as travel-related expenses , legal and other professional fees and other corporate expenses to support the growth of our business and to meet the compliance requirements associated with operating as a public company . those costs include accounting , human resources , information technology , legal personnel , additional consulting , legal and audit fees , insurance costs , board of directors ' compensation and the costs of achieving and maintaining compliance with section 404 of the sarbanes-oxley act . amortization of intangibles amortization expense represents periodic non-cash charges that consist of amortization of various intangible assets primarily including leasehold interests , customer relationships – service and backlog – construction . other income/expense other income/expense consists primarily of interest expense incurred in connection with our debt , net of interest income , loss on debt extinguishment , loss on debt modification , gains and losses on the sale of property and equipment , change in fair value of warrant liability and impairment of goodwill . deferred financing costs are amortized to interest expense using the effective interest method . provision for income taxes we are taxed as a c corporation and our financial results include the effects of federal income taxes which will be paid at the parent level . the company 's provision for income taxes includes federal , state and local taxes . the company accounts for income taxes in accordance with asc topic 740 - income taxes , which requires the use of the asset and liability method . under this method , deferred tax assets and liabilities and income or expense is recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and their respective tax bases , using enacted tax rates expected to be applicable in the years in which the temporary differences are expected to reverse . changes in deferred tax assets and liabilities are recorded in the provision for income taxes . operating segments we manage and measure the performance of our business in two operating segments : construction and service . these segments are reflective of how the company 's chief operating decision maker ( “ codm ” ) reviews operating results for the purposes of allocating resources and assessing performance . our codm is comprised of our chief executive officer , chief financial officer and chief operating officer . the codm evaluates performance and allocates resources based on operating income , which is profit or loss from operations before “ other ” corporate expenses , income tax provision ( benefit ) and dividends on redeemable convertible preferred stock , if any . the accounting policies of the segments are the same as those described in the summary of significant accounting policies below in note 2 – significant accounting policies in the notes to consolidated financial statements . our codm evaluates performance based on income from operations of the respective branches after the allocation of corporate office operating expenses . in accordance with asc topic 280 – segment reporting , the company has elected to aggregate all of the construction branches into one construction reportable segment and all of the service branches into one service reportable segment . all transactions between 28 segments are eliminated in consolidation . our corporate departments provide general and administrative support services to our two operating segments . we allocate costs between segments for selling , general and administrative expenses and depreciation expense . some selling , general and administrative expenses such as executive and administrative salaries and payroll expenses , corporate marketing , corporate depreciation and amortization , and consulting , accounting and corporate legal fees are not allocated to segments because the allocation method would be arbitrary and would not provide an accurate presentation of operating results of segments ; instead these types of expenses are maintained as a corporate expense . see note 13 – operating segments in the notes to consolidated financial statements . we do not identify capital expenditures and total assets by segment in our internal financial reports due in part to the shared use of a centralized fleet of vehicles and specialized equipment . interest expense is not allocated to segments because of the corporate management of debt service . the company had a single construction segment customer that accounted for approximately 10 % of consolidated total revenues for the year ended december 31 , 2019 and a single construction segment customer that accounted for approximately 18 % of consolidated total revenues for the year ended december 31 , 2018 . 29 comparison of results of operations for the years ended december 31 , 2019 and december 31 , 2018 the following table presents operating results for the years ended december 31 , 2019 and december 31 , 2018 in absolute terms and expressed as a percentage of total revenue : replace_table_token_1_th ( 1 ) as a percentage of construction revenue . ( 2 ) as a percentage of service revenue . ( 3 ) as a percentage of total revenue .
| based on the company 's related computation as of december 31 , 2017 , $ 1.6 million was paid to the lenders on may 1 , 2018. this amount was reclassified from long-term debt to the current portion of long-term debt at december 31 , 2017 . 37 on january 12 , 2018 , lfs and lhllc entered into the second amendment and limited waiver to the credit agreement ( the “ second amendment and limited waiver ” ) with the lenders party thereto and fifth third bank , as administrative agent . the second amendment and limited waiver provided for a new term loan under the credit agreement in the aggregate principal amount of $ 10.0 million ( the “ bridge term loan ” ) the proceeds of which were used to repurchase the company 's remaining 280,000 shares of class a preferred stock for an aggregate purchase price of $ 9.1 million plus accrued but unpaid dividends of $ 0.9 million . loans under the credit agreement bore interest , at the borrower 's option , at either adjusted libor ( “ eurodollar ” ) or a base rate , in each case , plus an applicable margin . with respect to the bridge term loan , from the twelve-month anniversary of the effective date and all times thereafter , the applicable margin with respect to any base rate loan was 5.00 % per annum and , with respect to a eurodollar loan , 6.00 % per annum . the borrower was required to make principal payments on the bridge term loan in the amount of $ 250,000 on the last business day of march , june , september and december of each year , commencing on march 31 , 2018. the bridge term loan was to mature on april 12 , 2019. the bridge term loan was guaranteed by the same guarantors and secured ( on a pari passu basis ) by the same collateral as the loans under the credit agreement . on march 21 , 2018 , the company , lfs and lhllc entered into the third amendment to
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our long-term success depends to a great extent on our ability to continue to discover , develop and commercialize innovative products and acquire or collaborate on therapies currently in development by other companies . the discovery and development of safe and effective new products , as well as the development of additional indications for existing products , are necessary for the continued strength of our businesses . our product lines must be replenished over time in order to offset revenue losses when products lose their exclusivity or competing products are launched , as well as to provide for revenue and earnings growth . we devote considerable resources to r & d activities . however , successful product development in the biotechnology industry is highly uncertain . we are also confronted by increasing regulatory scrutiny of safety and efficacy before and after products have been launched . finally , our product sales are subject to certain influences throughout the year , including wholesaler and end-user buying patterns ( e.g. , wholesaler and end-user stocking , contract-driven buying and patients delaying certain purchasing or physician visits ) . such factors can result in higher demand for our products and or higher wholesaler inventory levels and , therefore , higher product sales for a given three-month period , generally followed by a decline in product sales in the subsequent three-month period . for example , sales of certain of our products in the united states for the three months ended march 31 can be slightly lower relative to the immediately preceding three-month period . while this can result in variability in quarterly product sales on a sequential basis , these effects have generally not been significant when comparing product sales in the three months ended march 31 with product sales in the corresponding period of the prior year . see item 1. business — marketed products and item 1a . risk factors for further discussion of certain of the factors that could impact our future product sales . selected financial information the following is an overview of our results of operations as well as our financial condition ( in millions , except percentages and per share data ) : replace_table_token_14_th * change in excess of 100 % when discussing changes in product sales below , any reference to unit growth or decline refers to changes in the purchases of our products by healthcare providers , such as physicians or their clinics , dialysis centers , hospitals and pharmacies . the increase in u.s. product sales for 2012 reflects growth across the portfolio except esas , which declined 10 % . excluding esas , u.s. product sales increased 16 % driven primarily by unit growth and , to a lesser extent , increases in average net sales prices . the increase in row product sales for 2012 reflects growth for all of our marketed products except aranesp ® , which declined 4 % , and combined neulasta ® /neupogen ® , which declined 9 % . the increase in other revenues for 2012 was driven by a modification to our takeda collaboration , which replaced a global co-development and profit share agreement for motesanib , originally signed in 2008 , with an exclusive license for takeda to 61 develop , manufacture and commercialize motesanib . that modification resulted in revenue recognition of $ 232 million . the increase also reflects milestone payments received from astrazeneca and astellas pharma inc. operating expenses in 2011 included a previously disclosed charge for a legal settlement reserve of $ 780 million . the increase in net income for 2012 was due primarily to higher operating income , offset partially by higher interest expense , net , and higher effective income tax rates . the increase in diluted eps for 2012 was driven primarily by increases in net income and by the favorable impacts of our stock repurchase program , which reduced the number of shares used to compute diluted eps . although changes in foreign currency exchange rates result in increases or decreases in our reported international product sales , the benefit or detriment that such movements have on our international product sales is offset partially by corresponding increases or decreases in our international operating expenses and our related foreign currency hedging activities . our hedging activities seek to offset the impacts , both positive and negative , that foreign currency exchange rate changes may have on our net income by hedging our net foreign currency exposure , primarily with respect to product sales denominated in euros . commencing january 1 , 2011 , puerto rico imposes a temporary excise tax on the purchase of goods and services from a related manufacturer in puerto rico . the excise tax is imposed on the gross intercompany purchase price of the goods and services and is effective for a six-year period beginning in 2011 , with the excise tax rate declining in each year ( 4 % in 2011 , 3.75 % in 2012 , 2.75 % in 2013 , 2.5 % in 2014 , 2.25 % in 2015 and 1 % in 2016 ) . in february 2013 , the puerto rico government proposed an amendment to the excise tax legislation which , if approved , would increase the excise tax rate to 4 % effective july 1 , 2013 through 2017. we account for the excise tax as a manufacturing cost that is capitalized in inventory and expensed in cost of sales when the related products are sold . for u.s. income tax purposes , the excise tax results in foreign tax credits that are generally recognized in our provision for income taxes in the year in which the excise tax is incurred . this excise tax has had and will continue to have a significant adverse impact on our cost of sales and a significant favorable impact on our provision for income taxes . in addition , the overall impact of the excise tax will vary from period to period as a result of the timing difference between recognizing the expense and the applicable foreign tax credit . story_separator_special_tag as a result of the excise tax in 2012 , cost of sales increased by $ 343 million , the provision for income taxes was reduced by $ 337 million and eps was unfavorably impacted by $ 0.01. in 2011 , cost of sales increased by $ 211 million , the provision for income taxes was reduced by $ 321 million and eps was favorably impacted by $ 0.12. as of december 31 , 2012 , our cash , cash equivalents and marketable securities totaled $ 24.1 billion , and total debt outstanding was $ 26.5 billion . of our total cash , cash equivalents and marketable securities balance as of december 31 , 2012 , approximately $ 18.9 billion was generated from operations in foreign tax jurisdictions and is intended to be invested indefinitely outside the united states . under current tax laws , if these funds were repatriated for use in our u.s. operations , we would be required to pay additional income taxes at the tax rates then in effect . results of operations product sales worldwide product sales were as follows ( dollar amounts in millions ) : replace_table_token_15_th * change in excess of 100 % future sales of our products will depend , in part , on the factors discussed in the overview , item 1. business - marketed products , item 1a . risk factors and any additional factors discussed in the individual product sections below . 62 neulasta ® /neupogen ® total neulasta ® and total neupogen ® sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_16_th the increase in u.s. neulasta ® sales for 2012 was driven by an increase in the average net sales price . the decrease in row neulasta ® sales for 2012 was due primarily to a decrease in unit demand from loss of share to biosimilars in europe and a decrease in the average net sales price . the increase in u.s. neupogen ® sales for 2012 was driven by an increase in the average net sales price . the decrease in row neupogen ® sales for 2012 was driven by a decrease in unit demand from loss of share to biosimilars in europe . the increase in u.s. neulasta ® sales for 2011 was driven by increases in both unit demand and the average net sales price . the increase in row neulasta ® sales for 2011 was driven primarily by an increase in unit demand . the increase in u.s. neupogen ® sales for 2011 was driven by an increase in the average net sales price , offset partially by a decrease in unit demand . the decrease in row neupogen ® sales for 2011 was driven by a decrease in unit demand , in part , from loss of share to biosimilars in europe , and a decrease in the average net sales price . our outstanding material u.s. patents for filgrastim ( neupogen ® ) expire in december 2013. we expect to face competition in the united states beginning in the fourth quarter of 2013 , which may have a material adverse impact over time on future sales of neupogen ® and , in turn , neulasta ® . see financial condition , liquidity and capital resources for further discussion of the potential impact of patent expiration . our outstanding material u.s. patent for pegfilgrastim ( neulasta ® ) expires in 2015. future neulasta ® /neupogen ® sales will also depend , in part , on the development of new protocols , tests and or treatments for cancer and or new chemotherapy treatments or alternatives to chemotherapy that may have reduced and may continue to reduce the use of chemotherapy in some patients . enbrel total enbrel sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_17_th the increase in enbrel sales for 2012 was driven primarily by an increase in the average net sales price and , to a lesser extent , an increase in unit demand . the increase in enbrel sales for 2011 was driven primarily by an increase in the average net sales price . enbrel also faces increased competition . see item 1. business — marketed products . 63 aranesp ® total aranesp ® sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_18_th the decrease in u.s. aranesp ® sales for 2012 was driven by a decline in unit demand . the unit decline reflects changes in practice patterns resulting from changes to the label and to the reimbursement environment that occurred during 2011 ( 2011 changes ) . the decrease in row aranesp ® sales for 2012 was due primarily to a decrease in the average net sales price . sequentially , global aranesp ® unit demand was down 5 % in the quarter ended december 31 , 2012 , compared with the quarter ended september 30 , 2012. the decrease in u.s. aranesp ® sales for 2011 was driven primarily by a decline in unit demand due to the impact of the 2011 changes , offset partially by an increase in the average net sales price . the decrease in row aranesp ® sales for 2011 was due to a decrease in the average net sales price and a unit decline , reflecting segment contraction . epogen ® total epogen ® sales were as follows ( dollar amounts in millions ) : replace_table_token_19_th the decrease in epogen ® sales for 2012 was driven by a 23 % decrease in unit demand , driven by reductions in dose utilization due to changes to the label and to the reimbursement environment that occurred in 2011. this decrease was offset partially by reductions in customer discounts , as part of new provider contracts that became effective january 1 , 2012 , and by a year-over-year favorable change in accounting estimates of $ 96 million .
| products we sell in the eu are distributed principally to hospitals and or wholesalers depending on the distribution practice in each country where the product is sold . we monitor the inventory levels of our products at our wholesalers by using data from our wholesalers and other third parties , and we believe wholesaler inventories have been maintained at appropriate levels ( generally two to three weeks ) given end-user demand . accordingly , historical fluctuations in wholesaler inventory levels have not significantly impacted our method of estimating sales deductions and returns . accruals for sales deductions are based primarily on estimates of the amounts earned or to be claimed on the related sales . these estimates take into consideration current contractual and statutory requirements , specific known market events and trends , internal and external historical data and forecasted customer buying patterns . sales deductions are substantially product-specific and , therefore , for any given year , can be impacted by the mix of products sold . rebates include primarily amounts paid to payers and providers in the united states , including those paid to state medicaid programs , and are based on contractual arrangements or statutory requirements which vary by product , by payer and individual payer plans . we estimate the amount of rebate that will be paid based on the product sold , contractual terms , historical experience and wholesaler inventory levels and accrue these rebates in the period the related sale is recorded . additionally , for medicaid rebates , we consider the estimated patient population and the amount of unbilled managed medicaid claims . we adjust the rebate accruals as more information becomes available and to reflect actual experience . estimating such rebates is complicated , in part , due to the time delay between the date of sale and the actual settlement of the liability , which for certain rebates can take up to one year and more than one year for certain government programs . rebate accruals totaled $ 1.5 billion , $ 1.8 billion and $ 1.9 billion for the years ended december 31 , 2012 , 2011 and 2010 ,
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revenue generated from access to our das networks consists of build-out fees and recurring access fees under certain long-term contracts with telecom operators . build-out fees paid upfront are generally deferred and recognized ratably over the term of the estimated customer relationship period , once the build-out is complete . minimum monthly access fees for usage of the das networks are non-cancellable and generally escalate on an annual basis . these minimum monthly access fees are recognized ratably over the term of the estimated customer relationship period . the initial term of our 30 contracts with telecom operations and wholesale partners generally range from three to fifteen years and the agreements generally contain renewal clauses . revenue from network access fees in excess of the monthly minimums is recognized when earned . in instances where the minimum monthly network access fees escalate over the term of the wholesale service arrangement , an unbilled receivable is recognized when performance is within our control and when we have reasonable assurance that the unbilled receivable balance will be collected . for multiple-deliverable arrangements entered into prior to january 1 , 2011 that are accounted for under financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` asc '' ) 605-25 , revenue recognitionmultiple- deliverable revenue arrangements , we defer recognition of revenue for the full arrangement and recognize all revenue ratably over the wholesale service period for platform service arrangements and the term of the estimated customer relationship period for das arrangements , as we did not have evidence of fair value for the undelivered elements in the arrangement . for multiple-deliverable arrangements entered into or materially modified after january 1 , 2011 that are accounted for under asc 605-25 , we evaluate whether or not separate units of accounting exist and then allocate the arrangement consideration to all units of accounting based on the relative selling price method using estimated selling prices as vendor specific objective evidence and third-party evidence is not available . we recognize the revenue associated with the separate units of accounting upon completion of such services or ratably over the wholesale service period for platform service arrangements and the term of the estimated customer relationship period for das arrangements . advertising and other revenue is recognized when the services are performed . business combinations we allocate the total purchase price of a business combination to the assets acquired and the liabilities assumed based on their estimated fair values at the acquisition date , with the excess purchase price recorded as goodwill . an income , market or cost valuation method may be utilized to estimate the fair value of the assets acquired or liabilities assumed in a business combination . the income valuation method represents the present value of future cash flows over the life of the asset using ( i ) discrete financial forecasts , which rely on management 's estimates of revenue and operating expenses , ( ii ) long-term growth rates and ( iii ) an appropriate discount rate . the market valuation method uses prices paid for a reasonably similar asset by other purchasers in the market , with adjustments relating to any differences between the assets . the cost valuation method is based on the replacement cost of a comparable asset at prices at the time of the acquisition reduced for depreciation of the asset . goodwill goodwill represents the excess of purchase price over fair value of net assets acquired . goodwill is not amortized but instead is tested annually for impairment , or more frequently when events or changes in circumstances indicate that fair value of the reporting unit has been reduced to less than its carrying value . we perform our impairment test annually on december 31 st . in september 2011 , the fasb issued revised guidance to simplify how entities test goodwill for impairment . under the revised guidance , entities have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in asc 350 , intangiblesgoodwill and other . if , after assessing qualitative factors , an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount , then performing the two-step impairment test is unnecessary . if deemed necessary , a two-step test is used to identify the potential impairment and to measure the amount of goodwill impairment , if any . the first 31 step is to compare the fair value of the reporting unit with its carrying amount , including goodwill . if the fair value of the reporting unit exceeds its carrying amount , goodwill is considered not impaired ; otherwise , there is an indication that goodwill maybe impaired and the amount of the loss , if any , is measured by performing step two . under step two , the impairment loss , if any , is measured by comparing the implied fair value of the reporting unit goodwill with the carrying amount of goodwill . at december 31 , 2012 and 2011 , we tested our goodwill for impairment and no impairment was identified as the fair value of our sole reporting unit was substantially in excess of its carrying amount . to date , we have not recorded any goodwill impairment charges . measuring recoverability of long-lived assets we perform an impairment review of long-lived assets held and used whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important that could trigger an impairment review include , but are not limited to , significant under-performance relative to projected future operating results , significant changes in the manner of our use of the acquired assets or our overall business and or product strategies and significant industry or economic trends . story_separator_special_tag when we determine that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of these indicators , we determine the recoverability by comparing the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate or other indices of fair value . we would then recognize an impairment charge equal to the amount by which the carrying amount exceeds the fair market value of the asset . to date , we have not recorded any long-lived asset impairment charges . stock-based compensation stock-based compensation consists of stock options granted to employees and non-employees . it is recorded as compensation expense based on the grant date fair value of awards using the black-scholes option pricing model . we recognize stock-based compensation expense related to employee stock option and restricted stock grants , which requires us to recognize compensation expense equal to the grant date fair value on a straight-line basis , net of estimated and actual forfeitures , over the employee requisite service period . prior to our ipo , in 2011 and 2010 , we granted options to purchase shares of our common stock . because there was no public market for our common stock prior to our ipo , determining the fair value of our common stock required making complex and subjective judgments and there was inherent uncertainty in our estimate of fair value . prior to our ipo , our general policy was to grant employee options at exercise prices equal to the fair value of the underlying common stock at the time of grant , as determined by us and our board of directors . to determine the fair value of our common stock , we considered many factors , including : our current and historical financial performance ; our expected future financial performance ; our financial condition at the grant date ; the liquidation rights and other preferences of our preferred stock ; input from management ; the lack of marketability of our common stock ; the anticipation or likelihood of a potential liquidity event such as a sale of the business or ipo ; the condition of and outlook for our industry ; 32 the business risks inherent in our business ; the market performance of comparable publicly-traded companies ; and the united states and global capital market conditions . to determine the estimated fair value of our common stock at each grant date , we conducted a periodic in-depth valuation analysis of our common stock prepared with the assistance of an independent valuation firm and also considered the factors noted above . our valuation analysis followed the guidance set forth by the american institute of certified public accountants , or aicpa , technical practice aid , `` valuation of privately-held-company equity securities issued as compensation , '' referred to herein as the aicpa practice aid . based on the guidance of the aicpa practice aid , we utilized a combination of valuation methods including an income approach using an analysis of expected future discounted cash flows and a market approach for similar companies with publicly-traded ownership interests ( market comparable method ) . we then weighted these two valuations to calculate an expected business enterprise value which was applied to our capital structure to determine a value per common share . the expected future discounted cash flows analysis identifies a level of annual cash flows for a finite number of years and a residual value at the end of the projection period . a discount rate which reflects estimates of investor- required rates of return for similar investments is used to calculate the present value . the market comparable method uses valuation multiples of comparable companies which are applied to our operating statistics to arrive at a value . these two business enterprise values are then equally weighted to determine the total valuation . to estimate the value of common shares , we used a dynamic option model to value the various components of our capital structure . these components included common shares , liquidation rights and preferences of our preferred stock , warrants and options on common shares . the total value of these securities was divided by the number of fully converted shares to provide an estimated value of common shares on a marketable , controlling interest . a discount for lack of control and lack of marketability was then applied to yield the value per common share . income taxes income taxes are provided based on the liability method , which results in income tax assets and liabilities arising from temporary differences . temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years . the liability method requires the effect of tax rate changes on current and accumulated deferred income taxes to be reflected in the period in which the rate change was enacted . the liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized . we may recognize the tax benefit from uncertain tax positions only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon settlement with the taxing authorities . upon our adoption of the related standard , there was no liability for uncertain tax positions due to the fact that there were no material identified tax benefits that were considered uncertain positions . we establish valuation allowances when necessary to reduce deferred tax assets to the amounts expected to be realized .
| the decrease in single-use connects was due primarily to the transition of certain paid managed and operated locations to a tiered or free pricing model , an increase in new customers that opted for subscriptions and increased promotional sponsorships . wholesale . wholesale revenue increased $ 5.8 million , or 13.2 % , in 2012 , as compared to 2011 , due to a $ 6.7 million increase from das build-out projects in our managed and operated locations offset by a decrease of $ 0.5 million in partner usage-based fees and a decrease of $ 0.4 million from das access and usage fees . advertising and other . advertising and other revenue increased $ 1.1 million , or 19.1 % , in 2012 , as compared to 2011 , due primarily to revenues earned by cloud 9 wireless , inc. , which was acquired in august 2012 . 39 costs and operating expenses replace_table_token_12_th network access . network access costs increased $ 5.2 million , or 14.0 % , in 2012 , as compared to 2011 , due primarily to increases of $ 4.2 million in das build-out projects , $ 1.3 million in a one-time das build-out project , $ 1.3 million in revenue share paid to venues in our managed and operated locations and $ 0.7 million increase in the direct costs related to the sale of equipment for venue build-outs . the increases were partially offset by a decrease of $ 2.3 million from customer usage at partner venues . network operations . network operations expenses decreased $ 1.3 million , or 8.3 % , in 2012 , as compared to 2011 , due to decreases of $ 1.4 million in personnel related expenses $ 0.3 million in consulting expenses , $ 0.3 million in hardware and software maintenance expenses , and $ 0.3 million in other expenses . the decreases were partially offset by increases of $ 0.5 million in internet connectivity expenses , $ 0.4 million in depreciation expense and $ 0.1 million in break-fix expenses . development and
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upon signing a contract , we determine the expected timing of when services are to be provided and record expense ratably over time based upon the initial forecasted timetable . periodically , we review both the timetable of services to be rendered and the timing of services actually received . based upon this review , revisions may be made to the forecasted timetable or to the extent of services performed , or both , in order to reflect our most current estimate of the contract . the above listing is not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles , with no need for our judgment in their application . there are also areas in which our judgment in selecting any available alternative would not produce a materially different result . see our audited financial statements and notes thereto , which begin on page f-1 of this annual report on form 10-k and which contain our accounting policies and other disclosures required by generally accepted accounting principles . 34 story_separator_special_tag of ms-325 . both the time-frame and costs involved in completing the development of ms-325 , gaining fda approval and commercializing the product may vary greatly for several reasons : we rely on third party clinical trial centers to find suitable patients for our phase iii clinical trial program . if these third parties do not find suitable patients in the time-frame for which we have planned , we will not be able to complete our phase iii clinical trial program according to our expected schedule . such a delay would result in an increase in costs to the development of our ms-325 program , a delay in filing an nda with the fda , and a delay in commercialization of the product . we conduct our phase iii clinical trial program in accordance with specific protocols , which we have filed with the fda . if the fda modifies the protocols we have filed with them or requires us to perform additional studies , we could incur significant additional costs and additional time to complete our phase iii clinical trial program according to the revised plan . this would also result in a delay in our ability to file an nda with the fda and a delay in the commercialization of our product . the length of time that the fda takes to review our nda can also vary widely , causing a delay in the commercialization of ms-325 . such a delay would result in an increase in costs and a delay in the commercialization of our product . our partner , schering ag , is responsible for the launch and marketing of ms-325 . if they do not launch the product in a timely manner or market the product effectively , we will incur a delay in receiving revenues after the launch of ms-325 and may not receive enough revenue to enable us to be profitable . our current timetable for completing the development of ms-325 and achieving commercialization reflects our best estimate of the time involved in completing the remaining steps in the development program based on factors currently known to us . the third parties described above have the ability to greatly impact this timetable , and we may not have control over or be able to respond within the existing timetable to changes caused by them . any such delays could result in a significant increase in costs to complete development of ms-325 as well as a delay in product launch , which could enable competition to intensify . 37 thrombus we are seeking to develop a targeted contrast agent that would enable mri to illuminate blood clots . such a product could potentially change the diagnostic work-up for many of the conditions associated with thromboembolic disease , including pe and dvt . we believe that the use of this new approach could lead to better medical outcomes due to earlier and more definitive diagnosis . we further believe that our proprietary technology platform could enable mri to differentiate old and new clot formation , potentially identifying those clots that pose the most risk to patients and those that are the most treatable . we have not yet entered into a strategic collaboration with a third party for the development and marketing of our thrombus program . therefore , we have generated no revenues from this program and have fully funded its costs to date . the amounts of the expenditures that will be necessary to execute our thrombus business plan are subject to numerous uncertainties , which may adversely affect our liquidity and capital resources . completion of product candidates may take several years or more , but the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product candidate . the duration and cost of bringing a product to market may vary significantly over the life of a project as a result of differences arising during the clinical trials protocol , including , among others , the following : unanticipated adverse safety and efficacy results from the pre-clinical or clinical trials ; significant unexpected change in the current market conditions ; we test our potential product candidates in numerous pre-clinical studies to identify disease indications for which they may be product candidates . we may conduct multiple clinical trials to cover a variety of indications for each product candidate . as we obtain results from trials , we may elect to discontinue clinical trials for certain product candidates or for certain indications in order to focus on more promising product candidates or indications . story_separator_special_tag liquidity and capital resources our principal sources of liquidity consist of cash , cash equivalents and available-for-sale marketable securities , of $ 25.0 million at december 31 , 2001. on january 18 , 2002 we raised $ 30.2 million pursuant to our previously filed shelf registration , bringing our cash , cash equivalents and marketable securities to $ 53.8 million as of that date . in september 2000 , we entered into an agreement with acqua wellington north american equities fund ltd. , or acqua wellington , for an equity financing facility . during 2001 , we received $ 8,666,346 and in 2000 , we received $ 885,397 in net proceeds using this facility . this equity financing facility was terminated in january 2002 , in accordance with the terms of the equity financing facility agreement , as a result of our sale of all of the remaining shares available on our effective s-3 shelf offering . our january 2002 offering raised $ 30.2 million in net proceeds , and we issued an additional 2.575 million shares . acqua wellington did not purchase any shares in the january offering . we currently receive quarterly cash payments from schering ag for their share of development costs of ms-325 , quarterly royalty payments from bracco on their sales of multihance® and interest income earned on our cash , cash equivalents and available-for-sale marketable securities . in the future , we may also receive proceeds from a shelf registration statement filed with the sec on march 20 , 2002 whereby we requested to register 5 million shares of common stock . such filing has not yet been declared effective by the sec . certain additional future cash flows depend on the successful filing of an nda , fda approval and product launch of ms-325 , and include up to $ 27.0 million in milestone 38 payments from schering ag and our share of the profits earned on sales of ms-325 worldwide . we may also receive royalties on sales of schering ag 's eovist product once it is approved for sale . known outflows , in addition to our ongoing research and development and general and administrative expenses , include the $ 3.0 million loan due tyco/mallinckrodt in october 2002 , semi-annual royalties we owe mgh on sales by bracco of multihance® , and $ 2.4 million we owe daiichi in december 2003 under the terms of the reacquisition agreement . other potential future outflows depend on the successful filing of an nda , fda approval and product launch of ms-325 , which include $ 5.0 million of milestone payments due tyco/mallinekrodt , a share of profits due mallinekrodt on sales of ms-325 worldwide except japan , a royalty to daiichi on sales of ms-325 in japan and a royalty due mgh on our share of the profits of ms-325 worldwide . we estimate that cash , cash equivalents and marketable securities on hand as of december 31 , 2001 , as well as the $ 30.2 million raised in january 2002 , will be sufficient to fund our operations through november 2003. we believe that we will need to raise additional funds for research , development and other expenses through equity or debt financing , strategic alliances or otherwise , in order to achieve commercial introduction of any of our product candidates . our future liquidity and capital requirements will depend on numerous factors , including the following : the progress and scope of clinical trials ; the timing and costs of filing future regulatory submissions ; the timing and costs required to receive both united states and foreign governmental approvals ; the cost of filing , prosecuting , defending and enforcing patent claims and other intellectual property rights ; the extent to which our products gain market acceptance ; the timing and costs of product introductions ; the extent of our ongoing research and development programs ; the costs of training physicians to become proficient with the use of our products ; and , if necessary , once regulatory approvals are received , the costs of developing marketing and distribution capabilities . because of anticipated spending to support development of ms-325 , thrombus and new research programs , we do not expect positive cash flow from operating activities for any future quarterly or annual period prior to commercialization of ms-325 , which is currently forecast to be in 2004. we anticipate continued investments in fixed assets , including equipment and facilities expansion to support new and continuing research and development programs . we have in place a lease agreement that will enable us to utilize our current principal scientific facilities through december 31 , 2002 , and we have an option to extend the lease for an additional three or five years at a rental rate equal to approximately 95 % of fair market value . we also have a lease for nearby office space , which expires in december 2002. we are currently involved in negotiating extensions for our current facilities . our major outstanding contractual obligations relate to our capital leases from equipment financings , our facilities leases and our obligations to strategic partners . below is a table that represents our contractual obligations and commercial commitments as of december 31 , 2001 : replace_table_token_3_th we have incurred tax losses to date and therefore have not paid significant federal or state income taxes since inception . as of december 31 , 2001 , we had loss carryforwards of approximately $ 71.0 million available to offset future taxable income . these amounts expire at various times through 39 2020. as a result of ownership changes resulting from sales of equity securities , our ability to use the loss carryforwards is subject to limitations as defined in sections 382 and 383 of the internal revenue code of 1986 , or the code , as amended .
| general and administrative expenses general and administrative expenses for the year ended december 31 , 2001 were $ 5.5 million as compared to $ 4.8 million for 2000. general and administrative expenses increased $ 670,000 during 2001 as compared to 2000 primarily as a result of ongoing corporate activities , royalty expense associated with the bracco agreement and increased personnel and related expenses . interest income and interest expense interest income for the year ended december 31 , 2001 was $ 1.0 million as compared to $ 1.3 million for 2000. the $ 300,000 decrease was primarily due to lower interest rates during 2001 compared to 2000 offset by a higher average cash , cash equivalent and marketable securities balance in 2001 as compared to 2000. interest expense for the year ended december 31 , 2001 was $ 339,000 as compared to $ 468,000 in 2000. the $ 129,000 decrease was attributable to lower interest rates in the year ended december 31 , 2001 along with lower interest expense associated with our decreasing capital lease obligation and the repayment of our note payable . this decrease was offset by increased interest expense associated with the bracco agreement . provision for income taxes the provision for income taxes of $ 1.1 million represents italian income taxes related to the bracco agreement signed in september 2001 for which we are unable to offset against net operating losses . any future payments received from bracco are subject to italian income tax withholding . comparison of years ended december 31 , 2000 and december 31 , 1999 in the fourth quarter of 2000 , we adopted sab 101 , `` revenue recognition in financial statements '' retroactively to january 1 , 2000 , changing our method of recognizing revenue . we recorded a cumulative effect of change in accounting principle in accordance with the adoption of sab 101 in the amount of $ 4.4 million , which related to up-front and guaranteed milestone fees paid in 35 1996 and 1997 by tyco/mallinckrodt , our previous marketing partner for ms-325 . prior to the adoption of sab 101 , we recognized revenues from non-refundable license fees upon execution of the underlying license agreement . revenues from milestone payments under
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during the second quarter of fiscal 2020 , the company received full and final payment of all outstanding amounts related to the bankruptcy and recorded a favorable non material income impact in the second quarter related to the final reconciliations of these accounts with our counter-parties . coronavirus ( covid-19 ) in march 2020 , the world health organization declared the viral strain of coronavirus ( `` covid-19 '' ) a global pandemic and recommended containment and mitigation measures worldwide . the spread of covid-19 has resulted in most governments issuing restrictive orders , including “ shelter in place ” orders around the globe to assist in mitigating the spread of the virus . subsequently , in march 2020 , the department of homeland security 's cybersecurity and infrastructure security agency ( cisa ) department issued guidance clarifying that critical infrastructure industries have a responsibility to maintain operations while these restrictive measures are in place . the company , based on input from the government as well as our customers , has continued most operations under the cisa guidelines in an effort to support critical infrastructure in the areas where we are either required to do so , or where we are able . while we continue to support our customers , there remains uncertainties regarding the duration and , to what extent , if any , that the covid-19 pandemic will ultimately have on the demand for our products and services or with our supply chain . we continue to closely monitor the situation as information becomes readily available and continue to take actions to provide for the safety of our personnel , and to support the requirements under cisa . as of the date of this filing , our operations remain open globally and the impact to our personnel and operations has been limited by the effects of covid-19 . however , we are experiencing certain customer order deferrals until later in fiscal 2021 , but there have been few outright customer order cancellations . accordingly , we can not reasonably estimate the length or severity of this pandemic , or the extent to which the disruption may materially impact our consolidated balance sheet , statements of income or statements of cash flows for fiscal year 2021. we have substantial liquidity as further discussed below , with both cash on hand and with borrowing capacity under our revolving credit facility . in addition , we are closely monitoring our collection efforts from customers and payments to suppliers . 19 liquidity and capital resources we have historically met our cash needs through a combination of cash flows from operating activities along with bank and bond market debt . our cash requirements are generally for operating activities , cash dividend payments , capital improvements , debt repayment and acquisitions . we believe that our cash position , cash flows from operating activities and our expectation of continuing availability to draw upon our credit facilities are sufficient to meet our cash flow needs for the foreseeable future . cash flows the following table summarizes our cash flows by category for the periods presented ( in thousands ) : replace_table_token_8_th net cash provided by operating activities for fiscal 2020 was $ 144.8 million compared to $ 111.5 million for fiscal 2019 . the increase in cash provided by operating activities for fiscal 2020 as compared to fiscal 2019 is primarily attributable to an increase in non-cash charges , related primarily to the loss on disposal of the nuclear logistic business and other impairment charges , and positive impacts from improvements in working capital resulting from our stronger focus on collections and inventory management . net cash used in investing activities for fiscal 2020 was $ 71.7 million as compared to $ 32.1 million for fiscal 2019 . the increase in cash used during fiscal 2020 was primarily attributable to increased acquisition activity and higher capital expenditures , partially offset from the net proceeds received from the divestiture of the nuclear logistics business . the breakdown of capital spending by segment for fiscal 2020 , 2019 and 2018 can be found in note 12 to the consolidated financial statements . net cash used in financing activities for fiscal 2020 was $ 59.7 million compared to $ 74.8 million for fiscal 2019 . the decrease in cash used for financing activities during fiscal 2020 was primarily attributable to lower net borrowings and was partially offset by increased treasury share activity . financing and capital 2017 revolving credit facility on march 27 , 2013 , the company entered into a credit agreement ( the “ credit agreement ” ) with bank of america and other lenders . the credit agreement provided for a $ 75.0 million term facility and a $ 225.0 million revolving credit facility that included a $ 75.0 million “ accordion ” feature . the credit agreement is used to provide for working capital needs , capital improvements , dividends , future acquisitions and letter of credit needs . on march 21 , 2017 , the company executed the amended and restated credit agreement ( the “ 2017 credit agreement ” ) with bank of america and other lenders . the 2017 credit agreement amended the credit agreement by the following : ( i ) extending the maturity date until march 21 , 2022 , ( ii ) providing for a senior revolving credit facility in a principal amount of up to $ 450 million , with an additional $ 150 million accordion , ( iii ) including a $ 75 million sublimit for the issuance of standby and commercial letters of credit , ( iv ) including a $ 30 million sublimit for swing line loans , ( v ) restricting indebtedness incurred in respect of capital leases , synthetic lease obligations and purchase money obligations not to exceed $ 20 million , ( vi ) restricting investments in any foreign subsidiaries not to exceed $ 50 million in the aggregate , and ( vii ) including various financial covenants and certain restricted payments relating to dividends and share repurchases as specifically set forth story_separator_special_tag in the 2017 credit agreement . the balance due on the $ 75.0 million term facility under the previous credit agreement was paid in full as a result of the execution of the 2017 credit agreement . the financial covenants , as defined in the 2017 credit agreement , require the company to maintain on a consolidated basis a leverage ratio not to exceed 3.25:1.0 and an interest coverage ratio of at least 3.00:1.0. the 2017 credit agreement will be used to finance working capital needs , capital improvements , dividends , future acquisitions , letter of credit needs and potential share repurchases . 20 interest rates for borrowings under the 2017 credit agreement are based on either a eurodollar rate or a base rate plus a margin ranging from 0.875 % to 1.875 % depending on our leverage ratio ( as defined in the 2017 credit agreement ) . the eurodollar rate is defined as libor for a term equivalent to the borrowing term ( or other similar interbank rates if libor is unavailable ) . the base rate is defined as the highest of the applicable fed funds rate plus 0.50 % , the prime rate , or the eurodollar rate plus 1.0 % at the time of borrowing . the 2017 credit agreement also carries a commitment fee for the unfunded portion ranging from 0.175 % to 0.30 % per annum , depending on our leverage ratio . the effective interest rate was 4.06 % as of february 29 , 2020 . as of february 29 , 2020 , we had $ 78.0 million of outstanding debt against the revolving credit facility and letters of credit outstanding in the amount of $ 14.4 million , which left approximately $ 357.6 million of additional credit available under the 2017 credit agreement . 2011 senior notes on january 21 , 2011 , the company entered into a note purchase agreement ( the “ 2011 agreement ” ) , pursuant to which the company issued $ 125.0 million aggregate principal amount of its 5.42 % unsecured senior notes ( the “ 2011 notes ” ) , through a private placement ( the “ 2011 note offering ” ) . amounts under the agreement are due in a balloon payment on the january 2021 maturity date . pursuant to the 2011 agreement , the company 's payment obligations with respect to the 2011 notes may be accelerated under certain circumstances . the 2011 notes contain various financial covenants requiring the company , among other things , to a ) maintain on a consolidated basis net worth equal to at least the sum of $ 116.9 million plus 50.0 % of future net income ; b ) maintain a ratio of indebtedness to ebitda ( as defined in note purchase agreement ) not to exceed 3.25:1.00 ; c ) maintain on a consolidated basis a fixed charge coverage ratio ( as defined in the note purchase agreement ) of at least 2.0:1.0 ; d ) not at any time permit the aggregate amount of all priority indebtedness ( as defined in the note purchase agreement ) to exceed 10.0 % of consolidated net worth ( as defined in the note purchase agreement ) . as of february 29 , 2020 , the 2011 senior notes are reflected in current liabilities as the maturity date is january 2021. the company has the ability and intent to fully settle these notes on the maturity date through a combination of additional borrowings that are available under the 2017 credit agreement , existing cash and cash equivalent balances and through cash generated from ongoing operations . as of february 29 , 2020 , the company was in compliance with all of its debt covenants . share repurchase program in january of 2012 , our board authorized the repurchase of up to ten percent of the outstanding shares of our common stock . the share repurchase authorization does not have an expiration date , and the amount and prices paid for any future share purchases under the authorization will be based on market conditions and other factors at the time of the purchase . repurchases under this share repurchase authorization would be made through open market purchases or private transactions in accordance with applicable federal securities laws , including rule 10b-18 under the exchange act . during the twelve months ended february 29 , 2020 , the company repurchased 130,800 shares for $ 5.8 million at an average price of $ 44.34 per share . other exposures we have exposure to commodity price increases in both segments of our business , primarily copper , aluminum , steel and nickel based alloys in the energy segment and zinc and natural gas in the metal coatings segment . we attempt to minimize these increases through escalation clauses in customer contracts for copper , aluminum , steel and nickel based alloys , when market conditions allow and through fixed cost contract purchases on zinc . in addition to these measures , we attempt to recover other cost increases through improvements to our manufacturing process , supply chain management , and through increases in prices where competitively feasible . 21 off balance sheet arrangements and contractual commitments as of february 29 , 2020 , the company did not have any off-balance sheet arrangements as defined under sec rules . specifically , there were no off-balance sheet transactions , arrangements , obligations ( including contingent obligations ) , or other relationships with unconsolidated entities or other persons that have , or may have , a material effect on the financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources of the company . the following summarizes our operating lease obligations , purchase commitments , debt principal payments and interest payments for the next five years and beyond ( in thousands ) : replace_table_token_9_th ( 1 ) purchase commitments consist of non-cancelable forward contracts to purchase zinc at various volumes and prices . all such contracts expire in fiscal 2021 .
| backlog table ( in thousands ) replace_table_token_5_th net sales our total net sales for fiscal 2020 increased by $ 134.7 million , or 14.5 % , as compared to fiscal 2019 . the following table reflects the breakdown of revenue by segment ( in thousands ) : replace_table_token_6_th our metal coatings segment , which consisted of forty galvanizing plants , one galvabar plant and seven surface technologies plants as of february 29 , 2020 , generated net sales of $ 499.0 million , a 13.3 % increase from the prior year 's net sales of $ 440.3 million . the increase in sales was the result of higher selling prices and higher volumes of steel processed . the increase in volume was due primarily to our fiscal 2020 acquisitions and , in addition , we processed incrementally higher volumes at our pre-existing galvanizing facilities . our energy segment recorded net sales for fiscal 2020 of $ 562.8 million , an increase of 15.6 % compared to fiscal 2019 net sales of $ 486.8 million . the increase in net sales for fiscal 2020 was attributable to an uptick in the revenues for our electrical products , due primarily to the satisfaction of the revenue recognition criteria for certain large international electrical projects 17 booked in the prior year , and increased revenues for our industrial solutions , due primarily to a large international refining project . in addition , we recognized increased revenues related to the westinghouse bankruptcy settlement noted further below . operating income the following table reflects the breakdown of operating income ( loss ) by segment ( in thousands ) : replace_table_token_7_th operating income for the metal coatings segment increased $ 24.3 million , or 29.1 % , for fiscal 2020 to $ 107.9 million as compared to $ 83.6 million for the prior year . operating margins were 21.6 % for fiscal 2020 as compared to 19.0 % for fiscal 2019
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actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements . we evaluate our estimates regularly using information that we believe to be relevant . see the consolidated financial statements note 1 ~ summary of significant accounting policies , for further details . loss and loss adjustment expense reserves our recorded loss and loss adjustment expenses ( `` lae '' ) reserves represent management 's best estimate of unpaid loss and lae at each balance sheet date , based on information , facts and circumstances known at such time . our loss and lae reserves reflect our estimates at the balance sheet date of : case reserves , which are unpaid loss and lae amounts that have been reported ; and incurred but not reported ( `` ibnr '' ) reserves , which are ( 1 ) unpaid loss and lae amounts that have been incurred but not yet reported ; and ( 2 ) the expected development on case reserves . we do not discount the loss and lae reserves for the time value of money . case reserves are initially set by our claims personnel . when a claim is reported to us , our claims department completes a case‑basis valuation and establishes a case reserve for the estimated amount of the probable ultimate losses and lae associated with that claim . our claims department updates their case‑basis valuations upon receipt of additional information and reduces case reserves as claims are paid . the case reserve is based primarily upon an evaluation of the following factors : the type of loss ; the severity of injury or damage ; our knowledge of the circumstances surrounding the claim ; the jurisdiction of the occurrence ; policy provisions related to the claim ; expenses intended to cover the ultimate cost of settling claims , including investigation and defense of lawsuits resulting from such claims , costs of outside adjusters and experts , and all other expenses which are identified to the case ; and any other information considered pertinent to estimating the indemnity and expense exposure presented by the claim . ibnr reserves are determined by subtracting case reserves and paid loss and lae from the estimated ultimate loss and lae . our actuarial department develops estimated ultimate loss and lae on a quarterly basis . our reserve review 38 committee ( which includes our chief executive officer , president , chief financial officer , other members of executive management , and key actuarial , underwriting and claims personnel ) meets each quarter to review our actuaries ' estimated ultimate expected loss and lae . we use several generally accepted actuarial methods to develop estimated ultimate loss and lae estimates by line of business and accident year . this process relies on the basic assumption that past experience , adjusted for the effects of current developments and likely trends , is a reasonable basis for predicting future outcomes . these methods utilize various inputs , including : written and earned premiums ; paid and reported losses and lae ; expected initial loss and lae ratio , which is the ratio of incurred losses and lae to earned premiums ; and expected claim reporting and payout patterns based on our own loss experience and supplemented with insurance industry data where applicable . the principal standard actuarial methods used by our actuaries for their comprehensive reviews include : loss ratio method—this method uses loss and lae ratios for prior accident years , adjusted for current trends , to determine an appropriate expected loss and lae ratio for a given accident year ; loss development methods—loss development methods assume that the losses and lae yet to emerge for an accident year are proportional to the paid or reported loss and lae amounts observed to‑date . the paid loss development method uses losses and lae paid to date , while the reported loss development method uses losses and lae reported to date ; bornheutter‑ferguson method—this method is a combination of the loss ratio and loss development methods , where the loss development factor is given more weight as an accident year matures ; and frequency/severity method—this method projects claim counts and average cost per claim on a paid or reported basis for high frequency , low severity products . our actuaries give different weights to each of these methods based upon the amount of historical experience data by line of business and by accident year , and based on judgment as to what method is believed to result in the most accurate estimate . the application of each method by line of business and by accident year may change in the future if it is determined that a different emphasis for each method would result in more accurate estimates . our actuaries also analyze several diagnostic measures by line of business and accident year , including but not limited to : reported and closed frequency and severity , claim reporting and claim closing patterns , paid and incurred loss ratio development , and ratios of paid loss and lae to incurred loss and lae . after the actuarial methods and diagnostic measures have been performed and analyzed , our actuaries use their judgment and expertise to select an estimated ultimate loss and lae by line of business and by accident year . our actuaries estimate an ibnr reserve for our unallocated lae not specifically identified to a particular claim , namely our internal claims department salaries and associated general overhead and administrative expenses associated with the adjustment and processing of claims . these estimates , which are referred to as unallocated loss adjustment expense ( `` ulae '' ) reserves , are based on internal cost studies and analyses reflecting the relationship of ulae paid to actual paid and incurred losses . we select factors that are applied to case reserves and ibnr reserve estimates in order to estimate the amount of ulae reserves applicable to estimated loss reserves at the balance sheet date . story_separator_special_tag we allocate the applicable portion of our estimated loss and lae reserves to amounts recoverable from reinsurers under reinsurance contracts and report those amounts separately from our loss and lae reserves as an asset on our balance sheet . 39 the estimation of ultimate liability for losses and lae is a complex , imprecise and inherently uncertain process , and therefore involves a considerable degree of judgment and expertise . our loss and lae reserves do not represent an exact measurement of liability , but are estimates based upon various factors , including but not limited to : actuarial projections of what we , at a given time , expect to be the cost of the ultimate settlement and administration of claims reflecting facts and circumstances then known ; estimates of future trends in claims severity and frequency ; assessment of asserted theories of liability ; and analysis of other factors , such as variables in claims handling procedures , economic factors , and judicial and legislative trends and actions . most or all of these factors are not directly or precisely quantifiable , particularly on a prospective basis , and are subject to a significant degree of variability over time . in addition , the establishment of loss and lae reserves makes no provision for the broadening of coverage by legislative action or judicial interpretation or for the extraordinary future emergence of new types of losses not sufficiently represented in our historical experience or which can not yet be quantified . as a result , an integral component of our loss and lae reserving process is the use of informed subjective estimates and judgments about our ultimate exposure to losses and lae . accordingly , the ultimate liability may vary significantly from the current estimate . the effects of change in the estimated loss and lae reserves are included in the results of operations in the period in which the estimate is revised . our reserves consist entirely of reserves for property and liability losses , consistent with the coverages provided for in the insurance policies directly written or assumed by us under reinsurance contracts . several years may elapse between the occurrence of an insured loss , the reporting of the loss to us and our payment of the loss . the level of ibnr reserves in relation to total reserves depends upon the characteristics of the specific line of business , particularly related to the speed with which claims are reported and outstanding claims are paid . lines of business for which claims are reported slowly will have a higher percentage of ibnr reserves than lines of business that report and settle claims more quickly . the following table shows the ratio of ibnr reserves to total reserves net of reinsurance recoverables as of december 31 , 2020 ( dollars in thousands ) : replace_table_token_8_th although we believe that our reserve estimates are reasonable , it is possible that our actual loss and lae experience may not conform to our assumptions and may , in fact , vary significantly from our assumptions . accordingly , the ultimate settlement of losses and the related lae may vary significantly from the estimates included in our financial statements . we continually review our estimates and adjust them as we believe appropriate as our experience develops or new information becomes known to us . such adjustments are included in current operations . our loss and lae reserves do not represent an exact measurement of liability , but are estimates . the most significant assumptions affecting our ibnr reserve estimates are the loss development factors applied to paid losses and case reserves to develop ibnr by line of business and accident year . although historical loss development provides us with an indication of future loss development , it typically varies from year to year . thus , for each accident year within each line of business we select one loss development factor out of a range of historical factors . 40 we generated a sensitivity analysis of our net reserves which represents reasonably likely levels of variability in our selected loss development factors . we believe the most meaningful approach to the sensitivity analysis is to vary the loss development factors that drive the ultimate loss and lae estimates . we applied this approach on an accident year basis , reflecting the reasonably likely differences in variability by level of maturity of the underlying loss experience for each accident year . generally , the most recent accident years are characterized by more unreported losses and less information available for settling claims , and have more inherent uncertainty than the reserve estimates for more mature accident years . therefore , we used variability factors of plus or minus 10 % for the most recent accident year , 5 % for the preceding accident year , and 2.5 % for the second preceding accident year . there is minimal expected variability for accident years at four or more years ' maturity . the following table displays ultimate net loss and lae and net loss and lae reserves by accident year for the year ended december 31 , 2020. we applied the sensitivity factors to each accident year amount and have calculated the amount of potential net loss and lae reserve change and the impact on 2020 reported pre-tax income and on net income and shareholders ' equity at december 31 , 2020. we believe it is not appropriate to sum the illustrated amounts as it is not reasonably likely that each accident year 's reserve estimate assumptions will vary simultaneously in the same direction to the full extent of the sensitivity factor . we also believe that such changes to our reserve balance would not have a material impact on our operating results , financial position , or liquidity . the net income and shareholders ' equity amounts include an income tax rate assumption of 21 % . the dollar amounts in the table are in thousands .
| % , to $ 65.1 million for the year ended december 31 , 2020 , compared to $ 46.0 million for the year ended december 31 , 2019. this increase was offset by our hospitality programs gross written premiums , which decreased by $ 10.7 million , or 22.1 % , to $ 37.7 million for the year ended december 31 , 2020 , compared to $ 48.4 million for the year ended december 31 , 2019. personal lines gross written premiums increased $ 1.1 million , or 14.9 % , to $ 8.6 million for the year ended december 31 , 2020 , compared to $ 7.5 million for the same period in 2019. this increase was largely driven by our low value dwelling business . net written premiums increased $ 5.2 million , or 5.9 % , to $ 92.9 million , for the year ended december 31 , 2020 , as compared to $ 87.7 million for the year ended december 31 , 2019. the increase was primarily due to the growth experienced in the commercial lines business . however , increased reinsurance rates tempered the growth of gross written premiums . other income other income consists primarily of fees charged to policyholders by the company for services outside of the premium charge , such as installment billings or policy issuance costs . commission income is also received by the company 's insurance agencies for writing policies for third party insurance companies . other income increased by $ 506,000 , or 24.0 % , to $ 2.6 million for the year ended december 31 , 2020 , as compared to $ 2.1 million in 2019. the increase in other income was primarily due to commissions from the growing wholesale agency business as well as increased fees charged on existing business . 47 losses and loss adjustment expenses the tables below detail our losses and lae and loss ratios for the years ended december 31 , 2020 and 2019 ( dollars in thousands ) . replace_table_token_13_th replace_table_token_14_th net losses and
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the net proceeds to story_separator_special_tag we have included or incorporated by reference into this management 's discussion and analysis of financial condition and results of operations and elsewhere in this annual report on form 10-k , and from time to time our management may make , statements that constitute forward-looking statements within the meaning of section 27a of the securities act and section 21e of the exchange act . forward-looking statements may be 42 identified by words including anticipate , plan , believe , intend , estimate , expect , should , may , potential and similar expressions . these statements involve known and unknown risks , uncertainties and other factors that may cause our actual results , levels of activity , performance or achievements to be materially different from the information expressed or implied by these forward-looking statements . while we believe that we have a reasonable basis for each forward-looking statement contained in this annual report , we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future , about which we can not be certain . we undertake no obligation to publicly update any forward-looking statements , whether as a result of new information , future events or otherwise . you are advised , however , to consult any further disclosures we make on related subjects in our quarterly reports on form 10-q , current reports on form 8-k , and our website . overview we are a biopharmaceutical company whose principal focus is developing genetically-targeted therapies for cardiovascular diseases . our lead product candidate is gencaro ( bucindolol hydrochloride ) , a pharmacologically unique beta-blocker and mild vasodilator that we plan to study in a new clinical trial for the treatment of atrial fibrillation , or af , in patients with heart failure and reduced left ventricular ejection fraction ( hfref ) . we have identified common genetic variations in receptors in the cardiac nervous system that we believe interact with gencaro 's pharmacology and may enhance patient response . we have been granted patents in the u.s. , europe , and other jurisdictions for methods of treating patients who have these genetic variations with gencaro . we believe that if gencaro is approved , the gencaro patents may provide market exclusivity into 2029 or 2030 in the u.s. and in europe . we believe that that gencaro has potential efficacy in reducing or preventing af , and this efficacy may be genetically regulated . we plan to test this hypothesis in a clinical trial of gencaro , known as genetic-af . genetic-af is projected to be a phase 2b/3 trial comparing gencaro to metoprolol cr/xl for prevention of af in patients with hfref . we have created an adaptive design for genetic-af , under which the trial is intended to be initiated as a phase 2b study in approximately 200 hfref patients . depending on the results of the phase 2b portion , the trial may then be expanded to a phase 3 study by enrolling an estimated additional 420 patients . we estimate that genetic-af could begin approximately 6 months after we obtain sufficient funding , and we believe the phase 2b study would take approximately two years to complete . to support the continued development of gencaro , including the planned genetic-af clinical trial and our ongoing operations , we plan to pursue an underwritten public equity offering within the next quarter to fund , at least , the phase 2b portion of the genetic-af trial and our general and administrative costs through its projected completion . we may also seek additional funding that could allow us to operate while we continue to pursue financing options , a strategic combination , partnering , and licensing opportunities . if we are delayed in obtaining funding or are unable to complete a strategic transaction , we may discontinue our development activities on gencaro or discontinue our operations . we believe our cash and cash equivalents balance as of december 31 , 2012 , along with the net proceeds from our recently completed financings , will be sufficient to fund our operations , at our current cost structure , through september 2013. we are unable to assert that our current cash and cash equivalents are sufficient to fund operations beyond that date , and as a result , there is substantial doubt about our ability to continue as a going concern beyond september 2013. changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate . we have based these estimates on assumptions that may prove to be wrong , and we could exhaust our available financial resources sooner than we currently anticipate . 43 story_separator_special_tag preferred stock , issuance of convertible promissory notes , and funds provided by the merger . the primary uses of our capital resources to date have been to fund operating activities , including research , clinical development and drug manufacturing expenses , license payments , and spending on capital items . considering the substantial additional time and costs associated with the development of gencaro and our need to raise a significant amount of capital on acceptable terms to finance the planned genetic-af clinical trial and our ongoing operations , we are evaluating strategic alternatives for funding our operations and development programs . we plan to pursue an underwritten public offering to fund , at least , the phase 2b portion of the genetic-af trial and our general and administrative costs through its projected completion . story_separator_special_tag we may also seek additional funding that could allow us to operate while we continue to pursue financing alternatives , a strategic combination , or partnership to support the continued clinical development of gencaro , including the planned genetic-af clinical trial . on august 2 , 2012 , we sold approximately $ 953,000 of arca 's common stock and warrants for common stock in a registered direct offering under the company 's registration statement on form s-3 ( file no.333-172686 ) 45 ( the registration statement ) in which we issued 406,099 shares of common stock and warrants to purchase 304,575 shares of common stock . the net proceeds , after deducting placement agent fees and other offering expenses payable by us , was approximately $ 741,000 , and these proceeds are being used solely for general working capital purposes . each unit , consisting of a share of common stock and a warrant to purchase 0.75 shares of common stock , was sold at a purchase price of $ 2.35 per unit , which was a 15 percent discount to the consolidated price of the stock and warrants , based on the closing bid price of $ 2.76 as reported on the nasdaq capital market on august 2 , 2012. the warrants become exercisable six months after issuance , expire 6 years thereafter , and have an exercise price of $ 2.76 per share , equal to 100 % of the closing bid price of arca 's common stock on the nasdaq capital market on august 2 , 1012. the registered direct offering was effected as a takedown off the registration statement , which became effective on april 4 , 2011 , pursuant to a prospectus supplement filed with the securities and exchange commission on august 3 , 2012. the warrant agreements provide for settlement of the warrants in unregistered shares should an effective registration statement or current prospectus not be in place at the time a warrant is exercised . on october 22 , 2012 , we sold approximately $ 325,000 of arca common stock and warrants for common stock in a private placement transaction . certain directors , officers and affiliates of arca were investors in the private placement . we issued to investors 137,530 shares of common stock together with warrants to purchase 103,148 shares of common stock . the net proceeds , after deducting offering expenses , were approximately $ 280,000 , and these proceeds are being used solely for general working capital purposes . each unit consisting of a share of common stock and a warrant to purchase 0.75 shares of common stock was sold at a purchase price of $ 2.36 per unit . the warrants were exercisable upon issuance , expire 5 years from the date of issuance , and have an exercise price of $ 1.80 per share , equal to 100 % of the closing sales price of arca 's common stock on the nasdaq capital market on october 22 , 2012. on december 18 , 2012 , we sold approximately $ 250,000 of our common stock and warrants for common stock in a private placement transaction with our chief executive officer , dr. michael bristow . we issued 86,186 shares of common stock together with warrants to purchase 64,640 shares of common stock . the net proceeds , after deducting offering expenses were approximately $ 230,000 , and these proceeds are being used solely for general working capital purposes . each unit consisting of a share of common stock and a warrant to purchase 0.75 shares of common stock was sold at a purchase price of $ 2.90 per unit . the warrants were exercisable upon issuance , expire 5 years from the date of issuance , and have an exercise price of $ 2.34 per share , equal to 100 % of the closing sales price of arca 's common stock on the nasdaq capital market on december 18 , 2012. on january 22 , 2013 , we sold approximately $ 1 million of our common stock and warrants for common stock in a private placement transaction with accredited investors and our chief executive officer . we issued 356,430 shares of common stock together with warrants to purchase 249,501 shares of common stock . the net proceeds , after deducting placement agent fees and other offering expenses , were approximately $ 850,000 , and these proceeds are being used solely for general working capital purposes . each unit , consisting of a share of common stock and a warrant to purchase 0.70 shares of common stock , was sold at a purchase price of $ 2.81 per unit . the warrants were exercisable upon issuance , expire 7 years from the date of issuance , and have an exercise price of $ 2.28 per share , equal to 100 % of the closing bid price of arca 's common stock on the nasdaq capital market on january 22 , 2013. pursuant to the terms of the registration rights agreements ( the rights agreements ) entered into as part of each of these private placement transactions , we granted to the investors certain registration rights related to the shares underlying the units sold in these private placements . we filed a registration statement , in accordance with the terms of the rights agreements , for the resale of the shares underlying the units sold in these private placements .
| sg & a expenses were $ 3.2 million for the year ended december 31 , 2012 , compared to $ 5.0 million for 2011 , a decrease of approximately $ 1.8 million . cost decreases of approximately $ 940,000 were comprised primarily of reduced personnel , consulting , board advisory , and legal expenses . approximately $ 772,000 of the total cost decrease was attributable to lower depreciation and occupancy expense , and the balance of the decrease is due to our reduced operations overall . during the fourth quarter of 2011 we relocated our corporate office to a smaller suite . the move necessitated additional depreciation of certain leasehold improvements , furniture and equipment that were not useable in the new office suite . the reductions in depreciation and occupancy related expenses in 2012 are the result of this office move . sg & a expenses for 2013 are expected to be comparable to 2012 levels , but are contingent upon our ability to raise substantial additional funding or complete a strategic transaction . should we receive funds from one or a combination of these sources , sg & a expense in 2013 could be substantially higher than 2012 as we increase activities to support initiating our genetic-af clinical trial . gain on assignment of patent rights during the year ended december 31 , 2011 , we entered into an agreement in which we assigned certain patent rights to a large pharmaceutical company . in exchange for the patent rights we received a $ 2.0 million non-recourse payment during the second quarter of 2011. the gain was exclusive to 2011. interest and other income interest and other income was $ 2,000 for the year ended december 31 , 2012 , as compared to $ 2,000 for 2011 , remaining essentially unchanged . interest income was nominal in both years due to low investment yields and declining cash balances . we expect interest income to continue to be nominal in 2013 . 44 interest and other expense interest and other expense was $ 3,000 for the year ended
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4.1 * * certificate of designation for series a preferred stock filed with the secretary of state of nevada on september 10 , 2014 , filed as exhibit 4.1 to the registrant 's report on form 8-k on september 10 , 2014 , commission file number 000-33035 . 10.1 * * asset purchase agreement dated april 30 , 2013 , by and between mind technologies , inc. , a nevada corporation , and vois , inc. filed as exhibit 10.1 to the registrant 's current report on form 8-k on may 7 , 2013 , commission file number 000-33053 . 10.2 * * equity purchase agreement , dated march 11 , 2014 , between mind solutions , inc. and premier venture partners , llc filed as exhibit 10.1 to the registrant 's current report on form 8-k on march 26 , 2014 , commission file number 000-33053 . 10.3 * * securities purchase agreement , dated march 11 , 2014 , between mind solutions , inc. and premier venture partners , llc filed as exhibit 10.2 to the registrant 's current report on form 8-k on march 26 , 2014 , commission file number 000-33053 . 10.4 * * convertible promissory note in the original principal amount of $ 10,000 executed by mind solutions , inc. in favor of premier venture partners , llc filed as exhibit 10.3 to the registrant 's current report on form 8-k on march 26 , 2014 , commission file number 000-33053 . 10.5 * * registration rights agreement , dated march 11 , 2014 , between mind solutions , inc. and premier venture partners , llc filed as exhibit 10.4 to the registrant 's current report on form 8-k on march 26 , 2014 , commission file number 000-33053 . 10.6 * * charter of the audit committee of mind solutions , inc. filed as exhibit 10.6 to the registrant 's annual report on form 10-k on april 14 , 2014 , commission file number 000-33053 . 10.7 * * code of business conduct of mind solutions , inc. filed as exhibit 10.7 to the registrant 's annual report on form 10-k on april 14 , 2014 , commission file number 000-33053 . 44 10.8 * * amended code of ethics for story_separator_special_tag the following discussion should be read together with the information contained in the financial statements and related notes included elsewhere in this annual report on form 10-k. the following discussion reflects our plan of operation . this discussion should be read in conjunction with the financial statements which are attached to this report . this discussion contains forward-looking statements , including statements regarding our expected financial position , business and financing plans . these statements involve risks and uncertainties . our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this report , particularly under the headings “ special note regarding forward-looking statements. ” unless the context otherwise suggests , “ we , ” “ our , ” “ us , ” and similar terms , as well as references to “ vois ” and “ mind solutions , ” all refer to mind solutions as of the date of this report . the registrant has developed three software applications which are compatible with the emotiv eeg headsets currently on the market . the registrant has recently developed and brought to market a brain-computer-interface ( bci ) called `` neurosync '' , which allows the user to operate thought-controlled applications on their mobile smart phone devices as well as on traditional pc computers . this bci receives electrical impulses from the brain and allows the user to control actions on their smart phones and pc computers through the power of thought . the technology involves the use of a wireless headset , which detects brainwaves on both the conscious and non-conscious level . this revolutionary neural processing technology makes it possible for computers to interact directly with the human brain . the company sells their recently developed bci device and software online through the company 's website as well as other online platforms such as amazon.com . going concern as of december 31 , 2015 , mind solutions had an accumulated deficit of $ 26,952,305. also , during the year ended december 31 , 2015 , we used net cash of $ 596,203 for operating activities . these factors raise substantial doubt about our ability to continue as a going concern . while we are attempting to commence operations and generate revenues , our cash position may not be significant enough to support our daily operations . management intends to raise additional funds by way of an offering of our securities . management believes that the actions presently being taken to further implement our business plan and generate revenues provide the opportunity for mind solutions to continue as a going concern . while we believe in the viability of our strategy to generate revenues and in our ability to raise additional funds , we may not be successful . our ability to continue as a going concern is dependent upon our capability to further implement our business plan and generate revenues . story_separator_special_tag black '' > $ 320,220 representing the value of shares issued to consultants and officers ; 27 $ 1,146,684 of loss on derivative adjustment ; $ ( 3,938 ) of available-for-sale securities received for service revenues ; $ 585,065 of original issue discount ; $ 769 of depreciation ; and $ 2,324,267 decrease in prepaid expense and inventory $ 60,528 increase in accounts payable . net cash used for continuing operating activities during fiscal 2014 was $ 705,293. non-cash items totaling approximately $ 3,037,868 contributing to the net cash used in continuing operating activities for fiscal 2014 include : $ 805,096 representing the value of shares issued to consultants and officers ; $ 1,823,156 of derivative gain story_separator_special_tag 4.1 * * certificate of designation for series a preferred stock filed with the secretary of state of nevada on september 10 , 2014 , filed as exhibit 4.1 to the registrant 's report on form 8-k on september 10 , 2014 , commission file number 000-33035 . 10.1 * * asset purchase agreement dated april 30 , 2013 , by and between mind technologies , inc. , a nevada corporation , and vois , inc. filed as exhibit 10.1 to the registrant 's current report on form 8-k on may 7 , 2013 , commission file number 000-33053 . 10.2 * * equity purchase agreement , dated march 11 , 2014 , between mind solutions , inc. and premier venture partners , llc filed as exhibit 10.1 to the registrant 's current report on form 8-k on march 26 , 2014 , commission file number 000-33053 . 10.3 * * securities purchase agreement , dated march 11 , 2014 , between mind solutions , inc. and premier venture partners , llc filed as exhibit 10.2 to the registrant 's current report on form 8-k on march 26 , 2014 , commission file number 000-33053 . 10.4 * * convertible promissory note in the original principal amount of $ 10,000 executed by mind solutions , inc. in favor of premier venture partners , llc filed as exhibit 10.3 to the registrant 's current report on form 8-k on march 26 , 2014 , commission file number 000-33053 . 10.5 * * registration rights agreement , dated march 11 , 2014 , between mind solutions , inc. and premier venture partners , llc filed as exhibit 10.4 to the registrant 's current report on form 8-k on march 26 , 2014 , commission file number 000-33053 . 10.6 * * charter of the audit committee of mind solutions , inc. filed as exhibit 10.6 to the registrant 's annual report on form 10-k on april 14 , 2014 , commission file number 000-33053 . 10.7 * * code of business conduct of mind solutions , inc. filed as exhibit 10.7 to the registrant 's annual report on form 10-k on april 14 , 2014 , commission file number 000-33053 . 44 10.8 * * amended code of ethics for story_separator_special_tag the following discussion should be read together with the information contained in the financial statements and related notes included elsewhere in this annual report on form 10-k. the following discussion reflects our plan of operation . this discussion should be read in conjunction with the financial statements which are attached to this report . this discussion contains forward-looking statements , including statements regarding our expected financial position , business and financing plans . these statements involve risks and uncertainties . our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors , including those discussed below and elsewhere in this report , particularly under the headings “ special note regarding forward-looking statements. ” unless the context otherwise suggests , “ we , ” “ our , ” “ us , ” and similar terms , as well as references to “ vois ” and “ mind solutions , ” all refer to mind solutions as of the date of this report . the registrant has developed three software applications which are compatible with the emotiv eeg headsets currently on the market . the registrant has recently developed and brought to market a brain-computer-interface ( bci ) called `` neurosync '' , which allows the user to operate thought-controlled applications on their mobile smart phone devices as well as on traditional pc computers . this bci receives electrical impulses from the brain and allows the user to control actions on their smart phones and pc computers through the power of thought . the technology involves the use of a wireless headset , which detects brainwaves on both the conscious and non-conscious level . this revolutionary neural processing technology makes it possible for computers to interact directly with the human brain . the company sells their recently developed bci device and software online through the company 's website as well as other online platforms such as amazon.com . going concern as of december 31 , 2015 , mind solutions had an accumulated deficit of $ 26,952,305. also , during the year ended december 31 , 2015 , we used net cash of $ 596,203 for operating activities . these factors raise substantial doubt about our ability to continue as a going concern . while we are attempting to commence operations and generate revenues , our cash position may not be significant enough to support our daily operations . management intends to raise additional funds by way of an offering of our securities . management believes that the actions presently being taken to further implement our business plan and generate revenues provide the opportunity for mind solutions to continue as a going concern . while we believe in the viability of our strategy to generate revenues and in our ability to raise additional funds , we may not be successful . our ability to continue as a going concern is dependent upon our capability to further implement our business plan and generate revenues . story_separator_special_tag black '' > $ 320,220 representing the value of shares issued to consultants and officers ; 27 $ 1,146,684 of loss on derivative adjustment ; $ ( 3,938 ) of available-for-sale securities received for service revenues ; $ 585,065 of original issue discount ; $ 769 of depreciation ; and $ 2,324,267 decrease in prepaid expense and inventory $ 60,528 increase in accounts payable . net cash used for continuing operating activities during fiscal 2014 was $ 705,293. non-cash items totaling approximately $ 3,037,868 contributing to the net cash used in continuing operating activities for fiscal 2014 include : $ 805,096 representing the value of shares issued to consultants and officers ; $ 1,823,156 of derivative gain
| for the year ended december 31 , 2015 , officer compensation increased to $ 1,006,130 as compared to $ 155,000 from the prior year ended december 31 , 2014 which was an increase of $ 851,130. officer compensation increased due to additional stock being issued to our sole officers as compensation for services . in the year ended december 31 , 2014 , our sole officer received $ 155,000 cash as compensation . professional fees . for the year ended december 31 , 2015 , professional fees decreased to $ 177,509 as compared to $ 201,595 from the prior year ended december 31 , 2014 which was a decrease of $ 27,825. professional fee expense decreased slightly due to decrease in accounting and legal fees due to decreased reliance and need on the legal front . research and development . for the year ended december 31 , 2015 we incurred costs of $ 151,773 as we refined our head set . there were no costs in 2014. general and administrative expense . for the year ended december 31 , 2015 , general and administrative expenses increased to $ 79,031 as compared to $ 54,012 from the prior year ended december 31 , 2013 which was an increase of $ 5,449. for the years ended december 31 , 2014 , and 2013 , general and administrative expenses consisted of the following : replace_table_token_4_th advertising . for the year ended december 31 , 2015 , advertising expense amounted to $ 30,384 as compared to $ 11,815 for the year ended december 31 , 2014. the increase was due to additional funds being spent on web development . edgarizing & xbrl . for the year ended december 31 , 2015 , edgarizing and xbrl expense amounted to $ 27,771 as compared to $ 17,353 for the year ended december 31 , 2014. we incurred more costs as a result of additional issuance of convertible debt satisfaction shares . depreciation . for the year ended december 31 , 2015 , depreciation expense amounted to $ 769 as compared to $ 2,577 for the year ended december 31 , 2014. other expense . for the year ended december 31 , 2015 , other expenses which includes repairs
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we believe the primary drivers of our future revenue growth will include : early customer engagement with our lead customers to develop products and solutions that can be driven across multiple growth markets ; leveraging our core strength and leadership position in standard , catalog products that service many end applications ; increasing content of our semiconductor solutions in our customers ' systems through cross-selling of our 37 product lines ; introduction of , and the market 's reception to , new products that command higher prices based on the application of advanced technologies such as gallium nitride ( gan ) added features , higher levels of integration and improved performance ; and growth in the market for high-performance analog semiconductors generally , and in our four primary markets in particular . our core strategy is to develop innovative , high-performance products that address our customers ' most difficult technical challenges in our primary markets : networks , a & d , automotive and multi-market . while sales in any or all of our primary markets may slow or decline from period to period , over the long term we generally expect to benefit from strength in these markets . we expect growth in the networks market to be primarily driven by continued upgrades and expansion of communications equipment to support expansion in internet traffic , driven by the proliferation of mobile computing devices such as smartphones and tablets coupled with bandwidth rich services such as video on demand and cloud computing . we expect growth in the a & d market to be driven by the upgrading of radar applications and battlefield communications devices designed to improve situational awareness . growth in this market is subject to changes in governmental programs and budget funding , which is difficult to predict . we expect continued strength in the automotive market , subject to fluctuations in our largest customer 's market share and overall macroeconomic conditions . the multi-market is our most diverse market , and we expect steady growth over the long term in this market for our multi-purpose catalog products . we believe gan technology will be a key long-term enabler in growth applications across a number of our commercial and defense-related markets , and that we are well-positioned to differentiate ourselves from competitors in the gan market in the future by providing customers with a secure , dual source supply chain for high performance gan devices . 47 cost of revenue . cost of revenue consists primarily of the cost of semiconductor wafers and other materials used in the manufacture of our products , and the cost of assembly and testing of our products , whether performed by our internal manufacturing personnel or outsourced vendors . cost of revenue also includes costs associated with personnel engaged in our manufacturing operations , such as wages and share-based compensation expense , as well as costs and overhead related to our manufacturing operations , including lease occupancy and utility expense related to our manufacturing operations , depreciation , production computer services and equipment costs , and the cost of our manufacturing quality assurance and supply chain activities . further , cost of revenue includes the impact of warranty and inventory adjustments , including write-downs for excess and obsolete inventory as well as amortization of intangible assets related to acquired technology . one of our objectives is to increase our gross margin , which is our gross profit expressed as a percentage of our revenue . we seek to introduce high-performance products that are valued by our customers for their ability to address technically challenging applications , rather than commoditized products used in high-volume applications where cost , rather than performance , is the highest priority . we also strive to continuously reduce our costs and to improve the efficiency of our manufacturing operations . our gross margin in any period is significantly affected by industry demand and competitive factors in the markets into which we sell our products . gross margin is also significantly affected by our product mix , that is , the percentage of our revenue in that period that is attributable to relatively higher or lower-margin products . additional factors affecting our gross margin include fluctuations in the cost of wafers and materials , including precious metals , utilization of our wafer fabrication operation , or fab , level of usage of outsourced manufacturing , assembly and test services , changes in our manufacturing yields , changes in foreign currencies and numerous other factors , some of which are not under our control . as a result of these or other factors , we may be unable to maintain or increase our gross margin in future periods and our gross margin may fluctuate from period to period . while our gross margin may fail to grow or may decline from period to period , over the long-term we generally expect continued improvement in our gross margin as we complete our restructuring and other cost savings initiatives , execute on our new product development and sales and marketing strategies and experience higher volumes . research and development . research and development ( r & d ) expense consists primarily of costs relating to our employees engaged in the design and development of our products and technologies , including wages and share-based compensation . r & d expense also includes costs for consultants , facilities , services related to supporting computer design tools used in the engineering and design process , prototype development and project materials . we expense all research and development costs as incurred . we have made a significant investment in r & d since march 2009 and expect to generally maintain or increase the dollar amount of r & d investment in future periods , although amounts may increase or decrease in any individual period . selling , general and administrative . story_separator_special_tag selling , general and administrative ( sg & a ) expense consists primarily of costs of our executives , sales and marketing , finance , human resources and administrative organizations , including wages and share-based compensation . sg & a expense also includes professional fees , sales commissions paid to independent sales representatives , costs of advertising , trade shows , marketing , promotion , travel , occupancy and equipment costs , computer services costs , costs of providing customer samples and amortization of certain intangible assets relating to customer relationships . contingent consideration . we have partially funded the acquisition of businesses through contingent earn-out consideration in which we have agreed to pay contingent amounts to the previous owners of acquired businesses based upon those businesses achieving contractual milestones . we record these obligations as liabilities at fair value and any changes in fair value are reflected in our earnings . restructuring charges . restructuring expense consists of severance and related costs incurred in connection with reductions in staff relating to initiatives designed to lower our manufacturing and operating costs . 48 other income ( expense ) . other income ( expense ) consists of our common stock warrant liability expense and or gain , our class b conversion liability expense that was settled in march 2012 , interest expense and income from our administrative and business development services agreement with gaas labs , which is an affiliate of our directors and majority stockholders john and susan ocampo . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements . the preparation of financial statements , in conformity with generally accepted accounting principles in the u.s. ( gaap ) , requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . by their nature , these estimates and judgments are subject to an inherent degree of uncertainty . on an ongoing basis , we re-evaluate our judgments and estimates . we base our estimates and judgments on our historical experience and on other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from those estimates , and material effects on our operating results and financial position may result . the accounting policies described below are those which our management believes involve the most significant application of judgment , or involve complex estimation . as discussed in part i , item 1a . risk factors , as an emerging growth company and pursuant to section 102 ( 6 ) ( 1 ) of the jobs act , we have elected to delay adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies , and thus our financial statements may not be comparable to those of other companies that comply with public company effective dates . revenue recognition . we recognize revenue when : ( i ) there is persuasive evidence that an arrangement exists ; ( ii ) delivery has occurred or services have been rendered ; ( iii ) the fee is fixed or determinable ; and ( iv ) collectability is reasonably assured . we defer the recognition of revenue , and the related costs , from sales to distributors under agreements providing for rights of return and price protection until such time as our products are sold by the distributors to their customers . we do not provide customers other than distributors the right to return product , with the exception of warranty related matters , which are discussed below . accordingly , we do not generally maintain a reserve for sales returns . inventory . inventory is stated at the lower of cost or market . we use a combination of standard cost and moving weighted-average cost methodologies to determine the cost basis for inventories , approximating a first-in , first-out basis . the standard cost of finished goods and work-in-process inventory is composed of material , labor and manufacturing overhead , which approximates actual cost . in addition to stating inventory at the lower of cost or market , we also evaluate inventory each quarter for excess quantities and obsolescence , establishing reserves when necessary based upon historical experience , assessment of economic conditions and expected demand . estimating demand is inherently difficult , particularly given the cyclical nature of the semiconductor industry , and can result in excess or obsolete inventory . once we write down inventory to its estimated net realizable value , we establish a new cost basis for that inventory and do not increase its carrying value due to subsequent changes in demand forecasts . accordingly , if inventory previously written down is subsequently sold , we may realize higher than normal gross margin on these transactions . neither inventory write-downs nor sales of previously written down inventory had a material impact on our operating results for any period presented in this annual report . share-based compensation . we provide share-based compensation awards to our directors , officers and employees as incentives in the form of options to purchase our common stock ( stock options ) , restricted shares of our common stock ( restricted stock ) and units representing the right to receive common stock ( restricted stock units ) , typically subject to a time-based or performance-based vesting restriction . we measure compensation cost for such awards based upon fair value on the date of grant , and recognize this cost as expense over the service 49 period the awards are expected to vest , net of estimated forfeitures .
| these increases were partially offset by lower revenue from our a & d market and multi-market , which we believe primarily reflects fluctuations in demand in a & d and a continued ramp down of certain higher volume consumer targeted products . revenue from our primary markets , the percentage of change between the years , and revenue by primary markets expressed as a percentage of total revenue were ( in thousands , except percentages ) : replace_table_token_8_th in fiscal year 2013 , our networks market revenue was flat compared to fiscal year 2012. we experienced increased revenue from strength in sales of our optical products , which was offset by lower revenue from sales of our catv products and a slowdown in capital spending by telecommunications operators for cellular infrastructure and wireless backhaul applications . in fiscal year 2013 , our a & d market revenue decreased by $ 8.0 million compared to fiscal year 2012. we attribute this decrease primarily to weaker demand for satellite communications applications and continued weaker overall market demand for tactical and public safety radios , as well as in certain legacy radar programs . in fiscal year 2013 , our multi-market revenues decreased $ 6.8 million compared to fiscal year 2012. we attribute this decrease primarily to a continued ramp down of certain higher volume consumer targeted products , partially offset by higher revenue from sales of our catalog products for general market demand . in fiscal year 2013 , our automotive market revenues increased by $ 31.0 million compared to fiscal year 2012. we attribute this growth primarily to adoption by our largest automotive customer of our gps modules across the majority of its domestic fleet as well as further penetration into the international market . gross margin . gross margin was 43.8 % for fiscal year 2013 compared with 44.6 % for fiscal year 2012. gross margin in fiscal year 2013 compared to fiscal year 2012 was negatively impacted by unfavorable manufacturing variances , as well as increases in manufacturing supplies , inventory provisions , depreciation and warranty costs . these were partially offset by lower
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accordingly , the court concluded that the wutc erred in including an attrition allowance in the calculation of our electric and natural gas rate base . the court noted , however , that the law does not prohibit an attrition allowance in the calculation , for ratemaking purposes , of recoverable operating and maintenance expense . since the wutc order provided one lump sum attrition allowance without distinguishing what portion was for rate base and which was for operating and maintenance expenses or other considerations , the court struck all portions of the attrition allowance attributable to our rate base and reversed and remanded the case for the wutc to recalculate our rates without including an attrition allowance in the calculation of rate base . in march 2020 , we received an order from the wutc that requires us to refund $ 8.5 million to electric and natural gas customers . we are refunding $ 4.9 million to electric customers and $ 3.6 million to natural gas customers , which is being refunded over a twelve-month period that began on april 1 , 2020. we previously recorded a customer refund liability of $ 3.6 million in 2019 . 2019 general rate cases in march 2020 , we received an order from the wutc that approved a partial multi-party settlement agreement that contemplated rates designed to increase annual base electric revenues by $ 28.5 million , or 5.7 percent , and annual natural gas base revenues by $ 8.0 million , or 8.5 percent , effective april 1 , 2020. the designed revenue increases were based on a 9.4 percent return on equity ( roe ) with a common equity ratio of 48.5 percent and a rate of return ( ror ) on rate base of 7.21 percent . as part of the wutc order , we are returning approximately $ 40 million from the erm rebate to customers over a two-year period . the erm rebate includes approximately $ 3 million that was disallowed by the wutc for the cost of replacement power during an unplanned outage at the colstrip generating facility in 2018. the wutc directed us to return a larger portion of the erm rebate during the first year to achieve a net-zero billed impact to electric customers . included in the wutc order is the acceleration of depreciation of colstrip units 3 & 4 to reflect a remaining useful life through december 31 , 2025. the order utilizes certain electric tax benefits associated with the 2018 tax reform to partially offset these increased costs . the order also sets aside $ 3 million for community transition efforts to mitigate the impacts of the eventual closure of colstrip , half funded by customers and half funded by our shareholders . see “ colstrip ” section for further information on the eventual closure of colstrip . we recorded this liability and recognized the shareholder portion of the expense in the first quarter of 2020. lastly , the order included the extension of electric and natural gas decoupling mechanisms through march 31 , 2025 , with one modification in that new customers added after any test period would not be decoupled until included in a future test period . 2020 general rate cases in october 2020 , we filed electric and natural gas general rate cases with the wutc . we have requested an overall increase in base electric revenues of $ 44.2 million ( or 8.3 percent ) , which would be entirely offset by a tax credit to customers of the same amount . additionally , we have requested an overall increase in base natural gas revenues of $ 12.8 million ( or 12.2 percent ) , which would be entirely offset by a tax credit to customers of the same amount for a period of time . the revenue increases are based on a 9.9 percent roe with a common equity ratio of 50 percent and a ror of 7.43 percent . included in our general rate case requests are the recovery of our advanced metering infrastructure ( ami ) project costs . ami project costs represented 42 percent of our electric base rate request and 54 percent of our natural gas base rate request . idaho general rate cases and other proceedings 2017 general rate cases in december 2017 , the ipuc approved a settlement agreement between us and other parties to our electric and natural gas general rate cases . new rates were effective on january 1 , 2018 and january 1 , 2019 . 41 avista corporation the settlement agreement was a two-year rate plan and had the following electric and natural gas base rate changes each year , which were designed to result in the following increases in annual revenues ( dollars in millions ) : replace_table_token_12_th the settlement agreement was based on a ror of 7.61 percent with a common equity ratio of 50.0 percent and a 9.5 percent roe . 2019 general rate case in october 2019 , avista corp. and all parties to our electric general rate case reached a settlement agreement that was approved by the ipuc . new rates went into effect on december 1 , 2019. the rates that went into effect are designed to decrease annual base electric revenues by $ 7.2 million ( or 2.8 percent ) , effective december 1 , 2019. the settlement revenue decreases are based on a 9.5 percent roe with a common equity ratio of 50 percent and a ror on rate base of 7.35 percent , which is a continuation of current levels . this outcome is in line with our expectations . the primary element of the difference in the agreed upon base revenues in the settlement agreement from our original request is that the settlement includes the continued recovery of costs for our wind generation power purchase agreements , which will include palouse wind and rattlesnake flat , through the pca mechanism rather than through base rates . story_separator_special_tag 2021 general rate cases in january 2021 , we filed electric and natural gas general rate cases with the ipuc . the proposal is a two-year rate plan , with new rates taking effect september 1 , 2021 and september 1 , 2022. the electric and natural gas requests are based on a proposed ror on rate base of 7.30 percent with a common equity ratio of 50 percent and a 9.9 percent roe . avista 's request , if approved , is designed to increase annual electric base revenues by $ 24.8 million or 10.1 percent effective september 1 , 2021 and $ 8.7 million or 3.2 percent effective september 1 , 2022. we are , however , proposing to apply a tax credit to customers that would fully offset the increase for september 1 , 2021 , resulting in no bill change for customers for a period of time . for natural gas , the rate request is designed to increase annual base revenues by $ 0.05 million or 0.1 percent effective september 1 , 2021 and $ 1.0 million , or 2.2 percent effective september 1 , 2022. the tax credit to customers for natural gas would more than fully offset the september 1 , 2021 increase , resulting in a rate reduction for all customers , and would continue for a ten-year period . we are proposing to offset the majority of the increase for the september 1 , 2022 rate change with other deferred customer credits . oregon general rate cases and other proceedings 2019 general rate case in october 2019 , the opuc approved the all-party settlement agreements filed in the third quarter of 2019. new rates were effective on january 15 , 2020. opuc approved rates that are designed to increase annual natural gas billed revenues by $ 3.6 million , or 4.2 percent . the opuc 's decision reflects a ror on rate base of 7.24 percent , with a common equity ratio of 50 percent and a 9.4 percent roe . in addition , the approved settlement agreements included agreement among the parties to an independent review of our interest rate hedging practices , with any recommendations based on the results and findings in the final report to be applicable only on a prospective basis and do not apply to any prior interest rate hedging activity . in 2020 , an independent review of our interest rate hedging practices was completed with no material recommended changes to our hedging practices . 2020 general rate case in march 2020 , we filed a natural gas general rate case with the opuc . 42 avista corporation through several settlement stipulations the parties resolved all issues in the general rate case and in december 2020 , the opuc approved the three settlement stipulations . these stipulations approved by the opuc increased annual base revenue by $ 3.9 million , or 5.7 percent effective january 16 , 2021. the approved roe is 9.4 percent , with a common equity ratio of 50 percent and a ror of 7.24 percent . 2021 general rate case we expect to file a natural gas general rate case with the opuc in the second half of 2021. ami project in march 2016 , the wutc granted our petition for an accounting order to defer and include in a regulatory asset the undepreciated value of our existing washington electric meters for the opportunity for later recovery . this accounting treatment is related to our ongoing project to replace our existing electric meters with new two-way digital meters and the related software and support services through our ami project in washington state . as of december 31 , 2020 , the estimated future undepreciated value for the existing electric meters was $ 21.9 million . in september 2017 , the wutc also approved our request to defer the undepreciated net book value of existing natural gas encoder receiver transmitters ( ert ) ( consistent with the accounting treatment we obtained on our existing electric meters ) that are being retired as part of the ami project . as of december 31 , 2020 , the estimated future undepreciated value for the existing natural gas erts was $ 3.9 million . in september 2017 , the wutc approved a petition to defer the depreciation expense associated with the ami project , along with a carrying charge . we have included a request to seek recovery of our ami costs in our 2020 washington general rate cases . alaska electric light and power company ael & p is required to file its ' next general rate case by august 30 , 2021. avista utilities purchased gas adjustments pgas are designed to pass through changes in natural gas costs to avista utilities ' customers with no change in utility margin ( operating revenues less resource costs ) or net income . in oregon , we absorb ( cost or benefit ) 10 percent of the difference between actual and projected natural gas costs included in base retail rates for supply that is not hedged . total net deferred natural gas costs among all jurisdictions were a net asset of $ 1.4 million as of december 31 , 2020 and a liability of $ 3.2 million as of december 31 , 2019. these deferred natural gas cost balances represent amounts due to customers . the following pgas went into effect in our various jurisdictions during 2018 through 2020 : replace_table_token_13_th 43 avista corporation ( 1 ) due to declining wholesale natural gas prices that had occurred since the 2017 pgas were filed and went into effect , we filed , and the respective commissions approved , out of cycle pgas to reduce customer rates and pass through expected lower costs during the winter heating months , rather than waiting until the next regular pga cycle . power cost deferrals and recovery mechanisms deferred power supply costs are recorded as a deferred charge or liability on the consolidated balance sheets for future prudence review and recovery or rebate through retail rates .
| these circumstances have affected and will likely continue to adversely affect our operations , results of operations , financial condition and cash flows in the following ways : 38 avista corporation operations we provide critical services to our customers . accordingly , it is paramount that we keep our employees who operate our business safe so that we continue to provide reliable service . we implemented business continuity plans in the context of this pandemic . we believe that we will continue to be able to conduct our utility operations effectively and provide safe and reliable service to our customers . we have taken precautions concerning employee and facility hygiene , imposed travel limitations on employees and directed our employees to work remotely whenever possible . protocols have been established and implemented to protect employees and the public when work requires public interaction . during 2020 , we experienced supply chain delays due to the effects of the covid-19 pandemic that have impacted the delivery times of some of our materials and equipment , with delays ranging from a couple weeks up to eight weeks in some cases . at this time , the delays are being managed with minimal impact . the issues that could potentially result from future delays are being proactively mitigated through several planning and review activities , but could have an impact on our planned projects going forward . although we have not experienced any significant issues to date , it is possible that covid-19 could have a negative impact on the ability of vendors or contractors to perform , which could increase operating costs and delay and or increase the costs of capital projects . results of operations in the year ended december 31 , 2020 , when compared to normal , there was a decrease of approximately 3 percent on overall electric load , consisting of approximately a 6 percent decrease in commercial and a 9 percent decrease in industrial loads , which was partially offset by an increase of 3 percent in residential
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our board of directors also authorized , subject to the effectiveness of such amendment to the charter , the creation of a class of preferred stock designated as series a mandatorily redeemable preferred stock ( which we also refer to as series a preferred stock ) pursuant to a certificate of designation . pursuant to the certificate of designation , we are authorized to issue 1,000,000 shares of series a preferred stock . shareholders owning a majority of our common stock on march 22 , 2012 approved such actions by a written consent and on may 16 , 2012 , we filed the amendment to the charter and filed the certificate of designation with the secretary of state of the state of delaware , at which time they became effective . at such time , the note , in accordance with its terms , converted into 26,000 shares of series a preferred stock . on march 19 , 2012 we completed the acquisition of substantially all of the assets of rti electronics ( rtie ) for a total purchase price of approximately $ 2.3 million , with $ 1.5 million payable in cash at closing and the remainder pursuant to a promissory note of approximately $ 0.8 million payable in 24 equal monthly installments . based in anaheim , california , rtie is a leading manufacturer of passive electronic components , including thermistors , film capacitors , magnetic transformers and inductors , and audio power conditioning units . rtie had revenues in the year ended december 31 , 2011 of approximately $ 5.3 million from a diverse fortune 500 customer base spanning the audio , defense , aerospace , and industrial markets . on november 29 , 2011 , we purchased substantially all of the assets and assumed certain liabilities of commercial microwave technology , inc. ( cmt ) , a california corporation . cmt designs and manufactures radio frequency and microwave filters , multiplexers , and related products for use in space and commercial applications . we purchased the assets of cmt for $ 8.2 million , subject to certain adjustments . on june 1 , 2011 , api completed the acquisition of spectrum control , inc. ( spectrum ) through the merger of erie merger corp. , a wholly owned subsidiary of api , with and into spectrum . spectrum is a leading designer and manufacturer of high performance , custom solutions for the defense , aerospace , industrial , and medical industries headquartered in fairview , pennsylvania . pursuant to the merger , each share of common stock of spectrum was converted into the right to receive $ 20.00 in cash , without interest . the total transaction value was approximately $ 273.3 million , including the value of stock options cashed-out as a result of the merger . the spectrum acquisition has significantly expanded our systems , subsystems & components revenues , including approximately $ 109.5 million to net revenues for the nine months ended august 31 , 2012. in addition , we added spectrum 's manufacturing facilities in fairview , pennsylvania ; state college , pennsylvania ; philadelphia , pennsylvania ; grass valley , california ; marlborough , massachusetts ; hudson , new hampshire ; auburn , new york ; wesson , mississippi ; juarez , mexico ; and guang dong province , china . also on june 1 , 2011 , api entered into a credit facility with morgan stanley senior funding , inc. , as lead arranger , sole book-runner and administrative agent ( morgan stanley ) , providing for a secured term loan in the principal amount of $ 200.0 million and a $ 15.0 million secured revolving credit facility . on june 27 , 2011 , the company entered into an amended and restated credit agreement ( as amended , the credit agreement ) with morgan stanley and the lenders a party thereto from time to time , to provide for a secured term loan facility in the principal amount of $ 170.0 million and a $ 15.0 million secured revolving credit facility , with an option for api to request an increase in the revolving credit facility commitment of up to an aggregate of $ 5.0 million . the credit agreement was further amended on january 6 , 2012 , effective november 30 , 2011 , to provide for certain 39 pro forma adjustments relating to our acquisition of spectrum and cmt to be made to the calculation of consolidated earnings before interest , taxes , depreciation and amortization set forth in the credit agreement for the four quarter period ended november 30 , 2011. in addition , the amendment provides that we will apply the net sale proceeds of any sale leaseback transaction involving real property to prepay outstanding terms loans under the credit agreement . on march 22 , 2012 , we entered into a second amendment to the amended and restated credit agreement ( the second amendment ) , which amended the credit agreement . pursuant to the terms of the second amendment , an aggregate principal amount of $ 16.0 million in new term loans ( the new term loans ) were advanced to the company to finance a portion of the consideration payable in connection with the acquisition of c-mac . in february 2013 , we refinanced substantially all of our outstanding indebtedness . see recent developments below . on june 27 , 2011 we completed a private placement of approximately $ 31.0 million of common stock at a price of $ 6.50 per share . commencing in 2010 , we began cost reduction initiatives to rationalize the number of our facilities and personnel , which has resulted in us consolidating certain parts of our manufacturing operations . story_separator_special_tag following the acquisition of spectrum in june 2011 , we implemented further cost reduction initiatives to reduce the number of facilities and personnel that resulted in us consolidating certain of our manufacturing operations , in st. mary 's , pennsylvania , palm bay , florida and three other pennsylvania facilities into other existing locations in the u.s. during the year ended november 30 , 2012 , we also consolidated certain parts of our c-mac operations . these changes have resulted in an anticipated reduction of approximately $ 26.0 million in annual costs . on may 31 , 2012 , we approved a restructuring plan ( the ems restructuring ) for our ems lines within our ems business segment in order to improve the profitability of the ems businesses . the actions taken as part of the ems restructuring are intended to realize synergies from our combined ems operations , contain costs , reduce our exposure to low margin and unprofitable revenue streams within the ems businesses , and streamline our operations . elements of the ems restructuring include management re-alignment , workforce reductions and write-downs and charges related to inventory , fixed assets , and long-term leases . the ems restructuring was substantially complete at the end of fiscal 2012. as at may 31 , 2012 , given lower than projected revenues and our outlook for the ems business , we determined that the appropriate triggers had been reached to perform an impairment test beyond the annual goodwill impairment test . we performed the first step of the goodwill impairment assessment and the carrying value of the assets exceeded the fair value . as of the date of filing the 10-q for may 31 , 2012 , we determined that an impairment of goodwill was probable , determined a reasonable estimate and therefore recorded a write-down of $ 87.0 million . during the third quarter of fiscal 2012 , we completed our impairment analysis for the second step of the prior segments as of may 31 , 2012 , and determined that an additional $ 24.3 million write-down of goodwill was required . recent developments on february 6 , 2013 , we refinanced substantially all of our outstanding indebtedness . in connection with this refinancing , we entered into ( i ) a credit agreement with various lenders and guggenheim corporate funding , llc ( the term loan agreement ) that provides for a $ 165.0 million term loan facility ; and ( ii ) a credit agreement with various lenders and wells fargo bank , national association ( the revolving loan agreement ) that provides for a $ 50.0 million asset-based revolving borrowing base credit facility , with a $ 10.0 million subfacility ( or the sterling equivalent ) for certain of our united kingdom subsidiaries , a $ 10.0 million subfacility for letters of credit and a $ 5.0 million subfacility for swingline loans . operating revenues we derive operating revenues from our three principal business segments : systems , subsystems & components ( ssc ) ; electronic manufacturing services ( ems ) ; and secure systems & information assurance 40 ( ssia ) . the acquisitions of c-mac on march 22 , 2012 , spectrum on june 1 , 2011 and the asset acquisitions of rtie on march 19 , 2012 and cmt on november 29 , 2011 significantly expanded our systems , subsystems & components revenues . the operations of sendec and the kgc companies are now reflected in our ems segment ( previously reported as part of the systems , subsystems & components segment ) . the asset acquisition of cryptek on july 7 , 2009 resulted in the creation of our secure systems & information assurance segment . our customers are located primarily in the united states , canada and the united kingdom , but we also sell products to customers located throughout the world , including nato and european union countries . systems , subsystems & components ( ssc ) revenue includes high-performance rf/microwave , electromagnetic , power , sensor , and microelectronics solutions used in high-reliability defense , space , industrial and commercial applications , including missile defense systems , radar systems , electronic warfare systems ( e.g . counter-ied rf jamming devices ) , unmanned air , ground and robotic systems , satellites , as well as industrial , medical , energy and telecommunications products . the main demand today for our ssc products come from various world governments , including militaries , defense organizations , commercial aerospace , space , homeland security , prime defense contractors and manufacturers of industrial products . electronic manufacturing services ( ems ) revenue includes high speed surface mount circuit card assemblies , electromechanical assemblies , system and integrated level solutions used in high-reliability defense , industrial , and commercial applications . the main demand today for our ems products come from various defense organizations , aerospace , prime defense contractors and manufacturers of industrial , medical and commercial products . secure systems & information assurance ( ssia ) revenue includes revenues derived from the manufacturing of tempest and emanation products and services , ruggedized computers and peripherals , secure access and information assurance products . the principal market for these products are the defense industries of the united states , canada and the united kingdom and other nato and european union countries , fortune 500 companies and telecommunication service providers . cost of revenues we conduct all of our design and manufacturing efforts in the united states , canada , united kingdom , mexico and china . cost of goods sold primarily consists of costs that were incurred to design , manufacturer , test and ship the products . these costs include raw materials , including freight , direct labor , subcontractor services , tooling required to design and build the parts , and the cost of testing ( labor and equipment ) the products throughout the manufacturing process and final testing before the parts are shipped to the customer . other costs include provision for obsolete and slow moving inventory , and restructuring charges related to the consolidation of operations .
| overall cost of revenues from continuing operations as a percentage of sales slightly increased for the year ended november 30 , 2012 to 80.0 % compared to 79.2 % for the same period in 2011. the ssc segment cost of revenues for fiscal 2012 decreased 2.0 percentage points compared to the same period in 2011 , mainly as a result of product mix from the acquisition of c-mac , a full year of spectrum results , and the company realizing benefits through consolidation efforts and cost cutting measures . the ems segment incurred additional cost of revenues in fiscal 2012 from approximately $ 8.7 million of restructuring charges , including inventory and fixed asset impairments , partially offset by realized benefits from consolidation efforts and cost cutting measures . the cost of revenues for the ssia segment remained consistent in fiscal 2012 compared to the same period of 2011 as a result of realized benefits from consolidation efforts and cost cutting measures fully offset by the impact of reduced revenues of approximately $ 0.3 million . consolidated restructuring costs recorded in cost of revenues in fiscal 2012 were approximately $ 10.3 million compared to approximately $ 1.5 million for the year ended november 30 , 2011 . 43 on may 31 , 2012 , the company approved an ems restructuring plan for its ems lines in order to improve its profitability . the actions taken as part of the ems restructuring are intended to realize synergies from the company 's combined ems operations , contain costs , reduce the company 's exposure to low margin and unprofitable revenue streams within the ems businesses , and streamline the company 's operations . elements of the ems restructuring include management re-alignment , workforce reductions and write-downs and charges related to inventory , fixed assets , and long-term leases . the ems restructuring was substantially completed by the end of fiscal 2012. as of november 30 , 2012 , we completed headcount reductions of approximately 40 positions as part of the ems restructuring , which is approximately 10 % of our ems workforce and 2 % of our global workforce . the ems restructuring resulted in pre-tax restructuring charges of approximately $ 12.6 million . this includes approximately $ 0.6 million in severance and related charges , $ 7.4 million in inventory write-downs ,
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these systems simplify the way people interact with technology by enabling the use of natural user interfaces . systems are used for biometric identification , surveillance , and process efficiency , among numerous other application spaces . emerging applications for this technology include various mobile device applications , autonomous vehicles , self-navigating robotics and drones in industrial applications and 3d capture of objects coupled with 3d printing . in addition , our industrial diode lasers are used primarily as pump sources for pulsed and kilowatt class fiber lasers . our opcomms customers include alphabet , apple , ciena , cisco systems ( which recently announced the acquisition of acacia communications , another customer of ours ) , huawei technologies ( including hisilicon ) , infinera , innolight , nokia networks ( including alcatel-lucent international ) , o-net , and zte . following the acquisition of oclaro , during our fiscal 2019 , we made several strategic changes to our opcomms business as follows : first , for overlapping products as a result of the acquisition , we are transitioning to a common lower cost design and manufacturing platform , which we expect will result in gross margin improvement over time . in addition , we are discontinuing certain telecom product lines that we believe have muted growth and profitability trends that are inconsistent with our long term model . we expect that these transitions will be completed in our fiscal 2021. for the telecom product lines we are exiting , we do not expect significant revenue declines until fiscal 2021 as in fiscal 2020 we are continuing to satisfy customers ' product needs with respect to these product lines . second , we announced our plan to discontinue development and manufacturing of lithium niobate modulators , and we plan to wind down these operations in san donato , italy during fiscal year 2020. development and manufacturing will also be discontinued in our san jose , california manufacturing locations within the next few quarters in order to facilitate our customers ' transition to new products . we expect our indium phosphide photonic integrated circuits will replace lithium niobate modulators over time . third , we announced the sale of many of our datacom transceiver module products to cambridge industries group ( “ cig ” ) . this transaction closed on april 18 , 2019. for further information regarding this transaction , refer to “ note 5. business combination ” . we expect datacom transceiver sales to ramp down to zero during fiscal year 2020. we are investing in new datacom chip development and expect sales of these chips to customers serving the datacom and 5g wireless markets will grow over time . with the exit from the business of selling datacom transceivers , we recorded an impairment charge of $ 30.7 million to our long-lived assets that were not deemed to be useful , as they were retired from active use and classified as held-for-sale . these assets were valued at fair value less cost to sell . we also recorded inventory write down charges of $ 20.8 million related to the decision to exit the datacom module and lithium niobate product lines in our cost of goods sold of consolidated statements of operations . these actions do not qualify as discontinued operations for disclosure purposes as they do not represent a strategic shift having a major effect on an entity 's operations and financial results . for additional information , refer to “ note 15. impairment charges ” . lasers our lasers products serve our customers in markets and applications such as sheet metal processing , general manufacturing , biotechnology , graphics and imaging , remote sensing , and precision machining such as drilling in printed circuit boards , wafer singulation , glass cutting and solar cell scribing . our lasers products are used in a variety of oem applications including diode-pumped solid-state , fiber , diode , direct-diode and gas lasers such as argon-ion and helium-neon lasers . fiber lasers provide kw-class output powers combined with excellent beam quality and are used in sheet metal processing and metal welding applications . diode-pumped solid-state lasers provide excellent beam quality , low noise and exceptional reliability and are used in biotechnology , graphics and imaging , remote sensing , materials processing and precision machining applications . diode and direct-diode lasers address a wide variety of applications , including laser pumping , thermal exposure , illumination , ophthalmology , image recording , printing , plastic welding and selective soldering . gas lasers such as argon-ion and helium-neon lasers provide a stable , low-cost and reliable solution over a wide range of operating conditions , making them well suited for complex , high-resolution oem applications such as flow cytometry , dna sequencing , graphics and imaging and semiconductor inspection . 37 we also provide high-powered and ultrafast lasers for the industrial and scientific markets . manufacturers use high-power , ultrafast lasers to create micro parts for consumer electronics and to process semiconductor , led , and other types of chips . use of ultrafast lasers for micromachining applications is being driven primarily by the increasing use of consumer electronics and connected devices globally . our lasers customers include amada , asml holding , beckman coulter , disco , electro scientific industries ( recently acquired by mks instruments , a competitor of ours ) , han 's laser technology , kla-tencor , lasertec , life technologies , and nr electric . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) as set forth in the financial accounting standards board 's accounting standards codification ( “ asc ” ) , and we consider the various staff accounting bulletins and other applicable guidance issued by the united states securities and exchange commission ( “ sec ” ) . gaap , as set forth within the asc , requires us to make certain estimates , judgments and assumptions . story_separator_special_tag we believe that the estimates , judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates , judgments and assumptions are made . these estimates , judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented . to the extent there are differences between these estimates , judgments or assumptions and actual results , our financial statements will be affected . the accounting policies that reflect our more significant estimates , judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following : inventory valuation revenue recognition income taxes long-lived asset valuation business combinations goodwill during fiscal year 2019 , we removed valuation of derivative liability from the list of critical accounting policies and estimates due to the conversion of the series a preferred stock to common stock on november 2 , 2018. refer to “ note 12. non-controlling interest redeemable convertible preferred stock and derivative liability ” for additional information . inventory valuation inventory is valued at standard cost , which approximates actual cost computed on a first-in , first-out basis , not in excess of net realizable value . we assess the value of our inventory on a quarterly basis and write down those inventories which are obsolete or in excess of our forecasted usage to the lower of their cost or estimated net realizable value . our estimates of realizable value are based upon our analysis and assumptions including , but not limited to , forecasted sales levels and historical usage by product , expected product lifecycle , product development plans and future demand requirements . our product line management personnel play a key role in our excess review process by providing updated sales forecasts , managing product transitions and working with manufacturing to minimize excess inventory . if actual market conditions are less favorable than our forecasts or actual demand from our customers is lower than our estimates , we may be required to record additional inventory write-downs . if actual market conditions are more favorable than anticipated , inventory previously written down may be sold , resulting in lower cost of sales and higher income from operations than expected in that period . revenue recognition adoption of topic 606 pursuant to topic 606 , our revenues are recognized upon the application of the following steps : identification of the contract , or contracts , with a customer ; identification of the performance obligations in the contract ; determination of the transaction price ; allocation of the transaction price to the performance obligations in the contract ; and recognition of revenues when , or as , the contractual performance obligations are satisfied . 38 the majority of our revenue comes from product sales , consisting of sales of lasers and opcomms hardware products to our customers . our revenue contracts generally include only one performance obligation . revenues are recognized at a point in time when control of the promised goods or services are transferred to our customers upon shipment or delivery , in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services . we have entered into vendor managed inventory ( “ vmi ” ) programs with our customers . under these arrangements , we receive purchase orders from our customers , and the inventory is shipped to the vmi location upon receipt of the purchase order . the customer then pulls the inventory from the vmi hub based on its production needs . revenue under vmi programs is recognized when control transfers to the customer , which is generally once the customer pulls the inventory from the hub . revenue from all sales types is recognized at the transaction price . the transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer , adjusted for estimated variable consideration , if any . we typically estimate the impact on the transaction price for discounts offered to the customer for early payments on receivables or net of accruals for estimated sales returns . these estimates are based on historical returns , analysis of credit memo data and other known factors . actual returns could differ from these estimates . we allocate the transaction price to each distinct product based on its relative standalone selling price . the product price as specified on the purchase order is considered the standalone selling price as it is an observable input that depicts the price as if sold to a similar customer in similar circumstances . taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction , that are collected by us from a customer and deposited with the relevant government authority , are excluded from revenue . our revenue arrangements do not contain significant financing components as our standard payment terms are less than one year . if a customer pays consideration , or if we have a right to an amount of consideration that is unconditional before we transfer a good or service to the customer , those amounts are classified as deferred revenue or deposits received from customers which are included in other current liabilities or other long-term liabilities when the payment is made or when it is due , whichever is earlier . transaction price allocated to the remaining performance obligations remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period . unsatisfied and partially unsatisfied performance obligations consist of contract liabilities and non-cancellable backlog . non-cancellable backlog includes goods and services for which customer purchase orders have been accepted that are scheduled or in the process of being scheduled for shipment .
| million , or 31.1 % , in fiscal 2018 compared to fiscal 2017 , primarily due to increased sales of our kilowatt class fiber lasers . growth was driven by strong demand from customers in both the micro and macro material processing markets . during our fiscal 2019 , 2018 , and 2017 , net revenue generated from a single customer which represented 10 % or greater of total net revenue is summarized as follows : replace_table_token_9_th revenue by region we operate in three geographic regions : americas , asia-pacific and emea . net revenue is assigned to the geographic region and country where our product is initially shipped . for example , certain customers may request shipment of our product to a contract manufacturer in one country , however , the location of the end customers may differ . the following table presents net revenue by the three geographic regions we operate in and net revenue from countries within those regions that represented 10 % or more of our total net revenue ( in millions , except for percentages ) : replace_table_token_10_th during fiscal 2019 , 2018 and 2017 , net revenue from customers outside the united states , based on customer shipping location , represented 93.6 % , 90.8 % and 85.2 % of net revenue , respectively . our net revenue from mexico increased in fiscal 2019 compared to 2018 due to increased demand for our roadm products from one of our large customers who manufactures in mexico , while net revenue from hong kong grew due to a change in shipment destination of a large portion of our 3d sensing products for mobile devices . our net revenue is primarily denominated in u.s. dollars , including our net revenue from customers outside the united states as presented above . we expect revenue from customers outside of the united states to continue to be an important part of our overall net revenue and an increasing focus for net revenue growth opportunities .
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its iconic brands such as marie callender 's ® , reddi-wip ® , hunt 's ® , healthy choice ® , slim jim ® , orville redenbacher 's ® , as well as emerging brands , including alexia ® , angie 's ® boomchickapop ® , blake 's ® , duke 's ® , and frontera ® , offer choices for every occasion . fiscal 2018 performance compared to fiscal 2017 reflected improving net sales trends , due to innovation and renovation of some of our largest brands and enhanced marketing methods . higher gross profits in the international and foodservice segments were offset by slightly lower gross profits in the grocery & snacks and refrigerated & frozen segments . despite a challenging inflationary environment , we achieved significantly improved earnings in fiscal 2018 . the improved operating performance reflected significantly lower selling , general and administrative ( `` sg & a '' ) expenses and lower interest expense , in each case compared to fiscal 2017 . on december 22 , 2017 , the 2017 u.s. tax cuts and jobs act ( the `` tax act '' ) was signed into law . the tax act reduces tax rates and modifies certain policies , credits , and deductions and has certain international tax consequences . the tax act reduces the federal corporate tax rate from a maximum of 35 % to a flat 21 % rate . the tax act 's corporate rate reduction became effective january 1 , 2018 , in the middle of our third quarter . given our off-calendar fiscal year-end , our fiscal 2018 federal statutory tax rate was a blended rate . our federal statutory rate will reduce to 21 % in fiscal 2019. as a result , we were required to revalue our deferred tax assets and liabilities to account for the future impact of lower corporate tax rates and other provisions of the tax act . these changes resulted in a one-time estimated income tax benefit of $ 233.3 million for fiscal 2018. this amount may be adjusted in the future as further information and interpretations become available . diluted earnings per share in fiscal 2018 were $ 1.98 , including earnings of $ 1.95 per diluted share from continuing operations and $ 0.03 per diluted share from discontinued operations . diluted earnings per share in fiscal 2017 were $ 1.46 , including earnings of $ 1.25 per diluted share from continuing operations and $ 0.21 per diluted share from discontinued operations . several significant items affect the comparability of year-over-year results of continuing operations ( see `` items impacting comparability '' below ) . on june 26 , 2018 , subsequent to the end of fiscal 2018 , we entered into a definitive merger agreement ( the `` merger agreement '' ) with pinnacle and patriot merger sub inc. , a wholly-owned subsidiary of us ( `` merger sub '' ) . the merger agreement provides for , among other things , the merger of merger sub with and into pinnacle , with pinnacle continuing as the surviving corporation . as a result of the merger , merger sub will cease to exist , and pinnacle will survive as our wholly-owned subsidiary . subject to the terms and conditions of the merger agreement , at the effective time of the merger , each share of pinnacle common stock issued and outstanding immediately prior to the effective time ( other than shares as to which dissenter 's rights have been properly exercised and certain other excluded shares ) will be converted into the right to receive ( i ) $ 43.11 in cash and ( ii ) 0.6494 shares of our common stock , with cash payable in lieu of fractional shares of our common stock . the implied price of $ 68.00 per pinnacle share is based on the volume-weighted average price of our stock for the five days ended june 21 , 2018. we have secured $ 9.0 billion in fully committed bridge financing from affiliates of goldman sachs group , inc. in connection with the planned acquisition of pinnacle . the commitments under the committed bridge financing were subsequently reduced by the amounts of a term loan agreement we entered into on july 11 , 2018 with a syndicate of financial institutions providing for term loans to us in an aggregate principal amount of up to $ 1.3 billion . the funding under the term loan agreement is anticipated to occur simultaneously with the closing date of the acquisition . in connection with the merger , we expect to incur up to $ 8.3 billion of long-term debt ( which includes any funding under the new term loan agreement ) , including for the payment of the cash portion of the merger consideration , the repayment of pinnacle debt , the refinancing of certain conagra debt , and the payment of related fees and expenses . the permanent financing is also expected to include approximately $ 600 million of incremental cash proceeds from the issuance of equity and or divestitures . the planned acquisition of pinnacle is expected to close by the end of calendar 2018 and is subject to customary closing conditions , including ( i ) the adoption of the merger agreement by the affirmative vote of the holders of at least a majority of all outstanding pinnacle common stock , ( ii ) there being no law or order that restrains , enjoins , or otherwise prohibits the consummation of the planned acquisition or the issuance of our common stock in connection with the planned acquisition , and ( iii ) the expiration of the waiting period applicable to the planned acquisition under the hart-scott-rodino antitrust 22 improvements act of 1976 , as amended , and receipt of other required antitrust approvals . story_separator_special_tag the obligation of each of us and pinnacle to consummate the planned acquisition is also conditioned on the other party 's representations and warranties being true and correct ( subject to certain materiality exceptions ) and the other party having performed , in all material respects , its obligations under the merger agreement . the closing of the planned acquisition is not subject to a financing condition . items impacting comparability items of note impacting comparability of results from continuing operations for fiscal 2018 included the following : an income tax benefit of $ 233.3 million related to the enactment of the tax act , charges totaling $ 151.0 million ( $ 113.3 million after-tax ) related to certain litigation matters , an income tax expense of $ 78.6 million associated with a change in a valuation allowance on a deferred tax asset due to the termination of the agreement for the proposed sale of our wesson ® oil business , an income tax charge of $ 42.1 million associated with unusual tax items related to the repatriation of cash during the second quarter from foreign subsidiaries , the tax expense related to the earnings of foreign subsidiaries previously deemed to be permanently invested , a pension contribution , and the effect of a law change in mexico requiring deconsolidation for tax reporting purposes , charges totaling $ 34.9 million ( $ 25.6 million after-tax ) related to the early termination of an unfavorable lease contract by purchasing the property subject to the lease , charges totaling $ 38.0 million ( $ 27.0 million after-tax ) in connection with our scae plan ( as defined below ) , charges totaling $ 15.7 million ( $ 10.9 million after-tax ) associated with costs incurred for acquisitions and divestitures , charges totaling $ 5.4 million ( $ 3.7 million after-tax ) related to pension plan lump-sum settlements and a remeasurement of our salaried and non-qualified pension plan liability , charges totaling $ 4.8 million ( $ 3.7 million after-tax ) related to the impairment of other intangible assets , and a benefit of $ 4.3 million ( $ 2.9 million after-tax ) related to the substantial liquidation of an international joint venture ( recorded in equity method investment earnings ) . items of note impacting comparability of results from continuing operations for fiscal 2017 included the following : charges totaling $ 304.2 million ( $ 257.7 million after-tax ) related to the impairment of goodwill and other intangible assets , gains totaling $ 197.4 million ( $ 68.4 million after-tax ) from the sales of the spicetec and jm swank businesses , charges totaling $ 93.3 million ( $ 60.2 million after-tax ) related to the early retirement of debt , an income tax benefit of $ 91.3 million related to a tax adjustment of valuation allowance associated with the planned divestiture of the wesson ® oil business , charges totaling $ 63.6 million ( $ 41.4 million after-tax ) in connection with the scae plan , charges totaling $ 31.4 million ( $ 19.6 million after-tax ) , including an impairment charge of $ 27.6 million related to the production assets of the business , for the planned divestiture of the wesson ® oil business , an income tax benefit of $ 14.6 million associated with a tax planning strategy that allowed us to utilize certain state tax attributes and certain foreign incentives , charges totaling $ 13.8 million ( $ 8.5 million after-tax ) related to a pension lump sum settlement , and a gain of $ 5.7 million ( $ 3.7 million after-tax ) in connection with a legacy legal matter . 23 segment presentation of gains and losses from derivatives used for economic hedging of anticipated commodity input costs and economic hedging of foreign currency exchange rate risks of anticipated transactions is discussed in the segment review below . acquisitions as noted above , on june 26 , 2018 , subsequent to the end of fiscal 2018 , we entered into the merger agreement with pinnacle under which we will acquire all outstanding shares of pinnacle common stock in a cash and stock transaction valued at approximately $ 10.9 billion , including pinnacle 's outstanding net debt . under the terms of the merger agreement , pinnacle shareholders will receive $ 43.11 per share in cash and 0.6494 shares of our common stock for each share of pinnacle common stock held . the planned acquisition is expected to close by the end of calendar 2018 and remains subject to the approval of pinnacle shareholders , the receipt of regulatory approvals , and other customary closing conditions . in february 2018 , we acquired the sandwich bros. of wisconsin ® business , maker of frozen breakfast and entree flatbread pocket sandwiches , for a cash purchase price of $ 87.3 million , net of cash acquired . approximately $ 57.8 million has been classified as goodwill , subject to final purchase price allocation , and $ 9.7 million and $ 7.1 million have been classified as non-amortizing and amortizing intangible assets , respectively . the amount of goodwill allocated is deductible for tax purposes . the business is included in the refrigerated & frozen segment . in october 2017 , we acquired angie 's artisan treats , llc , maker of angie 's ® boomchickapop ® ready-to-eat popcorn , for a cash purchase price of $ 249.8 million , net of cash acquired . approximately $ 155.2 million has been classified as goodwill , subject to final purchase price allocation , of which $ 95.4 million is deductible for income tax purposes . approximately $ 73.8 million and $ 10.3 million of the purchase price have been allocated to non-amortizing and amortizing intangible assets , respectively . the business is primarily included in the grocery & snacks segment .
| the reduced trade promotions and selective base price increases are actions that are intended to build a higher quality revenue base . the frontera acquisition and the thanasi acquisition collectively contributed $ 36.5 million , or 1 % , to segment net sales during fiscal 2017 . refrigerated & frozen net sales for fiscal 2017 were $ 2.65 billion , a decrease of $ 215.1 million , or 8 % , compared to fiscal 2016 . results for fiscal 2017 reflected a 9 % decrease in volume and a 1 % increase in price/mix compared to fiscal 2016. the decrease in sales volumes and improvements in price/mix reflected reduced trade promotions and selective base price increases , together with stock-keeping unit rationalization , which actions were intended to build a higher quality revenue base . net sales growth was also negatively affected by a transitory increase in the volume of egg beaters ® in fiscal 2016 as the company 's egg supply was not negatively impacted by the avian influenza outbreak in fiscal 2015. international net sales for fiscal 2017 were $ 816.0 million , a decrease of $ 30.6 million , or 4 % , compared to fiscal 2016 . results for fiscal 2017 reflected a 3 % decrease in volume , a 3 % decrease due to foreign exchange rates , and a 2 % increase in price/mix compared to fiscal 2016. the volume decrease for fiscal 2017 was driven by significant shipments in early fiscal 2016 due to recovery from the west coast port disruptions during fiscal 2015 , aggressive pricing actions , reduced trade promotions , and the planned discontinuation of certain lower-margin products . foodservice net sales for fiscal 2017 were $ 1.08 billion , a decrease of $ 26.2 million , or 2 % , compared to fiscal 2016 . results for fiscal 2017 reflected a 4 % decrease in volume offset by a 2 % increase in price/mix compared to fiscal 2016. the decrease
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table 3 : provisions for losses summary replace_table_token_6_th provisions for losses charge card provision for losses increased in both periods , primarily driven by growth in receivables due to increased billed business and higher net write-offs , largely in the corporate and small business portfolios . card member loans provision for losses increased in both periods , driven by strong loan growth , higher net write-offs and a modest increase in delinquencies . the increases in write-offs and delinquencies were due in part to the seasoning of recent loan vintages . other provision for losses increased in 2018 compared to 2017 and was relatively flat in 2017 compared to 2016. the increase in 2018 was primarily due to growth in the non-card lending and commercial financing portfolios . 2017 compared to 2016 also reflected growth in the non-card lending portfolio , which was offset by improving credit performance in the commercial financing portfolio . 37 table 4 : expenses summary replace_table_token_7_th ( a ) effective january 1 , 2018 , includes reclassification of certain business development expenses from other expenses to marketing and business development that are not directly attributable to the adoption of the new revenue recognition guidance . prior periods have been conformed to the current period presentation . expenses marketing and business development expense increased in 2018 compared to 2017 and decreased in 2017 compared to 2016. the variances for both periods were primarily driven by lower levels of spending on growth initiatives in 2017 compared to the preceding and subsequent years . the higher spending on growth initiatives in 2018 included our new global brand campaign , continued investments in partnerships , and increased corporate client incentives driven by higher volumes . card member rewards expense increased in both periods . the increase in 2018 was driven by increases in membership rewards and cash-back reward expenses of $ 558 million and cobrand rewards expense of $ 451 million , both of which were primarily driven by higher spending volumes . the increase in 2017 was primarily driven by higher spending volumes and enhancements to u.s. consumer and small business platinum rewards during 2017. the membership rewards ultimate redemption rate ( urr ) for current program participants increased to 96 percent ( rounded up ) at december 31 , 2018 , compared to 95 percent ( rounded down ) at december 31 , 2017 and 2016. card member services expense increased in both periods , primarily driven by higher usage of travel-related benefits and enhanced platinum card benefits . salaries and employee benefits expense was flat for both periods , reflecting increases in incentive compensation , offset by lower restructuring charges compared to the respective prior year . other expense increased in both periods . the increase in 2018 was primarily driven by higher technology expenses , a loss in the current year on a transaction involving the operations of our prepaid reloadable and gift card business , and a foreign exchange loss related to the devaluation of the argentine peso , which was deemed a highly inflationary currency as of july 1 , 2018 , all partially offset by current-year unrealized gains on certain equity investments and charges in the prior year related to our u.s. loyalty coalition and prepaid businesses . the increase in 2017 was primarily driven by gains in 2016 on the sales of the hfs portfolios , which were recognized as an expense reduction , partially offset by lower technology-related costs in 2017 and higher loyalty edge-related costs in 2016. income taxes the effective tax rate for 2018 was 14.8 percent and reflects a benefit of $ 496 million relating to changes in the tax method of accounting for certain expenses , the resolution of certain prior years ' tax audits and an adjustment to the 2017 provisional tax charge related to the tax act . the tax rate for 2018 also reflects the reduction in the u.s. federal statutory rate from 35 percent to 21 percent as a result of the tax act . the effective tax rate for 2017 was 63.0 percent and reflects the charge of $ 2.6 billion related to the tax act that was accounted for as a provisional estimate under staff accounting bulletin no . 118. refer to note 21 to the “ consolidated financial statements ” for additional information . the tax rates in all periods reflect the level of pretax income in relation to recurring permanent tax benefits and the geographic mix of business . 38 table 5 : selected card-related statistical information replace_table_token_8_th ( a ) effective january 1 , 2018 , we began including billed business related to certain business-to-business products in the calculation of the average discount rate to reflect our expanding business-to-business product offerings . prior periods have been conformed to the current period presentation . ( b ) average fee per card is computed based on proprietary basic net card fees divided by average proprietary basic cards-in-force . 39 table 6 : billed business growth replace_table_token_9_th ( a ) the foreign currency adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation into u.s. dollars ( i.e. , assumes the foreign exchange rates used to determine results for the current year apply to the corresponding prior year period against which such results are being compared ) . 40 table 7 : selected credit-related statistical information replace_table_token_10_th # denotes a variance greater than 100 percent ( a ) other includes foreign currency translation adjustments and for 2016 , worldwide card member loans include reserves associated with card member loans reclassified from hfs to held for investment . refer to changes in card member loans reserve for losses under note 4 to the “ consolidated financial statements ” for additional information . ( b ) we present a net write-off rate based on principal losses only ( i.e. , excluding interest and or fees ) to be consistent with industry convention . story_separator_special_tag in addition , as our practice is to include uncollectible interest and or fees as part of our total provision for losses , a net write-off rate including principal , interest and or fees is also presented . the net write-off rates and 30+ days past due as a percentage of total for card member receivables relate to gcsg and global small business services ( gsbs ) card member receivables . ( c ) global corporate payments ( gcp ) reflects global , large and middle market corporate accounts . for gcp card member receivables , delinquency data is tracked based on days past billing status rather than days past due . a card member account is considered 90 days past billing if payment has not been received within 90 days of the card member 's billing statement date . in addition , if we initiate collection procedures on an account prior to the account becoming 90 days past billing , the associated card member receivable balance is classified as 90 days past billing . these amounts are shown above as 90+ days past due for presentation purposes . gcp delinquency data for periods other than 90+ days past billing is not available due to system constraints . 41 table 8 : net interest yield on average card member loans replace_table_token_11_th ( a ) primarily represents interest expense attributable to maintaining our corporate liquidity pool and funding card member receivables . ( b ) primarily represents interest income attributable to other loans , interest-bearing deposits and the fixed income investment portfolios . ( c ) adjusted net interest income and net interest yield on average card member loans are non-gaap measures . refer to “ glossary of selected terminology ” for the definitions of these terms . we believe adjusted net interest income is useful to investors because it represents the interest expense and interest income attributable to our card member loan portfolio and is a component of net interest yield on average card member loans , which provides a measure of profitability of our card member loan portfolio . net interest yield on average card member loans reflects adjusted net interest income divided by average card member loans , computed on an annualized basis . net interest income divided by average card member loans , computed on an annualized basis , a gaap measure , includes elements of total interest income and total interest expense that are not attributable to the card member loan portfolio , and thus is not representative of net interest yield on average card member loans . 42 business segment results we consider a combination of factors when evaluating the composition of our reportable operating segments , including the results reviewed by the chief operating decision maker , economic characteristics , products and services offered , classes of customers , product distribution channels , geographic considerations ( primarily united states versus outside the united states ) and regulatory considerations . refer to note 25 to the “ consolidated financial statements ” and part i , item 1 . “ business ” for additional discussion of products and services that comprise each segment . effective for the second quarter of 2018 , we realigned our reportable operating segments to reflect the organizational changes announced during the first quarter of 2018. prior periods have been revised to conform to the new reportable operating segments , which are as follows : gcsg , including proprietary consumer cards globally , consumer services including travel services and non-card financing products , certain international joint ventures and our partnership agreements in china ; gcs , including the proprietary gcp business , gsbs and commercial financing products ; and gmns , including the gns business , the global merchant services business , global loyalty coalition businesses , reloadable prepaid and gift card businesses . corporate functions and certain other businesses and operations , including the gbt jv , are included in corporate & other . results of the reportable operating segments generally treat each segment as a stand-alone business . the management reporting process that derives these results allocates revenue and expense using various methodologies as described below . total revenues net of interest expense we allocate discount revenue and certain other revenues among segments using a transfer pricing methodology . within the gcsg and gcs segments , discount revenue generally reflects the issuer component of the overall discount revenue generated by each segment 's card members ; within the gmns segment , discount revenue generally reflects the network and acquirer component of the overall discount revenue . net card fees and other fees and commissions are directly attributable to the segment in which they are reported . interest and fees on loans and certain investment income is directly attributable to the segment in which it is reported . interest expense represents an allocated funding cost based on a combination of segment funding requirements and internal funding rates . provisions for losses the provisions for losses are directly attributable to the segment in which they are reported . expenses marketing and business development expense is included in each segment based on the actual expenses incurred . global brand advertising is primarily reflected in corporate & other and may be allocated to the segments based on the actual expense incurred . rewards and card member services expenses are included in each segment based on the actual expenses incurred within the segment . salaries and employee benefits and other operating expenses reflect expenses such as professional services , occupancy and equipment and communications incurred directly within each segment . in addition , expenses related to support services , such as technology costs , are allocated to each segment primarily based on support service activities directly attributable to the segment . certain other overhead expenses are allocated from corporate & other to the segments based on the relative levels of revenue and card member loans and receivables .
| most notably , effective january 1 , 2018 , the tax act reduced the u.s. federal statutory corporate income tax rate from 35 percent to 21 percent , introduced a territorial tax system in which future dividends paid from earnings outside the united states to a u.s. corporation are not subject to u.s. federal taxation and imposed new u.s. federal corporate income taxes on certain foreign operations . for 2019 , we estimate that our tax rate will be approximately 22 percent , before discrete tax items . business environment our results for 2018 reflect strong performance and our focus on , and investment in , our four strategic imperatives – expand our leadership in the premium consumer space , build on our strong position in commercial payments , strengthen our global , integrated network and make american express an essential part of our customers ' digital lives . billings and revenue growth reflected momentum across our businesses . we continued to invest in new services and card member benefits , new card acquisitions and expanding our merchant network . during the year , we returned a significant amount of capital to our shareholders through our share buyback program and an increase in our dividend , while increasing our capital ratios . our results also included the benefit of a lower tax provision due to a reduction in the u.s. corporate income tax rate resulting from the tax act , along with several discrete tax benefits . our worldwide billed business increased 9 percent over the prior year , reflecting strong proprietary billings growth both in the u.s. and internationally , and across customer segments . proprietary billings growth was driven by increased spending within our premium consumer base , as well as consistent double digit growth throughout the year from our small and medium enterprise business customers . gns billed business declined due to the ongoing and expected impact of changes in the regulatory environment in the eu and australia ; excluding the billings from those geographies , gns billed business grew 8 percent year-over-year . revenues net of interest expense increased 9 percent , reflecting growth in card member spending , net interest income and card fees , partially offset by a year-over-year decline
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adjusted net revenue and adjusted ebitda , as well as revenue and anr growth rates in constant currency , are non-gaap financial measures . for more information about how we use these non-gaap financial measures in our business , the limitations of these measures , and a reconciliation of these measures to the most directly comparable gaap financial measures , see the section titled “ reconciliations of non-gaap financial measures. ” monthly active platform consumers . mapcs is the number of unique consumers who completed a rides or new mobility ride or received an eats meal on our platform at least once in a given month , averaged over each month in the quarter . while a unique consumer can use multiple product offerings on our platform in a given month , that unique consumer is counted as only one mapc . we use mapcs to assess the adoption of our platform and frequency of transactions , which are key factors in our penetration of the countries in which we operate . 51 trips . we define trips as the number of completed consumer rides or new mobility rides and eats meal deliveries in a given period . for example , an uberpool ride with three paying consumers represents three unique trips , whereas an uberx ride with three passengers represents one trip . we believe that trips are a useful metric to measure the scale and usage of our platform . gross bookings . we define gross bookings as the total dollar value , including any applicable taxes , tolls , and fees , of rides and new mobility rides , eats meal deliveries , and amounts paid by freight shippers , in each case without any adjustment for consumer discounts and refunds , driver and restaurant earnings , and driver incentives . gross bookings do not include tips earned by drivers . gross bookings are an indication of the scale of our current platform , which ultimately impacts revenue . replace_table_token_4_th adjusted net revenue . see the section titled “ reconciliations of non-gaap financial measures ” for our definition and a reconciliation to the most directly comparable gaap financial measure . 52 take rate is defined as adjusted net revenue as a percentage of gross bookings . for purposes of take rate , gross bookings include the impact of our 2018 divested operations , defined as operations in ( i ) southeast asia prior to the sale of those operations to grab and ( ii ) russia/cis prior to the formation of our yandex.taxi joint venture . replace_table_token_5_th 2019 compared to 2018 adjusted net revenue increased $ 2.6 billion , or 25 % , primarily driven by growth in trips and gross bookings within rides and eats . rides take rate was 21.4 % , down from 21.9 % in 2018 , primarily driven by an increase in incentive spend in latin america . eats take rate was 9.5 % , slightly down from 9.6 % in 2018 , primarily due to an increase in delivery people and restaurant payments coupled with higher delivery and subscription discounts , partially offset by lower incentive spend in the u.s. and canada markets . adjusted ebitda . see the section titled “ reconciliations of non-gaap financial measures ” for our definition and a reconciliation of net income ( loss ) attributable to uber technologies , inc. to adjusted ebitda . replace_table_token_6_th 2019 compared to 2018 adjusted ebitda loss increased $ 878 million , or 48 % , primarily attributable to continued investments within our non-rides offerings and an increase in corporate overhead as we grow the business . these investments drove an increase in our adjusted ebitda loss margin as a percentage of adjusted net revenue of ( 3 ) % to ( 21 ) % . components of results of operations the following discussion on trends in our components of results of operations excludes ipo related impacts as well as the driver appreciation award of $ 299 million , both of which occurred during the second quarter of 2019. the driver appreciation award was accounted for as a driver incentive . for additional information about our ipo , see note 1 - description of business and summary of significant accounting policies to our consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” , of this annual report on form 10-k . revenue we generate substantially all of our revenue from fees paid by drivers and restaurants for use of our platform . we have concluded that we are an agent in these arrangements as we arrange for other parties to provide the service to the end-user . under this model , revenue is net of driver and restaurant earnings and driver incentives . we act as an agent in these transactions by connecting consumers to drivers and restaurants to facilitate a trip or meal delivery service . for additional discussion related to our revenue , see the section titled “ management 's discussion and analysis of financial condition and results of operations - critical accounting policies and estimates - revenue recognition , ” note 1 - description of business and summary of significant accounting policies - revenue recognition , and note 2 - revenue to our consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” , of this annual report on form 10-k . cost of revenue , exclusive of depreciation and amortization cost of revenue , exclusive of depreciation and amortization , consists primarily of insurance costs , credit card processing fees , hosting and co-located data center expenses , mobile device and service expenses , amounts related to fare chargebacks and other credit card losses , excess driver incentives , and costs incurred with carriers for freight transportation . insurance expenses include coverage for auto liability , general liability , uninsured and underinsured motorist liability , and auto physical damage related to our rides products and eats offering . story_separator_special_tag excess driver incentives are primarily related to our rides products in emerging markets and our eats offering . we expect that cost of revenue , exclusive of depreciation and amortization , will increase on an absolute dollar basis for the foreseeable future to the extent we continue to see growth on the platform . as trips increase , we expect related increases for insurance costs , credit card processing fees , hosting and co-located data center expenses , and other cost of revenue , exclusive of depreciation and amortization . cost of revenue , exclusive of depreciation and amortization , may vary as a percentage of revenue from period to period based on our investments in our business , including excess driver incentives , and our freight offering and new mobility products , each of which have higher costs as a percentage of revenue than our rides and eats products , as we are the principal in these arrangements , as well as the cost of scooters , which are expensed once placed in service . 53 operations and support operations and support expenses consist primarily of compensation expenses , including stock-based compensation to employees who support operations in cities , driver operations employees , community management employees , and platform user support representatives , as well as costs for allocated overhead and those associated with driver background checks . we expect that operations and support expenses will increase on an absolute dollar basis for the foreseeable future as we continue to grow our operations and hire additional employees and platform user support representatives . to the extent we are successful in becoming more efficient in supporting platform users , we would expect operations and support expenses as a percentage of revenue to decrease over the long term . sales and marketing sales and marketing expenses consist primarily of compensation expenses , including stock-based compensation to sales and marketing employees , advertising expenses , expenses related to consumer acquisition and retention , including consumer discounts , rider facing loyalty programs , promotions , refunds , and credits , driver referrals , and allocated overhead . we expense advertising and other promotional expenditures as incurred . we expect that sales and marketing expenses will increase on an absolute dollar basis and vary from period to period as a percentage of revenue for the foreseeable future as we plan to continue to invest in sales and marketing to grow the number of platform users and increase our brand awareness . the trend and timing of our brand marketing expenses will depend in part on the timing of marketing campaigns . research and development research and development expenses consist primarily of compensation expenses for engineering , product development , and design employees , including stock-based compensation , expenses associated with ongoing improvements to , and maintenance of , our platform offerings , and atg and other technology programs development expenses , as well as allocated overhead . we expense substantially all research and development expenses as incurred . we expect that research and development expenses will increase on an absolute dollar basis and vary from period to period as a percentage of revenue for the foreseeable future as we continue to invest in research and development activities relating to ongoing improvements to and maintenance of our platform offerings , as well as atg and other technology programs , and other research and development programs , including the hiring of engineering , product development , and design employees to support these efforts . general and administrative general and administrative expenses consist primarily of compensation expenses , including stock-based compensation , for executive management and administrative employees , including finance and accounting , human resources , and legal , as well as facilities and general corporate , and director and officer insurance expenses . general and administrative expenses also include legal settlements . we expect that general and administrative expenses will increase on an absolute dollar basis and vary from period to period as a percentage of revenue for the foreseeable future as we focus on processes , systems , and controls to enable our internal support functions to scale with the growth of our business . we expect to incur additional expenses as a result of operating as a public company , including expenses to comply with the rules and regulations applicable to companies listed on a national securities exchange , expenses related to compliance and reporting obligations pursuant to the rules and regulations of the sec , as well as higher expenses for general and director and officer insurance , investor relations , and professional services . depreciation and amortization depreciation and amortization consists of all depreciation and amortization expenses associated with our property and equipment and acquired intangible assets . depreciation includes expenses associated with buildings , site improvements , computer and network equipment , leased vehicles , furniture , fixtures , and dockless e-bikes , as well as leasehold improvements . amortization includes expenses associated with our capitalized internal-use software and acquired intangible assets . we expect that depreciation and amortization expenses will increase on an absolute dollar basis as we continue to build out our data center and network infrastructure and build new office locations . interest expense interest expense consists primarily of interest expense associated with our outstanding debt , including accretion of debt discount . other income ( expense ) , net other income ( expense ) , net primarily includes the following items : interest income , which consists primarily of interest earned on our cash and cash equivalents and restricted cash and cash equivalents . gain on business divestitures , which consists of gain on sale of divested operations . 54 gain ( loss ) on debt and equity securities , net , which consists primarily of gains from fair value adjustments relating to our investments such as our investment in didi .
| the payment was accounted for as a driver incentive in the second quarter of 2019. initial public offering on may 9 , 2019 , our registration statement on form s-1 ( file no . 333-230812 ) related to our initial public offering ( “ ipo ” ) was declared effective by the sec , and our common stock began trading on the nyse on may 10 , 2019. our ipo closed on may 14 , 2019 . for additional information , see note 1 - description of business and summary of significant accounting policies included in part ii , item 8 , “ financial statements and supplementary data ” , of this annual report on form 10-k . 49 paypal , inc. ( “ paypal ” ) private placement on may 16 , 2019 , we closed a private placement by paypal in which we issued and sold 11 million shares of our common stock at a purchase price of $ 45.00 per share and received aggregate proceeds of $ 500 million . additionally , we and paypal agreed to extend our global partnership , including a commitment to jointly explore certain commercial collaborations . segment change during the third quarter of 2019 , following a number of leadership and organizational changes , the chief operating decision maker ( “ codm ” ) changed how he assesses performance and allocates resources to a more disaggregated level in order to optimize utilization of the company 's platform as well as manage research and development of new technologies . based on this change , in the third quarter of 2019 , we determined that we have five operating and reportable segments : rides , eats , freight , other bets , and atg and other technology programs . for additional information , see note 14 - segment information and geographic information included in part ii , item 8 , “ financial statements and supplementary data ” , of this annual report on form 10-k . atg investment : preferred unit purchase agreement in july 2019 , the investment by the atg investors in atg was consummated . we received , in aggregate , consideration of $ 1.0 billion from softbank , toyota , and denso ( collectively
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these shares vest over a three year period , with a one year cliff vesting period , and remain subject to forfeiture if vesting conditions are not met . the aggregate value of the stock award was $ 258,953 story_separator_special_tag cautionary notice regarding forward-looking statements the following discussion and analysis of our financial condition and results of operations for the years ended june 30 , 2018 and 2017 should be read in conjunction with our consolidated financial statements and related notes to those financial statements that are included elsewhere in this report . our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under “ risk factors ” and elsewhere in this report . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions to identify forward-looking statements . all forward-looking statements included in this report are based on information available to us on the date hereof and , except as required by law , we assume no obligation to update any such forward-looking statements . overview research solutions was incorporated in the state of nevada on november 2 , 2006 , and is a publicly traded holding company with two wholly owned subsidiaries at june 30 , 2018 : reprints desk , inc. , a delaware corporation and reprints desk latin america s. de r.l . de c.v , an entity organized under the laws of mexico . on june 30 , 2017 , we sold the intangible assets of our reprints and eprints business line , but specifically excluding billed accounts receivable and respective liabilities , pursuant to an asset purchase agreement dated june 20 , 2017. the aggregate net consideration for the sale is comprised of $ 450,000 paid on the closing date , and earn-out payments of 45 % of gross margin over the 30 month period subsequent to the closing date . we have made a policy election to record the contingent consideration when the consideration is determined to be realizable ( each 6-month period ending subsequent to the closing date ) . we provide two service offerings to our customers : annual licenses that allow customers to access and utilize certain premium features of our cloud based software-as-a-service ( “ saas ” ) research intelligence platform ( “ platforms ” ) and the transactional sale of published scientific , technical , and medical ( “ stm ” ) content managed , sourced and delivered through the platform ( “ transactions ” ) . platforms and transactions are packaged as a single solution that enable life science and other research intensive organizations to speed up research and development activities with faster , single sourced access and management of content and data used throughout the intellectual property development lifecycle . platforms our cloud-based saas research intelligence platform consists of proprietary software and internet-based interfaces . legacy functionality allows customers to initiate orders , route orders for the lowest cost acquisition , manage transactions , obtain spend and usage reporting , automate authentication , and connect seamlessly to in-house and third-party software systems . customers can also enhance the information resources they already own or license and collaborate around bibliographic information . additional functionality has recently been added to our platform in the form of interactive app-like gadgets . an alternative to manual data filtering , identification and extraction , gadgets are designed to gather , augment , and extract data across a variety of formats , including bibliographic citations , tables of contents , rss feeds , pdf files , xml feeds , and web content . we are rapidly developing new gadgets in order to build an ecosystem of gadgets . together , these gadgets will provide researchers with an “ all in one ” toolkit , delivering efficiencies in core research workflows and knowledge creation processes . our platform is deployed as a single , multi-tenant system across our entire customer base . customers securely access the platform through online web interfaces and via web service apis that enable customers to leverage platform features and functionality from within in-house and third-party software systems . the platform can also be configured to satisfy a customer 's individual preferences . we leverage our platform 's efficiencies in scalability , stability and development costs to fuel rapid innovation and competitive advantage . transactions researchers and knowledge workers in life science and other research-intensive organizations generally require single copies of published stm journal articles for use in their research activities . these individuals are our primary users . our platform provides our customers with a single source to the universe of published stm content that includes over 70 million existing stm articles and over one million newly published stm articles each year . our platform allows customers to find and download digital versions of stm articles that are critical to their research . customers submit orders for the articles they need which we source and electronically deliver to them generally in under an hour . this service is generally known in the industry as single article delivery or document delivery . story_separator_special_tag we also obtain the necessary permission licenses from the content publisher or other rights holder so that our customer 's use complies with applicable copyright laws . we have arrangements with hundreds of content publishers that allow us to distribute their content . the majority of these publishers provide us with electronic access to their content , which allows us to electronically deliver single articles to our customers often in a matter of minutes . 16 critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the united states , or gaap , requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . when making these estimates and assumptions , we consider our historical experience , our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances . actual results may differ under different estimates and assumptions . the accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties . revenue recognition our policy is to recognize revenue when services have been performed , risk of loss and title to the product transfers to the customer , the selling price is fixed or determinable , and collectability is reasonably assured . we generate revenue by providing two service offerings to our customers : annual licenses that allow customers to access and utilize certain premium features of our cloud based saas research intelligence platform ( “ platforms ” ) and the transaction sale of stm content managed , sourced and delivered through the platform ( “ transactions ” ) . platforms we charge a subscription fee that allows customers to access and utilize certain premium features of our platform . revenue is recognized ratably over the term of the subscription agreement , which is typically one year , provided all other revenue recognition criteria have been met . billings or payments received in advance of revenue recognition are recorded as deferred revenue . transactions we charge a transactional service fee for the electronic delivery of single articles , and a corresponding copyright fee for the permitted use of the content . we recognize revenue from single article delivery services upon delivery to the customer only when the selling price is fixed or determinable , and collectability is reasonably assured . stock-based compensation we periodically issue stock options , warrants and restricted stock to employees and non-employees for services , in capital raising transactions , and for financing costs . we account for share-based payments under the guidance as set forth in the share-based payment topic 718 of the fasb accounting standards codification , which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees , officers , directors , and consultants , including employee stock options , based on estimated fair values . we estimate the fair value of stock option and warrant awards to employees and directors on the date of grant using an option-pricing model , and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our statements of operations . we estimate the fair value of restricted stock awards to employees and directors using the market price of our common stock on the date of grant , and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our statements of operations . we account for share-based payments to non-employees in accordance with topic 505 of the fasb accounting standards codification , whereby the value of the stock compensation is based upon the measurement date as determined at either a ) the date at which a performance commitment is reached , or b ) the date at which the necessary performance to earn the equity instruments is complete . stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures . forfeitures are estimated at the time of grant and revised , as necessary , in subsequent periods if actual forfeitures differ from those estimates . allowance for doubtful accounts we evaluate the collectability of our trade accounts receivable based on a number of factors . in circumstances where we become aware of a specific customer 's inability to meet its financial obligations to us , we estimate and record a specific reserve for bad debts , which reduces the recognized receivable to the estimated amount we believe will ultimately be collected . in addition to specific customer identification of potential bad debts , bad debt charges are recorded based on our historical losses and an overall assessment of past due trade accounts receivable outstanding . we established an allowance for doubtful accounts of $ 115,040 and $ 119,536 as of june 30 , 2018 and 2017 , respectively . 17 foreign currency the accompanying consolidated financial statements are presented in united states dollars , the functional currency of our company . capital accounts of foreign subsidiaries are translated into us dollars from foreign currencies at their historical exchange rates when the capital transactions occurred . assets and liabilities are translated at the exchange rate as of the balance sheet date . income and expenditures are translated at the average exchange rate of the period .
| technology and product development ↑ $ 322,008 increased primarily due to greater personnel costs . general and administrative ↓ $ 176,736 decreased primarily due to lower personnel costs . interest expense for the year ended june 30 , 2018 , interest expense was $ 4,000 , compared to $ 12,000 for the prior year , a decrease of $ 8,000. provision for income taxes during the years ended june 30 , 2018 and 2017 , we recorded a provision for income taxes of $ 39,779 and $ 35,495 , respectively , an increase of $ 4,284. net income ( loss ) replace_table_token_11_th 21 loss from continuing operations decreased $ 1,172,468 or 37.7 % , for the year ended june 30 , 2018 compared to the prior year , primarily due to increased gross profit , partially offset by increased operating expenses as described above . liquidity and capital resources replace_table_token_12_th liquidity since our inception , we have funded our operations primarily through private sales of equity securities and the exercise of warrants , which have provided aggregate net cash proceeds to date of approximately $ 15,972,000. as of june 30 , 2018 , we had working capital of $ 3,107,176 and stockholders ' equity of $ 3,279,402. for the year ended june 30 , 2018 , we recorded a net loss of $ 1,678,741 , cash used by operating activities was $ 605,314. we may incur losses for an indeterminate period and may never sustain profitability . we may be unable to achieve and maintain profitability on a quarterly or annual basis . an extended period of losses and negative cash flow may prevent us from successfully operating and expanding our business . as of june 30 , 2018 , we had cash and cash equivalents of $ 4,908,180 , compared to $ 5,773,950 as of june 30 , 2017 , decrease of $ 865,770. this decrease was primarily due to cash used by operating activities . < p style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0
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new credit facility in september 2011 , we obtained a new $ 105.0 million senior credit facility which matures in september 2014 with a one-year extension option and replaces our previous credit line that was scheduled to mature in april 2012. the new credit facility provides for a three-year revolving line of credit priced at 275 to 350 basis points over libor or base rate , as defined in the agreement , which is the same as our previous credit line . the new credit facility includes the opportunity to expand the borrowing capacity by up to $ 45.0 million to an aggregate size of $ 150.0 million upon a request by us and the consent of each lender , provided there is no default or event of default and each representation and warranty made or deemed made by us remains true and correct in all material respects on the effective date of such increase . the previous credit line was repaid in full in july 2011. the financial covenant tests with respect to fixed charge coverage ratio and leverage tests are similar to our previous credit line . on february 21 , 2012 , we closed on expanding the borrowing capacity to an aggregate $ 145.0 million . credit default swap transactions in august 2011 , we entered into credit default swap transactions for a notional amount of $ 100.0 million to hedge financial and capital market risk for an upfront cost of $ 8.2 million that was subsequently returned to us by our counterparty . a credit default swap is a derivative contract that works like an insurance policy against the credit risk of an entity or obligation . the credit risk underlying the credit default swaps are referenced to the cmbx index . the cmbx is a group of indices that references underlying bonds from 25 commercial mortgage-backed securities ( cmbs ) , tranched by rating class . the cmbx is traded via pay-as-you-go credit default swaps , which involve ongoing , two-way payments over the life of the contract between the buyer and the seller of protection . the reference obligations are cmbs bonds . the seller of protection assumes the credit risk of the reference obligation from the buyer of protection in exchange for payments of an annual premium . if there is a default or a loss , as defined in the credit default swap agreements , on the underlying bonds , then the buyer of protection is protected against those losses . the only liability for ashford , the buyer of protection , is the annual premium and any change in value of the underlying cmbx index ( if the trade is terminated prior to maturity ) . for the cmbx trades that we have completed , we were the buyer of 43 protection in all trades . assuming the underlying bonds pay off at par over their remaining average life , our total exposure for these trades is approximately $ 8.5 million . the fair value of the credit default swaps is obtained from a third party who publishes various information including the index composition and price data . the change in the market value of the credit default swaps is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparty when the change in the market value is over $ 250,000. as of december 31 , 2011 , the credit default swap had a net carrying value of a liability of $ 2,000 , and since inception we have recognized an unrealized loss of $ 1.3 million . see notes 10 and 11 of notes to consolidated financial statements in item 8. sale of additional shares of our common stock in july 2011 , we reissued 7.0 million of our treasury shares at $ 12.50 per share and received net proceeds of $ 83.2 million . the net proceeds were used to repay the $ 50.0 million outstanding balance on our senior credit facility and for general corporate purposes , including investments , capital expenditures and working capital . in january 2011 , an underwriter purchased 300,000 shares of our common stock through the partial exercise of the underwriter 's 1.125 million share over-allotment option in connection with the issuance of 7.5 million shares of common stock completed in december 2010 , and we received net proceeds of $ 2.8 million , which were used for general corporate purposes . investments in securities and other we continually seek new and alternative strategies to leverage our industry and capital markets knowledge in ways that we believe will be accretive to our company . we believe that we can utilize the same real-time information we use to manage our portfolio and capital structure to invest capital in the public markets . to implement this investment strategy , during the second quarter of 2011 , our board of directors authorized the formation of an investment subsidiary to invest in public securities and other investments . these investments are carried at fair market value . our maximum aggregate net investment amount is limited to $ 20 million . as of december 31 , 2011 , based on the closing price of the securities , we recorded total investments in securities and other of $ 21.4 million and liabilities associated with investments in securities of $ 2.2 million . story_separator_special_tag through december 31 , 2011 , we recognized unrealized losses of $ 391,000. we also recognized realized losses of $ 981,000 and investment income of $ 2,000 , or a net investment loss of $ 979,000. see notes 10 and 11 of notes to consolidated financial statements in item 8. preferred stock offering and redemption of series b-1 convertible preferred stock in april 2011 , we completed the offering of 3.35 million shares ( including 350,000 shares pursuant to the underwriters ' exercise of an over-allotment option ) of our 9.00 % series e cumulative preferred stock at a net price of $ 24.2125 per share , and we received net proceeds of $ 80.8 million after underwriting fees . of the net proceeds from the offering , $ 73.0 million was used to redeem 5.9 million shares of the total 7.3 million shares of our series b-1 convertible preferred stock outstanding on may 3 , 2011. the remaining proceeds were used for other general corporate purposes . the remaining 1.4 million outstanding series b-1 convertible preferred shares were converted into 1.4 million shares of our common stock , which was treated as a stock dividend of $ 17.4 million paid to the series b-1 preferred shareholder in accordance with the applicable accounting guidance . in october 2011 , we issued and sold an additional 1.3 million shares of our 9.00 % series e cumulative preferred stock at a price of $ 23.47 per share , in an underwritten public offering pursuant to an effective registration statement . we received net proceeds of $ 28.9 million after underwriting fees . the proceeds from the offering may be used for general corporate purposes , including , without limitation , repayment of debt or other maturing obligations , financing future hotel related investments , capital expenditures and working capital . a portion of the proceeds may also be used for repurchasing shares of our common stock under our existing repurchase program . at-the-market preferred stock offering on september 30 , 2011 , we entered into an at-the-market ( atm ) program with an investment banking firm , pursuant to which we may issue up to 700,000 shares of 8.55 % series a cumulative preferred stock and up to 700,000 shares of 8.45 % series d cumulative preferred 44 stock at market prices up to $ 30.0 million . no shares of our preferred stock have sold under this program as of the date of this report . repayment of a mezzanine loan in april 2011 , we entered into a settlement agreement with the borrower of the mezzanine loan which was secured by a 105-hotel property portfolio and scheduled to mature in april 2011. the borrower paid off the loan for $ 22.1 million . the difference between the settlement amount and the carrying value of $ 17.9 million was recorded as a credit to impairment charges in accordance with applicable accounting guidance . acquisition of hotel properties securing mezzanine loans held in unconsolidated joint ventures in july 2010 , as a strategic complement to our existing joint venture with prudential real estate investors ( prei ) formed in 2008 , we contributed $ 15.0 million for an ownership interest in a new joint venture with prei . the new joint venture acquired a portion of the tranche 4 mezzanine loan associated with jer partners ' 2007 privatization of the jer/highland hospitality portfolio ( the highland portfolio ) . the mezzanine loan was secured by the same 28 hotel properties as our then existing joint venture investment in the tranche 6 mezzanine loan . both of these mezzanine loans had been in default since august 2010. after negotiating with the borrowers , senior secured lenders and senior mezzanine lenders for a restructuring , we , through a new joint venture , the pim highland jv , with prisa iii investments , llc ( prisa iii ) ( an affiliate of prei ) , invested $ 150.0 million and prisa iii invested $ 50.0 million of new capital to acquire the 28 high quality full and select service hotel properties comprising the highland portfolio on march 10 , 2011. we and prisa iii have ownership interests of 71.74 % and 28.26 % , respectively , in the new joint venture . in addition to the common equity splits , we and prisa iii each have a $ 25.0 million preferred equity interest earning an accrued but unpaid 15 % annual return with priority over common equity distributions . our investment in the pim highland jv is accounted for using the equity method and the carrying value was $ 179.5 million at december 31 , 2011. the pim highland jv recognized a gain of $ 82.1 million related to a bargain purchase and settlement of a pre-existing relationship , of which our share was $ 46.3 million . the purchase price allocation has been finalized as of december 31 , 2011. see note 5 of notes to consolidated financial statements in item 8. litigation settlement in march 2011 , we entered into a consent and settlement agreement ( the settlement agreement ) with wells fargo bank , n.a . ( wells ) to resolve potential disputes and claims between us and wells relating to our purchase of a participation interest in certain mezzanine loans . wells denied the allegations in our complaint and further denies any liability for the claims asserted by us ; however , the settlement agreement was entered into to resolve our claims against wells and to secure wells ' consent to our participation in the highland hospitality portfolio restructuring . pursuant to the settlement agreement , wells agreed to pay us $ 30.0 million over the next five years , or earlier , if certain conditions are satisfied . as part of the settlement agreement , we and wells have agreed to a mutual release of claims .
| 49 the following table summarizes the changes in key line items from our consolidated statements of operations for the years ended december 31 , 2011 , 2010 and 2009 ( in thousands ) : replace_table_token_5_th 50 comparison of year ended december 31 , 2011 with year ended december 31 , 2010 income from continuing operations represents the operating results of 96 hotel properties ( comparable hotels ) included in continuing operations , that we have owned throughout the entire year ended december 31 , 2011 , 2010 and 2009 , but excludes the operating results of a hotel property we began to consolidate its operations for the period from december 2 , 2011 through december 31 , 2011. the hotel property previously was under a triple-net operating lease for which we only recorded rental income through december 1 , 2011. the following table illustrates the key performance indicators of these hotels : replace_table_token_6_th revenue . room revenues from comparable hotels increased $ 40.3 million , or 6.3 % , during the year ended december 31 , 2011 ( 2011 ) compared to the year ended december 31 , 2010 ( 2010 ) . the increase in room revenue was primarily due to the continued improvements in occupancy coupled with the increase in average daily rate . during 2011 , we experienced a 183 basis points increase in occupancy and a 3.6 % increase in room rates as the economy continues to improve . food and beverage revenues from comparable hotels experienced a similar increase of $ 6.8 million , or 4.5 % , due to improved occupancy . other revenue from comparable hotels experienced a decrease of $ 45,000. rental income of $ 5.3 million was recognized through december 1 , 2011 for a hotel property that was leased to a third-party under a triple-net basis . effective december 2 , 2011 , we were assigned the remaining 11 % ownership interest in the joint venture which previously held a hotel property under a triple-net lease . the lease agreement was canceled and the operating results of this hotel property have been included in our consolidated statements of operations , which accounted for a total of $ 2.5 million of room , food and beverage , and other hotel revenues . the remaining increase in total hotel revenue of $ 4.3 million is attributable to the acquisition of the worldquest condominium properties in march 2011. no interest income from notes receivable has
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key tronic computer peripherals ( shanghai ) co. , ltd. leases two facilities with smt , assembly , global purchasing and warehouse capabilities in shanghai , china , which began operations in 1999. its primary function is to provide ems services for export ; however , it is also currently manufacturing certain electronic keyboards . foreign sales ( based on shipping instructions ) from our worldwide operations , including domestic exports , were $ 137.4 million and $ 132.1 million in fiscal years 2016 and 2015 , respectively . products and manufacturing services provided by our subsidiary operations are often shipped to customers directly by the parent company . 22 results of operations comparison of the fiscal year ended june 27 , 2015 with the fiscal year ended june 28 , 2014 the following table sets forth for the periods indicated certain items of the consolidated statements of income expressed as a percentage of net sales . the financial information and discussion below should be read in conjunction with the consolidated financial statements and notes contained in this annual report . replace_table_token_7_th net sales the increase in net sales from prior year was primarily driven by an approximate $ 124.6 million increase in revenue related to ayrshire and by an approximate $ 17.3 million increase in revenues related to new program wins , partially offset by an approximate $ 7.0 million decrease in revenue related to decreased demand from current customer programs and an approximate $ 6.3 million decrease in revenue related to program losses . the following table shows the revenue by industry sectors as a percentage of revenue for fiscal years 2015 and 2014 : replace_table_token_8_th we provide services to customers in a number of industries and produce a variety of products for our customers in each industry . as we continue to diversify our customer base and win new customers we may continue to see a change in the industry concentrations of our revenue . sales to foreign locations outside the united states represented 30.4 percent and 35.3 percent of our total net sales in fiscal years 2015 and 2014 , respectively . cost of sales total cost of sales as a percentage of net sales was 92.3 percent and 91.2 percent in fiscal years 2015 and 2014 , respectively . total cost of materials as a percentage of net sales was approximately 64.6 percent and 64.5 percent in fiscal years 2015 and 2014 , respectively . the change from year-to-year was relatively flat and resulted from an increase in material cost as a percentage of net sales from certain customers which were partially offset by the lower material costs as a percentage of net sales from ayrshire customers . 23 production and support costs as a percentage of net sales were 27.7 percent and 26.7 percent in fiscal years 2015 and 2014 , respectively . the increase in fiscal year 2015 is primarily related to inefficiencies associated with ramping production of new products that resulted in higher than expected operating expenses during the first quarter of fiscal year 2015. we provide a reserve for obsolete and non-saleable inventories based on specific identification of inventory against current demand and recent usage . we also consider our customers ' ability to pay for inventory whether or not there is a lead-time assurance agreement for a specific program . the amounts charged to expense for these inventories were approximately $ 0.5 million and $ 0.3 million in fiscal years 2015 and 2014 , respectively . we provide warranties on certain products we sell and estimate warranty costs based on historical experience and anticipated product returns . warranty expense is related to workmanship claims on keyboards and ems products . the amounts charged to expense are determined based on an estimate of warranty exposure . the net warranty expense was approximately $ 115,000 and $ 35,000 in fiscal years 2015 and 2014 , respectively . gross profit gross profit as a percentage of net sales was 7.7 percent and 8.8 percent in fiscal years 2015 , and 2014 , respectively . the 1.1 percentage point decrease in gross profit as a percentage of net sales during fiscal year 2015 as compared to fiscal year 2014 is primarily related to a 1.0 percentage point increase in certain overhead costs and a 0.1 percentage point increase in material costs . changes in gross profit margins reflect the impact of a number of factors that can vary from period to period , including product mix , start-up costs and efficiencies associated with new programs , product life cycles , sales volumes , capacity utilization of our resources , management of inventories , component pricing and shortages , end market demand for customers ' products , fluctuations in and timing of customer orders , and competition within the ems industry . these and other factors can cause variations in operating results . there can be no assurance that gross margins will not decrease in future periods . we took early pay discounts to suppliers that totaled approximately $ 1.5 million and $ 1.1 million in fiscal years 2015 and 2014 , respectively . early pay discounts will fluctuate based on our liquidity and changes in the discounts and terms offered by our suppliers . research , development and engineering research , development and engineering expenses ( rd & e ) consists principally of employee related costs , third party development costs , program materials , depreciation and allocated information technology and facilities costs . total rd & e expense was $ 5.8 million and $ 5.6 million in fiscal years 2015 and 2014 , respectively . total rd & e expenses as a percent of net sales were 1.3 percent and 1.8 percent in fiscal years 2015 and 2014 , respectively . this 0.5 percentage point decrease in rd & e as a percentage of net sales is primarily related to the increase in revenue as a result of the ayrshire acquisition as well as a slight decrease in certain overhead expenses . story_separator_special_tag selling , general and administrative selling , general and administrative expenses ( sg & a ) consist principally of salaries and benefits , advertising and marketing programs , sales commissions , travel expenses , provision for doubtful accounts , facilities costs , and professional services . total sg & a expenses were $ 20.9 million and $ 12.0 million in fiscal years 2015 and 2014 , respectively . total sg & a expenses as a percent of net sales were 4.8 percent and 3.9 percent in fiscal years 2015 and 2014 , respectively . this 0.9 percentage point increase in sg & a as a percentage of net sales is primarily related to the inclusion of ayrshire 's sg & a costs , non-recurring closing costs associated with the ayrshire acquisition , and an increase in payroll related costs . interest expense we had net interest expense of $ 1.4 million and $ 0.1 million in fiscal years 2015 and 2014 , respectively . this increase in interest expense is primarily related to an increase in the average balance outstanding on our line of credit , term loan and factored receivables that were primarily used for the acquisition of ayrshire . income tax provision we had an income tax expense of $ 1.0 million during fiscal year 2015 as compared to an income tax expense of $ 1.6 million in fiscal year 2014. the income tax expense recognized during both fiscal years 2015 and 2014 was primarily a function of u.s. and foreign taxes recognized at the statutory rates offset by the net benefit associated with federal research and development tax credits , changes in potential foreign tax credits and changes in foreign tax regimes . the impact of this offset was greater in 2014 because the company recognized a one-time benefit related to the repeal of the ietu tax regime in mexico during fiscal year 2014 . 24 we continually review our requirements for liquidity domestically to fund current operations , revenue growth and to look for potential future acquisitions . we anticipate repatriating a portion of our unremitted foreign earnings . the estimated taxes and associated foreign tax credits are included in the income tax calculation . for further information on taxes please review footnote 6 of the “ notes to consolidated financial statements. ” capital resources and liquidity operating cash flow net cash provided by operating activities for fiscal year 2016 was $ 4.6 million compared to net cash provided by operating activities of $ 7.7 million and $ 1.5 million in fiscal years 2015 and 2014 , respectively . the $ 4.6 million of net cash provided by operating activities during fiscal year 2016 is primarily related to $ 6.5 million of net income , $ 6.2 million of depreciation and amortization and an $ 11.1 million decrease in accounts receivable offset by a $ 16.2 million increase in inventory and a $ 2.6 million decrease in accounts payable . the $ 7.7 million of net cash provided by operating activities during fiscal year 2015 was primarily due to $ 4.3 million of net income , $ 5.9 million of depreciation and amortization and an $ 18.0 million increase in accounts payable partially offset by a $ 14.7 million increase in inventory , a $ 2.1 million increase in accounts receivable and a $ 4.2 million increase in other assets . the $ 1.5 million of cash provided by operating activities during fiscal year 2014 was primarily due to $ 7.6 million of net income , $ 3.8 million of depreciation and amortization and a $ 6.1 million increase in accounts payable partially offset by a $ 10.5 million increase in inventory , a $ 2.7 million increase in accounts receivable and a $ 3.1 million increase in other assets . accounts receivable fluctuates based on the timing of shipments , terms offered and collections . in addition , accounts receivable will fluctuate based upon the amount of accounts receivable sold under our trade accounts receivable purchase program . during fiscal year 2016 and fiscal year 2015 we factored receivables of $ 78.0 million and $ 12.1 million , respectively , from accounts receivable sold to financial institutions , which are not included on our consolidated balance sheets . we did not have our trade accounts receivable purchase program during fiscal year 2014. we purchase inventory based on customer forecasts and orders , and when those forecasts and orders change , the amount of inventory may also fluctuate . accounts payable fluctuates with changes in inventory levels , volume of inventory purchases , negotiated supplier terms , and taking advantage of early pay discounts . investing cash flow cash flows used in investing activities were $ 5.7 million , $ 48.1 million , and $ 13.8 million in fiscal years 2016 , 2015 and 2014 , respectively . our primary investing activity during fiscal year 2016 was the purchase of property and equipment . our primary investing activities during fiscal years 2015 and 2014 were the acquisitions of ayrshire and sabre , respectively , as discussed in further detail in footnote 14 of the “ notes to consolidated financial statements. ” operating and capital leases are often utilized when potential technical obsolescence and funding requirement advantages outweigh the benefits of equipment ownership . capital expenditures and periodic lease payments are expected to be financed with internally generated funds and available borrowing capacities . during fiscal years 2016 and 2015 we received $ 13.3 million and $ 8.8 million of cash resulting from the sale and leaseback of equipment under operating leases , respectively . we did not enter into sale and leaseback transactions during fiscal year 2014. financing cash flow on september 3 , 2014 , we entered into an amended credit agreement which provided the company with a term loan in the amount of $ 35.0 million . as of july 2 , 2016 , our credit agreement with wells fargo bank n.a . provided a revolving line of credit facility of up to $ 45 million , subject to availability .
| the change from year-to-year is primarily a result of improved pricing of certain raw materials as well as a more favorable product mix . production and support costs as a percentage of net sales were 28.1 percent and 27.7 percent in fiscal years 2016 and 2015 , respectively . the increase in fiscal year 2016 is primarily related to inefficiencies associated with ramping production of new products that resulted in higher than expected operating expenses during the first half of fiscal year 2016. we provide a reserve for obsolete and non-saleable inventories based on specific identification of inventory against current demand and recent usage . we also consider our customers ' ability to pay for inventory whether or not there is a lead-time assurance agreement for a specific program . the amounts charged to expense for these inventories were approximately $ 0.8 million and $ 0.5 million in fiscal years 2016 and 2015 , respectively . we provide warranties on certain products we sell and estimate warranty costs based on historical experience and anticipated product returns . warranty expense is related to workmanship claims on keyboards and ems products . the amounts charged to expense are determined based on an estimate of warranty exposure . the net warranty expense was approximately $ 95,000 and $ 115,000 in fiscal years 2016 and 2015 , respectively . gross profit gross profit as a percentage of net sales was 8.0 percent and 7.7 percent in fiscal years 2016 , and 2015 , respectively . the 0.3 percentage point increase in gross profit as a percentage of net sales during fiscal year 2016 as compared to fiscal year 2015 is primarily related to a 1.2 percentage point decrease in material related costs partially offset by a 0.9 percentage point increase in certain overhead costs . changes in gross profit margins reflect the impact of a number of factors that can vary from period to period , including product mix , start-up costs and efficiencies associated with new programs , product
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as of june 30 , 2019 , the approximate future aggregate minimum lease payments in respect of our current obligations were as follows : replace_table_token_14_th note 10 – income taxes the income tax expense ( benefit ) consisted of the following for the fiscal year ended june 30 , 2019 and 2018 : june 30 , 2019 june 30 , 2018 total current $ - $ - total deferred - - $ - $ - deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . f- 22 grow capital , inc. and subsidiaries ( formerly grow condos , inc. ) notes to consolidated financial statements the following is a reconciliation of the expected statutory federal income tax and state income tax provisions to the actual income tax benefit for the fiscal year ended june 30 , 2019 and 2018 : replace_table_token_15_th significant components of the company 's deferred tax assets and liabilities were as follows for the fiscal year ended june 30 , 2019 and 2018 : replace_table_token_16_th during the fiscal year ended june 30 , 2019 and 2018 the , the company recognized no amounts related to tax interest or penalties related to uncertain tax positions . the company is subject to taxation in the united states and various state jurisdictions . the company currently has no years under examination by any jurisdiction . as of june 30 , 2019 , the company estimates it has approximately $ 11.3 million in us federal net operating loss carryforwards , which will begin to expire in 2030 and an additional approximately $ 3.1 million in the state of oregon net operating loss carryforwards . note 11- subsequent events on july 1 , 2019 the company issued a total of 450,918 shares of unregistered common stock to its directors as part of their respective compensation package . on july 8 , 2019 , the company entered into a non-binding letter of intent ( the “ loi ” ) to acquire encompass more group , inc. ( “ encompass ” ) , a nevada corporation . in connection with the loi , encompass issued a promissory note ( the “ note ” ) to the company pursuant to a loan agreement ( the “ loan agreement ” ) , dated july 22 , 2019 , by and between encompass and the company , in exchange for a loan of $ 100,000 ( the “ loan ” ) . pursuant to the loan agreement , the proceeds of the loan will be used by encompass for working capital and general corporate purposes . the note has a twelve-month term , an interest rate of 5.0 % , and is payable in monthly installments of $ 2,000 , with all remaining principal and interest due on the maturity date , unless paid earlier by encompass . f- 23 grow capital , inc. and subsidiaries ( formerly grow condos , inc. ) notes story_separator_special_tag forward-looking statements statements made in this form 10-k which are not purely historical are forward-looking statements with respect to the goals , plan objectives , intentions , expectations , financial condition , results of operations , future performance and business of grow capital . such forward-looking statements include those that are preceded by , followed by or that include the words `` may '' , `` would '' , `` could '' , `` should '' , `` expects '' , `` projects '' , `` anticipates '' , `` believes '' , `` estimates '' , `` plans '' , `` intends '' , `` targets '' or similar expressions . forward-looking statements involve inherent risks and uncertainties , and important factors ( many of which are beyond our control ) that could cause actual results to differ materially from those set forth in the forward-looking statements , including the following : general economic or industry conditions nationally and or in the communities in which we conduct business ; legislation or regulatory requirements , including environmental requirements ; conditions of the securities markets ; competition ; our ability to raise capital ; changes in accounting principles , policies or guidelines ; financial or political instability ; acts of war or terrorism ; and other economic , competitive , governmental , regulatory and technical factors affecting our operations , products , services and prices . accordingly , results actually achieved may differ materially from expected results in these statements . forward- looking statements speak only as of the date they are made . grow capital does not undertake , and specifically disclaims , any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements . financial statements the consolidated financial statements which are a part of this report are as of june 30 , 2019 and 2018. the consolidated financial statements include the accounts of grow capital , inc. , and its wholly-owned subsidiaries , wcs enterprises , llc and smoke on the water , inc. as of june 30 , 2019. all significant intercompany accounting transactions have been eliminated as a result of consolidation . following is management 's discussion and analysis of those financial statements . this discussion and analysis should be read in conjunction with our financial statements and notes thereto included elsewhere in report on form 10-k for the fiscal years ended june 30 , 2019 and 2018. plan of operations the company believes that its existing capital resources may not be adequate to satisfy its cash requirements for the next twelve months and further funding will be required to fully execute our business plans . through the date of this report we have been able to rely on bank and non-bank financing in the form of mortgages , convertible notes with third parties , sales of common stock , equity issuances with respect to acquisitions , and story_separator_special_tag as of june 30 , 2019 , the approximate future aggregate minimum lease payments in respect of our current obligations were as follows : replace_table_token_14_th note 10 – income taxes the income tax expense ( benefit ) consisted of the following for the fiscal year ended june 30 , 2019 and 2018 : june 30 , 2019 june 30 , 2018 total current $ - $ - total deferred - - $ - $ - deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . f- 22 grow capital , inc. and subsidiaries ( formerly grow condos , inc. ) notes to consolidated financial statements the following is a reconciliation of the expected statutory federal income tax and state income tax provisions to the actual income tax benefit for the fiscal year ended june 30 , 2019 and 2018 : replace_table_token_15_th significant components of the company 's deferred tax assets and liabilities were as follows for the fiscal year ended june 30 , 2019 and 2018 : replace_table_token_16_th during the fiscal year ended june 30 , 2019 and 2018 the , the company recognized no amounts related to tax interest or penalties related to uncertain tax positions . the company is subject to taxation in the united states and various state jurisdictions . the company currently has no years under examination by any jurisdiction . as of june 30 , 2019 , the company estimates it has approximately $ 11.3 million in us federal net operating loss carryforwards , which will begin to expire in 2030 and an additional approximately $ 3.1 million in the state of oregon net operating loss carryforwards . note 11- subsequent events on july 1 , 2019 the company issued a total of 450,918 shares of unregistered common stock to its directors as part of their respective compensation package . on july 8 , 2019 , the company entered into a non-binding letter of intent ( the “ loi ” ) to acquire encompass more group , inc. ( “ encompass ” ) , a nevada corporation . in connection with the loi , encompass issued a promissory note ( the “ note ” ) to the company pursuant to a loan agreement ( the “ loan agreement ” ) , dated july 22 , 2019 , by and between encompass and the company , in exchange for a loan of $ 100,000 ( the “ loan ” ) . pursuant to the loan agreement , the proceeds of the loan will be used by encompass for working capital and general corporate purposes . the note has a twelve-month term , an interest rate of 5.0 % , and is payable in monthly installments of $ 2,000 , with all remaining principal and interest due on the maturity date , unless paid earlier by encompass . f- 23 grow capital , inc. and subsidiaries ( formerly grow condos , inc. ) notes story_separator_special_tag forward-looking statements statements made in this form 10-k which are not purely historical are forward-looking statements with respect to the goals , plan objectives , intentions , expectations , financial condition , results of operations , future performance and business of grow capital . such forward-looking statements include those that are preceded by , followed by or that include the words `` may '' , `` would '' , `` could '' , `` should '' , `` expects '' , `` projects '' , `` anticipates '' , `` believes '' , `` estimates '' , `` plans '' , `` intends '' , `` targets '' or similar expressions . forward-looking statements involve inherent risks and uncertainties , and important factors ( many of which are beyond our control ) that could cause actual results to differ materially from those set forth in the forward-looking statements , including the following : general economic or industry conditions nationally and or in the communities in which we conduct business ; legislation or regulatory requirements , including environmental requirements ; conditions of the securities markets ; competition ; our ability to raise capital ; changes in accounting principles , policies or guidelines ; financial or political instability ; acts of war or terrorism ; and other economic , competitive , governmental , regulatory and technical factors affecting our operations , products , services and prices . accordingly , results actually achieved may differ materially from expected results in these statements . forward- looking statements speak only as of the date they are made . grow capital does not undertake , and specifically disclaims , any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements . financial statements the consolidated financial statements which are a part of this report are as of june 30 , 2019 and 2018. the consolidated financial statements include the accounts of grow capital , inc. , and its wholly-owned subsidiaries , wcs enterprises , llc and smoke on the water , inc. as of june 30 , 2019. all significant intercompany accounting transactions have been eliminated as a result of consolidation . following is management 's discussion and analysis of those financial statements . this discussion and analysis should be read in conjunction with our financial statements and notes thereto included elsewhere in report on form 10-k for the fiscal years ended june 30 , 2019 and 2018. plan of operations the company believes that its existing capital resources may not be adequate to satisfy its cash requirements for the next twelve months and further funding will be required to fully execute our business plans . through the date of this report we have been able to rely on bank and non-bank financing in the form of mortgages , convertible notes with third parties , sales of common stock , equity issuances with respect to acquisitions , and
| during fiscal 2018 depreciation , amortization and impairment increased from $ 268 in fiscal 2018 to $ 765. total operating expenses during fiscal 2019 totaled $ 2,234,480 as compared to $ 1,510,030 in fiscal 2018. we expect operating expenses to increase in future periods as we continue to expand our operations and our revenue base , and if we continue to issue shares to settle salaries , consulting fees and expenses . other expenses other expenses recorded in fiscal 2019 and 2018 totaled $ 11,183 and $ 919,156 respectively . the substantial decrease to other expenses in fiscal 2019 is directly related to amortization of debt discount and increased interest expense as a result of the convertible notes and their conversions in the fiscal year ended june 30 , 2018 compared to only $ 5,771 recorded in the current fiscal year . as of june 30 , 2018 , all of the convertible notes and accrued interest of those convertible notes had fully converted . fiscal 2019 results include a loss on disposal of property of $ 5,412 with no comparative expense in fiscal 2018. discontinued operations 12 during fiscal 2019 certain of the company 's subsidiary operations were allocated as held for sale . results reported in respect to these discontinued operations provided for a loss from discontinued operations of $ 159,434 and $ 53,453 for the years ended june 30 , 2019 and 2018 , respectively . the increase in the loss from discontinued operations in the year ended june 30 , 2019 as compared to june 30 , 2018 was primarily the result of increased cost of revenues , general and administrative expenses and a $ 112,000 impairment recorded based on the expected sale price less costs of sale of the smoke on the water property , offset by reduced interest expense in the current period compared to the prior year . net losses in the fiscal years ended june 30 , 2019 and
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impact of covid-19 on our business on march 11 , 2020 , the world health organization declared a pandemic resulting from the disease known as covid-19 caused by a novel strain of coronavirus , sars-cov-2 . in an effort to contain covid-19 or slow its spread , governments around the world have enacted various measures , including orders to close all businesses not deemed “ essential , ” isolate residents to their homes or places of residence , and practice social distancing when engaging in essential activities . in certain countries , and in certain states within the united states , such orders have been lifted , although recent trends in covid-19 infections have led to the reinstatement of such orders in various jurisdictions . many states in the united states , such as new york , have imposed quarantine requirements on residents of other states travelling to such states , and on july 1 , 2020 , the european union banned entry by nonessential travelers from the united states . additionally , as a result of the pandemic , there have been changes in the practice of medical care and medical education . for example , initially an increased number of health care providers expanded their utilization of telemedicine to conduct patient visits and in many regions within the united states the ability of our commercial and medical field teams to call upon medical clinics , hospitals , long-term care facilities and skilled nursing facilities was restricted or converted to remote access . currently , health care providers are conducting patient visits in-person and through telemedicine and our sales force has been able to call upon medical clinics , hospitals , long-term care facilities and skilled nursing facilities either in person in accordance with applicable regulatory guidance and local policies or virtually . most medical congresses , an important means for medical education are continuing to be conducted virtually and enrollment in clinical trials is being assessed based on local covid-19 conditions and regional regulation and public health guidance . in an effort to protect the health and safety of our employees and our stakeholders , we adopted recommended policies applicable to office-based employees such as working from home , limiting the number of employees on site , and limiting business travel . for our field-based commercial and medical affairs personnel , we have instituted a protocol to assess the safety of employees to conduct in-person interactions on a localized basis in accordance with applicable regulatory guidance and local policies . since the beginning of the pandemic , we have been able to provide an uninterrupted supply of nuplazid to patients . we are monitoring our supply chain closely and do not anticipate disruptions in our ability to continue delivering nuplazid to patients . although we did not see a significant impact on nuplazid net sales throughout 2020 , the duration and ultimate effect of the covid-19 pandemic on our business , results of operations , financial condition and prospects are difficult to assess or predict at this time . for example , we sell nuplazid to long-term care facilities and these facilities have been impacted during the ongoing covid-19 pandemic with a sustained reduction in their census numbers . in addition , although we have re-initiated enrollment in clinical studies that were temporarily paused due to covid-19 on a study-by-study and site-by-site basis , it is possible that future enrollment in these studies , or enrollment in future studies , could be impacted due to covid-19 . we are continuing to actively monitor the situation and may take further actions affecting our business 60 operations as we deem necessary and in the best interests of our employees , customers , partners , suppliers , and stakeholders , or as required by federal , state , or local authorities . financial operations overview product and collaborative revenues net product sales consist of sales of nuplazid , our first and only commercial product to date . the fda approved nuplazid in april 2016 and we launched the product in the united states in may 2016. cost of product sales cost of product sales consists of third-party manufacturing costs , freight , and indirect overhead costs associated with sales of nuplazid . cost of product sales may also include period costs related to certain inventory manufacturing services , excess or obsolete inventory adjustment charges , unabsorbed manufacturing and overhead costs , and manufacturing variances . license fees and royalties license fees and royalties consist of milestone payments expensed or capitalized and subsequently amortized under our 2006 license agreement with the ipsen group . license fees and royalties also include royalties of 2 % due to the ipsen group based upon net sales of nuplazid . research and development expenses our research and development expenses have consisted primarily of fees paid to external service providers , salaries and related personnel expenses , facilities and equipment expenses , and other costs incurred related to pre-commercial product candidates . we charge all research and development expenses to operations as incurred . our research and development activities have primarily focused on nuplazid ( pimavanserin ) which was approved by the fda for the treatment of hallucinations and delusions associated with pdp in april 2016. we currently are responsible for all costs incurred in the ongoing development of pimavanserin and we expect to continue to make substantial investments in clinical studies of pimavanserin for indications other than pdp , including schizophrenia . while the fda notified us of acceptance of our snda with a filing date of august 2 , 2020 and a pdufa target action date of april 3 , 2021 , at this time , due to the risks in the regulatory and approval processes , we are unable to estimate with any certainty the costs we will incur for the continued development of pimavanserin for drp , including work necessary to support the review of the snda . story_separator_special_tag additionally , in connection with the fda approval of nuplazid , we committed to conduct post-marketing studies , including a randomized , placebo-controlled withdrawal study in patients treated with nuplazid and a randomized , placebo-controlled eight-week study or studies in predominantly frail and elderly patients that would add to the nuplazid safety database by exposing an aggregate of at least 500 patients to nuplazid . we will be responsible for all costs incurred for these post-marketing studies . we expect to incur increased research and development expenses as a result of our development of trofinetide under the exclusive north american license granted to us by neuren , including the costs of the phase 3 lavender study and a long-term extension study . we currently are responsible for all costs incurred in the development of trofinetide , as well as milestone payments subject to achievement of development milestones . we expect to incur increased research and development expenses as a result of our recently executed exclusive worldwide license agreement for the m1 pam program , including acp-319 , and the research collaboration with vanderbilt university , as well as our recent acquisition of cersci and its acp-044 product candidate and preclinical programs . we currently are responsible for all costs incurred in the development of acp-044 , acp-319 and the m1 pam program , as well as milestone payments subject to achievement of development milestones . we use external service providers to manufacture our product candidates and for the majority of the services performed in connection with the preclinical and clinical development of pimavanserin , trofinetide , acp-044 and acp-319 . historically , we have used our internal research and development resources , including our employees and discovery infrastructure , across several projects and many of our costs have not been attributable to a specific project . accordingly , we have not reported our internal research and development costs on a project basis . to the extent that external expenses are not attributable to a specific project , they are included in other early stage programs . 61 the following table summarizes our research and development expenses for the years ended december 31 , 2020 , 2019 , and 2018 ( in thousands ) : replace_table_token_3_th _ * includes upfront and milestone consideration as well as transaction costs associated with acquired in-process research and development . although nuplazid was approved by the fda for the treatment of hallucinations and delusions associated with pdp , at this time , due to the risks inherent in clinical development , we are unable to estimate with certainty the costs we will incur for the ongoing development of pimavanserin in additional indications , including those within schizophrenia , and the development of trofinetide , acp-044 and acp-319 . due to these same factors , we are unable to determine with any certainty the anticipated completion dates for our current research and development programs . clinical development and regulatory approval timelines , probability of success , and development costs vary widely . while our current development efforts are primarily focused on advancing the development of pimavanserin in additional indications other than pdp , we anticipate that we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate , as well as an ongoing assessment of the commercial potential of each opportunity and our financial position . we can not forecast with any degree of certainty which product opportunities will be subject to future collaborative or licensing arrangements , when such arrangements will be secured , if at all , and to what degree any such arrangements would affect our development plans and capital requirements . similarly , we are unable to estimate with certainty the costs we will incur for post-marketing studies that we committed to conduct in connection with fda approval of nuplazid . we expect our research and development expenses to increase and continue to be substantial as we conduct studies pursuant to our post-marketing commitments and pursue the development of pimavanserin in additional indications other than pdp , including our studies within schizophrenia , and the development of trofinetide in rett syndrome , the development of acp-044 for pain management , and the development of acp-319 . the lengthy process of completing clinical trials and supporting development activities and seeking regulatory approval for our product opportunities requires the expenditure of substantial resources . any failure by us or delay in completing clinical trials , or in obtaining regulatory approvals , could cause our research and development expenses to increase and , in turn , have a material adverse effect on our results of operations . selling , general and administrative expenses our selling , general and administrative expenses consist of salaries and other related costs , including stock-based compensation expense , for our commercial personnel , including our specialty sales force , our medical education professionals , and our personnel serving in executive , finance , business development , and business operations functions . also included in selling , general and administrative expenses are fees paid to external service providers to support our commercial activities associated with nuplazid , professional fees associated with legal and accounting services , costs associated with patents and patent applications for our intellectual property and charitable donations to independent charitable foundations that support parkinson 's disease patients generally . we expect our selling , general and administrative expenses to increase in future periods . for example , in preparation for a potential u.s. launch of pimavanserin in drp , we plan to increase our u.s. sales force significantly , and expand additional commercial , medical affairs and general and administrative support functions . 62 critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements .
| net product sales for the year ended december 31 , 2020 increased as compared to the year ended december 31 , 2019 primarily due to growth in nuplazid unit sales of approximately 18 % in 2020 as compared to 2019. also contributing to the increase was a higher average gross selling price of nuplazid in 2020 as compared to 2019. the following table provides a summary of activity with respect to our sales allowances and accruals for the year ended december 31 , 2020 ( in thousands ) : replace_table_token_4_th cost of product sales cost of product sales was $ 10.2 million and $ 11.3 million in 2020 and 2019 , respectively , or approximately 2 % and 3 % of net product sales . the cost of product sales as a percentage of net sales decreased during 2020 as compared to 2019 due to higher manufacturing levels , resulting in higher inventory cost absorption and increased sales volume at a higher average gross selling price in 2020. license fees and royalties license fees and royalties were $ 10.3 million and $ 8.3 million in 2020 and 2019 , respectively , and include royalties due to the ipsen group of two percent of net sales of nuplazid and amortization related to the milestone paid to the ipsen group upon fda approval of nuplazid in 2016. the increase in license fees and royalties was primary due to the increase in sales volume during 2020. research and development expenses research and development expenses increased to $ 319.1 million in 2020 , including $ 31.3 million in stock-based compensation , from $ 240.4 million in 2019 , including $ 32.5 million in stock-based compensation . the increase in research and development expenses was due to an increase of $ 72.9 million in external costs and an increase of $ 5.8 million in personnel and related costs . the increase in external costs was primarily due to the $ 52.8 million in upfront consideration and transaction costs paid for the acquisition of cersci and $ 10.0 million upfront payment to vanderbilt university for the m1 pam program . selling , general and administrative expenses selling , general and administrative expenses
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among other things , the economic aid act expanded the scope of the ppp and extended the relief from asc 310-40 to loan modifications made between january 1 , 2021 and the earlier of ( i ) december 30 , 2021 or ( ii ) 60 days after the president declares a termination of the covid-19 national emergency that were not more than 30 days past due as of december 31 , 2019. the bank adopted this provision as of december 31 , 2020. since the first quarter of 2020 , the company took several actions in response to the sudden emergence of the covid-19 global pandemic . the health , safety and well-being of our employees and customers continued to be the primary concern and protective measures described below were implemented . in addition , the company worked with customers impacted by the economic disruption . to protect our employees and customers we : initially adjusted branch hours and temporarily closed our branch lobbies to customers , except on an appointment only basis , and permitted staff to work remotely where feasible . however , in mid-june we re-opened the interior access to all of our branch offices to customers . continued to service our customers through drive-up facilities , atms and our robust technology capabilities that allow customers to execute transactions and apply for residential mortgage loans through our website www.momentummortgage.com utilizing their mobile devices and computers . provided our employees with personal protective equipment , including masks , gloves and hand sanitizer . installed social distancing markers and protective shields and partitions in branch offices , and required customers entering our locations to wear face coverings . beginning in the first quarter of 2021 , offered paid time off to employees to obtain covid-19 vaccinations . to support our loan and deposit customers and the communities we serve , we have taken the following actions : we continue to provide access to additional credit and forbearance on loan interest and or principal payments for up to 90 days where management has determined that it is warranted . during 2020 , $ 149.3 million of loans ( $ 140.9 million of commercial loans and $ 8.4 million of consumer loans ) were modified to provide deferral of interest and or principal by borrowers for up to 90 days . as of december 31 , 2020 , all loans that had previously received deferrals were no longer deferred , except that one commercial real estate loan with a balance of $ 6.0 million received an additional deferral of principal payments up to 90 days and two commercial real estate loans totaling $ 4.6 million were placed on nonaccrual status in the third quarter of 2020. as a long-standing sba preferred lender , we are actively participating in the sba 's ppp lending program established under the cares act . as of december 31 , 2020 , we funded 467 sba ppp loans totaling $ 75.6 million , $ 15.8 million of which ppp loans were forgiven by the sba . among other things , the economic aid act provides relief to borrowers to access additional credit through the sba 's ppp program . we are actively participating in the program and have accepted 255 applications for ppp loans totaling $ 33.4 million since december 31 , 2020 , 238 which applications , representing $ 30.5 million of ppp loans have been approved by the sba . of the total approved applications , we have funded $ 29.8 million of ppp loans as of march 12 , 2021. we are participating in the federal reserve 's ppp loan funding program and may pledge the ppp loans to collateralize a like amount of borrowings from the federal reserve at a favorable interest rate of 0.35 % up to a two-year term . the company 's results of operations and net income will continue to be impacted for the foreseeable future due to the economic disruption related to the covid-19 pandemic . during the year ended december 31 , 2020 , management significantly increased the provision for loan losses in response to the higher estimated incurred losses in the loan portfolio due to the impact of the covid-19 pandemic . management may further adjust the provision and allowance for loan losses in response to changes in economic conditions and the performance of the loan portfolio in future periods . for additional discussion , see below under “ provision for loan losses. ” due to the asset sensitive nature of the company 's balance sheet , the federal reserve 's reduction in the targeted fed funds rate to zero to 0.25 % and the concomitant decline in the prime rate to 3.25 % in march 2020 caused a reduction in the average yield of loans tied to the prime rate and the overall lower market interest rate environment negatively impacted the net interest margin . the net interest margin was also impacted by the funding of the sba ppp loans with a 1 % interest yield , which will be increased by the recognition of the loan fees earned on these loans . the timing and impact to the net interest margin will be contingent on how quickly and the extent to which the sba ppp loans become grants that are repaid by the sba over the next two years . the net interest margin and net interest income may decline in future periods if the company can not reduce the cost of interest-bearing liabilities at the same time and to the same extent as the decline in the average yield of assets . 33 residential real estate sales , and therefore the origination and sale of residential mortgages may decline as a result of the restrictions implemented to contain the spread of covid-19 , such as business closures and social distancing measures . this decline in turn , would result in lower gain on sales of loans and a decrease in non-interest income . story_separator_special_tag a significant increase in non-performing loans could result in increased non-interest expense due to higher expenses for loan collection and recovery costs . during the year ended december 31 , 2020 , management significantly increased the provision for loan losses in response to the higher estimated incurred losses in the loan portfolio due to the impact of the covid-19 pandemic . management may further adjust the provision and allowance for loan losses in response to changes in economic conditions and the performance of the loan portfolio in future periods . for additional discussion , see below under “ provision for loan losses. ” critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations is based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( `` u.s. gaap '' ) . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . the company considers its determination of the allowance for loan losses , the valuation of foreclosed real estate , the valuation of its investment portfolio , the valuation of deferred tax assets and goodwill impairment to be critical accounting policies . note 1 to the company 's consolidated financial statements for the years ended december 31 , 2020 and 2019 contains a summary of the company 's critical accounting policies . allowance for loan losses management believes that the company 's policies with respect to the methodologies for the determination of the allowance for loan losses and for determining other-than-temporary security impairment involve a higher degree of complexity and requires management to make difficult and subjective judgments , which often require assumptions or estimates about highly uncertain matters . changes in these judgments , assumptions or estimates could materially impact results of operations . these critical policies and their application are periodically reviewed with the audit committee and the board of directors . the provision for loan losses is based upon management 's evaluation of the adequacy of the allowance , including an assessment of known and inherent risks in the portfolio , after giving consideration to the size and composition of the loan portfolio , actual loan loss experience , level of delinquencies , detailed analysis of individual loans for which full collectability may not be assured , the existence and estimated net realizable value of any underlying collateral and guarantees securing the loans and current economic and market conditions . although management uses the best information available , the level of the allowance for loan losses remains an estimate , which is subject to significant judgment and short-term change . various regulatory agencies , as an integral part of their examination process , periodically review the company 's allowance for loan losses . such agencies may require the company to make additional provisions for loan losses based upon information available to them at the time of their examination . furthermore , the majority of the company 's loans are secured by real estate in the state of new jersey . accordingly , the collectability of a substantial portion of the carrying value of the company 's loan portfolio is susceptible to changes in local market conditions and may be adversely affected in the event that real estate values decline or the company 's primary market area of northern , central and coastal new jersey and the new york city metropolitan area experiences adverse economic conditions . future adjustments to the allowance for loan losses may be necessary due to economic , operating , regulatory and other conditions beyond the company 's control , including the duration of the covid-19 pandemic and the impact of national and local government responsive measures and monetary and fiscal response . valuation of other real estate owned ( “ oreo ” ) real estate acquired through foreclosure , or a deed-in-lieu of foreclosure , is recorded at fair value less estimated selling costs at the date of acquisition or transfer and , subsequently , fair value less estimated selling costs . adjustments to the carrying value at the date of acquisition or transfer are charged to the allowance for loan losses . the carrying value of the individual properties is subsequently adjusted to estimated fair value less estimated selling costs , at which time a provision for losses on such real estate is charged to operations if it is lower . appraisals are critical in determining the fair value of the other real estate owned ( `` oreo '' ) amount . assumptions for appraisals are instrumental in determining the value of properties . overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property . the assumptions supporting such appraisals are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable . 34 valuation of the investment portfolio debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity . debt securities are classified as available for sale when they might be sold before maturity due to changes in interest rates , prepayment risk , liquidity or other factors . securities available for sale are carried at fair value , with unrealized holding gains and losses reported in other comprehensive income , net of tax . management utilizes various inputs to determine the fair value of its investment portfolio . to the extent they exist , unadjusted quoted market prices in active markets for identical investments ( level 1 ) or quoted prices on similar assets ( level 2 ) are utilized to determine the fair value of each investment in the portfolio . in the absence of quoted prices , valuation techniques would be used to determine fair value of any investments that require inputs that are both significant to the fair value measurement and unobservable ( level 3 ) .
| return on average total assets ( “ roaa ” ) and return on average shareholders ' equity ( “ roae ” ) were 1.05 % and 10.20 % , respectively , for the year ended december 31 , 2020 compared to 1.06 % and 9.87 % , respectively , for the year ended december 31 , 2019. adjusted roaa and adjusted roae , each of which excludes the expenses related to the shore merger in 2019 , were 1.06 % and 10.23 % , respectively , for the year ended december 31 , 2020 compared to 1.17 % and 10.84 % , respectively , for the year ended december 31 , 2019 . 37 adjusted net income , adjusted net income per diluted share , adjusted roaa and adjusted roae are non-gaap financial measures . each of these non-gaap financial measures is the same as the corresponding gaap measure , except that it excludes the after-tax effect of merger-related expenses from the shore merger in 2020 and 2019 and the njcb merger in 2018. these non-gaap financial measures should be considered in addition to , but not as a substitute for , the company 's gaap financial results . management believes that the presentation of these non-gaap financial measures of the company may be helpful to readers in understanding the company 's financial performance when comparing the company 's financial statements for the years ended december 31 , 2020 , 2019 and 2018 because these non-gaap financial measures present the company 's financial performance excluding the financial impact of the merger-related expenses related to the shore merger in 2019 and the njcb merger in 2018. the table below shows the major components of net income for the years ended december 31 , 2020 and 2019 and a reconciliation of the non-gaap measures to reported net income discussed above . replace_table_token_6_th 38 2019 compared to 2018 the company reported net income of $ 13.6 million for the year ended december 31 , 2019 compared to net income of $ 12.0 million for the year ended december 31 , 2018. diluted earnings per share were $ 1.53 for the year ended december 31 , 2019 compared to diluted earnings per share of $ 1.40 for the year ended december 31 , 2018. for the year ended december 31 , 2019 , net income increased $ 1.6 million , or 13.2 % , and net income per diluted share increased $ 0.13 or 9.3 % . on november 8 , 2019 , the company completed the shore merger . as a result of the shore merger , merger-related expenses of $ 1.7 million were incurred and the after-tax
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the calculation of deferred preservation costs involves judgment and complexity and uses the same principles as inventory costing . donated human tissue is procured from deceased human donors by organ and tissue procurement organizations ( otpos ) , which consign the tissue to the company for processing , preservation , and distribution . deferred preservation costs consist primarily of the procurement fees charged by the otpos , direct labor and materials ( including salary and fringe benefits , laboratory supplies and expenses , and freight-in charges ) , and indirect costs ( including allocations of costs from support departments and facility allocations ) . fixed production overhead costs are allocated based on actual tissue processing levels , to the extent that they are within the range of the facility 's normal capacity . these costs are then allocated among the tissues processed during the period based on cost drivers , such as the number of donors or number of tissues processed . the company applies a yield estimate to all tissues in process and in quarantine to estimate the portion of tissues that will ultimately become implantable . management estimates quarantine yields based on its experience and reevaluates these estimates periodically . actual yields could differ significantly from the company 's estimates , which could result in a change in tissues available for shipment , and could increase or decrease the balance of deferred preservation costs . these changes could result in additional cost of preservation services expense or could increase per tissue preservation costs , which would impact gross margins on tissue preservation services in future periods . the company regularly evaluates its deferred preservation costs to determine if the costs are appropriately recorded at the lower of cost or market value . the company also evaluates its deferred preservation costs for costs not deemed to be recoverable , including tissues not expected to ship prior to the expiration date of their packaging . lower of cost or market value write-downs are recorded if the tissue processing costs incurred exceed the estimated market value of the tissue services , based on recent average service fees at the time of the evaluation . impairment write-downs are recorded based on the book value of tissues deemed to be impaired . actual results may differ from these estimates . write-downs of deferred preservation costs are expensed as cost of preservation services , and these write-downs are permanent impairments that create a new cost basis , which can not be restored to its previous levels if the company 's estimates change . the company recorded write-downs to its deferred preservation costs totaling $ 897,000 , $ 483,000 , and $ 540,000 for the years ended december 31 , 2016 , 2015 , and 2014 , respectively , due primarily to tissues not expected to ship prior to the expiration date of the packaging . deferred income taxes deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax return purposes . the company periodically assesses the recoverability of its deferred tax assets , as necessary , when the company experiences changes that could materially affect its determination of the recoverability of its deferred tax assets . management provides a valuation allowance against its deferred tax assets when , as a result of this analysis , management believes it is more likely than not that some portion or all of its deferred tax assets will not be realized . 43 assessing the recoverability of deferred tax assets involves judgment and complexity . estimates and judgments used in the determination of the need for a valuation allowance and in calculating the amount of a needed valuation allowance include , but are not limited to , the following : ● projected future operating results ; ● anticipated future state tax apportionment ; ● timing and amounts of anticipated future taxable income ; ● timing of the anticipated reversal of book/tax temporary differences ; ● evaluation of statutory limits regarding usage of certain tax assets ; and ● evaluation of the statutory periods over which certain tax assets can be utilized . significant changes in the factors above , or other factors , could affect the company 's ability to use its deferred tax assets . such changes could have a material , adverse impact on the company 's profitability , financial position , and cash flows . the company will continue to assess the recoverability of its deferred tax assets , as necessary , when the company experiences changes that could materially affect its prior determination of the recoverability of its deferred tax assets . the company believes that the realizability of its acquired net operating loss carryforwards will be limited in future periods due to a change in control of its former subsidiaries hemosphere , inc. ( hemosphere ) and cardiogenesis corporation ( cardiogenesis ) , as mandated by section 382 of the internal revenue code of 1986 , as amended . the company believes that its acquisitions of these companies each constituted a change in control , and that prior to the company 's acquisition , hemosphere had experienced other equity ownership changes that should be considered a change in control . the company also acquired net operating loss carryforwards in the acquisition of on-x that are limited under section 382. however , the company believes that such net operating loss carryforwards from on-x will be fully realizable prior to expiration . the deferred tax assets recorded on the company 's consolidated balance sheets exclude amounts that it expects will not be realizable due to these changes in control . a portion of the acquired net operating loss carryforwards is related to state income taxes for which management believes it is more likely than not that these deferred tax assets will not be realized . therefore , the company recorded a valuation allowance against these state net operating loss carryforwards . story_separator_special_tag valuation of acquired assets or businesses as part of its corporate strategy , the company is seeking to identify and capitalize upon acquisition opportunities of complementary product lines and companies . the company evaluates and accounts for acquired patents , licenses , distribution rights , and other tangible or intangible assets as the purchase of an asset or asset group , or as a business combination , as appropriate . the determination of whether the purchase of a group of assets should be accounted for as an asset group or as a business combination requires significant judgment based on the weight of available evidence . for the purchase of an asset group , the company allocates the cost of the asset group , including transaction costs , to the individual assets purchased based on their relative estimated fair values . in-process research and development acquired as part of an asset group is expensed upon acquisition . the company accounts for business combinations using the acquisition method . under this method , the allocation of the purchase price is based on the fair value of the tangible and identifiable intangible assets acquired and the liabilities assumed as of the date of the acquisition . the excess of the purchase price over the estimated fair value of the tangible net assets and identifiable intangible assets is recorded as goodwill . transaction costs related to a business combination are expensed as incurred . in-process research and development acquired as part of a business combination is accounted for as an indefinite-lived intangible asset until the related research and development project gains regulatory approval or is discontinued . the company typically engages external advisors to assist in determining the fair value of acquired asset groups or business combinations , using valuation methodologies such as : the excess earnings , the discounted cash flow , or the relief from royalty methods . the determination of fair value in accordance with the fair value measurement framework requires significant judgments and estimates , including , but not limited to : timing of product life cycles , estimates of future revenues , estimates of profitability for new or acquired products , cost estimates for new or changed manufacturing processes , estimates of the cost or timing of obtaining regulatory approvals , estimates of the success of competitive products , and discount rates . management , in consultation with its advisor ( s ) , makes these estimates based on its prior experiences and industry knowledge . management believes that its estimates are reasonable , but actual results could differ significantly from the company 's estimates . a significant change in management 's estimates used to value acquired asset groups or business combinations could result in future write-downs of tangible or intangible assets acquired by the company and , therefore , could materially impact the company 's financial position and profitability . if the value of the liabilities assumed by the 44 company , including contingent liabilities , is determined to be significantly different from the amounts previously recorded in purchase accounting , the company may need to record additional expenses or write-downs in future periods , which could materially impact the company 's financial position and profitability . new accounting pronouncements in february 2016 , the financial accounting standards board ( fasb ) amended its accounting standards codification and created a new topic 842 , leases . the final guidance requires lessees to recognize a right-of-use asset and a lease liability for all leases ( with the exception of short-term leases ) at the commencement date and recognize expenses on their income statements similar to the current topic 840 , leases . it is effective for fiscal years and interim periods beginning after december 15 , 2018 , and early adoption is permitted . the company is evaluating the impact the adoption of this standard will have on its financial position , results of operations , and cash flows . in march 2016 , the fasb issued accounting standards update ( asu ) no . 2016-09 , improvements to employee share-based payment accounting as part of its simplification initiative , which involves several aspects of accounting for share-based payment transactions , including the income tax consequences , classification of awards as either equity or liabilities , and classification on the statement of cash flows . the amendments in this update are effective for annual periods beginning after december 15 , 2016 , and interim periods within those annual periods . the company expects that the allowed change in accounting for forfeitures as they occur will not have a material impact on the company 's results of operations over time , as the company believes that its estimated forfeiture rate approximates its actual forfeiture rate . however , the company believes that this could have a favorable or unfavorable impact in any given quarter due to the timing of actual forfeitures . the company believes that the change in accounting for excess tax benefits and the discontinuance of the apic pool could have a material impact on its results of operations , which could be favorable or unfavorable , depending on movements in the company 's stock price . the company does not believe that the adoption of this standard will have a material impact on its financial position and cash flows . in may 2014 the fasb issued asu no . 2014-09 , revenue from contracts with customers . since asu 2014-09 was issued , several additional asus have been issued to clarify various elements of the guidance . these standards provide guidance on recognizing revenue , including a five-step model to determine when revenue recognition is appropriate . the standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . adoption of the new standard is effective for reporting periods beginning after december 15 , 2017 , and early adoption is permitted .
| additionally , the company 's sales to many distributors around the world are denominated in u.s. dollars and , although these sales are not directly impacted by the strong u.s. dollar , the company believes that its distributors may be delaying or reducing purchases of products in u.s. dollars due to the relative price of these goods in their local currencies . bioglue and biofoam revenues from the sale of surgical sealants , consisting of bioglue and biofoam , decreased 3 % for the three months ended december 31 , 2016 , as compared to the three months ended december 31 , 2015. this decrease was primarily due to a 4 % decrease in the volume of milliliters sold , which decreased revenues by 3 % , and the unfavorable impact of foreign exchange rates , which decreased revenues by 1 % , partially offset by an increase in average sales prices , which increased revenues by 1 % . revenues from the sale of surgical sealants increased 7 % for the twelve months ended december 31 , 2016 , as compared to the twelve months ended december 31 , 2015. this increase was primarily due to a 7 % increase in the volume of milliliters sold , which increased revenues by 7 % . the decrease in sales volume of surgical sealants for the three months ended december 31 , 2016 was primarily due to a decrease in sales of bioglue in japan , partially offset by an increase in bioglue sales in domestic markets . the increase in sales volume of surgical sealants for the twelve months ended december 31 , 2016 was primarily due to sales of bioglue in france . in october 2015 the company transitioned the french market from a distributor to a direct sales model , and as a result , there were no shipments of bioglue into france for the first three quarters of the comparable period in 2015. to a lesser extent , bioglue revenues in the twelve months ended december 31 , 2016 were affected by an increase in sales volume in europe and domestic markets and a decrease in sales volume in japan . sales of bioglue in japan decreased
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wes raised its distribution to $ 0.800 per unit for the fourth quarter of 2015 , representing a 3 % increase over the distribution for the third quarter of 2015 and a 14 % increase over the distribution for the fourth quarter of 2014 . throughput attributable to wes for natural gas assets totaled 3,854 mmcf/d for the year ended december 31 , 2015 , representing an 8 % increase compared to the year ended december 31 , 2014. adjusted gross margin attributable to wes for natural gas assets ( as defined under the caption how wes evaluates its operations within this item 7 ) averaged $ 0.69 per mcf for the year ended december 31 , 2015 , representing a 3 % increase compared to the year ended december 31 , 2014. adjusted gross margin for crude/ngl assets ( as defined under the caption how wes evaluates its operations within this item 7 ) averaged $ 1.76 per bbl for the year ended december 31 , 2015 , representing a 1 % increase compared to the year ended december 31 , 2014 . 79 wes 's operations wes 's results are driven primarily by the volumes of natural gas and ngls wes gathers , processes , treats or transports through its systems . for the year ended december 31 , 2015 , 66 % of total revenues and 48 % of throughput ( excluding equity investment throughput and throughput measured in barrels ) we re attributable to transactions with anadarko . wes also recognized capital contributions from anadarko of $ 18.4 million related to the above-market component of its commodity price swap agreements with anadarko ( see note 5—transactions with affiliates in the notes to consolidated financial statements under part ii , item 8 of this form 10-k ) . wes receives significant dedications from its largest customer , anadarko . with respect to wes 's wattenberg , haley , helper , clawson and hugoton gathering systems , anadarko has made dedications to wes that will continue to expand as long as additional wells are connected to these gathering systems . in wes 's gathering operations , it contracts with producers and customers to gather natural gas from individual wells located near its gathering systems . wes connects wells to gathering lines through which natural gas may be compressed and delivered to a processing plant , treating facility or downstream pipeline , and ultimately to end users . wes also treats a significant portion of the natural gas that it gathers so that it will satisfy required specifications for pipeline transportation . for the year ended december 31 , 2015 , 91 % of wes 's gross margin and equity income was attributable to fee-based contracts , under which a fixed fee is received based on the volume or thermal content of the natural gas and on the volume of ngls wes gathers , processes , treats or transports . this type of contract provides wes with a relatively stable revenue stream that is not subject to direct commodity price risk , except to the extent that ( i ) wes retains and sells drip condensate that is recovered during the gathering of natural gas from the wellhead or ( ii ) actual recoveries differ from contractual recoveries under a limited number of processing agreements . for the year ended december 31 , 2015 , 9 % of wes 's gross margin , including gross margin attributable to condensate sales , was attributable to percent-of-proceeds and keep-whole contracts , pursuant to which wes has commodity price exposure . a majority of the commodity price risk associated with its percent-of-proceeds and keep-whole contracts is hedged under commodity price swap agreements with anadarko , with such agreements set to expire on december 31 , 2016. for the year ended december 31 , 2015 , 98 % of wes 's gross margin was derived from either long-term , fee-based contracts or from percent-of-proceeds or keep-whole agreements that were hedged with commodity price swap agreements . see risk factors under part i , item 1a and note 5—transactions with affiliates in the notes to consolidated financial statements under part ii , item 8 of this form 10-k. wes also has indirect exposure to commodity price risk in that persistent low natural gas prices have caused and may continue to cause current or potential customers to delay drilling or shut in production in certain areas , which would reduce the volumes of natural gas available for wes 's systems . wes also bears a limited degree of commodity price risk through settlement of natural gas imbalances . read item 7a under part ii of this form 10-k. as a result of wes 's acquisitions from anadarko and third parties , our results of operations , financial position and cash flows may vary significantly for 2015 , 2014 and 2013 as compared to future periods . see the caption items affecting the comparability of financial results , set forth below in this item 7 . 80 how wes evaluates its operations wes 's management relies on certain financial and operational metrics to analyze its performance . these metrics are significant factors in assessing wes 's operating results and profitability and include ( 1 ) throughput , ( 2 ) operating and maintenance expenses , ( 3 ) general and administrative expenses , ( 4 ) adjusted gross margin ( as defined below ) , ( 5 ) adjusted ebitda ( as defined below ) and ( 6 ) distributable cash flow ( as defined below ) . throughput . throughput is an essential operating variable wes uses in assessing its ability to generate revenues . in order to maintain or increase throughput on wes 's gathering and processing systems , wes must connect additional wells to its systems . story_separator_special_tag wes 's success in maintaining or increasing throughput is impacted by the successful drilling of new wells by producers that are dedicated to wes 's systems , recompletions of existing wells connected to its systems , its ability to secure volumes from new wells drilled on non-dedicated acreage and its ability to attract natural gas volumes currently gathered , processed or treated by its competitors . during the year ended december 31 , 2015 , wes added 199 receipt points to its systems . operating and maintenance expenses . wes monitors operating and maintenance expenses to assess the impact of such costs on the profitability of its assets and to evaluate the overall efficiency of its operations . operating and maintenance expenses include , among other things , field labor , insurance , repair and maintenance , equipment rentals , contract services , utility costs and services provided to wes or on its behalf . for periods commencing on the date of and subsequent to wes 's acquisition of its assets , certain of these expenses are incurred under and governed by wes 's services and secondment agreement with anadarko . general and administrative expenses . to help ensure the appropriateness of wes 's general and administrative expenses and maximize its cash available for distribution , wes monitors such expenses through comparison to prior periods , to the annual budget approved by wes gp 's board of directors , as well as to general and administrative expenses incurred by similar midstream companies . pursuant to the wes omnibus agreement , anadarko and wes gp perform centralized corporate functions for wes . general and administrative expenses for periods prior to wes 's acquisition of the wes assets include costs allocated by anadarko in the form of a management services fee , which approximated the general and administrative costs incurred by anadarko attributable to the wes assets . for periods subsequent to the acquisition of the wes assets , anadarko is no longer compensated for corporate services through a management services fee . instead , allocations and reimbursements of general and administrative expenses are determined by anadarko in its reasonable discretion , in accordance with wes 's partnership agreement and the wes omnibus agreement . amounts required to be reimbursed to anadarko under wes 's omnibus agreement also include those expenses attributable to its status as a publicly traded partnership , such as the following : expenses associated with annual and quarterly reporting ; tax return and schedule k-1 preparation and distribution expenses ; expenses associated with listing on the nyse ; and independent auditor fees , legal expenses , investor relations expenses , director fees , and registrar and transfer agent fees . see further detail in note 5—transactions with affiliates in the notes to consolidated financial statements under part ii , item 8 of this form 10-k . 81 non-gaap financial measures adjusted gross margin attributable to western gas partners , lp . wes defines adjusted gross margin attributable to western gas partners , lp ( “ adjusted gross margin ” ) as total revenues and other , less reimbursements for electricity-related expenses recorded as revenue and cost of product , plus distributions from equity investees and excluding the noncontrolling interest owner 's proportionate share of revenue and cost of product . wes believes adjusted gross margin is an important performance measure of the core profitability of its operations , as well as its operating performance as compared to that of other companies in the industry . cost of product expenses include ( i ) costs associated with the purchase of natural gas and ngls pursuant to wes 's percent-of-proceeds and keep-whole processing contracts , ( ii ) costs associated with the valuation of wes 's gas imbalances , and ( iii ) costs associated with wes 's obligations under certain contracts to redeliver a volume of natural gas to shippers , which is thermally equivalent to condensate retained by wes and sold to third parties . these expenses are subject to variability , although a majority of wes 's exposure to commodity price risk attributable to purchases and sales of natural gas , condensate and ngls is mitigated through its commodity price swap agreements with anadarko . for a discussion of commodity price swap agreements , see risk factors under part i , item 1a and note 5—transactions with affiliates in the notes to consolidated financial statements under part ii , item 8 of this form 10-k. to facilitate investor and industry analyst comparisons between wes and its peers , wes also discloses adjusted gross margin per mcf attributable to western gas partners , lp for natural gas assets and adjusted gross margin per bbl for crude/ngl assets . see key performance metrics within this item 7. adjusted ebitda attributable to western gas partners , lp . wes defines adjusted ebitda attributable to western gas partners , lp ( “ adjusted ebitda ” ) as net income ( loss ) attributable to western gas partners , lp , plus distributions from equity investees , non-cash equity-based compensation expense , interest expense , income tax expense , depreciation and amortization , impairments , and other expense ( including lower of cost or market inventory adjustments recorded in cost of product ) , less gain on divestiture and other , income from equity investments , interest income , income tax benefit , and other income . wes believes that the presentation of adjusted ebitda provides information useful to investors in assessing its financial condition and results of operations and that adjusted ebitda is a widely accepted financial indicator of a company 's ability to incur and service debt , fund capital expenditures and make distributions .
| 92 throughput replace_table_token_20_th ( 1 ) the combination of wes 's wattenberg and platte valley systems in 2014 into the entity now referred to as the “ dj basin complex ” ( which also includes the lancaster plant ) resulted in the following : ( i ) the wattenberg system throughput previously reported as “ gathering , treating and transportation ” is now reported as “ processing ” for all periods presented , and ( ii ) beginning in 2014 , throughput both gathered and processed by the two systems is no longer separately reported . ( 2 ) represents wes 's 14.81 % share of average fort union and 22 % share of average rendezvous throughput . excludes equity investment throughput measured in barrels ( captured in “ total throughput ( mbbls/d ) for crude/ngl assets ” as noted below ) . ( 3 ) includes affiliate , third-party and equity investment throughput ( as equity investment throughput is defined in the above footnote ) , excluding the noncontrolling interest owner 's proportionate share of throughput . ( 4 ) represents total throughput measured in barrels , consisting of throughput from wes 's chipeta ngl pipeline , wes 's 10 % share of average white cliffs throughput , 25 % share of average mont belvieu jv throughput , 20 % share of average teg and tep throughput , and 33.33 % share of average frp throughput . gathering , treating and transportation throughput decrease d by 140 mmcf/d for the year ended december 31 , 2015 , primarily due to the sale of the dew and pinnacle systems in july 2015 , production declines in the areas around the anadarko-operated marcellus interest systems , the bison facility and the non-operated marcellus interest systems . these decreases were partially offset by higher volumes at the dbjv system due to increased production in west texas . gathering , treating and transportation throughput increase d by 182 mmcf/d for the year ended december 31 , 2014 , due to increased throughput on the non-operated marcellus interest systems as a result of additional well connections , additional throughput on the anadarko-operated marcellus interest systems after the march 2013 acquisition and higher volumes at the dbjv system , partially offset by throughput decreases at the bison facility due to a period of
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the demographic mix of guests that visit our north american mountain resorts is divided into two primary categories : ( 1 ) out-of-state and international ( “ destination ” ) guests and ( 2 ) in-state and local ( “ local ” ) guests . for the 2018/2019 north american ski season , destination guests comprised approximately 57 % of our north american mountain resort skier visits , while local guests comprised approximately 43 % of our north american mountain resort skier visits , which compares to approximately 59 % and 41 % , respectively , for the 2017/2018 north american ski season . destination guests generally purchase our higher-priced lift ticket products and utilize more ancillary services such as ski school , dining and retail/rental , as well as lodging at or around our mountain resorts . destination guest visitation during a ski season is less likely to be impacted by changes in the weather during the current ski season , but may be more impacted by adverse economic conditions , the global geopolitical climate or weather conditions in the immediately preceding ski season . local guests tend to be more value-oriented and weather sensitive . we offer a variety of pass products for all of our mountain resorts and ski areas ( collectively , “ resorts ” ) , marketed towards both destination and local guests . our pass product offerings range from providing access to one or a combination of our resorts to our epic pass , which allows pass holders unlimited and unrestricted access to all of our resorts . additionally , beginning with the 2019/2020 north american ski season , we are offering the epic day pass , a customizable one to seven day pass product , purchased in advance of the season , for those skiers and riders who expect to ski a certain number of days during the season . our pass program provides a compelling value proposition to our guests , which in turn assists us in developing a loyal base of customers who commit 38 to ski at our resorts generally in advance of the ski season and typically ski more days each season at our resorts than those guests who do not buy pass products . additionally , we have entered into strategic long-term season pass alliance agreements with third-party mountain resorts including telluride ski resort in colorado , sun valley resort in idaho , snowbasin resort in utah , hakuba valley and rusutsu resort in japan , resorts of the canadian rockies in canada , les 3 vallées in france , 4 vallées in switzerland and skirama dolomiti in italy , which further increases the value proposition of our pass products . as such , our pass program drives strong customer loyalty , mitigates exposure to more weather sensitive guests , generates additional ancillary spending and provides cash flow in advance of winter season operations . in addition , our pass program attracts new guests to our resorts . all of our pass products , including the epic pass and epic day pass , are predominately sold prior to the start of the ski season . pass product revenue , although primarily collected prior to the ski season , is recognized in the consolidated statements of operations throughout the ski season primarily based on historical visitation ( see notes to consolidated financial statements ) . lift revenue consists of pass product lift revenue ( “ pass revenue ” ) and non-pass product lift revenue ( “ non-pass revenue ” ) . approximately 47 % , 47 % and 43 % of total lift revenue was derived from pass revenue for fiscal 2019 , fiscal 2018 and fiscal 2017 , respectively . the cost structure of our mountain resort operations has a significant fixed component with variable expenses including , but not limited to , land use permit or lease fees , credit card fees , retail/rental cost of sales and labor , ski school labor and expenses associated with dining operations . as such , profit margins can fluctuate greatly based on the level of revenues associated with visitation . lodging segment operations within the lodging segment include ( i ) ownership/management of a group of luxury hotels through the rockresorts brand proximate to our colorado and utah mountain resorts ; ( ii ) ownership/management of non-rockresorts branded hotels and condominiums proximate to our north american mountain resorts ; ( iii ) national park service ( “ nps ” ) concessionaire properties including grand teton lodging company ( “ gtlc ” ) ; ( iv ) a colorado resort ground transportation company and ( v ) mountain resort golf courses . the performance of our lodging properties ( including managed condominium units and our colorado resort ground transportation company ) proximate to our mountain resorts is closely aligned with the performance of the mountain segment and generally experiences similar seasonal trends , particularly with respect to visitation by destination guests . revenues from such properties represented approximately 70 % , 68 % and 68 % of lodging segment net revenue ( excluding lodging segment revenue associated with reimbursement of payroll costs ) for fiscal 2019 , fiscal 2018 and fiscal 2017 , respectively . management primarily focuses on lodging net revenue excluding payroll cost reimbursements and lodging operating expense excluding reimbursed payroll costs ( which are not measures of financial performance under gaap ) as the reimbursements are made based upon the costs incurred with no added margin ; as such , the revenue and corresponding expense have no effect on our lodging reported ebitda , which we use to evaluate lodging segment performance . revenue of the lodging segment during our first and fourth fiscal quarters is generated primarily by the operations of our nps concessionaire properties ( as their operating season generally occurs from june to the end of september ) ; mountain resort golf operations and seasonally lower volume from our other owned and managed properties and businesses . story_separator_special_tag real estate segment the principal activities of our real estate segment include the sale of land parcels to third-party developers and planning for future real estate development projects , including zoning and acquisition of applicable permits . we continue undertaking preliminary planning and design work on future projects and are pursuing opportunities with third-party developers rather than undertaking our own significant vertical development projects . additionally , real estate development projects by third-party developers most often result in the creation of certain resort assets that provide additional benefit to the mountain segment . we believe that , due to our low carrying cost of real estate land investments , we are well situated to promote future projects by third-party developers while limiting our financial risk . our revenue from the real estate segment and associated expense can fluctuate significantly based upon the timing of closings and the type of real estate being sold , causing volatility in the real estate segment 's operating results from period to period . recent trends , risks and uncertainties we have identified the following significant factors ( as well as uncertainties associated with such factors ) that could impact our future financial performance : the timing and amount of snowfall can have an impact on mountain and lodging revenue , particularly with regard to skier visits and the duration and frequency of guest visitation . to help mitigate this impact , we sell a variety of pass products prior to the beginning of the ski season which results in a more stabilized stream of lift revenue . in march 39 2019 , we began our early pass product sales program for the 2019/2020 north american ski season . through september 22 , 2019 , north american ski season pass sales increased approximately 14 % in units and approximately 15 % in sales dollars as compared to the period in the prior year through september 23 , 2018 , including military pass sales in both periods . pass sales exclude peak resorts pass sales in both periods and are adjusted to eliminate the impact of foreign currency by applying an exchange rate of $ 0.75 between the canadian dollar and u.s. dollar in both periods for whistler blackcomb pass sales . excluding sales of military passes , season pass sales increased approximately 13 % in units and 14 % in sales dollars over the comparable prior year period . we can not predict if this favorable trend will continue for the entire duration of the fall 2019 north american pass sales campaign , nor can we predict the overall impact that pass product sales will have on lift revenue for the 2019/2020 north american ski season . in fiscal 2019 , our lift revenue was favorably impacted by non-pass price increases at our mountain resorts that were implemented for the 2018/2019 north american ski season . non-pass prices for the 2019/2020 north american ski season have not yet been finalized ; and , as such , there can be no assurances as to the level of price increases , if any , which will occur and the impact that pricing may have on visitation or revenue . our fiscal 2019 results for our mountain segment showed improvement over fiscal 2018 largely due to strong pass sales growth for the 2018/2019 north american ski season , strong growth in visitation and spending at our western u.s. resorts and the incremental operations of stevens pass , triple peaks and falls creek/hotham ( acquired in august 2018 , september 2018 and april 2019 , respectively ) . after the challenging early season period for destination visitation during the 2018/2019 north american ski season , our results for the remainder of the season were largely in line with our original expectations , with strong growth in visitation and spending compared to the prior year , including a strong finish to the season with good conditions across our western u.s. destination resorts . however , we continued experiencing relative weakness in international visitation compared to the prior year , particularly at whistler blackcomb . we can not predict whether our resorts will experience normal snowfall conditions for the upcoming 2019/2020 north american ski season nor can we estimate the impact there may be to advance bookings , guest travel , pass product sales , lift revenue ( excluding pass products ) , retail/rental sales or other ancillary services revenue next ski season as a result of past snowfall conditions . key north american economic indicators have remained steady into calendar year 2019 , including strong consumer confidence and declines in the unemployment rate . however , the growth in the north american economy may be impacted by economic challenges in north america or declining or slowing growth in economies outside of north america , accompanied by devaluation of currencies , rising inflation , trade tariffs and fluctuating commodity prices . given these economic uncertainties , we can not predict what the impact of the overall north american or global economy will be on overall travel and leisure spending or more specifically , on our guest visitation , guest spending or other related trends for the upcoming 2019/2020 north american ski season . as of july 31 , 2019 , we had $ 108.9 million in cash and cash equivalents , as well as $ 214.4 million available under the revolver component of the vail holdings credit agreement ( which represents the total commitment of $ 500.0 million less outstanding borrowings of $ 208.0 million and certain letters of credit outstanding of $ 77.6 million ) . additionally , we have a credit facility which supports the liquidity needs of whistler blackcomb ( the “ whistler credit agreement ” ) .
| although our destination guest visitation was less than expected in the pre-holiday period , results from the key holiday weeks through the spring were largely in line with our original expectations , which , when combined with incremental skier visits from stevens pass , triple peaks and falls creek/hotham , resulted in an increase in total skier visitation of 21.5 % . operating results from whistler blackcomb and perisher , which are translated from canadian dollars and australian dollars , respectively , to u.s. dollars , were adversely affected by a decrease in the canadian and australian dollar exchange rates relative to the u.s. dollar as compared to prior year , resulting in a decline in mountain reported ebitda of approximately $ 8 million , which the company calculated on a constant currency basis by applying current period foreign exchange rates to the prior period results . additionally , fiscal 2019 and fiscal 2018 results include $ 16.4 million and $ 10.2 million of acquisition and integration related expenses , respectively . 42 lift revenue increased $ 152.9 million , or 17.4 % , due to increases in both pass revenue and non-pass revenue , as well as incremental revenue from triple peaks , stevens pass , falls creek and hotham . pass revenue increased 16.8 % , which was driven by a combination of an increase in pricing and units sold and was also favorably impacted by increased pass sales to destination guests as well as military guests through the introduction of the military epic pass . non-pass revenue increased 17.9 % primarily due to incremental non-pass skier visitation at triple peaks , stevens pass , falls creek and hotham , and increased non-pass visitation at our western u.s. resorts , which benefited from improved conditions as compared to the prior year and an increase in total non-pass etp of 4.9 % . total etp decreased $ 2.42 , or 3.4 % , primarily due to higher skier visitation by season pass holders , lower etp from the acquired triple peaks , stevens pass , falls creek and hotham resorts and the new military epic pass , partially offset by price increases in both our lift ticket and pass products . ski
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as of december 31 , 2012 , covered lives for radiology benefits management were 4.8 million and 12.4 million for risk-based and aso products , respectively . for the year ended december 31 , 2012 , revenue for radiology benefits management was $ 308.5 million and $ 40.6 million for risk-based and aso products , respectively . drug benefits management two of the company 's segments are in the drug benefits management business . this line of business generally reflects the company 's clinical management of drugs paid under medical and pharmacy benefit programs . the company 's services include the coordination and management of the specialty drug spending for health plans , employers , and governmental agencies , and the management of pharmacy programs for medicaid programs , health plans , and employers . the two segments in this line of business are : specialty pharmaceutical management . specialty pharmaceutical management comprises programs that manage specialty drugs used in the treatment of complex conditions such as cancer , multiple sclerosis , hemophilia , infertility , rheumatoid arthritis , chronic forms of hepatitis and other diseases . specialty pharmaceutical drugs represent high-cost injectible , infused , or oral drugs with sensitive handling or storage needs , many of which may be physician administered . patients receiving these drugs require greater amounts of clinical support than those taking more traditional agents . payors require 40 clinical , financial and technological support to maximize the value delivered to their members using these expensive agents . the company 's specialty pharmaceutical management services are provided under contracts with health plans , insurance companies , employers , and governmental agencies for some or all of their commercial , medicare and medicaid members . the company 's specialty pharmaceutical services include : ( i ) contracting and formulary optimization programs ; ( ii ) specialty pharmaceutical dispensing operations ; and ( iii ) medical pharmacy management programs . the company 's specialty pharmaceutical management segment had contracts with 41 health plans and employers , and several pharmaceutical manufacturers and state medicaid programs as of december 31 , 2012. medicaid administration . medicaid administration generally reflects integrated clinical management services provided to manage pharmacy , mental health , and long-term care for state benefit programs , and pharmacy benefit management programs for health plans and employers . the primary focus of the company 's medicaid administration unit involves providing pba and pbm services under contracts with health plans and employers , as well as public sector clients sponsoring medicaid and other state benefit programs . the company 's pharmacy services include network management , formulary and rebate management , point-of-sale claims processing systems and administration , clinical prior authorization , and drug utilization review . magellan 's pharmacy strategy combines its specialty pharmacy management and pbm capabilities to provide integrated management of complex drug therapies billed under both the medical and pharmacy benefit . its mental health and long term care management services include review of service utilization and compliance with state and federal regulations and reimbursement guidelines . medicaid administration 's contracts encompass both ffs and risk-based arrangements . corporate this segment of the company is comprised primarily of operational support functions such as sales and marketing and information technology , as well as corporate support functions such as executive , finance , human resources and legal . acquisition of first health services pursuant to the june 4 , 2009 purchase agreement ( the `` purchase agreement '' ) with coventry health care ( `` coventry '' ) , on july 31 , 2009 the company acquired ( the `` acquisition '' ) all of the outstanding equity interests of coventry 's direct and indirect subsidiaries first health services corporation ( `` fhs '' ) , fhc , inc. ( `` fhc '' ) and provider synergies , llc ( together with fhs and fhc , `` first health services '' ) and certain assets of coventry which are related to the operation of the business conducted by first health services . as consideration for the acquisition , the company paid $ 114.5 million in cash , excluding cash acquired and including net payments of $ 6.5 million for excess working capital . the company funded the acquisition with cash on hand . effective july 1 , 2010 the company discontinued the use of the name first health services corporation and officially changed such name to `` magellan medicaid administration , inc. '' the company reports the results of operations of magellan medicaid administration , inc. within the medicaid administration segment . managed care revenue managed care revenue , inclusive of revenue from the company 's risk , eap and aso contracts , is recognized over the applicable coverage period on a per member basis for covered members . the company is paid a per member fee for all enrolled members , and this fee is recorded as revenue in the month in which members are entitled to service . the company adjusts its revenue for retroactive membership terminations , additions and other changes , when such adjustments are identified , with the 41 exception of retroactivity that can be reasonably estimated . the impact of retroactive rate amendments is generally recorded in the accounting period that terms to the amendment are finalized , and that the amendment is executed . any fees paid prior to the month of service are recorded as deferred revenue . managed care revenues approximated $ 2.4 billion , $ 2.2 billion and $ 2.5 billion for the years ended december 31 , 2010 , 2011 and 2012 , respectively . fee-for-service and cost-plus contracts the company has certain ffs contracts , including cost-plus contracts , with customers under which the company recognizes revenue as services are performed and as costs are incurred . revenues from these contracts approximated $ 192.9 million , $ 174.5 million and $ 151.4 million for the years ended december 31 , 2010 , 2011 and 2012 , respectively . story_separator_special_tag block grant revenues public sector has a contract that is partially funded by federal , state and county block grant money , which represents annual appropriations . the company recognizes revenue from block grant activity ratably over the period to which the block grant funding applies . block grant revenues were approximately $ 109.1 million , $ 114.4 million and $ 124.8 million for the years ended december 31 , 2010 , 2011 and 2012 , respectively . dispensing revenue the company recognizes dispensing revenue , which includes the co-payments received from members of the health plans the company serves , when the specialty pharmaceutical drugs are shipped . at the time of shipment , the earnings process is complete ; the obligation of the company 's customer to pay for the specialty pharmaceutical drugs is fixed , and , due to the nature of the product , the member may neither return the specialty pharmaceutical drugs nor receive a refund . revenues from the dispensing of specialty pharmaceutical drugs on behalf of health plans were $ 234.8 million , $ 247.4 million and $ 350.3 million for the years ended december 31 , 2010 , 2011 and 2012 , respectively . performance-based revenue the company has the ability to earn performance-based revenue under certain risk and non-risk contracts . performance-based revenue generally is based on either the ability of the company to manage care for its clients below specified targets , or on other operating metrics . for each such contract , the company estimates and records performance-based revenue after considering the relevant contractual terms and the data available for the performance-based revenue calculation . pro-rata performance-based revenue may be recognized on an interim basis pursuant to the rights and obligations of each party upon termination of the contracts , among other factors . performance-based revenues were $ 13.1 million , $ 26.5 million and $ 25.4 million for the years ended december 31 , 2010 , 2011 and 2012 , respectively . rebate revenue the company administers a rebate program for certain clients through which the company coordinates the achievement , calculation and collection of rebates and administrative fees from pharmaceutical manufacturers on behalf of clients . each period , the company estimates the total rebates earned based on actual volumes of pharmaceutical purchases by the company 's clients , as well as historical and or anticipated sharing percentages . the company earns fees based upon the volume of rebates generated for its clients . the company does not record as rebate revenue any rebates that are passed through to its clients . total rebate revenues for the years ended december 31 , 2010 , 2011 and 2012 were $ 25.5 million , $ 32.8 million and $ 40.2 million , respectively . 42 cost of care , medical claims payable and other medical liabilities cost of care is recognized in the period in which members receive managed healthcare services . in addition to actual benefits paid , cost of care in a period also includes the impact of accruals for estimates of medical claims payable . medical claims payable represents the liability for healthcare claims reported but not yet paid and claims ibnr related to the company 's managed healthcare businesses . such liabilities are determined by employing actuarial methods that are commonly used by health insurance actuaries and that meet actuarial standards of practice . the ibnr portion of medical claims payable is estimated based on past claims payment experience for member groups , enrollment data , utilization statistics , authorized healthcare services and other factors . this data is incorporated into contract-specific actuarial reserve models and is further analyzed to create `` completion factors '' that represent the average percentage of total incurred claims that have been paid through a given date after being incurred . factors that affect estimated completion factors include benefit changes , enrollment changes , shifts in product mix , seasonality influences , provider reimbursement changes , changes in claims inventory levels , the speed of claims processing and changes in paid claim levels . completion factors are applied to claims paid through the financial statement date to estimate the ultimate claim expense incurred for the current period . actuarial estimates of claim liabilities are then determined by subtracting the actual paid claims from the estimate of the ultimate incurred claims . for the most recent incurred months ( generally the most recent two months ) , the percentage of claims paid for claims incurred in those months is generally low . this makes the completion factor methodology less reliable for such months . therefore , incurred claims for any month with a completion factor that is less than 70 percent are generally not projected from historical completion and payment patterns ; rather they are projected by estimating claims expense based on recent monthly estimated cost incurred per member per month times membership , taking into account seasonality influences , benefit changes and healthcare trend levels , collectively considered to be `` trend factors . '' medical claims payable balances are continually monitored and reviewed . if it is determined that the company 's assumptions in estimating such liabilities are significantly different than actual results , the company 's results of operations and financial position could be impacted in future periods . adjustments of prior period estimates may result in additional cost of care or a reduction of cost of care in the period an adjustment is made . further , due to the considerable variability of healthcare costs , adjustments to claim liabilities occur each period and are sometimes significant as compared to the net income recorded in that period . prior period development is recognized immediately upon the actuary 's judgment that a portion of the prior period liability is no longer needed or that additional 43 liability should have been accrued .
| the following table reconciles segment profit to consolidated income before income taxes for the years ended december 31 , 2010 , 2011 and 2012 ( in thousands ) : replace_table_token_13_th 50 year ended december 31 , 2012 ( `` 2012 '' ) compared to the year ended december 31 , 2011 ( `` 2011 '' ) commercial revenue revenue related to commercial increased by 29.7 percent or $ 166.7 million from 2011 to 2012. the increase in revenue is mainly due to new contracts implemented after 2011 of $ 149.8 million , favorable rate changes of $ 29.7 million , and higher performance-based revenue recorded in 2012 of $ 10.5 million ( $ 5.9 million relating to the prior year ) , which increases were partially offset by favorable retroactive membership and rate adjustments recorded in 2011 of $ 8.6 million , program changes of $ 6.4 million , terminated contracts of $ 3.3 million , retroactive risk share adjustments recorded in 2012 of $ 1.6 million , net decreased membership from existing customers of $ 1.4 million , and other net decreases of $ 2.0 million . cost of care cost of care increased by 39.3 percent or $ 123.3 million from 2011 to 2012. the increase in cost of care is primarily due to new contracts implemented after 2011 of $ 115.5 million and unfavorable care trends and other net variances of $ 24.2 million , which increases were partially offset by program changes of $ 6.2 million , favorable medical claims development for 2011 which was recorded after 2011 of $ 3.7 million , favorable prior period medical claims development recorded in 2012 of $ 3.8 million , and net decreased membership from existing customers of $ 2.7 million . cost of care increased as a percentage of risk revenue ( excluding eap business ) from 77.0 in 2011 to 78.0 percent in 2012 , mainly due to unfavorable care trends in excess of rate increases and changes in business mix . direct service costs direct service costs increased by 12.6 percent or $ 19.3 million from 2011 to 2012. the increase in direct service costs is mainly due to costs to support new contracts . direct service costs decreased as a percentage of revenue from 27.2 percent in 2011 to 23.6 percent in 2012 , mainly due to changes in business mix . public sector revenue revenue related to public sector increased by 11.0 percent or $ 161.2 million from 2011 to 2012. this increase is primarily due to new contracts implemented after 2011 of $ 177.4 million , unfavorable retroactive contract funding adjustments in 2011 of $ 12.6 million , timing of incentive revenue
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covid-19 and the response of governments around the world to contain the pandemic have contributed to an economic downturn , reduced demand for oil and natural gas , and together with a price war between saudi arabia and russia , depressed oil and natural gas prices in 2020. the global oil and natural gas supply and demand imbalance continues to be uncertain , with possible on-going and future adverse effects on the oil and gas industry . during the last two years , commodity prices have been volatile . we reduced our operated rig count in the first quarter of 2019 before getting as high as six drilling rigs in the second quarter of 2019. due to declining prices , we shut down our own drilling program in july 2019 and used no drilling rigs for the remainder of 2019 and 2020 . 36 the following chart reflects the significant fluctuations in the prices for oil and natural gas : the following chart reflects the significant fluctuations in the prices for ngls : _ 1. ngls prices reflect a weighted-average , based on production , of mont belvieu and conway prices . 37 story_separator_special_tag decrease from the fourth quarter of 2019 was primarily due to less drilling rigs operating . the contract drilling segment has operations in oklahoma , texas , new mexico , wyoming , and north dakota . as of december 31 , 2020 , three drilling rigs were working in oklahoma , three in the permian basin of west texas , two in wyoming and one drilling rig in the bakken shale of north dakota . during 2020 , almost all our working drilling rigs were drilling horizontal or directional wells for oil and ngls . the future demand for and the availability of drilling rigs to meet that demand will affect our future dayrates . as of december 31 , 2020 , we had five term drilling contracts with original terms ranging from two months to one year . three of these contracts are up for renewal in 2021 , ( two in the first quarter and one in the second quarter ) and two are up for renewal in 2022 and beyond . term contracts may contain a fixed rate during the contract or provide for rate adjustments within a specific range from the existing rate . some operators who had signed term contracts have opted to release the drilling rig and pay an early termination penalty for the remaining term of the contract . we recorded $ 9.2 million and $ 4.8 million in early termination fees in 2020 and 2019 , respectively . six of our 14 existing boss drilling rigs were under contract as of december 31 , 2020. all our contracts are daywork contracts . for 2021 , capital expenditures for this segment are expected to primarily be for maintenance capital on operating drilling rigs and the possible conversion of certain scr drilling rigs to ac drilling rigs if practicable . we also plan to pursue the disposal or sale of our non-core , older drilling rig fleet . mid-stream fourth quarter 2020 liquids sold per day decreased 31 % from the third quarter of 2020 and decreased 24 % from the fourth quarter of 2019. the decreases were primarily due to declining volumes and fewer wells connected to our major systems resulting in lower liquids production . for the fourth quarter of 2020 , gas processed per day decreased 11 % from the third quarter of 2020 and decreased 19 % from the fourth quarter of 2019. the decreases were primarily due to declining volumes and fewer wells connected to our major systems . for the fourth quarter of 2020 , gas gathered per day decreased 11 % from the third 39 quarter of 2020 and decreased 20 % from the fourth quarter of 2019. the decreases were primarily due to lower volumes from our major gathering and processing systems resulting from fewer wells connected and declining wellhead volumes . ngls prices in the fourth quarter of 2020 increased 35 % over the prices received in the third quarter of 2020 and increased 5 % over the prices received in the fourth quarter of 2019. because certain of the contracts used by our mid-stream segment for ngls transactions are commodity-based contracts – under which we receive a share of the proceeds from the sale of the ngls – our revenues from those commodity-based contracts fluctuate based on ngls prices . direct profit ( mid-stream revenues less mid-stream operating expense ) for the fourth quarter of 2020 decreased 45 % from the third quarter of 2020 and decreased 12 % from the fourth quarter of 2019 , respectively . the decrease from the third quarter of 2020 was primarily due to recognizing a shortfall fee in the third quarter of 2020 in the amount of $ 5.3 million and due to declining volumes on our major systems . the decrease from the fourth quarter of 2019 was primarily due to lower volume on our major systems and lower condensate prices . total operating cost for this segment for the fourth quarter of 2020 increased 17 % over the third quarter of 2020 and decreased 3 % from the fourth quarter of 2019. the increase over the third quarter of 2020 was primarily due to an increase in gas purchase cost due to higher purchase prices . the decrease from the fourth quarter of 2019 was primarily due to declining wellhead volumes and fewer wells connected resulting in lower purchased volumes . at the cashion processing facility in central oklahoma , total throughput volume for the fourth quarter of 2020 averaged approximately 64.2 mmcf per day and total production of natural gas liquids averaged approximately 252,000 gallons per day . for 2020 , we continued to connect new wells to this system for third party producers . since the first of 2020 , we connected 18 new wells to this system from producers . the total processing capacity of the cashion system is 105 mmcf per day . story_separator_special_tag in the appalachian region at the pittsburgh mills gathering system , average gathered volume for the fourth quarter of 2020 was 131.7 mmcf per day and average gathered volume for 2020 was 152.3 mmcf per day . during 2020 , we connected four new infill wells to an existing well pad . also , in the appalachian area at our snow shoe gathering system , the average gathering volume for the fourth quarter was 2.5 mmcf per day and the average gathered volume for 2020 was 3.0 mmcf per day . in 2020 , we did not connect any new wells to this system . at snow shoe for 2020 , we also charged a demand fee based on a volume of 55 mmcf per day . this demand fee volume will be reduced in 2021 to 51 mmcf per day . additionally , in 2020 , we recognized a shortfall fee from a producer on this system for $ 5.3 million . this fee will be invoiced in the first quarter of 2021. at the hemphill processing facility located in the texas panhandle , average total throughput volume for the fourth quarter of 2020 was 46.6 mmcf per day and average total throughput volume for 2020 was 51.3 mmcf per day . total average production of natural gas liquids for the fourth quarter of 2020 decreased to approximately 110,000 gallons per day due to operating in ethane rejection . total production of natural gas liquids for 2020 averaged approximately 152,000 gallons per day . the total processing capacity of the hemphill system is 135 mmcf per day . in 2020 , we did not connect any new wells to this system . currently there are no active rigs in the area , and we do not anticipate any new well connects for this system . at the segno gathering system located in east texas , the average throughput volume for the fourth quarter of 2020 decreased to approximately 31.0 mmcf per day due to declining production volume along with no new drilling activity in the area . for 2020 , the average throughput volume for this system was approximately 40 mmcf per day . during 2020 , we did not connect any new wells to this system . anticipated 2021 capital expenditures for this segment will be approximately $ 15.0 million , a 61 % increase over 2020. critical accounting policies and estimates summary in this section , we identify those critical accounting policies we follow in preparing our financial statements and related disclosures . many policies require us to make difficult , subjective , and complex judgments while making estimates of matters inherently imprecise . some accounting policies involve judgments and uncertainties to such an extent that there is a reasonable likelihood that materially different amounts could have been reported under different conditions , or had different assumptions been used . we evaluate our estimates and assumptions regularly . we base our estimates on historical experience and various other assumptions we believe are reasonable under the circumstances , the results of which support making judgments about the carrying values of assets and liabilities not readily apparent from other sources . actual results may differ from these estimates and assumptions used in preparation of our financial statements . in this discussion we explain the nature of these estimates , 40 assumptions and judgments , and the likelihood that materially different amounts would be reported in our financial statements under different conditions or using different assumptions . significant estimates and assumptions full cost method of accounting for oil , ngls , and natural gas properties . determining our oil , ngls , and natural gas reserves is a subjective process . it entails estimating underground accumulations of oil , ngls , and natural gas that can not be measured in an exact manner . accuracy of these estimates depends on several factors , including , the quality and availability of geological and engineering data , the precision of the interpretations of that data , and individual judgments . each year , we hire an independent petroleum engineering firm to audit our internal evaluation of our reserves . that audit as of december 31 , 2020 covered those reserves we projected to comprise 85 % of the total proved developed future net income discounted at 10 % ( based on the sec 's unescalated pricing policy ) . included in part i , item 1 of this report are the qualifications of our independent petroleum engineering firm and our employees responsible for preparing our reserve reports . the accuracy of estimating oil , ngls , and natural gas reserves varies with the reserve classification and the related accumulation of available data , as shown in this table : type of reserves nature of available data degree of accuracy proved undeveloped data from offsetting wells , seismic data less accurate proved developed non-producing the above and logs , core samples , well tests , pressure data more accurate proved developed producing the above and production history , pressure data over time most accurate assumptions of future oil , ngls , and natural gas prices and operating and capital costs also play a significant role in estimating these reserves and the estimated present value of the cash flows to be received from the future production of those reserves . volumes of recoverable reserves are influenced by the assumed prices and costs due to the economic limit ( that point when the projected costs and expenses of producing recoverable oil , ngls , and natural gas reserves are greater than the projected revenues from the oil , ngls , and natural gas reserves ) . but more significantly , the estimated present value of the future cash flows from our oil , ngls , and natural gas reserves is sensitive to prices and costs and may vary materially based on different assumptions .
| the decrease from the fourth quarter of 2019 was primarily due to lower revenues due to lower commodity prices and volumes partially offset by lower loe and g & a . operating cost per boe produced for the fourth quarter of 2020 decreased 10 % from the third quarter of 2020 and decreased 3 % from the fourth quarter of 2019. the decrease from the third quarter of 2020 was primarily due to lower g & a and saltwater disposal expense . the decrease from the fourth quarter of 2019 was primarily due to lower loe and g & a partially offset by no longer capitalizing directly related overhead costs in 2020 due to the absence of drilling in 2020. at december 31 , 2020 , these non-designated hedges were outstanding : replace_table_token_10_th in western oklahoma , annual production averaged 73 mmcfe per day ( 31 % oil , 22 % ngls , 47 % natural gas ) which was a decrease of approximately 24 % compared to 2019. during 2020 , we did not drill any operated wells in this area and participated in one net non-operated well . in the texas panhandle , annual production averaged 67 mmcfe per day ( 8 % oil , 37 % ngls , 55 % natural gas ) which was a decrease of approximately 27 % compared to 2019. during 2020 , we did not drill any operated wells in this area , nor did we participate in any non-operated wells . in our wilcox play located primarily in polk , tyler , hardin and goliad counties , texas , annual production averaged 45 mmcfe per day ( 9 % oil , 29 % ngl 's , 62 % natural gas ) which is a decrease of approximately 41 % compared to 2019. during 2020 , we did not drill any operated wells in this area , nor did we participate in any non-operated wells . 38 during the successor period and predecessor period of 2020 , we participated in the drilling of three wells ( 0.30 net wells ) and 16 wells ( 0.35 net wells ) , respectively . contract drilling
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our operating strategy is to maximize the value of our existing assets through proactive management encompassing : continuous asset evaluation for highest-and-best-use ; efficient and cost-conscious operations that minimize retailer operating expense and preserve property quality ; and thoughtful leasing to the most desirable tenants . during 2016 , we accomplished the following leasing results : increased same-property retail portfolio occupancy ( 1 ) to 98.0 % as of december 31 , 2016 from 97.2 % as of december 31 , 2015 ; increased consolidated retail portfolio occupancy ( 2 ) to 97.2 % as of december 31 , 2016 from 96.2 % as of december 31 , 2015 ; signed 54 new leases totaling 354,911 square feet , including 26 new leases on a same-space ( 3 ) basis totaling 132,315 square feet at an average rental rate of $ 32.00 per square foot on a gaap basis and $ 29.47 per square foot on a cash basis , generating average rent spreads of 41.7 % on a gaap basis and 25.8 % on a cash basis ; and renewed or extended 52 leases totaling 554,259 square feet , including 52 leases on a same-space basis totaling 554,259 square feet at an average rental rate of $ 16.87 per square foot on a gaap basis and $ 16.53 per square foot on a cash basis , generating average rent spreads of 13.1 % on a gaap basis and 7.1 % on a cash basis . investment strategies . our investment strategy is to selectively deploy capital through a combination of acquisitions , redevelopment and development in our target markets that is expected to generate attractive risk-adjusted returns and , at the same time , to sell assets that no longer meet our investment criteria . in addition to creating value from our existing assets through proactive management , when appropriate , we will redevelop certain assets , will pursue new developments and will acquire properties adjacent to them . during 2016 , we : increased the number of active development and redevelopment projects which have a total expected investment of $ 191.7 million of which $ 110.5 million remains to be funded ; completed projects at walnut creek and east hanover rei ; identified approximately $ 73.0 million of development and redevelopment pipeline projects expected to be completed over the next several years ; completed the sale of a shopping center located in waterbury , ct for $ 21.6 million resulting in a gain of $ 15.6 million ; the sale completed the reverse section 1031 tax deferred exchange transaction with the acquisition of cross bay commons ; ( 1 ) information provided on a same-property basis includes the results of properties that were owned and operated for the entirety of the reporting periods being compared and excludes properties that were under development , redevelopment or that involve anchor repositioning where a substantial portion of the gross leasable area is taken out of service and properties acquired , sold , or in the foreclosure process during the periods being compared and totals 77 properties as of december 31 , 2016 and december 31 , 2015 . ( 2 ) our retail portfolio includes shopping centers and malls and excludes warehouses . ( 3 ) the “ same-space ” designation is used to compare leasing terms ( cash leasing spreads ) from the prior tenant to the new/current tenant . in some cases , leases are excluded from `` same-space '' because the gross leasable area of the prior lease is combined/divided to form a larger/smaller , non-comparable space . 26 acquired a 0.3 acre outparcel adjacent to tonnelle commons in north bergen , nj for $ 2.7 million on december 22 , 2016 , which will be the future site of a 2,000 sf popeye 's and ; executed contracts to acquire hudson mall in jersey city , nj for an aggregate purchase price of $ 43.7 million , the shops at bruckner in the bronx , ny for an aggregate purchase price of $ 32.0 million , and yonkers gateway center in yonkers , ny for an aggregate purchase price of $ 51.7 million . these acquisitions closed subsequent to december 31 , 2016. capital strategies . our capital strategy is to keep our balance sheet flexible and capable of supporting growth by using cash flow from operations , borrowing under our existing line of credit and reinvesting funds from selective asset sales . during 2016 , we : prepaid $ 21.2 million of the variable rate portion of our cross-collateralized mortgage loan to maintain compliance with covenant requirements , in connection with the sale of our property in waterbury , ct ; transferred our property in englewood , nj to receivership ; the receiver manages the property while the company remains the title owner until the receiver disposes of the property ; and ended the year with cash and cash equivalents of $ 131.7 million and net debt ( net of cash ) to total market capitalization of 26.0 % as of december 31 , 2016 . 2017 outlook . we seek growth in earnings , funds from operations , and cash flows primarily through a combination of the following : leasing vacant spaces , extending expiring leases at higher rents , processing the exercise of tenant options and , when possible , replacing underperforming tenants with tenants that can pay higher rent ; expediting the delivery of space to and the collection of rent from tenants with executed leases that have not yet commenced ; creating additional value from our existing assets by redevelopment of existing space , development of new space such as expansion and pad sites and by anchor repositioning ; and disposing of non-core assets and , when possible , reinvesting the proceeds in the redevelopment of and or new development on existing properties and in acquiring additional properties meeting our investment criteria . story_separator_special_tag critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america , referred to as “ gaap ” , requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and revenue and expenses . these estimates are prepared using management 's best judgment , after considering past and current events and economic conditions . in addition , certain information relied upon by management in preparing such estimates includes internally generated financial and operating information , external market information , when available , and when necessary , information obtained from consultations with third party experts . actual results could differ from these estimates . a discussion of possible risks which may affect these estimates is included in “ item 1a . risk factors ” of this annual report on form 10-k. management considers an accounting estimate to be critical if changes in the estimate could have a material impact on our consolidated and combined results of operations or financial condition . our significant accounting policies are more fully described in note 3 to the consolidated and combined financial statements included in part ii , item 8 of this annual report on form 10-k ; however , the most critical accounting policies , which involve the use of estimates and assumptions as to future uncertainties and , therefore , may result in actual amounts that differ from estimates , are as follows : real estate — the nature of our business as an owner , redeveloper and operator of retail shopping centers means that we invest significant amounts of capital into our properties . depreciation , amortization and maintenance costs relating to our properties constitute substantial costs for us as well as the industry as a whole . real estate is capitalized and depreciated on a straight-line basis in accordance with gaap and consistent with industry standards based on our best estimates of the assets ' physical and economic useful lives which range from 3 to 40 years . we periodically review the estimated lives of our assets and implement changes , as necessary , to these estimates . these assessments have a direct impact on our net income . real estate is carried at cost , net of accumulated depreciation and amortization . expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred . significant renovations and improvements that improve or extend the useful lives of assets are capitalized . real estate undergoing redevelopment activities is also carried at cost but no depreciation is recognized . all property operating expenses directly associated with and attributable to , the redevelopment , including interest , are capitalized to the extent the capitalized costs of the property do not exceed the estimated fair value of the redeveloped property when completed . if the cost of the redeveloped property , including the net book value of the existing property , exceeds the estimated fair value of redeveloped property , the excess is charged to impairment expense . the capitalization period begins when redevelopment activities are underway and ends when the project is substantially complete . generally , a redevelopment is considered substantially completed and ready for its intended use upon completion of tenant improvements , but no later than one year from completion of major construction 27 activity . we make judgments as to the time period over which to capitalize such costs and these assumptions have a direct impact on net income because capitalized costs are not subtracted in calculating net income . upon the acquisition of real estate , we assess the fair value of acquired assets ( including land , buildings and improvements , identified intangibles , such as acquired above and below-market leases , acquired in-place leases and tenant relationships ) and acquired liabilities . we assess fair value based on estimated cash flow projections utilizing appropriate discount and capitalization rates and available market information . estimates of future cash flows are based on a number of factors including historical operating results , known trends , and market/economic conditions . based on these estimates , we allocate the purchase price to the applicable assets and liabilities . in allocating the purchase price to identified intangible assets and liabilities of an acquired property , the value of above-market and below-market leases is estimated based on the present value of the difference between the contractual amounts , including fixed rate below-market renewal options , to be paid pursuant to the in-place leases and our estimate of the market lease rates and other lease provisions for comparable leases measured over a period equal to the estimated remaining term of the lease . tenant related intangibles and improvements are amortized on a straight-line basis over the related lease term , including any bargain renewal options . we amortize identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired . we consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and include such renewal options in the calculation of in-place leases . if the value of below-market lease intangibles includes renewal option periods , we include such renewal periods in the amortization period utilized . if a lease terminates prior to its stated expiration , all unamortized amounts relating to that lease are written off . our properties are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . an impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis . an impairment loss is measured based on the excess of the property 's carrying amount over its estimated fair value .
| net cash used in investing activities of $ 66.4 million for 2015 was comprised of ( i ) $ 36.3 million of real estate additions and ( ii ) $ 30.1 35 million of real estate acquisitions . net cash provided by financing activities of $ 93.8 million for 2015 was comprised of ( i ) $ 227.7 million of vornado 's contributions , net , in connection with the spin-off partially offset by , ( ii ) $ 79.2 million of dividends paid to common shareholders , ( iii ) $ 44.7 million for debt repayments , ( iv ) $ 5.2 million of debt issuance costs primarily related to our revolving credit facility , and ( v ) $ 4.9 million of distributions to redeemable noncontrolling interests . financing activities and contractual obligations below is a summary of our outstanding debt and maturities as of december 31 , 2016 . replace_table_token_21_th ( 1 ) subject to a libor floor of 1.00 % , currently bears interest at libor plus 136 bps . in june 2016 , in connection with the sale of our property in waterbury , ct , we prepaid $ 21.2 million of the variable rate portion of our cross collateralized mortgage loan to maintain compliance with covenant requirements . ( 2 ) on january 6 , 2015 , we completed a loan restructuring applicable to the $ 120.0 million , 6.04 % mortgage loan secured by montehiedra town center . refer to note 7- mortgages payable of our consolidated and combined financial statements included in part ii , item 8 of this annual report on form 10-k. ( 3 ) on march 30 , 2015 , we notified the lender that due to tenants vacating , the property 's operating cash flow would be insufficient to pay its debt service . as of december 31 , 2016 we were in default and the property was transferred to receivership . urban edge no longer manages the property but will remain its title owner until the receiver disposes of the property . the
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reverse stock split on june 25 , 2008 at the annual meeting of stockholders , the company 's stockholders approved an amendment to the company 's certificate of incorporation for a 1 for 10 reverse stock split and a reduction in the number of authorized shares of common stock to 100 million on july 10 , 2008 , the company effected a 1-for-10 reverse stock split of its common stock and simultaneously reduced its authorized shares of common stock to 100,000,000 ; par value remained unchanged . in conjunction with the reverse split we issued 126 common shares due to rounding . sale of debentures and warrants to funds managed by brencourt advisors on august 8 , 2008 , we sold an aggregate of $ 5 million of secured convertible debentures , which are convertible into shares of our common stock , and warrants to purchase up to 2.5 million shares of our common stock to three funds for which brencourt advisors , llc is the investment manager ( the “ buyers ” ) . obligations under the convertible debentures are guaranteed by immuneregen and are secured by ( i ) all of the assets and property of immuneregen and ( ii ) by patent collateral of the company and immuneregen . the security interests granted to the buyers are subject to and subordinated to the senior security interests granted by the company and immuneregen to ya global . the convertible debentures mature on august 8 , 2013 , unless extended by the holder , and accrue interest at the rate of 10 % per annum and are convertible at any time at the option of the holder into shares of the our common stock at a price equal to $ 1.55 per share . at any time after the six-month anniversary of the issuance of the debentures , the company may redeem a portion or all amounts outstanding under the debentures prior to august 8 , 2013 provided that certain conditions to redemption have been satisfied . story_separator_special_tag block ; text-indent : 0pt '' > the preliminary results of our pre-clinical studies using homspera , radilex or viprovex may not be indicative of results that will be obtained from subsequent studies or from more extensive trials . further , our pre-clinical or clinical trials may not be successful , and we may not be able to obtain the required regulatory approvals in a timely fashion , or at all . see `` risk factors . '' product research and development due to our liquidity and limited cash available our spending on research and development activities in the years ended december 31 , 2008 and 2007 was limited . we spent approximately $ 1,291,710 and $ 541,589 in 2008 and 2007 , respectively , in research and development activities related to the development of radilex and viprovex . from our inception in october 2002 until december 31 , 2008 , we have spent $ 2,859,896 in research and development activities . these costs only include the manufacture and delivery of our drug by third party manufacturers and payments to contract research organizations and consultants for consulting related to our studies and costs of performing such studies . significant costs relating to research and development , such as compensation for dr. siegel have been classified in officer 's salaries for consistency of financial reporting . we anticipate that during the next 12 months we will decrease our research and development spending to a total of approximately $ 500,000 in an effort to further develop radilex and viprovex . this research and development cost estimate includes additional animal pharmacology studies , formulation and animal safety/toxicity studies . if we receive additional funds , through investment funding , licensing agreements or grants , we expect we will increase our research and development spending above this level . we believe that initial revenues , if any , will likely be generated through partnerships , alliances and or licensing agreements with pharmaceutical or biotechnology companies . our focus during the next 12 months will be to identify those companies which we believe may have an interest in our proposed products and attempt to negotiate arrangements for potential partnerships , alliances and or licensing arrangements . alliances between pharmaceutical and biotechnology companies can take a variety of organizational forms and involve many different payment structures such as upfront payments , milestone payments , equity injections and royalty payments . to date , we have not entered into discussions with and have no agreements or arrangements with any such companies . even if we are successful in entering into such a partnership or alliance or licensing our technology , we anticipate that the earliest we may begin to generate revenues from operations would be calendar 2010. there is no assurance that we will ever be successful in reaching such agreements or ever generate revenues from operations . we will need to generate significant revenues from product sales and or related royalties and license agreements to achieve and maintain profitability . through december 31 , 2008 , we had no revenues from any product sales , royalties or licensing fees , and have not achieved profitability on a quarterly or annual basis . our ability to achieve profitability depends upon , among other things , our ability to develop products , obtain regulatory approval for products under development and enter into agreements for product development , manufacturing and commercialization . moreover , we may never achieve significant revenues or profitable operations from the sale of any of our potential products or technologies . if product development or approval does not occur as scheduled , our time to reach market will be lengthened and our costs will substantially increase . additionally , we may be requested to expand our findings to gather additional data or we may not achieve the desired results . if so , we may have to design new protocols and conduct additional studies . this will increase our costs and delay the time to market for our potential products , if any . story_separator_special_tag any of these occurrences would have a material negative impact on our business and our liquidity as it may cause us to seek additional capital sooner than expected and allow our competitors to successfully enter the market ahead of us . if we are successful in achieving desirable results for these applications , we intend to design the protocols and begin further studies for this and other applications , when capital is available . as we have only collected preliminary data and additional studies are required , we can not predict when , if ever , a viable treatments for these indications can be commercialized . if we do not observe significant results or we lack the capital to further the development , we may abandon such research and development efforts ; thereby limiting our future potential revenues . if we are successful in completing our studies and the results are as we anticipate , we intend to prepare and submit the necessary documentation to the fda and other regulatory agencies for approval . if approval for homspera , radilex and or viprovex is granted , we expect to begin efforts to commercialize our product , if any , immediately thereafter , however , since we are currently in the pre-clinical stage of development , it will take an indeterminate amount of time in development before we have a marketable drug , if ever . 38 off-balance sheet arrangements there were no off-balance sheet arrangements made in 2008. revenues we have not generated any revenues from operations from our inception . we believe we will begin earning revenues from operations during calendar year 2010 as we transition from a development stage company . costs and expenses from our inception through december 31 , 2008 , we have incurred losses of $ 24,556,491. these expenses were associated principally with equity-based compensation to employees and consultants , product development costs and professional services , interest expense and equity based compensation to stockholders for the penalty incurred for the late registration of shares . for the twelve months ending december 31 , 2008 , sales , general and administrative expenses ( “ sg & a ” ) were $ 5,024,013 , a decrease of $ 492,310 or approximately 9 % compared to sg & a expenses of $ 5,516,323 during the 12 months ended december 31 , 2007. the year over year decrease was primarily due to a decrease of $ 2,107,825 for the costs of non-cash compensation which was mostly offset by higher payroll costs of $ 1,405,528 , higher legal and accounting costs of $ 914,134 and higher research and development costs of 1,291,710. for the twelve months ending december 31 , 2008 , interest expense ( net ) was $ 603,965 an increase of approximately 1,060 % compared to interest income ( net ) of $ 62,909 during the 12 months ended december 31 , 2007. interest expense increased during 2008 and we expect it to increase further during the coming twelve months as we will accrue a full year of interest expenses on the convertible debentures we issued in january , june and august of 2008. net loss for the reasons stated above , our net loss for the twelve months ending december 31 , 2008 was $ 5,807,353 or $ 0.49 per share versus a net loss for the twelve months ending december 31 , 2007 of $ 5,463,958 or $ 0.48 per share . for the period of inception ( october 30 , 2002 ) through december 31 , 2008 , our net loss was $ 24,556,491 , or $ 3.53 per share . we expect that losses will continue at least through the year ending december 31 , 2011. our independent certified public accountants have stated in their report included in this form 10-k that we have incurred a net loss and negative cash flows from operations of $ 5,807,353 and $ 4,769,496 , respectively , for the year ended december 31 , 2008. this loss , in addition to a lack of operational history , raises substantial doubt about our ability to continue as a going concern . we currently have sufficient working capital to fund operations through december 2009. in the absence of significant revenue and profits , and since we do not expect to generate significant revenues in the foreseeable future , we , in order to fund future operations , will be completely dependent on additional debt and equity financing arrangements . there is no assurance that any financing will be sufficient to fund our capital expenditures , working capital and other cash requirements beyond december , 2009. no assurance can be given that any such additional funding will be available or that , if available , can be obtained on terms favorable to us . if we are unable to raise needed funds on acceptable terms , we will not be able to develop or enhance our products , take advantage of future opportunities or respond to competitive pressures or unanticipated requirements . a material shortage of capital will require us to take drastic steps such as reducing our level of operations , disposing of selected assets or seeking an acquisition partner . if cash is insufficient , we will not be able to continue operations . liquidity and capital resources at december 31 , 2008 , we had current assets of $ 3,380,244 consisting of cash and cash equivalents of $ 3,158,226 , and prepaid assets and other current assets of $ 222,018. also , at december 31 , 2008 , we had current liabilities of $ 2,362,926 , consisting of accounts payable and accrued liabilities of $ 862,926 and notes payable of $ 1,500,000. this resulted in working capital of $ 1,017,318. during the twelve months ended december 31 , 2008 , we used cash in operating activities of $ 4,769,496. from the date of inception ( october 30 , 2002 ) to december 31 , 2008 , we had a net loss of $ 24,556,491 and used cash of $ 13,219,476 in operating activities .
| there can be no assurance that our interpretation of study results will prove to be accurate after further testing , and our beliefs regarding the potential uses of our drug candidates may never materialize . our current focus is to develop homspera for regenerating or strengthening the human immune system , in part , through stimulating human adult stem cells . it is the belief of our management that the stem cell activity exhibited by homspera underlies some of the effects previously reported in potential applications like treatment for radiation exposure and infectious disease using homspera derivatives radilex and viprovex , respectively , which are described below . recent studies have evaluated the effects of homspera on human adult stem cell activity . additionally , ongoing studies are being performed to evaluate the efficacy of homspera as a potential product to increase the healing rate of wounds . one aspect of this evaluation is to consider the impact of homspera on the mechanisms and pathology of fibrosis , which is associated with scar formation , pulmonary injury and can occur following exposure to ionizing radiation . we are researching radilex for use as a potential treatment for acute exposure to radiation . we believe that a commercial market may exist for the use of radilex as it relates to the amelioration of certain side effects of cancer treatments , whether chemotherapy or radiotherapy . further , we believe that radilex , if developed , may be an acceptable candidate to be marketed to governmental agencies for procurement into the strategic national stockpile for potential use following radiological or nuclear threats . 37 we are researching viprovex for potential use in treatments of exposure to biological agents , such as infectious disease , which include influenza and anthrax . we believe that potential commercial opportunities may exist for the treatment of seasonal influenza and other viral or bacterial infections , either as a stand-alone drug or as an adjuvant to other existing drugs .
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we have never been profitable and , as of december 31 , 2018 , we had an accumulated deficit of $ 237.7 million . we had a net loss of $ 21.1 million for the year ended december 31 , 2018 , compared to $ 33.2 million for the year ended december 31 , 2017 , and $ 52.8 million for the year ended december 31 , 2016. we expect to incur significant and increasing operating losses for the foreseeable future as we advance our drug candidates from discovery through preclinical testing and clinical trials and seek regulatory approval and eventual commercialization . in addition to these increasing research and development expenses , we expect general and administrative costs to increase as we continue to operate as a public company . we will need to generate significant revenues to achieve profitability , and we may never do so . as of december 31 , 2018 , we had 53 employees . revenues to date , we have not generated any revenue . our ability to generate revenue and become profitable depends on our ability to successfully commercialize our lead product candidate or any other product candidate we may advance in the future . research and development expenses research and development expense consists of expenses incurred in connection with identifying and developing our drug candidates . these expenses consist primarily of salaries and related expenses , stock-based compensation , the purchase of equipment , laboratory and manufacturing supplies , facility costs , costs for preclinical and clinical research , development of quality control systems , quality assurance programs and manufacturing processes . we charge all research and development expenses to operating expenses as incurred . clinical development timelines , likelihood of success and total costs vary widely . we do not currently track our internal research and development costs or our personnel and related costs on an individual drug candidate basis . we use our research and development resources , including employees and our drug discovery technology , across multiple drug development programs . as a result , we can not state precisely the costs incurred for each of our research and development programs or our clinical and preclinical drug candidates . from inception through december 31 , 2018 , we have recorded total research and development expenses , including share-based compensation , of $ 185.7 million . our total research and development expenses for the year ended december 31 , 2018 was $ 15.7 million , compared to $ 26.4 million the year ended december 31 , 2017 , and $ 42.5 million for the year ended december 31 , 2016. share-based compensation accounted for $ 0.7 million for the year ended december 31 , 2018 , $ 0.4 million for the year ended december 31 , 2017 and $ 2.1 million for the year ended december 31 , 2016 . 40 research and development expenses as a percentage of total operating expenses was 75 % for the year ended december 31 , 2018 , 78 % for the year ended december 31 , 2017 , and 81 % for the year ended december 31 , 2016. the percentages , excluding stock-based compensation , were 78 % for the year ended december 31 , 2018 , 82 % for the year ended december 31 , 2017 and 86 % for the year ended december 31 , 2016. our clinical development costs decreased with the completion and close-out of large , phase 3 studies that were on-going in previous years . the clinical research and development costs may increase going forward as we evaluate our pipeline and plan potential new studies . based on the results of our preclinical studies , we anticipate that we will select drug candidates and research projects for further development on an ongoing basis in response to their preclinical and clinical success and commercial potential . for research and development candidates in early stages of development , it is premature to estimate when material net cash inflows from these projects might occur . general and administrative expenses general and administrative expense consists primarily of salaries and related expenses for personnel in administrative , finance , business development and human resource functions , as well as the legal costs of pursuing patent protection of our intellectual property and patent filing and maintenance expenses , share–based compensation , and professional fees for legal services . our total general and administration expenses was $ 5.3 million for the year ended december 31 , 2018 , $ 7.6 million for the year ended december 31 , 2017 and $ 10.3 million for the year ended december 31 , 2016. share-based compensation accounted for $ 1.0 million for the year ended december 31 , 2018 , $ 2.1 million for the year ended december 31 , 2017 and $ 3.5 million for the year ended december 31 , 2016. critical accounting policies our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in conformity with generally accepted accounting principles in the united states ( us gaap ) . the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and expenses incurred during the reported periods . we base estimates on our historical experience , known trends and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . story_separator_special_tag while our significant accounting policies are more fully described in the notes to our financial statements appearing in this annual report on form 10-k , we believe that the following accounting policies are the most critical to understanding and evaluating our reported financial results . stock-based compensation stock-based awards are measured at fair value at each grant date . we recognize stock-based compensation expenses ratably over the requisite service period of the option award . determination of the fair value of stock-based compensation grants the determination of the fair value of stock-based compensation arrangements is affected by a number of variables , including estimates of the expected stock price volatility , risk-free interest rate and the expected life of the award . we value stock options using the black-scholes option-pricing model , which was developed for use in estimating the fair value of traded options that are fully transferable and have no vesting restrictions . black-scholes option-pricing model and other option valuation models require the input of highly subjective assumptions , including the expected stock price volatility . if we made different assumptions , our stock-based compensation expenses , net loss , and net loss per common share could be significantly different . prior to our initial public offering in april 2015 , we issued common stock for cash consideration to investors . we believe that such transactions represent the best evidence of fair value of our common stock . therefore , we used the sales price of our common stock prior to our initial public offering ( ipo ) in april 2015 as the fair value of our common stock . after our ipo , we determine that the fair value of common stock is equal to the closing price of the company 's common stock as reported by nasdaq on the option grant date . 41 the following summarizes the assumptions used for estimating the fair value of stock options granted during the periods indicated : replace_table_token_6_th we have assumed no dividend yield because we do not expect to pay dividends in the foreseeable future , which is consistent with our past practice . the risk-free interest rate assumption is based on observed interest rates for u.s. treasury securities with maturities consistent with the expected life of our stock options . the expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method when the stock option includes “ plain vanilla ” terms . under the simplified method , the expected life of an option is presumed to be the midpoint between the vesting date and the end of the agreement term . we used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options . for stock options that did not include “ plain vanilla ” terms , we used the contractual life of the stock option as the expected life . such stock options consisted primarily of options issued to our board of directors that were immediately vested at issuance . expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected life of the stock options . due to the adoption of asu no . 2016-09 , “ stock compensation , ” , effective january 1 , 2017 , the company accounts for forfeitures as they occur rather than on an estimated basis . story_separator_special_tag cellspacing= '' 0 '' style= '' border-collapse : collapse ; width : 100 % ; font-size : 10pt '' > 44 during the years ended december 31 , 2018 , 2017 and 2016 , our operating activities used net cash of $ 16.5 million , $ 33.6 million , and $ 46.0 million respectively . the use of net cash in each of these periods primarily resulted from our net losses . the decrease in net loss from operations for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 was mainly due to the decrease in clinical trial and the reduction of the size of our workforce . the decrease in net loss from operations for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 was mainly due to the decrease in clinical trial and manufacturing activities , as well as , the reducing size of our workforce . during the years ended december 31 , 2018 , 2017 and 2016 , our investing activities used net cash of $ 0.1 million , $ 1.4 million , and $ 13.9 million , respectively . the decrease for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 was primarily due to the new equipment purchases being completed in 2017. the decrease for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 was principally due to the new manufacturing facility being completed in 2016. during the years ended december 31 , 2018 , 2017 and 2016 , our financing activities provided net cash proceeds of $ 0.2 million , $ 33.3 million , and $ 2.9 million , respectively . during the year ended december 31 , 2018 , employees exercised stock options to purchase a total of 160.5 thousand shares of common stock for a total of approximately $ 0.2 million in net proceeds . during the year ended december 31 , 2017 , we entered into subscription agreements with accredited investors , and sold 2.4 million common shares at $ 13 per share for approximately $ 31.6 million in net proceeds . also , we sold 87 thousand shares under a common stock sales agreement with h.c. wainwright & co. llc for net proceeds of approximately $ 1.0 million . employees exercised stock options to purchase a total of 290 thousand
| in addition , there was a decrease in laboratory and manufacturing supplies expense due to a reduction in clinical trial drug manufacturing . salary and related expenses also decreased due to the reduction of our research and development workforce from 96 to 44. the decrease of stock-based compensation expenses was mainly due to the forfeiture of terminated employees ' stock options . general and administrative general and administrative costs are summarized as follows ( in thousands ) : replace_table_token_8_th general and administrative expenses decreased 31 % to $ 5.3 million for the year ended december 31 , 2018 compared to $ 7.6 million for the year ended december 31 , 2017. the decrease was principally due to a $ 1.1 million decrease of share-based compensation to board members as well as a $ 0.9 million decrease of professional fees related to ema meeting in 2017 and legal fees related to the securities litigation which was ended on october 2018. salaries and related expenses decreased in 2018 due to the reduction of work force in may 2017 . 43 general and administrative expenses decreased 26 % to $ 7.6 million for the year ended december 31 , 2017 compared to $ 10.3 million for the year ended december 31 , 2016. the $ 1.4 million decrease in stock-based compensation is due to the grant of stock options to board members in the first quarter of 2016 that were immediately vested . professional fees also decreased $ 0.8 million due to the reduction of public relations activities . the decrease in labor costs was mainly due to the reduction of our general and administrative workforce from 10 to 7. other income the following table summarizes other income ( in thousands ) : replace_table_token_9_th the $ 400 thousand of interest income for the year ended december 31 , 2018 is mainly from the interest generated from the company 's canadian bank account . foreign exchange loss was mainly due
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in addition , specific reserves may be created upon a loan 's restructuring , 56 based on a discounted cash flow analysis , comparing the present value of the anticipated repayments under the restructured terms to the outstanding principal balance of the loan . our board of directors ' internal asset review committee reviews and recommends for approval the allowance for loan losses on a quarterly basis , and any related provision or recapture of provision for loan losses , and the full board of directors approves the provision or recapture after considering the committee 's recommendations . the allowance is increased by the provision for loan losses which is charged against current period earnings . when analysis of the loan portfolio warrants , the allowance is decreased and a recapture of provision of loan losses is included in current period earnings . we believe that the alll is a critical accounting estimate because it is highly susceptible to change from period‑to‑period requiring management to make assumptions about probable losses inherent in the loan portfolio . the impact of an unexpected large loss could deplete the allowance and potentially require increased provisions to replenish the allowance , thereby reducing earnings . for additional information see item 1a . “ risk factors – our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio , ” in this form 10-k. valuation of oreo . real estate properties acquired through foreclosure or by deed-in-lieu of foreclosure are recorded at the lower of cost or fair value less estimated costs to sell . fair value is generally determined by management based on a number of factors , including third-party appraisals of fair value in an orderly sale . accordingly , the valuation of oreo is subject to significant external and internal judgment . if the carrying value of the loan at the date a property is transferred into oreo exceeds the fair value less estimated costs to sell , the excess is charged to the alll . management periodically reviews oreo values to determine whether the property continues to be carried at the lower of its recorded book value or fair value , net of estimated costs to sell . any further decreases in the value of oreo are considered valuation adjustments and are charged to noninterest expense in the consolidated income statements . expenses and income from the maintenance and operations and any gains or losses from the sales of oreo are included in noninterest expense . deferred taxes . deferred tax assets arise from a variety of sources , the most significant being expenses recognized in our financial statements but disallowed in the tax return until the associated cash flow occurs , and write-downs in the value of assets for financial statement purposes that are not deductible for tax purposes until the asset is sold or deemed worthless . when warranted , we record a valuation allowance to reduce our deferred tax assets to the amount that can be recognized in line with the relevant accounting standards . the level of deferred tax asset recognition is influenced by management 's assessment of our historic and future profitability profile . at each balance sheet date , existing assessments are reviewed and , if necessary , revised to reflect changed circumstances . in a situation where income is less than projected or recent losses have been incurred , the relevant accounting standards require convincing evidence that there will be sufficient future tax capacity . for additional information regarding our deferred taxes , see note 13 of the notes to consolidated financial statements contained in item 8. other-than-temporary impairments on the market value of investments . declines in the fair value of available‑for‑sale or held-to-maturity investments below their cost that is deemed to be other-than-temporary results in a reduction in the carrying amount of such investments to their fair value . a charge to earnings and an establishment of a new cost basis for the investment is made . unrealized investment losses are evaluated at least quarterly to determine whether such declines should be considered other-than-temporary and therefore be subject to immediate loss recognition . although these evaluations involve significant judgment , an unrealized loss in the fair value of a debt security is generally deemed to be temporary when the fair value of the investment security is below the carrying value primarily due to changes in interest rates and there has not been significant deterioration in the financial condition of the issuer . other factors that may be considered in determining whether a decline in the value of a debt security is other-than-temporary include ratings by recognized rating agencies ; the extent and duration of an unrealized loss position ; actions of commercial banks or other lenders relative to the continued extension of credit facilities to the issuer of the security ; the financial condition , capital strength and near-term prospects of the issuer and recommendations of investment advisers or market analysts . therefore , deterioration of market conditions could result in impairment losses recognized within the investment portfolio . fair value . fasb asc 820 , fair value measurements and disclosures , establishes a hierarchical disclosure framework associated with the level of pricing observability utilized in measuring financial instruments at fair value . the degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability . financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value . conversely , financial instruments rarely traded or not quoted will generally have little or no pricing observability and a higher degree of judgment utilized in measuring fair value . pricing observability is impacted by a number of factors , including the type of financial instrument , whether the financial instrument is new to the market and not yet established and the characteristics specific to the 57 transaction . story_separator_special_tag see note 7 of the notes to consolidated financial statements contained in item 8 for additional information about the level of pricing transparency associated with financial instruments carried at fair value . derivatives and hedge accounting . the bank recognizes its interest rate swap as a cash flow hedge derivative instrument , and as such , reports the fair value as an asset or liability . fair value is based on dealer quotes , pricing models , discounted cash flow methodologies or similar techniques for which the determination of fair value may require significant management judgment or estimation . the derivative is marked to its fair value through other comprehensive income . any ineffectiveness is recognized in earnings . the gain or loss on the derivative is removed from equity and recognized in noninterest income in the same period the corresponding loss or gain on the hedged cash flow is recognized in earnings . intangible assets . the company incurred goodwill and a core deposit intangible asset through the branch acquisition during 2017. these assets were booked at fair value at the time of the acquisition . goodwill will be evaluated in the future for impairment annually during the fourth quarter , with any impairment recognized as noninterest expense . the core deposit intangible is amortized into noninterest expense . comparison of financial condition at december 31 , 2017 and december 31 , 2016 assets . the following table details the changes in the composition of our assets at december 31 , 2017 from december 31 , 2016 . replace_table_token_30_th the $ 172.6 million increase in total assets during 2017 was primarily a result of utilizing growth in deposits , additional advances from the fhlb , and excess cash held at the federal reserve bank of san francisco to grow our loan portfolio by $ 173.6 million . interest-earning deposits with banks . our interest-earning deposits with banks , consisting primarily of funds held at the federal reserve bank of san francisco , decreased by $ 18.6 million from december 31 , 2016 to december 31 , 2017 primarily to fund new loan originations during 2017. investments available-for-sale . our investments available-for-sale increased by $ 3.0 million , or 2.3 % , during 2017 as we continued to restructure our available‑for‑sale investment portfolio to transition our investment portfolio to securities with higher yields in order to enhance our interest income . following the passing of the tax act , we elected to restructure a portion of our investment portfolio through the sale of certain fixed rate securities that were carried in an unrealized loss position and the purchase of primarily adjustable rate securities . during the year , we purchased $ 58.8 million of securities with an expected yield of 2.24 % , partially funded by sales of $ 40.0 million with an average yield of 1.78 % . the restructure discussed above resulted in an increase in the average yield of our available-for-sale investments to 2.61 % in 2017 from 2.31 % in 2016. securities purchased included $ 15.1 million in fixed rate and $ 43.7 million in variable rate securities , comprised of $ 36.0 million in u.s. government agency bonds , $ 18.2 million in mortgage-backed securities , $ 3.0 million in corporate bonds a nd $ 1.6 million in municipal bonds . 58 the sales of investments available-for-sale generated a net loss o f $ 567,000 f or the year ended december 31 , 2017. we also received calls or partial calls and proceeds at maturity during 2017 of $ 731,000 of u.s. government agency and municipal securities . in addition to the purchase and call activity , we received principal repayments of $ 10.7 million on our investments available-for-sale during 2017. the effective duration of our portfolio decreased t o 2.90 % a t december 31 , 2017 as compared to 4.00 % at december 31 , 2016. effective duration is a measure that attempts to quantify the anticipated percentage change in the value of an investment ( or portfolio ) in the event of a 100 basis point change in market yields . since the bank 's portfolio includes securities with embedded options ( including call options on bonds and prepayment options on mortgage-backed securities ) , management believes that effective duration is an appropriate metric to use as a tool when analyzing the bank 's investment securities portfolio , as effective duration incorporates assumptions relating to such embedded options , including changes in cash flow assumptions as interest rates change . loans receivable . net loans receivable increased by $ 173.6 million during 2017 to $ 988.7 million as a result of growth in all loan categories . the most significant increases occurred in multifamily loans , with a $ 61.7 million , or 50.0 % increase and commercial real estate loans , with a $ 58.1 million or 19.1 % increase . commercial real estate and one-to-four family residential loans continue to be the largest concentrations in our loan portfolio at 33.0 % and 25.5 % , respectively , of total loans . the growth in construction/land loans was less than other loan types , with a decrease in concentration to 21.7 % of our total loan portfolio in 2017 from 23.2 % in 2016. during 2017 , we supplemented our loan originations by purchasing $ 76.2 million in performing one-to-four family , multifamily , commercial , and aircraft loans from other financial institutions . the loans were purchased at an average premium of 2.3 % and are intended to be held to maturity . the majority of these purchased loans are secured by properties located in states across the country , reflecting our efforts to geographically diversify our loan portfolio with loans meeting our investment and credit quality objectives .
| during 2017 , originations of new loans and refinances outpaced repayments , resulting in net loans receivable of $ 988.7 million at december 31 , 2017 , as compared to $ 815.0 million at december 31 , 2016. recently , improvements in the economy , employment rates , stronger real estate prices , and a general lack of new housing inventory in certain areas in the puget sound region have resulted in our significantly increasing originations of construction loans for properties located in our market area . we anticipate that construction/land lending will continue to be a strong element of our total loan portfolio in future periods . we will continue to take a disciplined approach in our construction/land lending by concentrating our efforts on residential loans to builders known to us , including multifamily loans to developers with proven success in this type of construction . originations of construction/land loans decreased to $ 138.6 million in 2017 from $ 165.4 million in 2016. these short term loans typically mature in six to eighteen months . in addition , the funding is usually not fully disbursed at origination , thereby reducing our net loans receivable in the short term . at december 31 , 2017 , construction/land loans net of lip was $ 145.6 million , a 6.4 % increase from $ 136.9 million at december 31 , 2016. our primary source of revenue is interest income , which is the income that we earn on our loans and investments . interest expense is the interest that we pay on our deposits and borrowings . net interest income is the difference between interest income and interest expense . changes in levels of interest rates affect interest income and interest expense differently and , thus , impacts our net interest income . first financial northwest bank is liability-sensitive , meaning our interest-bearing liabilities reprice at a faster rate than our interest-earning assets . despite increasing interest rates over the last year , changes in the composition of our interest‑earning assets and interest-bearing liabilities enabled us to maintain
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the analysis of other-than-temporary impairment requires the use of various assumptions , including , but not limited to , the length of time an investment 's 26 book value is greater than fair value , the severity of the investment 's decline , as well as any credit deterioration of the investment . if the decline in value of an investment is deemed to be other-than-temporary , the investment is written down to fair value and a non-cash impairment charge is recognized in the period of such evaluation . the company records income taxes using the asset and liability method . accordingly , deferred tax assets and liabilities : ( i ) are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns ; ( ii ) are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases ; and ( iii ) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment . deferred tax assets are recorded on the consolidated balance sheet at net realizable value . the company periodically performs an assessment to evaluate the amount of deferred tax assets it is more likely than not to realize . realization of deferred tax assets is dependent upon the amount of taxable income expected in future periods , as tax benefits require taxable income to be realized . if a valuation allowance is required , the deferred tax asset on the consolidated balance sheet is reduced via a corresponding income tax expense in the consolidated statement of income . story_separator_special_tag environment as new loans were originated and investment securities were purchased at yields lower than the average yield on loans and investments , respectively , in the prior year period . the net interest margin for the year ended december 31 , 2016 was 3.89 % compared to the 4.07 % net interest margin recorded for the year ended december 31 , 2015 , a decrease of 18 basis points . the decrease in the company 's net interest income and net interest margin for the year ended december 31 , 2016 compared with the corresponding 2015 period was primarily due to the decrease of 15 basis points in the average yield of interest-earning assets to 4.43 % for the year ended december 31 , 2016 compared to 4.58 % for the year ended december 31 , 2015 and the increase in the cost of average interest bearing liabilities to 0.71 % for the year ended december 31 , 2016 compared to 0.65 % for the year ended december 31 , 2015. the following tables set forth the company 's consolidated average balances of assets , liabilities and shareholders ' equity , as well as , interest income and expense on related items and the company 's average yield or rate for the years ended december 31 , 2016 , 2015 and 2014 , respectively . the average rates are derived by dividing interest income and expense by the average balance of assets and liabilities , respectively . net interest margin analysis replace_table_token_4_th 28 replace_table_token_5_th ( 1 ) loan origination fees are considered an adjustment to interest income . for the purpose of calculating loan yields , average loan balances include non-accrual loans with no related interest income . please refer to item 7. management 's discussion and analysis of financial condition and results of operations under the heading “ non-performing assets ” for a discussion of the bank 's policy with regard to non-accrual loans . ( 2 ) the net interest rate spread is the difference between the average yield on interest earning assets and the average rate paid on interest bearing liabilities . ( 3 ) the net interest margin is equal to net interest income divided by average interest earning assets . ( 4 ) tax-equivalent basis . the tax-equivalent adjustments were $ 997,000 for the year ended december 31 , 2016 and $ 1.0 million and $ 1.1 million for the years ended december 31 , 2015 and 2014 , respectively . changes in net interest income and net interest margin result from the interaction between the volume and composition of interest earning assets , interest bearing liabilities , related yields and associated funding costs . the rate/volume table demonstrates the impact on net interest income of changes in the volume of interest earning assets and interest bearing liabilities and changes in interest rates earned and paid . 29 replace_table_token_6_th as of december 31 , 2016 , loans were $ 724.8 million and had increased $ 42.7 million compared to $ 682.1 million at december 31 , 2015 . the primary driver of the 6.3 % increase in loans during 2016 was the $ 35.1 million , or 17.0 % , increase in commercial real estate loans to $ 242.4 million at december 31 , 2016 from $ 207.3 million at december 31 , 2015 . average interest-earning assets increased by $ 27.4 million , or 3.0 % , to $ 944.5 million for the year ended december 31 , 2016 from $ 917.1 million for the year ended december 31 , 2015 . overall , the yield on interest-earning assets , on a tax-equivalent basis , decreased 15 basis points to 4.43 % for the year ended december 31 , 2016 compared to 4.58 % for the year ended december 31 , 2015 due primarily to the decrease in average loan yields to 5.07 % from 5.20 % . interest expense increased by $ 522,000 , or 11.3 % , to $ 5.2 million for the year ended december 31 , 2016 from $ 4.6 million for the year ended december 31 , 2015 . this increase in interest expense was principally attributable to an increase in the cost of interest-bearing liabilities to 0.71 % from 0.65 story_separator_special_tag % and an increase of $ 12.8 million in average interest-bearing liabilities . savings accounts increased on average by $ 9.2 million in 2016 , or 4.7 % , compared to 2015 , and the cost on these deposits increased eleven basis points to 0.59 % in 2016 compared to 0.48 % in 2015. the company 's net interest income decreased on a tax-equivalent basis by $ 629,000 , or 1.7 % , to $ 36.7 million for the year ended december 31 , 2016 from $ 37.3 million reported for the year ended december 31 , 2015 . as indicated in the rate/volume table , the decrease was driven primarily by the higher cost of interest-bearing liabilities , which reflected the higher short-term market interest rates and increased competition for deposits in 2016 compared to 2015 . 30 provision for loan losses management considers a complete review of the following specific factors in determining the provisions for loan losses : historical losses by loan category , non-accrual loans and problem loans as identified through internal classifications , collateral values , and the growth , size and risk elements of the loan portfolio . in addition to these factors , management takes into consideration current economic conditions and local real estate market conditions . in general , over the last three years , the bank experienced an improvement in loan credit quality and achieved a steady resolution of non-performing loans and assets related to the severe recession , which were reflected in the current lower level of non-performing loans at december 31 , 2016. net charge-offs of commercial business and commercial real estate loans in 2016 and 2015 declined significantly compared to prior years , which resulted in a reduction of the historical loss factors for these segments of the loan portfolio that were applied by management to estimate the allowance for loan losses at december 31 , 2016. for 2016 , net recoveries of $ 234,000 of loans previously charged-off were recorded . the lower historical loss factors due to the improvement in loan credit quality resulted in a slightly lower estimated allowance for loan losses of $ 7.5 million at december 31 , 2016 after management 's evaluation of these factors and trends . the company recorded a credit ( negative ) provision for loan losses in the amount of $ 300,000 for the year ended december 31 , 2016 compared to a provision of $ 1.1 million for the year ended december 31 , 2015 . the decrease in the provision for loan losses for 2016 was primarily attributed to the net recovery of loans previously charged off and the lower historical loan loss factors , which reflected the improvement in loan credit quality , the resolution of non-performing loans and the significant reduction of net charge-offs of commercial and commercial real estate loans in 2016. at december 31 , 2016 , non-performing loans decreased by $ 822,000 , or 13.7 % , to $ 5.2 million from $ 6.0 million at december 31 , 2015 and the ratio of non-performing loans to total loans decreased to 0.72 % at december 31 , 2016 compared to 0.88 % at december 31 , 2015. non-interest income total non-interest income for the year ended december 31 , 2016 increased to $ 6.9 million from $ 6.5 million for the year ended december 31 , 2015 . this revenue component represented 16 % and 15 % of the company 's net revenues for the years ended december 31 , 2016 and 2015 , respectively . in 2015 , total non-interest income was negatively impacted by a $ 692,000 loss on the sale of oreo that was included in other income . excluding the effect of the loss , non-interest income would have declined $ 270,000 in 2016 compared to 2015. service charges on deposit accounts decreased by $ 103,000 to $ 715,000 for the year ended december 31 , 2016 compared to $ 818,000 for the year ended december 31 , 2015 due primarily to declines in not-sufficient funds charges . gains on sales of loans held for sale decreased $ 254,000 to $ 3.8 million for the year ended december 31 , 2016 compared to $ 4.0 million for the year ended december 31 , 2015 . the bank sells both residential mortgage loans and the portion of commercial business loans guaranteed by the small business administration ( `` sba '' ) in the secondary market . gains on the sale of residential mortgage loans were $ 2.2 million in 2016 compared to $ 2.3 million in 2015 . in 2016 , $ 88.1 million of residential loans were sold compared to $ 136.4 million in 2015 . the decline in the residential lending activity and gains on the sale of loans was due primarily to the turnover of personnel that occurred in the first two quarters of 2016 , which significantly reduced the volume of loans originated and sold in 2016. in july 2016 , the bank hired a new residential lending team of 20 employees , which included residential mortgage loan originators and operations personnel . in the fourth quarter of 2016 , $ 42.6 million of loans were closed , $ 34.3 million of loans were sold and $ 925,000 of gains were recorded compared to $ 21.3 millions of loans sold and $ 444,000 of gains recorded in the fourth quarter of 2015. the addition of this experienced and productive residential mortgage lending team is expected to enhance the bank 's residential lending capabilities and broaden its lending products to include federal housing administration ( `` fha '' ) insured residential mortgages . in january 2017 , the bank was approved for unconditional direct endorsement authority by the u.s. department of housing and urban development ( `` hud '' ) . this designation will increase the bank 's ability to generate fha insured residential mortgages .
| to 2015. non-interest expenses increased $ 36,000 to $ 29.0 million in 2016 compared to $ 28.9 million in 2015 . an increase of $ 1.1 million in salary and benefits expense in 2016 compared to 2015 was partially offset by decreases in oreo expense , fdic insurance expense , occupancy expense and other operating expenses . return on average assets ( “ roaa ” ) and return on average equity ( “ roae ” ) were 0.93 % and 9.21 % , respectively , for the year ended december 31 , 2016 , compared to 0.89 % and 9.49 % , respectively , for the year ended december 31 , 2015 . the bank 's results of operations depend primarily on net interest income , which is primarily affected by the market interest rate environment , the shape of the u.s. treasury yield curve , and the difference between the yield on interest-earning assets and the rate paid on interest-bearing liabilities . other factors that may affect the bank 's operating results are general and local economic and competitive conditions , government policies and actions of regulatory authorities . net interest income net interest income , the company 's largest and most significant component of operating income , is the difference between interest and fees earned on loans and other earning assets and interest paid on deposits and borrowed funds . this component represented 84 % and 85 % of the company 's net revenues ( net interest income plus non-interest income ) for the years ended december 31 , 2016 and december 31 , 2015 , respectively . net interest income also depends upon the relative amount of average interest earning assets , average interest-bearing liabilities , and the interest rate earned or paid on them , respectively . 27 for the year ended december 31 , 2016 , the company 's net interest income decreased by $ 604,000 , or 1.7 % , to $ 35.7 million compared to $ 36.3 million
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loss factors are based on the company 's historical loss experience with additional consideration and adjustments made for changes in economic conditions , changes in the amount and composition of the loan portfolio , delinquency rates , changes in collateral values , seasoning of the loan portfolio , duration of the current business cycle , a detailed analysis of impaired loans and other factors as deemed appropriate . these factors are evaluated on a quarterly basis . loss rates used by the company are affected as changes in these factors increase or decrease from quarter to quarter . in addition , regulatory agencies , as an integral part of their examination process , periodically review the company 's allowance for loan losses , and may require the company to make additions to the allowance based on their judgment about information available to them at the time of their examinations . a loan is considered impaired when it is probable that the company will be unable to collect all amounts due ( principal and interest ) according to the contractual terms of the loan agreement . typically , factors used in determining if a loan is impaired include , but are not limited to , whether the loan is 90 days or more delinquent , internally designated as substandard or worse , on non-accrual status or represents a tdr . the majority of the company 's impaired loans are considered collateral dependent . when a loan is considered collateral dependent , impairment is measured using the estimated value of the underlying collateral , less any prior liens , and when applicable , less estimated selling costs . for impaired loans that are not collateral dependent , impairment is measured using the present value of expected future cash flows , discounted at the loan 's original effective interest rate . when the estimated net realizable value of the impaired loan is less than the recorded investment in the loan ( including accrued interest , net deferred loan fees or costs , and unamortized premium or discount ) , an impairment is recognized by adjusting an allocation of the allowance for loan losses . subsequent to the initial allocation of allowance to the individual loan , the company may conclude that it is appropriate to record a charge-off of the impaired portion of the loan . when a charge-off is recorded , the loan balance is reduced and the specific allowance is eliminated . generally , when a collateral dependent loan is initially measured for impairment and has not had an appraisal of the collateral in the last six months , the company obtains an updated market valuation . subsequently , the company generally obtains an updated market valuation of the collateral on an annual basis . the collateral valuation may occur more frequently if the company determines that there is an indication that the market value may have declined . investment securities investment securities are classified as held to maturity when the company has the ability and positive intent to hold such securities to maturity . investment securities held to maturity are carried at amortized cost . unrealized losses on investment securities held to maturity due to fluctuations in fair value are recognized when it is determined that a credit-related other than temporary decline in value has occurred . investment securities bought and held principally for the purpose of sale in the near term are classified as trading securities . investment securities that the company intends to hold for an indefinite period , but not necessarily to maturity , are classified as available for sale . such securities may be sold to implement the company 's asset/liability management strategies and in response to changes in interest rates and similar factors . investment securities available for sale are reported at estimated fair value . unrealized gains and losses on investment securities available for sale , net of the related deferred tax effect , are included in total comprehensive income and are reported as a net amount in a separate component of shareholders ' equity entitled `` accumulated other comprehensive income ( loss ) . '' realized gains and losses on sales of investment securities available for sale , determined using the specific identification method , are included in earnings on the trade date . amortization of premiums and accretion of discounts are recognized in interest income over the period to contractual maturity or expected call , if sooner . the company analyzes investment securities for other than temporary impairment ( `` otti '' ) on a quarterly basis . otti is separated into a credit component and noncredit component . credit component losses are reported in non-interest income when the present value of expected future cash flows is less than the amortized cost . noncredit component losses are recorded in other comprehensive income ( loss ) when the company ( 1 ) does not intend to sell the security or ( 2 ) is not more likely than not to have to sell the security prior to the security 's anticipated recovery . if the company is likely to sell an investment security , any noncredit component losses are recognized , and are reported in non-interest income . 49 although the determination of whether an impairment is other-than-temporary involves significant judgment , the underlying principle used is based on positive evidence indicating that an investment 's carrying value is recoverable within a reasonable period of time that outweighs negative evidence to the contrary . evidence that is objectively determinable and verifiable is given greater weight than evidence that is subjective and or not verifiable . evidence based on future events will generally be less objective as it is based on future expectations and therefore is generally less verifiable or not verifiable at all . story_separator_special_tag factors considered in evaluating whether a decline in value is other-than-temporary include , ( a ) the length of time and the extent to which the fair value has been less than amortized cost , ( b ) the financial condition and near-term prospects of the issuer and ( c ) the company 's intent and ability to retain the investment for a period of time . other factors that may be considered include the ratings by recognized rating agencies ; capital strength and other near-term prospects of the issuer and recommendation of investment advisors or market analysts . in situations in which the security 's fair value is below amortized cost but it continues to be probable that all contractual terms of the security will be satisfied , the decline is solely attributable to noncredit factors , and the company asserts that it has positive intent and ability to hold that security to maturity , no otti is recognized . valuation of reo and foreclosed assets reo consists of properties acquired through foreclosure and is initially recorded at the estimated fair value of the properties , less estimated costs of disposal . at the time of foreclosure , specific charge-offs are taken against the allowance for loan losses based upon a detailed analysis of the fair value of collateral on the underlying loans on which the company is in the process of foreclosing . subsequently , the company performs an evaluation of the properties and records a valuation allowance with an offsetting charge to real estate owned expenses for any declines in value . management considers third-party appraisals , as well as independent fair market value assessments from realtors or persons involved in selling real estate , in determining the estimated fair value of particular properties . in addition , as certain of these third-party appraisals and independent fair market value assessments are only updated periodically , changes in the values of specific properties may have occurred subsequent to the most recent appraisals . the amounts the company will ultimately recover and record in the accompanying consolidated financial statements from the disposition of reo may differ from the amounts used in arriving at the net carrying value of these assets because of future market factors beyond the company 's control or because of changes in the company 's strategy for the sale of the property . costs relating to development and improvement of the properties or assets are capitalized , while costs relating to holding the properties or assets are expensed . income taxes the company estimates tax expense based on the amount it expects to owe various tax authorities . accrued taxes represent the net estimated amount due or to be received from taxing authorities . in estimating accrued taxes , management assesses the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory , judicial and regulatory guidance in the context of our tax position . income taxes are accounted for using the asset and liability method . under this method , a deferred tax asset or liability is determined based on the enacted tax rates which will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the company 's income tax returns . the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date . valuation allowances are established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not , that all or some portion of the potential deferred tax asset will not be realized . the company files a consolidated federal income tax return . the bank provides for income taxes separately and remits to the company amounts currently due . for additional information see notes 1 and 12 of the notes to the consolidated financial statements in item 8 of this form 10-k. operating strategy story_separator_special_tag font-size : 10pt '' > 51 recruiting and retaining highly competent personnel with a focus on commercial lending . the company 's ability to continue to attract and retain banking professionals with strong community relationships and significant knowledge of its markets will be a key to its success . the company believes that it enhances its market position and adds profitable growth opportunities by focusing on hiring and retaining experienced bankers focused on owner occupied commercial real estate and commercial lending , and the deposit balances that accompany these relationships . the company emphasizes to its employees the importance of delivering exemplary customer service and seeking opportunities to build further relationships with its customers . the goal is to compete with other financial service providers by relying on the strength of the company 's customer service and relationship banking approach . the company believes that one of its strengths is that its employees are also significant shareholders through the company 's employee stock ownership ( `` esop '' ) and 401 ( k ) plans . comparison of financial condition at march 31 , 2017 and 2016 cash and cash equivalents , including interest-earning accounts , totaled $ 64.6 million at march 31 , 2017 compared to $ 55.4 million at march 31 , 2016. the increase in cash balances was primarily driven by the increase in deposits assumed and the cash received from the mbank transaction . see note 3 of the notes to the consolidated financial statements contained in item 8 of this form 10-k. the company has deployed a portion of its excess cash balances into investment securities to earn higher yields than cash held in interest-earning accounts based on its asset/liability management program and liquidity objectives in order to maximize earnings . as a part of this strategy , the company also invests a portion of its excess cash in short-term certificates of deposit . all of the certificates of deposit held for investment are fully insured by the fdic .
| the company will also continue to seek to expand its franchise through the selective acquisition of individual branches , loan purchases and whole bank transactions that meet its investment and market objectives , such as the recently completed acquisition of certain assets and assumption of certain liabilities from mbank and merchants bancorp . maintaining strong asset quality . the company believes that strong asset quality is a key to long-term financial success . the company has actively managed the delinquent loans and nonperforming assets by aggressively pursuing the collection of consumer debts , marketing saleable properties upon foreclosure or repossession , and through work-outs of classified assets and loan charge-offs . in the past several years , the company has applied more conservative and stringent underwriting practices to new loans , including , among other things , increasing the amount of required collateral or equity requirements , reducing loan-to-value ratios and increasing debt service coverage ratios resulting in improved credit metrics/asset quality . although the company intends to prudently increase the percentage of its assets consisting of higher-yielding commercial real estate , real estate construction and commercial business loans , which offer higher risk-adjusted returns , shorter maturities and more sensitivity to interest rate fluctuations , the company intends to manage credit exposure through the use of experienced bankers in these areas and a conservative approach to its lending . implementation of a profit improvement plan ( `` pip '' ) . the company has formed a committee comprised of several members of management and the board of directors to undertake several initiatives to reduce non-interest expense and continue our on-going efforts to identify cost savings opportunities throughout all aspects of the company 's operations . the pip committee 's mission is not only to find additional cost saving opportunities but also to search for and implement revenue enhancements and additional areas for improvement . the company has instituted expense control measures such as cancelling certain projects and capital purchases , and reducing travel and entertainment and other noninterest expenditures . in this regard , the company has reduced its efficiency ratio over the last several years from 98.0 % at march 31 , 2014 to 75.4 %
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segment adjusted ebitda increased 15.1 % to $ 5.6 billion in 2020 compared to $ 4.8 billion in 2019. this increase was primarily driven by the continued growth of at-home consumption due , in part , to the covid-19 pandemic , as pricing gains , increased volume and favorable product and channel mix , and productivity savings more than offset manufacturing and logistics cost inflation , increased variable compensation expenses , investments in marketing , covid-19-related operating costs , and unfavorable changes in key commodity costs . international : replace_table_token_16_th ( a ) organic net sales is a non-gaap financial measure . see the non-gaap financial measures section at the end of this item . fiscal year 2020 compared to fiscal year 2019 : net sales increased 1.7 % to $ 5.3 billion in 2020 compared to $ 5.3 billion in 2019 , despite the unfavorable impacts of foreign currency ( 2.7 pp , including 0.5 pp from the devaluation of the venezuelan bolivar ) and divestitures ( 0.3 pp ) . organic net sales increased 4.7 % to $ 5.5 billion in 2020 compared to $ 5.2 billion in 2019 , driven by the continued growth of at-home consumption due , in part , to the covid-19 pandemic . organic net sales growth was driven by favorable volume/mix ( 2.6 pp ) and higher pricing ( 2.1 pp ) . favorable volume/mix was primarily driven by consumption-led growth in condiments and sauces and boxed dinners , which more than offset a significant decline in foodservice-related sales and , to a lesser extent , infant nutrition shipments . higher pricing was primarily driven by increases in latin america , australia , and the united kingdom . segment adjusted ebitda increased 5.4 % to $ 1.1 billion in 2020 compared to $ 1.0 billion in 2019. this increase was primarily driven by the continued growth of at-home consumption due , in part , to the covid-19 pandemic , as organic net sales growth more than offset higher supply chain costs , increased variable compensation expenses , and the unfavorable impact of foreign currency ( 2.4 pp , including 1.4 pp from the devaluation of the venezuelan bolivar ) . 28 canada : replace_table_token_17_th ( a ) organic net sales is a non-gaap financial measure . see the non-gaap financial measures section at the end of this item . fiscal year 2020 compared to fiscal year 2019 : net sales decreased 12.8 % to $ 1.6 billion in 2020 compared to $ 1.9 billion in 2019 , primarily due to the unfavorable impacts of divestitures ( 11.6 pp ) and foreign currency ( 1.1 pp ) . organic net sales decreased 0.1 % to $ 1.7 billion in 2020 compared to $ 1.7 billion in 2019 , primarily due to unfavorable volume/mix ( 2.3 pp ) , which more than offset higher pricing ( 2.2 pp ) . unfavorable volume/mix was primarily due to lower foodservice-related sales and the negative impact from exiting the mccafé licensing agreement , which more than offset the continued growth of at-home consumption due , in part , to the covid-19 pandemic . pricing was higher primarily driven by price increases in cheese . segment adjusted ebitda decreased 20.2 % to $ 389 million in 2020 compared to $ 487 million in 2019 , despite the continued growth of at-home consumption due , in part , to the covid-19 pandemic . segment adjusted ebitda decreased primarily due to the unfavorable impact of divestitures ( 10.6 pp ) , higher supply chain costs , the negative impact from exiting the mccafé licensing agreement , as well as the unfavorable impact of foreign currency ( 1.0 pp ) , which more than offset pricing gains compared to the prior year period . critical accounting estimates note 2 , significant accounting policies , in item 8 , financial statements and supplementary data , includes a summary of the significant accounting policies we used to prepare our consolidated financial statements . the following is a review of the more significant assumptions and estimates as well as accounting policies we used to prepare our consolidated financial statements . revenue recognition : our revenues are primarily derived from customer orders for the purchase of our products . we recognize revenues as performance obligations are fulfilled when control passes to our customers . we record revenues net of variable consideration , including consumer incentives and performance obligations related to trade promotions , excluding taxes , and including all shipping and handling charges billed to customers ( accounting for shipping and handling charges that occur after the transfer of control as fulfillment costs ) . we also record a refund liability for estimated product returns and customer allowances as reductions to revenues within the same period that the revenue is recognized . we base these estimates principally on historical and current period experience factors . we recognize costs paid to third party brokers to obtain contracts as expenses as our contracts are generally less than one year . advertising , consumer incentives , and trade promotions : we promote our products with advertising , consumer incentives , and performance obligations related to trade promotions . consumer incentives and trade promotions include , but are not limited to , discounts , coupons , rebates , performance-based in-store display activities , and volume-based incentives . variable consideration related to consumer incentive and trade promotion activities is recorded as a reduction to revenues based on amounts estimated as being due to customers and consumers at the end of a period . we base these estimates principally on historical utilization , redemption rates , and or current period experience factors . we review and adjust these estimates at least quarterly based on actual experience and other information . advertising expenses are recorded in selling , general and administrative expenses ( “ sg & a ” ) . for interim reporting purposes , we charge advertising to operations as a percentage of estimated full year sales activity and marketing costs . story_separator_special_tag we then review and adjust these estimates each quarter based on actual experience and other information . we recorded advertising expenses of $ 646 million in 2020 , $ 534 million in 2019 , and $ 584 million in 2018 , which represented costs to obtain physical advertisement spots in television , radio , print , digital , and social channels . we also incur other advertising and marketing costs such as shopper marketing , sponsorships , and agency advertisement conception , design , and public relations fees . total advertising and marketing costs were $ 1.2 billion in 2020 and $ 1.1 billion in both 2019 and 2018. goodwill and intangible assets : as of december 26 , 2020 , we maintain 15 reporting units , nine of which comprise our goodwill balance . these nine reporting units had an aggregate carrying amount of $ 33.1 billion as of december 26 , 2020. our indefinite-lived intangible asset balance 29 primarily consists of a number of individual brands , which had an aggregate carrying amount of $ 42.3 billion as of december 26 , 2020. we test our reporting units and brands for impairment annually as of the first day of our second quarter , or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit or brand is less than its carrying amount . such events and circumstances could include a sustained decrease in our market capitalization , increased competition or unexpected loss of market share , increased input costs beyond projections ( for example due to regulatory or industry changes ) , disposals of significant brands or components of our business , unexpected business disruptions ( for example due to a natural disaster , pandemic , or loss of a customer , supplier , or other significant business relationship ) , unexpected significant declines in operating results , significant adverse changes in the markets in which we operate , or changes in management strategy . we test reporting units for impairment by comparing the estimated fair value of each reporting unit with its carrying amount . we test brands for impairment by comparing the estimated fair value of each brand with its carrying amount . if the carrying amount of a reporting unit or brand exceeds its estimated fair value , we record an impairment loss based on the difference between fair value and carrying amount , in the case of reporting units , not to exceed the associated carrying amount of goodwill . fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions , estimates , and market factors . estimating the fair value of individual reporting units and brands requires us to make assumptions and estimates regarding our future plans , as well as industry , economic , and regulatory conditions . these assumptions and estimates include estimated future annual net cash flows , income tax considerations , discount rates , growth rates , royalty rates , contributory asset charges , and other market factors . if current expectations of future growth rates and margins are not met , if market factors outside of our control , such as discount rates , income tax rates , foreign currency exchange rates , or any factors that could be affected by covid-19 , change , or if management 's expectations or plans otherwise change , including updates to our long-term operating plans , then one or more of our reporting units or brands might become impaired in the future . additionally , any decisions to divest certain non-strategic assets could lead to the impairment of one or more of our reporting units or brands in the future . in 2020 , the covid-19 pandemic produced a short-term beneficial financial impact for our consolidated results . retail sales increased due to higher than anticipated consumer demand for our products . the foodservice channel , however , experienced a negative impact from prolonged social distancing mandates limiting access to and capacity at away-from-home establishments for a longer period of time than was expected when they were originally put in place . our esa and canada foodservice reporting units are the most exposed of our reporting units to the long-term impacts to away-from-home establishments . our u.s. foodservice ( now included within esa ) and canada foodservice reporting units were both impaired during our most recent annual impairment test , reflecting our best estimate at that time of the future outlook and risks of these businesses . the esa and canada foodservice reporting units maintain an aggregate goodwill carrying amount of approximately $ 11.7 billion as of december 26 , 2020. a number of factors could result in further future impairments of our foodservice businesses , including but not limited to : continued mandates around closures of dining rooms in restaurants , distancing of people within establishments resulting in fewer customers , the total number of restaurant closures , forthcoming changes in consumer preferences or regulatory requirements over product formats ( e.g. , table top packaging vs. single serve packaging ) , and consumer trends of dining-in versus dining-out . given the evolving nature of and uncertainty driven by the covid-19 pandemic , we will continue to evaluate the impact on our reporting units as adverse changes to these assumptions could result in future impairments . as we consider the ongoing impact of the covid-19 pandemic with regard to our indefinite-lived intangible assets , a number of factors could have a future adverse impact on our brands , including changes in consumer and consumption trends in both the short and long term , the extent of continued government mandates to shelter in place , total number of restaurant closures , economic declines , and reductions in consumer discretionary income . we have seen an increase in our retail business in the short-term that has more than offset declines in our foodservice business over the same period .
| non-cash impairment losses were $ 3.4 billion in 2020 compared to $ 1.9 billion in 2019. the remaining change in operating income/ ( loss ) was an increase of $ 572 million , primarily driven by higher organic net sales in the current year , which more than offset increased variable compensation expenses , higher equity award compensation expense , investments in marketing , higher supply chain costs , higher general corporate expenses , unfavorable changes in key commodity costs ( which we define as dairy , meat , coffee , and nuts ) , and the unfavorable impact of divestitures . see note 9 , goodwill and intangible assets , in item 8 , financial statements and supplementary data , for additional information on our non-cash impairment losses . net income/ ( loss ) attributable to common shareholders decreased 81.6 % to income of $ 356 million in 2020 compared to $ 1.9 billion in 2019. this change was driven by the operating income/ ( loss ) factors described above ( primarily higher non-cash impairment losses in the current year ) , unfavorable changes in other expense/ ( income ) , and higher interest expense , partially offset by lower tax expense in the current year . 24 other expense/ ( income ) was $ 296 million of income in 2020 compared to $ 952 million of income in 2019. this change was primarily driven by a $ 2 million net loss on sales of businesses in 2020 compared to a $ 420 million net gain on sales of businesses in 2019 , a $ 184 million decrease in non-cash amortization of prior service credits as compared to the prior year period , a $ 162 million net foreign exchange loss in 2020 compared to a $ 10 million net foreign exchange loss in 2019 , and a $ 26 million loss on the dissolution of a joint venture . these impacts were partially offset by a $ 154 million net gain on derivative activities in 2020 compared to a $ 33 million net gain on derivative activities in 2019. as we estimate the amortization of prior service credits to be insignificant in 2021 , we are forecasting a negative
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the company experienced strong loan activity during 2017. however , pricing on loans is challenging due to significant competition on new and renewing credits . the pricing pressure has impacted the ability to maintain loan yield compared to 2016. interest income on investment securities decreased $ 103,474 ( 5 % ) . the average balance of investment securities decreased $ 13,692,000 ( 14 % ) while the average yield improved 18 basis points to 2.05 % . interest expense . total interest expense increased $ 1,909,542 ( 46 % ) as the average balance of interest-bearing liabilities increased $ 61,089,000 ( 11 % ) , while the average cost of interest-bearing liabilities increased 24 basis points to 1.00 % . interest expense on deposits increased $ 1,467,583 ( 64 % ) during 2017 as the average balance of interest bearing deposits increased $ 38,148,000 ( 8 % ) , while the average interest rate paid to depositors increased 25 basis points to 0.75 % . the increase in asset growth opportunities among institutions in our market have created significant competitive pressures on deposit rates . to fund its asset growth going forward , the company will continue to utilize a cost-effective mix of retail and commercial core deposits along with non-core , wholesale funding . net interest income . the company 's net interest income increased $ 2,141,865 ( 10 % ) primarily due to the increase in overall average balances of interest-earning assets and interest-bearing liabilities . refer to the tables in the “ average balances , interest and average yields ” section ( pages 47 and 48 ) for additional information on components of net interest income . provision for loan losses . provisions for loan losses are charged or credited to earnings to bring the total allowance for loan losses to a level considered adequate by the company to provide for potential loan losses in the existing loan portfolio . when making its assessment , the company considers prior loss experience , volume and type of lending , local banking trends and impaired and past due loans in the company 's loan portfolio . in addition , the company considers general economic conditions and other factors related to collectability of the company 's loan portfolio . based on its internal analysis and methodology , management recorded a provision for loan losses of $ 1,750,000 and $ 1,375,000 for the years ended december 31 , 2017 and 2016 , respectively . the company 's increase in the provision was primarily due to the increased loan balances and maintaining general portfolio reserves at a level deemed appropriate in accordance with its methodology . the bank will continue to monitor its allowance for loan losses and make future additions based on economic and regulatory conditions . management may need to increase the allowance for loan losses through charges to the provision for loan losses if anticipated growth in the bank 's loan portfolio increases or other circumstances warrant . see further discussions of the allowance for loan losses under “ financial condition ” above . although the bank maintains its allowance for loan losses at a level which it considers to be sufficient to provide for potential loan losses in its existing loan portfolio , there can be no assurance that future loan losses will not exceed internal estimates . in addition , the amount of the allowance for loan losses is subject to review by regulatory agencies which can order the establishment of additional loan loss provisions . 52 non-interest income . non-interest income increased $ 857,113 ( 18 % ) . this was primarily due to the company 's emphasis on small business administration ( sba ) lending and its continued efforts in fixed-rate mortgage lending . the company 's gains on sale of sba loans increased $ 449,177 , gains on fixed-rate mortgage loans sales increased $ 312,730 and net gain on foreclosed assets increased $ 180,734 when compared to 2016. these gains were partially offset by a decrease in gain on sale of investment securities of $ 146,208 when compared to 2016. non-interest expense . non-interest expense increased $ 2,502,340 ( 15 % ) . salaries and employee benefits increased $ 1,353,964 ( 13 % ) which was primarily due to the recent expansion in the joplin , missouri market and increases in other key areas of commercial banking , operations and technology . included in the salaries and benefits increase , the company had $ 780,363 of increases in health/retirement benefits and performance incentives due to strong company results . the company incurred $ 587,428 ( 100 % ) of impairment charges on solar tax credit investments in 2017. the company purchased an interest in a utility scale solar energy project . the project is expected to generate an estimated $ 557,000 of 2017 investment tax credits plus additional tax credits in future years assuming certain compliance criteria are met . the cost of the investment will be accounted for under the equity and hypothetical liquidation at book value methods . under these methods , an impairment charge is recorded on the investment equal to the discounted future cash flows compared to the carrying value of the investment . the company 's occupancy expense increased $ 377,199 ( 21 % ) primarily due to the company 's continued enhancements in facilities ( including signage ) and significant investments in new technologies . the ongoing expansion in the joplin , missouri market has also played a factor in the increase in expense . income taxes . the provision for income taxes increased $ 557,985 ( 28 % ) over 2016 is primarily a result of the company 's $ 1.0 million charge for the deferred tax asset write-down which was partially offset by the utilization of tax credits which is discussed above . as a result of the tax cuts and jobs act signed into law on december 22 , 2017 , the company was required to revalue its deferred tax assets and deferred tax liabilities to account for the future impact of lower corporate tax rates . story_separator_special_tag as of december 31 , 2017 , the company revalued its net deferred tax asset and it resulted in a one-time charge to income tax expense of approximately $ 1.0 million . cash dividends paid . the company paid dividends of $ 0.10 per share on april 14 , 2017 to stockholders of record as of april 4 , 2017 , and $ 0.10 per share on july 13 , 2017 , to stockholders of record as of july 3 , 2017 , and $ .10 per share on october 13 , 2017 , to stockholders of record as of october 3 , 2017 and also declared a cash dividend of $ 0.12 per share on december 22 , 2017 , which was paid on january 13 , 2018 , to stockholders of record on january 3 , 2018. during 2017 , 2016 and 2015 , the company paid $ 1,767,486 , $ 1,415,180 and $ 873,499 in dividends on common stock . results of operations - comparison of year ended december 31 , 201 6 and december 31 , 201 5 interest rates replace_table_token_27_th 53 the bank charges borrowers and pays depositors interest rates that are largely a function of the general level of interest rates . the above table sets forth the weekly average interest rates for the 52 weeks ending december 31 , 201 6 and december 31 , 2015 as reported by the federal reserve . the bank typically indexes its adjustable rate commercial loans to prime and its adjustable rate mortgage loans to the one-year treasury rate . the ten-year treasury rate is a proxy for 30-year fixed rate home mortgage loans . rates trended upward by the end of 201 6 as the federal reserve open market committee ( “ fomc ” ) increased the discount rate by 25 basis points in december 2016. as of december 31 , 2016 , the prime rate was 3.75 % which is a 25 basis point increase from december 31 , 2015. interest income . total interest income increased $ 199,692 ( 1 % ) . the average balance of interest-earning assets increased $ 17,987,000 ( 3 % ) , while the yield on average interest earning assets decreased 9 basis points to 4.01 % . interest income on investment securities increased $ 411,623 ( 28 % ) . the average balance of investment securities increased $ 10,833,000 ( 12 % ) while the average yield improved 23 basis points to 1.87 % . offsetting the increase in interest income on investments was the decline in i nterest income on loans which decreased $ 249,990 ( 1 % ) . the average loan receivable balance increased $ 12,801,000 ( 3 % ) while the average yield decreased 16 basis points to 4.54 % . the company experienced strong loan activity during 2016. however , pricing on loans was and is challenging due to significant competition on new and renewing credits . the pricing pressure impacted the ability to maintain loan yield compared to 2015. interest expense . total interest expense decreased $ 102,870 ( 2 % ) as the average balance of interest-bearing liabilities increased $ 23,866,000 ( 5 % ) , while the average cost of interest-bearing liabilities decreased 6 basis points to 0.76 % . interest expense on deposits decreased $ 139,889 ( 6 % ) during 2016 as the average balance of interest bearing deposits increased $ 8,578,000 ( 2 % ) , however , the average interest rate paid to depositors decreased 4 basis points to 0.50 % . the expansion of lower-cost , core deposit relationships and reductions in higher priced retail products and utilization of cost effective wholesale funding continue to improve the company 's overall cost of funds . also improving cost of funds over the prior year was the prepayment of the company 's $ 10 million repurchase agreement during the second quarter of 2015 , which had a rate of 2.61 % . net interest income . the company 's net interest income increased $ 302,562 ( 1 % ) primarily due to the increase in overall average balances of interest-earning assets and interest-bearing liabilities . refer to the tables in the “ average balances , interest and average yields ” section ( pages 47 and 48 ) for additional information on components of net interest income . provision for loan losses . provisions for loan losses are charged or credited to earnings to bring the total allowance for loan losses to a level considered adequate by the company to provide for potential loan losses in the existing loan portfolio . when making its assessment , the company considers prior loss experience , volume and type of lending , local banking trends and impaired and past due loans in the company 's loan portfolio . in addition , the company considers general economic conditions and other factors related to collectability of the company 's loan portfolio . 54 based on its internal analysis and methodology , management recorded a provision for loan losses of $ 1,375,000 and $ 600,000 for the years ended december 31 , 2016 and 2015 , respectively . the company 's increase in the provision was primarily due to the increased loan balances and maintaining general portfolio reserves at a level deemed appropriate in accordance with its methodology . the bank will continue to monitor its allowance for loan losses and make future additions based on economic and regulatory conditions . management may need to increase the allowance for loan losses through charges to the provision for loan losses if anticipated growth in the bank 's loan portfolio increases or other circumstances warrant . see further discussions of the allowance for loan losses under “ financial condition ” above . although the bank maintains its allowance for loan losses at a level which it considers to be sufficient to provide for potential loan losses in its existing loan portfolio , there can be no assurance that future loan losses will not exceed internal estimates .
| these trusts were formed in december 2005 for the exclusive purpose of issuing trust preferred securities to acquire junior subordinated debentures issued by the company . the company 's banking operation conducted through the bank is the company 's only reportable segment . see also the discussion contained in the section captioned “ segment information ” in note 1 of the notes to consolidated financial statements in this report . the third subsidiary is a service corporation which has been inactive since february 1 , 2003 . 47 forward-looking statements the company may from time to time make written or oral `` forward-looking statements '' , including statements contained in the company 's filings with the securities and exchange commission ( including this annual report on form 10-k and the exhibits thereto ) , in its reports to stockholders and in other communications by the company , which are made in good faith by the company pursuant to the `` safe harbor '' provisions of the private securities litigation reform act of 1995. when used in this annual report on form 10-k , words such as “ anticipates , ” “ estimates , ” “ believes , ” “ expects , ” and similar expressions are intended to identify such forward-looking statements but are not the exclusive means of identifying such statements . these forward-looking statements involve risks and uncertainties , such as statements of the company 's plans , objectives , expectations , estimates and intentions that are subject to change based on various important factors ( some of which are beyond the company 's control ) . the following factors , among others , could cause the company 's financial performance to differ materially from the plans , objectives , expectations , estimates and intentions expressed in such forward-looking statements : the strength of the united states economy in general and the strength of the real estate values and the local economies in which the company conducts operations ; risks associated with the completion of the proposed acquisition of hometown and its wholly-owned subsidiary hometown bank and the integration of hometown bank with the bank ,
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management reviews all sales for which it is the lending institution for compliance with sales treatment under provisions established by asc topic 360 , “ accounting for sales of real estate ” . any gains related to sales of oreo are deferred until the buyer has a sufficient initial and continuing investment in the property . 37 income taxes . income taxes are reflected in our financial statements to show the tax effects of the operations and transactions reported in the financial statements and consist of taxes currently payable plus deferred taxes . asc topic 740 , “ accounting for income taxes , ” requires the asset and liability approach for financial accounting and reporting for deferred income taxes . deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of assets and liabilities . they are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled and are determined using the assets and liability method of accounting . the deferred income provision represents the difference between net deferred tax asset/liability at the beginning and end of the reported period . in formulating our deferred tax asset , we are required to estimate our income and taxes in the jurisdiction in which we operate . this process involves estimating our actual current tax exposure for the reported period together with assessing temporary differences resulting from differing treatment of items , such as depreciation and the provision for loan losses , for tax and financial reporting purposes . valuation allowances are established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not all or some portion of the potential deferred tax asset will not be realized . business and operating strategies and goals our goal is to deliver returns to shareholders by increasing higher-yielding assets ( in particular commercial and multifamily and commercial business loans ) , increasing core deposit balances , reducing expenses , managing problem assets and exploring expansion opportunities . we seek to achieve these results by focusing on the following objectives : focusing on asset quality . our goal is to maintain or improve upon our level of nonperforming assets by managing credit risk on the current loan portfolio and new originations . we are focused on actively monitoring and managing all segments of our loan portfolio in order to proactively identify and mitigate risk . at december 31 , 2013 , nonperforming assets totaled $ 3.1 million , which represents a 51.7 % decline from the $ 6.4 million in nonperforming assets we held at december 31 , 2012. we will continue to devote significant efforts and resources to managing problem assets . improving earnings by expanding product offerings . we intend to prudently increase the percentage of our assets consisting of higher-yielding commercial real estate and commercial business loans , which offer higher risk-adjusted returns , shorter maturities and more sensitivity to interest rate fluctuations than one-to four- family mortgage loans while maintaining our focus on residential lending . we also intend to selectively add additional products to further diversify revenue sources and to capture more of each customer 's banking relationship by cross selling loan and deposit products and additional services to our customers . we intend to further build relationships with small businesses through new and existing product offerings including merchant services , remote deposit capture , online and mobile cash management , and online tools for wires , ach and bill payment . we also believe the continuing changes in the secondary market as a result of the uncertainty that is surrounding fannie mae and freddie mac will result in increased opportunities in the coming years to originate high quality residential loans with more attractive pricing for our loan portfolio . with our long experience and expertise in residential lending we believe we can be effective in capturing the opportunities of these market changes in residential lending . emphasizing lower cost core deposits to manage the funding costs of our loan growth . our strategic focus is to emphasize total relationship banking with our customers to internally fund our loan growth . we are also focused on reducing wholesale funding sources , including fhlb advances , through the continued growth of core customer deposits . we believe that a continued focus on customer relationships will help to increase the level of core deposits and locally-based retail certificates of deposit . we intend to increase demand deposits by growing retail and business banking relationships . new technology and services are generally reviewed for business development and cost saving opportunities . we continue to experience growth in customer use of our online banking services , which allows customers to conduct a full range of services on a real-time basis , including balance inquiries , transfers and electronic bill paying while providing our customers greater flexibility and convenience in conducting their banking . in addition to our retail branches , we maintain state of the art technology-based products , such as business cash management , business remote deposit products and an online personal financial management and consumer remote deposit product which we introduced in the third quarter of 2012 to further enable us to compete effectively with banks of all sizes . total deposits increased to $ 348.3 million at december 31 , 2013 , from $ 312.1 million at december 31 , 2012 and $ 300.0 million at december 31 , 2011. at december 31 , 2013 , core deposits , which we define as our non-time deposit accounts and time deposit accounts less than $ 250,000 , increased $ 32.5 million to $ 302.4 million while fhlb advances increased $ 21.4 million to $ 43.2 million from december 31 , 2012. maintaining our customer service focus . exceptional service , local involvement ( including volunteering and contributing to the communities where we are located ) and timely decision-making are integral parts of our business strategy . story_separator_special_tag we emphasize to our employees the importance of delivering exemplary customer service and seeking opportunities to build further relationships with our customers to enhance our market position and add profitable growth opportunities . the goal is to compete with other financial service providers by relying on the strength of our customer service and relationship banking approach . we believe that one of our strengths is that our employees are also significant shareholders through our employee stock ownership ( “ esop ” ) and 401 ( k ) plans . we also offer an incentive system that is designed to reward well-balanced and high quality growth among our employees . 38 expanding our presence within our existing and contiguous market areas and by capturing business opportunities resulting from changes in the competitive environment . we believe that opportunities currently exist within our market area to grow our franchise . we anticipate organic growth as the local economy and loan demand strengthens , through our marketing efforts and as a result of the opportunities being created as a result of the consolidation of financial institutions that is occurring in our market area . in addition , by delivering high quality , customer-focused products and services , we expect to attract additional borrowers and depositors and thus increase our market share and revenue generation . we opened a loan production office in seattle in march 2013 and plan to add at least one branch in 2014. we will continue to be disciplined as it pertains to future expansion , acquisitions and de novo branching focusing on the markets in western washington , which we know and understand . comparison of financial condition at december 31 , 2013 and december 31 , 2012 general . total assets increased by $ 61.6 million , or 16.2 % , to $ 442.6 million at december 31 , 2013 from $ 381.0 million at december 31 , 2012. this increase was primarily the result of a $ 64.3 million , or 19.9 % , increase in our net loan portfolio , a $ 3.8 million , or 53.3 % , increase in bank-owned life insurance and a $ 2.6 million , or 20.5 % , increase in cash and cash equivalents offset partially by a $ 7.5 million , or 32.7 % , decrease in available for sale securities , a $ 1.6 million , or 92.5 % , decrease in loans held for sale and a $ 1.3 million , or 52.9 % , decrease in other real estate owned and repossessed assets . asset growth was funded by a $ 36.3 million , or 11.6 % , increase in deposits , a $ 21.4 million , or 97.7 % , increase in fhlb advances and a $ 3.0 million , or 7.0 % , increase in shareholders ' equity . cash and securities . we decreased our on-balance sheet liquidity slightly in 2013 to fund our loan growth . cash , cash equivalents and our available-for-sale securities decreased by $ 4.9 million , or 13.7 % , to $ 30.8 million at december 31 , 2012. cash and cash equivalents increased by $ 2.6 million , or 20.5 % , to $ 15.3 million at december 31 , 2013. available-for-sale securities , which consist primarily of agency mortgage-backed securities , decreased by $ 7.5 million , or 32.7 % , from $ 22.9 million at december 31 , 2012 to $ 15.4 million at december 31 , 2013 as a result of pay downs . at december 31 , 2013 , our available-for-sale securities portfolio consisted of $ 2.4 million of non-agency mortgage-backed securities . these securities present a higher credit risk than either u.s. agency mortgage-backed securities or municipal bonds , of which we had $ 11.1 million and $ 1.9 million , respectively , at december 31 , 2013. in order to monitor the increased risk , management receives and reviews a credit surveillance report from a third party quarterly , which evaluates these securities based on a number of factors , including its credit scores , loan-to-value ratios , geographic locations , delinquencies and loss histories of the underlying mortgage loans . this analysis is prepared in order to project future losses based on various home price depreciation scenarios over a three-year horizon . based on these reports , management ascertains the appropriate value for these securities and , in 2013 , recorded an other-than-temporary impairment charge of $ 30,000 on one non-agency security . see “ note 5 – investments in the notes to consolidated financial statements ” for more information about this recorded impairment . the current market environment significantly limits our ability to mitigate our exposure to value changes in these more risky securities by selling them , and we do not anticipate these conditions to change significantly in 2014. accordingly , if the market and economic environment impacting the loans supporting these securities deteriorates , we could determine that an other-than-temporary impairment must be recorded on these securities , as well as on any other securities in our portfolio . as a result , our future earnings , equity , regulatory capital and ongoing operations could be adversely affected . loans . our total loan portfolio , excluding loans held for sale , increased $ 64.6 million , or 19.7 % , from $ 327.6 million at december 31 , 2012 to $ 392.2 million at december 31 , 2013. loans held for sale decreased from $ 1.7 million at december 31 , 2012 to $ 130,000 at december 31 , 2013 , reflecting primarily the timing of transactions in late 2013 , as compared to late 2012. the following table reflects the changes in the types of loans in our portfolio at the end of 2013 , as compared to the end of 2012 ( dollars in thousands ) : replace_table_token_21_th 39 the most significant change in our loan portfolio was a result of increases in one- to four- family mortgage loans which was primarily a result of increases in higher yielding jumbo mortgage and other portfolio one- to
| salaries and benefits consist primarily of the salaries and wages paid to our employees , payroll taxes , expenses for retirement and other employee benefits . occupancy expenses , which are the fixed and variable costs of buildings and equipment , consist primarily of lease payments , property taxes , depreciation charges , maintenance and costs of utilities . our strategic plan targets consumers , small and medium size businesses , and professionals in our market area for loan and deposit growth . in pursuit of these goals , and while managing the size of our loan portfolio , we focused on including a significant amount of commercial business and commercial and multifamily loans in our portfolio . a significant portion of these commercial and multifamily and commercial business loans have adjustable rates , higher yields or shorter terms and higher credit risk than traditional fixed-rate mortgages . our commercial loan portfolio ( commercial and multifamily and commercial business loans ) increased to $ 171.2 million or 43.7 % of our loan portfolio at december 31 , 2013 , from $ 147.8 million or 44.9 % of our loan portfolio at december 31 , 2012 and from $ 119.2 million or 39.4 % of our loan portfolio at december 31 , 2011. in addition to higher balances in commercial lending , we also benefited from additional lending opportunities in our construction and land development portfolio . our construction and land development portfolio increased to $ 44.3 million or 11.3 % of our loan portfolio as of december 31 , 2013 compared to $ 25.5 million or 7.8 % as of december 31 , 2012. the impact of additional commercial and multifamily and construction and land loans has had a positive impact on our net interest income and has helped to further diversify our loan portfolio mix . in particular , our emphasis on multifamily housing has increased our commercial and multifamily loan portfolio . at december 31 , 2013 , our multifamily portfolio was $ 53.0 million , which represented a
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pursuant to the terms of the option and license agreement , we have an option , exercisable for a specified period as set forth in the option and license agreement to obtain an exclusive license to develop and commercialize certain vista antagonizing compounds , including immunext 's lead compound , ci-8993 , and products containing these compounds in the field of oncology . based on our clinical development plans for our pipeline , we intend to predominantly focus our available resources on the continued development of ca-4948 , in collaboration with aurigene , and ci-8993 , in collaboration with immunext , in the near term . liquidity since our inception , we have funded our operations primarily through private and public placements of our equity securities , license fees , contingent cash payments , research and development funding from our corporate collaborators , debt financings and the monetization of certain royalty rights . we have never been profitable on an annual basis and have an accumulated deficit of $ 1.0 billion as of december 31 , 2020. for the year ended december 31 , 2020 , we incurred a loss of $ 29.9 million and used $ 25.7 million of cash in operations . we expect to continue to generate operating losses in the foreseeable future . we anticipate that our $ 183.1 million of existing cash , cash equivalents and investments at december 31 , 2020 should enable us to maintain our planned operations into 2024. we have based this assessment on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . we will need to generate significant revenues to achieve profitability , and do not expect to achieve profitability in the foreseeable future , if at all . if sufficient funds are not available , we will have to delay , reduce the scope of , or eliminate some of our research and development programs , including related clinical trials and operating expenses , potentially delaying the time to market for or preventing the marketing of any of our product candidates , which could adversely affect our business prospects and our ability to continue our operations , and would have a negative impact on our financial condition and ability to pursue our business strategies . in addition , we may seek to engage in one or more strategic alternatives , such as a strategic partnership with one or more parties , the licensing , sale or divestiture of some of our assets or proprietary technologies or the sale of our company , but there can be no assurance that we would be able to enter into such a transaction or transactions on a timely basis or on terms favorable to us , or at all . covid-19 pandemic the covid-19 pandemic , which began in december 2019 , has spread worldwide , causing many governments to implement measures to slow the spread of the outbreak through quarantines , strict travel restrictions , heightened border scrutiny , and other measures . the outbreak and government measures taken in response have had a significant impact , both direct and indirect , on businesses and commerce . while the covid-19 pandemic has had adverse effects on our business and we expect the outbreak to have an adverse effect on our business , financial conditions and results of operations in the future , we are unable to predict the extent or nature of the future progression of the covid-19 pandemic or its effects on our business and operations at this time . we have enrolled , and will seek to enroll , cancer patients in clinical trials at sites located both in the united states and internationally . many of our clinical trial sites have imposed restrictions as a result of the covid-19 pandemic , which have had and may continue to have a negative impact on our ability to conduct our clinical trials . we have encountered and may continue to face difficulties recruiting and retaining patients in our ongoing and planned clinical trials to the extent patients are affected by the virus or are fearful of visiting or traveling to our clinical trial sites because of the outbreak . in addition , we do not currently know the duration or to what degree medical facilities , including our clinical trial sites , will continue to be impacted by the pandemic . for example , all of our clinical trial sites for our ongoing phase 1 clinical trial for ca-4948 in patients with non-hodgkin lymphomas , including those with myd88 alterations , are at large academic research hospitals that have imposed restrictions on entry which have in some instances prohibited , and in other instances may potentially prohibit in the future , clinical trial monitors and patients from entering the trial sites . we are actively working with our clinical trial sites to follow fda guidelines for conducting clinical trials during the covid-19 pandemic , including performing remote monitoring to the extent possible and arranging for the shipment of medicine directly from the clinical trial site to patients who are enrolled in our trials , if required ; however , there is no assurance such arrangements will be successful . as a result , further enrollment in our ongoing clinical trial for ca-4948 in patients with non-hodgkin lymphomas , including those with myd88 alterations , has been delayed and may continue to be delayed and patients currently enrolled in the trial may cease treatment due to the restrictions described above or fear of visiting or inability to visit our trial sites . as a result , enrollment in this trial has been slower than expected and the timeline of this trial has been delayed and may continue to be delayed . in addition , in july 2020 , we commenced enrollment in our phase 1 clinical trial in ca-4948 in patients with aml and mds . clinical trial sites for this 71 study have also imposed and may continue to impose restrictions similar to those described above . story_separator_special_tag as a result , we may not be able to enroll this trial on our planned timeline , which would cause a delay in the overall timeline for this trial . similarly , enrollment in and the overall timeline of our combination study of ca-4948 and ibrutinib , for which we commenced enrollment in february 2021 , and our phase 1 clinical trial for ci-8993 , for which we commenced enrollment in september 2020 , have been delayed and may continue to be delayed due to the factors discussed above . to the extent clinical trial sites are slowed down or closed to enrollment in our ongoing and planned clinical trials , this could also have a material adverse impact on our clinical trial plans and timelines . these restrictions may also impact our ability to collect patient data in a timely fashion . in addition , we do not know whether and to what extent potential exposure to covid-19 of patients in our clinical trials could impact the efficacy of ca-4948 or ci-8993 . the response to the covid-19 pandemic may redirect resources of regulators in a way that would adversely impact our ability to progress regulatory approvals . in addition , we may face impediments to regulatory meetings and approvals relating to our clinical trials due to measures intended to limit in-person interactions . we and our collaborators , third-party contract manufacturers , contract research organizations and clinical sites may experience delays or disruptions in supply and release of product candidates and or procuring items that are essential for our research and development activities , including , for example , raw materials used in the manufacturing of our product candidates , basic medical and laboratory supplies used in our clinical trials or preclinical studies or animals that are used for preclinical testing , in each case , for which there may be shortages because of ongoing efforts to address the outbreak . while we believe that we currently have sufficient supply of our product candidates to continue our ongoing clinical trials , some of our product candidates , or materials contained therein , come from facilities located in areas impacted by covid-19 , including india , china , and europe . in addition , any disruptions could impact the supply , manufacturing or distribution of erivedge , and sales of erivedge may be negatively impacted by a decrease in new prescriptions as a result of a decline in patient medical visits due to the covid-19 pandemic , which has had and could continue to have a negative impact on the amount and timing of any royalty revenue we may receive from genentech related to erivedge . there is no guarantee that the covid-19 pandemic , or any potential future outbreak , would not impact our supply chain , which could have a material adverse impact on our clinical trial plans and business operations . we are also experiencing delays in closing down our clinical trial sites related to our fimepinostat and ca-170 trials due to restrictions on non-essential workers imposed at those sites in response to covid-19 , which has delayed the winding down of these trials and may result in additional costs and expenses . any negative impact that the covid-19 pandemic has on the ability of our suppliers to provide materials for our product candidates or on recruiting or retaining patients in our clinical trials could cause costly delays to clinical trial activities , which could adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates , increase our operating expenses , and have a material adverse effect on our financial results . additionally , the pandemic has already caused significant disruptions in the financial markets , and may continue to cause such disruptions , which could impact our ability to raise additional funds and has also impacted , and may continue to impact , the volatility of our stock price and trading in our stock . moreover , the pandemic has significantly impacted economies worldwide , which could result in adverse effects on our business and operations . we can not be certain what the overall impact of the covid-19 pandemic will be on our business and it has had and may continue to have an adverse effect on our business , financial condition , results of operations , and prospects . key drivers we believe that near term key drivers to our success will include : our ability to successfully plan , finance and complete current and planned clinical trials for ca-4948 and ci-8993 , as well as for such clinical trials to generate favorable data ; and our ability to raise the substantial additional financing required to fund our operations through our common stock purchase agreement with aspire capital , our at-the-market sales agreement with cantor fitzgerald & co. , or cantor , and jones trading institutional services llc , or jonestrading , and other potential financing . in the longer term , a key driver to our success will be our ability , and the ability of any current or future collaborator or licensee , to successfully develop and commercialize drug candidates . 72 our collaborations and license agreements our current collaborations and license agreements are summarized below and detailed in the business section of this annual report on form 10-k. see `` business—collaborations and license agreements . '' aurigene our exclusive collaboration agreement , as amended , with aurigene provides for the discovery , development and commercialization of small molecule compounds in the areas of immuno-oncology and selected precision oncology targets . as of december 31 , 2020 , we have four licensed programs , including ca-4948 . under the collaboration agreement , as amended , aurigene granted us an option to obtain exclusive , royalty-bearing licenses to relevant aurigene technology to develop , manufacture and commercialize products containing certain of such compounds anywhere in the world , except for india and russia , which are territories retained by aurigene .
| at december 31 , 2020 , our principal sources of liquidity consisted of cash , cash equivalents , and investments of $ 183.1 million , excluding our restricted cash of $ 0.8 million . our cash and cash equivalents are highly liquid investments with a maturity of three months or less at date of purchase . our investments short and long-term primarily include commercial paper and securities . we maintain cash balances with financial institutions in excess of insured limits . common stock purchase agreement in february 2020 , we entered into a common stock purchase agreement , or the purchase agreement , for the sale of up to $ 30.0 million of our common stock with aspire capital fund , llc , or aspire capital . under the terms of the purchase agreement , aspire capital made an initial investment of $ 3.0 million through the purchase of 2,693,965 shares of our common stock . in addition , aspire capital committed to purchase shares of our common stock , at our request from time to time during a 30-month period at prices based on the market price at the time of each sale , subject to specified terms and limitations . as consideration for aspire capital 's obligation under the purchase agreement , we issued 646,551 shares of our common stock to aspire capital as a commitment fee . we also entered into a registration rights agreement with aspire capital in connection with our entry into the purchase agreement setting forth our obligation to maintain an effective registration statement covering any shares of common stock sold or to be sold to aspire capital , subject to the terms of the registration rights agreement . to date , we have received gross proceeds of $ 8.4 million from our sales of common stock to aspire capital and the remaining balance of common stock available to be sold pursuant to the purchase agreement is $ 21.6 million . the extent to which we utilize the purchase agreement with aspire capital as a source of funding will depend on a number of factors , including the prevailing market price of our common stock , the volume
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at december 31 , 2019 , first federal was a federally chartered stock savings bank that provided financial services to communities based in northwest ohio , northeast indiana , and southeastern michigan where it operated 44 full service banking centers in fourteen northwest and central ohio counties , one northeast indiana county , and one southeastern michigan county . first federal also operated one loan production office in ann arbor , michigan , which is located in washtenaw county . as a result of the merger , first federal converted to an ohio bank and operates 77 branches , 12 loan offices and 3 wealth offices in ohio , michigan , indiana , pennsylvania , and west virginia . currently , 33 branches , 3 wealth offices and 12 loan production offices continue to operate as home savings bank . 34 first federal provides a broad range of financial services including checking accounts , savings accounts , certificates of deposit , real estate mortgage loans , commercial loans , consumer loans , home equity loans and trust and wealth management services through its extensive branch network . first insurance sells a variety of property and casualty , group health and life and individual health and life insurance products . first insurance is an insurance agency that conducts business throughout first federal 's markets . first defiance risk management is a wholly owned insurance company subsidiary of the company to insure the company and its subsidiaries against certain risks unique to the operations of the company and for which insurance may not be currently available or economically feasible in today 's insurance marketplace . first defiance risk management pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves . recent developments on january 31 , 2020 , first defiance completed its previously announced acquisition of ucfc . at the effective time of the merger , ucfc merged with and into first defiance , with first defiance surviving the merger . immediately following the merger , first federal , acquired ucfc 's wholly owned bank subsidiary , home savings bank , and ucfc 's wholly-owned insurance subsidiaries , hsb insurance , llc and united american financial services , inc. , each merged into first insurance , with first insurance surviving the mergers . on june 22 , 2018 , the company announced a stock split in the form of a share distribution of two common shares for each outstanding common share . the stock split was distributed on july 12 , 2018 , to shareholders of record as of july 2 , 2018. all share and per share data in this form 10-k have been adjusted and are reflective of the stock split . financial condition assets at december 31 , 2019 , totaled $ 3.47 billion compared to $ 3.18 billion at december 31 , 2018 , an increase of $ 287.3 million or 9.0 % . the increase in assets was primarily due to an increase in loans receivable , net of undisbursed loan funds and deferred fees and costs , of $ 234.6 million , and an increase in federal funds sold of $ 42.0 million . these increases were funded primarily by an increase in total deposits of $ 249.4 million . securities the securities portfolio decreased $ 11.2 million , or 3.8 % , to $ 283.4 million at december 31 , 2019. the 2019 activity in the portfolio included $ 33.5 million of purchases , which were partially offset by $ 1.5 million of amortization , $ 49.2 million of principal pay-downs and maturities , and $ 2.7 million of securities being sold . there was a net gain of $ 8.7 million in the market value of available-for-sale securities . for additional information regarding first defiance 's investment securities see note 5 to the consolidated financial statements . loans loans receivable , net of undisbursed loan funds and deferred fees and costs , increased $ 234.6 million , or 9.3 % , to $ 2.75 billion at december 31 , 2019. for more details on the loan balances , see note 7 – loans receivable to the consolidated financial statements . the majority of first defiance 's commercial real estate and commercial loans are to small- and mid-sized businesses . the combined commercial , commercial real estate and multi-family real estate loan portfolios totaled $ 2.08 billion and $ 1.85 billion at december 31 , 2019 and 2018 , respectively , and accounted for approximately 72.5 % and 71.8 % of first defiance 's loan portfolio at the end of those respective periods . first defiance believes it has been able to establish itself as a leader in its market area in the commercial and commercial real estate lending area by hiring experienced lenders and providing a high level of customer service to its commercial lending clients . the 1-4 family residential portfolio totaled $ 324.8 million at december 31 , 2019 , compared with $ 322.7 million at the end of 2018. at the end of 2019 , those loans comprised 11.3 % of the total loan portfolio , up from 12.1 % at december 31 , 2018. construction loans , which include one-to-four family and commercial real estate properties , increased to $ 305.3 million at december 31 , 2019 , compared to $ 265.8 million at december 31 , 2018. these loans accounted for approximately 10.6 % and 10.0 % of the total loan portfolio at december 31 , 2019 and 2018 , respectively . home equity and home improvement loans decreased to $ 122.9 million at december 31 , 2019 , from $ 128.2 million at the end of 2018. at the end of 2019 , those loans comprised 4.3 % of the total loan portfolio , down from 4.8 % at december 31 , 2018 . 35 consumer finance and mobile home loans were $ 3 7 . 6 million at december 31 , 201 9 up from $ 34 . 4 millio n at the end of 201 8 . story_separator_special_tag these loans accounted for approximately 1.3 % and 1 . 3 % of the total loan portfolio at december 31 , 201 9 and 201 8 , respectively . in order to properly assess the collateral dependent loans included in its loan portfolio , the company has established policies regarding the monitoring of the collateral underlying such loans . the company requires an appraisal that is less than one year old for all new collateral dependent real estate loans , and all renewed collateral dependent real estate loans where significant new money is extended . the appraisal process is handled by the credit department , which selects the appraiser and orders the appraisal . first defiance 's loan policy prohibits the account officer from talking or communicating with the appraiser to insure that the appraiser is not influenced by the account officer in any way in making a determination of value . first federal generally does not require updated appraisals for performing loans unless significant new money is requested by the borrower . when a collateral dependent loan is downgraded to classified status , first federal reviews the most current appraisal on file and if appropriate , based on first federal 's assessment of the appraisal , such as age , market , etc . first federal will discount the appraisal amount to a more appropriate current value based on inputs from lenders and realtors . this amount may then be discounted further by first federal 's estimation of the selling costs . in most instances , if the appraisal is more than twelve to fifteen months old , a new appraisal may be required . finally , first federal assesses whether there is any collateral short fall , taking into consideration guarantor support and liquidity , and determines if a charge-off is necessary . all loans over 90 days past due and or on non-accrual are classified as non-performing loans . non-performing status automatically occurs in the month in which the 90-day delinquency occurs . when a collateral dependent loan moves to non-performing status , first federal generally gets a new third party appraisal and charges the loan down appropriately based upon the new appraisal and an estimate of costs to liquidate the collateral . all properties that are moved into the other real estate owned ( “ oreo ” ) category are supported by current appraisals , and the oreo is carried at the lower of cost or fair value , which is determined based on appraised value less first federal 's estimate of the liquidation costs . first federal does not adjust any appraisals upward without written documentation of this valuation change from the appraiser . when setting reserves and charge-offs on classified loans , appraisal values may be discounted downward based upon first federal 's experience with liquidating similar properties . appraisals are received within approximately 60 days after they are requested . the first federal loan loss reserve committee reviews the amount of each new appraisal and makes any necessary charge-off decisions at its meeting prior to the end of each quarter . any partially charged-off collateral dependent loans are considered non-performing , and as such , would need to show an extended period of time with satisfactory payment performance as well as cash flow coverage capability supported by current financial statements before first federal will consider an upgrade to performing status . first federal may consider moving the loan to accruing status after approximately six months of satisfactory payment performance . first federal monitors and tracks its loan to value quarterly to determine accuracy and any necessary charge-offs . based on these results , changes may occur in the processes used . loan modifications constitute a troubled debt restructuring ( “ tdr ” ) if first federal , for economic or legal reasons related to the borrower 's financial difficulties , grants a concession to the borrower that it would not otherwise consider . for loans that are considered tdrs and the balance is over $ 250,000 , first federal either computes the present value of expected future cash flows discounted at the original loan 's effective interest rate or it may measure impairment based on the fair value of the collateral . for those loans measured for impairment utilizing the present value of future cash flows method , any discount is carried as a specific reserve in the allowance for loan and lease losses . for those loans measured for impairment utilizing the fair value of the collateral , any shortfall is charged-off . for loans that are considered tdrs and the balance is under $ 250,000 a specific reserve is carried in the allowance for loan and lease losses based on a general reserve analysis . as of december 31 , 2019 , and december 31 , 2018 , first federal had $ 8.5 million and $ 11.6 million , respectively , of loans that were still performing and which were classified as tdrs . 36 allowance for loan losses the allowance for loan losses represents management 's assessment of the estimated probable incurred credit losses in the loan portfolio at each balance sheet date . management analyzes the adequacy of the allowance for loan losses regularly through reviews of the loan portfolio . consideration is given to economic conditions , changes in interest rates and the effect of such changes on collateral values and borrower 's ability to pay , changes in the composition of the loan portfolio and trends in past due and non-performing loan balances . the allowance for loan losses is a material estimate that is susceptible to significant fluctuation and is established through a provision for loan losses based on management 's evaluation of the inherent risk in the loan portfolio . in addition to extensive in-house loan monitoring procedures , the company utilizes an outside party to conduct an independent loan review of commercial loan and commercial real estate loan relationships . the goal is to have approximately 45 % to 50 % of the portfolio reviewed annually .
| million for 2019 compared to $ 114.4 million in 2018 , which represents an increase of 14.4 % . the average balance of loans receivable increased $ 214.9 million to $ 2.6 billion at december 31 , 2019 , from $ 2.4 billion at december 31 , 2018. during the same period , the average balance of investment securities increased to $ 294.0 million in 2019 from $ 280.0 million for the year ended december 31 , 2018. interest income from investment securities increased to $ 8.2 million in 2019 compared to $ 8.1 million in 2018. the overall duration of investments decreased to 2.75 years at december 31 , 2019 , from 4.29 years at december 31 , 2018. interest expense increased by $ 9.0 million in 2019 compared to 2018 , to $ 25.4 million from $ 16.5 million . this increase was mainly due to a 34 basis point increase in the average cost of interest-bearing liabilities in 2019 and a $ 171.9 million increase in the average balance of interest-bearing liabilities . the average balance of interest-bearing deposits increased $ 177.3 million to $ 2.12 billion at december 31 , 2019 , from $ 1.95 billion at december 31 , 2018. interest expense related to interest-bearing deposits was $ 22.6 million in 2019 compared to $ 13.9 million in 2018. interest expenses on fhlb advances and other interest-bearing funding sources were $ 1.4 million and $ 25,000 respectively , in 2019 and $ 1.3 million and $ 23,000 respectively in 2018. the increase in fhlb advance expense was due to advances that matured in 2019 being replaced with advances with a higher interest rate than in 2018. interest expense recognized by the company related to subordinated debentures was $ 1.4 million in 2019 and $ 1.3 million in 2018. total interest income increased by $ 16.6 million , or 15.4 % , to $ 124.7 million for the year ended december 31 , 2018 , from $ 108.1 million
| 10,950 |
wilmington ” ) will also engineer and construct a gas-fired power generation facility . both projects are located in the southern california area . the joint venture operations are included as part of the west segment . as a result of determining that the company is the primary beneficiary of the two vie 's , the results of the carlsbad and wilmington joint ventures are consolidated in the company 's financial statements . the carlsbad project is expected to be completed in 2017 and the wilmington project in 2018. the company owned 50 % of the blythe power constructors joint venture ( “ blythe ” ) created for the installation of a parabolic trough solar field and steam generation system in california , and its operations have been included as part of the west construction services segment . the company determined that in accordance with fasb topic 810 , the company was the primary beneficiary of a variable interest entity and has consolidated the results of blythe in its financial statements . the project has been completed , the project warranty expired in may 2015 and dissolution of the joint venture was completed in the third quarter of 2015. financial information for the joint ventures is presented in note 13— “ noncontrolling interests ” of the notes to consolidated financial statements included in item 8 of this form 10-k. 33 the company continues to be acquisitive , with the following outlining the various acquisitions made over the past several years . in january 2014 , the company created a wholly owned subsidiary , bw primoris , llc , a texas limited liability company ( “ bwp ” ) . bwp 's goal is to develop water projects , primarily in texas , that will need the company 's construction services . in january 2014 , bwp entered into an agreement to purchase the assets and business of blaus wasser , llc , a wyoming limited liability company , for approximately $ 5 million . in 2015 , bwp built a small water treatment facility for $ 13.8 million and beginning in 2016 , the facility generated revenues through a take-or-pay contract with a west texas municipal entity . in may 2014 , the company created a wholly owned subsidiary , vadnais trenchless services , inc. , a california corporation ( “ vadnais ” ) , which in june 2014 , purchased the assets of vadnais corporation for $ 6.4 million . vadnais corporation was a general contractor specializing in micro-tunneling in california . the assets purchased were primarily equipment , buildings and land . during the third quarter 2014 , the company made three small purchases totaling $ 8.2 million acquiring the net assets of surber roustabout , llc ( “ surber ” ) , ram-fab , llc ( “ ram-fab ” ) and williams testing , llc ( “ williams ” ) . surber and ram-fab operate as divisions of pes , and williams is a division of cardinal contractors , inc. surber provides general oil and gas related construction activities in texas ; ram-fab is a fabricator of custom piping systems located in arkansas ; and williams provides construction services related to sewer pipeline maintenance , rehabilitation and integrity testing in the florida market . on february 28 , 2015 , the company acquired the net assets of aevenia , inc. for $ 22.3 million in cash , and established a new entity , aevenia , which operates as part of the company 's energy segment . aevenia is an energy and electrical construction company that specializes in overhead and underground line work , substations , telecom/fiber , and certain other client-specific on-demand call out services . the majority of their work is delivered under unit-price master services agreements ( “ msas ” ) . aevenia has operations in minnesota , north dakota , south dakota and iowa . on january 29 , 2016 , aevenia acquired certain assets and liabilities of mueller concrete construction company ( `` mueller '' ) for $ 4.1 million , and on november 18 , 2016 , acquired the net assets of northern energy & power ( “ northern ” ) for $ 6.9 million . both mueller and northern operate as divisions of aevenia . on june 24 , 2016 , the company 's subsidiary , vadnais , purchased property , plant and equipment from pipe jacking unlimited , inc. , consisting of specialty directional drilling and tunneling equipment for $ 13.4 million in cash . the company determined this purchase did not meet the definition of a business as defined under asc 805. for some end markets we perform the same services in each of our west , east and energy segments , while for other end markets , such as poured-in-place parking structures , only one of our segments currently serves the market . the following table shows the approximate percentage of revenues over three years derived from our major end-markets , with prior periods conformed to the current year market breakdown : replace_table_token_8_th material trends and uncertainties we generate our revenue from both large and small construction and engineering projects . the award of these contracts is dependent on many factors , most of which are not within our control . we depend in part on spending by companies in the energy and oil and gas industries , the gas utility industry , as well as municipal water and wastewater 34 customers . over the past several years , each segment has benefited from demand for more efficient and environmentally friendly energy and power facilities , local highway and bridge needs and from the activity level in the oil and gas industry ; however , each of these industries and the government agencies periodically are adversely affected by macroeconomic conditions . economic factors outside of our control may affect the amount and size of contracts we are awarded in any particular period . we closely monitor our customers to assess the effect that changes in economic , market and regulatory conditions may have on them . story_separator_special_tag we have experienced reduced spending by some of our customers over the last several years , which we attribute to negative economic and market conditions , and we anticipate that these negative conditions may continue to affect demand for our services in the near-term . major fluctuations in market prices of oil , gas and other fuel sources have affected demand for our services . the recent significant reduction in the price of oil has created uncertainty with respect to demand for our oil and gas pipeline and roustabout services in the near term , with additional uncertainty over the length of time that prices will remain depressed . we believe that our upstream operations , such as the construction of gathering lines within the oil shale formations , will remain at lower levels for an extended period . we believe that over time , the need for pipeline infrastructure for mid-stream and utility companies will result in a continuing need for our services , but the impact of the low oil prices may delay midstream pipeline opportunities . the continuing changes in the regulatory environment also affects the demand for our services , either by increasing our work or delaying projects . for example , the regulatory environment in california may well result in delays for the construction of gas-fired power plants while the regulators continue to search for significant renewable resources , but the renewable resources may create a demand for our construction services . finally , we believe that regulated gas utility customers will continue to invest in our maintenance and replacement services to maintain the integrity of their systems . seasonality , cyclicality and variability our results of operations are subject to quarterly variations . some of the variation is the result of weather , particularly rain , ice and snow , which can impact our ability to perform construction services . while the majority of the company 's work is in the southern half of the united states , these seasonal impacts can affect revenues and profitability in all of our businesses since gas and other utilities defer routine replacement and repair during their period of peak demand . any quarter can be affected either negatively or positively by atypical weather patterns in any part of the country . in addition , demand for new projects tends to be lower during the early part of the year due to clients ' internal budget cycles . as a result , the company usually experiences higher revenues and earnings in the third and fourth quarters of the year as compared to the first two quarters . the company is also dependent on large construction projects which tend not to be seasonal , but can fluctuate from year to year based on general economic conditions . our business may be affected by declines or delays in new projects or by client project schedules . because of the cyclical nature of our business , the financial results for any period may fluctuate from prior periods , and the company 's financial condition and operating results may vary from quarter to quarter . results from one quarter may not be indicative of its financial condition or operating results for any other quarter or for an entire year . critical accounting policies and estimates general —the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and also affect the amounts of revenues and expenses reported for each period . these estimates and assumptions must be made because certain information that is used in the preparation of our financial statements can not be calculated with a high degree of precision from data available , is dependent on future events , or is not capable of being readily calculated based on generally accepted methodologies . often , estimates are particularly difficult to determine , and we must exercise significant judgment . estimates may be used in our assessments of revenue recognition under percentage-of-completion accounting , the allowance for doubtful accounts , useful lives of property and equipment , fair value assumptions in analyzing goodwill and long-lived asset impairments , self-insured claims liabilities and deferred income taxes . actual results could differ from those that result from using the estimates under different assumptions or conditions . 35 an accounting policy is deemed to be critical if it requires an accounting estimate to be based on assumptions about matters that are highly uncertain at the time the estimate is made , and different estimates that reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact our consolidated financial statements . the following accounting policies are based on , among other things , judgments and assumptions made by management that include inherent risks and uncertainties . management 's estimates are based on the relevant information available at the end of each period . we periodically review these accounting policies with the audit committee of the board of directors . revenue recognition fixed-price contracts — historically , a substantial portion of our revenue has been generated under fixed-price contracts . for fixed-price contracts , we recognize revenues primarily using the percentage-of-completion method , which may result in uneven and irregular results . in the percentage-of-completion method , estimated revenues , estimated contract values and total costs incurred to date are used to calculate revenues earned . unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular contract . total estimated costs , and thus contract revenues and profit , can be impacted by changes in productivity , scheduling , the unit cost of labor , subcontracts , materials and equipment .
| from an end-market perspective , revenues for the year increased by $ 121.1 million for underground capital projects compared to 2015. revenues increased by $ 32.6 million for the underground utility end-market ; increased by $ 44.8 million for our industrial end-market ; decreased by $ 99.4 million in our heavy civil end-market ; decreased by $ 50.1 million in our engineering end market ; and increased by $ 18.5 in our other end-markets , compared to the year ended december 31 , 2015 . 2015 and 2014 revenues for year ended december 31 , 2015 decreased by $ 156.8 million , or 7.5 % compared to the same period in 2014. the decrease was primarily from the impact of unusually severe wet weather in the gulf states during the first half of 2015 and the completion of two large projects in the energy segment which were not fully replaced in 2015. the historic rainfall in the first half of the year , especially in the second quarter , caused us to suspend operations 41 on various projects and to incur additional costs to recover from the weather conditions . revenues were also impacted by the delay in certain capital projects as a result of lower oil prices . from our historical end-market perspective , our end-market revenues during the year ended december 31 , 2015 decreased by $ 120.8 million for underground capital projects and the industrial end-market revenues decreased by $ 252.6 million , as compared to the same period in 2014. for the year ended december 31 , 2015 , revenues increased in our heavy civil end-market by $ 123.1 million , in our underground utility end-market by $ 65.9 million , in the engineering end-market by $ 9.6 million and by $ 18.0 million in our other end-markets , as compared to the year ended december 31 , 2014. gross profit 2016 and 2015 for the year ended december 31 , 2016 , gross profit decreased by $ 18.6 million , or 8.4 % compared to 2015. the decrease was primarily from the decrease at the jcg heavy civil division of $ 38.2 million , of which $ 33.4 million was from a decrease at the belton , tx projects . gross profit decreased by $ 6.1 million at the southeast louisiana petrochemical project , in spite
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long-term mortgages are readily obtainable . the collateralized mortgage backed securities , or cmbs , market remains very active but uncertainty with regard to interest rates together with the inability to enter into early interest rate lock agreements makes the cmbs market less predictable . we continue to look to regional banks , insurance companies and other non-bank lenders , in addition to the cmbs market to issue mortgages to finance our real estate activities . in addition to obtaining funds through borrowing , we have been active in the equity markets during 2015. we have issued shares of common stock through our at-the-market program , or atm program , pursuant to our open market sale agreement with cantor fitzgerald & co. , or cantor fitzgerald , discussed in more detail below . recent developments 2015 investment activity richardson , texas : on march 6 , 2015 , we acquired a 155,984 square foot office building located in richardson , texas for $ 24.7 million , excluding related acquisition expenses of $ 0.1 million . we funded this acquisition with existing cash on hand and the issuance of $ 14.6 million of mortgage debt on the property . the tenant has leased the property for 9.5 years with a lease expiration date of october 31 , 2024 and has 2 options to renew the lease for an additional 5 years each . the lease provides for prescribed rent escalations over its life , with annualized straight line gross rents of $ 2.7 million . the average cap rate on this acquisition was 8.2 % . birmingham , alabama : on march 20 , 2015 , we acquired a 30,850 square foot office building located in birmingham , alabama for $ 3.6 million , excluding related acquisition expenses of $ 0.1 million . we funded this acquisition with existing cash on hand . the tenant has leased the property for 8.5 years with a lease expiration date of july 31 , 2023 and has 1 option to renew the lease for an additional 5 years . the lease provides for prescribed rent escalations over its life , with annualized straight line rents of $ 0.3 million . the average cap rate on this acquisition was 9.1 % . 43 phoenix , arizona : on april 14 , 2015 , we closed a $ 0.3 million interim financing loan for the acquisition of land to be used for continuing development of a medical center campus in phoenix , arizona . this loan was collateralized by proceeds from the future sale of the transitional care facility for which we provided a mortgage development loan on july 25 , 2014. we earned interest of 22.0 % per annum through the maturity date , with all accrued interest and principal payable upon maturity . this loan matured upon the sale of the transitional care facility , which occurred in january 2016. columbus , ohio : on may 28 , 2015 , we acquired a 78,033 square foot office building located in columbus , ohio for $ 7.7 million , excluding related acquisition expenses of $ 0.1 million . we funded this acquisition with existing cash on hand and the issuance of $ 4.5 million of mortgage debt on the property . the tenant has leased the property for 15 years with a lease expiration date of may 31 , 2030 and has 2 options to renew the lease for an additional 5 years each . the lease provides for prescribed rent escalations over its life , with annualized straight line rents of $ 0.64 million . the average cap rate on this acquisition is 8.3 % . salt lake city , utah : on may 29 , 2015 , we acquired an 86,409 square foot office building located in salt lake city , utah for $ 22.2 million , excluding related acquisition expenses of $ 0.2 million . we funded this acquisition with existing cash on hand , and the issuance of $ 13.0 million of mortgage debt on the property . the tenant has leased the property for 6.5 years with a lease expiration date of may 31 , 2021 and has 1 option to renew the lease for an additional 5 years . the lease provides for prescribed rent escalations over its life , with annualized straight line gross rents of $ 2.4 million . the average cap rate on this acquisition is 8.0 % . atlanta , georgia : on july 15 , 2015 we acquired a 78,151 square foot office building located in atlanta , georgia for $ 13.0 million , excluding related acquisition expenses of $ 0.1 million . we funded this acquisition with existing cash on hand and the issuance of $ 7.5 million of mortgage debt on the property . the tenant has leased 54,836 square feet for 7 years with a lease expiration date of july 14 , 2022 , and 23,315 square feet for 15 years with a lease expiration date of july 14 , 2030. the tenant has 2 options to renew both leases for an additional 5 years each . the leases provide for prescribed rent escalations over its life with annualized straight line rents of $ 1.3 million . the average cap rate on this acquisition is 9.9 % . villa rica , georgia : on october 20 , 2015 we acquired a 90,626 square foot industrial facility located in villa rica , georgia , an industrial submarket of atlanta , for $ 6.6 million , excluding related acquisition expenses of $ 0.1 million . we funded this acquisition with existing cash on hand and the issuance of $ 3.8 million of mortgage debt on the property . this property is 100 % leased to one tenant for 18 years with a lease expiration date of october 31 , 2033 , with 2 options to renew this lease for an additional 5 years each . the lease provides for prescribed rent escalations over its life with annualized straight line rents of $ 0.6 million . the average cap rate on this acquisition is 9.2 % . story_separator_special_tag 2015 sale activity columbus , ohio : on november 6 , 2015 , we completed the sale of our columbus , ohio property for $ 2.8 million and recognized a gain on sale of $ 0.4 million . we considered this industrial asset to be non-core to our long term strategy . birmingham , alabama and columbia , missouri : on december 4 , 2015 , we completed the sale of our birmingham , alabama and columbia , missouri properties for $ 4.1 million and recognized a gain on sale of $ 1.1 million . in conjunction with the sale , we received an additional $ 0.2 million lease termination penalty , which was recognized as rental revenue . we considered these industrial assets to be non-core to our long term strategy . 2015 financing activity pnc bank : on march 6 , 2015 , through a wholly-owned subsidiary , we borrowed $ 14.6 million pursuant to a long-term note payable from pnc bank national association , which is collateralized by a security interest in one of our properties . the note accrued interest at a fixed rate of 3.86 % per year and has a maturity date of april 1 , 2025. we used the proceeds from the note to acquire the property in richardson , texas on the same date . 44 fc bank : on may 28 , 2015 , through a wholly-owned subsidiary , we borrowed $ 4.5 million pursuant to a long-term note payable from fc bank , a division of cnb bank . the note accrues interest at a fixed rate of 3.75 % per year and has a maturity date of june 1 , 2022. the fixed rate resets to the applicable treasury rate index plus 3.0 % per year on june 1 , 2020 and june 1 , 2021. we used the proceeds from the note to acquire the property in columbus , ohio on the same date . guggenheim partners : on june 16 , 2015 , through a wholly-owned subsidiary , we borrowed $ 13.0 million pursuant to a long-term note payable from guggenheim partners , which is collateralized by a security interest in our salt lake city , utah property . the note accrues interest at a fixed rate of 3.99 % per year and has a maturity date of july 1 , 2045 , with an anticipated repayment date of july 1 , 2022. we used the proceeds from the note to repay a portion of outstanding debt on our line of credit . synovus bank : on june 29 , 2015 , through a wholly-owned subsidiary , we refinanced our $ 19.1 million mortgage at an interest rate of 5.3 % collateralized by security interests in our charlotte , north carolina and duncan , south carolina properties . that mortgage was originally set to mature on september 1 , 2015. we borrowed $ 19.8 million pursuant to a long-term note payable from synovus bank . the new loan is variable rate , in which the interest rate resets monthly and is calculated as the one month london interbank offered rate , or libor , plus a margin of 2.25 % . in july 2015 , we entered into an interest rate cap agreement with synovus bank , which caps libor to 3.0 % . the new note has a maturity date of july 1 , 2018 , with one , two-year extension option at the behest of the borrower . synovus bank : on july 1 , 2015 , through a wholly-owned subsidiary , we repaid our $ 11.3 million mortgage on our canton , dayton , and akron , ohio properties that was originally set to mature on september 1 , 2015. we borrowed $ 1.7 million pursuant to a long-term note payable from synovus bank to refinance a portion of this debt . the new loan is variable rate and we entered into an interest rate cap with synovus bank to hedge against the variability of the libor rate , at a cost of approximately $ 0.07 million through july 1 , 2018. we will receive payments from synovus bank if the one month libor rate increases above 3.0 % . prudential mortgage capital company : on july 15 , 2015 , through a wholly-owned subsidiary , we borrowed $ 7.5 million pursuant to a long-term note payable from prudential mortgage capital company , which is collateralized by a security interest in our atlanta , georgia property . the note accrues interest at a fixed rate of 4.53 % per year , and has a maturity date of august 1 , 2022. we used the proceeds from the note to acquire the property in atlanta , georgia on the same date . keybank line of credit : on october 5 , 2015 , we expanded our line of credit to $ 85.0 million and extended the maturity date one year through august 2018 , with a one year extension option through august 2019. we also added a $ 25.0 million 5-year term loan facility , which matures in october 2020. the interest rate on the revolving line of credit was also reduced by 25 basis points at each of the leverage tiers and the total maximum commitment under the two facilities was increased from $ 100.0 million to $ 150.0 million . we also added 3 new lenders to the bank syndicate . the bank group is now comprised of keybank , comerica banks , fifth third bank , us bank and huntington bank . we were subject to payment of $ 0.5 million for the modification of the agreement . keybank national association : on october 20 , 2015 through a wholly-owned subsidiary , we borrowed $ 3.8 million pursuant to a long-term note payable from keybank national association , which is collateralized by a security interest in our villa rica , georgia property .
| rental revenue increased for acquired and disposed properties for the year ended december 31 , 2015 , as compared to the year ended december 31 , 2014 , because we acquired six properties subsequent to december 31 , 2014 , and the inclusion of a full year of rental revenue recorded in 2015 for 11 properties acquired during the year ended december 31 , 2014. replace_table_token_14_th the increase in same store tenant recovery revenues for the year ended december 31 , 2015 , as compared to the year ended december 31 , 2014 , is a result of increased recoveries from tenants subject to gross leases . the decrease in tenant recovery revenues on acquired and disposed of properties for the year ended december 31 , 2015 , as compared to the year ended december 31 , 2014 , is a result of a lack of tenant recovery revenues in 2015 associated with our roseville , minnesota property , which was conveyed to the lender in a deed-in-lieu transaction during 2014 , offset by an increase in recoveries from tenants subject to a gross lease for properties acquired during and subsequent to the year ended december 31 , 2014. interest income from mortgage notes receivable increased for the year ended december 31 , 2015 , as compared to the year ended december 31 , 2014 , because of interest earned on a mortgage development loan issued in july 2014 that was partially outstanding during the year ended december 31 , 2014 , coupled with interest earned on a $ 0.3 million interim financing note issued in april 2015 . 53 operating expenses replace_table_token_15_th depreciation and amortization increased slightly for same store properties for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 due to depreciation on capital projects which were completed subsequent to december 31 , 2014 , coupled with amortization on leasing commissions for renewed leases with 2015 expirations . depreciation and amortization expenses increased for acquired and disposed of properties during the year ended december 31 , 2015 , as compared to the year ended december 31 , 2014 , because of the six properties acquired subsequent to december 31 , 2014 and the inclusion of a full year of depreciation and amortization recorded in 2015 for 11 properties acquired during the year ended december 31 , 2014. replace_table_token_16_th property operating expenses consist of franchise taxes , management fees , insurance , ground lease payments , property maintenance and repair expenses paid on behalf of certain of our properties . the increase in
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cost of revenue cost of revenue includes materials used by our businesses to manufacture their products , payroll and related expenses for production and design services personnel , depreciation of assets used in the production process and in support of digital marketing service offerings , shipping , handling and processing costs , third-party production costs , costs of free products and other related costs of products our businesses sell . cost of revenue as a percent of revenue increased during the year ended june 30 , 2018 , compared to the prior year , primarily due to the divestiture of our albumprinter business which had a higher gross margin than our consolidated gross margin percentage , as well as the increased weight of our upload and print portfolio , which has higher cost of revenue as a percentage of revenue than our vistaprint and national pen businesses . replace_table_token_8_th for the year ended june 30 , 2018 , cost of revenue for our upload and print businesses increased by $ 103.6 million primarily driven by revenue growth in our exagroup , pixartprinting , printdeal and wirmachendruck businesses , as well as unfavorable currency impacts . we also recognized an additional $ 91.6 million of costs primarily due to the timing of our national pen acquisition and the inclusion of operating results for only part of the prior comparable period . in our vistaprint business , cost of revenue increased by $ 71.5 million primarily due to increased production volume , as well as unfavorable currency impacts . these increases were partially offset by a decrease in cost of revenue of $ 29.2 million resulting from the divestiture of our albumprinter business on august 31 , 2017. for the year ended june 30 , 2017 , our cost of revenue increased due to $ 123.6 million of additional costs from our upload and print businesses , primarily due to the impact of our fiscal year 2016 wirmachendruck acquisition which only partially contributed to the prior comparable period . in addition , the costs from our vistaprint 32 business increased by $ 91.1 million , primarily due to increased production volume ; product mix ; and planned investments including expanded design services , new product introduction , and shipping price reductions that also result in higher shipping costs . vistaprint also recognized higher costs from production inefficiencies in the second fiscal quarter of 2017 resulting from higher temporary labor costs at our canadian production facility . we recognized an additional $ 48.6 million of costs from our national pen business , which was acquired on december 30 , 2016 and was therefore not included in the comparable period . consolidated operating expenses the following table summarizes our comparative operating expenses for the periods : replace_table_token_9_th technology and development expense technology and development expense consists primarily of payroll and related expenses for employees engaged in software and manufacturing engineering , information technology operations and content development , as well as amortization of capitalized software and website development costs , including hosting of our websites , asset depreciation , patent amortization , legal settlements in connection with patent-related claims , and other technology infrastructure-related costs . depreciation expense for information technology equipment that directly supports the delivery of our digital marketing services products is included in cost of revenue . during the year ended june 30 , 2018 , technology and development expenses increased by $ 2.5 million as compared to the prior year , primarily due to our fiscal year 2017 acquisition of national pen , which resulted in $ 7.3 million of additional expense in fiscal 2018 due to the timing of the acquisition in fiscal 2017. we also recognized additional costs related to technology enhancements intended to enable rapid product introduction and improved connection points to the mass customization platform , as well as increased depreciation expense related to past investments in infrastructure-related assets . these increases were partially offset by a decrease in costs of $ 9.4 million , resulting from the divestiture of our albumprinter business on august 31 , 2017 , as well as cost savings realized as a result of our recent restructuring initiatives . the growth in our technology and development expenses of $ 33.2 million for the year ended june 30 , 2017 as compared to the prior comparative period was primarily due to increased headcount-related expenses in our technology development and information technology support organizations of $ 15.8 million . the increase in headcount supported the continued development of our software-based mass customization platform as well as investments to enhance capabilities and address each of our businesses ' specific needs . this increase was partially offset by headcount reductions as a result of the third quarter fiscal 2017 restructuring initiative . all employee severance related charges were reflected separately in restructuring expense . additionally , the acquisition of national pen resulted in increased technology and development expenses of $ 5.9 million for the year ended june 30 , 2017 , without costs in the prior comparable period . other increases in technology and development expense 33 included technology infrastructure-related costs , primarily due to increased it cloud service costs , as well as software maintenance and licensing costs . marketing and selling expense marketing and selling expense consists primarily of advertising and promotional costs ; payroll and related expenses for our employees engaged in marketing , sales , customer support and public relations activities ; direct-mail advertising costs ; and third-party payment processing fees . our vistaprint and national pen businesses have higher marketing and selling costs as a percentage of revenue , as compared to our upload and print businesses . our marketing and selling expenses increased by $ 103.7 million during the year ended june 30 , 2018 as compared to the prior year . story_separator_special_tag we recognized an additional $ 84.3 million of costs for our national pen business , primarily due to the timing of the acquisition in fiscal 2017. for the year ended june 30 , 2018 , advertising expenses for the remaining businesses increased by $ 35.1 million primarily as a result of additional advertising spend in the vistaprint business to support continued growth . these increases were partially offset by a decrease in costs of $ 21.7 million due to the sale of our albumprinter business on august 31 , 2017. in addition , internal marketing and customer service costs within the vistaprint business decreased by $ 3.7 million as a result of realized cost savings from our recent restructuring initiatives . our marketing and selling expenses increased by $ 102.4 million during the year ended june 30 , 2017 as compared to the prior comparative period , largely due to the addition of national pen which incurred $ 47.9 million of marketing and selling expense for direct-mail advertising and telesales costs that were not in the prior comparable period . in addition , advertising expense increased by $ 31.8 million , which was primarily a result of additional advertising spend in the vistaprint business . other increases included payroll and employee-related costs , inclusive of share-based compensation , as we expanded our marketing , customer service and sales support organization through our recent acquisitions and continued investment in the vistaprint business customer service resources in order to provide higher value services to our customers . general and administrative expense general and administrative expense consists primarily of transaction costs , including third-party professional fees , insurance and payroll and related expenses of employees involved in executive management , finance , legal , strategy , human resources and procurement . for the year ended june 30 , 2018 , general and administrative expenses decreased by $ 30.6 million primarily due to a decline in acquisition-related charges of $ 40.7 million , as compared to the prior year . the decrease in acquisition-related charges is due to significant expense in the prior comparable period for the wirmachendruck contingent earn-out arrangement , which was paid during fiscal 2018. we also recognized cost savings from our recent restructuring actions , which were partially offset by an additional $ 13.0 million of expense from our fiscal 2017 acquisition of national pen as the prior year did not include a full year of results . during the year ended june 30 , 2017 , general and administrative expenses increased by $ 61.7 million , as compared to the prior comparative period , driven by $ 37.3 million of incremental expense for the wirmachendruck earn-out due to strong performance during fiscal 2017 and our expectation that a maximum payout would be achieved . payroll , share-based compensation and facility-related costs increased by $ 12.0 million due to additional expense recognized for the acceleration of vesting terms of certain restricted share awards associated with our investment in printi and acquisition of tradeprint , as well as an increase in share-based compensation resulting from our new long-term incentive program . these increases were partially offset by the decrease in compensation expense due to headcount reductions as a result of the third quarter fiscal 2017 restructuring initiative . fiscal 2017 also included $ 12.4 million of expense for national pen 's partial year results . amortization of acquired intangible assets amortization of acquired intangible assets consists of amortization expense associated with separately identifiable intangible assets capitalized as part of our acquisitions , including customer relationships , trade names , developed technologies , print networks , and customer and referral networks . amortization of acquired intangible assets increased by $ 3.7 million during the year ended june 30 , 2018 , as compared to the prior comparable period , due to a full year of amortization expense for the december 30 , 2016 34 acquisition of national pen that was not included in our results for the entire prior comparable period . amortization of acquired intangible assets increased by $ 5.6 million during the year ended june 30 , 2017 , as compared to the year ended june 30 , 2016 , due to amortization for our fiscal 2017 acquisition of national pen and fiscal 2016 acquisition of wirmachendruck . restructuring expense restructuring expense consists of costs directly incurred as a result of restructuring initiatives , including employee-related termination costs , third party professional fees , facility exit costs and write-off of abandoned assets . during the year ended june 30 , 2018 , we recognized restructuring expense of $ 15.2 million for employee-related termination benefits . the restructuring expense during the current period relates primarily to the reorganization of our vistaprint business that we announced in november 2017 , which resulted in a reduction in headcount and other operating costs . refer to note 18 in the accompanying consolidated financial statements for additional details regarding the reorganization . the restructuring costs of $ 26.7 million recognized in the year ended june 30 , 2017 were primarily related to our january 2017 restructuring initiative . gain on sale of subsidiaries during the year ended june 30 , 2018 , we recognized a gain on the sale of our albumprinter business of $ 47.5 million , net of transaction costs . the amount of our gain on the sale of albumprinter was impacted by the partial allocation of goodwill to our vistaprint business in past periods , as well as minimal carrying value of albumprinter 's acquired intangible assets at the time of the sale , as well as currency impacts . refer to note 7 in the accompanying consolidated financial statements for additional details . impairment of goodwill and acquired intangible assets there were no impairment charges related to goodwill or acquired intangible assets during the year ended june 30 , 2018. for the years ended june 30 , 2017 and 2016 , we recognized an impairment charge of $ 9.6 million for our tradeprint reporting unit and $ 30.8 million for our exagroup reporting unit , respectively .
| in addition to incremental profits generated from the revenue growth described above , the following items positively impacted our operating income for the year ended june 30 , 2018 , leading to the increase in operating income as compared to the prior period : significant year-over-year operating expense savings of approximately $ 55 million related to the restructuring actions announced in january and november 2017 , as well as a reduction of restructuring charges of $ 11.5 million . recognized gain on the sale of subsidiaries of $ 47.5 million , related to the august 2017 sale of albumprinter . decrease of acquisition-related expenses of $ 46.6 million , due to the following : ◦ reduction to earn-out related charges of $ 40.7 million , related primarily to the wirmachendruck contingent earn-out arrangement that was paid in fiscal year 2018 . ◦ impairment charges of $ 9.6 million recognized during the prior period , which did not recur during the current period . ◦ increased amortization of acquired intangible assets of $ 3.7 million , due to the timing of our fiscal year 2017 acquisition of national pen , which partially offset the above decreases . 30 increase in national pen segment profit of $ 24.4 million , primarily due to the timing of the acquisition in fiscal year 2017. decreased impact of organic investments in fiscal year 2018 as compared to fiscal year 2017 , due to reduced net investments in various areas including `` columbus '' which was the name of a project to organically build our business in promotional products and logo apparel , new product introduction , and the businesses within our all other businesses segment . adjusted nop increased significantly year over year primarily due to the same reasons as operating income mentioned above , although adjusted nop excludes the impact of the gain from the purchase or sale of subsidiaries , restructuring charges and acquisition-related charges , and includes realized gains or
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during fiscal year 2012 , we changed the manner in which sales are classified by end use market so that we could better evaluate our sales results from period to period . in order to make the discussion of sales by end-use market more meaningful , we have reclassified the fiscal year 2011 and 2010 sales by end-use market to conform to the fiscal year 2012 presentation . the table below summarizes our estimated sales by market over the past three fiscal years . replace_table_token_6_th 20 during fiscal year 2012 , we changed the manner in which sales are classified by product class so that we could better evaluate our sales results from period to period . the changes are intended to better segregate growth areas of premium products such as high temperature nickel-based special alloys , titanium products and powder metals , while also reflecting the anticipated product classes and businesses gained through the latrobe acquisition . in order to make the discussion of sales by product class more meaningful , we have reclassified the fiscal year 2011 and 2010 sales by product class to conform to the fiscal year 2012 presentation . the table below shows our net sales by major product class for the past three fiscal years : replace_table_token_7_th impact of raw material prices and product mix we value most of our inventory utilizing the last-in , first-out ( lifo ) inventory costing methodology . under the lifo inventory costing method , changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials may have been acquired at potentially significantly different values due to the length of time from the acquisition of the raw materials to the sale of the processed finished goods to the customers . in a period of rising raw material costs , the lifo inventory valuation normally results in higher costs of sales . conversely , in a period of decreasing raw material costs , the lifo inventory valuation normally results in lower costs of sales . the volatility of the costs of raw materials has impacted our operations over the past several years . we , and others in our industry , generally have been able to pass cost increases on major raw materials through to our customers using surcharges that are structured to recover increases in raw material costs . generally , the formula used to calculate a surcharge is based on published prices of the respective raw materials for the previous month which correlates to the prices we pay for our raw material purchases . however , a portion of our surcharges to customers may be calculated using a different surcharge formula or may be based on the raw material prices at the time of order , which creates a lag between surcharge revenue and corresponding raw material costs recognized in costs of sales . the surcharge mechanism protects our net income on such sales except for the lag effect discussed above . however , surcharges have had a dilutive effect on our gross margin and operating margin percentages as described later in this report . approximately 40 percent our net sales are sales to customers under firm price sales arrangements . firm price sales arrangements involve a risk of profit margin fluctuations , particularly when raw material prices are volatile . in order to reduce the risk of fluctuating profit margins on these sales , we enter into commodity forward contracts to purchase certain critical raw materials necessary to produce the related products sold . firm price sales arrangements generally include certain annual purchasing commitments and consumption schedules agreed to by the customers at selling prices based on raw material prices at the time the arrangements are established . if a customer fails to meet the volume commitments ( or the consumption schedule deviates from the agreed-upon terms of the firm price sales arrangements ) , the company may need to absorb the gains or losses associated with the commodity forward contracts on a temporary basis . gains or losses associated with commodity forward contracts are reclassified to earnings/loss when earnings are impacted by the hedged transaction . because we value most of our inventory under the lifo costing methodology , changes in the cost of raw materials and production activities are recognized in cost of sales in the current period attempting to match the most recently incurred costs with revenues . gains or losses on the commodity forward contracts are reclassified from other 21 comprehensive income together with the actual purchase price of the underlying commodities when the underlying commodities are purchased and recorded in inventory . to the extent that the total purchase price of the commodities , inclusive of the gains or losses on the commodity forward contracts , are higher or lower relative to the beginning of year costs , our costs of goods sold reflect such amounts . accordingly , the gains and or losses associated with commodity forward contracts may not impact the same period that the firm price sales arrangements revenue is recognized , and comparisons of gross profit from period to period may be impacted . these firm price sales arrangements are expected to continue as we look to strengthen our long-term customer relationships by expanding , renewing and in certain cases extending to a longer term , our customer long-term arrangements . we produce hundreds of grades of materials , with a wide range of pricing and profit levels depending on the grade . in addition , our product mix within a period is subject to the fluctuating order patterns of our customers as well as decisions we may make on participation in certain products based on available capacity including the impacts of capacity commitments we may have under existing customer agreements . while we expect to see positive contribution from a more favorable product mix in our margin performance over time , the impact by period may fluctuate , and period-to-period comparisons may vary . story_separator_special_tag net pension expense net pension expense , as we define it below , includes the net periodic benefit costs related to both our pension and other postretirement plans . see further discussion of net pension expense in the non-gaap financial measures below . net pension expense is recorded in accounts that are included in both the cost of sales and selling , general and administrative expenses lines of our statements of income . the fiscal year 2012 net pension expense includes $ 2.5 million of net pension expense associated the pension and postretirement plans assumed in connection with the latrobe acquisition . the following is a summary of the classification of net pension expense included in our statements of income during fiscal years 2012 , 2011 and 2010 : replace_table_token_8_th net pension expense is determined annually based on beginning of year balances , and is recorded ratably throughout the fiscal year , unless a significant re-measurement event occurs . the following is a summary of the components of net pension expense during fiscal years 2012 , 2011 and 2010 : replace_table_token_9_th the service cost component of net pension expense represents the estimated cost of future pension liabilities earned associated with active employees . the pension earnings , interest and deferrals expense is comprised of the expected return on plan assets , interest costs on the projected benefit obligations of the plans , and amortization of actuarial gains and losses and prior service costs . pension earnings , interest and deferrals expenses is impacted by the financial markets and decreased significantly during fiscal year 2012 principally due to the increase in market value of the securities held by the plans as well as slightly higher interest rates as of june 30 , 2011 . 22 latrobe acquisition impacts we closed the latrobe acquisition on february 29 , 2012. the latrobe business is already accretive to earnings , excluding the transaction costs and short-term impacts associated with fair value cost adjustments in connection with the acquisition accounting . the following is a summary of the impacts that the latrobe acquisition has had on our results . the measures below have not been determined in accordance with u.s. gaap . see further discussion of these measures in the non-gaap financial measures discussion below . replace_table_token_10_th * detailed schedule included in non-gaap financial measures below . * * in connection with the latrobe acquisition , we issued 8.1 million shares of common stock to the former owners . for the fiscal year 2012 , the issuance of these shares resulted in an additional 2.7 million weighted average diluted shares . operating performance overview fiscal year 2012 results reflect the benefits of strong , sustained demand across all our end use markets . we have made progress during fiscal year 2012 in the following important areas : · we exceeded our financial goals based on solid execution against our strategies of premium product growth , mix management and pricing . · we finalized our acquisition of latrobe . the integration process is going extremely well and we are even more excited about the strategic value and synergies from this transaction . results of operations fiscal year 2012 compared to fiscal year 2011 for fiscal year 2012 , we reported net income of $ 121.2 million , or $ 2.53 per diluted share , compared with income of $ 71.0 million , or $ 1.59 per diluted share , a year earlier . our fiscal year 2012 results reflect a trend of improving revenues and profit throughout the fiscal year . net sales net sales for fiscal year 2012 were $ 2,028.7 million , which was a 21 percent increase from fiscal year 2011. excluding surcharge revenues , sales were 27 percent higher than fiscal year 2011 on 9 percent higher volume . geographically , sales outside the united states increased 30 percent from fiscal year 2011 to $ 664.5 million . international sales as a percentage of our total net sales , represented 33 percent and 31 percent for fiscal year 2012 and fiscal year 2011 , respectively . 23 sales by end-use markets we sell to customers across diversified end-use markets . the following table includes comparative information for our estimated net sales , which includes surcharge revenues , by principal end-use markets which we believe is helpful supplemental information in analyzing the performance of the business from period to period : replace_table_token_11_th the following table includes comparative information for our estimated net sales by the same principal end-use markets , but excluding surcharge revenues : replace_table_token_12_th sales to the aerospace and defense market increased 29 percent from fiscal year 2011 to $ 901.1 million . excluding surcharge revenue , such sales increased 31 percent on 43 percent higher shipment volume . the aerospace and defense results reflect strength in all areas as build rates remain high and mix shifts to larger planes and new platforms that favor higher use of our products as well as the addition of the latrobe business during fiscal year 2012. industrial and consumer market sales decreased 2 percent from fiscal year 2011 to $ 478.2 million . adjusted for surcharge revenue , such sales increased approximately 7 percent while volumes decreased 9 percent . the results reflect the continued impact of mix management and pricing actions . the percentage of volume in differentiated product applications with strategically important customers continues to increase as a result of these actions . sales to the energy market of $ 268.3 million reflected a 38 percent increase from fiscal year 2011. excluding surcharge revenue , such sales increased 46 percent on 35 percent higher shipment volume . the sales results reflect the growth led by oil and gas which continues to benefit from the amega west acquisition which is leading to share gains and international expansion . directional rig activity remains high with increased offshore drilling and movement of rigs from gas to oil .
| 35 operating income for the pep segment for fiscal year 2011 was $ 35.0 million , or 14.1 percent of net sales ( 14.4 percent of net sales excluding surcharge revenues ) , as compared with $ 17.1 million , or 10.8 percent of net sales ( 11.0 percent of net sales excluding surcharge revenues ) for fiscal year 2010. the increase in operating income principally reflects increase in volumes , the impacts of pricing and mix management actions as well as the addition of the amega west business . latrobe during fiscal year 2011 and 2010 , the latrobe segment consisted of our distribution business in mexico . our distribution business was added to the latrobe business when the latrobe acquisition was completed in february 2012. liquidity and capital resources during the fiscal year 2012 , our free cash flow , which we define under non-gaap financial measures below , was negative $ 58.8 million as compared to negative $ 88.9 million for the same period a year ago . the increase in free cash flow in fiscal year 2012 as compared with the prior year principally reflects higher net income levels in fiscal year 2012 , lower working capital levels and less cash used in acquisitions offset by increased investments in capital expenditures . purchases of property , plant and equipment and software were $ 171.9 million for fiscal year 2012 as compared with $ 79.6 million for the prior year . the increase in fiscal year 2012 purchases of property , plant and equipment represents spending on capacity expansion projects and investments in the growth of the pep businesses , particularly amega west . dividends for the fiscal year 2012 were $ 33.7 million , as compared with $ 32.1 million in the prior year , and were paid at the same quarterly rate of $ 0.18 per share of common stock in both periods . for fiscal years 2012 , 2011 and 2010 , interest cost totaled $ 25.0 million , $ 17.6 million , and $ 18.8 million , respectively , of which $ 1.2 million , $ 0.5 million , and $ 1.0 million , respectively , were capitalized as part of the cost of plant , equipment and software . we have demonstrated the ability to generate cash to meet our needs through cash flow from operations , management of
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these risks are further described in item 1a of this report under the heading “ risk factors. ” the company 's feed ingredients segment animal by-products , bakery residuals , used cooking oil recovery , and blood operations are each influenced by prices for agricultural-based alternative ingredients such as corn , soybean oil , soybean meal , and palm oil . in these operations , the costs of the company 's raw materials change with , or in certain cases are indexed to , the selling price or the anticipated selling price of the finished goods produced from the acquired raw materials and or in some cases , the price spread between various types of finished products . the company believes that this methodology of procuring raw materials generally establishes a relatively stable gross margin upon the acquisition of the raw material . although the costs of raw materials for the feed ingredients segment are generally based upon actual or anticipated finished goods selling prices , rapid and material changes in finished goods prices , including competing agricultural-based alternative ingredients , generally have an immediate and often times , material impact on the company 's gross margin and profitability resulting from the brief lapse of time between the procurement of the raw materials and the sale of the finished goods . in addition , the amount of raw material volume acquired , which has a direct impact on the amount of finished goods produced , can also have a material effect on the gross margin reported , as the company has a substantial amount of fixed operating costs . the company 's food ingredients segment gelatin and natural casings products are influenced by other competing ingredients including plant-based and synthetic hydrocolloids and artificial casings . in the gelatin operation , in particular , the cost of the company 's animal-based raw material moves in relationship to the selling price of the finished goods . the processing time for the food ingredients segment gelatin and casings is generally 30 to 60 days , which is substantially longer than the company 's feed ingredients segment animal by-products operations . consequently , the company 's gross margin and profitability in this segment can be influenced by the movement of finished goods prices from the time the raw materials were procured until the finished goods are sold . the company 's fuel ingredients segment converts fats into renewable diesel , organic sludge and food waste into biogas , and fallen stock into low-grade energy sources . the company 's gross margin and profitability in this segment are impacted by world energy prices for oil , electricity and natural gas . the reporting currency for the company 's financial statements is the u.s. dollar . the company operates in over 15 countries and therefore , certain of the company 's assets , liabilities , revenues and expenses are denominated in functional currencies other than the u.s. dollar , primarily in the euro , brazilian real , chinese renminbi , canadian dollar , argentine peso , japanese yen and polish zloty . to prepare the company 's consolidated financial statements , assets , liabilities , revenues , and expenses must be translated into u.s. dollars at the applicable exchange rate . as a result , increases or decreases in the value of the u.s. dollar against these other currencies will affect the amount of these items recorded in the company 's consolidated financial statements , even if their value has not changed in the functional currency . this could have a significant impact on the company 's results , if such increase or decrease in the value of the u.s. dollar relative to these other currencies is substantial . the company monitors the performance of its business segments using key financial metrics such as results of operations , non-gaap measurements ( adjusted ebitda ) , segment operating income , raw material processed , gross margin percentage , foreign currency translation , and corporate activities . the company 's operating results can vary significantly due to changes in factors such as the fluctuation in energy prices , weather conditions , crop harvests , government policies and programs , changes in global demand , changes in standards of living , protein consumption , and global production of competing ingredients . due to these unpredictable factors that are beyond the control of the company , forward-looking financial or operational estimates are not provided . results of operations fiscal year ended december 30 , 2017 compared to fiscal year ended december 31 , 2016 operating performance metrics other operating performance metrics indicators which management routinely monitors as an indicator of operating performance include : finished product commodity prices segment results foreign currency page 45 corporate activities non-u.s. gaap measures these indicators and their importance are discussed below . finished product commodity prices prices for finished product commodities that the company produces in the feed ingredients segment are reported each business day on the jacobsen index ( the “ jacobsen ” ) , an established north american trading exchange price publisher . the jacobsen reports industry sales from the prior day 's activity by product . included on the jacobsen are reported prices for finished products such as protein ( primarily meat and bone meal ( “ mbm ” ) , poultry meal ( “ pm ” ) and feather meal ( “ fm ” ) ) , hides , fats ( primarily bleachable fancy tallow ( “ bft ” ) and yellow grease ( “ yg ” ) ) and corn , which is a substitute commodity for the company 's bakery by-product ( “ bbp ” ) as well as a range of other branded and value-added products , which are products of the company 's feed ingredients segment . in the u.s. the company regularly monitors the jacobsen for mbm , pm , fm , bft , yg and corn because it provides a daily indication of the company 's u.s. revenue performance against business plan benchmarks . story_separator_special_tag in europe , the company regularly monitors thomson reuters ( “ reuters ” ) to track the competing commodities palm oil and soy meal . although the jacobsen and reuters provide useful metrics of performance , the company 's finished products are commodities that compete with other commodities such as corn , soybean oil , palm oil complex , soybean meal and heating oil on nutritional and functional values . therefore , actual pricing for the company 's finished products , as well as competing products , can be quite volatile . in addition , neither the jacobsen nor reuters provides forward or future period pricing for the company 's commodities . the jacobsen and reuters prices quoted below are for delivery of the finished product at a specified location . although the company 's prices generally move in concert with reported jacobsen and reuters prices , the company 's actual sales prices for its finished products may vary significantly from the jacobsen and reuters because of production and delivery timing differences and because the company 's finished products are delivered to multiple locations in different geographic regions which utilize alternative price indexes . in addition , certain of the company 's premium branded finished products may sell at prices that may be higher than the closest product on the related jacobsen or reuters index . during fiscal 2017 , the company 's actual sales prices by product trended with the disclosed jacobsen and reuters prices . average jacobsen and reuters prices ( at the specified delivery point ) for fiscal 2017 , compared to average jacobsen and reuters prices for fiscal 2016 are : replace_table_token_5_th the following table shows the average jacobsen and reuters prices for the fourth quarter of fiscal 2017 , compared to the average jacobsen and reuters prices for the third quarter of fiscal 2017. page 46 replace_table_token_6_th segment results segment operating income for the fiscal year ended december 30 , 2017 was $ 136.8 million , which reflects a decrease of $ 15.3 million or ( 10.1 ) % as compared to the fiscal year ended december 31 , 2016. replace_table_token_7_th replace_table_token_8_th page 47 feed ingredients segment raw material volume . overall , in the fiscal year 2017 , the raw material processed by the company 's feed ingredients segment totaled 8.24 million metric tons . compared to the fiscal year 2016 overall raw material volume processed in the feed ingredients segment increased approximately 3.4 % . sales . during the year ended december 30 , 2017 , net sales for the feed ingredients segment were $ 2,239.5 million as compared to $ 2,089.1 million for the year ended december 31 , 2016 , an increase of approximately $ 150.4 million . net sales for fats were approximately $ 648.3 million and $ 574.6 million for the years ended december 30 , 2017 and december 31 , 2016 , respectively . protein net sales were approximately $ 816.1 million and $ 769.4 million for the years ended december 30 , 2017 and december 31 , 2016 , respectively . other rendering net sales , which include hides , pet food , and service charges , were approximately $ 286.2 million and $ 269.1 million for the years ended december 30 , 2017 and december 31 , 2016 , respectively . total rendering net sales were approximately $ 1,750.6 million and $ 1,613.1 million for the years ended december 30 , 2017 and december 31 , 2016 , respectively . used cooking oil net sales were approximately $ 185.5 million and $ 165.1 million for the years ended december 30 , 2017 and december 31 , 2016 , respectively . bakery net sales were approximately $ 209.8 million and $ 220.4 million for the years ended december 30 , 2017 and december 31 , 2016 , respectively , and other sales , which includes trap services , industrial residual services and organic fertilizer net sales were approximately $ 93.6 million and $ 90.5 million for the years ended december 30 , 2017 and december 31 , 2016 , respectively . the increase in net sales for the feed ingredients segment was primarily due to the following ( in millions of dollars ) : replace_table_token_9_th margins . in the feed ingredients segment for fiscal year 2017 , the gross margin percentage was 22.1 % as compared to 22.2 % for fiscal 2016. segment operating income . feed ingredients operating income for fiscal year 2017 was $ 129.7 million , an increase of $ 13.9 million as compared to fiscal year 2016. earnings in the feed ingredients segment were up from the prior year due to overall increase in sales volumes , higher finished product prices for fats and certain finished protein products and an increase in raw material volumes . food ingredients segment raw material volume . overall , in the fiscal year 2017 , the raw material processed by the company 's food ingredients segment totaled 1.12 million metric tons . compared to the fiscal year 2016 overall raw material volume processed in the food ingredients segment increased approximately 2.9 % . sales . overall sales increased in the food ingredients segment as a result of higher sales volumes in both the gelatin and casing businesses . margins . in the food ingredients segment for fiscal year 2017 , the gross margin percentage was 20.4 % as compared to 21.5 % for fiscal 2016. the decrease was primarily the result of operational inefficiencies and macroeconomic factors in the south american gelatin market in the first half of fiscal 2017. segment operating income .
| used cooking oil net sales were approximately $ 165.1 million and $ 154.0 million for the years ended december 31 , 2016 and january 2 , 2016 . bakery net sales were approximately $ 220.4 million and $ 217.9 million for the years ended december 31 , 2016 and january 2 , 2016 and other sales , which includes trap services , industrial residual services and organic fertilizer net sales were approximately $ 90.5 million and $ 90.1 million for the years ended december 31 , 2016 and january 2 , 2016 . the increase in net sales for the feed ingredients segment was primarily due to the following ( in millions of dollars ) : replace_table_token_15_th margins . in the feed ingredients segment for both fiscal year 2016 and fiscal 2015 , the gross margin percentage was 22.2 % . margins were maintained with lower protein prices being offset by higher fat prices and improved sales volumes . segment operating income . feed ingredients operating income for fiscal year 2016 was $ 115.8 million , a decrease of $ 0.7 million as compared to fiscal year 2015. earnings in the feed ingredients segment were down slightly from the prior year page 53 due to lower protein finished product prices and higher depreciation and amortization due to placing new plants into production which were offset by higher fat finished product prices and reduced selling , general and administrative expense . food ingredients segment raw material volume . overall , in the fiscal year 2016 , the raw material processed by the company 's food ingredients segment totaled 1.08 million metric tons . compared to the fiscal year 2015 overall raw material volume processed in the food ingredients segment increased approximately 1.3 % . margins . in the food ingredients segment for fiscal year 2016 , the gross margin percentage was 21.5 % as compared to 20.7 % for fiscal 2015. the increase is primarily due to improved margins and production efficiencies in the north american , south american , and european gelatin business . european edible fats performance normalized over the prior
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in 2017 , we decided to shift our commercial strategy to focus on sales of our products through local distribution partners and our own internal sales initiatives to gain greater reach into all the relevant clinical specialties and to expand our geographic coverage . pursuant to our new strategy , we completed our transition away from a single distributor covering 18 european countries to a direct distribution model intended to broaden our sales efforts to key clinical specialties . all territories previously covered by our former european distributor were transferred to local distributors by june 2017. we also have begun to participate in international trade shows and industry conferences in an attempt to gain market exposure and brand recognition . critical accounting policies we prepared our consolidated financial statements in accordance with u.s. generally accepted accounting principles ( “ u.s . gaap ” ) . u.s. gaap represents a comprehensive set of accounting and disclosure rules and requirements , and applying these rules and requirements requires management judgments and estimates including , in certain circumstances , choices between acceptable u.s. gaap alternatives . the following is a discussion of our most critical accounting policies , judgments and uncertainties that are inherent in our application of u.s. gaap . use of estimates the preparation of financial statements in conformity with u.s. gaap requires management to make estimates using assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods . actual results could differ from those estimates . 53 as applicable to these consolidated financial statements , the most significant estimates and assumptions relate to inventory valuations , classification and fair value of financial instruments , and legal contingencies . functional currency the currency of the primary economic environment in which our operations and the operations of our subsidiaries are conducted is the u.s. dollar ( “ $ ” or “ dollar ” ) . accordingly , our and our subsidiaries ' functional currency is the u.s. dollar . the dollar figures are determined as follows : transactions and balances originally denominated in dollars are presented in their original amounts . balances in foreign currencies are translated into dollars using historical and current exchange rates for non-monetary and monetary balances , respectively . the resulting translation gains or losses are recorded as financial income or expense , as appropriate . for transactions reflected in the statements of operations in foreign currencies , the exchange rates at transaction dates are used . depreciation and changes in inventories and other changes deriving from non-monetary items are based on historical exchange rates . concentration of credit risk and allowance for doubtful accounts financial instruments that may potentially subject us to a concentration of credit risk consist of cash and cash equivalents , which are deposited in major financially sound institutions in the united states , israel and germany , and trade accounts receivable . our trade accounts receivable are derived from revenues earned from customers from various countries . we perform ongoing credit evaluations of our customers ' financial condition and , generally , require no collateral from customers . we also have a credit insurance policy for some customers . we maintain an allowance for doubtful accounts receivable based upon the expected ability to collect the accounts receivable . we review our allowance for doubtful accounts quarterly by assessing individual accounts receivable and all other balances based on historical collection experience and an economic risk assessment . if we determine that a specific customer is unable to meet its financial obligations to us , we provide an allowance for credit losses to reduce the receivable to the amount management reasonably believes will be collected , which is netted against “ accounts receivable — trade ” . inventory inventories are stated at the lower of cost ( cost is determined on a “ first-in , first-out ” basis ) or net realizable value . our inventories generally have a limited shelf life and are subject to impairment as they approach their expiration dates . we regularly evaluate the carrying value of our inventories and when , based on such evaluation , factors indicate that impairment has occurred , we impair the inventories ' carrying value . revenue recognition revenue recognition following the adoption of the new revenue recognition standard on january 1 , 2018 under the new revenue recognition standard effective as of january 1 , 2018 , contract with a customer exists only when : 1 ) the parties to the contract have approved it and are committed to perform their respective obligations , 2 ) the company can identify each party 's rights regarding the distinct goods or services to be transferred ( “ performance obligations ” ) , 3 ) the company can determine the transaction price for the goods or services to be transferred , 4 ) the contract has commercial substance and 5 ) it is probable that the company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer . revenues are recorded in the amount of consideration to which the company expects to be entitled in exchange for performance obligations upon transfer of control to the customer , excluding sales taxes . revenue from sales of goods , including sales to distributors , is recognized when the customer obtains control of the product , once the company has a present right to payment , legal title , and risk and rewards of ownership are obtained by the customer . this occurs when products are shipped . 54 the company recognizes the incremental costs of obtaining contracts as an expense since the amortization period of the assets that the company otherwise would have recognized is one year or less . the costs are recorded under selling and marketing expenses . story_separator_special_tag revenue recognition prior to the adoption of the new revenue recognition standard on january 1 , 2018 revenue is recognized when delivery has occurred , evidence of an arrangement exists , title , fixed or determinable and risks and rewards for the products are transferred to the customer and collection is reasonably assured . we recognize revenue net of value added tax ( vat ) . research and development costs research and development costs are charged to the statement of operations as incurred . share-based compensation employee option awards are classified as equity awards and accounted for using the grant-date fair value method . the fair value of share-based awards is estimated using the black-scholes valuation model and expensed over the requisite service period , net of estimated forfeitures . we elected to account for forfeitures as they occur . we elected to recognize compensation expenses for awards with only service conditions that have graded vesting schedules using the accelerated multiple option approach . in addition , certain of our share-based awards are market- and performance-based and dependent upon achieving certain goals . with respect to performance-based awards , we estimate the expected pre-vesting award probability that the performance conditions will be achieved . we only recognize expense for those shares that are expected to vest . fair value measurement we measure fair value and disclose fair value measurements for financial assets and liabilities . fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . the accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels , which are described below : level 1 : quoted prices ( unadjusted ) in active markets that are accessible at the measurement date for assets or liabilities . the fair value hierarchy gives the highest priority to level 1 inputs . level 2 : observable prices that are based on inputs not quoted on active markets , but corroborated by market data . level 3 : unobservable inputs are used when little or no market data is available . the fair value hierarchy gives the lowest priority to level 3 inputs . in determining fair value , we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider counterparty credit risk in our assessment of fair value . story_separator_special_tag $ 179,000 of financial expenses during the twelve months ended december 31 , 2017. the increase in financial income primarily resulted from an increase of $ 438,000 in financial income related to the revaluation of the embedded derivative of the series c preferred stock and a decrease in interest expenses of $ 119,000 due to the repayment of the remaining balance of our outstanding indebtedness in 2017. these decreases in financial expenses were partially offset by an increase of $ 7,000 in miscellaneous expenses . tax expenses ( income ) . for the twelve months ended december 31 , 2018 , tax expenses decreased by $ 27,000 to $ 0 , from $ 27,000 in the twelve months ended december 31 , 2017. net loss . our net loss decreased by $ 1,198,000 , or 14.2 % , to $ 7,240,000 , for the twelve months ended december 31 , 2018 , from $ 8,438,000 during the twelve months ended december 31 , 2017. the decrease in net loss resulted primarily from an increase of $ 550,000 in financial income , an increase of $ 410,000 in gross profit , a decrease of $ 211,000 in operating expenses and a decrease of $ 27,000 in tax expenses . liquidity and capital resources we had an accumulated deficit as of december 31 , 2018 of $ 148 million , as well as a net loss of 7,240,000 and negative operating cash flows . we expect to continue incurring losses and negative cash flows from operations until our products ( primarily cguard eps ) reach commercial profitability . as a result of these expected losses and negative cash flows from operations , along with our current cash position , we only have sufficient resources to fund operations through the end of the third quarter of 2019. therefore , there is substantial doubt about our ability to continue as a going concern . our plans include the continued commercialization of our products and raising capital through the sale of additional equity securities , debt or capital inflows from strategic partnerships . there are no assurances , however , that we will be successful in obtaining the level of financing needed for our operations . if we are unsuccessful in commercializing our products and raising capital , we may need to reduce activities , curtail or cease operations . on october 23 , 2013 , we entered into a loan and security agreement with hercules technology growth capital , inc. ( “ hercules ” ) , which was subsequently amended on november 19 , 2013 , july 23 , 2014 , and june 13 , 2016 , pursuant to which we received a loan of $ 10 million , before deduction of issuance costs . interest on the loan was determined on a daily basis at a variable rate equal to the greater of either ( i ) 10.5 % , or ( ii ) the sum of ( a ) 10.5 % plus ( b ) the prime rate minus 5.5 % .
| for the twelve months ended december 31 , 2018 , gross profit ( revenue less cost of revenues ) increased by 70.1 % , or $ 410,000 , to $ 995,000 , compared to $ 585,000 during the same period in 2017. this increase resulted primarily from an increase of $ 388,000 due to the increase in revenues ( as mentioned above ) , less the related material and labor costs , and a decrease of $ 46,000 in expenses related to the underutilization of our manufacturing resources . these increases in gross profit were partially offset by an increase of $ 24,000 in miscellaneous expenses . gross margin ( gross profits as a percentage of revenue ) increased to 27.6 % in the twelve months ended december 31 , 2018 from 21.2 % in the twelve months ended december 31 , 2017 , driven mainly by more efficient utilization of our fixed manufacturing resources . research and development expenses . for the twelve months ended december 31 , 2018 , research and development expenses increased by 20.3 % , or $ 259,000 , to $ 1,535,000 , from $ 1,276,000 during the twelve months ended december 31 , 2017. this increase resulted primarily from an increase of $ 247,000 in quality assurance and regulatory expenses related to annual audit activities which included validation reviews required every two years and an increase of $ 198,000 in clinical expenses associated with cguard eps , mainly related to ide efforts in 2018. these increases in expenses were partially offset by a decrease of $ 108,000 in compensation expenses due to a reduced headcount and a decrease of $ 78,000 in miscellaneous expenses . selling and marketing expenses . for the twelve months ended december 31 , 2018 , selling and marketing expenses decreased by 4.9 % , or $ 116,000 , to $ 2,241,000 , from $ 2,357,000 during the twelve months ended december 31 , 2017. this decrease resulted primarily from a decrease of $ 121,000 due to a salary accrual in 2017 , a decrease
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for the year ended december 31 , 2017 , the company paid $ 1.9 million to repurchase 84,960 shares of its class b common stock under its share repurchase program . - 24 - for several years , the company 's investment philosophy has emphasized the purchase of shorter-duration bonds . as flat yield curves have not provided an incentive to lengthen maturities in recent years , the company has continued to maintain its fixed maturity portfolio at short-term levels . the average contractual life of the company 's fixed maturity and short-term investment portfolio increased slightly to 4.9 years during 2017 from 4.5 years during 2016. the average duration of the company 's fixed maturity portfolio remains much shorter than both the contractual maturity average and the duration of the company 's liabilities . our investments in the equity markets reflect a conservative , value driven approach , which has been implemented through partnerships , advisors and the investment committee . the long-term horizon for the company 's equity investments allows it to invest in positions where ultimate value , and not short-term market fluctuation , is the primary focus . investments made by the company 's domestic insurance subsidiaries are regulated by guidelines promulgated by the naic , which are designed to provide protection for both policyholders and shareholders . net cash flows from operations increased $ 61.3 million to $ 93.7 million for full year 2017 from $ 32.4 million in 2016. the increase in operating cash flow was primarily related to higher premium volume in 2017. net cash flows from operations decreased $ 5.8 million to $ 32.4 million for full year 2016 compared to $ 38.2 million in 2015. the decrease in operating cash flow resulted mainly from increased loss and loss adjustment expenses in 2016. net cash used in investing activities increased $ 47.0 million to $ 74.3 million for full year 2017 , as compared to 2016. the increase in cash used in investing activities was the result of the normal timing of purchases and sales and maturities in our investment portfolio , partially offset by higher distributions from limited partnership investments and proceeds from maturities in 2017. net cash used in investing activities increased $ 14.5 million to $ 27.4 million for full year 2016 compared to $ 12.8 million in 2015. the increase in cash used in investing activities was also the result of the normal timing of purchases and sales and maturities in our investment portfolio . net cash used in financing activities for full year 2017 consisted of regular cash dividend payments to shareholders of $ 16.3 million ( $ 1.08 per share ) and $ 1.9 million to repurchase 84,960 shares of the company 's class b common stock . financing activities for full year 2016 and 2015 consisted solely of the regular cash dividend payments to shareholders of $ 15.8 million ( $ 1.04 per share ) and $ 15.0 million ( $ 1.00 per share ) , respectively . the company 's assets at december 31 , 2017 i ncluded $ 59.2 million of investments included within cash and cash equivalents on the consolidated balance sheet that are readily convertible to cash without market penalty and an additional $ 54.6 millio n of fixed maturity investments maturing in less than one year . the company believes that these liquid investments , plus the expected cash flow from premium collections , are more than sufficient to provide for projected claim payments and operating cost demands . in the event competitive conditions produce inadequate premium rates and the company chooses to further restrict volume , the liquidity of its investment portfolio would permit management to continue to pay claims as settlements are reached without requiring the disposal of investments at a loss , regardless of interest rates in effect at the time . in addition , the company 's reinsurance program is structured to avoid significant cash outlays that accompany large losses . the company maintains a revolving line of credit with a $ 40.0 million limit and an expiration date of september 23 , 2018. interest on this line of credit is referenced to libor and can be fixed for periods of up to one year at the company 's option . outstanding drawings on this line of credit were $ 20.0 million as of december 31 , 2017 and december 31 , 2016. at december 31 , 2017 , the effective interest rate was 2.65 % . the company had $ 20.0 million remaining unused under the line of credit at december 31 , 2017. the company 's revolving line of credit has three financial covenants , each of which were met as of december 31 , 2017. the three financial covenants relate to a minimum gaap net worth , a minimum statutory surplus and a minimum a.m. best rating . net premiums written by the company 's insurance subsidiaries for 2017 equaled approximately 84 % of the combined statutory surplus of these subsidiaries , a level consistent with higher premiums written . premium writings of up to 100 % and in some cases up to 200 % of surplus are generally considered acceptable by regulatory authorities . further , the statutory capital of each of the insurance subsidiaries substantially exceeded minimum risk based capital requirements set by the naic as of december 31 , 2017. accordingly , the company has the ability to significantly increase its business without seeking additional capital to meet regulatory guidelines . - 25 - at december 31 , 2017 , $ 104.9 million , or 25.1 % of shareholders ' equity , represented net assets of the company 's insurance subsidiaries which , at that time , could not be transferred in the form of dividends , loans or advances to the parent company because of minimum statutory capital requirements . at december 31 , 2017 , $ 59.1 million may be transferred by dividend or loan to the parent company without approval by , or prior notification to , regulatory authorities . story_separator_special_tag an additional $ 256.4 million of shareholders ' equity of the insurance subsidiaries could be advanced or loaned to the parent company with prior notification to , and approval from , regulatory authorities , although transfers of this size would not be practical . the company believes that these restrictions do not currently pose any material liquidity concerns to the company . we expect financial strength and stability of the insurance subsidiaries to permit access by the parent company to short-term and long-term sources of credit when needed . the parent company had cash and marketable securities valued at $ 26.5 million at december 31 , 2017. story_separator_special_tag roman ' , times , serif ; text-align : left '' > premiums ceded to reinsurers averaged 32.6 % of gross written premiums for 2016 , compared to 33.6 % for 2015 , with the variation attributable to a fluctuation in the mix of business as well as reinsurance treaty changes . pre-tax investment income of $ 14.5 million during 2016 was 16 % higher than 2015 , reflecting an increased allocation to higher-yielding bonds and increases in average invested assets . after tax investment income increased by 15 % during 2016 compared to the prior year reflecting the mix between taxable and tax-exempt investment income . - 27 - net gains on investments , before taxes , totaled $ 23.2 million in 2016 compared to net pre-tax losses on investments of $ 1.3 million during 2015. the 2016 results were heavily influenced by direct trading results , with gains of $ 13.3 million in 2016 compared to direct trading gains of $ 4.5 million in 2015. in addition , our investments in limited partnerships produced gains ( appreciation ) of $ 2.5 million in 2016 , compared to losses ( depreciation ) of $ 1.7 million during the prior year . limited partnership investments utilized by the company are primarily engaged in long-short equities , private equity , country focused funds and real estate development as an alternative to direct equity investments . the aggregate of the company 's share of gains and losses in these entities represented a 3.3 % appreciation in value for 2016 , compared to a 2 % decrease in value for 2015. other-than-temporary impairments of $ 5.7 million , netted with gains of $ 12.3 million on previously impaired available-for-sale securities that were sold in 2016 , are included in the net gains stated above . losses and loss expenses incurred during 2016 increased $ 30.7 million ( 19.7 % ) from 2015 to $ 186.5 million , due primarily to prior accident year development and growth in net premiums earned . the 2016 consolidated loss and loss expense ratio was 67.6 % , compared to 59.2 % for 2015. the company 's loss and loss expense ratios for major product lines are summarized in the following table : replace_table_token_11_th the higher loss ratio for fleet transportation during 2016 was the result of less favorable development related to prior accident year losses . the prior year reserve deficiency in 2016 increased the 2016 calendar year fleet transportation loss ratio by 5.0 percentage points compared to a 4.3 percentage point decrease experienced in 2015 due to the prior year reserve savings in 2015. the company had an overall reserve deficiency on prior year claims during 2016 of $ 13.8 million . this net deficiency is included in the computation of loss ratios shown in the previous table , as is the $ 10.1 million savings for 2015 on prior year claims . because of the high limits provided by the company to its fleet transportation insureds , the length of time necessary to settle larger , more complex claims and the volatility of the fleet transportation liability insurance business , the company believes it is important to take a conservative posture in its reserving process . changes in both gross premium volumes and the company 's reinsurance structure for its fleet transportation business can have a significant impact on future loss developments and , as a result , loss and loss expense ratios and prior year reserve development may not be consistent from year to year . other operating expenses for 2016 , before credits for ceding allowances from reinsurers , increased $ 3.4 million ( 3 % ) to $ 123.0 million , generally in line with increases in premium written . this increase was primarily due to an increase in salary and salary related expenses , reflective of the company 's increased workforce in response to the continued expansion of the company 's products and services . reinsurance ceded credits were 16 % higher in 2016 , resulting primarily from favorable changes to the terms of certain reinsurance treaties . after consideration of these expense offsets , operating expenses decreased $ 1.1 million , or 1 % , from the prior year . the effective federal tax rate on the consolidated pre-tax income for 2016 was 32.8 % as compared to 31.4 % in 2015. the effective rate differs from the normal statutory rate primarily as a result of tax-exempt investment income . net income for 2016 increased $ 5.6 million to $ 28.9 million with the increase primarily attributable to realized investment gains . diluted earnings per share of $ 1.92 were recorded in 2016 compared to diluted earnings per share of $ 1.55 in 2015 . - 28 - critical accounting policies the company 's significant accounting policies which are material and or subject to significant degrees of judgment are highlighted below . investment valuation all marketable securities are included in the company 's balance sheets at current fair market value . approximately 64 % of the company 's assets are composed of investments at december 31 , 2017. approximately 92 % of these investments are publicly-traded , owned directly and have readily-ascertainable market values . the remaining 8 % of investments are composed primarily of minority interests in several limited partnerships .
| pre-tax investment income of $ 18.1 million during 2017 was 24.9 % higher than 2016 primarily due to higher interest rates leading to higher reinvestment yields for core fixed income securities , increased dividends from equity securities and an increase in average funds invested resulting from positive cash flow . after-tax investment income of $ 12.7 million increased 23.0 % during 2017 compared to the prior year reflecting the above factors , as well as the mix between taxable and tax-exempt investment income . net gains on investments , before taxes , totaled $ 19.7 million in 2017 compared to $ 23.2 million during 2016. direct trading gains during 2017 were $ 8.2 million lower compared to the prior year . other-than-temporary impairments of $ 0.4 million , netted with gains of $ 1.6 million on previously impaired available-for-sale securities that were sold in 2017 , are included in the net gains stated above . investments in limited partnerships produced gains of $ 12.5 million in 2017 , compared to gains of $ 2.5 million during the prior year . limited partnership investments utilized by the company are primarily engaged in long-short equities , private equity , country focused funds and real estate development as an alternative to direct equity investments . the aggregate of the company 's share of gains and losses in these entities represented a 16.3 % appreciation in value for 2017 , compared to a 3.3 % increase in value for 2016. losses and loss expenses incurred during 2017 increased $ 61.0 million ( 32.7 % ) from 2016 to $ 247.5 million , due primarily to adverse prior accident year development and growth in net premiums earned . the 2017 consolidated loss and loss expense ratio was 75.4 % , compared to 67.6 % for 2016. the company 's loss and loss expense ratios for major product lines are summarized in the following table : replace_table_token_10_th - 26 - the higher loss ratio for fleet transportation during 2017 was the result of adverse loss development in the company 's commercial auto related liability coverages from prior accident years . the prior year reserve deficiency in
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the company targets holding 10-15 % of its gross debt balance in cash . on january 24 , 2017 , we entered into an amended and restated advisory agreement with ashford inc. ( the “ fourth amended and restated advisory agreement ” ) that amends and restates our advisory agreement discussed herein . on june 9 , 2017 , our stockholders approved the fourth amended and restated advisory agreement which became effective on june 21 , 2017. the material terms of the fourth amended and restated advisory agreement include : we made a cash payment to ashford llc of $ 5.0 million on june 21 , 2017 , at which time the fourth amended and restated advisory agreement became effective ; the termination fee payable to ashford llc has been amended by eliminating the 1.1x multiplier and tax gross up components of the fee ; ashford inc. will disclose publicly the revenues and expenses used to calculate “ net earnings ” on a quarterly basis which is used to calculate the termination fee ; ashford llc will retain an accounting firm to provide a quarterly report to us on the reasonableness of ashford llc 's determination of expenses , which will be binding on the parties ; the right of ashford llc to appoint a “ designated ceo ” has been eliminated ; the right of ashford llc to terminate the advisory agreement due to a change in a majority of the “ company incumbent board ” ( as defined in the current advisory agreement ) has been eliminated ; we will be incentivized to grow our assets under a “ growth covenant ” in the fourth amended and restated advisory agreement under which we will receive a deemed credit against a base amount of $ 45.0 million for : 3.75 % of the total purchase price of each hotel acquired after the date of the fourth amended and restated advisory agreement that was recommended by ashford llc , netted against 3.75 % of the total sale price of each hotel sold after the date of the fourth amended and restated advisory agreement . the difference between $ 45.0 million and such net credit , if any , is referred to as the “ uninvested amount. ” if the fourth amended and restated advisory agreement is terminated , other than due to certain acts by ashford llc , we must pay ashford llc the uninvested amount , in addition to any termination fee payable under the fourth amended and restated advisory agreement ; the fourth amended and restated advisory agreement requires us to maintain a net worth of not less than $ 390 million plus 75 % of the equity proceeds from the sale of securities by us after december 31 , 2016 and a covenant prohibiting us 75 from paying dividends except as required to maintain our reit status if paying the dividend would reduce our net worth below the required minimum net worth ; the initial term of the fourth amended and restated advisory agreement ends on the 10th anniversary of its effective date , subject to renewal by ashford llc for up to seven additional successive 10 -year terms ; the base management fee payable to ashford llc will be fixed at 0.70 % , and the fee will be payable on a monthly basis ; reimbursements of expenses to ashford llc will be made monthly in advance , based on an annual expense budget , with a quarterly true-up for actual expenses ; our right to terminate the advisory agreement due to a change of control of ashford llc has been eliminated ; our rights to terminate the advisory agreement at the end of each term upon payment of the termination fee based on the parties being unable to agree on new market-based fees or advisor 's performance have been eliminated ; however , the fourth amended and restated advisory agreement provides a mechanism for the parties to renegotiate the fees payable to ashford llc at the end of each term based on then prevailing market conditions , subject to floors and caps on the changes ; if a change of control ( as defined in the fourth amended and restated advisory agreement ) is pending , we have agreed to deposit not less than 50 % , and in certain cases 100 % , of the applicable termination fee in escrow , with the payment of any remaining amounts owed to ashford llc secured by a letter of credit and or first priority lien on certain assets ; our ability to terminate the fourth amended and restated advisory agreement due to a material default by ashford llc is limited to instances where a court finally determines that the default had a material adverse effect on us and ashford llc fails to pay monetary damages in accordance with the fourth amended and restated advisory agreement ; and if we repudiate the fourth amended and restated advisory agreement through actions or omissions that constitute a repudiation as determined by a final non-appealable order from a court of competent jurisdiction , we will be liable to ashford llc for a liquidated damages amount . on march 1 , 2017 , we commenced an underwritten public offering of approximately 5.8 million shares of common stock at $ 12.15 per share for gross proceeds of $ 69.9 million . the offering closed on march 7 , 2017. the net proceeds from the sale of the shares after underwriting discounts and offering expense were approximately $ 66.4 million on march 7 , 2017 , we closed an offering of approximately 2.0 million shares of our 5.5 % series b cumulative convertible preferred stock ( the “ series b preferred stock ” ) at $ 20.19 per share for gross proceeds of $ 39.9 million . the net proceeds , after underwriting discounts and offering expenses were approximately $ 38.2 million . dividends on the series b preferred stock accrue at a rate of 5.50 % on the liquidation preference of $ 25.00 per share . story_separator_special_tag on march 31 , 2017 , the underwriters partially exercised their over-allotment option and purchased an additional 100,000 shares of the series b preferred stock , which closed on april 5 , 2017. the net proceeds from the partially exercised over-allotment option after underwriting discounts were approximately $ 1.9 million . on march 31 , 2017 , we acquired a 100 % interest in the park hyatt beaver creek in beaver creek , colorado for total consideration of $ 145.5 million . concurrent with the closing of the acquisition , we completed the financing of a $ 67.5 million mortgage loan . this mortgage loan is interest only and provides for a floating interest rate of libor + 2.75 % . the stated maturity date of the mortgage loan is april 2019 , with three one -year extension options . the mortgage loan is secured by the park hyatt beaver creek . on april 27 , 2017 , mr. douglas a. kessler resigned from the board of directors of ashford prime and no longer is president of ashford prime as a result of being appointed chief executive officer of ashford trust . on may 11 , 2017 , we acquired a 100 % interest in the hotel yountville in yountville , california for total consideration of $ 96.5 million . concurrent with the closing of the acquisition , we completed the financing of a $ 51.0 million mortgage loan . this mortgage loan is interest only and provides for a floating interest rate of libor + 2.55 % . the stated maturity date of the mortgage loan is may 2022 . the mortgage loan is secured by the hotel yountville . on june 20 , 2017 , we announced that we have entered into an agreement with marriott to convert the philadelphia courtyard to an autograph collection property . on august 18 , 2017 , we refinanced our existing $ 40.0 million mortgage loan with a final maturity date in december 2020 with a new $ 40.0 million mortgage loan that is interest only , provides for a floating interest rate of libor + 2.55 % and a stated maturity date of august 2022. the mortgage loan is secured by the bardessono hotel . on november 1 , 2017 , we completed the sale of the 404-room plano marriott legacy town center for $ 104.0 million in cash . we repaid approximately $ 87.4 million on the mortgage loan that was previously secured in part by the hotel property . 76 on november 1 , 2017 , we announced plans to convert the san francisco courtyard downtown to an autograph collection property and that we listed the tampa renaissance for sale . on december 5 , 2017 , our board of directors reapproved the stock repurchase program pursuant to which the board granted a repurchase authorization to acquire shares of the company 's common stock , par value $ 0.01 per share having an aggregate value of up to $ 50 million . the board 's authorization replaced any previous repurchase authorizations . on december 11 , 2017 , we entered into equity distribution agreements with morgan stanley & co. llc and ubs securities llc , each acting as a sales agent ( the “ equity distribution agreements ” ) . pursuant to the equity distribution agreements , we may sell from time to time through the sales agents shares of our common stock having an aggregate offering price of up to $ 50.0 million . sales of shares of our common stock , if any , may be made in negotiated transactions or transactions that are deemed to be “ at-the-market ” offerings as defined in rule 415 of the securities act , including sales made directly on the new york stock exchange , the existing trading market for our common stock , or sales made to or through a market maker other than on an exchange or through an electronic communications network . we will pay each of the sales agents a commission , which in each case shall not be more than 2.0 % of the gross sales price of the shares of our common stock sold through such sales agent . as of december 31 , 2017 , no shares of our common stock have been sold under this program . on february 12 , 2018 , we entered into a definitive agreement to acquire the 266-room ritz-carlton sarasota in sarasota , florida for $ 171.0 million and a 22 acre plot of vacant land for $ 9.7 million . the acquisitions are expected to close on april 3 , 2018. key indicators of operating performance we use a variety of operating and other information to evaluate the operating performance of our business . these key indicators include financial information that is prepared in accordance with gaap as well as other financial measures that are non-gaap measures . in addition , we use other information that may not be financial in nature , including statistical information and comparative data . we use this information to measure the operating performance of our individual hotels , groups of hotels and or business as a whole . we also use these metrics to evaluate the hotels in our portfolio and potential acquisitions to determine each hotel 's contribution to cash flow and its potential to provide attractive long-term total returns . these key indicators include : occupancy-occupancy means the total number of hotel rooms sold in a given period divided by the total number of rooms available . occupancy measures the utilization of our hotels ' available capacity . we use occupancy to measure demand at a specific hotel or group of hotels in a given period . adr-adr means average daily rate and is calculated by dividing total hotel rooms revenues by total number of rooms sold in a given period . adr measures average room price attained by a hotel and adr trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels .
| net income attributable to the company increased $ 3.7 million , to $ 23.0 million for the year ended december 31 , 2017 ( “ 2017 ” ) compared to $ 19.3 million for the year ended december 31 , 2016 ( “ 2016 ” ) as a result of the factors discussed below . rooms revenue . rooms revenue from our hotel properties de creased $ 1.8 million , or 0.6 % to $ 286.0 million during 2017 compared to 2016 . during 2017 , we experienced a 197 basis point decrease in occupancy and a 2.9 % in crease in room rates . rooms revenue from our ten comparable hotel properties decreased $ 8.6 million due a 127 basis point decrease in occupancy and lower room rates of 0.6 % . rooms revenue decreased ( i ) $ 7.0 million at the seattle courtyard downtown as a result of its sale on july 1 , 2016 ; ( ii ) $ 4.6 million at the ritz-carlton , st. thomas due to the negative impact caused by hurricanes irma and maria ; ( iii ) $ 4.1 million at the san francisco courtyard downtown from 1.0 % lower room rates and a 962 basis point decrease in occupancy due to renovations at the hotel ; ( iv ) $ 3.1 million at the plano marriott legacy town center as a result of its sale on november 1 , 2017 ; ( v ) $ 2.2 million at the chicago sofitel magnificent mile from 6.1 % lower room rates and a 149 basis point decrease in occupancy due to renovations at the hotel ; ( vi ) $ 1.6 million at the key west pier house as a result of 1,083 basis point decrease in occupancy , partially offset by 4.8 % higher room rates at the hotel . the results of operations of the hotel were negatively impacted by hurricane irma ; ( vii ) $ 923,000 at the philadelphia courtyard as a result of 3.2 % lower room rates , partially offset by a 3 basis point increase in occupancy due to a major renovation at the hotel during 2017 ; and ( viii ) $ 632,000 at the bardessono hotel as a result of a 741 basis point
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we have also audited , in accordance with the standards of the public company accounting oversight board ( united states ) , the consolidated financial statements of the company as of and for the year ended december 31 , 2015 , and our report dated march 10 , 2016 , expressed an unqualified opinion on those financial statements . grant thornton llp dallas , texas march 10 , 2016 48 item 9b . other information . there was no information required to be disclosed in a report on form 8-k during the three months ended december 31 , 2015 that was not reported . part iii item 10. directors , executive officers and corporate governance . certain information required by part iii is omitted from this form 10-k and is incorporated herein by reference to our definitive proxy statement for our 2016 annual meeting of stockholders which we intend to file pursuant to regulation 14a under the securities exchange act of 1934 , as amended , within 120 days after december 31 , 2015. directors the information for this item relating to our directors is incorporated by reference from our definitive proxy statement to be story_separator_special_tag overview we develop and manufacture products primarily for medical applications . we market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians , hospitals , clinics and other treatment centers . our medical products primarily serve the fluid delivery , cardiovascular , and ophthalmology markets . our other medical and non-medical products include valves and inflation devices used in marine and aviation safety products . in 2015 , approximately 35 percent of our sales were outside the united states . 18 our products are used in a wide variety of applications by numerous customers . we encounter competition in all of our markets and compete primarily on the basis of product quality , price , engineering , customer service and delivery time . our strategy is to provide a broad selection of products in the areas of our expertise . research and development efforts are focused on improving current products and developing highly-engineered products that meet customer needs and serve niche markets with meaningful sales potential . proposed new products may be subject to regulatory clearance or approval prior to commercialization and the time period for introducing a new product to the marketplace can be unpredictable . we also focus on controlling costs by investing in modern manufacturing technologies and controlling purchasing processes . we have been successful in consistently generating cash from operations and have used that cash to reduce or eliminate indebtedness , to fund capital expenditures , to make investments , to repurchase stock and to pay dividends . our strategic objective is to further enhance our position in our served markets by : ● focusing on customer needs ; ● expanding existing product lines and developing new products ; ● maintaining a culture of controlling cost ; and ● preserving and fostering a collaborative , entrepreneurial management structure . for the year ended december 31 , 2015 , we reported revenues of $ 145.7 million , operating income of $ 42.5 million and net income of $ 28.9 million . story_separator_special_tag 90-day libor , as selected by us , plus one percent . effective june 11 , 2015 , our revolving credit facility was amended to extend the date until which the lender is obligated to make advances under the revolving line of credit to october 1 , 2021 and , assuming an event of default is not then existing , we can convert outstanding advances under the revolving line of credit to term loans with a term of up to two years . we had no outstanding borrowings under our credit facility at december 31 , 2015 or 2014. the credit facility contains various restrictive covenants , none of which is expected to impact our liquidity or capital resources . at december 31 , 2015 , we were in compliance with all financial covenants . we believe the bank providing the credit facility is highly-rated and that the entire $ 40.0 million under the credit facility is currently available to us . 20 at december 31 , 2015 , we had a total of $ 38.3 million in cash and cash equivalents , short-term investments and long-term investments , a decrease of $ 7.3 million from december 31 , 2014. the principal contributor to this decrease was the purchases of treasury stock under our stock repurchase program . cash flows provided by operations of $ 40.4 million in 2015 were primarily comprised of net income plus the net effect of non-cash expenses . at december 31 , 2015 , we had working capital of $ 69.0 million , including $ 28.3 million in cash and cash equivalents and $ 44,000 in short-term investments . the $ 4.8 million increase in working capital during 2015 was primarily related to increases in cash and cash equivalents and inventories and decreases in accounts payable and accrued liabilities . this increase was partially offset by decreases in short-term investments and prepaid expenses . the increase in cash was primarily a result of operational results and proceeds from maturing investments partially offset by purchases of treasury stock under our stock repurchase program , purchases of property , plant and equipment and payment of dividends . increased inventories are primarily due to higher safety stock levels necessary to support increased revenues . decreased prepaid expenses are primarily related to federal income tax payments . decreased accounts payable are primarily related to 2014 year-end purchases of capital equipment that are no longer due . story_separator_special_tag working capital items consisted primarily of cash , accounts receivable , short-term investments , inventories and other current assets minus accounts payable and other current liabilities . capital expenditures for property , plant and equipment totaled $ 9.3 million in 2015 , compared with $ 12.7 million in 2014 and $ 7.5 million in 2013. these expenditures were primarily for machinery and equipment . we expect 2016 capital expenditures , primarily machinery and equipment , to be greater than the average of the levels expended during each of the past three years . we paid cash dividends totaling $ 6.1 million , $ 5.4 million and $ 4.8 million during 2015 , 2014 and 2013 , respectively . we expect to fund future dividend payments with cash flows from operations . we purchased treasury stock totaling $ 30.7 million , $ 23.6 million and $ 9.2 million during 2015 , 2014 and 2013 , respectively . the table below summarizes debt , lease and other contractual obligations outstanding at december 31 , 2015 : replace_table_token_4_th we believe our cash , cash equivalents , short-term investments and long-term investments , cash flows from operations and available borrowings of up to $ 40.0 million under our credit facility will be sufficient to fund our cash requirements for at least the foreseeable future . we believe our strong financial position would allow us to access equity or debt financing should that be necessary . additionally , we expect our cash and cash equivalents and investments , as a whole , will continue to increase in 2016 . 21 off-balance sheet arrangements we have no off-balance sheet financing arrangements . impact of inflation we experience the effects of inflation primarily in the prices we pay for labor , materials and services . over the last three years , we have experienced the effects of moderate inflation in these costs . at times , we have been able to offset a portion of these increased costs by increasing the sales prices of our products . however , competitive pressures have not allowed for full recovery of these cost increases . new accounting pronouncements in november 2015 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) 2015-17 , balance sheet classification of deferred taxes ( asu 2015-17 ) which requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet . the current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by this guidance . asu 2015-17 is effective for annual and interim periods beginning after december 15 , 2016 but early application is permitted and the guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented . the company does not anticipate a material impact on its consolidated financial statements at the time of adoption of this new standard . in may 2014 , the fasb issued asu 2014-09 , revenue from contracts with customers ( asu 2014-09 ) . asu 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers . asu 2014-09 will replace most existing revenue recognition guidance in united states generally accepted accounting principles when it becomes effective . in july 2015 , the fasb voted to delay the effective date of asu 2014-09 by one year , making it effective for fiscal years , and interim periods within those years , beginning after december 15 , 2017 , with early adoption permitted as of the original effective date . asu 2014-09 permits the use of either the retrospective or cumulative effect transition method . the company is evaluating the effect that asu 2014-09 will have on its consolidated financial statements and related disclosures . the company has not yet selected a transition method nor has it determined the effect of asu 2014-09 on its ongoing financial reporting . from time to time , new accounting standards updates applicable to us are issued by the fasb which we will adopt as of the specified effective date . unless otherwise discussed , we believe the impact of recently issued standards updates that are not yet effective will not have a material impact on our consolidated financial statements upon adoption . critical accounting policies the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . in the preparation of these financial statements , we make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . we believe the following discussion addresses our most critical accounting policies and estimates , which are those that are most important to the portrayal of our financial condition and results and require management 's most difficult , subjective and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . actual results could differ significantly from those estimates under different assumptions and conditions . from time to time , we accrue legal costs associated with certain litigation . in making determinations of likely outcomes of litigation matters , we consider the evaluation of legal counsel knowledgeable about each matter , case law and other case-specific issues .
| operating expenses were $ 28.5 million in 2015 compared with $ 27.7 million in 2014 and $ 25.1 million in 2013. research and development , or r & d , expenses increased $ 1.1 million in 2015 as compared to 2014 primarily as a result of increased costs for outside services and supplies . r & d expenses consist primarily of salaries and other related expenses of our r & d personnel as well as costs associated with regulatory matters . in 2015 , selling expenses decreased $ 167,000 as compared with 2014 primarily as a result of decreased promotional costs partially offset by increased commissions . selling expenses consist primarily of salaries , commissions and other related expenses for sales and marketing personnel , marketing , advertising and promotional expenses . general and administrative , or g & a , expenses decreased $ 123,000 in 2015 as compared to 2014 primarily as a result of reduced outside services partially offset by increased amortization . g & a expenses consist primarily of salaries and other related expenses of administrative , executive and financial personnel and outside professional fees . 19 r & d expenses increased $ 1.0 million in 2014 as compared to 2013 primarily related to increased costs for supplies and outside services . in 2014 , selling expenses were virtually unchanged from 2013 as decreased promotional costs were offset by increased commissions . g & a expenses increased $ 1.6 million in 2014 as compared to 2013 primarily due to increased compensation , depreciation , amortization and outside services . our operating income for 2015 was $ 42.5 million compared with $ 40.8 million in 2014 and $ 37.9 million in 2013. operating income was 29 percent of revenues for 2015 , 2014 and 2013. increases in gross profit partially offset by increases in operating expenses described above were the major contributors to the operating income increases in 2015 and 2014 as compared to the previous years . we expect modest growth in our operating income during 2016 as compared to 2015 reflecting the volatility of our ophthalmic sales as well as the significant impact of the strong u. s. dollar on sales to our international markets . interest income for 2015 was
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if these criteria are not met , the arrangement is accounted for as one unit of accounting and the recognition of revenue occurs upon delivery/completion or ratably as a single unit of accounting over the contractual service period . for multiple-element arrangements , kodak allocates to , and recognizes revenue from , the various elements based on their relative selling price , using vendor-specific objective evidence ( vsoe ) , third-party evidence ( tpe ) , and best estimated selling price ( besp ) in accordance with the selling price hierarchy . besp is established by considering internal factors such as margin objectives , pricing practices and controls , customer segment pricing strategies and the product life cycle . consideration is also given to geographies , market conditions such as competitor pricing strategies and industry technology life cycles . revenue allocated to an individual element is recognized when all revenue recognition criteria are met for that element . kodak limits the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of products or services , future performance obligations or subject to customer-specified return or refund privileges . at the time revenue is recognized , kodak also records reductions to revenue for customer incentive programs . such incentive programs include cash and volume discounts , price protection and , promotional , cooperative and other advertising allowances . for those incentives that require the estimation of sales volumes or redemption rates , such as for volume rebates , kodak uses historical experience and both internal and customer data to estimate the sales incentive at the time revenue is recognized . in the event that the actual results of these items differ from the estimates , adjustments to the sales incentive accruals would be recorded . valuation and useful lives of long-lived assets , including goodwill and intangible assets kodak performs a test for goodwill impairment annually and whenever events or changes in circumstances occur that would more likely than not reduce the fair value of the reporting unit below its carrying amount . historically , kodak performed its annual goodwill impairment assessment as of september 30. upon application of fresh start accounting , kodak elected october 1 as the annual goodwill impairment assessment date . kodak tests goodwill for impairment at a level of reporting referred to as a reporting unit . a reporting unit is an operating segment or one level below an operating segment ( referred to as a component ) . a component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component . when two or more components of an operating segment have similar economic characteristics , the components are aggregated and deemed a single reporting unit . an operating segment is deemed to be a reporting unit if all of its components are similar , if none of its components is a reporting unit , or if the segment comprises only a single component . as of december 31 , 2012 , the graphics , entertainment and commercial films segment had two goodwill reporting units : graphics and entertainment imaging and commercial films . the digital printing and enterprise segment had four goodwill reporting units : digital printing , packaging and functional printing , enterprise services and solutions , and consumer inkjet systems . the personalized and document imaging segment had three goodwill reporting units : personalized imaging , document imaging and intellectual property . effective in the first quarter of 2013 , the intellectual property and brand licensing reporting unit was reported in the graphics , entertainment and commercial films segment . goodwill assigned to the intellectual property and brand licensing reporting unit of approximately $ 113 million as of december 31 , 2012 was previously reported in the personalized and document imaging segment . due to the sale of its digital imaging patents during the first quarter of 2013 , kodak concluded that the carrying value of goodwill for its intellectual property and brand licensing reporting unit exceeded the implied fair value of goodwill . the fair value of the intellectual property and brand licensing reporting unit was estimated using an income approach in which the future cash flows , including a terminal value at the end of the projection period , were discounted to present value . kodak recorded a pre-tax impairment charge of $ 77 million that is included in other operating expense ( income ) , net in the consolidated statement of operations . effective in the second quarter of 2013 , due to the personalized and document imaging disposal group being reported as assets held for sale , goodwill of approximately $ 140 million in the personalized and document imaging segment was reported as a component of assets held for sale as of june 30 , 2013 and subsequently written-off as part of the loss on sale of the personalized and document imaging businesses . as part of fresh start accounting , kodak adjusted the carrying value of goodwill to $ 88 million which represents the reorganizational value of assets in excess of amounts allocated to identified tangible and intangible assets . goodwill that was recorded as part of fresh start accounting was allocated to the graphics , packaging and functional printing , intellectual property and brand licensing and consumer inkjet systems reporting units . page 25 goodwill is impaired if the fair value of a reporting unit is less than the related carrying value . kodak may assess qualitative factors for some or all of its reporting units to determine whether it is more likely than not ( that is , a likelihood of more than 50 percent ) that the fair value of a reporting unit is less than its carrying amount , including goodwill . story_separator_special_tag if kodak determines that it is more likely than not that a reporting unit 's fair value is less than its carrying amount , or if kodak elects to bypass the qualitative assessment for any of its reporting units , then the fair value of that reporting unit is compared to its carrying value . if the fair value of a reporting unit is less than its carrying value , kodak must determine the implied fair value of the goodwill associated with that reporting unit . the implied fair value of goodwill is determined by first allocating the fair value of the reporting unit to all of its assets and liabilities and then computing the excess of the reporting unit 's fair value over the amounts assigned to the assets and liabilities . if the carrying value of goodwill exceeds the implied fair value of goodwill , such excess represents the amount of goodwill impairment charge that must be recognized . determining the fair value of a reporting unit involves the use of significant estimates and assumptions . the fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date . quoted market prices in active markets are the best evidence of fair value , however the market price of an individual equity security may not be representative of the fair value of the reporting unit as a whole and , therefore need not be the sole measurement basis of the fair value of a reporting unit . kodak estimates the fair value of its reporting units using the guideline public company method and discounted cash flow method . to estimate fair value utilizing the guideline public company method , kodak applies valuation multiples , derived from the operating data of publicly-traded benchmark companies , to the same operating data of the reporting units . the valuation multiples are based on financial measures of revenue , earnings before interest , taxes , depreciation and amortization ( ebitda ) and earnings before interest and taxes ( ebit ) . to estimate fair value utilizing the discounted cash flow method , kodak establishes an estimate of future cash flows for each reporting unit and discounts those estimated future cash flows to present value . as part of fresh start accounting , kodak estimated the fair value of each of its reporting units . except for the graphics reporting unit , kodak did not use the guideline public company method because reporting unit ebit and or ebitda results were negative , which would have only allowed the application of a revenue multiple in determining fair value under the guideline public company method , and or reporting units ranked below all the selected market participants for these financial measures . when using the guideline public company method , multiples should be derived from companies that exhibit a high degree of comparability to the business being valued . kodak ultimately gave 100 % weighting to the discounted cash flow method for these reporting units . for the graphics reporting unit , kodak selected equal weighting of the guideline public company method and the discounted cash flow method as the valuation approaches produced comparable ranges of fair value . to estimate fair value utilizing the discounted cash flow method , kodak established an estimate of future cash flows for the period ranging from september 1 , 2013 to december 31 , 2022 and discounted the estimated future cash flows to present value . the expected cash flows for the period september 1 , 2013 to december 31 , 2017 were based on the financial projections and assumptions utilized in the disclosure statement in support of the plan . the expected cash flows for the period january 1 , 2018 to december 31 , 2022 were derived from earnings forecasts and assumptions regarding growth and margin projections , as applicable . the discount rates are estimated based on an after-tax weighted average cost of capital ( wacc ) for each reporting unit reflecting the rate of return that would be expected by a market participant . the wacc also takes into consideration a company specific risk premium for each reporting unit reflecting the risk associated with the overall uncertainty of the financial projections . discount rates of 27 % to 32 % were utilized in the fresh start valuation based on kodak 's best estimates of the after-tax weighted-average cost of capital of each reporting unit . a terminal value was included for all reporting units , except for the intellectual property and brand licensing and consumer inkjet systems reporting units , at the end of the cash flow projection period to reflect the remaining value that the reporting unit is expected to generate . the terminal value is calculated using the constant growth method ( cgm ) based on the cash flows of the final year of the discrete period . for the 2013 annual goodwill test , kodak elected to utilize the qualitative assessment for all reporting units with goodwill balances due to the fresh start valuation being performed as of september 1 , 2013. in performing the qualitative assessment , kodak updated the carrying values of each reporting unit , compared actual results to budgeted performance and considered the extent to which adverse events and circumstances could affect the fair value of a reporting unit since the fresh start valuation . based on the results of this assessment , no impairment of goodwill was indicated . impairment of goodwill could occur in the future if a reporting unit 's fair value changes significantly from the amounts estimated as part of fresh start accounting , if market or interest rate environments deteriorate , or if a reporting unit 's carrying value changes materially compared with changes in its fair values . page 26 in conjunction with fresh start accounting , kodak recorded a $ 54 million indefinite-lived intangible asset related to the kodak trade name .
| prior year for the year ended december 31 , 2012 , net sales decreased approximately 24 % compared with the same period in 2011 primarily due to volume declines across all segments . also included in the total decline was the $ 61 million license revenue reduction reflecting sharing , with licensees , of the withholding tax refund received in the first quarter of 2012 ( refer to note 17 , income taxes for additional information ) . non-recurring intellectual property licensing agreements contributed $ 82 million to revenues in 2011. see segment discussion below for additional information . gross profit current year the increase in gross profit percent from 2012 to 2013 was due to favorable price/mix in the graphics , entertainment and commercial films segment ( +4pp ) primarily from intellectual property licensing and the digital printing and enterprise segment ( +3pp ) . also contributing to the increase was a reduction in pension and other postretirement benefit costs in the current year ( +3pp ) and other cost improvements from each segment ( +3pp ) partially offset by increased manufacturing and other costs due to the revaluation of inventory from the application of fresh start accounting ( -3pp ) . see segment discussions below for additional details . prior year the decrease in gross profit percent from 2011 to 2012 was driven by unfavorable price/mix within the graphics , entertainment & commercial films segment ( -7pp ) primarily attributable to the $ 61 million licensing revenue reduction as noted above . this was partially offset by favorable price/mix within the dp & e segment , due to the focus on liquidity within consumer inkjet systems ( +4pp ) . see segment discussions below for additional details . selling , general and administrative expenses the decreases in consolidated selling , general and administrative expenses ( sg & a ) from 2012 to 2013 and 2011 to 2012 were the result of cost reduction actions . for 2012 to 2013 this included the change in strategy for consumer inkjet systems . research and development costs the decreases in consolidated research and
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expenses our expenses primarily consist of : cost of products sold ( excluding depreciation and amortization ) , which includes raw materials , labor and benefits , rent , freight , utilities and operating supplies . cost of products sold is primarily driven by the cost of these items , production volume and the mix of products manufactured . moreover , we account for our inventories on a first-in-first-out ( fifo ) basis ; as a result , our cost of products sold will vary significantly by period if there are fluctuations in the cost of our key raw materials ( steel and plastic resin ) . page 36 index to financial statements depreciation and amortization , which includes depreciation of property , plant and equipment and amortization of identifiable intangible assets . depreciation expense is primarily driven by capital expenditures , offset by the reduction of assets that become fully depreciated and disposals of equipment . depreciation expense may also be affected by additional depreciation due to the shortening of useful lives in association with restructuring plans . amortization expense is primarily driven by the valuation of intangible assets resulting from acquisitions . restructuring charge ( adjustment ) , which includes costs related to closing redundant facilities and eliminating redundant positions . restructuring charges are typically driven by our initiatives to reduce our overall operating costs through consolidation or closure of facilities and headcount reductions and include severance and termination benefits , rent and other holding costs on vacated facilities and costs associated with the removal of equipment . restructuring charge ( adjustment ) also includes pension withdrawal liabilities related to the termination of employees participating in multiemployer pension plans . selling and administrative expense , which includes salaries and incentive compensation for corporate and sales personnel , professional fees , insurance , stock-based compensation expense , rent , bad debt expense and other corporate administrative costs . the primary drivers for selling and administrative expense are wage increases , inflation , regulatory compliance , stock-based compensation expense , performance-based incentive compensation and legal , accounting and other professional fees . interest expense , net , which includes interest payments on our indebtedness . changes in the average outstanding amount of net indebtedness and fluctuations in interest rates drive changes in these costs . other expense , net , which includes foreign currency transaction gains and losses , gains and losses on the disposition of property , plant and equipment , kelso financial advisory fees ( which were discontinued concurrent with the public offering in 2007 ) and other non-operating expenses . raw materials raw materials for the metal segment include tinplate , blackplate and cold rolled steel , various fittings , coatings , inks and compounds . historically , steel producers implemented annual price changes , generally at the beginning of the calendar year . however , as the cost to produce steel has become more volatile , our suppliers have begun to adjust their prices more frequently , either through price increases or surcharges . over the last four years there has been consolidation in the steel industry , and as a result our steel raw material purchases have been concentrated with the largest suppliers . over the past several years , steel pricing has increased more than historical levels due to increases in our steel producers ' cost of raw materials and strong global demand . in the third quarter of 2008 , certain steel producers imposed surcharges on negotiated prices in existing contracts . during the third quarter of 2008 , we passed such cost increases through to our customers . raw materials for the plastics segment include resin , colorant and fittings . resin prices fluctuate periodically throughout the year , but have increased steadily over the past several years . we have generally been able to recover these raw material price increases through pass-through mechanisms in our sales agreements , although the timing of the recovery may not coincide with when we incur the raw material cost and the amount of the recovery may not equal the increase in raw material costs . during 2008 , raw material commodity prices experienced volatility ; steel and resin costs increased , metal supply tightened and resin supply remained stable . during 2009 , we expect steel prices to increase further and supply to normalize , and we expect resin prices to decline with supply remaining stable . in the first quarter of 2009 , resin prices declined sharply . although we do not believe the price changes and restricted supply will be sustained , they are demonstrative of the impact that current general economic conditions are having on commodity pricing . page 37 index to financial statements we have historically been able to procure sufficient quantities of steel and resin to meet our customers ' requirements even during periods of tightened supply . however , we can not assure that we may be able to do so in the future . to reduce our overall cost of raw materials , we may periodically purchase additional quantities of steel and resin in advance of price increases , each as may be available . acquisitions the results of operations of the following acquisitions are included in the consolidated financial statements from the applicable date of acquisition . nampac acquisition in july 2004 , we acquired nampac , a manufacturer of rigid plastic containers for industrial packaging markets , in a stock purchase . the acquisition of nampac enabled us to expand our presence in the general line rigid plastic container market and to further diversify our plastic container product offerings . icl acquisition in july 2006 , we acquired substantially all of the assets and assumed certain of the liabilities of industrial containers , ltd. , a toronto-based manufacturer of rigid plastic containers and steel pails for industrial packaging markets . the acquisition of icl enabled us to expand in the canadian market . story_separator_special_tag vulcan acquisition in january 2007 , we acquired substantially all of the assets and assumed certain liabilities of vulcan containers , ltd. vulcan was headquartered in toronto and produced steel pails for distribution primarily in canada . in february 2007 , we committed to a plan to consolidate the vulcan business with and into the metal packaging operations of icl . the business has been consolidated and the vulcan manufacturing facilities were closed . in this discussion and analysis , we refer to the acquisitions of icl and vulcan as the canadian acquisitions. the acquisitions are discussed in further detail under acquisitions in note 1 , general , of notes to consolidated financial statements in item 8. restructuring initiatives in 2007 , we consolidated our icl and vulcan businesses and closed the manufacturing facilities of vulcan . the consolidation enabled us to continue to service the vulcan business by utilizing capacity at our icl facilities . in 2008 , we closed our plastic manufacturing facility in cleveland , ohio and our metal material center in franklin park , illinois . the closures enabled us to consolidate capacity in other of our facilities and eliminate redundant positions . we recorded a restructuring charge in 2008 of $ 8.5 million related to these facility closures , $ 3.4 million of which was for withdrawal liabilities from union sponsored multiemployer pension plans . the charge included $ 1.0 million for severance and benefits and $ 4.1 million for closure and facility holding costs . in 2008 , we also eliminated certain positions at our manufacturing facilities in canada and recorded $ 1.0 million in restructuring charges for severance and benefits . in the first quarter of 2009 , we eliminated approximately 25 salaried positions and recorded a restructuring charge of approximately $ 0.3 million for severance and benefits . in expectation of continued economic weakness in the general economy and weakness in demand from our customers as they respond to the same economic factors , management has initiated cost reduction measures throughout the organization , primarily related to managing spending and capacity utilization . management has also formulated contingency plans that could result in future restructuring charges . page 38 index to financial statements results of operations references to cost of products sold in the following discussion refer to cost of products sold excluding depreciation and amortization . references to gross margin in the following discussion refer to net sales less cost of products sold . references to gross margin percentage refer to gross margin as a percentage of net sales . we present cost of products sold and gross margin because these measures are used by management to evaluate the performance by segment and on a consolidated basis . management believes gross margin and gross margin percentage provide information on the contribution of sales to ebitda ( a primary performance measure used by management ) . fiscal year 2008 , fiscal year 2007 and fiscal year 2006 overview the following highlights changes in the results of operations for 2008 compared to 2007 and 2007 compared to 2006. during 2008 , net sales increased $ 60.0 million ( 6.3 % ) and gross margin increased $ 1.1 million ( 0.9 % ) compared to 2007. the increase in net sales is primarily due to higher sales prices driven by higher raw material costs partially offset by lower volumes and an unfavorable product and customer mix . volume increased for aerosol containers , blow mold containers and injection mold pails and decreased for metal general line containers primarily as a result of a weak housing market affecting demand for paint and other housing related products . the canadian acquisitions contributed $ 62.3 million to net sales and $ 10.4 million to gross margin in 2007 over 2006. excluding the $ 4.3 million of initial public offering expense included in fiscal 2007 cost of products sold , the decrease in gross margin of $ 3.2 million in 2008 is primarily due to lower volumes , an unfavorable mix of products sold and higher spending , partially offset by certain sales price increases in excess of higher material costs . excluding the impact of the canadian acquisitions , net sales decreased $ 21.8 million ( 2.4 % ) and gross margin decreased $ 12.4 million ( 1.6 % ) in fiscal 2007 compared to 2006. gross margin as a percentage of net sales decreased to 12.8 % in fiscal 2008 from 13.4 % in 2007. the decrease is primarily due to lower volume , an unfavorable mix of products sold and higher spending , partially offset by the increase in selling prices relative to higher resin and steel costs . metal segment gross margin increased 7.0 % from $ 81.1 million in 2007 to $ 86.8 million in 2008 while plastic segment gross margin decreased 15.3 % from $ 52.8 million in 2007 to $ 44.7 million in 2008. the decrease in net sales in 2007 compared to 2006 , excluding the impact of the canadian acquisitions , is primarily due to lower selling prices as a result of customer mix and competitive pricing pressure . volume results were mixed by product . volume increased for aerosol containers and blow molded plastic containers and declined slightly for injection molded plastic pails and metal general line containers primarily as a result of a weak housing market affecting demand for paint and other housing related products . excluding the impact of the canadian acquisitions and the impact of the initial public offering related expenses of $ 4.3 million included in cost of products sold in 2007 , the decrease in gross margin of $ 13.7 million in 2007 compared to 2006 is primarily due to the factors affecting net sales . page 39 index to financial statements the following table sets forth changes in our statements of operations . fiscal years ended september 28 , 2008 , september 30 , 2007 and october 1 , 2006 ( $ millions ) replace_table_token_7_th nmnot meaningful net sales replace_table_token_8_th metal packaging .
| cash provided by operations decreased $ 14.0 million ( 23 % ) in 2007 from 2006 primarily a result of the 2007 expenditures related to the ipo , as discussed above . investing activities cash flows used in investing activities increased $ 2.2 million ( 7 % ) in 2008 from 2007. capital expenditures increased $ 8.4 million ( 33 % ) in 2008 and $ 5.9 million of cash was used in 2007 to acquire vulcan . there were no business acquisitions in 2008. capital expenditures increased in 2008 to complete capital investments related to machinery and equipment for the production of new plastic containers developed in 2007 and for the production of aerosol components . capital expenditures in 2007 increased approximately 2 % from 2006. cash flows used in investing activities decreased in 2007 from 2006 due to the acquisition of icl in 2006. see acquisitions in note 1 , general , of notes to consolidated financial statements in item 8. as discussed above , management expects capital expenditures to decrease in 2009 by approximately $ 12 million to $ 14 million due to the completion of certain major projects in 2008 that will not have comparable spending in 2009. management does not anticipate large capital expenditures for any new projects in 2009. financing activities cash used in financing activities decreased in 2008 from 2007 due to a $ 20.0 million voluntary debt repayment in 2007 , which was offset by $ 7.8 million in cash flows from proceeds and excess tax benefits associated with the exercise of stock options in 2007. option exercises in 2007 were primarily connected with the ipo . cash provided from financing activities in 2006 was primarily related to the refinancing of the credit facility in connection with the acquisition of icl . the refinancing provided net cash of $ 44.1 million . the net proceeds were partially offset by the use of $ 8.8 million to
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in response to martin marietta 's action , we incurred legal , professional and other costs of $ 43.4 million in 2012 and $ 2.2 million in 2011. reconciliation of non-gaap financial measures generally accepted accounting principles ( gaap ) does not define `` free cash flow , `` `` cash gross profit '' and `` earnings before interest , taxes , depreciation and amortization ” ( ebitda ) . thus , free cash flow should not be considered as an alternative to net cash provided by operating activities or any other liquidity measure defined by gaap . likewise , cash gross profit and ebitda should not be considered as alternatives to earnings measures defined by gaap . we present these metrics for the convenience of investment professionals who use such metrics in their analyse s a nd for shareholders who need to understand the metrics we use to assess performance and to monitor our cash and liquidity positions . the investment community often uses these metrics as indicators of a company 's ability to incur and service debt and to assess the operating performance of a company 's businesses . we use free cash flow , cash gross profit , ebitda and other such measures to assess liquidity and the operating performance of our various business units and the consolidated company . additionally , we adjust ebitda for certain items to provide a more consistent comparison of performance from period to period and provide the earnings per share impact of these adjustments for the convenience of the investment community . we do not use these metrics as a measure to allocate resources . reconciliations of these metrics to their nearest gaap measures are presented below : free cash flow free cash flow is calculated by deduct ing purchases of property , plant & equipment from net cash provided by operating activities . replace_table_token_7_th part i i 29 cash gross profit c ash gross profit adds back noncash charges for depreciation , depletion , accretion and amortization to gross profit . replace_table_token_8_th ebitda and adjusted ebitda ebitda is an acronym for earnings before interest , taxes , depreciation and amortization . replace_table_token_9_th part i i 30 results of operations net sales and cost of goods sold exclude intersegment sales and delivery revenues and cost . this presentation is consistent with the basis on which we review our consolidated results of operations . we discuss separately our discontinued operations , which consist s of our former chemicals business . the following table highlights significant components of our consolidated operating results including ebitda and adjusted ebitda . consolidated operating result highlights replace_table_token_10_th operating leverage in our business the strong recovery in 2013 's gross profit demonstrates the operating leverage in our business as demand recovers . we expect this momentum to continue in 2014 due primarily to an improving demand environment , continued improvement in pricing and our continued focus on managing costs . we remain committed to building leading aggregates positions in markets with above average long-term demand growth . as we look ahead to 2014 , the operating leverage in our aggregates business sets the stage for even stronger earnings growth and cash generation as volumes continue to grow . we completed several transactions in 201 3 that provided $ 207.2 million in gross cash proceeds . a n d , in january 2014 we entered into an agreement to sell our cement and concrete businesses in the florida area for gross cash proceeds of $ 720.0 million . for details of these 2013 and 2014 transactions refer to note 19 “ acquisitions and divestitures ” and note 21 “ subsequent events ” in item 8 “ financial statements and supplementary data , ” respectively . w e remain committed to completing transactions designed to strengthen our balance sheet , unlock capital for more productive uses , improve our operating results and create value for shareholders . part i i 31 net earnings for 201 3 wer e $ 24.4 million , or $ 0.19 per diluted share , compared to a net loss of $ 52.6 million , or $ 0.41 per diluted share in 2012. earnings improved partially as a result of volume growth in each of our operating segments . our disciplined approach to pricing and effective cost control also positively impacted earnings . additionally , each year 's results were impacted by discrete items as follows : § the 2013 results include a pretax gain of $ 36.8 million related to the sale of reclaimed real estate and businesses and a pretax charge of $ 1.5 million related t o r estructuring our organization § the 2012 results include a $ 65.1 million pretax gain on sale of real estate and businesses , a pretax charge of $ 9.6 million related to our restructuring and a pretax charge of $ 43.4 million related to the unsolicited exchange offer § the 2011 results include a $ 42.1 million pretax gain on sale of real estate and businesses , a $ 46.4 million recovery from legal settlemen t ( settled in 2010 for $ 40.0 million , see note 12 “ commitments and contingencies ” in item 8 “ financial statements and supplementary data ) , a pretax charge of $ 12.9 million related to our restructuring and a pretax charge of $ 2.2 million related to the unsolicited exchange offer year-over-year changes in earnings from continuing operations before income taxes are summarized below : replace_table_token_11_th operating results by segment we present our results of operations by segment at the gross profit level . we have four operating ( and report able ) segments organized around our principal product lines : 1 ) aggregates , 2 ) concrete , 3 ) asphalt mix and 4 ) cement . management reviews earnings for the product line segments principally at the gross profit level . story_separator_special_tag 1. aggregates our year-over-year aggregates shipments : § increased 4 % in 2013 § declined 1 % in 201 2 § declined 3 % in 2011 in 2013 , our a ggregates volume increased for the first time since the prior peak level of shipments in 2005 . several key states , including arizona , california , florida , north carolina and texas reported strong volume growth versus the prior year . part i i 32 our year-over- year freight -adjusted selling price for aggregates : § increased 3 % in 2013 § increased 2 % in 201 2 § increas ed 1 % in 201 1 virtually all of our markets realized pricing improvements in 2013. aggregates revenues aggregates gross profit and cash gross profit in millions in millions aggregates unit shipments aggregates selling price and cash gross profit per ton customer and internal 1 tons , in millions freight-adjusted average sales price per ton 2 1 represents tons shipped primarily to our downstream operations ( i.e. , asphalt mix and ready-mixed concrete ) 2 freight-adjusted sales price is calculated as total sales dollars less freight to remote distribution sites divided by applicable sales units aggregates segment gross profit increased $ 61.2 million from the prior year and gross profit margin as a percentage of segment revenues increased 1.4 percentage points ( 140 basis points ) . the increase in aggregates segment gross profit resulted from higher volumes and higher selling prices slightly offset by marginally higher costs . over 90 % of the improvement in aggregates gross profit occurred in the second half of the year . this demonstrates the continued optimism we have for the positive impact of operating leverage in the aggregates business . aggregates segment cash gross profit per ton increased 4 % to $ 4.37 in 2013. this measure continues to improve , reflecting the cumulative effect of our cost-control efforts and disciplined approach to pricing during the downturn . these efforts resulted in a level of unit pr ofitability that exceeds the level achieved in 2005 ( our peak year for volume ) further highlighting the earnings potential of our aggregates business . part i i 33 2. concrete our year-over-year ready-mixed concrete shipments : § increased 14 % in 2013 § increased 9 % in 201 2 § declined 6 % in 201 1 the concrete segment reported a loss of $ 24.8 million in 2013 compared to a loss of $ 38.2 million in 2012. ready-mix concrete shipments were up 14 % , b enefiting from increased private construction activit y , a nd the average sales price increased 1 % over the prior year . volume growth was especially high in states with lower average sales price , thereby , lowering our average sales price . price increases in florida , georgia and texas exceeded 4 % . concrete revenues concrete gross profit and cash gross profit in millions in millions 3. asphalt mix our year-over-year asphalt mix shipments : § increased 3 % in 2013 § declined 7 % in 201 2 § increased 1 % in 201 1 asphalt mix segment gross profit of $ 32.7 million was up $ 9.8 million from the prior year . the increase in asphalt mix segment gross profit resulted from higher shipments and lower costs , slightly offset by lower selling prices . a sphalt mix shipments increased 3 % while the average sales price decreased 1 % from the prior year . materials margin increased 10 % from the prior year , benefiting from lower liquid asphalt prices . asphalt mix revenues asphalt mix gross profit and cash gross profit in millions in millions part i i 34 4. cement cement segment gross profit of $ 5 .7 million was up $ 8.5 million from the prior year . cement shipments increased 14 % and the averages sales price increased 7 % over the prior year . cement revenues cement gross profit and cash gross profit in millions in millions selling , administrative and general expenses in millions sag expenses were in line with the prior year . in 2012 , we consolidated our eight divisions into four regions as part of an ongoing effort to reduce overhead costs . additionally , we initiated a profit enhancement plan that further leveraged our streamlined management structure and completed erp and shared services platforms . these actions allowed us to achieve cost reductions and reduce overhead and administrative staff . sag expenses have remained in line as we continue to leverage our overhead structure with the economic recovery . our comparative total company employment levels at year end : § increased 5 % in 2013 § declined 5 % in 2012 § declined 7 % in 2011 severance charges included in sag expenses were as follows : 201 3 — $ 1.2 million , 201 2 — $ 0.9 million and 2011 — $ 4.1 million . severance and other related restructuring charges not included in sag expenses were as follows : 201 3 — $ 1.5 million , 2012 — $ 9.6 million and 2011 — $ 13.0 million . part i i 35 ga in on sale of property , plant & equipment and businesses , net in millions the 2013 gain includes a $ 24.0 million pretax gain from the sale of five non-strategic aggregates production facilities , a $ 9.0 million pretax gain from the sale of reclaimed and surplus real estate and a $ 1.4 million pretax gain from the sale of mitigation credits . the 2012 gain includes a $ 41.2 million pretax gain from the sale of reclaimed and surplus real estate , a $ 5.6 million pretax gain from the sale of a non-strategic aggregates production facility , a $ 12.3 million pretax gain from the sale of mitigation credits and a $ 6.0 million pretax gain on the sale of developed real estate .
| cash from financing activities in millions 2013 versus 2012 — net cash used for financing activities of $ 142.0 million in creased $ 12.8 million in 2013 compared to 2012. this increase in cash used for financing activities is attributable to a $ 15 . 8 million increase in de bt payments . during 2013 , we made scheduled debt payments of $ 10.0 million in january to retire the 8.70 % medium-term note and $ 140.4 million in june to retire the 6.30 % notes . 2012 versus 2011 — net cash used for financing activities increased $ 87.9 million in 2012 compared to 2011. in 2011 , we restructured our debt portfolio which generated $ 24.8 million of net cash proceeds . in 2012 , we paid $ 134.8 million of debt as scheduled . this decrease in cash flows related to debt was partially offset by $ 93.0 million in cash savings derived from the decrease in dividend payments ( 2012 — $ 0.04 per share , 2011 — $ 0.76 per share ) . part i i 39 debt certain debt measures as of december 31 are outlined below : replace_table_token_14_th 1 there were no borrowings at december 31 , 20 13 and 2012. however , we do pay fees for unused borrowing capacity and standby letters of credit . scheduled debt payments during 2013 included $ 10.0 million in january to retire the 8.70 % medium-term note and $ 140.4 million in june to retire the 6.30 % notes . a s of december 31 , 201 3 , current maturities for the next four quarters an d m aturities for the next five years are due as follows : replace_table_token_15_th in january 2014 , we initiated a tender offer to purchase $ 500.0 million of outstanding debt as disclosed in note 21 “ subsequent events ” in item 8 “ financial statements and supplementary data. ” we expect to retir e remaining d ebt m aturities using existing cash , cash generated from operations , by drawing on our
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the increase in sg & a as a percentage of net sales was primarily driven by lower volume , higher it costs associated with the implementation and stabilization of the new erp system of $ 3.8 million , dmi pension termination of $ 2.5 million , ceo transition costs of $ 2.0 million , and higher marketing and advertising costs of $ 1.5 million . the twelve months ended june 30 , 2018 included $ 3.6 million related to the april 25 , 2018 united states environmental protection agency 's ( “ epa ” ) issuance of a comprehensive environmental response , compensation and liability act ( “ cercla ” ) 106 ( a ) order ( the “ order ” ) for the lane street groundwater superfund site located in elkhart , indiana reported in “ environmental remediation ” . the after-tax basis reported in “ environmental remediation ” is $ 2.5 million or $ 0.32 per share . the company completed a $ 6.5 million sale of a facility and recognized a pre-tax gain of $ 1.8 million during fiscal year 2018. the after-tax basis reported in “ gain on sale of facility ” is $ 1.3 million or $ 0.16 per share . the twelve months ended june 30 , 2019 included $ 21.3 million reported in “ erp impairment ” related to the impairment of the abandoned components and development work associated with unusable elements of the business information system . the after-tax basis reported in “ erp impairment ” is $ 16.3 million or $ 2.06 per share for fiscal 2019. reported under “ restructuring expense ” in fiscal 2019 were $ 10.0 million associated with the restructuring plan the company first announced on may 15 , 2019. the company has been in the process of executing the restructuring plan . in fiscal 2019 , the after-tax basis reported in “ restructuring expense ” were $ 7.7 million or $ 0.97 per share . in fiscal 2019 , reported under “ legal settlement ( costs ) reimbursements ” were $ 0.5 million associated with an employment matter and the after-tax basis reported in “ legal settlement ( costs ) reimbursements ” were $ 0.4 million or $ 0.05 per share . for the twelve months ended june 30 , 2019 , the effective tax rate was 23.5 % compared to 29.7 % in the prior year period . the fiscal 2019 results were favorably impacted by a full fiscal year impact of the 2018 tax cuts and jobs act in addition to net operating losses within the fiscal year ended june 30 , 2019. the above factors resulted in a net loss of ( $ 32.6 ) million or ( $ 4.13 ) per diluted share for fiscal year 2019 compared to a net income of $ 17.7 million or $ 2.23 per diluted share in the prior year period . liquidity and capital resources covid-19 update due to continued uncertainties as a result of covid-19 , we implemented measures to enhance our liquidity position and improve working capital . during the fourth quarter of fiscal year 2020 , we reduced our quarterly dividend from $ 0.22 per share to $ 0.05 per share . we extended a 25 % salary reduction for our ceo and cfo/coo and 50 % cash compensation reduction for our board of directors through october 1 , 2020. to further bolster liquidity , on august 28 , 2020 , we entered into an agreement with dubuque bank & trust company , for a secured $ 25.0 million credit facility with a two-year term . no borrowings have been made on the $ 25.0 million credit facility . working capital ( current assets less current liabilities ) at june 30 , 2020 was $ 128.4 million compared to $ 118.2 million at june 30 , 2019. the $ 10.2 million increase in working capital was due to an increase in cash of $ 26.0 million , primarily attributable to proceeds from the sale of the riverside , california facility of $ 20.5 million , increase in assets held for sale of $ 12.3 million , increase in other current assets of $ 6.6 million , and a decrease in restructuring liability of $ 4.2 million , partially offset by $ 23.1 million in inventory reduction as a result of inventory management and sku rationalization activities , decrease in trade receivables of $ 5.9 million due to lower sales , and an increase in accounts payable of $ 9.3 million . 15 a summary of operating , investing and financing cash flow is show in the following table : replace_table_token_7_th net cash provided by operating activities for the twelve months ended june 30 , 2020 , net cash provided by operating activities was $ 18.3 million , which primarily consisted of net loss of $ 26.8 million , adjusted for non-cash depreciation of $ 8.4 million , gain from sale of capital assets of $ 19.0 million , stock based compensation of $ 4.9 million , asset impairment charges of $ 20.4 million , change in deferred income taxes of $ 5.5 million and change in accounts receivable and vat allowance of $ 0.5 million . net cash provided by operating assets and liabilities was $ 25.6 million . the cash provided by operating assets and liabilities of $ 25.6 million , was primarily due to a decline in inventory and accounts receivable of $ 23.1 million and $ 4.4 million , respectively , coupled with an increase in accounts payable of $ 9.3 million , partially offset by a decline in accrued liabilities of $ 6.0 million . for the twelve months ended june 30 , 2019 , net cash provided by operating activities was $ 6.7 million , which primarily consisted of net loss of $ 32.6 million , adjusted for non-cash depreciation of $ 7.4 million , stock based compensation of $ 1.4 story_separator_special_tag million , erp asset impairment charge of $ 21.3 million , change in deferred income taxes of $ 6.1 million , vat allowance of $ 2.6 million , and defined benefit plan termination of $ 2.5 million . net cash provided by operating assets and liabilities was $ 6.7 million . the cash provided by operating assets and liabilities of $ 10.4 million , was primarily due to decline in inventory and accounts receivable of $ 2.5 million and $ 3.1 million , respectively , couple with an increase in accounts payable and accrued liabilities , partially offset by an increase in other assets of $ 6.1 million . net cash provided by ( used in ) investing activities for the twelve months ended june 30 , 2020 , net cash provided by investing activities was $ 16.8 million , due to proceeds of $ 20.5 million for the sale of our riverside , california facility and other capital assets , partially offset by capital expenditures of $ 3.7 million . for the twelve months ended june 30 , 2019 , net cash used in investing activities was $ 5.2 million , due to capital expenditures of $ 21.3 million , proceeds from the disposition of capital assets of $ 0.2 million and net proceeds of investments of $ 15.9 million . net cash used in financing activities for the twelve months ended june 30 , 2020 , net cash used in financing activities was $ 9.1 million , primarily due to dividends paid of $ 7.0 million , treasury stock purchases of $ 1.6 million and $ 0.6 million for tax payments on employee vested restricted shares . for the twelve months ended june 30 , 2019 , net cash used in financing activities was $ 7.0 million , primarily due to dividend paid of $ 6.9 million . lines of credit on august 28 , 2020 , we entered into a secured $ 25.0 million credi t facility with dubuque bank & trust company , with a two year term and interest of 1.50 % plus libor , subject to a floor of 3.0 % . the credit facility expires on august 28 , 2022. the credit facility is secured by essentially all of the company 's assets , excluding real property and requires the company maintain compliance with certain financial and non-financial covenants . no borrowings have been made on the $ 25.0 million credit facility . we had an unsecured credit agreement with wells fargo bank n.a . ( “ wells ” ) that provided short-term capital financing up to $ 10.0 million with interest of libor plus 1 % . the credit agreement expired on june 30 , 2020 and there was no balance outstanding as of june 30 , 2020. letters of credit outstanding at wells as of june 30 , 2020 , totaled $ 1.2 million , of which $ 1.3 million of our cash held at wells is pledged as collateral . we had an additional unsecured $ 10.0 million line of credit with midwestone bank , with interest at prime minus 2 % , subject to a floor of 3.75 % . the credit agreement expired on june 30 , 2020 and there was no balance outstanding as of june 30 , 2020 . 16 contractual obligations the following table summarizes our contractual obligations at june 30 , 2020 and the effect these obligations are expected to have on our liquidity and cash flow in the future ( in thousands ) : replace_table_token_8_th at june 30 , 2020 , we had no capital lease obligations , and no purchase obligations for raw materials or finished goods . financing arrangements see note 9 credit arrangements of notes to consolidated financial statements of this annual report on form 10-k. outlook the covid-19 global pandemic presents unprecedented challenges during fiscal 2021. our focus for fiscal 2021 will be to preserve cash and liquidity , improve our cost structure , return to profitability at lower sales levels , and improve our capital efficiency . during fiscal 2021 , the company anticipates spending $ 3 million to $ 4 million for capital expenditures . the company believes it has adequate working capital to meet these requirements . critical accounting policies the discussion and analysis of our consolidated financial statements and results of operations are based on consolidated financial statements prepared in accordance with generally accepted accounting principles ( gaap ) in the united states of america . preparation of these consolidated financial statements requires the use of estimates and judgments that affect the reported results . we use estimates based on the best information available in recording transactions and balances resulting from business operations . estimates are used for such items as collectability of trade accounts receivable and inventory valuation . ultimate results may differ from these estimates under different assumptions or conditions . accounts receivable allowances – we establish accounts receivable allowances to reduce trade accounts receivable to an amount that reasonably approximates their net realizable value . our accounts receivable allowances consist of an allowance for doubtful accounts which is established through review of open accounts , historical collection , and historical write-off amounts . the amount ultimately realized from trade accounts receivable may differ from the amount estimated in the consolidated financial statements . inventories – we value inventory at the lower of cost or net realizable value . our inventory valuation reflects markdowns for the excess of the cost over the amount expected to be realized and considers obsolete and excess inventory . markdowns establish a new cost basis for the company 's inventory . subsequent changes in facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in that newly established cost basis . valuation of long–lived assets – we periodically review the carrying value of long-lived assets and estimated depreciable or amortizable lives for continued appropriateness . this review is based upon projections of
| the 130 bps decline was primarily driven by a decline of 280 bps due to lower volume and product mix , a decline of 60 bps for increased costs to improve delivery lead times , partially offset by 120 bps from valuation allowance on foreign vat as a result of collections made during the fiscal year and 80 bps from restructuring cost improvements . selling , general and administrative ( sg & a ) expenses for the twelve months ended june 30 , 2020 decreased $ 8.9 million to $ 72.4 million compared to $ 81.3 million for the year ended june 30 , 2019. as a percentage of net sales , sg & a was 19.7 % for the year ended june 30 , 2020 compared to 18.3 % of net sales in the prior year period . the increase in sg & a as a percentage of net sales was primarily driven by higher bad debt expense of $ 5.0 million attributable to a customer bankruptcy and the current economic environment , right-of-use lease asset impairments of $ 2.9 million , partially offset by current year restructuring savings and lower expenses on reduced volume . during the fiscal year ended june 30 , 2020 , we incurred $ 34.2 million of restructuring expenses primarily for write-down of assets due to impairment , facility closures , professional fees , pension withdrawal liability and employee termination costs as part of our previously announced comprehensive transformation program . see note 5 restructuring of the notes to consolidated financial statements , included in this annual report on form 10-k for more information . during the fiscal year ended june 30 , 2020 , we completed the sale of our riverside , california property for the sale price of $ 20.5 million generating net proceeds of $ 19.6 million after customary closes costs , prorations and commissions . this resulted in a recognized pre-tax gain on sale of $ 18.9 million . subsequent to june 30 , 2020 , the company sold one of its facilities in harrison , arkansas on august 14 , 2020 for a sale
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after an evaluation of these factors , the company made a provision of $ 3.8 million for fiscal year 2013 compared to a $ 2.6 million provision for the 2012 fiscal year . the allowance for loan losses was $ 8.1 million or 0.86 % of loans outstanding at september 30 , 2013 , compared to $ 7.3 million , or 0.76 % of loans outstanding at september 30 , 2012. determining the amount of the allowance for loan losses necessarily involves a high degree of judgment . management reviews the level of the allowance on a quarterly basis , and establishes the provision for loan losses based on the factors set forth in the preceding paragraph . historically , the bank 's loan portfolio has consisted primarily of one-to four-family residential mortgage loans . however , our current business plan calls for increases in commercial real estate loan originations . as management evaluates the allowance for loan losses , the increased risk associated with larger non-homogenous commercial real estate may result in large additions to the allowance for loan losses in future periods . loans secured by commercial real estate generally expose a lender to greater risk of non-payment and loss than one-to-four family residential mortgage loans because repayment of the loans often depends on the successful operation of the property and the income stream of the underlying property . additionally , such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one-to-four family residential mortgage loans . accordingly , an adverse development with respect to one loan or one credit relationship can expose us to greater risk of loss compared to an adverse development with respect to a one-to-four family residential mortgage loan . although we believe that we use the best information available to establish the allowance for loan losses , future additions to the allowance may be necessary , based on estimates that are susceptible to change as a result of changes in economic conditions and other factors . in addition , the federal reserve board , as an integral part of its examination process , will periodically review our allowance for loan losses . this agency may require us to recognize adjustments to the allowance , based on its judgments about information available to it at the time of its examination . non-interest income . non-interest income increased $ 1.3 million or 19.1 % , to $ 8.0 million for the year ended september 30 , 2013 , from $ 6.7 million for the comparable 2012 period . the increase was primarily due to increases in earnings on gain on sale of investments of $ 406,000 , service charges and fees on loans , and service fees on deposit accounts of $ 262,000 which were partially offset by a decrease in the trust and investment fees of $ 52,000. non-interest expense . non-interest expense decreased $ 543,000 , or 1.7 % , to $ 32.5 million for fiscal year 2013 from $ 33.0 million for the comparable period in 2012. the primary reasons for the decrease were declines in merger related costs of $ 1.4 million and prepayment penalties on borrowings of $ 4.6 million which was partially offset by increases in compensation and employee benefits of $ 2.7 million . income taxes . income tax expense of $ 2.8 million was recognized for fiscal year 2013 compared to an income tax expense of $ 33,000 recognized for fiscal year 2012. the primary reason for the increase was the increases in income before income taxes of $ 11.4 million . comparison of operating results for the years ended september 30 , 2012 and september 30 , 2011 net income . net income decreased $ 5.0 million , or 95.9 % , to $ 215,000 for the fiscal year ended september 30 , 2012 from $ 5.3 million for the fiscal year ended september 30 , 2011. the decrease was primarily due to $ 1.4 million in merger related costs and $ 4.6 million in prepayment penalties incurred on borrowings during the year ended september 30 , 2012. net interest income . net interest income increased by $ 172,000 , or 0.60 % , to $ 29.1 million for fiscal year 2012 from $ 28.9 million for fiscal year 2011. interest income . interest income decreased $ 2.0 million or 4.2 % to $ 45.2 million for fiscal year 2012 from $ 47.2 million for fiscal year 2011. the decrease resulted from a 41 basis point decrease in the overall yield on interest earning assets to 4.13 % for fiscal year 2012 from 4.54 % for fiscal year 2011 which decreased interest income by $ 4.1 million . this decrease was partially offset by a $ 55.2 million increase in average interest earning assets which had the effect of increasing interest income by $ 2.1 million . the increase in average interest earning assets during 2012 compared to 2011 included increases in average loans of $ 34.7 million , average investments of $ 18.2 million and average other interest earning assets of $ 6.6 million . these increases were partially offset by decreases in average mortgage-backed securities of $ 2.2 million and regulatory stock of $ 2.1 million . the average yield on loans decreased to 4.90 % for the fiscal year 2012 , from 5.2 % for the fiscal year 2011. the average yields on investment securities decreased to 2.13 % from 2.56 % and the average yields on mortgage backed securities decreased to 2.61 % from 3.36 % for the 2012 and 2011 periods , respectively . interest expense . interest expense decreased $ 2.1 million , or 11.8 % to $ 16.1 million for fiscal year 2012 from $ 18.3 million for fiscal year 2011. the decrease resulted from a 36 basis point decrease in the overall cost of interest-bearing liabilities to 1.71 % for fiscal 2012 from 2.07 % for fiscal 2011 which decreased interest story_separator_special_tag after an evaluation of these factors , the company made a provision of $ 3.8 million for fiscal year 2013 compared to a $ 2.6 million provision for the 2012 fiscal year . the allowance for loan losses was $ 8.1 million or 0.86 % of loans outstanding at september 30 , 2013 , compared to $ 7.3 million , or 0.76 % of loans outstanding at september 30 , 2012. determining the amount of the allowance for loan losses necessarily involves a high degree of judgment . management reviews the level of the allowance on a quarterly basis , and establishes the provision for loan losses based on the factors set forth in the preceding paragraph . historically , the bank 's loan portfolio has consisted primarily of one-to four-family residential mortgage loans . however , our current business plan calls for increases in commercial real estate loan originations . as management evaluates the allowance for loan losses , the increased risk associated with larger non-homogenous commercial real estate may result in large additions to the allowance for loan losses in future periods . loans secured by commercial real estate generally expose a lender to greater risk of non-payment and loss than one-to-four family residential mortgage loans because repayment of the loans often depends on the successful operation of the property and the income stream of the underlying property . additionally , such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one-to-four family residential mortgage loans . accordingly , an adverse development with respect to one loan or one credit relationship can expose us to greater risk of loss compared to an adverse development with respect to a one-to-four family residential mortgage loan . although we believe that we use the best information available to establish the allowance for loan losses , future additions to the allowance may be necessary , based on estimates that are susceptible to change as a result of changes in economic conditions and other factors . in addition , the federal reserve board , as an integral part of its examination process , will periodically review our allowance for loan losses . this agency may require us to recognize adjustments to the allowance , based on its judgments about information available to it at the time of its examination . non-interest income . non-interest income increased $ 1.3 million or 19.1 % , to $ 8.0 million for the year ended september 30 , 2013 , from $ 6.7 million for the comparable 2012 period . the increase was primarily due to increases in earnings on gain on sale of investments of $ 406,000 , service charges and fees on loans , and service fees on deposit accounts of $ 262,000 which were partially offset by a decrease in the trust and investment fees of $ 52,000. non-interest expense . non-interest expense decreased $ 543,000 , or 1.7 % , to $ 32.5 million for fiscal year 2013 from $ 33.0 million for the comparable period in 2012. the primary reasons for the decrease were declines in merger related costs of $ 1.4 million and prepayment penalties on borrowings of $ 4.6 million which was partially offset by increases in compensation and employee benefits of $ 2.7 million . income taxes . income tax expense of $ 2.8 million was recognized for fiscal year 2013 compared to an income tax expense of $ 33,000 recognized for fiscal year 2012. the primary reason for the increase was the increases in income before income taxes of $ 11.4 million . comparison of operating results for the years ended september 30 , 2012 and september 30 , 2011 net income . net income decreased $ 5.0 million , or 95.9 % , to $ 215,000 for the fiscal year ended september 30 , 2012 from $ 5.3 million for the fiscal year ended september 30 , 2011. the decrease was primarily due to $ 1.4 million in merger related costs and $ 4.6 million in prepayment penalties incurred on borrowings during the year ended september 30 , 2012. net interest income . net interest income increased by $ 172,000 , or 0.60 % , to $ 29.1 million for fiscal year 2012 from $ 28.9 million for fiscal year 2011. interest income . interest income decreased $ 2.0 million or 4.2 % to $ 45.2 million for fiscal year 2012 from $ 47.2 million for fiscal year 2011. the decrease resulted from a 41 basis point decrease in the overall yield on interest earning assets to 4.13 % for fiscal year 2012 from 4.54 % for fiscal year 2011 which decreased interest income by $ 4.1 million . this decrease was partially offset by a $ 55.2 million increase in average interest earning assets which had the effect of increasing interest income by $ 2.1 million . the increase in average interest earning assets during 2012 compared to 2011 included increases in average loans of $ 34.7 million , average investments of $ 18.2 million and average other interest earning assets of $ 6.6 million . these increases were partially offset by decreases in average mortgage-backed securities of $ 2.2 million and regulatory stock of $ 2.1 million . the average yield on loans decreased to 4.90 % for the fiscal year 2012 , from 5.2 % for the fiscal year 2011. the average yields on investment securities decreased to 2.13 % from 2.56 % and the average yields on mortgage backed securities decreased to 2.61 % from 3.36 % for the 2012 and 2011 periods , respectively . interest expense . interest expense decreased $ 2.1 million , or 11.8 % to $ 16.1 million for fiscal year 2012 from $ 18.3 million for fiscal year 2011. the decrease resulted from a 36 basis point decrease in the overall cost of interest-bearing liabilities to 1.71 % for fiscal 2012 from 2.07 % for fiscal 2011 which decreased interest
| due to the inability to reduce many deposit rates by the full 200 basis points , the company 's net interest income at risk in a 100 basis point decline was within the company 's policy limit of a decline of less than 10 % of net interest income . 44 the following table sets forth the results of the twelve month projected net interest income model as of september 30 , 2013. replace_table_token_24_th the above table indicates that as of september 30 , 2013 , in the event of a 300 basis point instantaneous ( shock ) increase in interest rates , the company would experience a 10.7 % or $ 3.7 million decrease in net interest income . in the event of a 100 basis point decrease in interest rates , ( shock ) , the company would experience a 3.2 % or $ 1.1 million decrease in net interest income . another measure of interest rate sensitivity is to model changes in economic value of equity through the use of immediate and sustained interest rate shocks . the following table illustrates the economic value of equity model results as of september 30 , 2013. replace_table_token_25_th the preceding table indicates that as of september 30 , 2013 , in the event of an immediate and sustained 300 basis point increase in interest rates , the company would experience a 24.5 % , or $ 47.6 million reduction in the present value of equity . if rates were to decrease 100 basis points , the company would experience a 1.9 % or $ 3.7 million increase in the present value of equity . certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements . modeling changes in net interest income requires the making of certain assumptions regarding prepayment and deposit decay rates , which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates . while management believes such assumptions are reasonable , there can be no assurance that assumed prepayment rates and decay rates will approximate actual future
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sysorex loan transaction on december 31 , 2018 , the company and sysorex entered into a note purchase agreement , as amended ( the “ note purchase agreement ” ) , pursuant to which the company agreed to purchase from sysorex at a purchase price equal to the loan amount ( as defined below ) , a secured promissory note , as amended ( the “ secured note ” ) , for up to an aggregate principal amount of $ 3 million which amount was increased to an aggregate of $ 10 million as described below ( the “ principal amount ” ) , including any amounts advanced through the date of the secured note ( the “ prior advances ” ) , to be borrowed and disbursed in increments ( such borrowed amount , together with the prior advances , collectively referred to as the “ loan amount ” ) , with interest to accrue at a rate of 10 % percent per annum on all such loan amounts , beginning as of the date of disbursement with respect to any portion of such loan amount . in addition , sysorex agreed to pay $ 20,000 to the company to cover the company 's legal fees , accounting costs , due diligence , monitoring and other transaction costs incurred in connection with the purchase and sale of the secured note ( the “ transaction expense amount ” ) , all of which amount is included in the principal amount . sysorex may borrow repay and borrow under the secured note , as needed , for a total outstanding balance , exclusive of any unpaid accrued interest , not to exceed the principal amount at any one time . all sums advanced by the company to the maturity date ( as defined below ) pursuant to the terms of the note purchase agreement are part of the aggregate loan amount underlying the secured note . all outstanding principal amounts and accrued unpaid interest owing under the secured note is due and payable on the earlier to occur of ( i ) december 31 , 2022 ( the “ maturity date ” ) , ( ii ) at such date when declared due and payable by the company upon the occurrence of an event of default ( as defined in the secured note ) , or ( iii ) at any such earlier date as set forth in the secured note . all accrued unpaid interest shall be payable in cash . on february 4 , 2019 , april 2 , 2019 , and may 22 , 2019 , the secured note was amended to increase the principal amount that may be outstanding at any time from $ 3 million to $ 5 million , $ 5 million to $ 8 million and $ 8 million to $ 10 million , respectively . on march 1 , 2020 , the secured note was amended to extend the maturity date from december 31 , 2020 to december 31 , 2022 as noted above . in addition , the default interest rate was increased from 18 % to 21 % or the maximum rate allowable by law and a cash payment to the company by sysorex against the loan amount in an amount equal to no less than 6 % of the aggregate gross proceeds raised following the completion of any financing , or series of related financings , in which sysorex raises aggregate gross proceeds of at least $ 5 million . the amount owed for principal and accrued interest by sysorex to the company as of december 31 , 2018 and december 31 , 2019 was approximately $ 2.2 million and $ 10.6 million , respectively . the secured note has been classified as “ held for sale ” and the company , with the assistance of a third-party valuation firm , estimated the fair value of such using sysorex financial projections , a discounted cash flow model and a 12.3 % discount rate . as a result , the company established a full valuation allowance as of december 31 , 2019. we are required to periodically re-evaluate the carrying value of the note and the related valuation allowance based on various factors , including , but not limited to , sysorex 's performance and collectability of the note . sysorex 's performance against those financial projections will directly impact future assessments of the fair value of the note . 41 january 2019 capital raise on january 15 , 2019 , in a rights offering , we issued and sold an aggregate of 12,000 units consisting of an aggregate of 12,000 shares of series 5 convertible preferred stock and 80,000 warrants to purchase common stock exercisable for one share of common stock at an exercise price of $ 149.85 per share in accordance with the terms and conditions of a warrant agency agreement , resulting in gross proceeds to the company of approximately $ 12 million , and net proceeds of approximately $ 10.77 million after deducting expenses relating to dealer-manager fees and expenses , and excluding any proceeds received upon exercise of any warrants . following the rights offering , the conversion price of the series 4 convertible preferred stock was reduced to the floor price of $ 223.20 , the exercise price of the warrants issued in the april 2018 public offering were also reduced to the floor price of $ 223.20 and the number of shares issuable upon exercise of such warrants was increased to 61,562 shares of common stock . the maximum deemed dividend under the series 4 convertible preferred stock has been recognized so there is no accounting effect from the conversion price reduction of the series 4 convertible preferred stock . however , the company recorded a $ 1.3 million deemed dividend for the reduction to the exercise price of the april 2018 warrants . as of december 31 , 2019 , there were 126 shares of series 5 convertible preferred stock outstanding . story_separator_special_tag atlas technology settlement on february 20 , 2019 , the company , sysorex and atlas technology group , llc ( “ atlas ” ) entered into a settlement agreement ( the “ settlement agreement ” ) in connection with the satisfaction of an arbitration award granted to atlas in an aggregate amount of $ 1,156,840 plus pre-judgment interest equal to an aggregate of $ 59,955 ( the “ award ” ) arising out of an engagement agreement , dated september 8 , 2016 , by and between atlas and the company as well as its subsidiaries , including the predecessor to sysorex ( the “ engagement agreement ” ) . pursuant to the settlement agreement , atlas agreed to ( a ) reduce the award by $ 275,000 resulting in a net award of $ 941,796 ( the “ net award ” ) and ( b ) accept an aggregate of 16,655 shares of freely-tradable common stock of the company ( the “ settlement shares ” ) , in full satisfaction of the award . atlas also agreed to apply an amount equal to the difference between the proceeds received from the sale of the settlement shares and the net award , against legal fees incurred by the company and sysorex in connection with the settlement agreement . in connection with the spin-off , pursuant to the terms and conditions of that certain separation and distribution agreement , dated august 7 , 2018 , 50 % of the costs and liabilities related to the arbitration action arising from the engagement agreement are required to be shared by sysorex . locality acquisition on may 21 , 2019 , inpixon , through its wholly owned subsidiary , inpixon canada as purchaser , completed its acquisition of locality in which locality 's stockholders sold all of the outstanding capital stock of locality to the purchaser in exchange for consideration of ( i ) $ 1,500,000 ( the “ aggregate cash consideration ” ) plus or minus the amount by which the estimated working capital is more or less than the working capital target ( as defined in the purchase agreement ) , and ( ii ) 14,444 shares of common stock of inpixon . the aggregate cash consideration , less the working capital adjustment to be applied against the aggregate cash consideration of $ 85,923 , will be paid in installments as follows : ( i ) the initial installment representing $ 250,000 minus $ 46,422 of the working capital adjustment was paid on the closing date ; ( ii ) $ 210,499 was paid on november 21 , 2019 which is comprised of a $ 250,000 installment less $ 39,501 of the working capital adjustment ; ( iii ) two additional installments , each equal to $ 250,000 , will be paid twelve months and eighteen months after the closing date ; and ( iv ) one final installment representing $ 500,000 will be paid on the second anniversary of the closing date , in each case minus the cash fees payable to the advisor in connection with the acquisition . inpixon canada will have the right to offset any loss , as defined in the purchase agreement , first , against any installment of the installment cash consideration that has not been paid and second , against the sellers and the advisor on a several basis , in accordance with the indemnification provisions of the purchase agreement . 42 the total recorded purchase price for the transaction was approximately $ 1,928,000 , which consisted of cash at closing of $ 204,000 , approximately $ 1,210,000 of cash that will be paid in installments as discussed above and $ 514,000 representing the value of the stock issued upon closing . gtx acquisition on june 27 , 2019 , inpixon completed its acquisition of certain assets of gtx , consisting of a portfolio of gps technologies and intellectual property ( the “ assets ” ) . the assets were acquired for aggregate consideration consisting of ( i ) $ 250,000 in cash delivered at the closing and ( ii ) 22,223 shares of inpixon 's restricted common stock . the total recorded purchase price for the transaction was $ 900,000 , which consisted of the cash paid of $ 250,000 and $ 650,000 representing the value of the stock issued upon closing . promissory notes during the year ended december 31 , 2019 , the company issued an aggregate of 92,831 shares of the company 's common stock to the holder ( the “ note holder ” ) of an unsecured promissory note originally issued on october 12 , 2018 ( the “ october 2018 note ” ) in exchange for the full satisfaction of an aggregate of $ 2.73 million of the outstanding principal and interest due under the october 2018 note at a price per share between $ 22.95 and $ 40.45. in each case , the shares of common stock were issued at a price per share equal to or greater than the minimum price as defined by the nasdaq listing rules . on december 21 , 2018 , the company entered into a note purchase agreement with an institutional investor and affiliate of the note holder ( the “ affiliated note holder ” ) , pursuant to which the company agreed to issue and sell to the affiliated note holder an unsecured promissory note ( the “ december 2018 note ” ) in an aggregate principal amount of $ 1.895 million ( the “ december note initial principal amount ” ) , for an aggregate purchase price equal to $ 1.5 million which was payable on or before the date that was 10 months from the issuance date . the december note initial principal amount included an original issue discount of $ 375,000 and $ 20,000 that the company agreed to pay to the affiliated note holder to cover the affiliated note holder 's legal fees , accounting costs , due diligence , monitoring and other transaction costs . subsequently , the december note initial principal amount was increased in connection with certain amendments .
| this increase of $ 533,000 , or approximately 50 % , was primarily attributable the increase in ipa revenue and revenues from the jibestream acquisition during the year ended december 31 , 2019. the gross profit margin for the year ended december 31 , 2019 was 74 % compared to 71 % for the year ended december 31 , 2018. this increase in margin is primarily due to the sales mix of products and services sold during the year ended december 31 , 2019. operating expenses operating expenses for the year ended december 31 , 2019 were $ 25.5 million and $ 21.1 million for the comparable period ended december 31 , 2018. this increase of $ 4.4 million is primarily attributable to $ 1.2 million of higher acquisition costs , approximately $ 1.2 million of jibestream 's operating expenses , approximately $ 2.0 million of higher stock based compensation expense offset by $ 690,000 of deconsolidation costs of the sysorex entities that was incurred in the year ended december 31 , 2018 . 50 loss from operations loss from operations for the year ended december 31 , 2019 was $ 20.8 million as compared to $ 18.4 million for the comparable period in the prior year . this increase of $ 2.4 million was primarily attributable to the higher operating expenses during the year ended december 31 , 2019 as discussed in the reporting caption above . other income/expense other income/expense for the year ended december 31 , 2019 was a loss of $ 13.8 million compared to a loss of $ 1.4 million for the comparable period in the prior year . this increase in loss of $ 12.4 million is primarily attributable to a $ 10.6 million fair value adjustment related to the uncertainty of being repaid in connection with that certain note receivable from sysorex , which has been classified as “ held for sale ” and for which the company has established a full valuation allowance , the interest income from a related party note offset by an increase in interest expense and debt discount on promissory notes in the year ended december 31 , 2019. the need for future fair value adjustments in connection with our note receivable from sysorex will be dependent on sysorex 's performance vis-à-vis its current financial projections . provision for income taxes there was an income tax benefit of $ 584,000 for the year ended december 31 , 2019 related to the acquisition of intangibles and net operating losses of
| 10,965 |
note 11 – income taxes on december 22 , 2017 , the 2017 tax cuts and jobs act ( the tax act ) was enacted into law including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21 % effective january 1 , 2018 , among others . we are required to recognize the effect of the tax law changes in the period of enactment , such as determining the transition tax , remeasuring our u.s. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities . while the company has revenue we have no foreign earnings and therefore , we do not anticipate the impact of a transition tax . we have remeasured our u.s. deferred tax assets at a statutory income tax rate of 21 % during fiscal 2018. since the tax act was passed late in the second quarter of fiscal 2018 , and ongoing guidance and accounting interpretation are expected over the next 12 months , we consider the accounting of any transition tax , deferred tax re-measurements , and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions . we expect to complete our analysis within the measurement period in accordance with sab 118 , and no later than fiscal year end june 30 , 2019. the income tax expense ( benefit ) consisted of the following for the fiscal year ended june 30 , 2018 and 2017 : june 30 , 2018 june 30 , 2017 total current $ - $ - total deferred - - $ - $ - deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . the following is a reconciliation of the expected statutory federal income tax and state income tax provisions to the actual income tax benefit for the fiscal year ended june 30 , 2018 and 2017 : replace_table_token_10_th 34 grow condos , inc. and subsidiaries notes to consolidated financial statements significant components of the company 's deferred tax assets and liabilities were as follows for the fiscal year ended june 30 , 2017 and 2016 : replace_table_token_11_th during the fiscal year ended june 30 , 2018 and 2017 the , the company recognized no amounts related to tax interest or penalties related to uncertain tax positions . the company is subject to taxation in the united states and various state jurisdictions . the company currently has no years under examination by any jurisdiction . in 2013 , wcs entered into multi-year option contracts with certain tenants of the eagle point condominium units . the option contracts gave the tenants the right to enter into a contract for the sale of the unit being rented by the tenant . as part of the option , the tenant is required to make a monthly or quarterly payment to the company over the term of the agreement and in exchange , the tenant has the right to purchase the unit for a price as determined in the contract . contract unit pricing ranges from a fixed $ 100,000 per unit to $ 150,000 multiplied by the usable space divided by the surveyed total condominium land area . the amounts paid on a monthly or quarterly basis are applied as down payments for the purchase of the unit if elected by the contract holder . in the event of non-payment or expiration of the contract without the option being exercised , any and all payments held by the company are forfeit story_separator_special_tag 11 forward-looking statements statements made in this form 10-k which are not purely historical are forward-looking statements with respect to the goals , plan objectives , intentions , expectations , financial condition , results of operations , future performance and business of grow condos . such forward-looking statements include those that are preceded by , followed by or that include the words `` may '' , `` would '' , `` could '' , `` should '' , `` expects '' , `` projects '' , `` anticipates '' , `` believes '' , `` estimates '' , `` plans '' , `` intends '' , `` targets '' or similar expressions . forward-looking statements involve inherent risks and uncertainties , and important factors ( many of which are beyond our control ) that could cause actual results to differ materially from those set forth in the forward-looking statements , including the following : general economic or industry conditions nationally and or in the communities in which we conduct business ; legislation or regulatory requirements , including environmental requirements ; conditions of the securities markets ; competition ; our ability to raise capital ; changes in accounting principles , policies or guidelines ; financial or political instability ; acts of war or terrorism ; and other economic , competitive , governmental , regulatory and technical factors affecting our operations , products , services and prices . accordingly , results actually achieved may differ materially from expected results in these statements . forward- looking statements speak only as of the date they are made . grow condos does not undertake , and specifically disclaims , any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements . financial statements the consolidated financial statements which are a part of this report are as of june 30 , 2018 and 2017. the consolidated financial statements include the accounts of grow condos , inc. , and its wholly-owned subsidiaries , wcs enterprises , llc and smoke on the water , inc. as of june 30 , 2018. all significant intercompany accounting transactions have been eliminated as a result of consolidation . following is management 's discussion and analysis of those financial story_separator_special_tag note 11 – income taxes on december 22 , 2017 , the 2017 tax cuts and jobs act ( the tax act ) was enacted into law including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21 % effective january 1 , 2018 , among others . we are required to recognize the effect of the tax law changes in the period of enactment , such as determining the transition tax , remeasuring our u.s. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities . while the company has revenue we have no foreign earnings and therefore , we do not anticipate the impact of a transition tax . we have remeasured our u.s. deferred tax assets at a statutory income tax rate of 21 % during fiscal 2018. since the tax act was passed late in the second quarter of fiscal 2018 , and ongoing guidance and accounting interpretation are expected over the next 12 months , we consider the accounting of any transition tax , deferred tax re-measurements , and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions . we expect to complete our analysis within the measurement period in accordance with sab 118 , and no later than fiscal year end june 30 , 2019. the income tax expense ( benefit ) consisted of the following for the fiscal year ended june 30 , 2018 and 2017 : june 30 , 2018 june 30 , 2017 total current $ - $ - total deferred - - $ - $ - deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . the following is a reconciliation of the expected statutory federal income tax and state income tax provisions to the actual income tax benefit for the fiscal year ended june 30 , 2018 and 2017 : replace_table_token_10_th 34 grow condos , inc. and subsidiaries notes to consolidated financial statements significant components of the company 's deferred tax assets and liabilities were as follows for the fiscal year ended june 30 , 2017 and 2016 : replace_table_token_11_th during the fiscal year ended june 30 , 2018 and 2017 the , the company recognized no amounts related to tax interest or penalties related to uncertain tax positions . the company is subject to taxation in the united states and various state jurisdictions . the company currently has no years under examination by any jurisdiction . in 2013 , wcs entered into multi-year option contracts with certain tenants of the eagle point condominium units . the option contracts gave the tenants the right to enter into a contract for the sale of the unit being rented by the tenant . as part of the option , the tenant is required to make a monthly or quarterly payment to the company over the term of the agreement and in exchange , the tenant has the right to purchase the unit for a price as determined in the contract . contract unit pricing ranges from a fixed $ 100,000 per unit to $ 150,000 multiplied by the usable space divided by the surveyed total condominium land area . the amounts paid on a monthly or quarterly basis are applied as down payments for the purchase of the unit if elected by the contract holder . in the event of non-payment or expiration of the contract without the option being exercised , any and all payments held by the company are forfeit story_separator_special_tag 11 forward-looking statements statements made in this form 10-k which are not purely historical are forward-looking statements with respect to the goals , plan objectives , intentions , expectations , financial condition , results of operations , future performance and business of grow condos . such forward-looking statements include those that are preceded by , followed by or that include the words `` may '' , `` would '' , `` could '' , `` should '' , `` expects '' , `` projects '' , `` anticipates '' , `` believes '' , `` estimates '' , `` plans '' , `` intends '' , `` targets '' or similar expressions . forward-looking statements involve inherent risks and uncertainties , and important factors ( many of which are beyond our control ) that could cause actual results to differ materially from those set forth in the forward-looking statements , including the following : general economic or industry conditions nationally and or in the communities in which we conduct business ; legislation or regulatory requirements , including environmental requirements ; conditions of the securities markets ; competition ; our ability to raise capital ; changes in accounting principles , policies or guidelines ; financial or political instability ; acts of war or terrorism ; and other economic , competitive , governmental , regulatory and technical factors affecting our operations , products , services and prices . accordingly , results actually achieved may differ materially from expected results in these statements . forward- looking statements speak only as of the date they are made . grow condos does not undertake , and specifically disclaims , any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements . financial statements the consolidated financial statements which are a part of this report are as of june 30 , 2018 and 2017. the consolidated financial statements include the accounts of grow condos , inc. , and its wholly-owned subsidiaries , wcs enterprises , llc and smoke on the water , inc. as of june 30 , 2018. all significant intercompany accounting transactions have been eliminated as a result of consolidation . following is management 's discussion and analysis of those financial
| during fiscal 2018 depreciation , amortization and impairment declined from $ 125,991 in fiscal 2017 to only $ 61,535 in fiscal 2018 predominantly as a result of the one-time impairment recorded for grow condos for construction deposits and other costs related to the land purchased in march 2017 in the amount of approximately $ 97,800. total operating expenses during fiscal 2018 totaled $ 1,832,884 as compared to $ 996,203 in fiscal 2017. we expect operating expenses to increase in future periods as we continue to expand our holdings and our revenue base , and if we continue to issue shares to settle certain accrued fees and expenses . other expenses other expenses recorded in fiscal 2018 and 2017 totaled $ 980,605 and $ 762,093 respectively . the substantial increase to other expenses in fiscal 2018 is directly related to amortization of debt discount of $ 930,715 in the current fiscal year as compared to only $ 639,107 in the prior comparative fiscal year . fiscal 2018 expenses were reduced by a gain of $ 25,900 with respect to the cancelation of a property purchase option , with no comparative amount recorded in fiscal 2017. net losses in the fiscal years ended june 30 , 2018 and 2017 totaled $ 2,482,639 and $ 1,614,855 respectively . liquidity and capital resources replace_table_token_2_th 13 as of june 30 , 2018 , the company had total current assets of $ 388,909 and a working capital deficit of $ 1,494,646 compared to total current assets of $ 46,946 and a working capital deficit of $ 2,044,044 as of june 30 , 2017. the decrease in our working capital deficit was due to the elimination of certain amounts payable with respect to convertible loan agreements during fiscal 2017 , by way of issuance of common shares . this reduction in liabilities in fiscal 2018 was offset by $ 250,868 in liabilities held for sale . during the fiscal year ended june 30 , 2018 , cash used by operating activities totaled $ 210,449 , primarily as a result of a net loss from operations of $ 2,482,639 , offset by certain non-cash adjustments including non-cash interest of $
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thomas m. fyles has been a director since august 2012. since 1979 dr. fyles has been a chemistry professor at the university of victoria ( assistant professor 1979-1984/associate professor 1984-1992/and professor with tenure since 1992 ) dr. fyles received his bachelor of science degree ( with honors ) from the university of victoria in 1974 and his ph.d. in chemistry from york university in 1977. dr. fyles was a postdoctoral fellow with prof. j.m . lehn , institut le bel , universite louis pasteur , strasbourg , france , between september 1977 and july 1979 . 18 ben seaman has been a director since 2016. mr. seaman has been the ceo of eartheasy.com sustainable living ltd since 2007 , growing the company from $ 50k to over $ 25m in annual revenue . his company has contributed over $ 1m towards clean water projects in kenya since 2013 , and has been recognized internationally by the stockholm challenge award and the outdoor industry inspiration award in 2016. prior to that , he worked in sales and investor relations at flexible solutions . mr. seaman graduated from the university of victoria with a bachelor of science degree in 2004. he has significant experience in launching new products , marketing , distribution and e-commerce in both the us and canada . he 's a strong believer in the triple bottom line approach to business , giving consideration to social and environmental issues in addition to financial performance . david fynn has been a director since 2016. mr. david fynn is a canadian chartered professional accountant and services individuals/companies in many sectors including mining and commodities in his private practice . david worked as a senior manager with kpmg in canada and ernst & young in the united kingdom and saudi arabia . since 1996 he has been the principal of d.a . fynn & associates inc. , an accounting firm . directors are elected annually and hold office until the next annual meeting of our stockholders and until their successors are elected and qualified . all executive offices are chosen by the board of directors and serve at the board 's discretion . john bientjes , thomas fyles , ben seaman and david fynn are independent directors as that term is defined in section 803 of the listing standards of the nyse amercian . our audit committee , consisting of john bientjes , ben seaman and david fynn all of whom have strong financial backgrounds , facilitates and maintains open communications with our board of directors , senior management and our independent auditors . our audit committee also serves as an independent and objective party which monitors our financial reporting process and internal control system . in addition , our audit committee reviews and appraises the efforts of our independent auditors . our audit committee meets periodically with management and our independent auditors . john bientjes and david fynn meet the sec 's definition of an audit committee financial expert . each member of the audit committee is “ independent ” as that term is defined in section 803 of the listing standards of the nyse american . our compensation committee , consisting of john bientjes , ben seaman and david fynn , establishes salary , incentive and other forms of compensation for our chief executive officer and administers our stock option program . none of our officers participated in deliberations of the compensation committee concerning executive officer compensation . during the year ended december 31 , 2018 , none of our executive officers served as a member of the compensation committee or as a director of another entity , one of whose executive officers served on our compensation committee or as one of our directors . we have adopted a code of ethics that applies story_separator_special_tag story_separator_special_tag substantial commitments that require significant outlays of cash over the coming fiscal year . we are committed to minimum rental payments for property and premises aggregating approximately $ 1,121,595 over the term of five leases , the last expiring on september 30 , 2023 . 14 commitments for rent in the next five years are as follows : replace_table_token_5_th other than as disclosed above , we do not anticipate any material capital requirements for the twelve months ending december 31 , 2019. other than as disclosed in item 7 of this report , we do not know of any trends , demands , commitments , events or uncertainties that will result in , or that are reasonable likely to result in , our liquidity increasing or decreasing in any material way . other than as disclosed in item 7 of this report , we do not know of any significant changes in our expected sources and uses of cash . we do not have any commitments or arrangements from any person to provide us with any equity capital . see note 2 to the consolidated financial statements included as part of this report for a description of our significant accounting policies . critical accounting policies and estimates allowances for product returns . we grant certain of our customers the right to return product which they are unable to sell . upon sale , we evaluate the need to record a provision for product returns based on our historical experience , economic trends and changes in customer demand . allowances for doubtful accounts receivable . we evaluate our accounts receivable to determine if they will ultimately be collected . this evaluation includes significant judgments and estimates , including an analysis of receivables aging and a review of large accounts . if , for example , the financial condition of a customer deteriorates resulting in an impairment of its ability to pay or a pattern of late payment develops , an allowance may be required . provisions for inventory obsolescence . we may need to record a provision for estimated obsolescence and shrinkage of inventory . our estimates would consider the cost of inventory , the story_separator_special_tag thomas m. fyles has been a director since august 2012. since 1979 dr. fyles has been a chemistry professor at the university of victoria ( assistant professor 1979-1984/associate professor 1984-1992/and professor with tenure since 1992 ) dr. fyles received his bachelor of science degree ( with honors ) from the university of victoria in 1974 and his ph.d. in chemistry from york university in 1977. dr. fyles was a postdoctoral fellow with prof. j.m . lehn , institut le bel , universite louis pasteur , strasbourg , france , between september 1977 and july 1979 . 18 ben seaman has been a director since 2016. mr. seaman has been the ceo of eartheasy.com sustainable living ltd since 2007 , growing the company from $ 50k to over $ 25m in annual revenue . his company has contributed over $ 1m towards clean water projects in kenya since 2013 , and has been recognized internationally by the stockholm challenge award and the outdoor industry inspiration award in 2016. prior to that , he worked in sales and investor relations at flexible solutions . mr. seaman graduated from the university of victoria with a bachelor of science degree in 2004. he has significant experience in launching new products , marketing , distribution and e-commerce in both the us and canada . he 's a strong believer in the triple bottom line approach to business , giving consideration to social and environmental issues in addition to financial performance . david fynn has been a director since 2016. mr. david fynn is a canadian chartered professional accountant and services individuals/companies in many sectors including mining and commodities in his private practice . david worked as a senior manager with kpmg in canada and ernst & young in the united kingdom and saudi arabia . since 1996 he has been the principal of d.a . fynn & associates inc. , an accounting firm . directors are elected annually and hold office until the next annual meeting of our stockholders and until their successors are elected and qualified . all executive offices are chosen by the board of directors and serve at the board 's discretion . john bientjes , thomas fyles , ben seaman and david fynn are independent directors as that term is defined in section 803 of the listing standards of the nyse amercian . our audit committee , consisting of john bientjes , ben seaman and david fynn all of whom have strong financial backgrounds , facilitates and maintains open communications with our board of directors , senior management and our independent auditors . our audit committee also serves as an independent and objective party which monitors our financial reporting process and internal control system . in addition , our audit committee reviews and appraises the efforts of our independent auditors . our audit committee meets periodically with management and our independent auditors . john bientjes and david fynn meet the sec 's definition of an audit committee financial expert . each member of the audit committee is “ independent ” as that term is defined in section 803 of the listing standards of the nyse american . our compensation committee , consisting of john bientjes , ben seaman and david fynn , establishes salary , incentive and other forms of compensation for our chief executive officer and administers our stock option program . none of our officers participated in deliberations of the compensation committee concerning executive officer compensation . during the year ended december 31 , 2018 , none of our executive officers served as a member of the compensation committee or as a director of another entity , one of whose executive officers served on our compensation committee or as one of our directors . we have adopted a code of ethics that applies story_separator_special_tag story_separator_special_tag substantial commitments that require significant outlays of cash over the coming fiscal year . we are committed to minimum rental payments for property and premises aggregating approximately $ 1,121,595 over the term of five leases , the last expiring on september 30 , 2023 . 14 commitments for rent in the next five years are as follows : replace_table_token_5_th other than as disclosed above , we do not anticipate any material capital requirements for the twelve months ending december 31 , 2019. other than as disclosed in item 7 of this report , we do not know of any trends , demands , commitments , events or uncertainties that will result in , or that are reasonable likely to result in , our liquidity increasing or decreasing in any material way . other than as disclosed in item 7 of this report , we do not know of any significant changes in our expected sources and uses of cash . we do not have any commitments or arrangements from any person to provide us with any equity capital . see note 2 to the consolidated financial statements included as part of this report for a description of our significant accounting policies . critical accounting policies and estimates allowances for product returns . we grant certain of our customers the right to return product which they are unable to sell . upon sale , we evaluate the need to record a provision for product returns based on our historical experience , economic trends and changes in customer demand . allowances for doubtful accounts receivable . we evaluate our accounts receivable to determine if they will ultimately be collected . this evaluation includes significant judgments and estimates , including an analysis of receivables aging and a review of large accounts . if , for example , the financial condition of a customer deteriorates resulting in an impairment of its ability to pay or a pattern of late payment develops , an allowance may be required . provisions for inventory obsolescence . we may need to record a provision for estimated obsolescence and shrinkage of inventory . our estimates would consider the cost of inventory , the
| gross profit , as a % of sales d margins were constricted by higher raw material costs , new tariffs and inability to pass additional costs on to customers . wages i increased employee count . administrative salaries and benefits i increased wages to retain employees . consulting i added consultant to increase future growth . professional fess i increased legal fees related to the acquisition and general legal representation . research i new research projects started . commissions d uncommissionable sales increased against commissionable sales . 13 the factors that will most significantly affect future operating results will be : ● the sale price of crude oil which is used in the manufacture of aspartic acid we import from china . aspartic acid is a key ingredient in our tpa product ; ● activity in the oil and gas industry , as we sell our tpa product to oil and gas companies ; and ● drought conditions , since we also sell our tpa product to farmers . other than the foregoing we do not know of any trends , events or uncertainties that have had , or are reasonably expected to have , a material impact on our revenues or expenses . capital resources and liquidity our sources and ( uses ) of cash for the years ended december 31 , 2018 and 2017 are shown below : replace_table_token_4_th we have sufficient cash resources to meets our future commitments and cash flow requirements for the coming year . as of december 31 , 2018 , our working capital was $ 15,104,066 and we have no
| 10,967 |
the company continued its emphasis on investment in research , development and engineering , spending $ 230.2 million in 2018 before customer reimbursement of $ 5.2 million . sales from products introduced in the past three years were $ 1,195.2 million or 24.7 % of net sales . 28 results of operations the following table sets forth net sales and income by reportable segment and on a consolidated basis : replace_table_token_10_th ( 1 ) effective january 1 , 2018 , the company adopted the requirements of financial accounting standards board ( fasb ) accounting standards update ( asu ) no . 2014-09 , revenue from contracts with customers ( asu 2014-09 ) and modified the standard thereafter within accounting standards codification ( asc ) topic 606 , revenue from contracts with customers ( asc 606 ) using the modified retrospective method . see note 3 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k and critical accounting policies herein for further details . ( 2 ) in accordance with the retrospective adoption of asu no . 2017-07 , improving the presentation of net periodic pension cost and net periodic postretirement benefit cost ( asu 2017-07 ) , for the years ended december 31 , 2017 and 2016 , the consolidated statement of income was restated to increase cost of sales by $ 9.9 million and $ 10.3 million , increase selling , general and administrative expenses by $ 1.5 million and $ 0.6 million , and decrease other expense , net by $ 11.5 million and $ 10.9 million , respectively , for net periodic benefit income components other than service cost . for the years ended december 31 , 2017 and 2016 , the $ 11.5 million and $ 10.9 million , respectively , of net periodic benefit income components other than service cost were originally reported in operating income as follows : $ 5.8 million and $ 6.6 million in eig , $ 4.1 million and $ 3.6 million in emg , and $ 1.5 million and $ 0.6 million in corporate administrative expense , respectively . for the year ended december 31 , 2018 , other expense , net included $ 21.0 million for net periodic benefit income components other than service cost . see note 2 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. results of operations for the year ended december 31 , 2018 compared with the year ended december 31 , 2017 in 2018 , the company posted record backlog , orders , sales , operating income , net income , diluted earnings per share and operating cash flow . the company achieved these results from organic sales growth in both eig and emg , contributions from the acquisitions completed in 2018 and the acquisitions of arizona instrument in december 2017 , mocon in june 2017 and rauland in february 2017 , as well as the company 's operational excellence initiatives . 29 continuing positive market trends , the company 's record backlog , the full year impact of the 2018 acquisitions and continued focus on and implementation of operational excellence initiatives are expected to have a positive impact on the company 's 2019 results . net sales for 2018 were $ 4,845.9 million , an increase of $ 545.7 million or 13 % , compared with net sales of $ 4,300.2 million in 2017. the increase in net sales for 2018 was due to 7 % organic sales growth , a 5 % increase from acquisitions and favorable 1 % effect of foreign currency translation . eig net sales were $ 3,029.0 million in 2018 , an increase of 12.6 % , compared with $ 2,690.6 million in 2017. emg net sales were $ 1,816.9 million in 2018 , an increase of 12.9 % , compared with $ 1,609.6 million in 2017. total international sales for 2018 were $ 2,448.5 million or 50.5 % of net sales , an increase of $ 234.5 million or 10.6 % , compared with international sales of $ 2,214.0 million or 51.5 % of net sales in 2017. the $ 234.5 million increase in international sales was primarily driven by organic sales growth . both reportable segments of the company maintain strong international sales presences in europe and asia . export shipments from the united states , which are included in total international sales , were $ 1,269.4 million in 2018 , an increase of $ 127.1 million or 11.1 % , compared with $ 1,142.3 million in 2017. export shipments increased primarily due to organic sales growth . orders for 2018 were $ 5,051.8 million , an increase of $ 512.0 million or 11 % , compared with $ 4,539.8 million in 2017. the increase in orders for 2018 was due to 7 % organic order growth , a 5 % increase from acquisitions and a 1 % unfavorable effect of foreign currency translation . as a result , the company 's backlog of unfilled orders at december 31 , 2018 was $ 1,602.1 million , an increase of $ 206.0 million or 14.8 % , compared with $ 1,396.1 million at december 31 , 2017. the company recorded 2017 realignment costs totaling $ 16.8 million in the fourth quarter of 2017 ( the 2017 realignment costs ) . the 2017 realignment costs were composed of $ 3.0 million in severance costs for a reduction in workforce , $ 7.8 million of asset write-downs and $ 6.0 million in costs to withdraw from a multiemployer defined benefit pension plan . the 2017 realignment costs better positioned the company 's long-term cost structure and included costs associated with the continued consolidation of the company 's floor care and specialty motors businesses into its precision motion control businesses . story_separator_special_tag the 2017 realignment costs were reported in the consolidated statement of income as follows ( in millions ) : replace_table_token_11_th the 2017 realignment costs were reported in segment operating income as follows ( in millions ) : replace_table_token_12_th 30 the 2017 realignment costs negatively impacted segment operating margins as follows ( in basis points ) : replace_table_token_13_th segment operating income for 2018 was $ 1,145.9 million , an increase of $ 167.5 million or 17.1 % , compared with segment operating income of $ 978.4 million in 2017. segment operating income , as a percentage of net sales , increased to 23.6 % in 2018 , compared with 22.8 % in 2017. the increase in segment operating income and segment operating margins for 2018 resulted primarily from the increase in net sales and the impact of the 2017 realignment noted above , as well as the benefits of the company 's operational excellence initiatives . cost of sales for 2018 was $ 3,186.3 million or 65.8 % of net sales , an increase of $ 324.9 million or 11.4 % , compared with $ 2,861.4 million or 66.5 % of net sales for 2017. cost of sales increased primarily due to the increase in net sales noted above . cost of sales in 2017 included the impact of the realignment costs detailed in the tables above . selling , general and administrative expenses for 2018 were $ 584.0 million or 12.1 % of net sales , an increase of $ 48.8 million or 9.1 % , compared with $ 535.2 million or 12.4 % of net sales in 2017. selling , general and administrative expenses increased primarily due to the increase in net sales noted above . for 2017 , selling , general and administrative expenses included a fourth quarter of 2017 $ 5.0 million charitable donation and a second quarter of 2017 $ 2.5 million pre-tax charge in corporate administrative expenses related to the accelerated vesting of restricted stock grants in association with the retirement of the company 's executive chairman of the board of directors . consolidated operating income was $ 1,075.5 million or 22.2 % of net sales for 2018 , an increase of $ 171.9 million or 19.0 % , compared with $ 903.6 million or 21.0 % of net sales in 2017. interest expense was $ 82.2 million for 2018 , a decrease of $ 15.8 million or 16.2 % , compared with $ 98.0 million in 2017. interest expense decreased primarily due to the repayment in full , at maturity , of $ 270 million in aggregate principal amount of 6.20 % private placement senior notes in the fourth quarter of 2017 , $ 80 million in aggregate principal amount of 6.35 % private placement senior notes and $ 160 million in aggregate principal amount of 7.08 % private placement senior notes in the third quarter of 2018 , and $ 65 million in aggregate principal amount of 7.18 % private placement senior notes in the fourth quarter of 2018. other expenses , net were $ 5.6 million for 2018 , a decrease of $ 3.3 million , compared with $ 8.9 million in 2017. the other expenses , net decrease for 2018 was primarily due to higher pension income included in other expenses , partially offset by higher due diligence expense . the effective tax rate for 2018 was 21.2 % , compared with 14.5 % in 2017. on december 22 , 2017 , the u.s. enacted the tax cuts and jobs act ( the tax act ) . the tax act , which is also commonly referred to as u.s . tax reform , significantly changed u.s. corporate income tax laws by , among other things , reducing the u.s. corporate income tax rate to 21 % starting in 2018 and creating a territorial tax system with a one-time mandatory tax on a deemed repatriation of previously deferred foreign earnings of u.s. subsidiaries . during 2018 the company finalized the calculations of the tax act transitional tax items and reported a favorable $ 11.8 million tax benefit of which $ 10.4 million relates to the one-time mandatory deemed repatriation tax and $ 1.4 million relates to the remeasurement of the net deferred tax liabilities in the u.s. for the impact of the lower tax rates . during 2017 , the company recorded a net benefit of $ 91.6 million in the consolidated 31 statement of income as a component of provision for income taxes . the $ 91.6 million net benefit consisted of a $ 185.8 million benefit resulting from the remeasurement of the company 's net deferred tax liabilities in the u.s. based on the new lower corporate income tax rate and a $ 94.2 million expense relating to the one-time mandatory tax on previously deferred earnings of certain non-u.s. subsidiaries that are owned either wholly or partially by a u.s. subsidiary of the company . the company has evaluated the impact of the global intangible low-taxed income ( gilti ) section of the tax act and has made a tax accounting policy election to record the annual tax cost of gilti as a current period expense when incurred and , as such , will not be measuring an impact of gilti in its determination of deferred taxes . in addition to the tax act adjustments previously mentioned , the 2018 effective tax rate primarily reflects the ongoing impact of the tax act including the reduction of the u.s. corporate income tax rate and the current impact of gilti and fdii provisions , as well as a $ 25.0 million net tax expense for a change in measurement of a prior year uncertain tax position stemming from the planned implementation of prospective tax planning related to hard to value intangible assets . the 2018 and 2017 effective tax rates also reflect the release of uncertain tax position liabilities primarily relating to statute expirations for u.s. federal and state jurisdictions totaling $ 11.4 million and $ 8.1 million , respectively .
| 32 results of operations for the fourth quarter of 2018 compared with the fourth quarter of 2017 net sales for the fourth quarter of 2018 were $ 1,271.3 million , an increase of $ 128.2 million or 11 % , compared with net sales of $ 1,143.1 million for the fourth quarter of 2017. the increase in net sales for the fourth quarter of 2018 was due to 6 % organic sales growth , a 7 % increase from acquisitions and unfavorable ( 1 % ) effect of foreign currency translation . segment operating income for the fourth quarter of 2018 was $ 300.5 million , an increase of $ 50.1 million or 20.0 % , compared with segment operating income of $ 250.4 million for the fourth quarter of 2017. the increase in segment operating income for the fourth quarter of 2018 resulted primarily from the increase in net sales noted above . segment operating income , as a percentage of net sales , increased to 23.6 % for the fourth quarter of 2018 , compared with 21.9 % for the fourth quarter of 2017. the increase in segment operating margins for the fourth quarter of 2018 resulted primarily from the net impact of the 2017 realignment costs noted above and their effect on the prior year margin . cost of sales for the fourth quarter of 2018 was $ 835.3 million or 65.7 % of net sales , an increase of $ 65.6 million or 8.5 % , compared with $ 769.7 million or 67.3 % of net sales for the fourth quarter of 2017. cost of sales increased primarily due to the increase in net sales noted above . the effective tax rate for the fourth quarter of 2018 was 18.3 % , compared with ( 20.8 % ) in the fourth quarter of 2017. the effective tax rate for the fourth quarter of 2018 includes a favorable $ 11.8 million tax adjustment related to the finalization of the tax act transitional tax items and $ 9.1 million net tax
| 10,968 |
atm denied the allegations against it , believed it has a number of meritorious defenses and vigorously defended the lawsuit . the trial proceeded with respect to tmk ipsco 's claim for damages and , in september 2013 , the district court awarded tmk ipsco damages of approximately $ 5.2 million . although atm is appealing the court 's decision , we recognized expense of $ 5.2 million in 2013 for this unfavorable court ruling . tmk ipsco is also appealing the decision and , additionally , it has asked the court for $ 3.8 million in attorney 's fees . on september 3 , 2013 , we sold all of the outstanding equity interests of a non-core business unit in the supply technologies segment for $ 8.5 million in cash , which resulted in a net gain of approximately $ 3.8 million , after taxes of $ 1.5 million , for the year ended december 31 , 2013. the business unit sold is a provider of high-quality machine to machine information technology solutions , products and services . as a result of the sale , this business has been removed from the supply technologies segment and its operating results and the gain on sale are presented as a discontinued operation for all of the periods presented . effective august 1 , 2013 , we entered into an agreement to sell 25 % of our ssp business to arkansas steel associates , llc for $ 5.0 million in cash . ssp is included in our engineered products segment . this transaction facilitates our capacity expansion in one of our growing product lines . as a result of this transaction , 25 % of ssp 's earnings , or $ 0.5 million , are reflected as `` net income attributable to noncontrolling interest '' , which is deducted from `` net income '' to derive `` net income attributable to parkohio common shareholders '' . 25 story_separator_special_tag income attributable to noncontrolling interest : as a result of the sale of the 25 % equity interest in a small forging business in 2013 , the income of $ 0.5 million attributable to the noncontrolling interest is deducted from net income to derive net income attributable to parkohio common shareholders . net income attributable to parkohio common shareholders : net income attributable to parkohio common shareholders increased $ 11.6 million to $ 43.4 million in 2013 , compared to $ 31.8 million in 2012 , due to the reasons described above . 2012 compared with 2011 net sales : net sales increased $ 166.8 million , or 17 % , to $ 1,128.2 million in 2012 , compared to $ 961.4 million in 2011 . the increase in revenues is primarily attributable to sales from the 2012 frs acquisition , which totaled $ 152.4 million during the approximate nine months of ownership . in addition , net sales in engineered products increased 6 % primarily due to 15 % increased volume in the forged and machined products business unit and 4 % increased volume in the industrial equipment business unit . the factors explaining the changes in segment revenues for 2012 compared to the prior year are contained within the “ segment analysis ” section . cost of sales & gross profit : cost of sales increased $ 127.2 million , or 16 % , to $ 920.9 million for 2012 , compared to $ 793.7 million in 2011 . cost of products sold increased primarily due to the inclusion of frs results of $ 125.7 million in 2012. the gross profit margin percentage was 18.4 % in 2012 , which is a 100 basis point increase compared to the 17.4 % gross profit margin in the prior year . supply technologies gross margin increased primarily due to product mix . engineered products 28 gross margin increased primarily due to volume increases and the resulting favorable absorption of overhead . gross margin in the assembly components segment increased primarily due to the favorable margins realized from the frs acquisition . sg & a expenses : consolidated sg & a expenses increased 11 % in 2012 compared to 2011 ; however , sg & a expenses as a percentage of sales declined by 50 basis points to 10.1 % . sg & a expenses increased in 2012 compared to the prior year primarily due to $ 7.6 million of incremental expense associated with frs , increases in payroll and payroll related expenses of $ 1.9 million , frs acquisition expenses of $ 1.1 million and legal expenses of $ 1.0 million associated with the evraz litigation settlement . restructuring and asset impairment charges : during the third quarter of 2011 , the company recorded a $ 5.4 million restructuring and asset impairment charge related to the write down of underperforming assets in its rubber products business unit . litigation judgment and settlement costs : during the second quarter of 2012 , we agreed to settle the evraz arbitration proceeding for the sum of $ 13.0 million in cash , which payment was made in june 2012. interest expense : replace_table_token_8_th interest expense decreased $ 5.8 million in 2012 compared to 2011 , primarily due to higher debt extinguishment costs in 2011 as a result of the refinancing of our senior subordinated notes and the amendment of the credit agreement . average borrowings in 2012 were higher when compared to 2011 due to additional borrowings to fund the acquisition of frs and the evraz litigation settlement . the lower average borrowing rate in 2012 was due primarily to the interest rate mix of our credit facility and notes when compared to the interest rate mix in 2011. income tax expense : the provision for income taxes was $ 20.3 million in 2012 , which was a 37.2 % effective income tax rate , compared to the income tax benefit of $ 3.8 million in 2011 and a 13.6 % effective income tax rate benefit . story_separator_special_tag as of december 31 , 2011 , we were not in a cumulative three-year loss position and determined that it was more likely than not that our u. s. net deferred tax assets would be realized . as of december 31 , 2011 , we released $ 16.8 million of the valuation allowance attributable to continuing operations in 2011. our net operating loss carryforward precluded the payment of most u.s. federal income taxes in both 2012 and 2011. at december 31 , 2012 , we had fully utilized the net operating loss carryforwards for u.s. federal income tax purposes . 29 segment analysis we primarily evaluate performance and allocate resources based on segment operating income as well as projected future performance . segment operating income is defined as revenues less expenses identifiable to the business units and product lines included within each segment . segment operating income will reconcile to consolidated income from continuing operations before income taxes by deducting corporate costs that are not attributable to the segments , litigation judgment and settlement costs and net interest expense and by adding the gain on acquisition of business . the proportion of consolidated revenues and segment operating income attributed to each segment was as follows : replace_table_token_9_th supply technologies segment replace_table_token_10_th 2013 compared with 2012 net sales : the decrease in net sales in 2013 compared with the prior year was primarily due to a 13 % decline in volume associated with the heavy-duty truck market and a 25 % decline in volume associated with the defense industry market combined with the exit of low margin business approximating $ 11.0 million . these unfavorable impacts to revenues were partially offset by approximately $ 8.5 million in sales from our two fourth quarter acquisitions , henry halstead and qef , greater volume in our power sports and recreational equipment market of 7 % and increased tooling sales in our small fastener manufacturing division . segment operating income : included in 2013 cost of sales was $ 1.6 million of acquisition-related costs associated with the inventory step-up in purchase accounting for the henry halstead and qef acquisitions . excluding these acquisition-related costs , segment operating income remained comparable with the prior year , even though revenues were slightly down compared to the prior year . while the acquisition-related costs unfavorably impacted segment operating income by 30 basis points , our overall segment operating margin only decreased 20 basis points to 7.6 % in 2013 compared with the prior year as a result of effective cost control management and the pairing of low margin business . 2012 compared with 2011 net sales : net sales increased slightly in 2012. the strength of volumes in the heavy-duty truck market , which reflected an increase of 19 % , and the power sports and recreational equipment market , which increased 22 % , were significantly offset by the exit of low margin business in the appliance and hvac market , which combined to be $ 13.0 million , and by other sales declines in other industrial markets . 30 segment operating income : despite a modest increase in revenues in 2012 , segment operating income increased 8 % compared to the prior year . on the strength of effective cost control management and the pairing of low margin business , segment operating income margin increased 50 basis points to 7.8 % in 2012 compared with the prior year . assembly components segment replace_table_token_11_th * calculation not meaningful 2013 compared with 2012 net sales : the significant increase in net sales is primarily due to the incremental revenues in 2013 associated with the frs and bates acquisitions that combined to total approximately $ 73.6 million . in addition , aluminum business revenues increased 29 % as new programs with our automotive customers were launched in 2013. in total , approximately 72 % of our revenue growth is attributable to acquisitions and the remainder of the growth is organic . segment operating income : on the strength of our acquisitions , segment operating income increased 60 % in 2013 compared with the prior year . furthermore , our segment operating income margin increased 120 basis points based on the contribution of the acquisitions . as the aluminum business is still ramping up to full capacity , this business has had only a small favorable impact on segment operating income improvement . 2012 compared with 2011 net sales : the significant increase in net sales is entirely due to the incremental revenues in 2012 associated with the frs acquisition . aluminum revenues declined 7 % as the business unit was changing over to new platforms for its automotive customers . segment operating income : segment operating income significantly increased due to the transformational acquisition of frs . accordingly , the segment operating income margin increased to 6.5 % . engineered products segment replace_table_token_12_th 2013 compared with 2012 net sales : the decline in net sales of 6 % is primarily attributable to an 18 % decline in capital equipment business within our industrial equipment business unit . global economic uncertainty in 2013 caused many industrial customers to defer orders . the aftermarket volume in the industrial equipment business was just 2 % less in 2013 compared to 2012. offsetting these net sales declines , our forging business demand continued to be very strong in 2013 led by our rail business , and net sales increased 7 % over the prior year . segment operating income : given the decline in net sales in 2013 , segment operating income also decreased 14 % . the decrease in operating income dollars and the 140 basis point decline in segment operating income margin are associated with the volume decline in 2013 and the associated reduction in overhead absorption related to the decline in volume . 31 2012 compared with 2011 net sales : net sales increased $ 18.2 million , or 6 % , to $ 340.4 million year over year due to increased volume in the industrial equipment business unit and the forged and machined products business unit .
| selling , general & administrative ( sg & a ) expenses : consolidated sg & a expenses increased 5 % in 2013 compared to 2012 , but sg & a expenses as a percent of sales decreased by 20 basis points to 9.9 % . sg & a expenses increased in 2013 compared to 2012 primarily due to $ 4.3 million of incremental expense associated with frs , bates , henry halstead and qef , increases in payroll , payroll related expenses and share-based compensation offset by frs acquisition expenses of $ 1.1 million in 2012. litigation judgment and settlement costs : during the third quarter of 2013 , the united states district court for the eastern district of arkansas awarded tmk ipsco damages of approximately $ 5.2 million . during the second quarter of 2012 , we agreed to settle the evraz arbitration proceeding for the sum of $ 13.0 million in cash , which payment was made in june 2012. gain on acquisition of business : the $ 0.6 million gain on acquisition of business relates to the bargain purchase associated with a small bolt-on acquisition in the engineered products segment . interest expense : replace_table_token_7_th interest expense increased $ 0.4 million in 2013 compared to 2012 as average borrowings in 2013 were higher when compared to 2012 due to additional borrowings to fund the acquisition of bates . 27 income tax expense : the provision for income taxes was $ 19.4 million in 2013 , which was a 32.2 % effective income tax rate , compared to income taxes of $ 20.3 million provided in 2012 , a 37.2 % effective income tax rate . the reduction in the effective tax rate is primarily due to our ability to realize certain deductions , such as the manufacturer 's deduction , now that our net operating loss carryforwards were utilized in 2012 combined with the reversal of valuation allowances against certain u.s. net deferred tax assets in 2013 that reduced tax expense by $ 1.6 million . net income
| 10,969 |
to the disposition of the boston proper dtc business . liquidity and capital resources overview we believe that our existing cash and marketable securities balances , cash generated from operations , available credit facilities and potential future borrowings will be sufficient to fund capital expenditures , working capital needs , dividend payments , potential share repurchases , commitments and other liquidity requirements associated with our operations for the foreseeable future . furthermore , while it is our intention to repurchase our stock and pay a quarterly cash dividend in the future , any determination to repurchase additional shares of our stock or pay future dividends will be made by the board of directors and will depend on our stock price , future earnings , financial condition and other factors considered by the board . our ongoing capital requirements will continue to be primarily for enhancing and expanding our omni-channel capabilities , including expanded , relocated and remodeled stores ; and information technology . operating activities net cash provided by operating activities in . fiscal 2016 was $ 230.7 million , an increase of approximately $ 33.7 million from fiscal 2015 . this increase primarily reflected the change in working capital and an increase in net income compared to prior year when adjusted for non-cash impairment charges and the deferred tax benefit related to the exit of boston proper . the change in working capital is primarily due to a decrease in income tax receivable . net cash provided by operating activities in fiscal 2015 was $ 197.0 million , a decrease of approximately $ 85.5 million from fiscal 2014. this decrease is primarily due to changes in working capital reflecting the sale of boston proper , severance payments and timing of payables . these charges were partially offset by the impact of impairment and restructuring and strategic charges of $ 112.5 million , an increase of $ 82.4 million over fiscal 2014. investing activities net cash used in investing activities for fiscal 2016 was $ 31.8 million compared to $ 0.5 million provided by investing activities for fiscal 2015 . the fiscal 2016 results reflect net purchases of property and equipment totaling $ 47.8 million , offset by proceeds from the sale of land of $ 16.2 million . fiscal 2015 results included net purchases of property and equipment totaling $ 84.8 million , offset by a $ 76.3 million net decrease in marketable securities related to share repurchases and proceeds from the sale of boston proper . 24 net cash provided by investing activities for fiscal 2015 was $ 0.5 million compared to $ 130.5 million used in investing activities for fiscal 2014 , reflecting a $ 76.3 million net decrease in marketable securities in fiscal 2015 related to the funding of the asr agreements compared to a $ 10.6 million net increase in fiscal 2014. investing activities in fiscal 2015 included net purchases of property and equipment totaling $ 84.8 million compared to $ 119.8 million in fiscal 2014 , primarily as a result of fewer store openings in fiscal 2015. financing activities net cash used in financing activities for fiscal 2016 was $ 146.7 million compared to $ 240.4 million in fiscal 2015 . the fiscal 2016 decrease in net cash used in financing activities primarily reflects a decrease of $ 201.0 million in share repurchases in fiscal 2016 compared to fiscal 2015 , partially offset by net borrowings of $ 92.5 million under our credit agreement in fiscal 2015 . in fiscal 2016 , we paid four cash dividends at $ 0.08 per share on our common stock , totaling $ 42.3 million and received $ 4.4 million in proceeds from issuing approximately 1.8 million shares related to employee stock ownership plans and stock option exercises . net cash used in financing activities for fiscal 2015 was $ 240.4 million compared to $ 55.6 million in fiscal 2014. the fiscal 2015 increase in net cash used in financing activities primarily reflects $ 290.0 million in share repurchases under our asr agreements and open market partially offset by $ 92.5 million in net proceeds from borrowings under the credit agreement , as further discussed in note 10. in fiscal 2015 , we paid four cash dividends at $ 0.0775 per share on our common stock , totaling $ 43.7 million and received $ 10.6 million in proceeds from issuing approximately 1.7 million shares related to employee stock ownership plans and stock option exercises . store and franchise activity during fiscal 2016 , we had 17 net closures , consisting of 18 chico 's stores and 6 whbm stores partially offset by 7 soma store net openings . in fiscal 2017 , we anticipate opening approximately 10 stores while closing 50 stores in our efforts to continue our capital allocation and cost reduction initiatives . we expect 14-18 net closures of chico 's stores , 14-18 net closures of whbm stores and 6-10 net closures of soma stores . we continuously evaluate the appropriate new store growth rate and closures in light of economic conditions and may adjust the growth rate and closures as conditions require or as opportunities arise . as of january 28 , 2017 , we also sold merchandise through 91 franchise locations in mexico . contractual obligations the following table summarizes our contractual obligations at january 28 , 2017 : replace_table_token_12_th as of january 28 , 2017 , our contractual obligations consisted of : 1 ) amounts outstanding under operating leases , 2 ) open purchase orders for inventory and other operating expenses , in the normal course of business , 3 ) contractual commitments for fiscal 2017 capital expenditures and 4 ) long-term debt obligations . until formal resolutions are reached between us and the relevant taxing authorities , we are unable to estimate a final determination related to our uncertain tax positions and therefore , we have excluded the uncertain tax positions , totaling $ 5.2 million at january 28 , 2017 from the above table . story_separator_special_tag 25 credit facility on may 4 , 2015 , we entered into a credit agreement ( the “ agreement ” ) among the company , jpmorgan chase bank , n.a . as administrative agent , bank of america , n.a. , as syndication agent and other lenders . our obligations under the agreement are guaranteed by certain of our material u.s. subsidiaries . the agreement provides for a term loan commitment in the amount of $ 100.0 million , of which $ 100.0 million was drawn at closing , and matures on may 4 , 2020. the agreement also provides for a $ 100.0 million revolving credit facility , of which $ 24.0 million was drawn at closing and was repaid in the second quarter of 2015. the agreement has borrowing options which accrue interest by reference , at our election , at either an adjusted eurodollar rate tied to libor or an alternate base rate plus an interest rate margin , as defined in the agreement . the agreement also requires us to maintain certain maximum leverage ratio ( as defined in the agreement ) of no more than 3.50 to 1.00 until july 31 , 2018 , and 3.25 to 1.00 after july 31 , 2018 , and a minimum fixed coverage charge of not less than 1.20 to 1.00. as of january 30 , 2016 , the company was in compliance with all financial covenant requirements of the agreement . for a more detailed description of the interest rate options and the financial covenants , please see note 10. on may 4 , 2015 , in connection with our entry into the agreement , we repaid and terminated , with no prepayment penalties , the $ 124.0 million outstanding obligation under our 2011 revolving credit facility . we used the proceeds from the initial draw of the term loan and revolving credit facility of the agreement to repay such obligations . as of january 28 , 2017 , $ 84.8 million in net borrowings under the term loan were outstanding under the agreement , and are reflected as $ 16.3 million in current debt and $ 68.5 million in long-term debt in the accompanying consolidated balance sheet . off-balance sheet arrangements at january 28 , 2017 and january 30 , 2016 , we did not have any relationship with unconsolidated entities or financial partnerships for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes . critical accounting policies the discussion and analysis of our consolidated financial condition and results of operations are based upon the consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of our board of directors , and believes the following assumptions and estimates are significant to reporting our consolidated results of operations and financial position . inventory valuation and shrinkage we identify potentially excess and slow-moving inventories by evaluating inventory aging , turn rates and inventory levels in conjunction with our overall sales trend . further , inventory realization exposure is identified through analysis of gross margins and markdowns in combination with changes in current business trends.we record excess and slow-moving inventories at net realizable value and may liquidate certain slow-moving inventory through third parties . historically , the variation of those estimates to actual results is immaterial and material variation is not expected in the future . we estimate our expected shrinkage of inventories between our physical inventory counts by using average store shrinkage experience rates , which are updated on a regular basis . historically , the variation of those estimates to actual results is immaterial and material variation is not expected in the future . 26 revenue recognition retail sales by our stores are recorded at the point of sale and are net of estimated customer returns , sales discounts under rewards programs and company issued coupons , promotional discounts and employee discounts . for sales from our websites and catalogs , revenue is recognized at the time we estimate the customer receives the product , which is typically within a few days of shipment . amounts related to shipping and handling costs billed to customers are recorded in net sales and the related shipping and handling costs are recorded in cost of goods sold in the accompanying consolidated statements of income . amounts paid by customers to cover shipping and handling costs are immaterial . our gift cards do not have expiration dates . we account for gift cards by recognizing a liability at the time the gift card is sold . the liability is relieved and revenue is recognized for gift cards upon redemption . in addition , we recognize revenue for the amount of gift cards expected to go unredeemed ( commonly referred to as gift card breakage ) under the redemption recognition method . this method records gift card breakage as revenue on a proportional basis over the redemption period based on our historical gift card breakage rate . we determine the gift card breakage rate based on our historical redemption patterns . we recognize revenue on the remaining unredeemed gift cards based on determining that the likelihood of the gift card being redeemed is remote and that there is no legal obligation to remit the unredeemed gift cards to relevant jurisdictions .
| when excluding boston proper from fiscal 2015 , gross margin decreased 60 basis points in fiscal 2016 compared to gross margin of $ 1,000 million , or 38.8 % , last year . this 60 basis point decrease from the 2015 adjusted gross margin rate primarily reflects deleverage of occupancy costs and incentive compensation , partially offset by an improvement in merchandise margin . for fiscal 2015 , gross margin was $ 1,027 million compared to $ 1,034 million in fiscal 2014. as a percentage of net sales , gross margin was 38.6 % , a 20 basis point increase from fiscal 2014 , primarily reflecting a decrease in promotional activity in response to improved inventory management in fiscal 2015. when excluding boston proper in fiscal 2015 and fiscal 2014 , gross margin was $ 1,000 million and $ 997 million , or 38.8 % and 38.5 % of net sales , respectively . selling , general and administrative expenses the following table depicts sg & a , which includes store and direct operating expenses , marketing expenses and nssc expenses , in dollars and as a percentage of net sales for fiscal 2016 , 2015 and 2014 : replace_table_token_11_th 22 for fiscal 2016 , selling , general and administrative expenses ( `` sg & a '' ) were $ 775 million , or 31.2 % , compared to $ 879 million , or 33.0 % , in fiscal 2015 . when excluding boston proper from fiscal 2015 , sg & a decrease d $ 56 million , or 110 basis points , compared to $ 831 million , or 32.3 % , last year . this decrease is primarily due to a reduction in unproductive marketing spend and improvements in store labor productivity , partially offset by an increase in incentive compensation . for fiscal 2015 , sg & a was $ 879 million compared to $ 871 million in fiscal 2014. as a percentage of net sales , sg & a was 33.0 %
| 10,970 |
this review includes accounts receivable agings , other operating trends and relevant business conditions , including general economic factors , as they relate to the company 's domestic and international customers . if these analyses lead management to the conclusion that potential significant accounts are uncollectible , a reserve is provided . inventories inventories are valued at the lower of cost or market with cost determined on the average cost basis . costs included in inventories consist of materials , labor and manufacturing overhead , which are related to the purchase or production of inventories . write-downs , when required , are made to reduce excess inventories to their net realizable values . such estimates are based on assumptions regarding future demand and market conditions . if actual conditions become less favorable than the assumptions used , an additional inventory write-down may be required . deferred taxes the company applies the asset and liability method in recording income taxes , under which deferred income tax assets and liabilities are determined , based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using currently enacted tax rates and laws . additionally , deferred tax assets are evaluated and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized . management continues to review the level of the valuation allowance on a quarterly basis . there can be no assurance that the company 's future operations will produce sufficient earnings so that the deferred tax assets can be fully utilized . intangible assets intangible and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable . recoverability is determined by comparing the forecasted future undiscounted net cash flows from the operations to which the assets relate , based on management 's best estimates using the appropriate assumptions and projections at the time , to the carrying amount of the assets . if the carrying value is determined to be in excess of future operating cash flows , the asset is considered impaired and a loss is recognized equal to the amount by which the carrying amount exceeds the estimated fair value of the assets . page 19 recently issued accounting pronouncements refer to note 2 of the notes to consolidated financial statements for a discussion of recently issued accounting pronouncements . story_separator_special_tag deductible for income tax reporting , offset by tax credits related to research and experimentation expenses . the effective tax rate in fiscal 2013 was ( 1.5 ) % . the effective tax rate on consolidated net loss in fiscal 2013 differed from the federal statutory tax rate primarily due to changes in the deferred tax valuation allowance and certain expenses not being deductible for income tax reporting offset by tax credits related to research and experimentation expenses . net income ( loss ) net loss decreased $ 445,955 to a net loss of $ 93,669 , or $ 0.03 per diluted share , for fiscal 2015 as compared to net loss of $ 539,624 , or $ 0.18 per diluted share , for fiscal 2014. net loss for fiscal 2015 reflected increased sales and a higher gross margin percentage , which was partially offset by an increase in operating expenses . net loss decreased $ 258 to a net loss of $ 539,624 , or $ 0.18 per diluted share , for fiscal 2014 as compared to net loss of $ 539,882 , or $ 0.18 per diluted share , for fiscal 2013. net loss for fiscal 2014 reflected decreased sales and a lower gross margin percentage , which was partially offset by reduced operating expenses . inflation risk the company does not believe that inflation has had a material effect on its business , financial condition or results of operations . however , if its costs were to become subject to significant inflationary pressures , the company may not be able to fully offset such higher costs through price increases . the company 's inability or failure to do so could harm its business , financial condition and results of operations . off balance sheet arrangements the company did not have any off-balance sheet arrangements during the fiscal year ended may 31 , 2015. liquidity and capital resources the company 's working capital increased $ 75,242 to $ 7,553,315 as of may 31 , 2015 compared to $ 7,478,073 as of may 31 , 2014. cash and cash equivalents increased $ 285,089 from $ 1,510,565 as of may 31 , 2014 to $ 1,795,654 as of may 31 , 2015. cash provided by operating activities was $ 390,146 in fiscal 2015 as compared to cash used in operations of $ 392,376 in fiscal 2014. the increase in the amount of cash used for operating activities was primarily due to the reduction in net loss incurred by the company , reductions in inventories , and increases in accounts payable and accrued liabilities , offset by the increase in accounts receivable . at may 31 , 2015 , accounts receivable increased $ 425,232 to $ 2,660,426 compared to $ 2,235,194 as of may 31 , 2014. the increase in accounts receivable was due to the increase in sales in the fourth quarter and the resulting timing of receipts . inventories decreased $ 232,255 to $ 4,557,567 as of may 31 , 2015 compared to $ 4,789,822 as of may 31 , 2014 as a result of our continued focus on right-sizing the levels of inventories held for each of the company 's product lines . at may 31 , 2015 , total current liabilities increased $ 404,247 to $ 1,615,331 as compared to $ 1,211,084 at may 31 , 2014. the increase was primarily due to the timing of payments on accounts payable and increases in accruals for story_separator_special_tag this review includes accounts receivable agings , other operating trends and relevant business conditions , including general economic factors , as they relate to the company 's domestic and international customers . if these analyses lead management to the conclusion that potential significant accounts are uncollectible , a reserve is provided . inventories inventories are valued at the lower of cost or market with cost determined on the average cost basis . costs included in inventories consist of materials , labor and manufacturing overhead , which are related to the purchase or production of inventories . write-downs , when required , are made to reduce excess inventories to their net realizable values . such estimates are based on assumptions regarding future demand and market conditions . if actual conditions become less favorable than the assumptions used , an additional inventory write-down may be required . deferred taxes the company applies the asset and liability method in recording income taxes , under which deferred income tax assets and liabilities are determined , based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using currently enacted tax rates and laws . additionally , deferred tax assets are evaluated and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized . management continues to review the level of the valuation allowance on a quarterly basis . there can be no assurance that the company 's future operations will produce sufficient earnings so that the deferred tax assets can be fully utilized . intangible assets intangible and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable . recoverability is determined by comparing the forecasted future undiscounted net cash flows from the operations to which the assets relate , based on management 's best estimates using the appropriate assumptions and projections at the time , to the carrying amount of the assets . if the carrying value is determined to be in excess of future operating cash flows , the asset is considered impaired and a loss is recognized equal to the amount by which the carrying amount exceeds the estimated fair value of the assets . page 19 recently issued accounting pronouncements refer to note 2 of the notes to consolidated financial statements for a discussion of recently issued accounting pronouncements . story_separator_special_tag deductible for income tax reporting , offset by tax credits related to research and experimentation expenses . the effective tax rate in fiscal 2013 was ( 1.5 ) % . the effective tax rate on consolidated net loss in fiscal 2013 differed from the federal statutory tax rate primarily due to changes in the deferred tax valuation allowance and certain expenses not being deductible for income tax reporting offset by tax credits related to research and experimentation expenses . net income ( loss ) net loss decreased $ 445,955 to a net loss of $ 93,669 , or $ 0.03 per diluted share , for fiscal 2015 as compared to net loss of $ 539,624 , or $ 0.18 per diluted share , for fiscal 2014. net loss for fiscal 2015 reflected increased sales and a higher gross margin percentage , which was partially offset by an increase in operating expenses . net loss decreased $ 258 to a net loss of $ 539,624 , or $ 0.18 per diluted share , for fiscal 2014 as compared to net loss of $ 539,882 , or $ 0.18 per diluted share , for fiscal 2013. net loss for fiscal 2014 reflected decreased sales and a lower gross margin percentage , which was partially offset by reduced operating expenses . inflation risk the company does not believe that inflation has had a material effect on its business , financial condition or results of operations . however , if its costs were to become subject to significant inflationary pressures , the company may not be able to fully offset such higher costs through price increases . the company 's inability or failure to do so could harm its business , financial condition and results of operations . off balance sheet arrangements the company did not have any off-balance sheet arrangements during the fiscal year ended may 31 , 2015. liquidity and capital resources the company 's working capital increased $ 75,242 to $ 7,553,315 as of may 31 , 2015 compared to $ 7,478,073 as of may 31 , 2014. cash and cash equivalents increased $ 285,089 from $ 1,510,565 as of may 31 , 2014 to $ 1,795,654 as of may 31 , 2015. cash provided by operating activities was $ 390,146 in fiscal 2015 as compared to cash used in operations of $ 392,376 in fiscal 2014. the increase in the amount of cash used for operating activities was primarily due to the reduction in net loss incurred by the company , reductions in inventories , and increases in accounts payable and accrued liabilities , offset by the increase in accounts receivable . at may 31 , 2015 , accounts receivable increased $ 425,232 to $ 2,660,426 compared to $ 2,235,194 as of may 31 , 2014. the increase in accounts receivable was due to the increase in sales in the fourth quarter and the resulting timing of receipts . inventories decreased $ 232,255 to $ 4,557,567 as of may 31 , 2015 compared to $ 4,789,822 as of may 31 , 2014 as a result of our continued focus on right-sizing the levels of inventories held for each of the company 's product lines . at may 31 , 2015 , total current liabilities increased $ 404,247 to $ 1,615,331 as compared to $ 1,211,084 at may 31 , 2014. the increase was primarily due to the timing of payments on accounts payable and increases in accruals for
| sales of xact remote tank monitoring products increased $ 723,595 , or 74.4 % , to $ 1,695,939 during fiscal 2015 due to an increase in product shipments and increasing monitoring revenues associated with unit sales . sales of sms and lasercheck laser-based surface measurement products increased $ 581,902 , or 61.3 % , primarily due to an increase in demand for these products . future sales of laser-based or ultrasonic measurement products can not be forecasted with any certainty given the historical volatility experienced in this market . sales in the balancer segment increased $ 7,089 , or 0.1 % , to $ 7,721,211 for fiscal 2014 compared to $ 7,714,122 for fiscal 2013. this increase was primarily due to increased sales into europe and asia , offset by lower page 20 shipments into north america and other regions of the world . sales into europe increased $ 199,287 , or 21.5 % , in fiscal 2014 compared to fiscal 2013. sales into asia increased $ 145,137 , or 6.4 % , in fiscal 2014 compared to the prior year . north american sales decreased $ 218,349 , or 5.1 % , in fiscal 2014 compared to fiscal 2013. sales in other regions of the world decreased $ 118,986 , or 52.4 % , during fiscal 2014 as compared to the prior year . the increases in sales in europe and asia were due to a gradual increase in demand for the company 's sbs products , while the decline in sales in north america and other regions of the world reflected fluctuations in demand due to uncertainties about the pace of economic recovery in the markets we serve . the levels of demand for our balancer products in any of these geographic markets can not be forecasted with any certainty given current economic trends and the historical volatility experienced in this market . sales in the measurement segment decreased $ 324,835 , or 6.9 % , to $ 4,413,295 in fiscal 2014 compared to $ 4,738,130 in fiscal 2013. sales of acuity laser-based distance measurement and dimensional-sizing products decreased $ 626,701 , or 20.1 % , primarily due to a
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we completed 128 upgrade and remodel projects in fiscal 2018 and expect to complete approximately 300 upgrade and remodel projects during fiscal 2019 . driving innovation . we intend to drive traffic and sales growth through constant innovation . we will remain focused on identifying emerging trends in food and sourcing new and innovative products . we are adjusting our store layouts to accommodate a greater assortment of grab-and-go , individually packaged and snack-sized meals . we continue to roll out new merchandising initiatives across our store base , including meal kits , product sampling events , quality prepared foods and in-store dining . sharing best practices across divisions . our division leaders collaborate closely to ensure the rapid sharing of best practices . recent examples include the expansion of our o organics and open nature offerings across banners , the roll-out of signature products such as albertsons ' in-store fresh-cut fruit and vegetables and implementing safeway 's successful wine and floral shop strategies , with broader product assortments and new fixtures across many of our banners . enhancing our operating margin . our focus on sales growth provides an opportunity to enhance our operating margin by leveraging our fixed costs . we plan to realize further margin benefits through added scale from partnering with vendors and by achieving efficiencies in manufacturing and distribution . we are investing in our supply channel , including the automation of several of our distribution centers , in order to create efficiencies and reduce costs . in addition , we maintain a disciplined approach to expense management and budgeting . capitalizing on our fully realized synergy realization plan . we achieved approximately $ 823 million in annual run-rate synergies as of the end of fiscal 2018 from our acquisition of safeway . during fiscal 2016 , fiscal 2017 and fiscal 2018 , we achieved synergies from the safeway acquisition of approximately $ 575 million , $ 675 million and $ 775 million , respectively . 26 focusing on sustainability . we strive to make every day a better day for our people , customers , communities and planet . during fiscal 2018 , we raised approximately $ 43 million to benefit 2,000 organizations through foundation grants and donated more than $ 226 million to food banks and other hunger relief agencies . we also recycled more than 705 million pounds of cardboard and 22 million pounds of plastic film from our facilities . stores the following table shows stores operating , acquired , opened , divested and closed during the periods presented : replace_table_token_3_th ( 1 ) excludes acquired stores not yet re-opened as of the end of each respective period . the following table summarizes our stores by size : replace_table_token_4_th ( 1 ) in millions , reflects total square footage of retail stores operating at the end of the period . acquisitions and other investments termination of merger agreement with rite aid as previously disclosed , on february 18 , 2018 , the company and its wholly-owned subsidiaries , ranch acquisition ii llc and ranch acquisition corp. ( together with ranch acquisition ii llc , `` merger subs '' ) and rite aid corporation ( `` rite aid '' ) entered into an agreement and plan of merger ( the `` merger agreement '' ) . on august 8 , 2018 , the company , merger subs and rite aid entered into a termination agreement ( the `` termination agreement '' ) under which the parties mutually agreed to terminate the merger agreement . subject to limited customary exceptions , the termination agreement also mutually releases the parties from any claims of liability to one another relating to the contemplated merger transaction . under the terms of the merger agreement , neither the company nor rite aid will be responsible for any payments to the other party as a result of the termination of the merger agreement . medcart on may 31 , 2017 , we acquired medcart specialty pharmacy , a urac-accredited specialty pharmacy with accreditation and license to operate in over 40 states , which extends our ability to service our customers ' health needs . 27 plated on september 20 , 2017 , we acquired plated , a provider of meal kit services . the deal advanced a shared strategy to reinvent the way consumers discover , purchase and experience food . in teaming up with plated , we added a meal kit company with leading technology and data capabilities . el rancho on november 16 , 2017 , we acquired a 45 % equity interest in each of mexico foods parent llc and la fabrica parent llc ( `` el rancho '' ) , a texas-based specialty grocer with 16 stores that focuses on latino customers . we have the option to acquire the remaining 55 % of el rancho at any time until six months after the delivery of el rancho 's financial results for the fiscal year ended december 31 , 2021. if we elect to exercise the option to acquire the remaining equity of el rancho , the price to be paid by us for the remaining equity will be calculated using a predetermined market-based formula . our equity interest in el rancho expands our presence in the fast-growing latino grocery sector and complements our successful operation of a variety of store banners in neighborhoods with significant latino populations . casa ley during the fourth quarter of fiscal 2017 , we completed the sale of our equity method investment in casa ley , s.a. de c.v. ( `` casa ley '' ) and distributed approximately $ 0.934 in cash per casa ley contingent value right ( `` cvr '' ) ( or approximately $ 222 million in the aggregate ) pursuant to the terms of the casa ley cvr agreement . haggen during fiscal 2015 , haggen holdings , llc ( `` haggen '' ) secured bankruptcy court approval for bidding procedures for the sale of 29 stores . story_separator_special_tag on march 25 , 2016 , we entered into a purchase agreement to acquire the 29 additional stores , which included 15 stores originally sold to haggen as part of the federal trade commission divestitures , and certain trade names and other intellectual property , for an aggregate purchase price of approximately $ 114 million . we completed the acquisition of these 29 stores on june 23 , 2016. story_separator_special_tag style= '' width:82 % ; '' > fiscal 2017 vs. fiscal 2016 basis point increase ( decrease ) investment in price and changes in product mix ( 36 ) increase in shrink expense ( 23 ) lifo expense ( 1 ) acquisition synergies 10 total ( 50 ) 30 selling and administrative expenses selling and administrative expenses consist primarily of store level costs , including wages , employee benefits , rent , depreciation and utilities , in addition to certain back-office expenses related to our corporate and division offices . selling and administrative expenses decreased 50 basis points to 26.6 % of net sales and other revenue in fiscal 2018 from 27.1 % in fiscal 2017 . excluding the impact of fuel , selling and administrative expenses as a percentage of net sales and other revenue decreased 50 basis points during fiscal 2018 compared to fiscal 2017 . fiscal 2018 vs. fiscal 2017 basis point increase ( decrease ) net property dispositions , asset impairment and lease exit costs ( 39 ) depreciation and amortization ( 27 ) cost reduction initiatives ( 18 ) employee wage and benefit costs ( primarily incentive pay ) 28 other ( includes an increase in acquisition and integration costs ) 6 total ( 50 ) the decrease during fiscal 2018 compared to fiscal 2017 was primarily attributable to lower depreciation and amortization expense , higher gains related to the sale of assets and the company 's cost reduction initiatives , partially offset by increased employee wage and benefit costs and higher acquisition and integration costs . higher gains related to the sale of assets were primarily due to the disposition of various store properties during fiscal 2018. increased employee wage and benefit costs were primarily attributable to incentive pay as a result of improved operating performance . higher acquisition and integration costs were primarily driven by the 506 store conversions in fiscal 2018 related to the safeway integration compared to 219 store conversions in fiscal 2017. selling and administrative expenses increased 20 basis points to 27.1 % of net sales and other revenue in fiscal 2017 from 26.9 % in fiscal 2016 . excluding the impact of fuel , selling and administrative expenses as a percentage of net sales and other revenue increased 40 basis points during fiscal 2017 compared to fiscal 2016 . fiscal 2017 vs. fiscal 2016 basis point increase ( decrease ) employee wage and benefit costs 20 net property dispositions , asset impairment and lease exit costs 18 depreciation and amortization 14 store related costs 12 pension expense , net ( 17 ) safeway acquisition synergies ( 7 ) total 40 increased employee wage and benefit costs , asset impairments and lease exit costs , higher depreciation and amortization expense and higher store related costs during fiscal 2017 compared to fiscal 2016 were offset by lower pension costs and increased safeway acquisition synergies . increased employee wage and benefit costs and higher store related costs were primarily attributable to deleveraging of sales on fixed costs . higher asset impairments and lease exit costs were primarily related to asset impairments in underperforming and closed stores . these increases were partially offset by lower pension expense , net driven by a $ 25.4 million settlement gain during fiscal 2017 primarily due to an annuity settlement on a portion of our defined benefit pension obligation . 31 goodwill impairment no goodwill impairment was recorded in fiscal 2018 compared to $ 142.3 million in fiscal 2017. interest expense , net interest expense , net was $ 830.8 in fiscal 2018 , $ 874.8 million in fiscal 2017 and $ 1,003.8 million in fiscal 2016 . the decrease in interest expense , net for fiscal 2018 compared to fiscal 2017 is primarily due to lower average outstanding borrowings as a result of our term loan paydown and other debt reduction during fiscal 2018 and lower amortization and write-off of deferred financing costs and original issue discount , partially offset by $ 10.9 million of interest that was due and payable on the floating rate senior secured notes that were issued in connection with the merger agreement and later redeemed as further described herein . the following details our components of interest expense , net for the respective fiscal years ( in millions ) : replace_table_token_9_th the weighted average interest rate during the year was 6.6 % , excluding amortization of debt discounts and deferred financing costs . the weighted average interest rate during fiscal 2017 and fiscal 2016 was 6.5 % and 6.8 % , respectively . loss ( gain ) on debt extinguishment during fiscal 2018 , we repurchased safeway 's 7.45 % senior debentures due 2027 and 7.25 % debentures due 2031 with a par value of $ 333.7 million and a book value of $ 322.4 million , and nalp notes with a par value of $ 108.4 million and a book value of $ 96.4 million for an aggregate of $ 424.4 million ( the `` 2018 repurchases '' ) . we also redeemed safeway 's 5.00 % senior notes due 2019 ( the `` 2018 redemption '' ) for $ 271.7 million , which included an associated make-whole premium of $ 3.1 million . in connection with the 2018 repurchases and the 2018 redemption , we recorded a loss on debt extinguishment of $ 8.7 million . during fiscal 2017 , we repurchased nalp notes with a par value of $ 160.0 million and a book value of $ 140.2 million for $ 135.5 million plus accrued interest of $ 3.7 million ( the `` nalp notes repurchase '' ) .
| the primary increase in net sales and other revenue in fiscal 2017 as compared to fiscal 2016 was driven by an increase of $ 589.4 million from new stores and acquisitions , net of store closings , and an increase of $ 411.2 million in fuel sales primarily driven by higher average retail pump prices , partially offset by a decline of $ 740.4 million from our 1.3 % decline in identical sales . 29 gross profit gross profit represents the portion of net sales and other revenue remaining after deducting the cost of sales during the period , including purchase and distribution costs . these costs include inbound freight charges , purchasing and receiving costs , warehouse inspection costs , warehousing costs and other costs associated with our distribution network . advertising , promotional expenses and vendor allowances are also components of cost of sales . gross profit margin increased 60 basis points to 27.9 % in fiscal 2018 compared to 27.3 % in fiscal 2017 . excluding the impact of fuel , gross profit margin increased 70 basis points . the increase in fiscal 2018 as compared to fiscal 2017 was primarily attributable to lower shrink expense as a percentage of sales partially due to the completion of our store conversions related to the safeway acquisition and the implementation of inventory management initiatives , lower advertising costs and improved product mix , including improved sales penetration in own brands . fiscal 2018 vs. fiscal 2017 basis point increase ( decrease ) lower shrink expense 31 product mix , including increased own brands penetration 16 advertising 14 acquisition synergies 6 other 3 total 70 gross profit margin decreased 60 basis points to 27.3 % in fiscal 2017 compared to 27.9 % in fiscal 2016 . excluding the impact of fuel , gross profit margin decreased 50 basis points . the decrease in fiscal 2017 as compared to fiscal 2016 was primarily attributable to our investment in promotions and price and higher shrink expense as a percentage of
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effective january 1 , 2013 , the businesses of akimeka and g & b were combined and we are in the process of transitioning g & b 's work to akimeka . akimeka offers solutions in fields that include medical logistics , medical command and control , e-health , information assurance , public safety , enterprise architecture development , information assurance/business continuity , program and portfolio management , network it services , systems design and integration , quality assurance services , and product and process improvement services . concentration of revenues replace_table_token_6_th management outlook our success with newer markets and services and the challenges we have experienced and continue to face with our legacy markets and services has given us a clear direction for our future . going forward , our growth initiatives will focus on these more promising business offerings while we continue to defend and maintain our presence in our legacy business offerings in anticipation of a future rebound for these markets . our newer markets and service offerings include managed inventory services centered on vehicle fleet sustainment offered by our supply chain management group . wbi 's usps mip provides ongoing mission-critical support to the usps , which provides us with a steady revenue and earnings source . this program does not rely on tax funded government spending , as it is primarily self-funded through revenues generated through usps business operations . this is our largest source of revenue and we have seen some growth in this program . additionally , wbi 's supply chain and inventory management competencies provide us opportunities to further diversify our customer base to new client markets . we are actively marketing these service offerings to new client targets , and are currently beginning to service other vehicle fleets that have potential for further development . our success in expanding our markets for these service offerings has encouraged us to focus our strategic direction on this part of our business and direct financial and management resources toward such efforts . the challenges faced by our legacy business offerings in recent years continued in 2013 , resulting in revenue declines . we have seen declines in some of our dod and it revenues due to delays in government contract awards and funding , and to the expiration of programs without follow-on contract awards to continue the work . in response to our uncertain legacy business environment , we took actions to reduce our indirect costs to achieve and retain balance with our workload in 2013. we made staff reductions and took other actions that resulted in approximately $ 6 million of reduced indirect labor and related costs in 2013. we will continue to assess the need for further reductions to remain competitive and profitable as we go forward . 19 despite the challenges , we have key programs centered on our legacy systems and equipment sustainment heritage that continue to provide a substantial portion of our business . these programs include our international group 's u.s. navy fms program , and our federal group 's u.s. army reserve vehicle refurbishment work . our international group 's u.s. navy fms program has been our second largest source of revenue in 2012 and 2013. this program does not rely on tax funded government spending as it is largely funded by foreign government clients . fms program revenues for these two years have been generated primarily from follow on technical services work with very little ship reactivation and transfer work . due to extended legislation delays in the u.s. congress , our traditional mainstay of ship reactivation and transfer work continues to be deferred . our contract supporting this work gives us potential contract coverage of up to $ 1.5 billion over a five-year period beginning in january 2012. this level of contract coverage , combined with the eligibility , upon approval , of multiple u.s. navy ships for transfer to foreign government clients , presents us with an opportunity for revenue growth from this program if and when a naval vessel transfer act is passed by congress . fms program follow on technical services work has generated relatively consistent revenues . these services are provided to a number of foreign client countries , the largest of which is the egyptian navy . in july 2013 , we evacuated our workforce from egypt due to significant domestic and political unrest in that country . support services for the egyptian navy have continued to be performed at other locations , but revenue levels associated with the egyptian navy support will be lower than during the time our workforce was located in egypt . our revenues from egyptian navy support declined by approximately $ 4 million in 2013 compared to 2012. the operating profit margin on this work is consistent with the reported profit margin of our international group . we can not predict if or when or for what period of time any portion of our workforce will be able to return to egypt , or the longer range impact that the political situation in egypt will have on our egyptian navy support program . our federal group 's vehicle and equipment refurbishment work for the u.s. army reserve has been our third largest source of revenue in 2012 and 2013. our u.s. army reserve contract was re-competed to transition the work from a general services administration ( `` gsa '' ) contract to multiple army contracts . the gsa contract expired in july 2013 prior to the award of the army successor follow-on awards . consequently , we suspended operations for this work and placed our workforce of approximately 700 employees for this program on furlough . in august and september 2013 , we were awarded three new task orders on our existing army contracts to continue the suspended work . while work on the new task orders continues to be primarily performed by our employees , it is supplemented by small business subcontractor labor . story_separator_special_tag the majority of our furloughed workforce on this program was reinstated , and going forward the number of our employees plus subcontractor employees performing on this program is expected to approximate the number of employees furloughed when the work was suspended . the suspension of work on this program had an adverse effect on our results of operations in 2013. this program generated approximately $ 60 million of revenue in 2013 as compared to $ 78 million of revenue in 2012. vse has been the prime contractor for the u.s. department of treasury executive office for asset forfeiture ( teoaf ) general property program since 2006. we received notice in september 2013 that the follow-on contract for this work was awarded to a competitor . we are continuing to perform work on this program until its expected transition to the successor contractor in the first half of 2014. the majority of the work should be transferred by the end of march 2014. this program generated approximately $ 36 million of revenue in 2013. our cash flow remains strong and during 2013 we made progress in reducing our bank debt . we expect to be able to continue reducing our debt at a rate that will position us to consider a variety of options to increase stockholder value . bookings and funded backlog our revenues depend on contract funding ( `` bookings '' ) , and bookings generally occur when contract funding documentation is received . for our revenues that depend on bookings arising from the receipt of contract funding documentation , funded contract backlog is an indicator of potential future revenues . while bookings and funded contract backlog generally result in revenues , occasionally we will have funded contract backlog that expires or is de-obligated upon contract completion and does not generate revenue . wbi 's revenues are driven by maintenance schedules and the rate and timing of parts failure on customer vehicles , and wbi bookings occur at the time of sale instead of the receipt of contract funding documentation . accordingly , wbi does not generally have funded contract backlog and it is not an indicator of potential future revenues for wbi . therefore , total funded contract backlog is less of an indicator of our overall potential future revenue than in years prior to our acquisition of wbi . 20 a summary of our bookings and revenues for the years ended december 31 , 2013 , 2012 and 2011 , and funded contract backlog as of december 31 , 2013 , 2012 and 2011 is as follows ( in millions ) . replace_table_token_7_th critical accounting policies our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states , which require us to make estimates and assumptions . we believe the following critical accounting policies affect the more significant accounts , particularly those that involve judgments , estimates and assumptions used in the preparation of our consolidated financial statements . revenue recognition substantially all of our work is performed for our customers on a contract basis . the three primary types of contracts used are time and materials , cost-type , and fixed-price . revenues result from work performed on these contracts by our employees and our subcontractors and from costs for materials and other work related costs allowed under our contracts . revenues for time and materials contracts are recorded on the basis of contract allowable labor hours worked multiplied by the contract defined billing rates , plus the direct costs and indirect cost burdens associated with materials and subcontract work used in performance on the contract . generally , profits on time and materials contracts result from the difference between the cost of services performed and the contract defined billing rates for these services . revenues on cost-type contracts are recorded as contract allowable costs are incurred and fees are earned . our fms program contract is a cost plus award fee contract . this contract has terms that specify award fee payments that are determined by performance and level of contract activity . award fees are made during the year through a contract modification authorizing the award fee that is issued subsequent to the period in which the work is performed . we recognize award fee income on the fms program contract when the fees are fixed or determinable . due to such timing , and to fluctuations in the level of revenues , profits as a percentage of revenues on this contract will fluctuate from period to period . revenue recognition methods on fixed-price contracts will vary depending on the nature of the work and the contract terms . revenues on fixed-price service contracts are recorded as work is performed , typically ratably over the service period . revenues on fixed-price contracts that require delivery of specific items are recorded based on a price per unit as units are delivered . substantially all of the wbi 's revenues result from the management inventory program ( `` mip '' ) that supplies vehicle parts to clients . we recognize revenue from the sale of vehicle parts when the product is used by the customer . 21 revenues by contract type for the years ended december 31 were as follows ( in thousands ) : replace_table_token_8_th a significant portion of our time and materials revenues in 2011 were from our r2 contract , which expired in january 2011. wbi revenues are classified as fixed-price revenue . we will occasionally perform work at risk , which is work performed prior to the government formalizing funding for such work . revenue related to work performed at risk is not recognized until it can be reliably estimated and its realization is probable . we recognize this `` risk funding '' as revenue when the associated costs are incurred or the work is performed . we are at risk of loss for any risk funding not received .
| our contract costs decreased by approximately $ 66 million or 14 % in 2013 as compared to 2012. the decrease resulted from a decrease in our federal group of approximately $ 39 million , a decrease in our international group of approximately $ 21 million , a decrease in our it , energy , and management consulting group of approximately $ 17 million , and an increase in our supply chain management group of approximately $ 9 million . our contract costs decreased by approximately $ 49 million or 9 % in 2012 as compared to 2011. the decrease resulted from a decrease in our federal group of approximately $ 46 million , a decrease in our international group of approximately $ 40 million , and a decrease in our it , energy and management consulting group of approximately $ 12 million . these decreases were partially offset by an increase in our supply chain management group of approximately $ 52 million , attributable primarily to the inclusion of wbi in our operating results for a full year in 2012 as compared to a partial year in 2011. selling , general and administrative expenses consist primarily of costs and expenses that are not chargeable or reimbursable on our operating unit contracts . this includes costs associated with the acquisition of wbi in 2011 , cost associated with a work share agreement with a subcontractor in 2011 and 2012 , and legal fees associated with protested contract awards . our operating income decreased by approximately $ 7 million or 14 % in 2013 as compared to 2012. the decrease resulted primarily from a decrease in operating income of approximately $ 8 million in our federal group and a decrease in operating income in our it , energy and management consulting group of approximately $ 2.8 million . these decreases were partially offset by an increase in operating income in our supply chain management group of approximately
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diluted 45,277,518 36,952,731 see accompanying notes to consolidated financial statements 33 hii technologies , inc. consolidated statements of changes in stockholders ' equity for the years ended december 31 , 2013 and 2012 additional common stock paid-in accumulated shares par capital deficit total balances at december 31 , 2011 33,820,183 $ 33,820 $ 26,093,575 $ ( 26,026,430 ) $ 100,965 common stock issued for services 2,935,000 2,935 118,835 - 121,770 common stock issued in purchase of apache energy services llc 6,500,000 6,500 546,000 - 552,500 warrants issued in conjunction with notes payable - - 145,157 - 145,157 warrants exercised 62,500 62 3,063 - 3,125 stock options issued for services - - 6,505 - 6,505 net loss - - - ( 59,051 ) ( 59,051 ) balances at december 31 , 2012 43,317,683 $ 43,317 $ 26,913,135 $ ( 26,085,481 ) $ 870,971 common stock issued for lease deposit 350,000 350 31,150 - 31,500 common stock issued for services 870,000 870 193,930 - 194,800 common stock issued in purchase of aqua handling of texas llc 1,443,696 1,444 547,160 - 548,604 warrants exercised 700,000 700 49,300 - 50,000 warrants exercised and applied to debt reductions 1,720,000 1,720 168,080 - 169,800 warrants issued for extension of secured note - - 55,154 - 55,154 stock options exercised using cashless provision 23,333 23 ( 23 ) - - stock options issued for services - - 163,137 - 163,137 net loss - - - ( 1,198,134 ) ( 1,198,134 ) balances at december 31 , 2013 48,424,712 $ 48,424 $ 28,121,023 $ ( 27,283,615 ) $ 885,832 see accompanying notes to consolidated financial statements 34 hii technologies , inc. consolidated statements of cash flows for the years ended december 31 , 2013 and 2012 2013 2012 cash flows from operating activities : net loss $ ( 1,198,134 ) $ ( 59,051 ) adjustments to reconcile net loss to net cash used in operating activities : amortization of note payable discount 117,059 28,098 amortization of deferred finance costs 26,408 - stock-based compensation 163,137 6,505 stock issued for services 194,800 121,770 depreciation 131,069 23,442 loss on extinguishment of liability 96,297 - warrants issued for extension of secured note 55,154 - bad debt expense 162,243 - loss on asset sale 8,851 - changes in : accounts receivable ( 2,265,326 ) ( 1,028,756 ) notes receivable 6,859 prepaid expense and other current assets ( 20,410 ) 26,455 deposits ( 33,960 ) - accounts payable 2,487,242 322,586 accounts payable and other liabilities - related parties ( 225,248 ) - accrued expenses and other liabilities 204,807 204,575 net cash used in operating activities ( 89,152 ) ( 354,376 ) cash flows from investing activities : cash received from the sale of property and equipment 64,273 - cash paid for purchase of aes net of cash received - ( 44,861 ) cash paid for purchase of aquatex net of cash received ( 271,962 ) cash paid for purchase of property and equipment ( 1,685,721 ) ( 516,203 ) net cash used in investing activities ( 1,893,410 ) ( 561,064 ) cash flows from financing activities : proceeds from exercise of warrants 50,000 3,125 proceeds from sale-leaseback transaction 109,775 - proceeds from advances - related party 63,000 115,000 payments against advances - related party ( 20,000 ) - payments for deferred financing costs ( 30,698 ) - proceeds from notes payable - related party - 100,000 proceeds from notes payable 850,000 1,000,000 proceeds from line of credit , net 2,117,192 - payments on notes payable ( 670,008 ) - net cash provided by financing activities 2,469,261 1,218,125 net increase in cash and cash equivalents 486,699 302,685 cash and cash equivalents , beginning of period 379,336 76,651 cash and cash equivalents , end of period $ 866,035 $ 379,336 supplemental disclosures : cash paid for income taxes $ - $ 26,088 cash paid for interest 187,816 10,534 noncash investing and financing activities notes issued in connection with acquisitions 500,000 1,300,000 shares issued in connection with acquisitions 548,604 552,500 working capital adjustment in connection with acquisitions ( 21,853 ) 225,248 debt discount due to shares and warrants issued with debt - 145,157 payment on secured note paid directly from line of credit 512,600 - note receivable received for accounts receivable due 290,000 - debt reduction from the exercise of warrants 169,800 - deferred financing costs paid directly from line of credit 49,200 - common stock issued for lease deposit 31,500 - see accompanying notes to consolidated financial statements 35 hii technologies , inc. notes to consolidated financial statements note 1 description of business and summary of accounting policies description of business . hii technologies , inc. ( we , our , the company or hii ) ( f/k/a hemiwedge industries , inc. ) is a houston , texas based oilfield services company with operations in texas , oklahoma , ohio and west virginia focused on commercializing technologies in frac water management , safety services and portable power used by exploration and production ( e & p ) companies in the united states . we operate through our wholly-owned subsidiaries , apache energy services , llc ( dbas aes water solutions and aes safety services ; collectively aes ) , aqua handling of texas , llc ( aquatex ) and kmhvc , inc. ( dba south texas power and stp ) . the company 's total frac water management services subsidiary does business as aes water solutions and manages the logistical and transportation associated with the water used typically during hydraulic fracturing and completions of horizontally drilled oil and gas wells . aes safety services is the company 's onsite oilfield contract safety consultancy providing experienced trained safety personnel during oilfield site preparation , drilling and completion activities and related operations enhancing safety for e & p customers and providing the flexibility as outsourced safety consultants to its customers to quickly address their needs . the company 's oilfield power subsidiary does business as south texas power ( stp ) and operates a fleet of mobile story_separator_special_tag diluted 45,277,518 36,952,731 see accompanying notes to consolidated financial statements 33 hii technologies , inc. consolidated statements of changes in stockholders ' equity for the years ended december 31 , 2013 and 2012 additional common stock paid-in accumulated shares par capital deficit total balances at december 31 , 2011 33,820,183 $ 33,820 $ 26,093,575 $ ( 26,026,430 ) $ 100,965 common stock issued for services 2,935,000 2,935 118,835 - 121,770 common stock issued in purchase of apache energy services llc 6,500,000 6,500 546,000 - 552,500 warrants issued in conjunction with notes payable - - 145,157 - 145,157 warrants exercised 62,500 62 3,063 - 3,125 stock options issued for services - - 6,505 - 6,505 net loss - - - ( 59,051 ) ( 59,051 ) balances at december 31 , 2012 43,317,683 $ 43,317 $ 26,913,135 $ ( 26,085,481 ) $ 870,971 common stock issued for lease deposit 350,000 350 31,150 - 31,500 common stock issued for services 870,000 870 193,930 - 194,800 common stock issued in purchase of aqua handling of texas llc 1,443,696 1,444 547,160 - 548,604 warrants exercised 700,000 700 49,300 - 50,000 warrants exercised and applied to debt reductions 1,720,000 1,720 168,080 - 169,800 warrants issued for extension of secured note - - 55,154 - 55,154 stock options exercised using cashless provision 23,333 23 ( 23 ) - - stock options issued for services - - 163,137 - 163,137 net loss - - - ( 1,198,134 ) ( 1,198,134 ) balances at december 31 , 2013 48,424,712 $ 48,424 $ 28,121,023 $ ( 27,283,615 ) $ 885,832 see accompanying notes to consolidated financial statements 34 hii technologies , inc. consolidated statements of cash flows for the years ended december 31 , 2013 and 2012 2013 2012 cash flows from operating activities : net loss $ ( 1,198,134 ) $ ( 59,051 ) adjustments to reconcile net loss to net cash used in operating activities : amortization of note payable discount 117,059 28,098 amortization of deferred finance costs 26,408 - stock-based compensation 163,137 6,505 stock issued for services 194,800 121,770 depreciation 131,069 23,442 loss on extinguishment of liability 96,297 - warrants issued for extension of secured note 55,154 - bad debt expense 162,243 - loss on asset sale 8,851 - changes in : accounts receivable ( 2,265,326 ) ( 1,028,756 ) notes receivable 6,859 prepaid expense and other current assets ( 20,410 ) 26,455 deposits ( 33,960 ) - accounts payable 2,487,242 322,586 accounts payable and other liabilities - related parties ( 225,248 ) - accrued expenses and other liabilities 204,807 204,575 net cash used in operating activities ( 89,152 ) ( 354,376 ) cash flows from investing activities : cash received from the sale of property and equipment 64,273 - cash paid for purchase of aes net of cash received - ( 44,861 ) cash paid for purchase of aquatex net of cash received ( 271,962 ) cash paid for purchase of property and equipment ( 1,685,721 ) ( 516,203 ) net cash used in investing activities ( 1,893,410 ) ( 561,064 ) cash flows from financing activities : proceeds from exercise of warrants 50,000 3,125 proceeds from sale-leaseback transaction 109,775 - proceeds from advances - related party 63,000 115,000 payments against advances - related party ( 20,000 ) - payments for deferred financing costs ( 30,698 ) - proceeds from notes payable - related party - 100,000 proceeds from notes payable 850,000 1,000,000 proceeds from line of credit , net 2,117,192 - payments on notes payable ( 670,008 ) - net cash provided by financing activities 2,469,261 1,218,125 net increase in cash and cash equivalents 486,699 302,685 cash and cash equivalents , beginning of period 379,336 76,651 cash and cash equivalents , end of period $ 866,035 $ 379,336 supplemental disclosures : cash paid for income taxes $ - $ 26,088 cash paid for interest 187,816 10,534 noncash investing and financing activities notes issued in connection with acquisitions 500,000 1,300,000 shares issued in connection with acquisitions 548,604 552,500 working capital adjustment in connection with acquisitions ( 21,853 ) 225,248 debt discount due to shares and warrants issued with debt - 145,157 payment on secured note paid directly from line of credit 512,600 - note receivable received for accounts receivable due 290,000 - debt reduction from the exercise of warrants 169,800 - deferred financing costs paid directly from line of credit 49,200 - common stock issued for lease deposit 31,500 - see accompanying notes to consolidated financial statements 35 hii technologies , inc. notes to consolidated financial statements note 1 description of business and summary of accounting policies description of business . hii technologies , inc. ( we , our , the company or hii ) ( f/k/a hemiwedge industries , inc. ) is a houston , texas based oilfield services company with operations in texas , oklahoma , ohio and west virginia focused on commercializing technologies in frac water management , safety services and portable power used by exploration and production ( e & p ) companies in the united states . we operate through our wholly-owned subsidiaries , apache energy services , llc ( dbas aes water solutions and aes safety services ; collectively aes ) , aqua handling of texas , llc ( aquatex ) and kmhvc , inc. ( dba south texas power and stp ) . the company 's total frac water management services subsidiary does business as aes water solutions and manages the logistical and transportation associated with the water used typically during hydraulic fracturing and completions of horizontally drilled oil and gas wells . aes safety services is the company 's onsite oilfield contract safety consultancy providing experienced trained safety personnel during oilfield site preparation , drilling and completion activities and related operations enhancing safety for e & p customers and providing the flexibility as outsourced safety consultants to its customers to quickly address their needs . the company 's oilfield power subsidiary does business as south texas power ( stp ) and operates a fleet of mobile
| business development hii technologies , inc. organization our predecessor , global realty management group , inc. , or grmg , was incorporated in the state of florida in 1997. in june 2002 , grmg reincorporated under the laws of the state of delaware from the state of florida pursuant to a merger with a newly formed delaware corporation . under the terms of this reincorporation merger , grmg changed its name from global realty management group , inc. to excalibur industries , inc. in connection with merging with the excalibur operations . in october 2005 , we changed our name from excalibur industries , inc. to shumate industries , inc. in february 2009 , we changed our name from shumate industries , inc. to hemiwedge industries , inc. to emphasize and focus on our valve product technology after the october 2008 sale of assets related to our contract machining business . on august 31 , 2011 , we changed our name to hii technologies , inc. , which name change was required in connection with our may 2011 sale of our valve product technology and assets . acquisition of apache energy services , llc on september 27 , 2012 , we consummated the acquisition ( the acquisition ) of all of the outstanding membership interests of apache energy services llc ( dba aes water solutions ) , a nevada limited liability company ( aes ) pursuant to the terms of a securities purchase agreement dated september 26 , 2012 by and among the us , aes and the members of aes ( the purchase agreement ) . aes is a water transfer services company serving oilfield customers . the purchase price consisted of : ( a ) cash in the amount of $ 290,000 , of which $ 250,000 was paid on the closing date and the remaining $ 40,000 is payable ( subject to a purchase price adjustment ) in six equal installments , with the first installment payable on the first day of each month beginning the third month following the month in which the closing occurs and each month thereafter until paid in full ; ( b ) $ 1,300,000 in 5 % subordinated secured promissory notes ( the notes ) , and ( c ) 6,500,000 shares ( the shares )
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during fiscal 2016 , we opened 14 new anthropologie group stores , of which 12 were located in the united states and two were located in europe , and we closed two stores in the united states . total store selling square footage as of january 31 , 2016 increased 4.7 % over the prior year period to 1.5 million . the anthropologie group operates websites in north america and europe that capture the spirit of our brands by offering a similar yet broader selection of merchandise as found in our stores . the anthropologie brand offers registry services through our website and mobile applications and in all of our stores throughout the united states , allowing our customers to create gift registries for any occasion . the anthropologie brand offers a catalog in north america and in europe that markets select merchandise , most of which is also available in our anthropologie brand stores . the anthropologie brand tailors its merchandise to sophisticated and contemporary women aged 28 to 45. the anthropologie brand 's product assortment includes women 's casual apparel and accessories , intimates , shoes , beauty , home furnishings and a diverse array of gifts and decorative items . the bhldn brand offers a curated collection of heirloom quality wedding gowns , bridesmaid frocks , party dresses , assorted jewelry , headpieces , footwear , lingerie and decorations . the terrain brand is designed to appeal to women and men interested in a creative and sophisticated outdoor living and gardening experience . merchandise includes lifestyle home and garden products combined with antiques , live plants , flowers , wellness products and accessories . both terrain garden centers also offer a full service restaurant and coffee bar . we plan to open additional anthropologie brand stores over the next several years , some of which will include bhldn or terrain shop-within-shop concepts . the anthropologie group 's north american and european retail segment net sales accounted for approximately 40.2 % and 1.6 % of consolidated net sales , respectively , for fiscal 2016 , compared to 40.1 % and 1.5 % , respectively , for fiscal 2015 . 26 as of january 31 , 2016 , we operated 114 free people stores , of which 109 were located in the united states and five were located in canada . during fiscal 2016 , we opened 13 new free people stores , of which 12 were located in the united states and one was located in canada , and we closed one store located in the united states due to lease expiration . total store selling square footage as of january 31 , 2016 , increased 27.8 % over the prior year period to 203,000. free people operates websites in north america , europe and asia that capture the spirit of the brand by offering a similar yet broader selection of merchandise as found in our stores , as well as substantially all of the free people wholesale offerings . free people also offers a catalog that markets select merchandise , most of which is also available in our free people stores . free people focuses its product offering on private label merchandise targeted to young contemporary women aged 25 to 30. free people provides a unique merchandise mix of casual women 's apparel , intimates , shoes , activewear , accessories , home products and gifts . we plan to open additional stores over the next several years . free people 's retail segment net sales accounted for approximately 10.1 % of consolidated net sales for fiscal 2016 , compared to approximately 9.2 % for fiscal 2015. for all brands combined , we plan to open approximately 27 new stores during fiscal 2017 , including five urban outfitters stores , ten anthropologie group stores and 12 free people stores . wholesale segment our wholesale segment consists of the free people wholesale division that designs , develops and markets young women 's contemporary casual apparel . free people 's range of tops , bottoms , sweaters , dresses , intimates , shoes and activewear are sold through approximately 1,800 better department and specialty stores worldwide , and our own free people stores . our wholesale segment net sales accounted for approximately 7.6 % of consolidated net sales for fiscal 2016 , compared to 6.8 % for fiscal 2015. critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states . these generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets , liabilities , net sales and expenses during the reporting period . our senior management has reviewed the critical accounting policies and estimates with our audit committee . our significant accounting policies are described in note 2 , summary of significant accounting policies , in the notes to our consolidated financial statements . we believe that the following discussion addresses our critical accounting policies , which are those that are most important to the portrayal of our financial condition , results of operations and cash flows and require management 's most difficult , subjective and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . if actual results were to differ significantly from estimates made , the reported results could be materially affected . we are not currently aware of any reasonably likely events or circumstances that would cause our actual results to be materially different from our estimates . 27 revenue recognition we recognize revenue in our retail segment at the point-of-sale for merchandise the customer takes possession of at our store or when merchandise is shipped to the customer , in each case , net of estimated customer returns . revenue is recognized by our wholesale segment when merchandise is shipped to the customer , net of estimated customer returns . revenue is presented on a net basis and does not include any tax assessed by a governmental or municipal authority . story_separator_special_tag payment for merchandise in our retail segment is tendered by cash , check , credit card , debit card or gift card . therefore , uncollectible accounts receivable for our retail segment is negligible and primarily results from unauthorized credit card transactions . we maintain an allowance for doubtful accounts for the wholesale segment accounts receivable , which we review on a regular basis and believe is sufficient to cover potential credit losses and billing adjustments . we account for a gift card transaction by recording a liability at the time the gift card is issued to the customer in exchange for consideration from the customer . a liability is established and remains on our books until the card is redeemed by the customer , at which time we record the redemption of the card for merchandise as a sale , or when we determine the likelihood of redemption is remote . we determine the probability of the gift cards being redeemed to be remote based on historical redemption patterns . revenues attributable to the reduction of gift card liabilities for which the likelihood of redemption becomes remote are included in sales and are not material . our gift cards do not expire . sales return reserve we record a reserve for estimated product returns where the sale has occurred during the period reported , but the return is likely to occur subsequent to the period reported . the reserve for estimated product returns is based on our most recent historical return trends . if the actual return rate is materially different than our estimate , sales returns would be adjusted in the future . as of january 31 , 2016 and 2015 , reserves for estimated sales returns totaled $ 24.4 million and $ 19.8 million , representing 3.5 % and 3.5 % of total liabilities , respectively . marketable securities all of our marketable securities as of january 31 , 2016 and january 31 , 2015 are classified as available-for-sale and are carried at fair value , which approximates amortized cost . interest on these securities , as well as the amortization of discounts and premiums , is included in interest income in the consolidated statements of income . we record unrealized gains and losses on these securities ( other than mutual funds , held in the rabbi trust for the urban outfitters , inc. non-qualified deferred compensation plan ( see note 3 , marketable securities , in the notes to consolidated financial statements ) ) as a component of other comprehensive ( loss ) income in the consolidated statements of comprehensive income and in accumulated other comprehensive loss within shareholders ' equity until realized , except when we consider declines in value to be other than temporary . other than temporary impairment losses related to credit losses are considered to be realized losses . mutual funds held in the rabbi trust have been accounted for under the fair value option , which results in all unrealized gains and losses being recorded in interest income in the consolidated statements of income . when available-for-sale securities are sold , the cost of the securities is specifically identified and is used to determine the realized gain or loss . securities classified as current assets have maturity dates of less than or equal to one year from the balance sheet date . securities classified as non-current assets have maturity dates greater than one year from the balance sheet date . 28 inventory we value our inventory , which consists primarily of general consumer merchandise held for sale , at the lower of cost or market . cost is determined on the first-in , first-out method and includes the cost of merchandise and import related costs , including freight , import taxes and agent commissions . a periodic review of inventory is performed in order to determine if inventory is properly stated at the lower of cost or market . factors we consider in our review , such as future expected consumer demand and fashion trends , current aging , current and anticipated retail markdowns or wholesale discounts and class or type of inventory , are analyzed to determine estimated net realizable value . criteria that we consider in our review of aging trends include average selling cycle and seasonality of merchandise , the historical rate at which merchandise has sold below cost during the prior twelve months and the value and nature of merchandise currently priced below original cost . a provision is recorded to reduce the cost of inventory to its estimated net realizable value , if appropriate . any significant unanticipated changes in the factors noted above could have a significant impact on the value of our inventory and our reported operating results . our estimates generally have been accurate and our reserve methods have been applied on a consistent basis . we expect the amount of our provision and related inventory to increase over time as we increase our sales . the majority of inventory at january 31 , 2016 , and 2015 consisted of finished goods . raw materials and work-in-process were not material to the overall inventory value . inventory as of january 31 , 2016 and 2015 totaled $ 330.2 million and $ 358.2 million , representing 18.0 % and 19.0 % of total assets , respectively . long-lived assets our long-lived assets consist principally of store leasehold improvements , buildings , furniture and fixtures , and other operating equipment and are included in the property and equipment , net line item in our consolidated balance sheets . store leasehold improvements are recorded at cost and are amortized using the straight-line method over the lesser of the applicable store lease term , including lease renewals which are reasonably assured , or the estimated useful life of the leasehold improvements . the typical initial lease term for our stores is ten years . buildings are recorded at cost and are amortized using the straight-line method over 39 years .
| the increase in net sales attributable to non-comparable and new stores was primarily the result of opening 69 new stores in fiscal 2016 and 2015 that were not in operation for the full comparable periods . thus far during the first quarter of fiscal 2017 , comparable retail segment net sales are low single-digit positive which includes the benefit of a leap year . the increase in wholesale segment net sales during fiscal 2016 , as compared to fiscal 2015 , was due to increased sales at both department stores and specialty accounts . wholesale sales growth was driven by an increase in units that was partially offset by a decrease in average unit selling price . gross profit percentage in fiscal 2016 decreased to 34.9 % of net sales , from 35.4 % of net sales in fiscal 2015. gross profit increased to $ 1.20 billion in fiscal 2016 compared to $ 1.17 billion in fiscal 2015. the decrease in the gross profit percentage was primarily driven by higher delivery and fulfillment center expenses largely related to incremental costs associated with the gap , pennsylvania fulfillment center transition and increased direct-to-consumer sales penetration . the decrease in the gross profit percentage was additionally driven by impairment charges for five retail stores . total inventory at january 31 , 2016 decreased by $ 28.0 million , or 7.8 % , to $ 330.2 million from $ 358.2 million at january 31 , 2015. this decrease was primarily related to the decline in comparable retail segment inventories , which decreased 6 % at cost and 8 % in units . selling , general and administrative expenses as a percentage of net sales increased during fiscal 2016 to 24.6 % of net sales , compared to 24.4 % of net sales for fiscal 2015. the increase was primarily due to increased marketing expenses to support our customer acquisition and retention efforts and an increase in technology related expenses used to support our omni-channel initiatives . selling , general and administrative expenses increased by $
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in 2011 , we used our operating and financing cash flow and existing cash to repay $ 291.1 million of debt , acquire three businesses for $ 20.6 million , invest $ 6.2 million in capital equipment in our business and invest $ 1.4 million in internally-developed capitalized software . acquisitions to supplement our organic growth , we evaluate and execute acquisitions that provide complementary products or services , add proven technology and an established client base , expand our intellectual property portfolio or address a highly specialized problem or a market niche . since the beginning of 2009 , we have spent approximately $ 118.0 million in cash to acquire ten businesses in the financial services industry . the following table lists the businesses we have acquired since january 1 , 2009 : acquired business acquisition date acquired capabilities , products and services acquisition of teledata communications , inc. software december 2011 added background search and credit retrieval software-as-a-service ireland fund admin september 2011 expanded fund administration services to ucits funds benefitsxml march 2011 added employee benefits administration solutions timeshareware december 2010 added shared ownership property management platform to real estate offering thinkorswim technologies october 2010 added electronic oms/ems offering in broker-dealer market gips february 2010 expanded fund administration services to private equity market tradeware december 2009 added electronic trading offering in broker-dealer market thenextround november 2009 expanded private equity client base with tnr solution product maximis may 2009 expanded institutional footprint and provided new cross-selling opportunities evare march 2009 expanded institutional middle- and back-office outsourcing services with financial data acquisition , transformation and delivery services 39 on february 23 , 2012 , we made a proposal to the independent directors , or the independent directors , of globeop financial services s.a. , or globeop , regarding a possible cash offer for globeop . following further discussions with the independent directors , we made an improved proposal , under which globeop shareholders would be entitled to receive 485 pence in cash for each globeop share . based on exchange rates on march 9 , 2012 , the aggregate equity purchase price for globeop under this proposal would be approximately $ 940,000,000. the current expectation would be to satisfy the purchase price with a combination of borrowings under a new credit facility and cash on hand . as of march 8 , 2012 , the independent directors indicated that , subject to the finalization of the terms and conditions of the offer , they would be willing to recommend an offer made by us at this level . we continue to conduct due diligence on globeop and have urged globeop 's shareholders to take no action in respect of an existing cash offer for globeop made by geo 3 & co. s.c.a . on february 1 , 2012. there can be no certainty that we will make a cash offer for globeop . critical accounting estimates and assumptions a number of our accounting policies require the application of significant judgment by our management , and such judgments are reflected in the amounts reported in our consolidated financial statements . in applying these policies , our management uses its judgment to determine the appropriate assumptions to be used in the determination of estimates . those estimates are based on our historical experience , terms of existing contracts , management 's observation of trends in the industry , information provided by our clients and information available from other outside sources , as appropriate . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , doubtful accounts receivable , goodwill and other intangible assets and other contingent liabilities . actual results may differ significantly from the estimates contained in our consolidated financial statements . we believe that the following are our critical accounting policies . revenue recognition our revenues consist primarily of software-enabled services and maintenance revenues , and , to a lesser degree , software license and professional services revenues . software-enabled services revenues , which are based on a monthly fee or transaction-based , are recognized as the services are performed . software-enabled services are generally provided under non-cancelable contracts with initial terms of one to five years that require monthly or quarterly payments , and are subject to automatic annual renewal at the end of the initial term unless terminated by either party . we recognize software-enabled services revenues on a monthly basis as the software-enabled services are provided and when persuasive evidence of an arrangement exists , the price is fixed or determinable and collectibility is reasonably assured . we do not recognize any revenues before services are performed . certain contracts contain additional fees for increases in market value , pricing and trading activity . revenues related to these additional fees are recognized in the month in which the activity occurs based upon our summarization of account information and trading volume . we recognize revenues from the sale of software licenses when persuasive evidence of an arrangement exists , the product has been delivered , the fee is fixed or determinable and collection of the resulting receivable is reasonably assured . our products generally do not require significant modification or customization of the underlying software and , accordingly , the implementation services we provide are not considered essential to the functionality of the software . we use a signed license agreement as evidence of an arrangement for the majority of our transactions . delivery generally occurs when the product is delivered to a common carrier f.o.b . shipping point , or if delivered electronically , when the client has been provided with access codes that allow for immediate f-40 possession via a download . although our arrangements generally do not have acceptance provisions , if such provisions are included in the arrangement , then delivery occurs at acceptance , unless such acceptance is deemed perfunctory . at the time of the transaction , we assess whether the fee is fixed or determinable based on the payment terms . story_separator_special_tag collection is assessed based on several factors , including past transaction history with the client and the creditworthiness of the client . the arrangements for perpetual software licenses are generally sold with maintenance and professional services . we allocate revenue to the delivered components , normally the license component , using the residual value method based on vendor-specific objective evidence of the fair value of the undelivered elements . the total contract value is attributed first to the maintenance and customer support arrangement based on the fair value , which is derived from renewal rates . fair value of the professional services is based upon stand-alone sales of those services . professional services are generally billed at an hourly rate plus out-of-pocket expenses . professional services revenues are recognized as the services are performed . maintenance agreements generally require us to provide technical support and software updates to our clients ( on a when-and-if-available basis ) . we generally provide maintenance services under one-year renewable contracts . maintenance revenues are recognized ratably over the term of the contract . we also sell term licenses with maintenance . these arrangements range from one to seven years where vendor-specific objective evidence does not exist for the maintenance element in the term licenses , revenues are recognized ratably over the contractual term of the arrangement . we occasionally enter into software license agreements requiring significant customization or fixed-fee professional service arrangements . we account for these arrangements in accordance with the percentage-of-completion method based on the ratio of hours incurred to expected total hours ; accordingly we must estimate the costs to complete the arrangement utilizing an estimate of man-hours remaining . due to uncertainties inherent in the estimation process , it is at least reasonably possible that completion costs may be revised . such revisions are recognized in the period in which the revisions are determined . due to the complexity of some software license agreements , we routinely apply judgments to the application of software revenue recognition accounting principles to specific agreements and transactions . different judgments or different contract structures could have led to different accounting conclusions , which could have a material effect on our reported results of operations . long-lived assets , intangible assets and goodwill we must test goodwill annually for impairment ( and in interim periods if certain events occur indicating that the carrying value of goodwill or indefinite-lived intangible assets may be impaired ) . historically , we have tested the recoverability of goodwill by comparing the fair value or our reporting unit to its carrying value . to the extent that we do not achieve our revenue or operating cash flow plans or other measures of fair value decline , including external valuation assumptions , our current goodwill carrying value could be impaired . additionally , since fair value is also based in part on the market approach , if our stock price declines , it is possible we could be required to perform the second step of the goodwill impairment test and impairment could result . the first step of the impairment analysis indicated that the fair value of our reporting unit exceeded its carrying value by more than 25 % at december 31 , 2011. we assess the impairment of identifiable intangibles , long-lived assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important which could trigger an impairment review include the following : significant underperformance relative to historical or projected future operating results ; significant changes in the manner of our use of the acquired assets or the strategy for our overall business ; and significant negative industry or economic trends . when we determine that the carrying value of intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of potential impairment , we assess whether an 41 impairment has occurred based on whether net book value of the assets exceeds related projected undiscounted cash flows from these assets . we consider a number of factors , including past operating results , budgets , economic projections , market trends and product development cycles in estimating future cash flows . differing estimates and assumptions as to any of the factors described above could result in a materially different impairment charge , if any , and thus materially different results of operations . acquisition accounting in connection with our acquisitions , we allocate the purchase price to the assets and liabilities we acquire , such as net tangible assets , completed technology , in-process research and development , client contracts , other identifiable intangible assets , deferred revenue and goodwill . we applied significant judgments and estimates in determining the fair market value of the assets acquired and their useful lives . for example , we have determined the fair value of existing client contracts based on the discounted estimated net future cash flows from such client contracts existing at the date of acquisition and the fair value of the completed technology based on the relief-from-royalties method on estimated future revenues of such completed technology and assumed obsolescence factors . while actual results during the years ended december 31 , 2011 , 2010 and 2009 were consistent with our estimated cash flows and we did not incur any impairment charges during those years , different estimates and assumptions in valuing acquired assets could yield materially different results . stock-based compensation using the fair value recognition provisions of relevant accounting literature , stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the appropriate service period . determining the fair value of stock-based awards requires considerable judgment , including estimating the fair value of our common stock prior to our initial public offering , the expected term of stock options , expected volatility of our stock price , and the number of awards expected to be forfeited .
| interest income , interest expense and other ( expense ) income , net we had interest expense of $ 14.7 million and interest income of $ 0.1 million in 2011 compared to interest expense of $ 30.6 million and interest income of $ 0.2 million in 2010. we had interest expense of $ 36.9 million and interest income of $ 0.1 million in 2009. the decrease in interest expense in 2011 and 2010 reflects the lower average debt balance resulting from net repayments of debt of $ 191.1 million during 2011 , which includes the redemptions of our 11 3 / 4 % senior subordinated notes due 2013 in march and december 2011 and the full repayment of the senior credit facility under our then-existing credit agreement , which we refer to as the prior facility , and net repayments of debt of $ 108.1 million during 2010 , which includes the partial redemption of our 11 3 / 4 % senior subordinated notes due 2013 in april 2010 ( discussed further in liquidity and capital resources ) . 48 other expense , net for 2011 consisted primarily of an increase of $ 0.5 million in our contingent consideration liability associated with the bxml acquisition from $ 1.8 million to $ 2.3 million , fees of $ 0.3 million associated with the redemption of our 11 3 / 4 % senior subordinated notes due 2013 ( discussed further in note 6 to our consolidated financial statements ) , and foreign currency transaction losses of $ 0.1 million , partially offset by a refund of facilities charges of $ 0.5 million . other income , net for 2010 consisted primarily of a reduction of $ 1.0 million in our contingent consideration liability associated with the tnr acquisition from $ 1.0 million to $ 0 , partially offset by foreign currency transaction losses of $ 0.5 million . other income , net for 2009 consisted primarily of foreign currency transaction losses of $ 1.5 million . loss on extinguishment of debt loss on extinguishment of debt in 2011 consisted of $ 2.0 million in note redemption premiums and $ 2.8 million from the write-offs of deferred financing costs associated with the redemption of the remaining $ 133.3 million of our 11 3 / 4 % senior subordinated notes due 2013. loss on extinguishment of debt in 2010 consisted of $ 4.2 million in note redemption
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tapimmune believes that its approach provides the potential for development of a vaccine against smallpox that has broader application , is more cost effective and has a better shelf-life than existing viral-based products . tapimmune plans to evaluate its tap technology for improving the efficacy of vaccines designed to combat a range of additional viral threats in the biodefense and infectious disease field . to expand its technology platform tapimmune also plans additional partnerships for the development of dna plasmid expression vectors that can deliver tap genes into target cells . over the past 12 months tapimmune has completed financings in excess of $ 2 million that have enabled the company to continue to grow its technology platform including those through collaborative projects and expand as well as protect its ip portfolio . we have made significant progress in the last 12 months with the establishment of excellent research and development collaborations and the recruitment of world-class advisors to help guide our technical and commercial programs . as we start our clinical programs we expect to reach a number of important milestones in 2011 in both cancer and infectious disease . we have not generated any cash flows from operations to fund our operations and activities due primarily to the nature of lengthy product development cycles that are normal to the biotech industry . therefore , we must raise additional funds in the future to continue operations . we intend to finance our operating expenses with further issuances of common stock and or debt . although we do not currently have funds to continue operations for more than four months , we believe that future investment , if successful , should be adequate to fund our operations over the next 24 months . thereafter , we expect we will need to raise additional capital to meet long-term operating requirements . our future success and viability are dependent on our ability to raise additional capital through further private offerings of our stock or loans from private investors . additional financing may not be available upon acceptable terms , or at all . if adequate funds are not available or not available on acceptable terms , we may not be able to conduct our proposed business operations successfully , which could significantly and materially restrict or delay our overall business operations . 13 story_separator_special_tag approximately $ 5,000,000 over the next twelve months in carrying out our plan of operations . at december 31 , 2010 , we had $ 23,516 of cash on hand and a working capital deficit of $ 3,372,489. as such , our working capital at december 31 , 2010 will not be sufficient to enable us to pay our general and administrative expenses , and to pursue our plan of operations over the next twelve months . we anticipate that we will require additional funding of approximately $ 5,000,000. our management is currently making significant efforts to secure the needed financing , but we have not yet secured any commitments with respect to such financing . if we are not able to obtain financing in the amounts required or on terms that are acceptable to us , we may be forced to scale back , or abandon , our plan of operations . various conditions outside of our control may detract from our ability to raise the capital needed to execute our plan of operations , including overall market conditions in the international and local economies . we recognize that the united states economy has suffered through a period of uncertainty during which the capital markets have been depressed from levels established twelve months ago , and that there is no certainty that these levels will stabilize or reverse . any of these factors could have a material impact upon our ability to raise financing and , as a result , upon our short-term or long-term liquidity . going concern we have no sources of revenue to provide incoming cash flows to sustain our future operations . as outlined above , our ability to pursue our planned business activities is dependent upon our successful efforts to raise additional equity financing . these factors raise substantial doubt regarding our ability to continue as a going concern . our consolidated financial statements have been prepared on a going concern basis , which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business . as at december 31 , 2010 , we had accumulated losses of $ 31,131,496 since inception . our financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern . net cash used in operating activities operating activities in the year ended december 31 , 2010 used cash of $ 925,041 compared to $ 1,121,726 in the year ended december 31 , 2009. operating activities in the period from inception on july 27 , 1999 to december 31 , 2019 used cash of $ 13,544,563. operating activities have primarily used cash as a result of the operating and organizational activities such as consulting fees , management fees , professional fees and research and development . net cash used in investing activities in the year ended december 31 , 2010 , investing activities provided cash of $ nil compared to $ 204,747 in the year ended december 31 , 2009. in the period from inception on july 27 , 1999 to december 31 , 2010 investing activities provided cash of $ 204,747. net cash provided by financing activities as we have had no revenues since inception , we have financed our operations primarily through private placements of our stock . financing activities in the year ended december 31 , 2010 provided cash of $ 807,126 compared to $ 1,262,170 in the year ended december 31 , 2009. in the period from inception on july 27 , story_separator_special_tag tapimmune believes that its approach provides the potential for development of a vaccine against smallpox that has broader application , is more cost effective and has a better shelf-life than existing viral-based products . tapimmune plans to evaluate its tap technology for improving the efficacy of vaccines designed to combat a range of additional viral threats in the biodefense and infectious disease field . to expand its technology platform tapimmune also plans additional partnerships for the development of dna plasmid expression vectors that can deliver tap genes into target cells . over the past 12 months tapimmune has completed financings in excess of $ 2 million that have enabled the company to continue to grow its technology platform including those through collaborative projects and expand as well as protect its ip portfolio . we have made significant progress in the last 12 months with the establishment of excellent research and development collaborations and the recruitment of world-class advisors to help guide our technical and commercial programs . as we start our clinical programs we expect to reach a number of important milestones in 2011 in both cancer and infectious disease . we have not generated any cash flows from operations to fund our operations and activities due primarily to the nature of lengthy product development cycles that are normal to the biotech industry . therefore , we must raise additional funds in the future to continue operations . we intend to finance our operating expenses with further issuances of common stock and or debt . although we do not currently have funds to continue operations for more than four months , we believe that future investment , if successful , should be adequate to fund our operations over the next 24 months . thereafter , we expect we will need to raise additional capital to meet long-term operating requirements . our future success and viability are dependent on our ability to raise additional capital through further private offerings of our stock or loans from private investors . additional financing may not be available upon acceptable terms , or at all . if adequate funds are not available or not available on acceptable terms , we may not be able to conduct our proposed business operations successfully , which could significantly and materially restrict or delay our overall business operations . 13 story_separator_special_tag approximately $ 5,000,000 over the next twelve months in carrying out our plan of operations . at december 31 , 2010 , we had $ 23,516 of cash on hand and a working capital deficit of $ 3,372,489. as such , our working capital at december 31 , 2010 will not be sufficient to enable us to pay our general and administrative expenses , and to pursue our plan of operations over the next twelve months . we anticipate that we will require additional funding of approximately $ 5,000,000. our management is currently making significant efforts to secure the needed financing , but we have not yet secured any commitments with respect to such financing . if we are not able to obtain financing in the amounts required or on terms that are acceptable to us , we may be forced to scale back , or abandon , our plan of operations . various conditions outside of our control may detract from our ability to raise the capital needed to execute our plan of operations , including overall market conditions in the international and local economies . we recognize that the united states economy has suffered through a period of uncertainty during which the capital markets have been depressed from levels established twelve months ago , and that there is no certainty that these levels will stabilize or reverse . any of these factors could have a material impact upon our ability to raise financing and , as a result , upon our short-term or long-term liquidity . going concern we have no sources of revenue to provide incoming cash flows to sustain our future operations . as outlined above , our ability to pursue our planned business activities is dependent upon our successful efforts to raise additional equity financing . these factors raise substantial doubt regarding our ability to continue as a going concern . our consolidated financial statements have been prepared on a going concern basis , which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business . as at december 31 , 2010 , we had accumulated losses of $ 31,131,496 since inception . our financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern . net cash used in operating activities operating activities in the year ended december 31 , 2010 used cash of $ 925,041 compared to $ 1,121,726 in the year ended december 31 , 2009. operating activities in the period from inception on july 27 , 1999 to december 31 , 2019 used cash of $ 13,544,563. operating activities have primarily used cash as a result of the operating and organizational activities such as consulting fees , management fees , professional fees and research and development . net cash used in investing activities in the year ended december 31 , 2010 , investing activities provided cash of $ nil compared to $ 204,747 in the year ended december 31 , 2009. in the period from inception on july 27 , 1999 to december 31 , 2010 investing activities provided cash of $ 204,747. net cash provided by financing activities as we have had no revenues since inception , we have financed our operations primarily through private placements of our stock . financing activities in the year ended december 31 , 2010 provided cash of $ 807,126 compared to $ 1,262,170 in the year ended december 31 , 2009. in the period from inception on july 27 ,
| current and prior period interest charges are primarily accretion of interest and the fair value of warrants issued with convertible notes . · management fees were $ 329,177 in the year ended december 31 , 2010 compared to $ 260,242 in the prior year , with the difference resulting primarily from a change in executive compensation during the second half of the prior year and additional directors ' fees during the current year . additionally , our board of directors and management were reorganized last year , and as of june 1 , 2009 , a portion of the fees paid or accrued to our chief executive officer have been allocated to research and development . · management compensation – stock-based were $ 1,087,915 in the year ended december 31 , 2010 compared to $ 2,019,660 in the prior year . the current and prior year charges result from the fair valuation of options granted to management that were earned during the period . · professional fees were $ 742,338 in the year ended december 31 , 2010 compared to $ 284,288 in the prior year . the increase from the prior year results from significant activity relating to debt restructuring and continuing patent applications in the current year . · research and development costs during the fiscal year ended december 31 , 2010 were $ 290,048 compared to $ 93,041 during the prior fiscal year . the increase results from research and consulting service agreements in effect with crucell and mayo foundation during the current fiscal year . our board of directors and management were reorganized during the year , and as of june 1 , 2009 , a portion of the fees paid or accrued to our chief executive officer have been allocated to research and development . during the fiscal year ended december 31 , 2010 , we recorded a net gain on settlement of debt of $ 53,589 from $ 194,287 in the prior year . the current year gain was recognized due to write off of accrued interest charges and credit received
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since may 2014 , lmb has paid an annual maintenance fee , which began at $ 30,000 and that increased over five years to $ 90,000 , where it will remain until the commencement of commercial sales of a product subject to the license . lmb will also pay annual royalties on net sales of licensed products , with royalties ranging from the mid-single digits to the low double digits . in limited circumstances in which the licensed product is not subject to a valid patent claim and a competitor is selling a competing product , the royalty rate is in the low single digits . after a commercial sale is obtained , lmb must pay minimum aggregate annual royalties that increase in subsequent years . lmb must also pay nat up to $ 1,100,000 upon achieving specified regulatory and sales milestones . finally , lmb must pay nat a specified percentage of payments received from any sub licensees . mino-wrap - on january 2 , 2019 , we entered into a patent and technology license agreement with the board of regents of the university of texas system on behalf of the university of texas m. d. anderson cancer center ( “ licensor ” ) , whereby we in-licensed exclusive worldwide rights to the patented technology for any and all uses relating to breast implants . we intend to develop a liquefying gel-based wrap containing minocycline and rifampin for the reduction of infections associated with breast implants following breast reconstructive surgeries . we are required to use commercially reasonable efforts to commercialize mino-wrap under several regulatory scenarios and achieve milestones associated with these regulatory options leading to an approval from the fda . under the license agreement , we paid a nonrefundable upfront payment of $ 125,000. we are obligated to pay an annual maintenance fee of $ 30,000 , commencing in january 2020 that increases annually by $ 15,000 per year up to a maximum of $ 90,000. annual maintenance fees cease on the first sale of product . we also must pay up to an aggregate of $ 2.1 million in milestone payments , contingent on the achievement of various regulatory and commercial milestones . under the terms of the license agreement , we also must pay a royalty of mid- to upper-single digit percentages of net sales , depending on the amount of annual sales , and subject to downward adjustment to lower- to mid-single digit percentages in the event there is no valid patent for the product in the united states at the time of sale . after the first sale of product , we will owe an annual minimum royalty payment of $ 100,000 that will increase annually by $ 25,000 for the duration of the term . we will be responsible for all patent expenses incurred by licensor for the term of the agreement although licensor is responsible for filing , prosecution and maintenance of all patents . 43 novecite – on october 6 , 2020 , our subsidiary novecite entered into a license agreement with novellus therapeutics limited ( “ licensor ” ) , whereby novecite acquired an exclusive , worldwide license , with the right to sublicense , to develop and commercialize a stem cell therapy based on the licensor 's patented technology for the treatment of acute pneumonitis of any etiology in which inflammation is a major agent in humans . upon execution of the license agreement , novecite paid an upfront payment of $ 5,000,000 to licensor and issued to licensor shares of novecite 's common stock representing 25 % of novecite 's currently outstanding equity . we own the other 75 % of novecite 's currently outstanding equity . pursuant to the terms of the stock subscription agreement between novellus and novecite , if novecite issues additional equity , subject to certain exceptions , novecite must maintain novellus 's ownership at 25 % by issuing additional shares to novellus . under the license agreement , novecite is obligated to pay licensor up to an aggregate of $ 51,000,000 in regulatory and developmental milestone payments . novecite also must pay a royalty equal to low double-digit percentages of net sales , commencing upon the first commercial sale of a licensed product . this royalty is subject to downward adjustment on a product-by-product and country-by-country basis to an upper-single digit percentage of net sales in any country in the event of the expiration of the last valid patent claim or if no valid patent claim exists in that country . the royalty will end on the earlier of ( i ) date on which a biosimilar product is first marketed , sold , or distributed by licensor or any third party in the applicable country or ( ii ) the 10 year anniversary of the date of expiration of the last-to-expire valid patent claim in that country . in the case of a country where no licensed patent ever exists , the royalty will end on the later of ( i ) the date of expiry of such licensed product 's regulatory exclusivity and ( ii ) the 10 year anniversary of the date of the first commercial sale of the licensed product in the applicable country . in addition , novecite will pay to licensor an amount equal to a mid-twenties percentage of any sublicensee fees it receives . under the terms of the license agreement , in the event that licensor receives any revenue involving the original cell line included in the licensed technology , then licensor shall remit to novecite 50 % of such revenue . results of operations for year ended september 30 , 2020 compared to year ended september 30 , 2019 replace_table_token_3_th revenues we did not generate any revenues for the years ended september 30 , 2020 and 2019 . story_separator_special_tag 44 research and development expenses for the year ended september 30 , 2020 , research and development expenses were $ 8,812,810 as compared to $ 8,596,898 for the year ended september 30 , 2019 , an increase of $ 215,912. research and development costs for mino-lok® decreased by $ 941,266 to $ 6,207,018 for the year ended september 30 , 2020 as compared to $ 7,148,284 for the year ended september 30 , 2019. research and development costs for our halo-lido product candidate increased by $ 322,429 to $ 1,646,043 for the year ended september 30 , 2020 as compared to $ 1,323,614 for the year ended september 30 , 2019. research and development costs for our mino-wrap product candidate decreased by $ 11,483 to $ 113,517 for the year ended september 30 , 2020 as compared to $ 125,000 during the year ended september 30 , 2019. during the year ended september 30 , 2020 , research and development costs for our new proposed novel cellular therapy for acute respiratory distress syndrome ( ards ) were $ 846,232. we expect that research and development expenses will continue to increase in fiscal 2021 as we continue to focus on our phase 3 trial for mino-lok® , progress the halo-lido product candidate , and accelerate our research and development efforts related to ards and mino-wrap . we are actively seeking to raise additional capital in order to fund our research and development efforts . story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 ; text-align : justify '' > on august 10 , 2020 , the company closed an underwritten public offering of 9,159,524 shares of common stock at $ 1.05 per share for gross proceeds of $ 9,617,500. the company paid the underwriter a fee of 7 % of the gross proceeds totaling $ 673,225 and issued the underwriter 641,166 immediately exercisable warrants with an exercise price of $ 1.3125 per share and a term of five years . the company also reimbursed the placement agent for $ 135,000 in expenses and incurred $ 109,074 in other expenses . net proceeds from the offering were $ 8,700,201. we expect that we will have sufficient capital to continue our operations through march 2021. we plan to raise additional capital in the future to support our operations . there is no assurance , however , that we will be successful in raising the needed capital or that proceeds , if any , will be sufficient enough or received in a timely manner to fully support our operations . while the covid-19 pandemic has adversely impacted the progress of our clinical trials and operations , as of the date of this report , the company has been able to access the capital markets and successfully complete financing transactions . however , we can not be certain that any future impact of covid-19 on our operations will not negatively impact our ability to raise capital . 46 inflation our management believes that inflation has not had a material effect on our results of operations . off balance sheet arrangements we do not have any off-balance sheet arrangements . critical accounting policies our discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses and related disclosure of contingent assets and liabilities . we review our estimates on an ongoing basis . we base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances . actual results may differ from these estimates . we believe the judgments and estimates required by the following accounting policies to be critical in the preparation of our financial statements . research and development research and development costs , including upfront fees and milestones paid to collaborators who are performing research and development activities under contractual agreement with us , are expensed as incurred . we defer and capitalize our nonrefundable advance payments that are for research and development activities until the related goods are delivered or the related services are performed . when we are reimbursed by a collaboration partner for work we perform , we record the costs incurred as research and development expenses and the related reimbursement as a reduction to research and development expenses in our statement of operations . research and development expenses primarily consist of clinical and non-clinical studies , materials and supplies , third-party costs for contracted services , and payments related to external collaborations and other research and development related costs . in-process research and development and goodwill in process research and development represents the value of lmb 's leading drug candidate , mino-lok , an antibiotic lock solution in phase 3 clinical development , which if approved , would be used to assist in the treatment of catheter related bloodstream infections and is expected to be amortized on a straight-line basis over eight years upon revenue generation . goodwill represents the value of lmb 's industry relationships and its assembled workforce . goodwill will not be amortized and will be tested at least annually for impairment . the company reviews intangible assets annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life of any intangible asset . if the carrying value of an asset exceeds its undiscounted cash flows , the company writes down the carrying value of the intangible asset to its fair value for the period identified . no impairment has occurred since the acquisition through september 30 , 2020. the company evaluates the recoverability of goodwill annually or more frequently if events or changes in circumstances
| interest expense for the year ended september 30 , 2020 was $ 15,673 as compared to $ 16,443 for the year ended september 30 , 2019. interest expense for both years is primarily for the notes payable to related parties that were acquired in the acquisition of lmb . during the year ended september 30 , 2020 , we also accrued $ 741 in interest expense on the covid-related small business administration ( “ sba ” ) paycheck protection program loan received on april 15 , 2020. net loss for the year ended september 30 , 2020 , we incurred a net loss of $ 17,548,085 compared to a net loss of $ 15,562,144 for the year ended september 30 , 2019. the $ 1,985,941 increase in the net loss was primarily due to the $ 1,809,134 increase in general and administrative expenses . 45 liquidity and capital resources going concern uncertainty and working capital citius has incurred losses of $ 17,548,085 and $ 15,562,144 for the years ended september 30 , 2020 and 2019 , respectively . at september 30 , 2020 , citius had an accumulated deficit of $ 70,593,867. citius ' net cash used in operations during the years ended september 30 , 2020 and 2019 was $ 16,930,658 and $ 12,437,751 , respectively . the independent registered public accounting firm report on our september 30 , 2020 consolidated financial statements contains an emphasis of a matter regarding substantial doubt about our ability to continue as a going concern and that the consolidated financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets , or the amounts and classification of liabilities that may result if we do not continue as a going concern . as of september 30 , 2020 , citius had working capital of $ 9,884,852. our limited working capital was attributable to the operating losses incurred by the company since inception offset by our capital raising activities .
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economic conditions , changes in merchandise strategy or mix and timing and effectiveness of our marketing activities , among others . over the long-term , our growth strategy is to increase total net sales through increases in our comparable sales , by opening new stores and by increasing sales in our e-commerce channel . operating profit is expected to increase as a result of our ability to expand merchandise margin and leverage our fixed store costs with comparable sales increases and operating efficiencies offset by incremental investments in people , systems and supply chain required to support a 1,200 store chain with a successful e-commerce business and competitive omni-channel capabilities . global economic conditions economic conditions in the u.s. continue to be uneven . fiscal stress in europe and economic uncertainty in the u.s. related to deficit issues , potential tax increases and federal spending cuts have resulted in significant fluctuations in the financial markets . while the u.s. credit markets have stabilized and credit availability has improved compared to the recent recessionary period , economic growth is expected to continue to be weak . consumer spending habits are affected by levels of unemployment , unsettled financial markets , weakness in housing and real estate , higher interest rates , fuel and energy costs and consumer perception of economic conditions , among others . sudden negative changes in one or more of the factors that affect consumer spending could adversely affect consumer spending levels which could lead to reduced consumer demand for our merchandise and adversely affect our sales levels and financial performance . basis of presentation we have determined the operating segments on the same basis that we use to internally evaluate performance . we have combined our three operating segments : retail stores , salon services and e-commerce , into one reportable segment because they have a similar class of consumer , economic characteristics , nature of products and distribution methods . 34 net sales include store and e-commerce merchandise sales as well as salon service revenue . we recognize merchandise revenue at the point of sale in our retail stores and e-commerce sales are recorded based on delivery of merchandise to the customer . merchandise sales are recorded net of estimated returns . salon service revenue is recognized at the time the service is provided . gift card sales revenue is deferred until the customer redeems the gift card . company coupons and other incentives are recorded as a reduction of net sales . comparable sales reflect sales for stores beginning on the first day of the 14th month of operation . therefore , a store is included in our comparable store base on the first day of the period after one year of operations plus the initial one month grand opening period . non-comparable store sales include sales from new stores that have not yet completed their 13th month of operation and stores that were closed for part or all of the period in either year as a result of remodel activity . remodeled stores are included in comparable sales unless the store was closed for a portion of the current or prior period . comparable sales include the company 's e-commerce business . there may be variations in the way in which some of our competitors and other retailers calculate comparable or same store sales . measuring comparable sales allows us to evaluate the performance of our store base as well as several other aspects of our overall strategy . several factors could positively or negatively impact our comparable sales results : the general national , regional and local economic conditions and corresponding impact on customer spending levels ; the introduction of new products or brands ; the location of new stores in existing store markets ; competition ; our ability to respond on a timely basis to changes in consumer preferences ; the effectiveness of our various marketing activities ; and the number of new stores opened and the impact on the average age of all of our comparable stores . cost of sales includes : the cost of merchandise sold , including substantially all vendor allowances , which are treated as a reduction of merchandise costs ; warehousing and distribution costs including labor and related benefits , freight , rent , depreciation and amortization , real estate taxes , utilities and insurance ; store occupancy costs including rent , depreciation and amortization , real estate taxes , utilities , repairs and maintenance , insurance , licenses and cleaning expenses ; salon payroll and benefits ; customer loyalty program expense ; and shrink and inventory valuation reserves . our cost of sales may be negatively impacted as we open an increasing number of stores . changes in our merchandise mix may also have an impact on cost of sales . this presentation of items included in cost of sales may not be comparable to the way in which our competitors or other retailers compute their cost of sales . selling , general and administrative expenses include : payroll , bonus and benefit costs for retail and corporate employees ; advertising and marketing costs ; occupancy costs related to our corporate office facilities ; stock-based compensation expense ; 35 depreciation and amortization for all assets except those related to our retail and warehouse operations , which is included in cost of sales ; and legal , finance , information systems and other corporate overhead costs . this presentation of items in selling , general and administrative expenses may not be comparable to the way in which our competitors or other retailers compute their selling , general and administrative expenses . pre-opening expense includes non-capital expenditures during the period prior to store opening for new , remodeled and relocated stores including rent during the construction period for new and relocated stores , store set-up labor , management and employee training and grand opening advertising . story_separator_special_tag interest expense includes interest costs and unused facility fees associated with our credit facility , which is structured as an asset-based lending instrument . our credit facility interest is based on a variable interest rate structure which can result in increased cost in periods of rising interest rates . interest income represents interest from short-term investments with maturities of twelve months or less from the date of purchase . income tax expense reflects the federal statutory tax rate and the weighted average state statutory tax rate for the states in which we operate stores . story_separator_special_tag 53rd week of fiscal 2012 were approximately $ 55 million . the 7.9 % comparable store sales increase consisted of a 6.1 % increase at the company 's retail and salon stores and a 76.6 % increase in the company 's e-commerce business . the salon business contributed 10 basis points to the retail and salon comp of 6.1 % . the inclusion of the e-commerce business resulted in an increase of approximately 180 basis points to the company 's consolidated same store sales calculation for fiscal 2013 compared to 50 basis points for fiscal 2012. the total comparable store sales increase included a 6.9 % increase in average ticket and a 1.0 % increase in traffic . we attribute the increase in comparable store sales to our successful marketing and merchandising strategies . gross profit gross profit increased $ 157.5 million , or 20.1 % , to $ 941.2 million in fiscal 2013 , compared to $ 783.7 million , in fiscal 2012. gross profit as a percentage of net sales decreased 10 basis points to 35.2 % in fiscal 2013 compared to 35.3 % in fiscal 2012. the decrease in gross profit margin in fiscal 2013 was primarily driven by : 40 basis points deleverage in merchandise margins due mainly to changes in marketing and merchandising strategies ; offset by 20 basis point leverage in supply chain due to operating efficiencies ; and 10 basis points of leverage in fixed store costs attributed to the impact of higher sales levels in fiscal 2013 . 38 selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses increased $ 107.5 million , or 22.0 % , to $ 596.4 million in fiscal 2013 compared to $ 488.9 million in fiscal 2012. as a percentage of net sales , sg & a expenses increased 30 basis points to 22.3 % in fiscal 2013 compared to 22.0 % in fiscal 2012. the 30 basis point deleverage in sg & a expense was primarily driven by the planned investments in supply chain , e-commerce and store labor to support rapid growth . pre-opening expenses pre-opening expenses increased $ 2.5 million , or 16.6 % , to $ 17.3 million in fiscal 2013 compared to $ 14.8 million in fiscal 2012. during fiscal 2013 , we opened 127 new stores , remodeled 7 stores and relocated 4 stores . during fiscal 2012 , we opened 102 new stores and remodeled 21 stores and relocated 3 stores . interest income and expense interest income was $ 0.1 million in fiscal 2013 and interest expense was $ 0.2 million in fiscal 2012. interest income results from highly liquid investments with maturities of three months or less from the date of purchase . interest expense represents various fees related to the credit facility . we did not utilize our credit facility during fiscal 2013 or 2012. income tax expense income tax expense of $ 124.9 million in fiscal 2013 represents an effective tax rate of 38.1 % , compared to fiscal 2012 tax expense of $ 107.2 million and an effective tax rate of 38.3 % . the lower tax rate in fiscal 2013 is primarily due to a decrease in state taxes compared to fiscal 2012. net income net income increased $ 30.3 million , or 17.6 % , to $ 202.8 million in fiscal 2013 compared to $ 172.5 million in fiscal 2012. the increase in net income was primarily due to an increase in gross profit of $ 157.5 million , which was offset by a $ 107.5 million increase in sg & a expenses and a $ 17.7 million increase in income tax expense . liquidity and capital resources our primary cash needs are for capital expenditures for new , relocated and remodeled stores , increased merchandise inventories related to store expansion , supply chain improvements , share repurchases and for continued improvement in our information technology systems . our primary sources of liquidity are cash on hand and cash flows from operations , including changes in working capital , and borrowings under our credit facility . the most significant component of our working capital is merchandise inventories reduced by related accounts payable and accrued expenses . our working capital position benefits from the fact that we generally collect cash from sales to customers the same day , or within several days of the related sale , while we typically have up to 30 days to pay our vendors . our working capital needs are greatest from august through november each year as a result of our inventory build-up during this period for the approaching holiday season . this is also the time of year when we are at maximum investment levels in our new store class and may not have collected all of the landlord allowances due to us as part of our lease agreements . based on past performance and current expectations , we believe that cash on hand , cash generated from operations and borrowings under the credit facility will satisfy the company 's working capital needs , capital expenditure needs , commitments and other liquidity requirements through at least the next 12 months .
| the inclusion of the e-commerce business resulted in an increase of approximately 180 basis points to the company 's consolidated same store sales calculation for fiscal 2014 and 2013. the total comparable sales increase included a 4.3 % increase in average ticket and a 5.6 % increase in transaction . we attribute the increase in comparable sales to our successful marketing and merchandising strategies . gross profit gross profit increased $ 195.6 million , or 20.8 % , to $ 1,136.8 million in fiscal 2014 , compared to $ 941.2 million , in fiscal 2013. gross profit as a percentage of net sales decreased 10 basis points to 35.1 % in fiscal 2014 compared to 35.2 % in fiscal 2013. the decrease in gross profit margin in fiscal 2014 was primarily due to 10 basis points of deleverage in merchandise margins driven primarily by product and channel mix shifts and converting the remaining 50 % of our loyalty program members to the ultamate rewards loyalty program . selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses increased $ 115.6 million , or 19.4 % , to $ 712.0 million in fiscal 2014 compared to $ 596.4 million in fiscal 2013. as a percentage of net sales , sg & a expenses decreased 30 basis points to 22.0 % in fiscal 2014 compared to 22.3 % in fiscal 2013. the leverage in sg & a expenses is primarily attributed to : 60 basis points in variable store and marketing expense leverage attributed to cost efficiencies and higher sales volume ; offset by 30 basis points deleverage in corporate overhead expense primarily driven by higher variable compensation , consulting and depreciation expense . 37 pre-opening expenses pre-opening expenses decreased $ 2.9 million , or 16.8 % , to $ 14.4 million in fiscal 2014 compared to $ 17.3 million in fiscal 2013. during fiscal 2014 , we opened 100 new stores , remodeled 9 stores and relocated 2 stores . during fiscal 2013 , we opened 127 new stores and remodeled 7 stores and relocated 4 stores . interest income and expense net interest income was $ 0.9 million in fiscal 2014 , compared to
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